exv10w1






Exhibit 10.1




PURCHASE AND SALE AGREEMENT




BETWEEN




NORTEX MINERALS, L.P., PETRUS INVESTMENT, L.P.,

PETRUS DEVELOPMENT, L.P., AND PEROT INVESTMENT PARTNERS, LTD.




AS SELLER




AND




QUICKSILVER RESOURCES INC.




AS PURCHASER




Executed on July 3, 2008




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 
	 	 	 	 
	PURCHASE AND SALE AGREEMENT
	 	 	1	 
	RECITALS
	 	 	1	 
	ARTICLE 1 PURCHASE AND SALE
	 	 	1	 
	Section 1.1 Purchase and Sale
	 	 	1	 
	Section 1.2 Royalties
	 	 	1	 
	Section 1.3 Excluded Assets
	 	 	3	 
	Section 1.4 Effective Time; Proration of Costs and Revenues
	 	 	4	 
	Section 1.5 Delivery and Maintenance of Records
	 	 	5	 
	ARTICLE 2 PURCHASE PRICE
	 	 	5	 
	Section 2.1 Purchase Price
	 	 	5	 
	Section 2.2 Adjustments to Purchase Price
	 	 	6	 
	Section 2.3 Deposit
	 	 	7	 
	ARTICLE 3 TITLE MATTERS
	 	 	7	 
	Section 3.1 Seller’s Title
	 	 	7	 
	Section 3.2 Definition of Defensible Title
	 	 	8	 
	Section 3.3 Definition of Permitted Encumbrances
	 	 	8	 
	Section 3.4 Notice of Title Defect Adjustments
	 	 	9	 
	Section 3.5 Casualty or Condemnation Loss
	 	 	12	 
	Section 3.6 Limitations on Applicability
	 	 	12	 
	Section 3.7 Government Approvals Respecting Royalties
	 	 	12	 
	ARTICLE 4 ENVIRONMENTAL MATTERS
	 	 	12	 
	Section 4.1 Assessment
	 	 	12	 
	Section 4.2 NORM, Wastes and Other Substances
	 	 	13	 
	Section 4.3 Inspection Indemnity
	 	 	13	 
	ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER
	 	 	14	 
	Section 5.1 Generally
	 	 	14	 
	Section 5.2 Existence and Qualification
	 	 	14	 
	Section 5.3 Power
	 	 	14	 
	Section 5.4 Authorization and Enforceability
	 	 	14	 
	Section 5.5 No Conflicts
	 	 	14	 
	Section 5.6 Liability for Brokers’ Fees
	 	 	15	 
	Section 5.7 Litigation
	 	 	15	 
	Section 5.8 Taxes and Assessments
	 	 	15	 
	Section 5.9 Contracts
	 	 	16	 
	Section 5.10 Preference Rights and Transfer Requirements
	 	 	16	 
	Section 5.11 Condemnation
	 	 	16	 
	Section 5.12 Bankruptcy
	 	 	16	 
	Section 5.13 PUHCA/NGA
	 	 	16	 
	Section 5.14 Investment Company
	 	 	16	 
	Section 5.15 No Tax Partnership
	 	 	16	 
	Section 5.16 No Hedging
	 	 	16	 
	Section 5.17 Environmental
	 	 	17	 
	Section 5.18 Purchase Entirely for Own Account
	 	 	17	 
	Section 5.19 Restricted Securities
	 	 	17	 
	Section 5.20 Legends
	 	 	17	 
	Section 5.21 Accredited Investor
	 	 	18	 
	Section 5.22 Disclosure of Information
	 	 	18	 
	Section 5.23 Residence
	 	 	18	 






i









 






	 	 	 	 	 
	Section 5.24 Imbalances
	 	 	18	 
	Section 5.25 Payments for Hydrocarbon Production
	 	 	18	 
	ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER
	 	 	19	 
	Section 6.1 Existence and Qualification
	 	 	19	 
	Section 6.2 Power
	 	 	19	 
	Section 6.3 Authorization and Enforceability
	 	 	19	 
	Section 6.4 No Conflicts
	 	 	19	 
	Section 6.5 Liability for Brokers’ Fees
	 	 	20	 
	Section 6.6 Litigation
	 	 	20	 
	Section 6.7 Financing
	 	 	20	 
	Section 6.8 [RESERVED]
	 	 	20	 
	Section 6.9 Limitation
	 	 	20	 
	Section 6.10 SEC Disclosure
	 	 	20	 
	Section 6.11 Bankruptcy
	 	 	20	 
	Section 6.12 SEC Reports; Financial Statements
	 	 	21	 
	Section 6.13 Purchaser Common Stock
	 	 	21	 
	ARTICLE 7 COVENANTS OF THE PARTIES
	 	 	22	 
	Section 7.1 Access
	 	 	22	 
	Section 7.2 Government Reviews
	 	 	22	 
	Section 7.3 Notification of Breaches
	 	 	22	 
	Section 7.4 Letters-in-Lieu; Assignments; Operatorship
	 	 	23	 
	Section 7.5 Public Announcements
	 	 	23	 
	Section 7.6 Operation of Business
	 	 	23	 
	Section 7.7 Tax Matters
	 	 	23	 
	Section 7.8 Further Assurances
	 	 	24	 
	Section 7.9 Historical Financial Statements
	 	 	24	 
	ARTICLE 8 CONDITIONS TO CLOSING
	 	 	25	 
	Section 8.1 Conditions of Seller to Closing
	 	 	25	 
	Section 8.2 Conditions of Purchaser to Closing
	 	 	26	 
	ARTICLE 9 CLOSING
	 	 	26	 
	Section 9.1 Time and Place of Closing
	 	 	26	 
	Section 9.2 Obligations of Seller at Closing
	 	 	27	 
	Section 9.3 Obligations of Purchaser at Closing
	 	 	27	 
	Section 9.4 Closing Payment & Post-Closing Purchase Price Adjustments
	 	 	27	 
	ARTICLE 10 TERMINATION
	 	 	29	 
	Section 10.1 Termination
	 	 	29	 
	Section 10.2 Effect of Termination
	 	 	29	 
	Section 10.3 Distribution of Deposit Upon Termination
	 	 	30	 
	ARTICLE 11 POST-CLOSING OBLIGATIONS; INDEMNIFICATION;
LIMITATIONS; DISCLAIMERS AND WAIVERS
	 	 	30	 
	Section 11.1 Receipts
	 	 	30	 
	Section 11.2 Expenses
	 	 	30	 
	Section 11.3 Assumed Seller Obligations
	 	 	31	 
	Section 11.4 Indemnities
	 	 	31	 
	Section 11.5 Indemnification Actions
	 	 	33	 
	Section 11.6 Release
	 	 	34	 
	Section 11.7 Limitation on Actions
	 	 	34	 
	Section 11.8 Disclaimers
	 	 	35	 
	Section 11.9 Waiver of Trade Practices Acts
	 	 	36	 
	Section 11.10 Recording
	 	 	36	 
	ARTICLE 12 REGISTRATION REQUIREMENTS
	 	 	36	 






ii









 






	 	 	 	 	 
	Section 12.1 Definitions
	 	 	36	 
	Section 12.2 Purchaser Covenants
	 	 	37	 
	Section 12.3 Obligations of Purchaser
	 	 	37	 
	Section 12.4 Furnish Information
	 	 	38	 
	Section 12.5 Expense of Registration
	 	 	38	 
	Section 12.6 Indemnification
	 	 	38	 
	Section 12.7 Rule 144
	 	 	39	 
	ARTICLE 13 MISCELLANEOUS
	 	 	40	 
	Section 13.1 Counterparts
	 	 	40	 
	Section 13.2 Notice
	 	 	40	 
	Section 13.3 Sales or Use Tax Recording Fees and Similar Taxes and Fees
	 	 	41	 
	Section 13.4 Expenses
	 	 	41	 
	Section 13.5 Governing Law and Venue
	 	 	42	 
	Section 13.6 Captions
	 	 	42	 
	Section 13.7 Waivers
	 	 	42	 
	Section 13.8 Assignment
	 	 	42	 
	Section 13.9 Entire Agreement
	 	 	42	 
	Section 13.10 Amendment
	 	 	42	 
	Section 13.11 No Third-Party Beneficiaries
	 	 	43	 
	Section 13.12 References
	 	 	43	 
	Section 13.13 Construction
	 	 	43	 
	Section 13.14 Limitation on Damages
	 	 	43	 
	Section 13.15 Conspicuousness
	 	 	44	 
	Section 13.16 Severability
	 	 	44	 
	Section 13.17 Time of Essence
	 	 	44	 






iii









 






	 	 	 
	 
	 	 
	EXHIBITS

	 
	 	 
	Exhibit A
	 	Leases
	 
	 	 
	Exhibit A-1
	 	Wells and Units/Allocated Values
	 
	 	 
	Exhibit B
	 	Conveyance Form
	 
	 	 
	SCHEDULES

	 
	 	 
	Schedule 1.2(f)
	 	Cartwright Leases
	 
	 	 
	Schedule 5.8
	 	Taxes and Assessments
	 
	 	 
	Schedule 5.9
	 	Contracts
	 
	 	 
	Schedule 6.4(b)
	 	Conflicts
	 
	 	 
	Schedule 9.3(a)
	 	Closing Payment Allocation and Seller’s Account Information
	 
	 	 
	Schedule 9.3(e)
	 	Stock Component Allocation






iv









 






DEFINITIONS



“actual knowledge” has the meaning set forth in Section 5.1(a).



“Adjusted Purchase Price” shall mean the Purchase Price after calculating and applying the
adjustments set forth in Section 2.2.



“Adjustment Period” has the meaning set forth in Section 2.2(a).



“Adverse Environmental Condition” means any contamination or condition exceeding regulatory limits
and not otherwise authorized by permit or Law, resulting from any discharge, release, production,
storage, treatment, seepage, escape, leakage, emission, emptying, leaching or any other activities
on, in or from any lands covered by Leases or the Cartwright Leases, or the migration or
transportation from other lands to any lands covered by Leases or the Cartwright Leases, of any
Hazardous Materials that require Remediation at the Effective Time pursuant to any Laws, including,
but not limited to, Environmental Laws, or that require Remediation under the terms of any Leases
or the Cartwright Leases.



“Affiliates” with respect to any Person, means any person that directly or indirectly controls, is
controlled by or is under common control with such Person.



“Aggregate Benefit Deductible” has the meaning set forth in Section 3.4(h).



“Aggregate Title Deductible” has the meaning set forth in Section 3.4(j).



“Agreed Interest Rate” means simple interest calculated at the rate of four percent (4%) per annum.



“Agreement” means this Purchase and Sale Agreement.



“Allocated Value” has the meaning set forth in Section 3.4(a).



“Assessment” has the meaning set forth in Section 4.1.



“Assumed Seller Obligations” has the meaning set forth in Section 11.3.



“Audited Special Financial Statements” has the meaning set forth in Section 7.9(c).



“Barnett Shale Formation” means the interval from the stratigraphic equivalent of the top of the
Barnett Shale Formation to the stratigraphic equivalent of the base of the Barnett Shale Formation,
as found in the Alliance D-1 Well (API #42-121-32247) located in the Greenberry Overton Survey,
A-972, Denton County, Texas. The top and base of the Barnett Shale Formation were found at the
measured depth of 7172 feet and 7566 feet, respectively, in the referenced well.



“Business Day” means each calendar day except Saturdays, Sundays and federal holidays.



“Cartwright Leases” has the meaning set forth in Section 1.2(f).



“Cash Component” has the meaning set forth in Section 2.1(a).




v









 







“Claim” or “Claims” has the meaning set forth in Section 11.4(a).



“Claim Notice” has the meaning set forth in Section 11.5(b).



“Closing” has the meaning set forth in Section 9.1(a).



“Closing Date” has the meaning set forth in Section 9.1(b).



“Closing Payment” has the meaning set forth in Section 9.4(a).



“Code” has the meaning set forth in Section 7.7(b).



“Confidentiality Agreement” has the meaning set forth in Section 7.1.



“Conveyance” has the meaning set forth in Section 3.1(b).



“Cure Period” has the meaning set forth in Section 3.4(c).



“Damages” has the meaning set forth in Section 12.1(a).



“Defensible Title” has the meaning set forth in Section 3.2(a).



“Deposit” has the meaning set forth in Section 2.3.



“DTPA” has the meaning set forth in Section 11.9(a).



“Effective Time” has the meaning set forth in Section 1.4(a).



“Environmental Laws” means, as the same may have been amended, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution
Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.;
the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances
Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et
seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et
seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; the Occupational Safety and Health
Act, 29 U.S.C. § 651 et seq.; the Atomic Energy Act, 42 U.S.C. § 2011 et seq.; and
all applicable related law, whether local, state, territorial or national, of any Governmental Body
having jurisdiction over the property in question addressing pollution or protection of human
health, safety, natural resources or the environment and all regulations implementing the
foregoing.



“Environmental Liabilities” shall mean any and all environmental response costs (including costs of
remediation), damages, natural resource damages, settlements, consulting fees, expenses, penalties,
fines, orphan share, prejudgment and post-judgment interest, court costs, attorneys’ fees and other
liabilities incurred or imposed (i) pursuant to any order, notice of responsibility, directive
(including requirements embodied in Environmental Laws), injunction, judgment or similar act
(including settlements) by any Governmental Body or court of competent jurisdiction to the extent
arising out of any violation of, or remedial obligation under, any Environmental Laws which are
attributable to the ownership or operation of the Royalties prior to the Effective Time or (ii)
pursuant to any claim or cause of action by a Governmental Body or other Person



vi









 






for personal injury, property damage, damage to natural resources, remediation or response costs to
the extent arising out of any violation of, or any remediation obligation under, any Environmental
Laws which is attributable to the ownership or operation of the Royalties prior to the Effective
Time.



“Exchange Act” has the meaning set forth in Section 6.12.



“Excluded Assets” has the meaning set forth in Section 1.3.



“Excluded Seller Obligations” has the meaning set forth in Section 11.3.



“Expansion Agreement” means that certain Exploration and Participation Agreement (Expansion Area)
Tarrant and Denton Counties, Texas, dated January 1, 2005, by and among Chief Oil & Gas LLC, Chief
Holdings LLC and Nortex Minerals, L.P., as amended.



“Form S-3” has the meaning set forth in Section 12.1(b).



“GAAP” means United States generally accepted accounting principals consistently applied.



“Governmental Body” or “Governmental Bodies” means any federal, state, local, municipal or
other governments; any governmental, regulatory or administrative agency, commission, body or other
authority exercising or entitled to exercise any administrative, executive, judicial, legislative,
police, regulatory or taxing authority or power; and any court or governmental tribunal.



“Hazardous Materials” means wastes, pollutants, contaminants, hazardous materials, hazardous wastes
and any other materials or substances subject to regulation relating to the protection of the
environment, human health or worker safety.



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



“Hydrocarbons” means oil, gas, condensate and other gaseous and liquid hydrocarbons or any
combination thereof and sulphur extracted from hydrocarbons.



“Imbalance” or “Imbalances” means over deliveries or under deliveries with respect to Royalties,
regardless of whether such over deliveries or under deliveries arise at the pipeline, gathering
system, transportation or other location.



“Indemnified Party” has the meaning set forth in Section 11.5(a).



“Indemnifying Party” has the meaning set forth in Section 11.5(a).



“Indemnity Claim” has the meaning set forth in Section 11.5(b).



“Individual Benefit Threshold” has the meaning set forth in Section 3.4(h).



“Individual Title Deductible” has the meaning set forth in Section 3.4(j).



“Invasive Activity” has the meaning set forth in Section 4.1.




vii









 







“Laws” means all statutes, laws, rules, regulations, ordinances, orders and codes of Governmental
Bodies.



“Leases” has the meaning set forth in Section 1.2(a).



“Material Adverse Effect” means any effect that, when taken together with all other effects, is
reasonably expected to have a material and adverse effect on the ownership, operation or value of
the Royalties, taken as a whole, and as currently operated; provided, however, that “Material
Adverse Effect” shall not include (i) any effect resulting from entering into this Agreement or the
announcement of the transactions contemplated by this Agreement, (ii) any effect resulting from
changes in general market, economic, financial or political conditions or any outbreak of
hostilities or war, (iii) any effect that affects the Hydrocarbon exploration, production,
development, processing, gathering and/or transportation industry generally (including changes in
commodity prices or general market prices in the Hydrocarbon exploration, production, development,
processing, gathering and/or transportation industry generally), and (iv) any effect resulting from
a change in Laws or regulatory policies.



“Net Revenue Interest” has the meaning set forth in Section 3.2(a)(i).



“NORM” means naturally occurring radioactive material.



“Option Leases” means oil and gas leases granted by any Seller pursuant to the Expansion Agreement.



“Permitted Encumbrances” has the meaning set forth in Section 3.3.



“Person” means any individual, firm, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization, Governmental Body or any other entity.



“Preference Right” means any right or agreement that enables any Person to purchase or acquire
the Royalties or any portion thereof as a result of or in connection with (i) the sale, assignment
or other transfer of the Royalties or any portion thereof or (ii) the execution or delivery of this
Agreement or the consummation or performance of the terms and conditions contemplated by this
Agreement.



“Property Costs” has the meaning set forth in Section 1.4(b).



“Purchase Price” has the meaning set forth in Section 2.1.



“Purchaser” has the meaning set forth in the preamble of this Agreement.



“Purchaser Indemnitees” shall mean Purchaser, Purchaser’s Affiliates and Purchaser’s contractors
and each of their respective officers, directors, employees, agents, representatives, insurers,
subcontractors, successors and permitted assigns.



“Purchaser SEC Reports” has the meaning set forth in Section 6.12.



“Records” has the meaning set forth in Section 1.2(d).



“Reference Lease” means the oil and gas lease, as amended, from Nortex Minerals, L.P. to Chief
Holdings LLC dated May 22, 2003 recorded at Volume 17110, Page 0220, Real Estate



viii









 






Records of Tarrant County, Texas. References in this Agreement to specific provisions in the
Reference Lease shall be deemed to also include reference to corresponding provisions (whether or
not numbered or worded the same), if any, in each of the other Leases, as they may have been
amended, and in any Option Lease.



“REGARDLESS OF FAULT” has the meaning set forth in Section 11.4(a).



“Registration Statement” has the meaning set forth in Section 12.2(a).



“Remediation” or “Remedial Action” means the removal, abatement, response, investigative, cleanup
and/or monitoring activities undertaken to address any Adverse Environmental Conditions, or a
release of Hazardous Materials, any investigation, study, assessment, testing, monitoring,
containment, removal, disposal, closure, corrective action, passive remediation, natural
attenuation or bioremediation, and the installation and operation of remediation systems.



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



“Royalties” has the meaning set forth in Section 1.2.



“SEC” has the meaning set forth in Section 6.12.



“SEC Rule 144” has the meaning set forth in Section 12.1(c).



“Securities Act” has the meaning set forth in Section 5.19.



“Seller” has the meaning set forth in the preamble to this Agreement.



“Seller Indemnitees” shall mean Seller, Seller’s Affiliates and Seller’s contractors, and each of
their respective officers, directors, employees, agents, representatives, insurers, subcontractors,
successors and permitted assigns.



“Seller’s Auditor” has the meaning set forth in Section 7.9(b).



“Shares” has the meaning set forth in Section 5.18.



“Special Financial Statements” has the meaning set forth in Section 7.9(a).



“Stock Component” has the meaning set forth in Section 2.1(a).



“Taxes” means all federal, state, local and foreign income, profits, franchise, sales, use, ad
valorem, property, severance, production, excise, stamp, documentary, real property transfer or
gain, gross receipts, goods and services, registration, capital, transfer or withholding taxes or



ix









 






other governmental fees or charges imposed by any taxing authority, including any interest,
penalties or additional amounts which may be imposed with respect thereto.



“Tax Returns” has the meaning set forth in Section 5.8.



“Termination Date” has the meaning set forth in Section 10.1(b).



“Title Arbitrator” has the meaning set forth in Section 3.4(i).



“Title Benefit” has the meaning set forth in Section 3.2(b).



“Title Benefit Amount” has the meaning set forth in Section 3.4(e).



“Title Benefit Notice” has the meaning set forth in Section 3.4(b).



“Title Claim Date” has the meaning set forth in Section 3.4(a).



“Title Defect” has the meaning set forth in Section 3.2(b).



“Title Defect Amount” has the meaning set forth in Section 3.4(d)(i).



“Title Defect Notice” has the meaning set forth in Section 3.4(a).



“Title Defect Property” has the meaning set forth in Section 3.4(a).



“Trading Day” has the meaning set forth in Section 2.1(b).



“Transfer Requirement” means any consent, approval, authorization or permit of, or filing with or
notification to, any Person which is required to be obtained, made or complied with for or in
connection with any sale, assignment or transfer of the Royalties or any portion thereof, other
than any consent of, notice to, filing with, or other action by Governmental Bodies in connection
with the sale or conveyance of oil and/or gas leases or interests therein or surface contracts or
interests therein, if such consent, filing, notice or action is not required prior to the
assignment of such oil and/or gas leases, surface contracts or interests or is customarily obtained
subsequent to the sale or conveyance (including consents from state agencies).



“Units” has the meaning set forth in Section 1.2(b).



“Volume Weighted Average Price” has the meaning set forth in Section 2.1(b).



“Wells” means those wells located on the Leases, the Cartwright Leases or Units that are listed on
Exhibit A-1 and future projected wells which have been allocated a value on Exhibit A-1.




x









 








PURCHASE AND SALE AGREEMENT




     This Agreement is executed on July 3, 2008, by and between Nortex Minerals, L.P., a Texas
limited partnership, Petrus Investment, L.P., a Texas limited partnership, Petrus Development,
L.P., a Texas limited partnership, and Perot Investment Partners, Ltd., a Texas limited partnership
(collectively, “Seller”), and Quicksilver Resources Inc., a Delaware corporation (“Purchaser”).



RECITALS




     A. Seller owns royalty interests in various oil and gas properties, either of record or
beneficially, more fully described in the exhibits hereto.



     B. Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller the
royalty interests of Seller hereafter described, in the manner and upon the terms and conditions
hereafter set forth.



     C. Capitalized terms used herein shall have the meanings ascribed to them in this Agreement
as such terms are identified and/or defined in the preceding Definitions section hereof.



     NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations,
warranties, covenants, conditions and agreements contained herein, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound by the terms hereof, agree as follows:



ARTICLE 1

PURCHASE AND SALE




     Section 1.1 Purchase and Sale.



     At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller
agrees to sell, transfer and convey the Royalties to Purchaser and Purchaser agrees to purchase,
accept and pay for the Royalties and to assume the Assumed Seller Obligations attributable to the
Royalties.



     Section 1.2 Royalties.



     As used herein, the term “Royalties” means, subject to the terms and conditions of this
Agreement, all of Seller’s right, title, interest and estate in and to the following (but excluding
the Excluded Assets):



     (a) With respect to all of the oil and gas leases described on Exhibit A, as amended
(collectively, the “Leases”) and the Option Leases, Purchaser shall have the rights set forth in
the paragraphs of the Reference Lease described below to the extent applicable to the Barnett Shale
Formation:



1









 






     (i) Paragraph 3 Royalty, except for the termination rights set forth in sub paragraph
3(d);




     (ii)
Paragraph 6 Limitations/Options; and




     (iii)
Paragraph 8 Pooling.




     In addition, Purchaser shall have concurrent rights with Seller with respect to
the following paragraphs in the Reference Lease:




     (1) Paragraph 10 Assignment, to the extent relating to the right to consent to
transfers;




     (2) Paragraph 14 Indemnity;




     (3) Paragraph 15 Force Majeure;




     (4) Paragraph 16 Notice;




     (5) Paragraph 18 Waiver;




     (6) Paragraph 19 Law and Venue;




     (7) Paragraph 20 Headings;




     (8) Paragraph 21 Successors and Assigns;




     (9) Paragraph 24 Confidentiality;




     (10) Paragraph 26 Preparation and Approval of Documents;




     (11) Paragraph 27 Survival;




     (12) Paragraph 28 Compliance with Law; and




     (13) Paragraph 30 Non-default/Ratification.



     (b) The Royalties as described in (a) above in or to any pools or units which include any part
of any Leases, the Cartwright Leases or Option Leases, including those pools or units shown on
Exhibit A-1 (the “Units”);



     (c) All Hydrocarbons produced from or attributable to the Royalties from and after the
Effective Time;



     (d) All land files; non-confidential logs; maps relating to the Royalties; division order
files; abstracts; title opinions; land surveys; and other books, records, data, files and
accounting records, in each case to the extent related to the Royalties, but excluding (i) any
books, records, data, files, maps and accounting records to the extent disclosure or transfer is
restricted by third-party agreement or applicable Law, (ii) computer or communications software or
intellectual property (including tapes, codes, data and program documentation and all tangible
manifestations and technical information relating thereto), (iii) attorney-client privileged



2









 




communications and work product of Seller’s legal counsel (other than title opinions), (iv)
reserve studies and evaluations, and (v) records relating to the negotiation and consummation of
the sale of the Royalties (subject to such exclusions, the “Records”);




     (e) The royalty payable under the Oil, Gas and Mineral Lease dated August 12, 1985, by and
between Lottie Barton Johnson and Mitchell Energy Corporation, recorded at Volume 8306, Page 1547
of the Deed Records of Tarrant County, Texas, INSOFAR AND ONLY INSOFAR as such royalty is payable
in respect of production from the Alliance-Haslet Unit under Unit Agreement dated March 18, 2008,
Instrument Number D204212990 Property Records of Tarrant County, Texas; and



     (f) Royalties attributable to the non-executive mineral interests covered by the leases
described on Schedule 1.2(f) (the “Cartwright Leases”).



     Section 1.3 Excluded Assets.



     Notwithstanding the foregoing, the Royalties shall not include, and there is excepted,
reserved and excluded from the purchase and sale contemplated hereby (collectively, the “Excluded
Assets”):



     (a) all corporate, financial, income and franchise tax and legal records of Seller that relate
to Seller’s business generally (whether or not relating to the Royalties), and all books, records
and files that relate to the Excluded Assets and those records retained by Seller pursuant to
Section 1.2(d) and copies of any other Records retained by Seller pursuant to Section 1.5;



     (b) all rights to any tax credits and any refund of Taxes or other costs or expenses borne by
Seller or Seller’s predecessors in interest and title attributable to periods prior to the
Effective Time;



     (c) with respect to the Leases and the Option Leases, Seller shall have the rights set forth
in the paragraphs of the Reference Lease described below:




     (i) Paragraph 1 Granting;




     (ii) Paragraph 2 Primary Term;




     (iii) Paragraph 3(d), to the extent applicable to the termination rights set forth therein;




     (iv) Paragraph 4 Release;




     (v) Paragraph 5 Operations;




     (vi) Paragraph 7 Continuous Development and Partial Termination;




     (vii) Paragraph 9 Removal of Lessee’s Property on Termination;




     (viii) Paragraph 10 Assignment, except to the extent specifically described in Section
1.2(a)(1);



3









 






     (ix) Paragraph 11 Seismic Operations;




     (x) Paragraph 12 Surface Use and Protection;




     (xi) Paragraph 13 Environmental;




     (xii) Paragraph 17 No Warranty;




     (xiii) Paragraph 23 Termination;




     (xiv) Paragraph 25 Naming of Wells; and




     (xv) Paragraph 31 Purchase Right.



     (d) all receivables attributable to the Royalties with respect to any period of time prior to
the Effective Time;



     (e) all fee mineral interests and rights relating thereto, including, but not limited to, the
right to receive all bonus payments under the Leases and additional leases, if any;



     (f) all rights, titles, claims and interests of Seller or any Affiliate of Seller to or under
any policy or agreement of insurance or any insurance proceeds;



     (g) any patent, patent application, logo, service mark, copyright, trade name or trademark of
or associated with Seller or any Affiliate of Seller or any business of Seller or of any Affiliate
of Seller; and



     (h) a nonexclusive right for Seller (but no other Person) to retain a copy and freely use
logs, maps, engineering data and reports, reserve studies and evaluations, and other data and
information being transferred as a part of the Royalties.



     Section 1.4 Effective Time; Proration of Costs and Revenues.



     (a) Subject to Section 1.5, possession of the Royalties shall be transferred from Seller to
Purchaser at the Closing, but certain financial benefits and burdens of the Royalties shall be
transferred effective as of 7:00 A.M., Central Daylight Time, on April 1, 2008 (the “Effective
Time”), as described below.



     (b) Purchaser shall be entitled to the Royalties attributable to all Hydrocarbon production
from or attributable to the Barnett Shale Formation and the Leases and Units at and after the
Effective Time (and all products and proceeds attributable thereto), and shall be responsible for
(and entitled to any refunds with respect to) all Property Costs incurred at and after the
Effective Time. Seller shall be entitled to the Royalties attributable to all Hydrocarbon
production from or attributable to the Leases, the Cartwright Leases and Units prior to the
Effective Time (and all products and proceeds attributable thereto), and shall be responsible for
(and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective
Time. “Earned” and “incurred,” as used in this Agreement, shall be interpreted in accordance with
GAAP and Council of Petroleum Accountants Society (COPAS) standards. “Property Costs” means all
costs attributable to the ownership and operation of the Royalties (including without limitation
costs of insurance and ad valorem, property, severance, Hydrocarbon production and similar Taxes
based upon or measured by the ownership of the Royalties or the



4









 




production of Hydrocarbons therefrom, but excluding any other Taxes). For purposes of this
Section 1.4, determination of whether Property Costs are attributable to the period before or after
the Effective Time shall be based on when services are rendered, when the goods are delivered or
when the work is performed. For clarification, the date an item or work is ordered is not the date
of a pre-Effective Time transaction for settlement purposes, but rather the date on which the item
ordered is delivered to the job site, or the date on which the work ordered is performed, shall be
the relevant date. For purposes of allocating Hydrocarbon production (and accounts receivable with
respect thereto) under this Section 1.4, Hydrocarbons shall be deemed to be “from or attributable
to” the Leases, the Cartwright Leases, Units and Wells when they pass through the meters at the
production facilities for each Well. Seller shall utilize reasonable interpolative procedures to
arrive at an allocation of Hydrocarbon production when exact meter readings are not available.
Seller shall provide to Purchaser, no later than three (3) Business Days prior to Closing, all data
necessary to support any estimated allocation, for purposes of establishing the adjustment to the
Purchase Price pursuant to Section 2.2 hereof that will be used to determine the Closing Payment
(as defined in Section 9.4(a)). Taxes and other Property Costs, if any, that are paid periodically
shall be prorated based on the number of days in the applicable period falling before and the
number of days in the applicable period falling at or after the Effective Time, except that
Hydrocarbon production, severance and similar Taxes shall be prorated based on the number of units
actually produced, purchased or sold or proceeds of sale, as applicable, before, and at or after,
the Effective Time. In each case, Purchaser shall be responsible for the portion allocated to the
period at and after the Effective Time and Seller shall be responsible for the portion allocated to
the period before the Effective Time.




     Section 1.5 Delivery and Maintenance of Records.



     (a) Seller, at Seller’s sole cost and expense, shall deliver the Records to Purchaser within
thirty (30) days following Closing. Seller may retain copies of any Records.



     (b) Purchaser, for a period of seven (7) years following Closing, will (i) retain the Records,
(ii) provide Seller, its Affiliates and their respective officers, employees and representatives
with reasonable access to the Records during normal business hours for review and copying for
legitimate business reasons at Seller’s expense, and (iii) provide Seller, its Affiliates and their
respective officers, employees and representatives with reasonable access, during normal business
hours, to materials received or produced after Closing relating to any Indemnity Claim made under
Section 11.4 of this Agreement for review and copying at Seller’s expense.



ARTICLE 2

PURCHASE PRICE




     Section 2.1 Purchase Price.



     (a) The purchase price for the Royalties (the “Purchase Price”) shall consist of (i) Three
Hundred Six Million Eight Hundred Twenty Six Thousand Six Hundred Thirty Eight Dollars
($306,826,638) in cash (the “Cash Component”) and (ii) a number of shares of Purchaser Common Stock
having a value of Ninety Four Million Five Hundred Fifty Six Thousand Dollars ($94,556,000) as
determined in accordance with Section 2.1(b) (the “Stock Component”), in each case as adjusted as
provided in Section 2.2.



5









 





     (b) The number of shares of Purchaser Common Stock to which the Seller will be entitled
pursuant to Section 2.1(a) shall be determined by dividing $94,556,000 by the Volume Weighted
Average Price and rounding the result to the nearest whole share. The “Volume Weighted Average
Price” means the volume weighted average, for each of the fifteen (15) consecutive Trading Days
immediately prior to the third (3rd) Business Day prior to the Closing Date, of the per share
volume-weighted average prices as displayed under the heading “Bloomberg VWAP” on Bloomberg page
[“KWK<equity>AQR”]. The parties agree that the calculation of Volume Weighted Average Price
shall be carried to five (5) decimal places. The Seller agrees not to engage in any buying,
selling, trading, or any other transactions related to Purchaser Common Stock or to any derivates,
options, swaps, hedges, puts, calls, collars or similar instruments relating to the Purchaser
Common Stock prior to the Closing. “Trading Day” means a day on which trading in securities
generally occurs on the New York Stock Exchange or, if Purchaser Common Stock is not then listed on
the New York Stock Exchange, on the principal other United States, national or regional securities
exchange on which Purchaser Common Stock is then listed or, if Purchaser Common Stock is not then
listed on a United States, national or regional securities exchange, in the principal other market
on which Purchaser Common Stock is then traded.



     Section 2.2 Adjustments to Purchase Price.



     The Purchase Price for the Royalties shall be adjusted as follows with all such amounts being
determined in accordance with GAAP and Council of Petroleum Accountants Society (COPAS) standards:



     (a) Reduced by the aggregate amount of the following proceeds received by Seller between the
Effective Time and the Closing Date (with the period between the Effective Time and the Closing
Date referred to as the “Adjustment Period”): proceeds from Royalties during the Adjustment Period
(net of any Hydrocarbon production, severance, sales or excise Taxes charged against the royalty
owner and not reimbursed to Seller by the purchaser of Hydrocarbon production);



     (b) (i) Subject to the Individual Title Deductible and the Aggregate Title Deductible, reduced
by the Title Defect Amount with respect to a Title Defect if the Title Defect Amount has been
determined prior to Closing, and (ii) subject to the Individual Benefit Threshold and the Aggregate
Benefit Deductible, increased by the Title Benefit Amount with respect to each Title Benefit for
which the Title Benefit Amount has been determined prior to Closing;



     (c) Increased by the amount of all Property Costs and other costs attributable to the
ownership and operation of the Royalties that are paid by Seller and incurred at or after the
Effective Time, except any Property Costs and other such costs already deducted in the
determination of proceeds in Section 2.2(a);



     (d) Increased or reduced as agreed upon in writing by Seller and Purchaser; and



     (e) Increased by the amount of actual transaction costs, in an amount not to exceed $460,653,
incurred by Seller in effecting the contemplated transactions in Purchaser Common Stock.



     Each adjustment made pursuant to Section 2.2(a) shall serve to satisfy, up to the amount of
the adjustment, Purchaser’s entitlement under Section 1.4 to Hydrocarbon



6









 




production from or attributable to the Royalties during the Adjustment Period, and as such,
Purchaser shall not have any separate rights to receive any Hydrocarbon production or income,
proceeds, receipts and credits with respect to which an adjustment has been made. Similarly, the
adjustment described in Section 2.2(c) shall serve to satisfy, up to the amount of the adjustment,
Purchaser’s obligation under Section 1.4 to pay Property Costs attributable to the ownership of the
Royalties that are incurred during the Adjustment Period, and as such, Purchaser shall not be
separately obligated to pay for any Property Costs or other such costs with respect to which an
adjustment has been made.




     Notwithstanding anything to the contrary in this Section 2.2, any and all such adjustments to
the Purchase Price shall be made to the Stock Component of the Purchase Price; provided that if the
Stock Component of the Purchase Price is reduced to zero, then any additional reductions shall be
made to the Cash Component of the Purchase Price.



     Section 2.3 Deposit.



     Concurrently with the execution of this Agreement, Purchaser has paid to Seller an earnest
money deposit in an amount equal to five percent (5%) of the Purchase Price (the “Deposit”). The
Deposit shall be in cash not Purchaser Common Stock. The Deposit shall be non-interest bearing and
applied against the Cash Component of the Purchase Price if the Closing occurs or shall be
otherwise distributed in accordance with the terms of this Agreement.



ARTICLE 3

TITLE MATTERS




     Section 3.1 Seller’s Title.



     (a) Except for the special warranty of title referenced in Section 3.1(b) and without limiting
Purchaser’s right to adjust the Purchase Price by operation of this Article 3, Seller makes no
warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s
title to any of the Royalties and Purchaser hereby acknowledges and agrees that Purchaser’s sole
remedy for any defect of title, including any Title Defect, with respect to any of the Royalties
(i) before Closing, shall be Purchaser’s right to adjust the Purchase Price to the extent provided
in this Article 3 and (ii) after Closing, shall be pursuant to the special warranty of title
referenced in Section 3.1(b).



     (b) The conveyance to be delivered by Seller to Purchaser shall be substantially in the form
of Exhibit B hereto (the “Conveyance”) and contain a special warranty of Defensible Title by,
through and under Seller but not otherwise to Units and Wells shown on Exhibit A-1, but shall
otherwise be without warranty of title of any kind, express, implied or statutory or otherwise.



     (c) Purchaser shall not be entitled to protection under Seller’s special warranty of title in
the Conveyance against any Title Defect reported under this Article 3 and/or any Title Defect
disclosed in writing to Purchaser by Seller or demonstrated by Seller to have been actually known
by Purchaser prior to the Title Claim Date.



     (d) Notwithstanding anything herein provided to the contrary, if a Title Defect under this
Article 3 results from any matter which could also result in the breach of any representation or
warranty of Seller set forth in Article 5, then Purchaser shall only be entitled to assert such



7









 




matter (i) before Closing, as a Title Defect to the extent permitted by this Article 3, or
(ii) after Closing, as a breach of Seller’s special warranty of title contained in the Conveyance
to the extent permitted by this Section 3.1, and shall be precluded from also asserting such matter
as the basis of the breach of any such representation or warranty.




     Section 3.2 Definition of Defensible Title.



     (a) As used in this Agreement, the term “Defensible Title” means that record title of Seller
with respect to the Units or Wells shown in Exhibit A-1 that, except for and subject to Permitted
Encumbrances:




     (i) Entitles Seller to receive a share of the Hydrocarbons produced, saved and marketed
from the Barnett Shale Formation in any Unit or Well shown in Exhibit A-1 throughout the
duration of the productive life of such Unit or Well (a “Net Revenue Interest”) of not less
than the Net Revenue Interest shown in Exhibit A-1 for such Unit or Well; and




     (ii) Is free and clear of liens, encumbrances, obligations, security interests or
pledges.



     (b) As used in this Agreement, the term “Title Defect” means any lien, charge, encumbrance,
obligation (including contract obligation), defect or other matter that causes Seller not to have
Defensible Title in and to the Royalties associated with the Units and Wells shown in Exhibit A-1
as of the Effective Time and the Closing Date. As used in this Agreement, the term “Title Benefit”
shall mean any right, circumstance or condition that operates to increase the Net Revenue Interest
of Seller in any Unit or Well shown on Exhibit A-1 as of the Effective Time and the Closing Date.
Notwithstanding the foregoing, the following shall not be considered Title Defects:




     (i) defects based solely on (1) lack of information in the Seller’s files, or (2)
references to a document(s) if such document(s) is not in Seller’s files;




     (ii) defects arising out of lack of corporate or other entity authorization unless
Purchaser provides affirmative evidence that the action was not authorized and results in
another party’s actual and superior claim of title to the relevant property relating to the
Royalties;




     (iii) defects based on a gap in Seller’s chain of title in the county records as to fee
Leases, unless such gap is affirmatively shown to exist in such records by an abstract of
title, title opinion or landman’s title chain which documents shall be included in a Title
Defect Notice; and




     (iv) defects that have been cured by applicable Laws of limitations or prescription.



     Section 3.3 Definition of Permitted Encumbrances.



     As used herein, the term “Permitted Encumbrances” means any or all of the following:



     (a) All Leases, unit agreements, pooling agreements and division orders applicable to the
Royalties, to the extent that the net cumulative effect of such instruments does not reduce



8









 




Seller’s Net Revenue Interest below that shown in Exhibit A-1, and other than any term or
provision in any of the foregoing that would have the effect of excluding the Barnett Shale
Formation from the properties relating to the Royalties;




     (b) Liens for current Taxes or assessments not yet delinquent or, if delinquent, being
contested in good faith by appropriate actions;



     (c) All rights to consent by, required notices to, filings with or other actions by
Governmental Bodies in connection with the sale or conveyance of the Royalties if they are not
required or customarily obtained prior to the sale or conveyance;



     (d) Excepting circumstances where such rights have already been triggered, rights of
reassignment arising upon final intention to abandon or release the Leases, or any of them;



     (e) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations to the extent that they do not individually reduce Seller’s Net Revenue
Interest below that shown in Exhibit A-1;



     (f) All rights reserved to or vested in any Governmental Body to control or regulate any of
the Royalties in any manner and all obligations and duties under all applicable laws, rules and
orders of any such Governmental Body or under any franchise, grant, license or permit issued by any
such Governmental Body; and



     (g)
Any encumbrance which is discharged by Seller at or prior to Closing.



     Section 3.4 Notice of Title Defect Adjustments.



     (a) To assert a claim of a Title Defect, Purchaser must deliver claim notices to Seller (each
a “Title Defect Notice”) or before five (5) Business Days prior to the Closing Date (the “Title
Claim Date”). Purchaser will endeavor in good faith to provide Title Defect Notices in advance of
the Title Claim Date if such are available. Each Title Defect Notice shall be in writing and shall
include (i) a description of the alleged Title Defect(s), (ii) the Units or Wells affected by the
Title Defect (each, a “Title Defect Property”), (iii) the Allocated Value of each Title Defect
Property, (iv) supporting documents reasonably necessary for Seller (as well as any title attorney
or examiner hired by Seller) to verify the existence of the alleged Title Defect(s), and (v) the
amount by which Purchaser reasonably believes the Allocated Value of each Title Defect Property is
reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser’s
belief is based. Notwithstanding any other provision of this Agreement to the contrary, Purchaser
shall be deemed to have waived its right to assert Title Defects to the extent that Purchaser does
not provide notice to Seller of such Title Defects on or before the Title Claim Date; provided,
however, such waiver shall have no effect or limitation on the special warranty of title referenced
in Section 3.1(b). For purposes of this Agreement, the term “Allocated Value” shall mean the
portion of the Purchase Price that has been allocated to a Unit or Well in Exhibit A-1.



     (b) Seller shall have the right, but not the obligation, to deliver to Purchaser on or before
the Title Claim Date with respect to each Title Benefit a notice (a “Title Benefit Notice”)
including (i) a description of the Title Benefit, (ii) the Units or Wells affected, (iii) the
Allocated Values of the Units or Wells subject to such Title Benefit and (iv) the amount by which
the Seller reasonably believes the Allocated Value of those Units or Wells is increased by the
Title Benefit, and the computations and information upon which Seller’s belief is based. Seller
shall be



9









 




deemed to have waived all Title Benefits for which it fails to provide to Purchaser a Title
Benefit Notice on or before the Title Claim Date.




     (c) Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure
or remove at any time prior to Closing (the “Cure Period”), unless the parties otherwise agree, any
Title Defects of which Seller has been advised by Purchaser.



     (d) In the event that any Title Defect is not waived by Purchaser or cured on or before
Closing:




     (i) Seller shall, subject to the Individual Title Deductible and the Aggregate
Title Deductible, reduce the Purchase Price by an amount agreed upon (“Title Defect
Amount”) pursuant to Section 3.4(g) or 3.4(i) by Purchaser and Seller as being the
value of such Title Defect, taking into consideration the Allocated Value of the
Royalties that are subject to such Title Defect, the portion of such Royalties
subject to such Title Defect and the legal effect of such Title Defect on such
Royalties affected thereby; provided, however, that the methodology, terms and
conditions of Section 3.4(g) shall control any such determination; or




     (ii) if applicable, terminate this Agreement.



     (e) Subject to the Individual Benefit Threshold and the Aggregate Benefit Deductible, with
respect to each Unit or Well affected by Title Benefits reported under Section 3.4(b), the Purchase
Price shall be increased by an amount (the “Title Benefit Amount”) equal to the increase in the
Allocated Value for such Unit or Well caused by such Title Benefits, as determined pursuant to
Section 3.4(h).



     (f) Section 3.4(d) shall be the exclusive right and remedy of Purchaser with respect to Title
Defects asserted by Purchaser pursuant to Section 3.4.



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




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




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




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




     (iv) if the Title Defect represents an obligation, encumbrance, burden or charge upon
or other defect in title to the Title Defect Property of a type not described in



10









 






subsections (i), (ii) or (iii) above, the Title Defect Amount shall be determined by
taking into account the Allocated Value of the Title Defect Property, the portion of the
Title Defect Property affected by the Title Defect, the legal effect of the Title Defect,
the potential economic effect of the Title Defect over the life of the Title Defect
Property, the values placed upon the Title Defect by Purchaser and Seller and such other
factors as are necessary to make a proper evaluation; and




     (v) notwithstanding anything to the contrary in this Article 3, the aggregate Title
Defect Amounts attributable to the effects of all Title Defects upon any Title Defect
Property shall not exceed the Allocated Value of the Title Defect Property.



     (h) The Title Benefit Amount for any Title Benefit shall be the product of the Allocated Value
of the affected Unit or Well multiplied by a fraction, the numerator of which is the Net Revenue
Interest increase and the denominator of which is the Net Revenue Interest stated on Exhibit A-1.
Notwithstanding anything to the contrary, (i) in no event shall there be any increase in the
Purchase Price for any Individual Title Benefit if the Title Benefit Amount attributable thereto
does not exceed $50,000 (“Individual Benefit Threshold”); and (ii) in no event shall there be any
increase in the Purchase Price for any Title Benefits that exceed the Individual Benefit Threshold
unless and to the extent that the sum of all Title Benefit Amounts attributable thereto exceed an
amount equal to one percent (1%) of the Purchase Price (“Aggregate Benefit Deductible”).



     (i) Seller and Purchaser shall attempt to agree on all Title Defect Amounts and Title Benefit
Amounts prior to Closing. If Seller and Purchaser are unable to agree by Closing, the Title Defect
Amounts and Title Benefit Amounts in dispute shall be exclusively and finally resolved by
arbitration pursuant to this Section 3.4(i). There shall be a single arbitrator, who shall be a
title attorney with at least ten (10) years experience in oil and gas titles involving properties
in the regional area in which the properties relating to the Royalties are located, as selected by
mutual agreement of Purchaser and Seller within fifteen (15) Business Days after the end of the
Cure Period, and absent such agreement, by the Dallas office of the American Arbitration
Association (the “Title Arbitrator”). The arbitration proceeding shall be held in Tarrant County,
Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, to the extent such rules do not conflict with the terms of this Section.
The Title Arbitrator’s determination shall be made within fifteen (15) Business Days after
submission of the matters in dispute and shall be final and binding upon both parties, without
right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set
forth in Sections 3.4(g) and 3.4(h) and may consider such other matters as in the opinion of the
Title Arbitrator are necessary or helpful to make a proper determination. Additionally, the Title
Arbitrator may consult with and engage disinterested third parties to advise the Title Arbitrator,
including without limitation petroleum engineers. The Title Arbitrator shall act as an expert for
the limited purpose of determining the specific disputed Title Defect Amounts and Title Benefit
Amounts submitted by either party and may not award damages, interest or penalties to either party
with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs
of presenting its case. Each party shall bear one-half of the costs and expenses of the Title
Arbitrator, including any costs incurred by the Title Arbitrator that are attributable to such
third party consultation. Within ten (10) days after the Title Arbitrator delivers written notice
to Purchaser and Seller of his award with respect to a Title Defect Amount or a Title Benefit
Amount, (i) Purchaser shall pay to Seller the amount, if any, so awarded by the Title Arbitrator to
Seller, plus interest payable on such amount at the Agreed Interest Rate from (but not including)
the Closing Date to (and including) the date on which such amount is paid to Seller and (ii) Seller
shall pay to Purchaser the amount, if any, so awarded by



11









 




the Title Arbitrator to Purchaser, plus interest payable on such amount at the Agreed Interest
Rate from (but not including) the Closing Date to (and including) the date on which such amount is
paid to Purchaser.




     (j) Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments
to the Purchase Price or other remedies provided by Seller for individual Title Defects that do not
exceed $50,000 (“Individual Title Deductible”); and (ii) in no event shall there be any adjustments
to the Purchase Price or other remedies provided by Seller for Title Defects unless the amount of
all such Title Defects, in the aggregate, excluding any Title Defects cured by Seller, exceeds a
deductible in an amount equal to one percent (1%) of the Purchase Price (“Aggregate Title
Deductible”), after which point Purchaser shall be entitled to adjustments to the Purchase Price or
other remedies only with respect to Title Defects in excess of such Aggregate Title Deductible.



     Section 3.5 Casualty or Condemnation Loss.



     Purchaser shall assume all risk of loss with respect to, and any change in the condition of
the Wells from the Effective Time until Closing for production of Hydrocarbons through normal
depletion (including, but not limited to, the watering out of any Well, collapsed casing or sand
infiltration of any Well) and the depreciation of personal property due to ordinary wear and tear.



     Section 3.6 Limitations on Applicability.



     The right of Purchaser to assert a Title Defect under this Agreement shall terminate as of the
Title Claim Date, provided there shall be no termination of Purchaser’s or Seller’s rights under
Section 3.4 with respect to any bona fide Title Defect properly reported in a Title Defect Notice
or bona fide Title Benefit Claim properly reported in a Title Benefit Notice on or before the Title
Claim Date. Thereafter, Purchaser’s sole and exclusive rights and remedies with regard to title to
the Royalties shall be as set forth in, and shall arise under, the Conveyance transferring the
Royalties from Seller to Purchaser.



     Section 3.7 Government Approvals Respecting Royalties.



     Purchaser, within thirty (30) days after Closing, shall file for approval with the applicable
government agencies all assignment documents and other state and federal transfer documents
required to effectuate the transfer of the Royalties. Purchaser further agrees promptly after
Closing to take all other actions reasonably required of it by federal or state agencies having
jurisdiction to obtain all requisite regulatory approvals with respect to this transaction and to
use its reasonable commercial efforts to obtain the approval by such federal or state agencies, as
applicable, of Seller’s assignment documents requiring federal or state approval in order for
Purchaser to be recognized by the federal or state agencies as the owner of the Royalties.



ARTICLE 4

ENVIRONMENTAL MATTERS




     Section 4.1 Assessment.



     From the date of the execution of this Agreement until the Closing Date, Seller shall afford
to Purchaser and its officers, employees, agents and authorized representatives reasonable access
to the property relating to the Royalties, including the Records in accordance with Section 7.1.
During such period, Seller shall also make available to Purchaser, upon reasonable notice



12









 




and during regular business hours, such personnel of Seller knowledgeable with respect to the
property relating to the Royalties in order that Purchaser may make such diligent investigation as
Purchaser considers desirable. Upon notice to Seller, Purchaser shall, subject to the provisions
of Section 11.4(b)(v), have the right to conduct an environmental assessment of all or any portion
of the properties relating to the Royalties (the “Assessment”) to be conducted by a reputable
environmental consulting or engineering firm approved in advance in writing by Seller, but only to
the extent that Seller may grant such right without violating any obligations to any third party.
The Assessment shall be conducted at the sole cost and expense of Purchaser and shall be subject to
the indemnity provisions of Section 4.3 and Section 11.4(b)(v). Prior to conducting any sampling,
boring, drilling or other invasive investigative activity (“Invasive Activity”), Purchaser shall
furnish for Seller’s review a proposed scope of such Invasive Activity, including a description of
the activities to be conducted and a description of the approximate locations of such activities.
If any of the proposed activities may unreasonably interfere with normal use or operation of the
properties, Seller may request an appropriate modification of the proposed Invasive Activity.
Seller shall have the right to be present during any Assessment and shall have the right, at its
option and expense, to split samples with Purchaser. After completing any Assessment, Purchaser
shall, at its sole cost and expense, restore the properties to their condition prior to the
commencement of such Assessment, unless Seller requests otherwise, and shall promptly dispose of
all drill cuttings, corings or other investigative-derived wastes generated in the course of the
Assessment. Purchaser shall maintain, and shall cause its officers, employees, representatives,
consultants and advisors to maintain, all information obtained by Purchaser pursuant to any
Assessment or other due diligence activity as strictly confidential in perpetuity, unless
disclosure of any facts discovered through such Assessment is required under any Environmental
Laws. Purchaser shall provide Seller with a copy of all environmental reports prepared by, or on
behalf of, Purchaser with respect to any Assessment or Invasive Activity. In the event that any
necessary disclosures under applicable Environmental Laws are required with respect to matters
discovered by any Assessment conducted by, for or on behalf of Purchaser, Purchaser agrees that
Seller shall be the responsible party for disclosing such matters to the appropriate Governmental
Bodies.




     Section 4.2 NORM, Wastes and Other Substances.



     Purchaser acknowledges that the properties related to the Royalties have been used for
exploration, development and production of Hydrocarbons and that there may be petroleum, produced
water, wastes or other substances or materials located in, on or under the properties or associated
with the properties related to the Royalties. Equipment and sites may contain asbestos, hazardous
substances or NORM. NORM may affix or attach itself to the inside of wells, materials and
equipment as scale or in other forms. The wells, materials and equipment may contain NORM and
other wastes or hazardous substances. NORM-containing material and/or other wastes or hazardous
substances may have come in contact with various environmental media, including, without
limitation, water, soils or sediment. Special procedures may be required for the assessment,
remediation, removal, transportation or disposal of environmental media, wastes, asbestos,
hazardous substances and NORM from the properties related to the Royalties.



     Section 4.3 Inspection Indemnity.



     PURCHASER HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE
SELLER INDEMNITEES FROM AND AGAINST ANY AND ALL LOSSES AND CLAIMS RESULTING DIRECTLY FROM ANY DUE
DILIGENCE ACTIVITY CONDUCTED BY PURCHASER OR ITS AGENTS, WHETHER BEFORE OR



13









 




AFTER THE EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY LOSSES RESULTING, IN
WHOLE OR IN PART, FROM THE NEGLIGENCE (OTHER THAN THE GROSS NEGLIGENCE) OR STRICT LIABILITY OF
SELLER.




ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLER




     Section 5.1 Generally.



     (a) Any representation or warranty qualified “to the knowledge of Seller” or “to Seller’s
knowledge” or with any similar knowledge qualification is limited to matters within the actual
knowledge of Mark Rollins, any other officer of Seller and any employee at a managerial or higher
level of Seller. “Actual knowledge” for purposes of this Agreement means information actually
personally known by such persons.



     (b) Inclusion of a matter on a Schedule to a representation or warranty which addresses
matters having a Material Adverse Effect shall not be deemed an indication that such matter does,
or may, have a Material Adverse Effect. Likewise, the inclusion of a matter on a Schedule in
relation to a representation or warranty shall not be deemed an indication that such matter
necessarily would, or may, breach such representation or warranty absent its inclusion on such
Schedule. Matters may be disclosed on a Schedule to this Agreement for purposes of information
only.



     (c) Subject to the foregoing provisions of this Section 5.1, the disclaimers and waivers
contained in Sections 11.8 and 11.9 and the other terms and conditions of this Agreement, Seller
represents and warrants to Purchaser the matters set out in Sections 5.2 through 5.25.



     Section 5.2 Existence and Qualification.



     Seller is duly organized, validly existing and in good standing under the laws of the State of
Texas.



     Section 5.3 Power.



     Seller has the partnership authority to enter into and perform this Agreement and consummate
the transactions contemplated by this Agreement.



     Section 5.4 Authorization and Enforceability.



     The execution, delivery and performance of this Agreement, and the performance of the
transactions contemplated hereby, have been duly and validly authorized by all necessary
partnership action on the part of the Seller. This Agreement has been, and all documents required
hereunder to be executed and delivered by Seller at Closing will be, duly executed and delivered by
Seller, and this Agreement constitutes, and at the Closing such documents will constitute, the
valid and binding obligations of Seller, enforceable against Seller in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy or other similar laws
affecting the rights and remedies of creditors generally as well as to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity or at law).



     Section 5.5 No Conflicts.



14









 





     The execution, delivery and performance of this Agreement by Seller and the transactions
contemplated herein will not (a) violate any provision of the certificate of limited partnership,
partnership agreement or other constituent documents of Seller, (b) result in default (with due
notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any
right of termination, cancellation or acceleration under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license or agreement to which Seller is a party or which
affect the Royalties, (c) violate any judgment, order, ruling, or decree applicable to Seller as a
party in interest, (d) violate any Laws applicable to Seller or any of the Royalties, except for
(i) rights to consent by, required notices to, filings with, approval or authorizations of, or
other actions by any Governmental Body where the same are not required prior to the assignment of
the related Royalties or are customarily obtained subsequent to the sale or conveyance thereof and
(ii) any matters described in clauses (b), (c) or (d) above which would not have a Material Adverse
Effect.



     Section 5.6 Liability for Brokers’ Fees.



     Purchaser shall not directly or indirectly have any responsibility, liability or expense as a
result of undertakings or agreements of Seller for brokerage fees, finder’s fees, agent’s
commissions or other similar forms of compensation in connection with this Agreement or any
agreement or transaction contemplated hereby.



     Section 5.7 Litigation.



     No proceeding, action, suit or other legal proceeding of any kind or nature before any
Governmental Body or arbitrator for which Seller has received service of process (including any
take-or-pay claims) is pending or, to Seller’s knowledge, threatened, which affects the Royalties;
and to Seller’s knowledge, no investigations are currently pending and no suits have been filed
that affect the Royalties. No notice in writing from any Governmental Body or other Person has
been received by Seller claiming any violation of or noncompliance with any Law which could have a
Material Adverse Effect with respect to the Royalties (including any such Law concerning the
conservation of natural resources).



     Section 5.8 Taxes and Assessments.



     With respect to all Taxes related to the Royalties, (a) all reports, returns, statements
(including estimated reports, returns or statements) and other similar filings (the “Tax Returns”)
relating to the Royalties required to be filed by Seller with respect to such Taxes have been
timely filed with the appropriate Governmental Body in all jurisdictions in which such Tax Returns
are required to be filed; (b) such Tax Returns are true and correct in all material respects; and
(c) all Taxes reported on such Tax Returns have been paid, except those being contested in good
faith.



     With respect to all Taxes related to the Royalties, except as set forth on Schedule 5.8, (x)
there is not currently in effect any extension or waiver of any statute of limitations of any
jurisdiction regarding the assessment or collection of any such Tax; (y) there are no
administrative proceedings or lawsuits pending against the Royalties or Seller by any Tax
authority; and (z) there are no Tax liens on any of the Royalties except for liens for Taxes not
yet due.



15









 





     Section 5.9 Contracts.



     Schedule 5.9 sets forth all of the contracts and agreements excluding the Leases, the
Cartwright Leases and any unit or pooling agreements involving the Leases or the Cartwright Leases
to which any of the Royalties will be subject as of the Closing. Seller is in compliance with all
contracts and agreements, except as such non-compliance would not have a Material Adverse Effect.



     Section 5.10 Preference Rights and Transfer Requirements.



     To Seller’s knowledge, none of the Royalties, or any portion thereof, is subject to any
Preference Right or Transfer Requirement which may be applicable to the transactions contemplated
by this Agreement.



     Section 5.11 Condemnation.



     There is no actual or, to Seller’s knowledge, threatened taking (whether permanent, temporary,
whole or partial) of any part of the Royalties by reason of condemnation or the threat of
condemnation.



     Section 5.12 Bankruptcy.



     There are no bankruptcy, reorganization or similar arrangement proceedings pending, being
contemplated by or, to Seller’s knowledge, threatened against Seller or any Affiliate of Seller.



     Section 5.13 PUHCA/NGA.



     Seller is not a “holding company,” a “subsidiary company” of a “holding company,” an
“affiliate” of a “holding company,” an “affiliate” of a “subsidiary” of a “holding company” or a
“public-utility company” within the meaning of the Public Utility Holding Company Act of 1935, as
amended. No consent is required in connection with the transactions contemplated hereby under the
Natural Gas Policy Act of 1978, as amended. Seller is not an interstate pipeline company within
the meaning of the Natural Gas Act of 1938.



     Section 5.14 Investment Company.



     Seller is not an investment company or a company controlled by an investment company within
the meaning of the Investment Company Act of 1940, as amended.



     Section 5.15 No Tax Partnership.



     The Royalties are not subject to any tax partnership agreement or provisions requiring a
partnership income tax return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code
that will be binding upon the Purchaser or the Royalties after the Closing.



     Section 5.16 No Hedging.



     None of the Royalties is subject to or is bound by any futures, hedge, swap, collar, put,
call, option or other commodities contract or agreement that will be binding upon the Purchaser or
the Royalties after the Closing.



16









 





     Section 5.17 Environmental.



     To the knowledge of Seller, except as would not have a Material Adverse Effect: (a) neither
Seller nor any prior owner of the Royalties has caused or allowed the generation, use, treatment,
storage or disposal of Hazardous Materials at or on any of the lands covered by the Leases or the
Cartwright Leases except in compliance with all applicable Environmental Laws; (b) there are no
Adverse Environmental Conditions. Seller has provided Purchaser with copies of reports in Seller’s
possession reflecting any Adverse Environmental Conditions of any lands covered by the Leases or
the Cartwright Leases, any prior Phase I or II Environmental Site Assessments relating to the lands
covered by the Leases or the Cartwright Leases and any violations of Environmental Law known to
Seller that have not been remedied.



     Section 5.18 Purchase Entirely for Own Account.



     Seller represents that the shares of Purchaser Common Stock included in the Stock Component
(the “Shares”) to be acquired by Seller will be acquired for investment for the Seller’s own
account, not as a nominee or agent, and not with a view to the resale or distribution of any part
thereof, except in compliance with applicable securities Laws.



     Section 5.19 Restricted Securities.



     Seller understands that the Shares have not been, and, subject to Article 12 hereof, will not
be at Closing, registered under the Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder (the “Securities Act”), by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among other things, the bona
fide nature of the investment intent and the accuracy of the Seller’s representations as expressed
herein. The Seller understands that the Shares are “restricted securities” under applicable U.S.
federal and state securities Laws and, accordingly, may not be offered or sold by the Seller except
pursuant to an effective registration statement under the Securities Act or pursuant to an
exemption from registration under the Securities Act.



     Section 5.20 Legends.



     Seller understands that until the shares are registered for resale pursuant to Article 12, the
Shares may bear one or all of the following legends:




“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF EXCEPT IN COMPLIANCE
WITH APPLICABLE SECURITIES LAWS. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.”



     Any legend required by the securities Laws of any state to the extent such Laws are applicable
to the shares of Purchaser Common Stock represented by the certificate so legended.



17









 





     Section 5.21 Accredited Investor.



     Seller is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act.



     Section 5.22 Disclosure of Information.



     Seller has had an opportunity to discuss the Purchaser’s business, management, financial
affairs and the terms and conditions of the offering of the Shares with the Purchaser’s management
and has had an opportunity to review the Purchaser’s publicly available information on file with
the SEC and otherwise satisfy itself that it has all of the information necessary to make an
informed investment decision regarding an investment in the Purchaser and the Shares.



     Section 5.23 Residence.



     The office or offices of the Seller’s principal place of business is identified in the address
or addresses of the Seller set forth in Section 13.2 hereof.



     Section 5.24 Imbalances.



     There are no Imbalances as of April 1, 2008 arising with respect to the Royalties, and as of
April 1, 2008, (a) no Person is entitled to receive any portion of the Royalties or to receive cash
or other payments to “balance” any disproportionate allocation of the Royalties under any gas
transportation agreement or other agreement, whether similar or dissimilar, and (b) Seller is not
obligated to pay any penalties or other payments under any gas transportation or other agreement as
a result of the delivery of quantities of gas in excess of the contract requirements.



     Section 5.25 Payments for Hydrocarbon Production.



     No Seller is obligated under any contract or agreement for the sale of Royalties containing a
take-or-pay, advance payment, prepayment or similar provision, or under any gathering, transmission
or any other contract or agreement with respect to the Royalties to gather, deliver, process or
transport any gas attributable thereto without then or thereafter receiving full payment therefor.



18









 





ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF PURCHASER




     Purchaser represents and warrants to Seller the following:



     Section 6.1 Existence and Qualification.



     Purchaser is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. Purchaser is duly qualified to do business as a foreign
corporation in every jurisdiction in which it is required to qualify in order to conduct its
business except where the failure to so qualify would not have a material adverse effect on
Purchaser or its properties. Purchaser is duly qualified to do business in Texas.



     Section 6.2 Power.



     Purchaser has the corporate power to enter into and perform this Agreement and consummate the
transactions contemplated by this Agreement.



     Section 6.3 Authorization and Enforceability.



     The execution, delivery and performance of this Agreement, and the performance of the
transactions contemplated hereby, have been duly and validly authorized by all necessary corporate
action on the part of Purchaser. This Agreement has been, and all documents required hereunder to
be executed and delivered by Purchaser at Closing will be, duly executed and delivered by
Purchaser, and this Agreement constitutes, and at the Closing such documents will constitute, the
valid and binding obligations of Purchaser, enforceable in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy or other similar laws affecting the
rights and remedies of creditors generally as well as to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law).



     Section 6.4 No Conflicts.



     The execution, delivery and performance of this Agreement by Purchaser and the transactions
contemplated herein will not (a) violate any provision of the certificate of incorporation, bylaws
or other constituent documents of Purchaser, (b) except as set forth on Schedule 6.4(b), result in
a default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or
give rise to any right of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license or agreement to which
Purchaser is a party, (c) violate any judgment, order, ruling or regulation applicable to Purchaser
as a party in interest, (d) violate any Law applicable to Purchaser or any of its properties, or
(e) require any filing with, notification of or consent, approval or authorization of any
Governmental Body or authority, except any matters described in clauses (b) through (e) above which
would not have a material adverse effect on Purchaser or the transactions contemplated hereby.




19











 





     Section 6.5 Liability for Brokers’ Fees.



     Seller shall not directly or indirectly have any responsibility, liability or expense as a
result of undertakings or agreements of Purchaser for brokerage fees, finder’s fees, agent’s
commissions or other similar forms of compensation in connection with this Agreement or any
agreement or transaction contemplated hereby.



     Section 6.6 Litigation.



     There are no actions, suits or proceedings pending or, to the actual knowledge of Purchaser’s
officers, threatened in writing before any Governmental Body against Purchaser or any Affiliate of
Purchaser which are reasonably likely to impair materially Purchaser’s ability to perform its
obligations under this Agreement.



     Section 6.7 Financing.



     At Closing, Purchaser will have sufficient cash, available lines of credit or other sources of
immediately available funds (in United States dollars) to enable it to pay the Cash Component of
the Closing Payment to Seller at the Closing.



     Section 6.8 [RESERVED]



     Section 6.9 Limitation.



     Except for the representations and warranties expressly made by Seller in Article 5 of this
Agreement, the Conveyance or in any certificate furnished or to be furnished to Purchaser pursuant
to this Agreement, Purchaser represents and acknowledges that (a) there are no representations or
warranties, express, statutory or implied, as to the Royalties or prospects thereof, and (b)
Purchaser has not relied upon any oral or written information provided by Seller. Purchaser
further represents and acknowledges (x) that it is knowledgeable of the oil and gas business and
of the usual and customary practices of oil and gas producers and (y) in making the decision to
enter into this Agreement and consummate the transactions contemplated hereby, Purchaser has relied
solely on the basis of its own independent due diligence investigation of the Royalties and the
terms and provisions of this Agreement.



     Section 6.10 SEC Disclosure.



     Purchaser is acquiring the Royalties for its own account for use in its trade or business and
not with a view toward or for sale associated with any distribution thereof, nor with any present
intention of making a distribution thereof within the meaning of the Securities Act and applicable
state securities Laws.



     Section 6.11 Bankruptcy.



     There are no bankruptcy, reorganization or receivership proceedings pending against, being
contemplated by or, to the actual knowledge of Purchaser, threatened against Purchaser.



20









 





     Section 6.12 SEC Reports; Financial Statements.



     Purchaser has filed and made available to Seller all forms, reports and other documents
required to be filed by Purchaser with the Securities and Exchange Commission (the “SEC”) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), since January 1, 2007. All such
required forms, reports and other documents (including those that Purchaser may file after the date
hereof and prior to the Closing Date) are referred to herein as the “Purchaser SEC Reports.” The
Purchaser SEC Reports (i) were or will be filed on a timely basis, (ii) were or will be prepared in
compliance with the applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder, and (iii) did not, or will not at the time they were or are filed, contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. Since the last date on which a Purchaser SEC Report was filed,
there has been no material adverse change in the assets, liabilities, condition (financial or
otherwise), operating results, business or prospects of Purchaser or in the ability of Purchaser to
perform its obligations under this Agreement or that could materially impair or prohibit the
consummation of the transactions contemplated by this Agreement.



     Each of the consolidated financial statements (including, in each case, any related notes and
schedules) contained or to be contained in the Purchaser SEC Reports (i) complied or will comply as
to form in all material respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, (ii) were or will be prepared in accordance with
GAAP (except as may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented or will fairly present the consolidated financial position of Purchaser and its
subsidiaries as of the dates indicated and the consolidated results of its operations and cash
flows for the periods indicated, consistent with the books and records of Purchaser and its
subsidiaries, except that the unaudited interim financial statements were or will be subject to
normal and recurring year-end adjustments that were not or are not expected to be material.



     Section 6.13 Purchaser Common Stock.



     As of June 27, 2008, Purchaser had (i) 400,000,000 authorized shares of Purchaser Common
Stock, of which 160,946,924 (together with an equivalent number of associated share purchase
rights) were issued or outstanding, (ii) issued and outstanding stock options and restricted stock
units to acquire 1,439,313 shares of Purchaser Common Stock under all stock option plans and
agreements, (iii) issued and outstanding debentures convertible into 9,816,256 shares of Purchaser
Common Stock, and (iv) no warrants to purchase any Purchaser Common Stock are outstanding under any
agreement. The issuance of the Purchaser Common Stock pursuant to this Agreement has been duly
authorized and upon consummation of the transactions contemplated by this Agreement, the Purchaser
Common Stock will have been validly issued, fully paid, non-assessable, and issued without
application of preemptive rights, have the rights, preferences, and privileges specified in
Purchaser’s Certificate of Incorporation, and will be free and clear of all liens and restrictions,
other than any liens or restrictions granted or incurred by the Seller and the restrictions imposed
by this Agreement and the Securities Act and state securities and blue sky laws. Except as stated
in the first sentence of this Section 6.13, as of June 27, 2008, there were outstanding: (i) no
securities of Purchaser convertible into or exchangeable for shares of Purchaser Common Stock, and
(ii) no options, warrants, calls, rights (including preemptive rights), commitments, or agreements
to which Purchaser is a party



21









 







or by which it is bound, in any case obligating Purchaser to issue, deliver, sell, purchase,
redeem, or acquire, or cause to be issued, delivered, sold, purchased, redeemed, or acquired, any
shares of Purchaser Common Stock or obligating Purchaser to grant, extend or enter into any such
option, warrant, call, right, commitment, or agreement.



ARTICLE 7

COVENANTS OF THE PARTIES




     Section 7.1 Access.



     Between the date of execution of this Agreement and to the Closing Date, Seller will give
Purchaser and its representatives access to the Records in Seller’s possession for the purpose of
conducting an investigation of the Royalties, but only to the extent that Seller may do so without
violating any obligations to any third party and to the extent that Seller has authority to grant
such access without breaching any restriction binding on Seller. Such access by Purchaser shall be
limited to Seller’s normal business hours and any weekends and after hours requested by Purchaser
that can be reasonably accommodated by Seller, and Purchaser’s investigation shall be conducted in
a manner that minimizes interference with Seller’s business. All information obtained by Purchaser
and its representatives under this Section shall be subject to the terms of Section 11.4(b)(v) and
the terms of that certain confidentiality agreement between Chief Oil & Gas LLC and Purchaser dated
May 15, 2008 (the “Confidentiality Agreement”).



     Section 7.2 Government Reviews.



     Seller and Purchaser shall in a timely manner (a) make all required filings, if any, with and
prepare applications to and conduct negotiations with, each governmental agency as to which such
filings, applications or negotiations are necessary or appropriate in the consummation of the
transactions contemplated hereby, including, without limitation, any such filings, applications or
negotiations under the HSR Act, (b) provide such information as each may reasonably request to make
such filings, prepare such applications and conduct such negotiations, and (c) request early
termination or waiver of any applicable waiting period under the HSR Act. Each party shall
cooperate with and use all commercially reasonable efforts to assist the other with respect to such
filings, applications and negotiations.



     Section 7.3 Notification of Breaches.



     Until the Closing,



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



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



22









 





     (c) If any of Purchaser’s or Seller’s representations or warranties are untrue or shall become
untrue in any material respect between the date of execution of this Agreement and the Closing
Date, or if any of Purchaser’s or Seller’s covenants or agreements to be performed or observed
prior to or on the Closing Date shall not have been so performed or observed in any material
respect, but if such breach of representation, warranty, covenant or agreement shall (if curable)
be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section
10.1(b)), then such breach shall be considered not to have occurred for all purposes of this
Agreement.



     Section 7.4 Letters-in-Lieu; Assignments; Operatorship.



     (a) Seller will execute on the Closing Date letters-in-lieu of division and transfer orders
relating to the Royalties on forms prepared by Seller and reasonably satisfactory to Purchaser to
reflect the transactions contemplated hereby.



     (b) Seller will prepare, and Seller and Purchaser will execute on the Closing Date, all
assignments necessary to convey to Purchaser all Royalties in form acceptable to Purchaser and
Seller.



     Section 7.5 Public Announcements.



     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 prior written consent of the other (which consent shall not be unreasonably withheld or
delayed); provided, however, the foregoing shall not restrict disclosures by Purchaser or Seller
that are required by applicable securities or other laws or regulations or the applicable rules of
any stock exchange having jurisdiction over the disclosing party or its Affiliates; and provided,
further, that Purchaser may disclose the existence and contents of this Agreement and the
transactions contemplated hereby to the Standard & Poor’s and Moody’s rating agencies (provided
that such agencies are obligated to keep such information confidential).



     Section 7.6 Operation of Business.



     Except as consented to in writing by Purchaser, until the Closing, Seller (a) will not
transfer, sell, hypothecate, encumber or otherwise dispose of any of the Royalties except for sales
and dispositions of Hydrocarbon production made in the ordinary course of business consistent with
past practices, (b) will not terminate, materially amend, execute or extend any material agreements
affecting the Royalties and (c) will not commit to do any of the foregoing.



     Section 7.7 Tax Matters.



     (a) Subject to the provisions of Section 13.3, Seller shall be responsible for all Taxes
related to the Royalties (other than ad valorem, property, severance, Hydrocarbon production and
similar Taxes based upon or measured by the ownership or operation of the Royalties or the
production of Hydrocarbons therefrom, which are addressed in Section 1.4) attributable to any
period of time at or prior to the Effective Time, and Purchaser shall be responsible for all such
Taxes related to the Royalties attributable to any period of time after the Effective Time.
Regardless of which party is responsible, Seller shall handle payment to the appropriate
Governmental Body of all Taxes with respect to the Royalties which are required to be paid prior to
Closing (and shall file all Tax Returns with respect to such Taxes). If requested by Purchaser,
Seller will assist Purchaser with preparation of all ad valorem and property Tax



23









 







Returns due on or before December 31, 2008 (including any extensions requested). Seller shall
deliver to Purchaser within thirty (30) days of filing copies of all Tax Returns filed by Seller
after the Effective Time relating to the Royalties and any supporting documentation provided by
Seller to taxing authorities, excluding Tax Returns related to income tax, franchise tax or other
similar Taxes.



     (b) Purchaser agrees to cooperate (at no cost or liability to Purchaser) with Seller so that
Seller’s transfer of the Royalties to Purchaser shall, at Seller’s election, be accomplished in a
manner enabling the transfer to qualify as a part of a like-kind exchange of property by Seller
within the meaning of Section 1031 of the Internal Revenue Code of 1986 (the “Code”). If Seller so
elects, Purchaser shall reasonably cooperate with Seller to effect such like-kind exchange, which
cooperation shall include, without limitation, taking such actions as Seller reasonably requests in
order to pay the Purchase Price in a manner which enables such transfer to qualify as part of a
like-kind exchange of property within the meaning of Section 1031 of the Code, and Purchaser agrees
that Seller may assign its rights (but not its obligations) under this Agreement to a qualified
intermediary as defined in Treasury Regulations Section 1.1031(k) – 1(g)(4)(iii) under United
States Treasury Regulations, to qualify the transfer of the Purchase Price as a part of a like-kind
exchange of property within the meaning of Section 1031 of the Code.



     Section 7.8 Further Assurances.



     After Closing, Seller and Purchaser each agree to take such further actions and to execute,
acknowledge and deliver all such further documents as are reasonably requested by the other party
for carrying out the purposes of this Agreement or of any document delivered pursuant to this
Agreement.



     Section 7.9 Historical Financial Statements.



     (a) Seller shall prepare the financial statements required by the SEC to be filed by Purchaser
or any of its Affiliates with the SEC pursuant to the Securities Act or Exchange Act in connection
with reports, registration statements and other filings to be made by Purchaser or any of its
Affiliates related to the transactions contemplated by this Agreement (the “Special Financial
Statements”). Seller (x) shall cooperate with and permit Purchaser to reasonably participate in
the preparation of the Special Financial Statements and (y) shall provide Purchaser and its
representatives with reasonable access to the personnel of Seller and its Affiliates who engage in
the preparation of the Special Financial Statements and shall give Purchaser and its
representatives reasonable access to the Properties, Records, and other financial data relating to
the Special Financial Statements..



     (b) Seller shall execute and deliver or cause to be executed and delivered to Seller’s outside
auditing firm (“Seller’s Auditor”) such representation letters, in form and substance customary for
representation letters provided to external audit firms in such circumstances, as may be reasonably
requested by Seller’s Auditor, with respect to the Special Financial Statements.



     (c) Seller shall use best efforts to cause an independent registered public accounting firm
reasonably acceptable to Purchaser to issue an unqualified opinion with respect to the Special
Financial Statements (the Special Financial Statements and related audit opinion being hereinafter
referred to as the “Audited Special Financial Statements”) and to provide its written consent for
the use of its audit report with respect to the Special Financial Statements in reports,



24









 







registration statements or other documents filed by Purchaser or any of its Affiliates under
the Exchange Act or the Securities Act, as needed. Seller shall take all reasonable action as may
be necessary to facilitate the completion of such audit and delivery of the Audited Special
Financial Statements to Purchaser or any of its Affiliates as soon as reasonably practicable, but
no later than sixty (60 days following the Closing Date.



     (d) Purchaser shall reimburse Seller for all third party out-of-pocket costs incurred by
Seller with respect to Seller’s obligations under this Section 7.9.



ARTICLE 8

CONDITIONS TO CLOSING




     Section 8.1 Conditions of Seller to Closing.



     The obligations of Seller to consummate the transactions contemplated by this Agreement are
subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the
following conditions:



     (a) Representations. The representations and warranties of Purchaser set forth in
Article 6 shall be true and correct in all material respects other than representations and
warranties that are already qualified as to materiality, which shall be true and correct in all
respects, as of the Closing Date as though made on and as of the Closing Date;



     (b) Performance. Purchaser shall have performed and observed, in all material
respects, all covenants and agreements to be performed or observed by it under this Agreement prior
to or on the Closing Date;



     (c) Pending Litigation. No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement or to recover damages from Seller
on account thereof shall be pending or threatened before any Governmental Body or arbitral
tribunal;



     (d) Deliveries. Purchaser shall have delivered (or be ready, willing and able to
immediately deliver) to Seller duly executed counterparts of the Conveyance and the other documents
and certificates to be delivered by Purchaser under Section 9.3;



     (e) Title Defects. The sum of all asserted but uncured Title Defect Amounts for Title
Defects determined under Section 3.4(g) prior to Closing, less the sum of all Title Benefit Amounts
for Title Benefits determined under Section 3.4(h) prior to the Closing, shall be less than ten
percent (10%) of the unadjusted Purchase Price;



     (f) Payment. Purchaser shall have paid (or be ready, willing and able to immediately
pay) the Cash Component of the Closing Payment and shall have delivered (or be ready, willing and
able to immediately deliver) stock certificates representing the Stock Component of the Closing
Payment to Seller or its designees as directed by Seller in writing at least five (5) Business Days
prior to Closing; and



     (g) HSR Act. Any waiting period applicable to the consummation of the transaction
contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early
termination or otherwise).



25









 





     Section 8.2 Conditions of Purchaser to Closing.



     The obligations of Purchaser to consummate the transactions contemplated by this Agreement are
subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the
following conditions:



     (a) Representations. The representations and warranties of Seller set forth in
Article 5 shall be true and correct in all material respects, other than representations and
warranties that are already qualified as to materiality, which shall be true and correct in all
respects, as of the Closing Date as though made on and as of the Closing Date (other than
representations and warranties that refer to a specified date which need only be true and correct
on and as of such specified date);



     (b) Performance. Seller shall have performed and observed, in all material respects,
all covenants and agreements to be performed or observed by it under this Agreement prior to or on
the Closing Date;



     (c) Pending Litigation. No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement or to recover damages from
Purchaser on account thereof shall be pending before any Governmental Body or arbitral tribunal;



     (d) Deliveries. Seller shall have delivered (or be ready, willing and able to
immediately deliver) to Purchaser duly executed counterparts of the Conveyance and the other
documents and certificates to be delivered by Seller under Section 9.2;



     (e) Title Defects. The sum of all asserted but uncured Title Defect Amounts for Title
Defects determined under Section 3.4(g) prior to the Closing, less the sum of all Title Benefit
Amounts for Title Benefits determined under Section 3.4(h) prior to Closing, shall be less than ten
percent (10%) of the unadjusted Purchase Price;



     (f) HSR Act. Any waiting period applicable to the consummation of the transaction
contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early
termination or otherwise); and



     (g) Historical Financial Statements. Purchaser reasonably believes that the Special
Financial Statements that have been provided by Seller can be audited and that the Audited Special
Financial Statements will be delivered within the time period contemplated by Section 7.11.



ARTICLE 9

CLOSING




     Section 9.1 Time and Place of Closing.



     (a) Consummation of the purchase and sale transaction as contemplated by this Agreement (the
“Closing”), shall, unless otherwise agreed to in writing by Purchaser and Seller, take place at the
offices of Kelly Hart & Hallman LLP located at 201 Main Street, Suite 2500, Fort Worth, Texas
76102, at 10:00 a.m., local time, on August 8, 2008 or, if all conditions in Article 8 to be
satisfied prior to Closing have not yet been satisfied or waived, as soon



26









 







thereafter as such conditions have been satisfied or waived, subject to the rights of the
parties under Article 10.



     (b) The date on which the Closing occurs is herein referred to as the “Closing Date.”



     Section 9.2 Obligations of Seller at Closing.



     At the Closing, upon the terms and subject to the conditions of this Agreement, Seller shall
deliver or cause to be delivered to Purchaser the following:



     (a) the Conveyance, in sufficient duplicate originals to allow recording in all appropriate
jurisdictions and offices, duly executed by Seller;



     (b) letters-in-lieu of transfer orders covering the Royalties, duly executed by Seller;



     (c) certificates duly executed by an authorized officer of Seller or Seller’s general partner,
dated as of Closing, certifying on behalf of Seller that the conditions set forth in Sections
8.2(a) and 8.2(b) have been fulfilled; and



     (d) one (1) original executed statement described in Treasury Regulation §1.1445-2(b)(2)
certifying that Seller is not a foreign person within the meaning of the Code.



     Section 9.3 Obligations of Purchaser at Closing.



     At the Closing, upon the terms and subject to the conditions of this Agreement, Purchaser
shall deliver or cause to be delivered to Seller the following:



     (a) a wire transfer of the Cash Component of the Closing Payment in same-day funds to the
accounts of Seller, and in the respective amounts set forth on Schedule 9.3(a);



     (b) the Conveyance, duly executed by Purchaser;



     (c) letters-in-lieu of transfer orders covering the Royalties, duly executed by Purchaser;



     (d) a certificate by an authorized officer of Purchaser, dated as of Closing, certifying on
behalf of Purchaser that the conditions set forth in Sections 8.1(a) and 8.1(b) have been
fulfilled; and



     (e) stock certificates representing shares of Purchaser Common Stock in a value equal to the
Stock Component of the Closing Payment allocated in the manner shown on Schedule 9.3(e).



     Section 9.4 Closing Payment & Post-Closing Purchase Price Adjustments.



     (a) Not later than three (3) Business Days prior to the Closing Date, Seller shall prepare and
deliver to Purchaser, based upon the best information available to Seller, a preliminary settlement
statement estimating the Adjusted Purchase Price after giving effect to all Purchase Price
adjustments provided for in this Agreement and crediting the Deposit and



27









 







setting forth the calculation of the Volume Weighted Average Price, the Stock Component and
the Cash Component. The estimate delivered in accordance with this Section 9.4(a) shall constitute
the dollar amount to be paid by Purchaser to Seller at the Closing in the form of the Cash
Component and the Stock Component (the “Closing Payment”).



     (b) As soon as reasonably practicable after the Closing but not later than one hundred and
twenty (120) days following the Closing Date, Seller shall prepare and deliver to Purchaser a
statement setting forth the final calculation of the Adjusted Purchase Price and showing the
calculation of each adjustment, based, to the extent possible, on actual credits, charges, receipts
and other items before and after the Effective Time and taking into account all adjustments
provided for in this Agreement. Seller shall at Purchaser’s request supply reasonable documentation
available to support any credit, charge, receipt or other item. As soon as reasonably practicable,
but not later than the 30th day following receipt of Seller’s statement hereunder, Purchaser shall
deliver to Seller a written report containing any changes that Purchaser proposes be made to such
statement. The parties shall undertake to agree on the final statement of the Adjusted Purchase
Price no later than one hundred eighty (180) days after the Closing Date. In the event that the
parties cannot reach agreement within such period of time, either party may refer the remaining
matters in dispute to PricewaterhouseCoopers, or such other nationally-recognized independent
accounting firm as may be accepted by Purchaser and Seller, for review and final determination. The
accounting firm shall conduct the arbitration proceedings in Fort Worth, Texas in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules
do not conflict with the terms of this Section 9.4. The accounting firm’s determination shall be
made within thirty (30) days after submission of the matters in dispute and shall be final and
binding on both parties, without right of appeal. In determining the proper amount of any
adjustment to the Purchase Price, the accounting firm shall not increase the Purchase Price more
than the increase proposed by Seller nor decrease the Purchase Price more than the decrease
proposed by Purchaser, as applicable. The accounting firm shall act as an expert for the limited
purpose of determining the specific disputed matters submitted by either party and may not award
damages or penalties to either party with respect to any matter. Seller and Purchaser shall each
bear their own legal fees and other costs of presenting their cases. Each party shall bear one-half
of the costs and expenses of the accounting firm. Within ten (10) Business Days after the date on
which the parties or the accounting firm, as applicable, finally determines the disputed matters,
(i) Purchaser shall pay to Seller the amount by which the Adjusted Purchase Price exceeds the
Closing Payment or (ii) Seller shall pay to Purchaser the amount by which the Closing Payment
exceeds the Adjusted Purchase Price, as applicable. Any post-Closing payment pursuant to this
Section 9.4(b) shall bear interest at the Agreed Interest Rate from the Closing Date to the date
both Purchaser and Seller have executed the final settlement statement and shall, consistent with
Section 9.4(c), be made in cash, not Purchaser Common Stock.



     (c) All payments made or to be made hereunder to Seller shall be by electronic transfer of
immediately available funds to the accounts of Seller set forth on Schedule 9.3(a) or to such other
account as may be specified by Seller in writing. All payments made or to be made hereunder to
Purchaser shall be by electronic transfer of immediately available funds to a bank and account
specified by Purchaser in writing to Seller.



28









 





ARTICLE 10

TERMINATION




     Section 10.1 Termination.



     Unless terminated earlier pursuant to other provisions provided herein, this Agreement may be
terminated at any time prior to Closing:



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



     (b) by either Purchaser or Seller, if Closing has not occurred on or before October 1, 2008
(the “Termination Date”); provided, however, that the right to terminate this Agreement under this
Section 10.1(b) shall not be available (i) to Seller, if any breach of this Agreement by Seller has
been the principal cause of, or resulted in, the failure of the Closing to occur on or before the
Termination Date or (ii) to Purchaser, if any breach of this Agreement by Purchaser has been the
principal cause of, or resulted in, the failure of the Closing to occur on or before the
Termination Date;



     (c) by Seller, if (i) any of the representations and warranties of Purchaser contained in this
Agreement shall not be true and correct in all material respects (provided that any such
representation or warranty that is already qualified by a materiality standard or a material
adverse effect qualification shall not be further qualified); or (ii) Purchaser shall have failed
to fulfill in any material respect any of its obligations under this Agreement required to be
fulfilled prior to Closing; and, in the case of each of clauses (i) and (ii), such
misrepresentation or breach of warranty, covenant or agreement, if curable, has not been cured
within ten (10) days after written notice thereof from Seller to Purchaser; provided that any cure
period shall not extend beyond the Termination Date and shall not extend the Termination Date; or



     (d) by Purchaser, if (i) any of the representations and warranties of Seller contained in this
Agreement shall not be true and correct in all material respects (provided that any such
representation or warranty that is already qualified by a materiality or Material Adverse Effect
qualification shall not be further qualified); or (ii) Seller shall have failed to fulfill in any
material respect any of its obligations under this Agreement required to be fulfilled prior to
Closing; and, in the case of each of clauses (i) and (ii), such misrepresentation or breach of
warranty, covenant or agreement, if curable, has not been cured within ten (10) days after written
notice thereof from Purchaser to Seller; provided that any cure period shall not extend beyond the
Termination Date and shall not extend the Termination Date.



     Section 10.2 Effect of Termination.



     If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and
of no further force or effect (except for the provisions of Sections 4.3, 5.6, 6.5, 7.5, 11.8,
11.9, 13.5, 13.11 and 13.14 of this Agreement and this Article 10, all of which shall continue in
full force and effect), and Seller shall be free immediately to enjoy all rights of ownership of
the Royalties and to sell, transfer, encumber or otherwise dispose of the Royalties to any party
without any restriction under this Agreement. In the event this Agreement terminates under Section
10.1 because (i) any of the conditions to Closing set forth in Section 8.2(a) or Section 8.2(b)
have not been satisfied or (ii) Seller’s refusal or inability to close notwithstanding the
satisfaction of the conditions precedent set forth in Section 8.1, then Purchaser shall be entitled
to all remedies available at law or in equity and shall be entitled to



29









 







recover court costs and attorneys’ fees in addition to any other relief to which Purchaser may be
entitled.



     Section 10.3 Distribution of Deposit Upon Termination.



     (a) If Seller terminates this Agreement solely (i) because any of the conditions to Closing
set forth in Section 8.1(a) or Section 8.1(b) have not been satisfied or (ii) because of
Purchaser’s refusal or inability to close notwithstanding the satisfaction of the conditions
precedent set forth in Section 8.2, then Seller may retain, as its sole and exclusive remedy, the
Deposit as liquidated damages, free of any claims by Purchaser or any other Person with respect
thereto. It is expressly stipulated by the parties that the actual amount of damages resulting
from such a termination would be difficult if not impossible to determine accurately because of the
unique nature of this Agreement, the unique nature of the Royalties, the uncertainties of
applicable commodity markets and differences of opinion with respect to such matters, and that the
liquidated damages provided for herein are a reasonable estimate by the parties of such damages.



     (b) If this Agreement is terminated for any reason other than the reasons set forth in
Section 10.3(a), then Seller shall promptly deliver the Deposit to Purchaser, free of any claims by
Seller or any other Person with respect thereto.



     (c) Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be
entitled to receive interest on the Deposit, whether the Deposit is applied against the Purchase
Price or returned to Purchaser pursuant to this Section 10.3.



ARTICLE 11

POST-CLOSING OBLIGATIONS; INDEMNIFICATION;

LIMITATIONS; DISCLAIMERS AND WAIVERS




     Section 11.1 Receipts.



     Except as otherwise provided in this Agreement, any Hydrocarbons produced from or attributable
to the Royalties (and all products and proceeds attributable thereto) and any other income,
proceeds, receipts and credits attributable to the Royalties which are not reflected in the
adjustments to the Purchase Price following the final adjustment pursuant to Section 9.4(b) shall
be treated as follows: (a) all Hydrocarbons produced from or attributable to the Royalties (and all
products and proceeds attributable thereto) and all other income, proceeds, receipts and credits
earned with respect to the Royalties to which Purchaser is entitled under Section 1.4 shall be the
sole property and entitlement of Purchaser, and, to the extent received by Seller, Seller shall
fully disclose, account for and remit the same promptly to Purchaser, and (b) all Hydrocarbons
produced from or attributable to the Royalties (and all products and proceeds attributable thereto)
and all other income, proceeds, receipts and credits earned with respect to the Royalties to which
Seller is entitled under Section 1.4 shall be the sole property and entitlement of Seller, and, to
the extent received by Purchaser, Purchaser shall fully disclose, account for and remit the same
promptly to Seller.



     Section 11.2 Expenses.



     Any Property Costs which are not reflected in the adjustments to the Purchase Price following
the final adjustment pursuant to Section 9.4(b) shall be treated as follows: (a) all



30









 







Property Costs for which Seller is responsible under Section 1.4 shall be the sole obligation
of Seller, and Seller shall promptly pay, or if paid by Purchaser, promptly reimburse Purchaser for
and hold Purchaser harmless from and against, such Property Costs; and (b) all Property Costs for
which Purchaser is responsible under Section 1.4 shall be the sole obligation of Purchaser, and
Purchaser shall promptly pay, or if paid by Seller, promptly reimburse Seller for and hold Seller
harmless from and against such Property Costs. Seller is entitled to resolve all audits covering
periods for which Seller is in whole or in part responsible, provided that Seller shall not agree
to any adjustments to previously assessed costs for which Purchaser is liable without the prior
written consent of Purchaser, such consent not to be unreasonably withheld. Seller shall provide
Purchaser with a copy of all applicable audit reports and written audit agreements received by
Seller and relating to periods for which Purchaser is partially responsible.



     Section 11.3 Assumed Seller Obligations.



     Without limiting Purchaser’s rights to indemnity under this Article 11, on the Closing Date,
Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be
fulfilled, performed, paid or discharged) all of the obligations and liabilities of Seller, known
or unknown, with respect to the Royalties, regardless of whether such obligations or liabilities
arose prior to, on or after the Effective Time (all of such obligations and liabilities, subject to
the exclusions below, herein being referred to as the “Assumed Seller Obligations”); provided,
however, that Purchaser does not accrue any rights or assume any obligations or liabilities of
Seller to the extent that they are (such excluded obligations and liabilities, the “Excluded Seller
Obligations”):




     (a) attributable to or arise out of the Excluded Assets;




     (b) the continuing responsibility of the Seller under Sections 11.1 and 11.2 or matters
for which Seller is required to indemnify Purchaser under Section 11.4(c);




     (c) related to personal injury or death arising or occurring prior to the Closing Date
that are attributable to Seller’s ownership or operation of the Royalties; or




     (d) Retained Employee Liabilities.



     Section 11.4 Indemnities.



     (a) Definitions.



     “Claim” or “Claims” means, unless specifically provided otherwise, all claims (including, but
not limited to, those for damage to property, bodily injury and death, personal injury, illness,
disease, maintenance, cure, loss of parental and spousal consortium, wrongful death, loss of
support and wrongful termination of employment), damages, liabilities, losses, demands, liens,
encumbrances, fines, penalties, causes of action of any kind (including actions for indirect,
consequential, punitive and exemplary damages), obligations, costs (including payment of all
reasonable attorneys’ fees and costs of litigation), judgments, interest, and awards or amounts, of
any kind or character, whether under judicial proceedings, administrative proceedings,
investigation by a Governmental Body or otherwise, or conditions in the premises of or attributable
to any Person or Persons or any party or parties, breach of representation or warranty (expressed
or implied), under any theory of tort, contract, breach of contract (including any Claims which
arise by reason of indemnification or assumption of liability contained in other contracts entered
into by an Indemnified Party hereunder), at law or in equity, under statute, or



31









 







otherwise, arising out of, or incident to or in connection with this Agreement or the
ownership of the Royalties.



     The phrase “REGARDLESS OF FAULT” means WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY CLAIM,
INCLUDING, WITHOUT LIMITATION, EVEN THOUGH A CLAIM IS CAUSED IN WHOLE OR IN PART BY:



     THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE OR
PASSIVE), STRICT LIABILITY, OR OTHER FAULT (BUT EXCLUDING GROSS NEGLIGENCE AND WILLFUL MISCONDUCT)
OF PURCHASER INDEMNITEES, SELLER INDEMNITEES, INVITEES AND/OR THIRD PARTIES; AND/OR



     A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR
SELLER’S PROPERTY (INCLUDING, WITHOUT LIMITATION, THE PROPERTY ASSOCIATED WITH THE ROYALTIES).



     (b) Purchaser Indemnity Obligation. From and after the Closing, subject only to
Section 11.4(c) and the limitations contained in Section 11.7, Purchaser shall be responsible for
and indemnify, defend, release and hold harmless Seller Indemnitees from and against all Claims
caused by, arising out of or resulting from:




     (i) the Assumed Seller Obligations, REGARDLESS OF FAULT;




     (ii) the ownership of the Royalties after the Effective Time, REGARDLESS OF FAULT;




     (iii) Purchaser’s breach of any of Purchaser’s covenants or agreements contained in
Article 7, REGARDLESS OF FAULT;




     (iv) any breach of any representation or warranty made by Purchaser contained in
Article 6 of this Agreement or in the certificate delivered by Purchaser at Closing pursuant
to Section 9.3(d), REGARDLESS OF FAULT; and




     (v) Purchaser Indemnitees’ access under Section 4.1, Section 7.1 or otherwise, to the
Records and other related activities or information prior to the Closing, REGARDLESS OF
FAULT.



     (c) Seller Indemnity Obligation. From and after the Closing, subject only to the
limitations contained in Section 11.7, Seller shall be responsible for and indemnify, defend and
hold harmless Purchaser Indemnitees against and from all Claims to the extent caused by, arising
out of or resulting from:



     (i) any breach of any representation or warranty of Seller contained in Article 5 of this
Agreement or in any certificate furnished by or on behalf of Seller at Closing pursuant to Section
9.2(c);



     (ii) any breach or nonfulfillment of or failure to perform any covenant or agreement of Seller
contained in this Agreement; and



     (iii) any Excluded Seller Obligations.




32












 





     (d) Additional Provisions.



     It is the intention of the parties that this Article 11 shall govern the allocation of risks
and liabilities between Purchaser and Seller except to the extent that it is expressly stated
(whether elsewhere in this Article 11 or in some other Article hereof) that the provisions of such
other Article (or part thereof) shall control over the terms of all or part of this Article 11.



     Notwithstanding anything to the contrary contained in this Agreement, this Section 11.4
contains the parties’ exclusive remedy against each other with respect to breaches of the
representations, warranties, covenants and agreements of the parties contained in Articles 5 and 6
and Sections 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6 and the affirmations of such representations,
warranties, covenants and agreements contained in the certificate or certificates delivered by each
party at Closing pursuant to Sections 9.2(c) or 9.3(d), as applicable.



     Section 11.5 Indemnification Actions.



     All claims for indemnification under Section 11.4 shall be asserted and resolved as follows:



     (a) For purposes of this Article 11, the term “Indemnifying Party” shall mean the party or
parties having an obligation to indemnify another party or parties pursuant to the terms of this
Agreement. The term “Indemnified Party” shall mean the party or parties having the right to be
indemnified by another party or parties pursuant to the terms of this Agreement.



     (b) To make a claim for indemnification (“Indemnity Claim”) under Section 11.4, and/or any
other Article (or part thereof) expressly stating that it controls over the terms of this Article
11, an Indemnified Party shall notify the Indemnifying Party in writing of its Indemnity Claim,
including the specific details of and specific basis under this Agreement for its Indemnity Claim
(the “Claim Notice”). The Indemnified Party shall provide its Claim Notice promptly after the
Indemnified Party has actual knowledge of the Claim for which it seeks indemnification and shall
enclose a copy of all papers (if any) served with respect to the Claim; provided that the failure
of any Indemnified Party to give notice of a Claim as provided in this Section 11.5 shall not
relieve the Indemnifying Party of its obligations under Section 11.4 except to the extent such
failure results in insufficient time being available to permit the Indemnifying Party to
effectively defend against the Claim or otherwise prejudices the Indemnifying Party’s ability to
defend against the Claim. In the event that the Indemnity Claim is based upon an inaccuracy or
breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the
representation, warranty, covenant or agreement which was inaccurate or breached.



     (c) The Indemnifying Party shall have thirty (30) days from its receipt of the Claim Notice to
notify the Indemnified Party whether it admits or denies its liability to defend the Indemnified
Party against the relevant Claim at the sole cost and expense of the Indemnifying Party. The
Indemnified Party is authorized, prior to and during such 30-day period, to file any motion, answer
or other pleading that it shall deem necessary or appropriate to protect its interests or those of
the Indemnifying Party and that is not prejudicial to the Indemnifying Party.



     (d) If the Indemnifying Party admits its liability to indemnify the Indemnified Party, it
shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim.
The Indemnifying Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party
agrees to cooperate in contesting any Claim which the Indemnifying Party elects to contest. The



33









 




Indemnified Party may participate in, but not control, any defense or settlement of any Claim
controlled by the Indemnifying Party pursuant to this Section 11.5(d). An Indemnifying Party
shall not, without the written consent of the Indemnified Party, (i) settle any Claim or consent to
the entry of any judgment with respect thereto which does not include an unconditional written
release of the Indemnified Party from all liability in respect of such Claim, or (ii) settle any
Claim or consent to the entry of any judgment with respect thereto in any manner that may
materially and adversely affect the Indemnified Party (other than as a result of money damages
covered by the indemnity).




     (e) If the Indemnifying Party does not admit its liability to indemnify the Indemnified Party
or admits its liability but fails to diligently prosecute or settle the Claim, then the Indemnified
Party shall have the right to defend against the Claim at the sole cost and expense of the
Indemnifying Party, with counsel of the Indemnified Party’s choosing, subject to the right of the
Indemnifying Party to admit its liability and assume the defense of the Claim at any time prior to
settlement or final determination thereof. If the Indemnifying Party has not yet admitted its
liability for a Claim, the Indemnified Party shall send written notice to the Indemnifying Party of
any proposed settlement and the Indemnifying Party shall have the option for ten (10) Business Days
following receipt of such notice to (i) admit in writing its liability to indemnify the Indemnified
Party from and against the Claim and, (ii) if liability is so admitted, reject, in its reasonable
judgment, the proposed settlement.



     Section 11.6 Release.



     (a) EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT, PURCHASER RELEASES, REMISES
AND FOREVER DISCHARGES SELLER INDEMNITEES FROM ANY AND ALL CLAIMS, KNOWN OR UNKNOWN, WHETHER NOW
EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR OTHERWISE, WHICH PURCHASER MIGHT NOW OR
SUBSEQUENTLY MAY HAVE AGAINST SELLER INDEMNITEES, RELATING DIRECTLY OR INDIRECTLY TO THE ROYALTIES.



     (b) Purchaser covenants and agrees that it will not attempt to avoid the effect of the release
made by it hereinabove by later arguing that at the time of the release it did not fully appreciate
the extent of any such Claims, including, without limitation, environmental Claims.



     Section 11.7 Limitation on Actions.



     (a) The representations and warranties of the parties in Articles 5 and 6 terminate six months
after Closing, except that Section 5.12 and Section 6.11 shall survive indefinitely. The remainder
of the representations, warranties, covenants and agreements provided for in this Agreement shall
survive Closing for one year except that covenants and agreements contemplated to be complied with
or performed following the Closing shall survive indefinitely. Representations, warranties,
covenants and agreements shall be of no further force and effect after the date of their
expiration, provided that there shall be no termination of any bona fide Claim asserted pursuant to
this Agreement with respect to the breach of such a representation, warranty, covenant or agreement
on or before its expiration date.



     (b) The indemnities in Sections 11.4(b)(iii), 11.4(b)(iv), 11.4(c)(i) and 11.4(c)(ii) shall
terminate as of the termination date of each respective representation, warranty, covenant or
agreement that is subject to indemnification, except in each case as to Claims asserted pursuant to
this Agreement with respect to the breach of such representation, warranty, covenant or agreement
on or before such termination date. Purchaser’s indemnities in



34









 




Sections 11.4(b)(i), 11.4(b)(ii)
and 11.4(b)(v) and Seller’s indemnity in Section 11.4(c)(iii) shall continue without time limit.




     Section 11.8 Disclaimers.



     (a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN ARTICLE 5 OF THIS AGREEMENT, THE
CERTIFICATES OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(c) OR IN THE CONVEYANCE, (I) SELLER
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (II) SELLER EXPRESSLY
DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR
INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES,
EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION,
INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY ANY OFFICER,
DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SELLER OR ANY OF THEIR
AFFILIATES).



     (b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE 5 OF THIS AGREEMENT, THE CERTIFICATES
OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(c) OR IN THE CONVEYANCE, AND WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS,
STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ROYALTIES, (II) THE CONTENTS, CHARACTER OR
NATURE OF ANY DESCRIPTIVE MEMORANDUM, ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ROYALTIES, (III) THE QUANTITY,
QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE ROYALTIES, (IV) ANY ESTIMATES OF
THE VALUE OF THE ROYALTIES OR FUTURE REVENUES GENERATED BY THE ROYALTIES, (V) THE PRODUCTION OF
HYDROCARBONS FROM THE ROYALTIES, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY,
DESIGN OR MARKETABILITY OF THE EQUIPMENT ASSOCIATED WITH THE ROYALTIES, (VII) THE CONTENT,
CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS
PREPARED BY SELLER OR THIRD PARTIES, AND (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE
BEEN MADE AVAILABLE OR COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR TO ITS OR THEIR EMPLOYEES,
AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO.



     (c) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN THE CERTIFICATES OF SELLER
TO BE DELIVERED PURSUANT TO SECTION 9.2(c), SELLER HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR
WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, ENVIRONMENTAL
LIABILITIES, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH,
SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT.



35









 





     Section 11.9 Waiver of Trade Practices Acts.



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



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



     Section 11.10 Recording.



     As soon as practicable after Closing, Purchaser shall record the Conveyance in the appropriate
counties and provide Seller with copies of all recorded or approved instruments.



ARTICLE 12

REGISTRATION REQUIREMENTS




     Section 12.1 Definitions.



     For purposes of this Article 12:



     (a) “Damages” means any loss, damage, or liability (joint or several) to which a party hereto
may become subject under the Securities Act, the Exchange Act, or other federal or state Law,
insofar as such loss, damage, or liability (or any action in respect thereof) arises out of or is
based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any
registration statement of the Purchaser registering the Shares, including any preliminary
prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an
omission or alleged omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (iii) any violation or alleged
violation by the Purchaser (or any of its agents or Affiliates) of the Securities Act, the Exchange
Act, any state securities Law, or any rule or regulation promulgated under the Securities Act, the
Exchange Act, or any state securities Law in connection with the registration of the Shares.



     (b) “Form S-3” means such form under the Securities Act as in effect on the date hereof or any
registration form under the Securities Act subsequently adopted by the SEC that permits
incorporation of substantial information by reference to other documents filed by the Purchaser
with the SEC.



36









 





     (c) “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.



     Section 12.2 Purchaser Covenants.



     The Purchaser covenants and agrees as follows:



     (a) As promptly as practicable (and in any event within one (1) Business Day) after the
Closing, the Purchaser shall register the resales of the Shares by the Seller on an automatically
effective Form S-3 shelf registration statement under the Securities Act, the form of which will be
provided to the Seller prior to the filing thereof with the SEC for its reasonable comments which
will be included in the prospectus contained therein (the “Registration Statement”).



     (b) If after twenty (20) Business Days after the Registration Statement has become effective,
the Purchaser furnishes to the Seller a certificate signed by the Purchaser’s chief executive
officer stating that in the good faith judgment of the Purchaser’s Board of Directors it would be
materially detrimental to the Purchaser and its stockholders for the Registration Statement to be
used for resales of the Shares, because such action would (i) materially interfere with a
significant acquisition, corporate reorganization, or other similar transaction involving the
Purchaser or (ii) require premature disclosure of material information that the Purchaser has a
bona fide business purpose for preserving as confidential, or if at any time the Purchaser shall
determine in good faith that the making of offers or sales of the Shares pursuant to the
Registration Statement would otherwise be unlawful as a result of an event or circumstance outside
of Purchaser’s control, then by notice to the Seller, the Purchaser may suspend the rights of the
Seller to make offers or sales of the Shares pursuant to the Registration Statement for a period of
not more than ninety (90) days; provided, however, that the Purchaser may not invoke this right
more than once. Upon receipt of any suspension notice referred to in the preceding sentence, the
Seller shall immediately discontinue making offers or sales of the Shares under the shelf
registration statement until the Purchaser shall advise Seller in writing that it is again
permissible to do so.



     Section 12.3 Obligations of the Purchaser.



     The Purchaser shall, as expeditiously as reasonably possible:



     (a) use its commercially reasonable efforts to keep the Registration Statement effective for a
period of one year after the Closing;



     (b) prepare and file with the SEC such amendments and supplements to the Registration
Statement, and the prospectus used in connection with the Registration Statement, as may be
necessary to comply with the Securities Act in order to enable the disposition of all securities
covered by the Registration Statement;



     (c) furnish to the Seller such numbers of copies of a prospectus, including a preliminary
prospectus, as required by the Securities Act, and such other documents as the Seller may
reasonably request in order to facilitate their disposition of their Shares;



     (d) use its commercially reasonable efforts to register and qualify the securities covered by
the Registration Statement under such other securities or blue-sky laws of such states as shall be
reasonably requested by the Seller; provided that the Purchaser shall not be



37









 




required to qualify to
do business or to file a general consent to service of process in any such states;




     (e) use its commercially reasonable efforts to cause the Shares to be listed on the New York
Stock Exchange;



     (f) notify Seller, promptly after the Purchaser receives notice thereof, of the time when the
Registration Statement has been declared effective or a supplement to any prospectus forming a part
of the Registration Statement has been filed; and



     (g) after the Registration Statement becomes effective, notify Seller of any request by the
SEC that the Purchaser amend or supplement the Registration Statement or prospectus.



     Section 12.4 Furnish Information.



     It shall be a condition precedent to the obligations of the Purchaser to register the Shares
hereunder that the Seller shall have furnished to the Purchaser such information regarding the
Seller and the Royalties, financial statements or other information within the reasonable control
of the Seller as is reasonably required to effect the registration of the Shares, and the Purchaser
shall have the right to defer taking action with respect to any filings required to complete such
registration, and any time periods with respect to filing or effectiveness thereof shall be tolled
correspondingly.



     Section 12.5 Expense of Registration.



     All expenses incurred by the Purchaser in connection with registrations, filings, or
qualifications pursuant to this Article 12, including all registration, filing, and qualification
fees; printers’ and accounting fees; fees and disbursements of counsel for the Purchaser, shall be
borne and paid by the Purchaser.



     Section 12.6 Indemnification.



     If any Shares are included in a registration statement under this Article 12:



     (a) To the extent permitted by law, the Purchaser will indemnify and hold harmless Seller, and
the partners, members, officers, directors, and stockholders of Seller, against any Damages, and
the Purchaser will pay to Seller, or other aforementioned Person any legal or other expenses
reasonably incurred thereby in connection with defending any claim or proceeding from which Damages
may result, as such expenses are incurred; provided, however, that the indemnity agreement
contained in this Section 12.6(a) shall not apply to amounts paid in settlement of any such claim
or proceeding if such settlement is effected without the consent of the Purchaser, which consent
shall not be unreasonably withheld or delayed, nor shall the Purchaser be liable for any Damages to
the extent that they arise out of or are based upon actions or omissions made in reliance upon and
in conformity with written information furnished by or on behalf of Seller or other aforementioned
Person expressly for use in the Registration Statement.



     (b) To the extent permitted by Law, Seller will indemnify and hold harmless the Purchaser, and
each of its directors, officers, and stockholders, against any Damages, in each case only to the
extent that such Damages arise out of or are based upon actions or omissions



38









 




made in reliance upon
and in conformity with written information furnished by or on behalf of Seller expressly for use in
the Registration Statement; and Seller will pay to the Purchaser and each other aforementioned
Person any legal or other expenses reasonably incurred thereby in connection with defending any
claim or proceeding from which Damages may result, as such
expenses are incurred; provided, however, that the indemnity agreement contained in this
Section 12.6(b) shall not apply to amounts paid in settlement of any such claim or proceeding if
such settlement is effected without the consent of the Seller, which consent shall not be
unreasonably withheld or delayed; and provided further that in no event shall the aggregate amounts
payable by Seller by way of indemnity or contribution under Sections 12.6(b) and 12.6(d) exceed the
proceeds from the offering received by Seller, except in the case of intentional fraud or willful
misconduct by Seller.




     (c) Promptly after receipt by an indemnified party under this Section 12.6 of notice of the
commencement of any action (including any governmental action) for which a party may be entitled to
indemnification under this Article 12, such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 12.6, give the indemnifying party
notice of the commencement thereof. The indemnifying party shall have the right to participate in
such action and, to the extent the indemnifying party so desires, participate jointly with any
other indemnifying party to which notice has been given, and to assume the defense thereof with
counsel mutually satisfactory to the parties.



     Section 12.7 Rule 144.



     (a) With a view to making available to the Seller the benefits of SEC Rule 144 and any other
rule or regulation of the SEC that may at any time permit Seller to sell securities of the
Purchaser to the public without registration or pursuant to a registration on Form S-3, the
Purchaser shall:



     (i) make and keep available adequate current public information, as those terms are understood
and defined in SEC Rule 144, at all times;



     (ii) use commercially reasonable efforts to file with the SEC in a timely manner all reports
and other documents required of the Purchaser under the Securities Act and the Exchange Act; and



     (iii) furnish to Seller, so long as the Seller owns any Shares, forthwith upon request (i) to
the extent accurate, a written statement by the Purchaser that it has complied with the reporting
requirements of SEC Rule 144, the Securities Act, and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3; (ii) a copy of the most recent
annual or quarterly report of the Purchaser and such other reports and documents so filed by the
Purchaser; and (iii) such other information as may be reasonably requested in availing Seller of
any rule or regulation of the SEC that permits the selling of any such securities without
registration or pursuant to Form S-3.



     (b) To the extent that the Seller is able to offer and sell the Shares at the times and in the
volumes that it desires to offer and sell the Shares pursuant to SEC Rule 144 rather than pursuant
to the Registration Statement, the Seller shall make such offers and sales of the Shares pursuant
to SEC Rule 144 rather than pursuant to the Registration Statement.



     (c) No later than the seventh Business Day after the one year anniversary of the Closing Date,
Purchaser shall use its best efforts to cause its transfer agent to provide to the



39









 




holders of the
Purchaser Common Stock, in exchange for certificates they surrender evidencing such shares that
bear the legend set forth in Section 5.20, certificates evidencing like numbers of shares that do
not bear such legend.




ARTICLE 13

MISCELLANEOUS




     Section 13.1 Counterparts.



     This Agreement may be executed in counterparts, each of which shall be deemed an original
instrument, but all such counterparts together shall constitute but one agreement.



     Section 13.2 Notice.



     All notices which are required or may be given pursuant to this Agreement shall be sufficient
in all respects if given in writing and delivered personally, by telecopy or by registered or
certified mail, postage prepaid, as follows:



	 	 	 
	If to Seller:

	 	Nortex Minerals, L.P.
	 

	 	2300 West Plano Parkway
	 

	 	Plano, TX 75075
	 

	 	Attention: J.Y. Robb III
	 

	 	Telephone: (972) 535-1930
	 

	 	Telecopy: (972) 535-1999
	 
	 	 
	 

	 	Petrus Investment, L.P.
	 

	 	2300 West Plano Parkway
	 

	 	Plano, TX 75075
	 

	 	Attention: J.Y. Robb III
	 

	 	Telephone: (972) 535-1930
	 

	 	Telecopy: (972) 535-1999
	 
	 	 
	 

	 	Petrus Development, L.P.
	 

	 	2300 West Plano Parkway
	 

	 	Plano, TX 75075
	 

	 	Attention: J.Y. Robb III
	 

	 	Telephone: (972) 535-1930
	 

	 	Telecopy: (972) 535-1999
	 
	 	 
	 

	 	Perot Investment Partners, Ltd.
	 

	 	2300 West Plano Parkway
	 

	 	Plano, TX 75075
	 

	 	Attention: J.Y. Robb III
	 

	 	Telephone: (972) 535-1930
	 

	 	Telecopy: (972) 535-1999






40









 






	 	 	 
	With a copy to:

(which shall not 

itself constitute


notice)

	 	Don C. Plattsmier

Kelly Hart & Hallman LLP

201 Main Street, Suite 2500

Fort Worth, TX 76102

	 

	 	Telephone: (817) 878-3505
	 

	 	Telecopy: (817) 878-9280
	 
	 	 
	If to Purchaser:

	 	Quicksilver Resources Inc.
	 

	 	777 West Rosedale St.
	 

	 	Fort Worth, Texas 76104
	 

	 	Attention: John C. Cirone, Senior
Vice President and General Counsel
	 

	 	Telephone: (817) 665-4939
	 

	 	Telecopy: (817) 665-5021
	 
	 	 
	With a copy to: (which shall not itself constitute notice)
	 

	 	Fulbright & Jaworski L.L.P.
	 

	 	Fulbright Tower
	 

	 	1301 McKinney, Suite 5100
	 

	 	Houston, Texas 77010-3095
	 

	 	Attention: Deborah A. Gitomer
	 

	 	Telephone: (713) 651-5151
	 

	 	Telecopy: (713) 651-5246





Either party may change its address for notice by notice to the other in the manner set forth
above. All notices shall be deemed to have been duly given at the time of receipt by the party to
which such notice is addressed.



     Section 13.3 Sales or Use Tax Recording Fees and Similar Taxes and Fees.




     Purchaser shall bear any sales, use, excise, real property transfer or gain, gross receipts,
goods and services, registration, capital, documentary, stamp or transfer Taxes, recording fees and
similar Taxes and fees incurred and imposed upon, or with respect to, the property transfers or
other transactions contemplated hereby. Seller will determine, and Purchaser agrees to cooperate
with Seller in determining, sales tax, if any, that is due in connection with the sale of Royalties
and Purchaser agrees to pay any such tax to Seller at Closing. If such transfers or transactions
are exempt from any such taxes or fees upon the filing of an appropriate certificate or other
evidence of exemption, Purchaser will timely furnish to Seller such certificate or evidence.



     Section 13.4 Expenses.



     Except as provided in Section 13.3, all expenses incurred by Seller in connection with or
related to the authorization, preparation or execution of this Agreement, the Conveyance delivered
hereunder and the Exhibits and Schedules hereto and thereto, and all other matters related to the
Closing, including without limitation, all fees and expenses of counsel, accountants and financial
advisers employed by Seller, shall be borne solely and entirely by



41









 




Seller, and all such expenses
incurred by Purchaser shall be borne solely and entirely by Purchaser.




     Section 13.5 Governing Law and Venue.



     THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
OTHERWISE APPLICABLE TO SUCH DETERMINATIONS. JURISDICTION AND VENUE WITH RESPECT TO ANY DISPUTES
ARISING HEREUNDER SHALL BE PROPER ONLY IN TARRANT COUNTY, TEXAS.



     Section 13.6 Captions.



     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 13.7 Waivers.



     Any failure by any party or parties to comply with any of its obligations, agreements or
conditions herein contained may be waived in writing, but not in any other manner, by the party or
parties to whom such compliance is owed. No waiver of, or consent to a change in, any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a
change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.



     Section 13.8 Assignment.



     No party shall assign all or any part of this Agreement, nor shall any party assign or
delegate any of its rights or duties hereunder, without the prior written consent of the other
party, and any assignment or delegation made without such consent shall be void. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.



     Section 13.9 Entire Agreement.



     The Confidentiality Agreement, this Agreement and the Exhibits and Schedules attached hereto,
and the documents to be executed hereunder 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.



     Section 13.10 Amendment.



     (a) This Agreement may be amended or modified only by an agreement in writing executed by all
parties.



     (b) No waiver of any right under this Agreement shall be binding unless executed in writing by
the party to be bound thereby.



42









 





     Section 13.11 No Third-Party Beneficiaries.



     Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any
Claim or Damages, remedy or right of any kind, except as to those rights expressly provided to
Seller Indemnitees, Purchaser Indemnitees or the indemnitees of Seller or Purchaser referenced in
Section 12.6 (provided, however, any claim for indemnity hereunder on behalf of a Seller
Indemnitee, Purchaser Indemnitee or any indemnitee of Seller or Purchaser referenced in Section
12.6 must be made and administered by a party to this Agreement).



     Section 13.12 References.



     In this Agreement:



     (a) References to any gender include a reference to all other genders;



     (b) References to the singular include the plural, and vice versa;



     (c) Reference to any Article or Section means an Article or Section of this Agreement;



     (d) Unless expressly provided otherwise, a reference to any Exhibit or Schedule means an
Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this
Agreement;



     (e) Unless expressly provided to the contrary, “hereunder,” “hereof,” “herein” and words of
similar import are references to this Agreement as a whole and not any particular Section or other
provision of this Agreement; and



     (f) “Include” and “including” shall mean include or including without limiting the generality
of the description preceding such term.



     Section 13.13 Construction.



     Purchaser is a party capable of making such investigation, inspection, review and evaluation
of the Royalties as a prudent purchaser would deem appropriate under the circumstances, including
with respect to all matters relating to the Royalties, their value, operation and suitability. Each
of Seller and Purchaser has had substantial input into the drafting and preparation of this
Agreement and has had the opportunity to exercise business discretion in relation to the
negotiation of the details of the transactions contemplated hereby. This Agreement is the result of
arm’s-length negotiations from equal bargaining positions. In the event of a dispute over the
meaning or application of this Agreement, it shall be construed fairly and reasonably and neither
more strongly for nor against either party.



     Section 13.14 Limitation on Damages.



     Notwithstanding any other provision contained elsewhere in this Agreement to the contrary, the
parties acknowledge that this Agreement does not authorize one party to sue for or collect from the
other party its own punitive damages or its own consequential or indirect damages in connection
with this Agreement and the transactions contemplated hereby, and each of Seller and Purchaser
expressly waives for itself and on behalf of its Affiliates any and all



43









 




Claims it may have against
the other parties for such damages in connection with this Agreement and the transactions
contemplated hereby.




     Section 13.15 Conspicuousness.



     The parties agree that provisions in this Agreement in “bold” type satisfy any requirements of
the “express negligence rule” and any other requirements at law or in equity that provisions be
conspicuously marked or highlighted.



     Section 13.16 Severability.



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



     Section 13.17 Time of Essence.



     Time is of the essence in this Agreement. If the date specified in this Agreement for giving
any notice or taking any action is not a Business Day (or if the period during which any notice is
required to be given or any action taken expires on a date which is not a Business Day), then the
date for giving such notice or taking such action (and the expiration date of such period during
which notice is required to be given or action taken) shall be the next day which is a Business
Day.



[SIGNATURES BEGIN ON THE FOLLOWING PAGE]




44









 








     IN WITNESS WHEREOF, this Agreement has been signed by each of the parties hereto on the date
first above written.



	 	 	 	 	 	 	 
	 	 	PURCHASER:	 	 
	 
	 	 	 	 	 	 
	 	 	QUICKSILVER RESOURCES INC.,	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Glenn Darden	 	 
	 

	 	 	 	 

Glenn Darden
	 	 
	 

	 	 	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	SELLER:	 	 
	 
	 	 	 	 	 	 
	 	 	NORTEX MINERALS, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 	 	By: Nortex GP, LLC, a Texas limited liability	 	 
	 	 	company, its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ J.Y. Robb III	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	J.Y. Robb III, Manager	 	 
	 
	 	 	 	 	 	 
	 	 	PETRUS INVESTMENT, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 	 	By: PMC Management, L.P.,

a Texas limited partnership,

its general partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: Hillwood Development Company, LLC,

a Texas limited liability company,

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	Executive Vice President	 	 
	 

	 	 	 	 	 	 





 









 






	 	 	 	 	 	 	 
	 	 	PETRUS DEVELOPMENT, L.P.,

a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 	 	By: PMC Management, L.P.,

a Texas limited partnership,

its general partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: Hillwood Development Company, LLC,

a Texas limited liability company,

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	Executive Vice President	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	PEROT INVESTMENT PARTNERS, LTD.

a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 	 	By: Hillwood Holding Corporation,

a Texas corporation,

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	M. Thomas Mason	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	Executive Vice President