Document:

Exhibit 10.20

AGREEMENT OF SALE AND PURCHASE

 

This Agreement of Sale and Purchase (the “Agreement”)
dated this 11th day of August, 2004, is by and between PHAWK, LLC, a
Delaware limited liability company (formerly Petrohawk Energy, LLC), (herein
called “Seller”) and Petrohawk Energy Corporation, a Delaware corporation
(herein called “Buyer”). Seller and Buyer are sometimes hereinafter
collectively referred to as the “Parties” and individually as a “Party”. 

 

W I T N E S S E T
H:

 

1.        Property to be Sold and Purchased.  Seller agrees to sell and Buyer agrees to
purchase, for the consideration herein set forth, and subject to the terms and
provisions herein contained, the following described properties, rights and
interests:

 

(a)      All right, title and interest of Seller in
and to the oil, gas and/or mineral leases, the wells, the production facility
platform, and related pipelines and associated rights of way,  and that certain abandonment escrow account,
that are described on Exhibit A hereto (such oil, gas and/or mineral leases
described in the Exhibit A hereto are hereinafter collectively referred to as
the “Leases”, and such wells identified on the Exhibit A hereto are hereinafter
referred to as the “Wells”); and

 

(b)      All rights, titles and interests of Seller
in and to, or otherwise derived from, all presently existing and valid oil, gas
and/or mineral unitization, pooling, and/or communitization agreements,
declarations and/or orders (including, without limitation, all units formed
under orders, rules, regulations, or other official acts of any federal, state,
or other authority having jurisdiction, and voluntary unitization agreements,
designations and/or declarations) relating to the properties described in
subsection (a) above, to the extent and only to the extent such rights, titles
and interests are attributable to the properties described in subsection (a)
above; and

 

(c)      All rights, titles and interests of Seller
in and to all presently existing and valid production sales contracts,
operating agreements, exploration agreements, farm-out and farm-in agreements,
right of way easements, surface use agreements, seismic data agreements (to the
extent transferable and subject to the limitations set forth below), copies of
all lease files, land files, well files, environmental records, production
records, division order files, abstracts, title opinions, and contract files,
and other agreements and contracts (including but not limited to AMI
agreements, if any) which relate to any of the properties described in subsections
(a) and (b) above, to the extent and only to the extent such rights, titles and
interests are attributable to the properties described in subsections (a) and
(b) above; and

 

(d)      All rights, titles and interests of Seller
in and to all wells, wellhead equipment, production facilities, flowlines,
tanks, injection facilities, saltwater disposal facilities, compression
facilities, gathering systems, and other equipment located on the properties
described in subsections (a) and (b) above and currently in use in connection
with the 

 

 

 

operation of such
properties, to the extent and only to the extent such rights, titles and
interests are attributable to the properties described in subsections (a) and
(b) above; and

 

(e)      certain office furniture and office
equipment, automobiles, assignable service agreements, warranty agreements and
other agreements associated with the furniture and equipment, as described on
Exhibit B, and any logo, service mark, copyright, trade name or
trademark of or associated with the name Petrohawk Energy or Petrohawk.

 

The properties,
rights and interests specified in the foregoing subsections (a) and (b) are
herein sometimes collectively called the “Oil and Gas Properties”,
and the properties, rights and interests specified in the foregoing subsections
(a) through (e), inclusive, but exclusive of the properties, rights and
interests excluded below, are herein sometimes collectively called the “Properties”.  The
Properties do not include, and there is hereby expressly excepted and excluded
therefrom and reserved to Seller the Excluded Properties described below.

 

(f)            Excluded Properties.

 

The Properties do not include, and there is hereby
expressly excepted and excluded therefrom and reserved to Seller:

 

(i)            any
accounts receivable or accounts payable accrued before the Effective Date,
together with all accounts receivable and accounts payable related to joint
interest billings attributable to the Oil and Gas Properties with respect to
all periods prior to the Effective Date;

 

(ii)           all
corporate, financial, tax and legal (other than title) records of Seller, except that Seller will provide Buyer
with copies of any tax records that are necessary for Buyer’s ownership,
administration or operation of the Properties;

 

(iii)          all
contracts of insurance or indemnity;

 

(iv)          all
hydrocarbon production from or attributable to the Oil and Gas Properties with
respect to all periods prior to the Effective Date, and all proceeds
attributable thereto, together with all production imbalances attributable to
the Oil and Gas Properties with respect to all periods prior to the Effective
Date;

 

(v)           any
refund of costs, taxes or expenses borne by Seller attributable to the period
prior to the Effective Date;

 

(vi)          properties
excluded from the purchase and sale contemplated by this Agreement under
Section 7;

 

(vii)         except
to the extent constituting the suspended funds on royalty or funds in the abandonment escrow account referred to in
Section 1(a) above, all 

 

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deposits,
cash, checks, funds and accounts receivable attributable to Seller’s interests
in the Properties with respect to any period of time prior to the Effective
Date; and

 

                (viii)        all rights and causes in action, arising,
occurring or existing and accrued in favor of Seller prior to the Effective
Date or arising out of the operation of or production from the Oil and Gas
Properties prior to the Effective Date (including, but not limited to, any and
all contract rights, claims, receivables, revenues, recoupment rights, recovery
rights, accounting adjustments, mispayments, erroneous payments or other claims
of any nature in favor of Seller and relating and accruing to any time period
prior to the Effective Date).

These excluded properties are collectively
referred to as the “Excluded Properties.”  Buyer shall not be responsible for, and
Seller expressly retains, all obligations and liabilities related to the
Excluded Properties, whether such liabilities arise before or after the
Effective Date.  It is understood that
certain of the Excluded Properties may not be embraced by the term “Properties”.

 

2.        Purchase Price.   The purchase price for the Properties shall
be Eight Million Five Hundred Thousand Dollars ($8,500,000) (such amount
unadjusted by any other adjustments provided for in this Agreement or agreed to
by the parties, being herein called the “Base Purchase Price”).  Such Base Purchase Price may be adjusted as
provided in Sections 7 and 11 hereof (the Base Purchase Price, as so adjusted,
and as the same may otherwise be adjusted by mutual agreement of the parties,
being herein called the “Purchase Price”).  Except as may be provided in
Section 11(c), the Purchase Price shall be paid in readily available funds
at the Closing as hereinafter provided.

 

3.        Representations of Seller.

 

(a)      Representations.   Seller represents and warrants to Buyer
that:

 

(i)         Organization and
Qualification.  Seller is
a limited liability company organized and legally existing and in good standing
under the laws of the State of Delaware.

 

(ii)        Due Authorization.  Seller has full power to enter into and
perform its obligations under this Agreement and has taken all necessary
actions to authorize entering into this Agreement and perform its obligations
hereunder.

 

(iii)       Approvals.  Other than requirements (if any) that there
be obtained consents to assignment from third parties (any material contracts
containing such consent requirements being disclosed under Section 3(a)(x)
below)  and except for approvals (“Routine Governmental Approvals”) required to be obtained
from governmental entities who are lessors under Leases or grantors of rights
of way forming a part of the Oil and Gas Properties (or who administer such Leases
or rights of way on behalf of such lessors or grantors) which are customarily
obtained post-closing, and except for 

 

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the requirements
of any maintenance of uniform interest provisions contained in any operating or
other agreements, to Seller’s knowledge, neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
nor the compliance with the terms hereof, will result in any default under any
agreement or instrument to which Seller is a party or by which the Properties
are bound, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or to the Properties.  Seller’s “knowledge” or “received” by Seller
(except as used in connection with payment receipts), as used in this
Agreement, shall mean to the actual knowledge of one or more members of the
board of directors of Seller.

 

(iv)       Valid, Binding and
Enforceable.  This
Agreement constitutes (and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitute) the legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as limited by bankruptcy or other laws applicable generally to creditor’s
rights and as limited by general equitable principles.

 

            (v)    Litigation.  There are no pending suits, actions, or other
proceedings in which Seller is a party (or to Seller’s knowledge, which have
been threatened to be instituted) which affect the Properties  (including, without limitation, any actions
challenging or pertaining to Seller’s title to any of the Properties), or
affect the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

 

(vi)       Title.  Seller is the owner of the Oil and Gas
Properties and represents that Seller has at least the Net Revenue Interests in
the Wells set forth in Exhibit A hereto and no more than the Working Interests in
the Wells set forth on such Exhibit A, and same are free and clear of all
liens, burdens, encumbrances and defects in title; provided, however, with
respect to any Oil and Gas Properties that Seller previously acquired from
Buyer or Buyer’s predecessor in interest, the representations of Seller set
forth in this Section 3(a)(vi) and in Section 3(a)(xi) below shall be limited
to matters arising by, through or under Seller, but not otherwise.  Further, it is expressly understood and
agreed that such representations do not cover maintenance of leases in force or
pooling and/or unitization matters.

 

(vii)      Environmental.
There are no pending, or to the knowledge of Seller threatened, actions, suits,
orders, claims, notices or proceedings, made or instituted by applicable
governmental authorities, regarding the Properties alleging a violation or
non-compliance with applicable environmental laws, or with respect to the
disposal, discharge or release from the Properties of hazardous materials or
constituents in a manner which is not in 
compliance with such laws.

 

(viii)       Gas Imbalances and
Prepayment.  Seller is not
obligated, by virtue of any prepayment arrangement, a “take or pay”
arrangement, gas balancing agreement, a production payment or any other
arrangement entered into by it (or, to Seller’s 

 

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knowledge, entered
into by any other party and binding on the Oil and Gas Properties), to deliver
hydrocarbons produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor.

 

(ix)        Proceeds in Suspense.  Proceeds from the sale of hydrocarbons
produced from the Oil and Gas Properties are being received by Seller in a
timely manner and are not being held in suspense by the purchaser of said
hydrocarbons for any reason, other than amounts held in suspense by such purchaser
in the ordinary course of business which are individually or in the aggregate
with respect to all such purchasers not in excess of $10,000.

 

(x)         Material Contracts;
Preferential Rights.  The
Disclosure Schedule hereto sets forth a description of every material agreement
(excluding Leases) entered into by Seller (or, to Seller’s knowledge, entered
into by any other party and binding on the Oil and Gas Properties), and
relating to the Oil and Gas Properties, and no written claim has been received
by Seller that it is in default under any such agreement.  The Disclosure Schedule also identifies such
material agreements, if any, (excluding Leases) that contain consent to assign
provisions.  No hydrocarbons produced
from the Oil and Gas Properties are subject to a  sales contract or other arrangement entered
into by Seller and relating to the production, gathering, transporting,
processing, treating or marketing of hydrocarbons (other than a contract
disclosed on the Disclosure Schedule), and, except as included in agreements
set forth on the Disclosure Schedule, no person has any preferential right to
purchase any Oil and Gas Property and no person has any call upon, option to
purchase, preferential right to purchase or similar rights granted by Seller
with respect to production from the Oil and Gas Properties and none of the
persons so listed on the Disclosure Schedule have exercised any such rights.

 

(xi)        Receipt of Proceeds;
Payment of Expenses.  With
respect to each existing Well identified on Exhibit A, Seller is currently
receiving from all purchasers of production from the Oil and Gas Properties at
least the “Net Revenue Interests” set forth on such Exhibit A without
suspense.  With respect to each existing
Well listed on Exhibit A, Seller is currently paying the operators of the Oil
and Gas Properties for the development and operation thereof no more than the Working
Interests set forth on such Exhibit A, and Seller is current for all costs and
expenses pertaining to the development and operation of the Oil and Gas
Properties, except for those being contested in good faith and so listed on the
Disclosure Schedule.

 

(xii)       Payment of Royalties.  Seller has received no written claims that
royalties and other payments due by it under the Leases have not been properly
and timely paid, or that any conditions necessary to keep the Leases in force
have not been fully performed.

 

(xiii)      Compliance with Laws.  Seller has received no claims, orders,
notices or other written communications from applicable governmental authorities
that the 

 

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operation of the
Oil and Gas Properties has not been conducted in accordance with all laws,
rules, regulations, ordinances and orders (including without limitation, those
pertaining to the environment) of all local, state and federal governmental
bodies, authorities and agencies having jurisdiction of the Oil and Gas
Properties.

 

(xiv)     Taxes.  Ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by ownership of
property or the production of hydrocarbons or the receipt of proceeds therefrom
on the Oil and Gas Properties that have become due and payable have been
properly and timely paid, except for those being contested in good faith and so
listed on the Disclosure Schedule.  For
purposes of this Agreement, taxes based on or measured by production shall be
deemed attributable to the period in which the production occurred, regardless
of the fact that such taxes may not be assessed or payable until some
subsequent period.

 

(xv)      Operating
Agreements.  Except as
disclosed by Seller in the Disclosure Statement, as to any and all operating
agreements affecting any of the Property, each of which operating agreements is
listed on the Disclosure Schedule: (i) there are no outstanding calls, advances
or payments that have been advanced on behalf of or are due from Seller or that
Seller has committed to make that have not been paid, (ii) there are no
operations with respect to which Seller is a non-consenting party, and (iii)
except for an emergency, Seller will not authorize any expenditure over $25,000
after the date of this Agreement without first obtaining the written consent to
such expenditure from Buyer, which consent will not be unreasonably withheld,
conditioned or delayed.

 

(xvi)     Permitted User.  After the Closing, Buyer shall be a “Permitted
User” as defined in that certain License Agreement dated October 10, 2003,
between Fairfield Industries Incorporated and Seismic Exchange, Inc., as “Data
Owners”, and Petrohawk Energy, LLC, as Licensee.

 

(xvii)    Majority Owner.  Seller owns a majority of the equity
interests of Buyer.

 

(b)      Disclaimers.  THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF SELLER CONTAINED IN SECTION 3(a) ABOVE ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY
OR OTHERWISE, AND, WITHOUT LIMITATION ON THE EXPRESS REPRESENTATIONS AND
WARRANTIES CONTAINED IN SECTION 3(a) ABOVE, SELLER EXPRESSLY DISCLAIMS ANY AND
ALL OTHER REPRESENTATIONS AND WARRANTIES (WITHOUT LIMITATION, EXCEPT FOR THE
EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 3(a) ABOVE, THE
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR 

 

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SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT FOR ITS
FITNESS FOR ANY PURPOSE).  UPON CLOSING,
BUYER SHALL HAVE INSPECTED, OR WAIVED ITS RIGHT TO INSPECT, THE PROPERTIES FOR
ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL
CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS
SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS
SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY
OCCURRING RADIOACTIVE MATERIALS (“NORM”). 
BUYER IS RELYING UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER
SHALL ACCEPT ALL OF THE SAME IN THEIR “AS IS, WHERE IS” CONDITION.

 

SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY
DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE
OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR
QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER
MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY
SELLER OR BY SELLER’S AGENTS OR REPRESENTATIVES.  ANY AND ALL SUCH DATA, RECORDS, REPORTS,
PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY
SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER
AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE
RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.  TO THE BEST OF SELLER’S KNOWLEDGE, THE INFORMATION CONTAINED IN
EXHIBITS A AND B IS TRUE, ACCURATE AND COMPLETE.

 

4.        Representations of Buyer.  Buyer represents to Seller that:

 

(a)      Organization and
Qualification.  Buyer is a
corporation duly organized and legally existing and in good standing under the
laws of its state of Delaware and is qualified to do business and is in good
standing in the States of Louisiana and Texas. 
Buyer is also qualified to own and operate oil and gas properties with
all applicable governmental agencies having jurisdiction over the Properties,
to the extent such qualification is necessary or appropriate or will be
necessary or appropriate upon consummation of the transactions 

 

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contemplated
hereby (including, without limitation, Buyer has met all bonding requirements
of such agencies).

 

(b)      Due Authorization.  Buyer has full power to enter into and
perform its obligations under this Agreement and has taken all proper action to
authorize entering into this Agreement and performance of its obligations
hereunder.

 

(c)      Approvals.  Other than requirements (if any) that there
be obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for Routine Governmental Approvals,
neither the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the compliance with the terms hereof,
will result in any default under any agreement or instrument to which Buyer is
a party, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer.

 

(d)      Valid, Binding and
Enforceable.  This
Agreement constitutes (and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitute) the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms, except
as limited by bankruptcy or other laws applicable generally to creditor’s
rights and as limited by general equitable principles.

 

(e)      No Litigation.  There are no pending suits, actions, or other
proceedings in which Buyer is a party (or, to Buyer’s knowledge, which have
been threatened to be instituted against Buyer) which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.

 

(f)       Knowledgeable Buyer, No
Distribution.  Buyer is a
knowledgeable purchaser, owner and operator of oil and gas properties, has the
ability to evaluate (and in fact has evaluated) the Properties for purchase,
and is acquiring the Properties for its own account and not with the intent to
make a distribution in violation of the Securities Act of 1933 as amended (and
the rules and regulations pertaining thereto) or in violation of any other
applicable securities laws, rules or regulations.  Buyer acknowledges that the Properties are
being purchased from an “interested party” and that six members of Buyer’s
board of directors are affiliated with Seller. 
Buyer is exercising its authority to purchase the Properties through its
Special Committee of Directors, comprised of its only disinterested director,
Robert C. Stone, Jr. (“Stone”) and Buyer 
has taken all necessary and appropriate action to approve the
transaction under Delaware law.

 

(g)           Funds.  Buyer has, and at the Closing will
have, such funds as are necessary for the consummation by Buyer of the transactions
contemplated hereby.

 

(h)           Opportunity to Verify Information.  Without limitation of Buyer’s rights under
Section 6, Buyer has been furnished with all materials 

 

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relating
to the Properties requested by Buyer and has been afforded the opportunity to
ask questions of the Seller (or a person or persons acting on its behalf)
concerning the Properties, and all such questions have been answered to the
full satisfaction of the Buyer.  Without
limitation of Buyer’s rights under Section 6, Buyer has received all materials,
documents, and other information relating to the Properties that Buyer deems
necessary to evaluate the Properties and understand the merits and risks of an
investment in the Properties.  Buyer has
made its own independent investigation to the extent necessary to verify the
truth and accuracy of such materials, documents, and other information
furnished by Seller.

 

(i)            Merits and Risks of an Investment in the Properties.  Buyer understands and acknowledges that:  (i) an investment in the Properties involves
certain risks; (ii) neither the United States Securities and Exchange
Commission nor any federal, state or foreign agency has passed upon the Properties
or made any findings or determination as to the fairness of an investment in
the Properties or the accuracy or adequacy of the disclosures made to Buyer,
and (iii) except as set forth in Section 8 of this Agreement, Buyer is not
entitled to cancel, terminate or revoke this Agreement.

 

5.        Certain Covenants of
Seller Pending Closing. 
Between the date of this Agreement and the Closing Date:

 

(a)      Access by Buyer.

 

(i)            Records.  Seller will give Buyer, or Buyer’s authorized
representatives, at Seller’s office (or at other locations to be designated by
Seller) and at all reasonable times before the Closing Date, access to Seller’s
records pertaining to the ownership and/or operation of the Properties
(including, without limitation, title files, division order files, well files,
and production, severance and ad valorem tax records), for the purpose of
conducting due diligence reviews contemplated by Section 6 below.  Buyer may make copies of such records, but
shall, if Seller so requests, return all copies so made if the Closing does not
occur; all costs of copying such items shall be borne by Buyer.  Seller shall not be obligated to provide
Buyer with access to any records or data which
Seller believes that
Seller cannot provide to Buyer without, in Seller’s reasonable opinion,
breaching, or risking a breach of, agreements with other parties, or waiving,
or risking waiving, legal privilege.  BUYER RECOGNIZES AND AGREES THAT ALL MATERIALS MADE AVAILABLE TO IT IN
CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY, WHETHER MADE AVAILABLE
PURSUANT TO THIS SECTION OR OTHERWISE, ARE MADE AVAILABLE TO IT AS AN
ACCOMMODATION, AND WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE
ACCURACY AND COMPLETENESS OF SUCH MATERIALS. 
NO 

 

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WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE
INFORMATION SUPPLIED TO BUYER OR WITH RESPECT TO PROPERTIES TO WHICH THE
INFORMATION RELATES, AND BUYER EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN
THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.

 

(ii)        Physical Inspection.  Seller shall make a good faith effort to give
Buyer, or Buyer’s authorized representatives, at all reasonable times before
the Closing Date and upon adequate notice to Seller, physical access to the
Properties for the purpose of inspecting same. 
Buyer recognizes that some or all of the Properties may be operated by
parties other than Seller and that Seller’s ability to obtain access to such
properties, and the manner and extent of such access, is subject to such third
parties.  Buyer agrees to comply fully
with the rules, regulations and instructions issued by Seller (and, where
Properties are operated by other parties, such other parties) regarding the
actions of Buyer while upon, entering or leaving the Properties.  Buyer shall furnish, free of
costs, Seller with a copy of any written report prepared by or for Buyer
related to any environmental or physical investigation of the Properties as
soon as reasonably possible after it is prepared.

 

(iii)       Exculpation and
Indemnification.  If Buyer exercises rights of access under
this Section or otherwise, or conducts examinations or inspections under this
Section or otherwise, then (a) such access, examination and inspection shall be
at Buyer’s sole risk, cost and expense and Buyer waives and releases all claims
against Seller (and the affiliates of Seller and the respective directors,
officers, employees, attorneys, contractors and agents of Seller and such
affiliates) arising in any way therefrom or in any way connected therewith or
arising in connection with the conduct of its directors, officers, employees,
attorneys, contractors and agents in connection therewith and (b) Buyer shall
indemnify, defend and hold harmless Seller and
its members and its and their affiliates and the respective officers, directors, employees,
attorneys, contractors and agents of such parties) from any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys’ fees) (i) for
personal  injuries to or death of
employees of the Buyer, its contractors, agents, consultants and  representatives, and damage to the property
of Buyer or others acting on behalf of Buyer, (ii)  for personal injuries to or death of
employees of Seller or third  parties,
and damage to the property of Seller or third parties, to the extent caused by
the negligence, gross negligence or willful misconduct of Buyer, but excluding
in all cases  claims arising out of or
resulting from Seller’s (or its employees’, contractors’, successors’  or assigns’) gross negligence or willful
misconduct, or (iii) liens or encumbrances for labor or materials, arising out
of or in any way connected with Buyer’s examinations or inspections.

 

THE FOREGOING RELEASE AND INDEMNIFICATION SHALL APPLY
WHETHER OR NOT SUCH CLAIMS, ACTIONS, CAUSES OF ACTION, 

 

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LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE
OUT OF  (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT
NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS
NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.

 

                (b)           Interim Operation.    From the date of execution of this Agreement until
Closing, Seller shall not commence or consent to commencement of, and shall not
elect to go non-consent in, any operation for the drilling of any new well or
the fracing, recompletion, deepening, reworking, plugging back, plugging and
abandonment or other operation with respect to any Well without the prior
written consent of Buyer, which consent will not be unreasonably withheld.
Buyer shall respond promptly to any written requests for such consent. Seller
will use its commercially reasonable efforts from the date of execution of this
Agreement until Closing, to maintain and operate the Oil and Gas Properties in
a reasonable and prudent manner, in full compliance with law and orders of any
governmental authority, to maintain insurance now in force with respect to the Oil
and Gas Properties, to pay when due all costs and expenses coming due and
payable in connection with the Oil and Gas Properties, and to perform all of
the covenants and conditions contained in the Leases and all related
contracts.  Without the prior written
consent of Buyer, which consent will not be unreasonably withheld, Seller will
not: (i) develop, maintain or operate the Oil and Gas Properties in a manner
inconsistent with prior operations or introduce any new method of operation or
accounting with respect to the Oil and Gas Properties; (ii) enter into any new
agreements or commitments with respect to the Oil and Gas Properties; (iii)
incur any liabilities other than in the ordinary course for normal operating
expenses on the Oil and Gas Properties; (iv) abandon, or consent to abandonment
of, any producing, shut-in or injection Well located on the Oil and Gas
Properties, nor release or abandon all or any portion of the Leases; (v) modify
or terminate any of the Leases  or waive
any right thereunder; or (vi) encumber, sell or otherwise dispose of any of the
Oil and Gas Properties other than personal Oil and Gas Properties that is
replaced with equivalent property or consumed in the ordinary course of
operation of the Oil and Gas Properties and other than hydrocarbons sold in the
ordinary course of business (except that Seller will not enter into any new
production purchase or sale agreement with a term greater than 30 days relating
to the Oil and Gas Properties).  Buyer
will respond promptly to any written requests for such consent.

 

Without expanding any obligations which Seller may have to Buyer, it is
expressly agreed that Seller shall never have any liability to Buyer with
respect to operation of a Property greater than that which it might have as the
operator to a non-operator under the applicable operating agreement (or, in the
absence of such an agreement, under the AAPL 610 (1989 Revision) form Operating
Agreement), IT BEING RECOGNIZED THAT, UNDER
SUCH AGREEMENTS AND SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN
NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL
MISCONDUCT.

 

(c)      Consents
to Assignment.  Seller will use
commercially reasonable efforts, 

 

11

 

consistent with industry practices in transactions of this type, to
identify, with respect to all material Oil and Gas Properties, (i) all
requirements that consents to assignment (“Consents”)
be obtained which would be applicable to the transactions contemplated hereby
and (ii) the names and addresses of parties holding such Consent rights;
provided, however, Seller shall in no event be obligated to go beyond its own
records.  Except for contracts that may
be cancelled by either party thereto upon giving 30 days or less prior notice
and the governmental consents to assignment described in Section 3(a)(iii),
prior to Closing Seller will request, from the parties so identified (and in
accordance with the documents creating such rights), execution of Consents so
identified.  If any consent to assignment is not obtained by
Closing, then, at Buyer’s option: (A) the portion of the Properties affected by
such consent shall be withdrawn from the sale and retained by Seller and the
Purchase Price shall be reduced by an amount mutually agreed to by the Parties
and, at Buyer’s sole option, the Parties shall proceed to Closing; or (B) Buyer
may waive the failure to receive the consent and proceed to purchase the
affected portion of the Properties.

 

6.        Due Diligence Reviews.

 

(a)      Review By Buyer.  Buyer may conduct, at its sole cost, such
title examination or investigation, and other examinations and investigations,
as it may in its sole discretion choose to conduct with respect to the
Properties in order to determine whether Defects (as below defined) exist.  Should, as a result of such examinations and
investigations, or otherwise, one or more matters come to Buyer’s attention
which would constitute a Defect, and should there be one or more of such
Defects which Buyer is unwilling to waive and close the transaction
contemplated hereby notwithstanding the fact that such Defects exist, Buyer
shall notify Seller in writing of such Defects as soon as the same are
identified by Buyer, but in no event no later than five (5) days prior to
Closing (the “Defect Date”) (such Defects of
which Buyer so provides notice are herein called “Asserted
Defects”).  Such notification
shall include, for each Asserted Defect, (i) a description of the Asserted
Defect and the lands, wells and/or units listed on Exhibit A to which it
relates, (ii) whether the Defect is a Defect to be governed by Section 7(b)(i)
below, (iii) for each applicable well or unit, if applicable, the size of
any variance from “Net Revenue Interest” or “Working Interest” which does or
could result from such Asserted Defect, and (iv) the amount by which Buyer
would propose to adjust the Purchase Price. 
All Defects with respect to which Buyer fails
to so give Seller notice by the Defect Date will be deemed waived for all
purposes; provided, however, such deemed waiver shall not apply to any breach
by Seller of any of the representations of Seller set forth in Section 3
hereof.  All access to Seller’s records and the
Properties in connection with such due diligence shall be subject and pursuant
to Section 5(a) (including, without limitation, the exculpation and
indemnification provisions contained in Section 5(a)(iii)).

 

(b)      Nature of Defects.  The term “Defect” as
used in this Section shall mean the following:

 

(i)         NRI or WI Variances.  Seller’s ownership of the Properties is such
that, 

 

12

 

with respect to a
well listed on Exhibit A hereto, it  (A)
entitles Seller to receive a decimal share of the oil, gas and other
hydrocarbons produced from currently producing completions in such well which
is less than the decimal share set forth on Exhibit A in connection with such
well in the column headed “Net Revenue Interest” or (B) causes Seller to be
obligated to bear a decimal share of the cost of operation of such well greater
than the decimal share set forth on Exhibit A in connection with such well in
the column headed “Working Interest” (without at least a proportionate increase
in the share of production to which Seller is entitled to receive from such
well).

 

(ii)        Liens.  Seller’s ownership of an Oil and Gas Property
is subject to a lien other than (A) a lien for taxes which are not yet
delinquent or (B) a mechanic’s or materialmen’s lien (or other similar lien),
or a lien under an operating agreement or similar agreement, to the extent the
same relates to expenses incurred which are not yet delinquent or (C) liens
which will be released at or before Closing.

 

(iii) Imperfections in Title.  Seller’s ownership of an Oil and Gas Property
is subject to an imperfection in title which, if asserted, would cause a
Defect, as defined in subparagraph (i) above, to exist, and such imperfection
in title is not such as would normally be waived by persons engaged in the oil
and gas business when purchasing producing properties.

 

(iv)       Environmental.  Seller’s ownership of an Oil and Gas Property is
subject to remediation or correction under
applicable environmental laws.

 

           (c)        Defect Exceptions.  Notwithstanding anything in the foregoing
which may appear to the contrary, unleased interests or non pooled, or
ineffectively pooled, interests in a tract on which no well included in the
Properties is located shall not constitute a “Defect”.  Similarly, in some cases where an “APO NRI”
net revenue interest is shown for a well on Exhibit A where one or more third
parties have elections at payout (which do not have to be exercised until then)
to take one of two or more possible interests, and such net revenue interest
shown on Exhibit A assumes one of such interests would be elected; notwithstanding
anything in the foregoing which appears to the contrary, the fact that a third
party may make a different election at payout than that assumed in computing
the net revenue interest shown on Exhibit A will not constitute a “Defect”.  The presence of naturally occurring
radioactive materials (“NORM”) in circumstances where, under current
governmental rules and regulations, remediation is not currently required will
not constitute a “Defect”.  Additionally,
notwithstanding any other provision in this
Agreement to the contrary, the following matters shall not constitute, and
shall not be asserted as, a Defect:  
(i) defects or irregularities arising out of lack of corporate
authorization or a variation in corporate name, unless Buyer provides affirmative
evidence that such corporate action was not authorized and results in another
person’s superior claim of title to the relevant Property; (ii) defects or
irregularities that have been cured or remedied by the passage of time,
including, without limitation, applicable statutes of limitation or statutes
for 

 

13

 

prescription; (iii) defects or irregularities
in the chain of title consisting of the failure to recite marital status in
documents or omissions of heirship proceedings which has not delayed or
prevented Seller from receiving its Net Revenue Interest share of the proceeds
of production; (iv) defects or irregularities in title which for a period of 5
years or more has not delayed or prevented Seller (or Seller’s predecessor, if
owned by Seller less than 5 years) from receiving its Net Revenue Interest
share of the proceeds of production or causes it to bear a share of expenses
and costs greater than its Working Interest share from any unit or well; and
(v) conventional rights of reassignment normally actuated by an intent to
abandon or release a lease and requiring notice to the holders of such rights
and any defect or irregularity as would normally be waived by persons engaged
in the oil and gas business when purchasing producing properties.

 

(d)      Seller’s Response.  In the event that Buyer notifies Seller of
Asserted Defects:

 

(i)         Cure.  Seller may (but shall have no obligation
to)  cure, prior to Closing, one or more
Asserted Defects.

 

(ii)        Postpone Closing.  Whether or not Seller has then begun to, or
ever begins to, cure one or more Asserted Defects (and whether or not Seller
has elected options (iii) or (iv) below with respect to one or more Asserted
Defects), Seller may postpone the Closing by designating a new Closing Date not
later than August 31, 2004. 
Notwithstanding any such election to postpone Closing, Seller shall
still have no obligation to cure Asserted Defects.

 

(iii)       Adjustment.  Notwithstanding any other election made under
this Section (without limitation, it being expressly recognized that Seller may
attempt to cure Asserted Defects while acting under this election), Seller may
elect to have one or more Asserted Defects handled under Section 7 below.

 

7.        Certain Price Adjustments.

 

(a)      Procedures.  In the event that, as a part of the due
diligence reviews provided for in Section 6 above, Asserted Defects are
presented to Seller and Seller is unable (or unwilling) to cure such Asserted
Defects prior to Closing, or in the event that Buyer or Seller has elected
(pursuant to Section 14) to treat an Oil and Gas Property affected by a
casualty loss as if it was an Oil and Gas Property affected by an Asserted
Defect, then:

 

(i)         Agree Upon Adjustment.  Buyer and Seller shall, with respect to each
Property affected by such matters, attempt to agree upon an appropriate
downward adjustment of the Purchase Price to account for such matters.

 

(ii)        Exclude Property.  With respect to each well listed on Exhibit A
as to which Buyer and Seller are unable to agree upon appropriate adjustment
with respect to all such matters affecting such well, such well (together with
such related rights in any 

 

14

 

unit including the
same, and other rights, as may be necessary or appropriate to own, operate and
produce the same) will be excluded from the transaction contemplated hereby,
and a downward adjustment of the Purchase Price will be made by the amount mutually
agreed to by the Parties.

 

(iii)       Environmental
Reductions.  If the
Asserted Defect is a Defect described in Section 6(b)(iv): the estimated amount
mutually agreed to by the Parties of all costs and claims associated with the
existence, remediation or correction of the environmental condition plus the penalty, fine or damage payment reasonably likely to result from a
prosecution, if instituted.

 

(b)      Certain Adjustments.  In the event that Buyer raises as an Asserted
Defect the following type of Defect, Seller may (but shall not be obligated to)
propose (and Buyer shall accept) the adjustment of the Purchase Price set forth
below in connection with such Defect:

 

(i)         Liens/Payoff Amount.  If the Asserted Defect is a Defect described
in Section 6(b)(ii):  a downward
adjustment equal to the amount of the debt secured by such lien.

 

If Seller proposes
such an adjustment, such adjustment will be deemed an adjustment agreed to
under Section 7(a)(i) above.

 

If, in the
exercise of good faith negotiations between the Parties, the Parties are unable
to mutually agree to an adjustment of the Purchase Price under this Section 7
or under Section 5(c), either Party shall have the right to terminate this
Agreement by giving written notice to the other Party and thereafter neither
Party shall have any liability to the other under this Agreement.

 

(c)      Limitations on Adjustments.  If the Purchase Price reduction  with respect to a particular Asserted Defect
which would result from the above provided for procedure does not exceed Ten
Thousand Dollars ($10,000), no adjustment shall be made for such Asserted
Defect.  If the Purchase Price reduction
which would result from the above provided for procedure, as applied to all
Asserted Defects for which an adjustment is to be made, does not exceed One
Hundred Thousand Dollars ($100,000), then no adjustment of the Purchase Price
shall occur, and none of the Properties which would be excluded by such
procedure shall be excluded.  If the
Purchase Price reduction which would result from the above provided for
procedure, as applied to all Asserted Defects for which an adjustment is to be
made exceeds One Hundred Thousand Dollars ($100,000), the Purchase Price shall
be adjusted by the amount of such reduction.

 

8.        Conditions Precedent to
the Obligations of Buyer. 
The obligations of Buyer under this Agreement are subject to each of the
following conditions being met:

 

(a)      Representations True and
Correct.  Each and every
representation of Seller 

 

15

 

under this
Agreement shall be true and accurate  as
of the date when made and shall be deemed to have been made again at and as of
the time of Closing and shall at and as of such time of Closing be true and
accurate except as to changes specifically contemplated by this Agreement or
consented to by Buyer.

 

(b)      Compliance with Covenants
and Agreements.  Seller
shall have performed and complied with (or compliance therewith shall have been
waived by Buyer) each and every covenant and agreement required by this
Agreement to be performed or complied with by Seller prior to or at the
Closing.

 

(c)      Price Adjustment
Limitations.  The
aggregate downward adjustment (if any) of the Purchase Price which results from
the procedures set forth in Section 7 does not exceed Seven Hundred Fifty
Thousand Dollars ($750,000).

 

(d)      No Material Adverse
Effect.  Between the date
of this Agreement and the Closing there has not been a Material Adverse
Effect.  “Material
Adverse Effect” shall mean any event circumstance, condition,
development or occurrence causing, causing, resulting in or having (or with the
passage of time likely to cause, result in or have) an adverse effect on the
Properties, having a value in excess of $500,000; provided, however, that in no
event shall any of the following be deemed to constitute or be taken into account
in determining a Material Adverse Effect: any event, circumstance, change or
effect that results from changes affecting the economy generally or changes in
the market price of oil or natural gas.

 

(e)           Litigation.  No suit, action or other proceedings by any
governmental entity or third party shall, on the date of Closing, be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit, or obtain material damages or other material relief in connection
with the consummation of the transactions contemplated by this Agreement.

 

If any such
condition on the obligations of Buyer under this Agreement is not met as of the
Closing Date, or in the event the Closing does not occur on or before the
Closing Date (as may be extended by Seller pursuant to Section 6(e)(ii)), and
(in either case) Buyer is not in material breach of its obligations hereunder
in the absence of Seller being in material breach of its obligations hereunder,
this Agreement may, at the option of Buyer, be terminated.  In the event such a termination by Buyer
occurs the parties shall have no further obligations to one another hereunder
(other than the obligations under Sections 5(a)(iii), 13 and 17(c) hereof all
of which will survive such termination).

 

9.        Conditions Precedent to
the Obligations of Seller. 
The obligations of Seller under this Agreement are subject to the each
of the following conditions being met:

 

(a)      Representations True and
Correct.  Each and every
representation of Buyer under this Agreement shall be true and accurate as of
the date when made and shall be deemed to have been made again at and as of the
time of Closing and shall at and as of such 

 

16

 

time of Closing be
true and accurate except as to changes specifically contemplated by this
Agreement or consented to by Seller.

 

(b)      Compliance With Covenants
and Agreements.  Buyer
shall have performed and complied with (or compliance therewith shall have been
waived by Seller) each and every covenant and agreement required by this
Agreement to be performed or complied with by Buyer prior to or at the Closing.

 

(c)      Price Adjustment
Limitations.  The
aggregate downward adjustment (if any) of the Purchase Price which results from
the procedures set forth in Section 7 does not exceed Seven Hundred Fifty
Thousand Dollars ($750,000).

 

(d)      Litigation.  No suit, action or other proceedings by any
governmental entity or third party shall, on the date of Closing, be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit, or obtain material damages or other material relief in connection
with the consummation of the transactions contemplated by this Agreement.

 

If any such
condition on the obligations of Seller under this Agreement is not met as of
the Closing Date, or in the event the Closing does not occur on or before the
Closing Date, and (in either case) Seller is not in material breach of its
obligations hereunder in the absence of Buyer being in material breach of its obligations
hereunder, this Agreement may, at the option of Seller, be terminated, in which
case the parties shall have no further obligations to one another hereunder
(other than the obligations under Sections 5(a)(iii), 13 and 17(c) hereof all
of which will survive such termination).

 

10.      Closing.

 

(a)      Actions At Closing.  The closing (herein called the “Closing”) of the transaction contemplated hereby shall
take place on or before, August 13, 2004, at the offices of Seller; or (i) such
date and time and location as the Buyer and Seller may mutually agree upon; or
(ii) at such time to which Seller may postpone the Closing pursuant to Section
6 hereof (such date and time, as changed pursuant to clauses (i) and (ii),
being herein called the “Closing Date”).  At the Closing:

 

(i)         Delivery of Conveyance.  Seller shall execute, acknowledge and deliver
to Buyer a conveyance of the Properties (the “Conveyance”),
in the form attached hereto as Schedule I (and with Exhibit A hereto, with such
modifications as may be mutually agreed to by Buyer and Seller, being attached
thereto), effective as to runs of oil and deliveries of gas and for all other
purposes as of 7:00  a.m., Central
Daylight Time on June 1, 2004 (herein called the “Effective
Date”).

 

(ii)        Payment to Seller.  Buyer shall deliver to the Seller, by wire
transfer of immediately available funds to an account designated by Seller in a
bank located in the 

 

17

 

United States, an
amount equal to (A) the Purchase Price less or plus (as the case
may be) (B) any adjustments under Section 11 which are to be made at Closing.

 

(iii)       Turn Over Possession.  Seller shall, to the extent Seller can do so,
turn over possession of the Properties.

 

(iv)       Succession by Buyer.  Buyer shall (A) furnish to Seller such
evidence (including, without limitation, evidence of satisfaction of all
applicable bonding requirements) as Seller may require that Buyer is qualified
with the applicable authorities to succeed Seller as the owner and, where
applicable, operator of the Properties, (B) with respect to properties operated
by Seller where Buyer is to succeed Seller as operator, execute and deliver to
Seller appropriate evidence reflecting change of operator as required by
applicable authorities (including, without limitation, all the change of
operator form MD-10-R-AQ that should be filed with the Louisiana Conservation
Commission), and (C) execute and deliver to Seller such forms as Seller
may reasonably request for filing with the applicable authorities to reflect
Buyer’s assumption of plugging and abandonment liabilities and platform abandonment and removal liabilities with respect to the
Properties and/or
with respect to the wells located on the Properties or on units in which the
Properties participate.

 

(v)        Non-Foreign Status Tax
Affidavit.  If Buyer so
requests, Seller will execute and deliver to Buyer an affidavit or other
certification (as permitted by such code) that Seller is not a “foreign person”
within the meaning of Section 1445 (or similar provisions) of the Internal
Revenue Code of 1986 as amended (i.e., Seller is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign
estate as those terms are defined in such code and regulations promulgated thereunder).

 

(vi)       Federal and State
Conveyance Forms.  Seller
shall, where appropriate, prepare, execute (and, where required, acknowledge)
and deliver to Buyer forms of conveyance or assignment as required by the
applicable authorities for transfers of interests in state and federal leases
included in the Oil and Gas Properties.

 

(vii)      Letters in Lieu.  Seller shall prepare, execute and deliver to
Buyer letters in lieu of transfer orders (or similar documentation), in form
acceptable to both parties.

 

(b)      Post Closing Actions.

 

(i)       Transfer of Files.  Seller will use its best efforts to deliver
to Buyer, at Buyer’s expense, and within 10 days after Closing, all of Seller’s
lease files, abstracts and title opinions, division order files, production
records, well files, accounting records (but not including general financial
accounting or tax accounting records), and other similar files and records
which directly relate to the Properties, provided that Seller shall not be
obligated to turn over to Buyer any records or data which Seller believes that
Seller cannot provide to Buyer without, in Seller’s reasonable opinion,
breaching, or risking a breach of, agreements 

 

18

 

with other
parties, or waiving, or risking waiving, legal privilege;  it
is expressly understood that Buyer is not acquiring, and Seller is not
obligated to transfer to Buyer, any seismic data, geological or geophysical
data, or other similar data, or any interpretations thereof or other data or records
related thereto, covering lands or depths not covered by the Properties.  Seller may, at its election and expense, make
and retain copies of any or all such files. 
Buyer shall preserve all files so delivered by Seller of a period of
eight (8) years following Closing and will allow Seller access (including,
without limitation, the right to make copies at Seller’s expense) to such files
at all reasonable times.

 

(ii)        Operational Transition.  For a reasonable period of time after
Closing, Buyer and Seller shall undertake reasonable efforts to cooperate with
respect to transition activities as to Oil and Gas Properties where Buyer
succeeds Seller as operator.  IT IS RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN BY SELLER THAT BUYER
SHALL SUCCEED SELLER AS OPERATOR OF ANY PROPERTY WHERE OTHER PARTIES OWN
INTERESTS IN THE WELLS LOCATED THEREON.  To the extent Seller remains an operator
after Closing (which it shall have no obligation to do), it shall serve as
operator under the applicable operating agreement in the manner provided by
such agreement and, to the extent Seller so operates any Oil and Gas Properties
after Closing and/or provides
disbursement services under subsection (iii) below, its obligations to
Buyer with respect thereto shall be no greater than those which it would have
to a non-operator under the applicable operating agreement (and, in the absence
of an operating agreement, under the AAPL 610 (1989 Revision) form Operating
Agreement), IT BEING RECOGNIZED THAT, UNDER
SUCH AGREEMENTS AND SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN
NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL
MISCONDUCT.

 

(iii)       Transition of Certain
Accounting Matters.  With
respect to each Oil and Gas Property as to which Buyer becomes successor
operator and with respect to which Seller is disbursing proceeds of production
attributable to other parties entitled thereto, Seller shall continue to
receive such proceeds of production up to the Closing and, to the extent it
actually receives such proceeds, shall be responsible for making disbursements,
in accordance with its normal procedures (and at normal times), of such
proceeds of production to the parties entitled to same, with any such proceeds
of production after the Closing received by Seller to be promptly forwarded to
Buyer (who shall thereafter account for same to the parties entitled thereto)
and Seller shall, as promptly as possible after Closing, deliver to Buyer a
copy of its “pay list” for each such property (which list shall include the
names of all parties for whom it is holding in suspense proceeds of
production).  Seller will retain all
suspense funds, and responsibility therefor. 
Following delivery of the materials referred to above, Buyer shall
become responsible for all disbursements of proceeds of production from such
properties and such disbursement activities shall be included in the matters
which Buyer assumes, and indemnifies Seller with respect to, under Section 12
below.

 

19

 

(iv)       Notifications by Buyer.  Immediately after the Closing, Buyer shall
notify all applicable operators, non-operators, vendors, oil and gas
purchasers, and government agencies that it has purchased the Properties.

 

11.      Certain Accounting Adjustments.

 

(a)      Adjustments for Revenues
and Expenses.  Appropriate
adjustments shall be made between Buyer and Seller so that (i) Buyer will bear
all expenses which are incurred in the operation of the Properties after the
Effective Date (including, without limitation, all drilling costs, all capital
expenditures, all overhead charges under applicable operating agreements
computed in accordance with Seller’s existing accounting practices  (regardless of whether such operating
agreements are with third parties or related entities and regardless of whether
Seller is the operator or a non-operator)), and all other overhead charges
actually charged by Seller (and for which Seller bills third parties for their
respective shares) or charged to Seller by third parties, and operating
expenses, and Buyer will receive all proceeds (net of applicable production,
severance, and similar taxes) from sales of oil, gas and/or other minerals
which are produced from (or attributable to) the Properties and which are
produced after the Effective Date, and (ii) Seller will bear all expenses which
are incurred in the operation of the Properties before the Effective Date and
Seller will receive all proceeds (net of applicable production, severance, and
similar taxes) from the sale of oil, gas and/or other minerals which were
produced from (or attributable to) the Properties and which were produced
before the Effective Date.  It is agreed
that, in making such adjustments:  (i)
oil which was produced from the Oil and Gas Properties and which was, on the
Effective Date, stored in tanks located on the Oil and Gas Properties (or
located elsewhere but used by Seller to store oil produced from, or
attributable to, the Oil and Gas Properties prior to delivery to oil
purchasers) and above pipeline connections shall be deemed to have been
produced before the Effective Date, (ii) ad valorem and similar taxes
assessed with respect to production for periods prior to the Effective Date
shall be borne by Seller and ad valorem taxes assessed with respect to
production for periods on or after the Effective Date shall be borne by Buyer,
(iii) ad valorem and similar taxes assessed with respect to production with
respect to a period which the Effective Date splits shall be prorated based on
the number of days in such period which fall on each side of the Effective Date
(with the day on which the Effective Date falls being counted in the period
after the Effective Date), (iv) casualty losses shall be handled in
accordance with Section 14,  and (vi) no
consideration shall be given to the local, state or federal income tax
liabilities of any party.

 

(b)      Initial Adjustment at
Closing.  At least 3 days
before the Closing Date, Seller shall provide to Buyer a statement showing its
computations of its estimated amount of the adjustments provided for in
subsection (a) above based on amounts which prior to such time have actually
been paid or received by Seller.  Buyer
and Seller shall attempt to agree upon such adjustments prior to Closing,
provided that if agreement is not reached, Seller’s computation shall be used
at Closing, subject to further adjustment under subsection (c) below.  If the amount of adjustments so determined
which would result in a credit to Buyer 

 

20

 

exceed the amount
of adjustments so determined which would result in a credit to Seller, Buyer
shall receive a credit at Closing for the amount of such excess, and if the
converse is true, then the amount to be paid by Buyer to Seller at Closing
shall be increased by the amount of such excess.

 

(c)      Adjustment Post Closing.  On or before 90 days after Closing, Seller
shall provide to Buyer a statement showing its reasonable computations
regarding any information which may then be available pertaining to the
adjustments provided for in subsection (a) above, and Buyer shall review such
statement.  If Buyer and Seller cannot
agree on such adjustments within 30 days of Buyer’s receipt of such statement
from Seller, then such adjustments shall be determined by an independent third
party chosen by mutual agreement of Seller and Buyer. If Seller and Buyer are
unable to agree on the selection of an independent third party, then each shall
select an independent third party who in turn shall mutually agree upon an independent
third party. Such third party shall provide Buyer and Seller with a statement
showing its reasonable computations regarding any information which may then be
available pertaining to the adjustments. The parties shall make any such
adjustments by appropriate payments from Seller to Buyer or from Buyer to
Seller.  After such adjustments are made,
no further adjustments shall be made under this Section 11.

 

12.                   Assumption and
Indemnification.

 

12.1         Buyer’s
Rights After Closing.  Upon
and after Closing, Buyer will receive and assume all of Seller’s right, title
and interest in the Properties, with effect as of the Effective Date.

 

12.2         Buyer’s
Obligations After Closing.

 

12.2.1      Description
of Obligations. Upon and after Closing, Buyer will assume, pay and
perform the following (collectively the “Buyer’s Assumed Obligations”):

 

(i)                                     Responsibility for payment of all
operating expenses and capital expenditures related to the Properties and
arising and attributable to the period on and after the Effective Date;

 

(ii)                                  Responsibility for payment of all
royalties, overriding royalties, production payments, net profits obligations,
rentals, shut-in payments and other burdens or encumbrances to which the
Properties is subject that are attributable to periods on and after the
Effective Date;

 

(iii)                               Responsibility for proper accounting for and
disbursement of production proceeds from the Properties attributable to periods
on and after the Effective Date;

 

21

 

(iv)                              All obligations, liabilities and duties
with respect to the ownership and operation of the Properties that are
attributable to periods on and after the Effective Date; and

 

(v)                                 The Plugging and Abandonment Obligations,
the Environmental Obligations, and all other obligations assumed by Buyer under
this Agreement.

 

Except for the
Buyer’s Assumed Obligations, Buyer assumes no other liability or obligation of
Seller with respect to the Properties.

 

12.3         Seller’s
Obligations After Closing.

 

12.3.1                  Description of Obligations
After Closing.
Seller will retain responsibility for all liabilities, obligations and duties
with respect to the ownership and (if applicable) operation of the Properties
that are attributable to periods before the Effective Date, except as otherwise
specifically provided in this Agreement (the “Seller’s Retained Obligations”).  The Seller’s Retained Obligations consist of:

 

(i)                                     Responsibility for the payment of all
operating expenses and capital expenditures related to the Properties and
attributable to the period prior to the Effective Date;

 

(ii)                                  Responsibility for payment of all
royalties, overriding royalties, production payments, net profits obligations,
rentals, shut-in payments and other burdens or encumbrances to which the
Properties are subject that are attributable to periods before the Effective
Date;

 

(iii)                               Responsibility for proper accounting for
and disbursement of production proceeds from the Properties attributable to
periods before the Effective Date; and

 

(iv)                              Responsibility for the exclusions from
the Environmental Obligations described in Section 12.5.2.

 

12.4         Plugging and Abandonment Obligations.

 

12.4.1                  Buyer’s Obligations.  Upon
and after Closing, Buyer assumes full responsibility and liability for the
following plugging and abandonment obligations related to the Properties (the “Plugging
and Abandonment Obligations”), regardless of whether they are attributable to
the ownership or operation of the Properties before or after the Effective
Date:

 

(i)                                     The necessary and proper plugging,
replugging and abandonment of all wells on the Properties, whether plugged and
abandoned before or after the 

 

 

22

 

                                                Effective Date, as may be required by
applicable governmental laws, rules and regulations;

 

(ii)                                  The necessary and proper removal,
abandonment, and disposal of all platforms, structures, pipelines, equipment,
abandoned Properties and junk located on or comprising part of the Properties,
including junk on the sea floor at the Leases, as may be required by applicable
governmental laws, rules and regulations;

 

(iii)                               The necessary and proper capping and
burying of all flow lines associated with the Wells and located on or
comprising part of the Properties, as may be required by applicable governmental
laws, rules and regulations;

 

(iv)                              The necessary and proper restoration of
the Properties, both surface, sea floor, and subsurface, as may be required by
applicable governmental laws, rules and regulations;

 

(v)                                 Any necessary clean-up or disposal
of Properties contaminated by naturally occurring radioactive material (“NORM”),
as may be required by applicable governmental laws, rules and regulations; and

 

(vi)                              All plugging and abandonment obligations
arising from contractual requirements and demands made by courts or other
authorized regulatory bodies.

 

12.5         Environmental
Obligations.

 

12.5.1                  Buyer’s Obligations. Except as provided in Section 12.5.2,
upon and after Closing, Buyer assumes full responsibility and liability for the
following occurrences, events and activities on or related to the Properties
(the “Environmental Obligations”), regardless of whether arising from the
ownership or operation of the Properties before or after the Effective Date,
and regardless of whether resulting from any acts or omissions of Seller or the
condition of the Properties when acquired:

 

(i)                                     Environmental pollution or contamination,
including pollution or contamination of the soil, sea, groundwater or air by
oil, gas, condensate, distillate, other hydrocarbons, brine, NORM or otherwise;

 

(ii)           Underground injection activities and
waste disposal onsite;

 

(iii)                               Clean-up responses, and the cost of
remediation, control, assessment or compliance with respect to surface, sea
floor, and subsurface pollution caused by spills;

 

23

 

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

 

(v)                                 Disposal on the Properties of any
hazardous substances, wastes, materials and products generated by or used in
connection with the ownership or operation of the Properties before or after
the Effective Date; and

 

(vi)                              Non-compliance with environmental or land
use rules, regulations, demands or orders of appropriate state or federal
regulatory agencies.

 

12.5.2                  Exclusions from Buyer’s
Obligations.
Buyer’s Environmental Obligations do not include:

 

(i)                                     Any civil or criminal fines or penalties
that may be levied against Seller or Buyer by any court or regulatory authority
for any such violation of any laws, rules or regulations in connection with the
ownership or operation of the Properties before the Effective Date, all of
which shall remain the responsibility of Seller; and

 

(ii)                                  Transportation and disposal offsite from
the Properties before the Effective Date of any hazardous substances, wastes,
NORM, materials and products generated by or used in connection with the
ownership or operation of the Properties before the Effective Date.

 

12.6         Indemnities; Definition of Claims.  As used in this Agreement, the term “Claims”
means any and all losses, liabilities, damages, punitive damages, obligations,
expenses, fines, penalties, costs, claims, causes of action and judgments for:
(i) breaches of contract; (ii) loss or damage to Properties, injury to or death
of persons, and other tortious injury; and (iii) violations of applicable laws,
rules, regulations, orders or any other legal right or duty actionable at law
or equity. The term “Claims” also includes reasonable attorneys fees, court
costs, and other reasonable costs of litigation resulting from the defense of
any claim or cause of action within the scope of the indemnities in this
Agreement.

 

12.7         Application
of Indemnities.

 

12.7.1                  Covered Claims and
Parties. All
indemnities set forth in this Agreement extend to the officers, directors,
employees and affiliates of the party indemnified. Unless this Agreement
expressly provides to the contrary, the indemnities set forth in this Agreement
apply regardless of whether the indemnified party (or its employees, agents,
contractors, successors or assigns) causes, in whole or part, an indemnified
Claim, including indemnified Claims arising out of or resulting, in whole or
part, from the condition of the Properties or the indemnified party’s (or its
employees’, agents’, contractors’, successors’ or assigns’) sole or concurrent
negligence, strict liability or fault. However, the indemnities set forth in
this Agreement do not extend 

 

24

 

                                                to any part of an indemnified Claim that
(i) is the result of the gross negligence, willful misconduct or fraud of the
indemnified party or (ii) is the result of the imposition of civil or criminal
fines or penalties by any court or regulatory authority on the indemnified
party due the indemnified party’s failure to comply with applicable laws,
regulations or orders.

 

12.7.2                  Other Limitations. The indemnities of the indemnifying
party in this Agreement do not cover or include any amounts that the
indemnified party legally recoups from other third party owners under
applicable joint operating agreements or other agreements, or for which the
indemnified party is reimbursed by any third party. The indemnities in this
Agreement do not relieve the parties to this Agreement from any obligations to
third parties. The indemnities of the parties in this Agreement do not relieve
the indemnified party from, or extend to cover, any obligations of the
indemnified party under the terms of any operating agreement or other cost-sharing
arrangement which is applicable to any Claim. There will be no upward or
downward adjustment in the Purchase Price as a result of any matter for which
Buyer or Seller is indemnified under this Agreement.

 

12.8         Buyer’s
Indemnity. Buyer shall indemnify, defend and hold Seller
harmless from and against any and all Claims caused by, resulting from or
incidental to:

 

12.8.1                  Buyer’s Assumed Obligations;

 

12.8.2                  Any violation by Buyer of state or
federal securities laws, or any subsequent sale or other disposition of the
Properties (or portion thereof) by Buyer; its affiliates or Buyers;

 

12.8.3                  Buyer’s inspection of the Properties
under Section 5(a)(iii); and

 

12.8.4                  Buyer’s breach of its representations and
warranties under Section 4 hereof.

 

12.9         Seller’s
Indemnity.  Seller shall
indemnify, defend and hold Buyer harmless from and against any and all Claims
caused by, resulting from or incidental to:

 

12.9.1                  Seller’s Retained Obligations and the exclusions from the Environmental
Obligations assumed by Buyer in the Buyer’s Assumed Obligations under Section
12.5.2; and

 

12.9.2                  Seller’s breach of its representations and warranties under Section 3
hereof.

 

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

 

25

 

for which the indemnifying party has agreed to
indemnify and hold the indemnified party harmless under this Agreement.
However, the indemnified party shall have the right to participate with the
indemnifying party in the defense of any such Claim at its own expense.

 

12.11       Waiver of Consequential and Punitive Damages.
 Notwithstanding any other provision of
this Agreement, Seller and Buyer waive and release any claim against the other
for consequential damages (except to the extent
such damages are asserted in a claim by a third party for which indemnification
is provided hereunder), however and whenever arising under this
Agreement or as a result of or in connection with the assignments contemplated
herein, and whether based on negligence, breach of warranty, breach of
contract, strict liability or otherwise. Consequential damages shall include
but not be limited to loss of revenue, profit or use of capital, production
delays, loss of product, reservoir loss or damage, losses resulting from
failure to meet other contractual commitments or deadlines and downtime of
facilities.

 

13.      No Commissions Owed.  Seller agrees to indemnify and hold Buyer and
its affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of Buyer and its affiliates, harmless from and against
any and all claims, actions, causes of action, liabilities, damages, losses,
costs or expenses (including, without limitation, court costs and attorneys’
fees) of any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Seller with any broker or finder in connection with this Agreement or the
transaction contemplated hereby.  Buyer
agrees to indemnify and hold Seller (and its members
and its and their
affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of Seller and such parties) harmless from and against
any and all claims, actions, causes of action, liabilities, damages, losses,
costs or expenses (including, without limitation, court costs and attorneys’
fees) of any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Buyer with any broker or finder in connection with this Agreement or the
transaction contemplated hereby.

 

14.      Casualty Loss.  In the event of damage by fire or other casualty
to the Properties prior to the Closing, this Agreement shall remain in full
force and effect, and in such event:

 

(a)      Oil and Gas Properties.  As to each such Property so damaged which is
an Oil and Gas Property, then (unless Seller elects to repair such damage,
which Seller shall have no obligation to do, in which case all rights to
insurance proceeds, and claims against third
parties, related thereto shall belong to Seller),
(i) at the election of either Buyer of Seller, such Property shall be treated
as if it had an Asserted Defect associated with it and the procedure provided
for in Section 7 shall be applicable thereto (in which case, unless Buyer and
Seller agree to the contrary, all rights to insurance proceeds, and claims against third parties, related thereto shall belong to Seller),
or, (ii) if no such election is made by Buyer or Seller, the Purchase Price
will not be adjusted, and Seller shall, at Seller’s election, either collect
(and when collected pay over to Buyer) any insurance proceeds related to such
damage, or assign to Buyer such insurance proceeds, and, in either event, Buyer
shall take title to the Property affected by such loss without reduction of the
Purchase Price.

 

26

 

(b)      Other Properties.  As to each such Property so damaged which is
other than an Oil and Gas Property, Seller shall, at Seller’s election, either
(i) repair such damage or replace such Property, (ii) collect (and
when collected pay over to Buyer) any insurance proceeds related to such
damage, or (iii) assign to Buyer any insurance proceeds related to such
damage, and Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.

 

Seller has no
obligation to carry insurance coverage, or to carry any particular types or
amounts of coverage, and, in the event of a loss which is not covered by
insurance, Seller shall have no obligation to Buyer with respect thereto.

 

15.      Notices.  All notices and other communications required
under this Agreement shall (unless otherwise specifically provided herein) be
in writing and be delivered personally, by recognized commercial courier or
delivery service which provides a receipt, by facsimile (with receipt
acknowledged), or by registered or certified mail (postage prepaid), at the
following addresses:

 

If to Seller:                                       PHAWK, LLC

1100 Louisiana,
Suite 4400

Houston, Texas
77002

Fax:  (832) 204-2800

Attention:  Stephen W. Herod

 

If to Buyer:            The Special Committee of
Disinterested Directors

49 Allard Boulevard

New Orleans, Louisiana 70119

(504) 486-7643

Fax:   (504)
552-4757

Attention: Mr.
Robert C. Stone, Jr.

 

and shall be
considered delivered on the date of receipt. 
Either Buyer or Seller may specify as its proper address any other post
office address within the continental limits of the United States by giving
notice to the other party, in the manner provided in this Section, at least ten
(10) days prior to the effective date of such change of address.

 

16.      Survival of Provisions.  All representations and warranties made
herein by Buyer and Seller shall be continuing and shall be true and correct on
and as of the date of Closing with the same force and effect as if made at that
time (and shall inure to the benefit of the respective successors and assigns
of Buyer and Seller), and all of such representations and warranties shall
survive the Closing and the delivery of the Conveyance for a period of one (1)
year, provided, however, that the representations of Seller in Sections
3(a)(xvi) and (xvii) shall survive the Closing and delivery of the Conveyance
for a period of two (2) years.  The
provisions of Section 10 (to the extent the same are, by mutual agreement, not
performed at Closing), and Sections 11, 13, 15 and 17 shall (subject to any 

 

27

 

limitations set
forth therein) survive the Closing and delivery of the Conveyance indefinitely
subject to any applicable statute of limitations.  The obligations under Section 12 shall
survive the Closing and the delivery of the Conveyance indefinitely.

 

 17.     Miscellaneous Matters.

 

(a)      Further Assurances.  After the Closing, (i) Seller shall execute
and deliver, and shall otherwise cause to be executed and delivered, from time
to time, such further instruments, notices, division orders, transfer orders
and other documents, and do such other and further acts and things, as may be
reasonably necessary to more fully and effectively grant, convey and assign the
Properties to Buyer, and (ii) Buyer shall execute and deliver, and shall
otherwise cause to be executed and delivered, from time to time, such further
instruments and documents, and do such other and further acts and things, as
may be reasonably necessary to consummate the transactions contemplated by this
Agreement.

 

(b)      Deceptive Trade Practices
Waiver.  TO THE EXTENT APPLICABLE TO THE TRANSACTION CONTEMPLATED HEREBY OR ANY
PORTION THEREOF, BUYER WAIVES BUYER’S RIGHTS UNDER THE PROVISIONS OF THE TEXAS
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTIONS 17.41 ET. SEQ. OF
THE TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS
AND PROTECTIONS, AND ANY COMPARABLE ACT IN ANY OTHER STATE IN WHICH THE
PROPERTIES ARE LOCATED.  BUYER STATES
THAT, AFTER CONSULTATION WITH AN ATTORNEY OF BUYER’S SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER.

 

(c)      Parties Bear Own
Expenses/No Special Damages. 
Each party shall bear and pay all expenses (including, without
limitation, legal fees) incurred by it in connection with the transaction
contemplated by this Agreement.  NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY NEITHER PARTY SHALL
HAVE ANY OBLIGATIONS WITH RESPECT TO THIS AGREEMENT, OR OTHERWISE IN CONNECTION
HEREWITH, FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

(d)      No Sales Taxes.  No sales, transfer or similar tax will be
collected at Closing from Buyer in connection with this transaction.  If, however, this transaction is later deemed
to be subject to sales, transfer or similar tax, for any reason, Buyer agrees
to be solely responsible, and shall indemnify and hold Seller (and its
affiliates, and its and their directors, officers, employees, attorneys,
contractors and agents) harmless, for any and all sales, transfer or other
similar taxes (including related penalty, interest or legal costs) due by
virtue of this transaction on the Properties transferred pursuant hereto and
the Buyer shall remit such taxes at that time. 
Seller and Buyer agree to cooperate with each other in demonstrating
that the requirements for exemptions from such taxes have been met.

 

28

 

(e)      Entire Agreement.  This Agreement and the “Broker Leases
Agreement” between the Parties of same date as this Agreement contain the
entire understanding of the Parties hereto with respect to subject matter
hereof and supersedes all prior agreements, understandings, negotiations, and
discussions among the Parties with respect to such subject matter.

 

(f)       Amendments, Waivers.  This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.

 

(g)      Choice of Law.  Without regard to principles of conflicts of
law, this Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas applicable to contracts made and to
be performed entirely within such state and the laws of the United States of
America, except that, to the extent that the law of a state in which a portion
of the Properties is located (or which is otherwise applicable to a portion of
the Properties) governs, the law of such state shall apply as to that portion
of the property located in (or otherwise subject to the laws of) such state.

 

(h)      Headings, Time of Essence,
etc.  The descriptive
headings contained in this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.  Within this Agreement words
of any gender shall be held and construed to cover any other gender, and words
in the singular shall be held and construed to cover the plural, unless the context
otherwise requires.  Time is of the
essence in this Agreement.

 

(i)       No Assignment.  Prior to Closing, neither party shall have
the right to assign its rights under this Agreement, without the prior written
consent of the other party first having been obtained.

 

(j)       Successors and Assigns.  Subject to the limitation on assignment
contained in subsection (i) above, this Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns.

 

(k)      Counterpart Execution.  This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and
the same instrument.  It shall not be
necessary for Buyer and Seller to sign the same counterpart.

 

 

[SIGNATURE
PAGES TO FOLLOW]

 

29

 

IN WITNESS
WHEREOF, this Agreement is executed by the parties hereto on the date set forth
above.

 

	
   

  	
  “SELLER”

  
	
   

  	
   

  	
   

  
	
   

  	
  PHAWK, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Floyd C. Wilson, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “BUYER”

  
	
   

  	
   

  	
   

  
	
   

  	
  PETROHAWK ENERGY
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Robert C. Stone, Jr.

  
	
   

  	
   

  	
  Chairman of Special Committee

  

 

 

 

 

Disclosure
Schedule

 

 

Environmental:

 

1.               There have been oil and gas
production and exploitation activities on the Lands and Leases for a number of
years.  During such period, the
Properties have been used for natural gas, crude oil and salt production,
transportation, storage and related activities. 
As is customary in conducting operations of this nature, leaks and
spills likely have occurred from time to time in connection with such activities.  In addition, the Properties may contain
abandoned or out-of-service wells and other equipment incident to such
operations.    The physical and
environmental condition of the Properties may not be ascertainable by visual
inspection.  However, to the best of
Seller’s knowledge, the Properties have been operated and maintained in
compliance in all material respects with applicable environmental laws. The
statements in this paragraph are intended as disclosures of possible conditions
existing on the Properties.

 

 

 

 

 

SCHEDULE
I

 

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL
PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS
INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL
SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

 

CONVEYANCE

 

 

PHAWK, LLC, a
Delaware limited liability company, (formerly Petrohawk Energy, LLC), (herein
called “Grantor”), for Ten Dollars and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), does hereby
GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER, and DELIVER unto
PETROHAWK ENERGY CORPORATION, a Delaware corporation (herein called “Grantee”),
whose address is 1100 Louisiana, Suite 4400, Houston, Texas 77002, the following
described properties, rights and interests:

 

(a)      All right, title and interest of Grantor
in and to the oil, gas and/or mineral leases, the wells, the production
facility platform, and related pipelines and associated rights of way,  and that certain abandonment escrow account,
that are described on Exhibit A hereto; and

 

(b)      All rights, titles and interests of Grantor
in and to, or otherwise derived from, all presently existing and valid oil, gas
and/or mineral unitization, pooling, and/or communitization agreements,
declarations and/or orders (including, without limitation, all units formed
under orders, rules, regulations, or other official acts of any federal, state,
or other authority having jurisdiction, and voluntary unitization agreements, designations
and/or declarations) relating to the properties described in subsection (a)
above, to the extent and only to the extent such rights, titles and interests
are attributable to the properties described in subsection (a) above; and

 

(c)      All rights, titles and interests of Grantor
in and to all presently existing and valid production sales contracts,
operating agreements, exploration agreements, farm-out and farm-in agreements,
right of way easements, surface use agreements, seismic data agreements (to the
extent transferable and subject to the limitations set forth below), copies of
all lease files, land files, well files, environmental records, production
records, division order files, abstracts, title opinions, and contract files,
and other agreements and contracts (including but not limited to AMI
agreements, if any) which relate to any of the properties described in
subsections (a) and (b) above, to the extent and only to the extent such
rights, titles and interests are attributable to the properties described in
subsections (a) and (b) above; and

 

(d)      All rights, titles and interests of Grantor
in and to all wells, wellhead equipment, production facilities, flowlines,
tanks, injection facilities, saltwater disposal facilities, compression
facilities, gathering systems, and other equipment located on the properties
described in subsections (a) and (b) above and currently in use in connection
with the 

 

 

 

operation of such
properties, to the extent and only to the extent such rights, titles and interests
are attributable to the properties described in subsections (a) and (b) above;
and

 

(e)      certain office furniture and office
equipment, automobiles, assignable service agreements, warranty agreements and
other agreements associated with the furniture and equipment, as described on
Exhibit B, and any logo, service mark, copyright, trade name or
trademark of or associated with the name Petrohawk Energy or Petrohawk.

 

The properties,
rights and interests specified in the foregoing subsections (a) through (e),
inclusive, are herein sometimes collectively called the “Subject Properties”.  The
Subject Properties do not include, and there is hereby expressly excepted and
excluded therefrom and reserved to Grantor, (i) all rights and causes in
action, arising, occurring or existing and accrued in favor of Grantor prior to
the effective date hereof or arising out of the operation of or production from
the Subject Properties prior to the effective date hereof (including, but not
limited to, any and all contract rights, claims, receivables, revenues,
recoupment rights, recovery rights, accounting adjustments, mispayments,
erroneous payments or other claims of any nature in favor of Grantor and
relating and accruing to any time period prior to the effective date), and (ii) any seismic data covering lands or depths not covered
by the Subject Properties, any seismic data not owned by or licensed to Grantor
and any seismic data which is not transferable.

 

TO HAVE AND TO
HOLD the Subject Properties unto Grantee, Grantee’s successors and assigns,
forever.

 

This Conveyance is
made subject to that certain Agreement of Sale and Purchase between Grantor and
Grantee dated August ___, 2004.  Such
Agreement of Sale and Purchase contains certain representations, warranties,
indemnities and agreements between the parties, some of which may survive the
delivery of this Conveyance, as more particular provided for therein, but  third parties may conclusively rely on this
Conveyance to vest title to the Subject Properties in Grantee.  Subject to the terms and provisions of such
Agreement of Sale and Purchase:

 

(a)                                  GRANTOR AGREES TO WARRANT AND FOREVER DEFEND TITLE TO
THE SUBJECT PROPERTIES UNTO GRANTEE AND ITS SUCCESSORS AND ASSIGNS, AGAINST THE
CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING, OR TO CLAIM THE SAME, OR ANY PART
THEREOF BY, THROUGH OR UNDER GRANTOR, BUT NOT OTHERWISE;

 

(b)                                 THE EXPRESS WARRANTY OF TITLE SET FORTH ABOVE IS
EXCLUSIVE, AND IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AND GRANTOR EXPRESSLY DISCLAIMS ANY AND ALL
SUCH OTHER REPRESENTATIONS AND WARRANTIES;

 

(c)                                  WITHOUT LIMITATION OF THE FOREGOING, THE SUBJECT
PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION
WHETHER EXPRESS, IMPLIED, STATUTORY OR 

 

 

 

                                                OTHERWISE, RELATING TO THE CONDITION, QUANTITY, QUALITY,
FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF
MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE,
AND, EXCEPT AS PROVIDED OTHERWISE IN (a) ABOVE, WITHOUT ANY OTHER EXPRESS,
IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER;

 

Grantor agrees to
execute and deliver to Grantee, from time to time, such other and additional
instruments, notices, division orders, transfer orders and other documents, and
to do all such other and further acts and things as may be necessary to more
fully and effectively grant, convey and assign to Grantee the Subject
Properties.

 

This Conveyance is
being executed in several counterparts all of which are identical.

 

IN WITNESS WHEREOF
this Conveyance has been executed on August      ,
2004, effective as to runs of oil and deliveries of gas, and for all other
purposes, as of 7:00 a.m. Central Daylight Time on June 1, 2004.

 

 

	
  WITNESSES:

  	
   

  	
   

  
	
   

  	
  PHAWK, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Floyd C. Wilson,
  President

  
	
   

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WITNESSES:

  	
   

  	
   

  
	
   

  	
  PETROHAWK ENERGY
  CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By;

  	
   

  
	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title: 

  	
   

  
	
  Name: 

  	
   

  	
   

  	
   

  	
   

  
							

 

 

[add
acknowledgments]Exhibit
10.1.1

Execution Copy

 

NONQUALIFIED
STOCK OPTION AGREEMENT

UNDER THE
HORIZON PCS, INC.

2004 STOCK
INCENTIVE PLAN

 

This NONQUALIFIED STOCK OPTION AGREEMENT
(this “Agreement”), made as of this 21st day
of October, 2004, by and between Horizon PCS, Inc. (the “Company”)
and William A. McKell (the “Participant”)
who is an employee of the Company.

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, pursuant to the Company’s 2004 Stock
Incentive Plan (the “Plan”), the
Company desires to afford the Participant the opportunity to acquire, or
enlarge, his ownership of the Company’s common stock (“Stock”),
so that he may have a direct proprietary interest in the Company’s success.

 

NOW, THEREFORE, in consideration of the
covenants and agreements herein contained, the parties hereto hereby agree as
follows:

 

1.                                       Grant of Option.  Subject
to the term and conditions set forth herein and in the Plan, which is attached
hereto as Exhibit A, the Company hereby grants to the Participant, during the
period commencing on the date of this Agreement and ending on the close of
business on the day of the tenth anniversary of the date hereof (the “Expiration Date”),
the right and option (the “Option”) to purchase from the
Company, at a price of $17.76 per share (the “Option Price”), an aggregate of
197,340 shares of Stock (the “Option Shares”).

 

2.                                       Limitation on Exercise of Option.  Subject
to the terms and conditions set forth herein and in the Plan, the Option will
become vested and exercisable with respect to 16.67% of the shares subject to
the Option on the six (6) month anniversary of the date of grant and as to an
additional 16.67% on each six (6) month anniversary thereafter until the Option
is 100% vested; provided, that, the Participant is then employed
by the Company.  Notwithstanding the foregoing,
subject to the limitations of the Plan, the Committee may accelerate the
vesting and exercisability of all or part of the Option at any time and for any
reason.

 

3.                                       Termination of Employment.  Upon a
termination of employment, the Option shall remain exercisable as follows:

 

(a)                                  Upon termination of the Participant’s employment
by the Company without Cause or by the Participant for Good Reason (as such
terms are defined below), the Option, to the extent not fully vested, shall
become 100% vested and exercisable and the Participant may exercise the Option
until the earlier of the Expiration Date or the last day of the 90-day period
following such termination of employment (or 180 days if the Participant’s
employment is terminated by the Company without Cause or by the Participant for
Good Reason and such termination occurs concurrent with or within six (6)
months following a Change in Control (as defined in the Plan)), and the Option
shall thereafter terminate and cease to be exercisable.

 

1

 

(b)                                 Upon termination of the Participant’s employment
with the Company for any other reason not otherwise specified in clause (a)
above, the unvested portion of the Option shall terminate and cease to be
exercisable and the Participant or his estate or legal beneficiaries in the
case of his death, as applicable, may exercise the vested portion of the
Option, but only to the extent the Option was exercisable immediately prior to
termination of employment, until the earlier of the Expiration Date or the last
day of the thirty (30) day period following termination of employment (or one
(1) year period in the event his termination of employment is as a result of
his death), and the Option shall thereafter terminate and cease to be
exercisable.

 

(c)                                  Participant acknowledges and agrees that the
continued vesting of the Option granted hereunder is premised upon his
provision of future services to the Company and the vesting of such Option
shall not accelerate upon his termination of employment for any reason unless
specifically provided for herein.

 

4.                                       Time and Method of Exercising Option.  The Option, to the extent vested, may be
exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of whole shares of Stock to be purchased.  Such notice shall be accompanied by the
payment in full of the Option Price. 
Such payment shall be made either: (i) in cash at the time of purchase,
(ii) by tendering shares of Stock (either by actual delivery of shares or by
attestation) that are acceptable to the Committee and have been held by the
Participant for at least six months prior to the exercise, and were valued at
Fair Market Value as of the day the shares are tendered, (iii) in any combination
of cash, shares, or attested shares, as determined by the Committee in its sole
discretion or (iv) to the extent permitted by applicable law, Participant may
elect to pay the Option Price upon the exercise of an Option by irrevocably
authorizing a third party to sell shares of Stock (or a sufficient portion of
the shares) acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Option Price and any
tax withholding resulting from such exercise.

 

5.                                       Issuance of Shares.  Except as otherwise provided in the Plan, and
subject to applicable law, as promptly as practical after receipt of such
written notification of exercise and full payment of the Option Price and any
required income tax withholding, the Company shall issue or transfer to the
Participant the number of Option Shares with respect to which Options have been
so exercised (less shares withheld in satisfaction of tax withholding
obligations, if any), and shall deliver to the Participant a certificate or
certificates therefore, registered in the Participant’s name.

 

6.                                       Non-Transferability.  The Option shall not be transferable by the
Participant other than by will or by the laws of descent and distribution, and
the Option shall be exercisable during the lifetime of the Participant only by
the Participant or his guardian or legal representative.  The terms of the Option shall be final,
binding and conclusive upon the beneficiaries, executors, administrators, heirs
and successors of the Participant.  Until
the Option has vested, shares subject to the Option shall not be sold,
transferred or otherwise disposed of, shall not be pledged or otherwise
hypothecated and shall not be subject to the claims of creditors.

 

7.                                       Adjustments.  Options may be adjusted or terminated in any
manner as contemplated by the Plan.

 

8.                                       Rights as Shareholder.  The Participant or a transferee of the
Options shall have

 

2

 

no rights as a shareholder with respect to any Option Shares until he
shall have become the holder of record of such shares, and no adjustment shall
be made for dividends or distributions or other rights in respect of such
Option Shares for which the record date is prior to the date upon which he
shall become the holder of record thereof.

 

9.                                       Compliance with Law.  Notwithstanding any of the provisions hereof,
the Participant hereby agrees that he will not exercise the Option, and that
the Company will not be obligated to issue or transfer any shares to the Participant
hereunder, if the Committee determines, in its sole discretion, that the
exercise of the Option or the issuance or transfer of the Option Shares
constitutes a violation by the Participant or the Company of any provisions of
any law or regulation of any governmental authority.  Such determination by the Committee shall be
final, binding and conclusive.  The
Company shall in no event be obliged to register any securities pursuant to the
Securities Act of 1933 (as now in effect or as hereafter amended) or to take
any other action in order to cause the exercise of the Option or the issuance
or transfer of Option Shares pursuant thereto to comply with any law or
regulation of any governmental authority.

 

10.                                 Taxes.  At such time as the Participant recognizes
taxable income in connection with the receipt of shares or cash hereunder (a “Taxable Event”), the Participant shall pay to the Company
an amount equal to the minimum federal, state and local income taxes and other
amounts as may be required by law to be withheld by the Company in connection
with the Taxable Event (the “Withholding Taxes”)
prior to the issuance of such shares or the payment of such cash.  The Committee, in its discretion, and subject
to such requirements as the Committee may impose prior to the occurrence of
such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan, but only
to the extent of the Withholding Taxes.

 

11.                                 Notice.  Every notice or other communication relating
to this Agreement shall be in writing, and shall be mailed to or delivered to
the party for whom it is intended at such address as may from time to time be
designated by it in a notice mailed or delivered to the other party as herein
provided; provided, that, unless and until some other address be
so designated, all notices or communications by the Participant to the Company
shall be mailed or delivered to the Company at its principal executive office,
and all notices or communications by the Company to the Participant may be
given to the Participant personally or may be mailed to him at his address as
recorded in the records of the Company. 
Notwithstanding the foregoing, at such time as the Company institutes a
policy for delivery of notice by e-mail, notice may be given in accordance with
such policy.

 

12.                                 Nonqualified
Stock Option.  The Option
granted hereunder is not intended to be an “incentive stock option” within the
meaning of Section 422 of the Code (“ISO”).

 

13.                                 Binding
Effect.  Subject to Section 6
hereof, this Agreement shall be binding upon the heirs, executors, administrators
and successors of the parties hereto.

 

14.                                 No Right
to Continued Employment. 
Nothing in this Agreement or in the Plan shall confer upon the
Participant any right to continue in the service of the Company or shall

 

3

 

interfere with or restrict in any way the rights of the Company, which
are hereby expressly reserved, to terminate the services of or discharge the
Participant at any time for any reason whatsoever.

 

15.                                 Governing
Law.  Except to the extent
governed by the Delaware General Corporation Law, this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Ohio without regard to its conflict of law principles.

 

16.                                 Plan.  The terms and provisions of the Plan are
incorporated herein by reference, and the Participant hereby acknowledges
receiving a copy of the Plan.  In the
event of a conflict or inconsistency between the terms and provisions of the
Plan and the provisions of this Agreement, the Plan shall govern and
control.  All capitalized terms not
defined herein shall have the meaning ascribed to them as set forth in the
Plan.

 

17.                                 Successors
and Assigns.  The Company
may assign any of its rights under this Agreement.  This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer set
forth herein, this Agreement shall be binding upon the Participant and the
Participant’s heirs, executors, administrators, and legal representatives.

 

18.                                 Gender
and Number.  The masculine
pronoun shall be deemed to include the feminine, and words in the singular
shall be deemed to include the plural and the plural shall be deemed to include
the singular, unless a different meaning is plainly required by the context.

 

19.                                 Definitions.

 

(a)                                  The term “Company”
as used in this Agreement with reference to employment shall include
the Company and its Subsidiaries, as appropriate.

 

(b)                                 Whenever the word “Participant” is used in any provision of this Agreement under
circumstances where the provision should logically be construed to apply to the
beneficiaries, the executors, the administrators, or the person or persons to
whom the Options may be transferred by will or by the laws of descent and distribution,
the word “Participant” shall be
deemed to include such person or persons.

 

(c)                                  The term “Cause”
means (i) Participant’s conviction of, or plea of guilty or no contest to: (A)
any felony or other criminal offense that could result in imprisonment of at
least 1 year or (B) a crime involving fraud, theft, misappropriation,
dishonesty or embezzlement under either federal or state law; (ii) Participant’s
dishonesty in communications to the Company’s Board of Directors (the “Board”),
any member of the Board or any other superior officer or superior employee he
is required to report to in the course of fulfilling Participant’s material
employment duties; (iii) Participant’s proven commission of intentional or
grossly negligent acts that materially impair the goodwill or business of the
Company or cause material damage to its property, goodwill or business; or (iv)
Participant’s willful failure to perform Participant’s employment duties in any
material respect (other than as a result of Participant’s short term disability
or medical emergency involving a member of Participant’s immediate family, or
as the result of any Company approved leave).

 

4

 

(d)                                 The term “Good
Reason” means (i) any reduction in Participant’s annual base salary
or target incentive bonus opportunity; (ii) any requirement by the Company that
Participant’s services be rendered primarily at a location or locations other
than within 35 miles of Participant’s current office location for other than a
de minimis period of time, without Participant’s prior written consent; provided,
that, Participant shall not have Good Reason if he is required to engage
in reasonable amounts of travel on Company business; or (iii) a material
adverse alteration in the nature and status of Participant’s responsibilities
unless such alteration is remedied within thirty days following written
notification by Participant to the Company of the alleged material adverse
alteration.  Participant shall have Good
Reason to terminate his employment under this clause if the Company is acquired
by, or merged with, a Sprint PCS affiliate (excluding Sprint FON Group in such
affiliated group) and Participant is not appointed the chief executive officer
of the acquired or merged entity at the time of such acquisition or merger.

 

[Signature Page Follows]

 

5

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

 

 

	
   

  	
  HORIZON PCS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Peter Holland

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Peter Holland

  
	
   

  	
   

  	
  Title: 

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARTICIPANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ William A. McKell

  	
   

  
						

 

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