Document:

ex_10-4.htm

    Exhibit
      10.4

     

     

     

     

     

    
      PURCHASE
        AND SALE AGREEMENT

      

      BY
        AND BETWEEN

       

      THE
        OPERATING CO., et al AS SELLER

       

      AND

       

      LEGACY
        RESERVES OPERATING LP, AS BUYER

    

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      TABLE
        OF
        CONTENTS

       

                                                                                                                                                                                                                                                                                                                                                                                                                     PAGE

      
        
          
            	
                    1.

                  	
                    SALE
                      AND PURCHASE OF THE ASSETS.

                  	
                    1

                  
	
                    1.1

                  	
                    Acquired
                      Assets

                  	
                    1

                  
	
                    1.2

                  	
                    Excluded
                      Assets.

                  	
                    2

                  
	
                    1.3

                  	
                    Assumed
                      Liabilities

                  	
                    2

                  
	
                    2.

                  	
                    PURCHASE
                      PRICE.

                  	
                    3

                  
	
                    2.1

                  	
                    Base
                      Purchase Price.

                  	
                    3

                  
	
                    2.2

                  	
                    Deposit.

                  	
                    3

                  
	
                    2.3

                  	
                    Adjustments
                      to the Base Purchase Price

                  	
                    3

                  
	
                    2.4

                  	
                    Allocation

                  	
                    4

                  
	
                    3.

                  	
                    CLOSING.

                  	
                    5

                  
	
                    3.1

                  	
                    Closing.

                  	
                    5

                  
	
                    3.2

                  	
                    Delivery
                      by Seller

                  	
                    5

                  
	
                    3.3

                  	
                    Delivery
                      by Buyer

                  	
                    6

                  
	
                    3.4

                  	
                    Further
                      Cooperation

                  	
                    6

                  
	
                    4.

                  	
                    ACCOUNTING
                      ADJUSTMENTS.

                  	
                    6

                  
	
                    4.1

                  	
                    Closing
                      Adjustments.

                  	
                    6

                  
	
                    4.2

                  	
                    Strapping
                      and Gauging

                  	
                    6

                  
	
                    4.3

                  	
                    Taxes

                  	
                    7

                  
	
                    4.4

                  	
                    Post-Closing
                      Adjustments

                  	
                    7

                  
	
                    4.5

                  	
                    Suspended
                      Funds

                  	
                    8

                  
	
                    4.6

                  	
                    Cooperation

                  	
                    8

                  
	
                    5.

                  	
                    DUE
                      DILIGENCE: TITLE MATTERS.

                  	
                    9

                  
	
                    5.1

                  	
                    General
                      Access

                  	
                    9

                  
	
                    5.2

                  	
                    Defensible
                      Title

                  	
                    9

                  
	
                    5.3

                  	
                    Defect
                      Letters.

                  	
                    11

                  
	
                    5.4

                  	
                    Effect
                      of Title Defect

                  	
                    12

                  
	
                    5.5

                  	
                    Preferential
                      Rights and Consents.

                  	
                    14

                  
	
                    6.

                  	
                    ENVIRONMENTAL
                      ASSESSMENT.

                  	
                    15

                  
	
                    6.1

                  	
                    Physical
                      Condition of the Assets

                  	
                    15

                  
	
                    6.2

                  	
                    Inspection
                      and Testing.

                  	
                    16

                  
	
                    6.3

                  	
                    Notice
                      of Adverse Environmental Conditions

                  	
                    17

                  
	
                    6.4

                  	
                    Rights
                      and Remedies for Adverse Environmental Conditions.

                  	
                    17

                  
	
                    6.5

                  	
                    Remediation
                      by Seller

                  	
                    19

                  
	
                    7.

                  	
                    REPRESENTATIONS
                      AND WARRANTIES OF SELLER.

                  	
                    20

                  
	
                    7.1

                  	
                    Seller’s
                      Representations and Warranties

                  	
                    20

                  
	
                    7.2

                  	
                    Scope
                      of Representations of Seller.

                  	
                    22

                  
	
                    8.

                  	
                    REPRESENTATIONS
                      AND WARRANTIES OF BUYER.

                  	
                    23

                  
	
                    8.1

                  	
                    Buyer’s
                      Representations and Warranties

                  	
                    23

                  
	
                    9.

                  	
                    CERTAIN
                      AGREEMENTS OF SELLER

                  	
                    24

                  
	
                    9.1

                  	
                    Maintenance
                      of Assets

                  	
                    24

                  
	
                    9.2

                  	
                    Records

                  	
                    25

                  
	
                    9.3

                  	
                    Audit
                      Rights.

                  	
                    25

                  

          

        

         

        
          
             

          

          
            Page
              i

            
              

            

          

          
             

          

        

         

        
          
            
              	
                      10.

                    	
                      CERTAIN
                        AGREEMENTS OF BUYER

                    	
                      26

                    
	
                      10.1

                    	
                      Plugging
                        Obligation

                    	
                      26

                    
	
                      10.2

                    	
                      Plugging
                        Bond

                    	
                      26

                    
	
                      10.3

                    	
                      Seller’s
                        Logos

                    	
                      26

                    
	
                      10.4

                    	
                      Like-Kind
                        Exchanges

                    	
                      26

                    
	
                      11.

                    	
                      CONDITIONS
                        PRECEDENT TO OBLIGATIONS OF BUYER

                    	
                      26

                    
	
                      11.1

                    	
                      No
                        Litigation

                    	
                      26

                    
	
                      11.2

                    	
                      Representations
                        and Warranties

                    	
                      26

                    
	
                      12.

                    	
                      CONDITIONS
                        PRECEDENT TO THE OBLIGATIONS OF SELLER

                    	
                      27

                    
	
                      12.1

                    	
                      No
                        Litigation

                    	
                      27

                    
	
                      12.2

                    	
                      Representations
                        and Warranties

                    	
                      27

                    
	
                      13.

                    	
                      TERMINATION.

                    	
                      27

                    
	
                      13.1

                    	
                      Causes
                        of Termination

                    	
                      27

                    
	
                      13.2

                    	
                      Effect
                        of Termination.

                    	
                      28

                    
	
                      14.

                    	
                      INDEMNIFICATION.

                    	
                      28

                    
	
                      14.1

                    	
                      Indemnification
                        by Seller

                    	
                      29

                    
	
                      14.2

                    	
                      Indemnification
                        by Buyer

                    	
                      31

                    
	
                      14.3

                    	
                      Physical
                        Inspection

                    	
                      31

                    
	
                      14.4

                    	
                      Notification

                    	
                      31

                    
	
                      15.

                    	
                      MISCELLANEOUS.

                    	
                      32

                    
	
                      15.1

                    	
                      Casualty
                        Loss.

                    	
                      32

                    
	
                      15.2

                    	
                      Confidentiality.

                    	
                      32

                    
	
                      15.3

                    	
                      Notices

                    	
                      33

                    
	
                      15.4

                    	
                      Press
                        Releases and Public Announcements

                    	
                      33

                    
	
                      15.5

                    	
                      Compliance
                        with Express Negligence Test

                    	
                      34

                    
	
                      15.6

                    	
                      Governing
                        Law

                    	
                      34

                    
	
                      15.7

                    	
                      Exhibits

                    	
                      34

                    
	
                      15.8

                    	
                      Fees,
                        Expenses, Taxes and Recording.

                    	
                      34

                    
	
                      15.9

                    	
                      Assignment

                    	
                      35

                    
	
                      15.10

                    	
                      Entire
                        Agreement

                    	
                      35

                    
	
                      15.11

                    	
                      Severability

                    	
                      35

                    
	
                      15.12

                    	
                      Captions

                    	
                      35

                    
	
                      15.13

                    	
                      Time
                        of the Essence

                    	
                      35

                    
	
                      15.14

                    	
                      Counterpart
                        Execution.

                    	
                      35

                    
	
                      15.15

                    	
                      Preferential
                        Right to Purchase

                    	
                      35

                    

            

          

        

      

    

     

    
      
         

      

      
        Page
          ii

        
          

        

      

      
         

      

    

     

    
      EXHIBITS

      

        
          
            
              	
                      A

                    	
                      Oil
                        and Gas Leases and Land

                    
	
                      B

                    	
                      Wells
                        Allocation

                    
	
                      C

                    	
                      Equipment

                    
	
                      D

                    	
                      Excluded
                        Assets

                    
	
                      E

                    	
                      Form
                        of Assignment and Bill of Sale

                    
	
                      F

                    	
                      Services
                        Agreement

                    
	
                      G

                    	
                      Lease
                        Agreement

                    
	
                      7.1(E)

                    	
                      AFE’s

                    
	
                      7.1(G)

                    	
                      Pending
                        Litigation

                    
	
                      7.1(K)

                    	
                      Material
                        Agreements

                    
	
                      7.1(L)

                    	
                      Consents
                        and Preferential Purchase Rights

                    
	
                      7.1(P)

                    	
                      Calls
                        on
                        Production

                    

            

          

        

      

    

     

    
      
         

      

      
        Page
          iii

        
          

        

      

      
         

      

    

     

    
      PURCHASE
        AND SALE AGREEMENT

       

      This
        Purchase and Sale Agreement (this
“Agreement”) is entered into this 30th day of August, 2007, but effective as of
        7:00 a.m. (Central Time) on September 1, 2007 (the “Effective Time”), by and
        between The Operating Co., a Texas corporation, Nova Oil & Gas, Inc., a
        Texas corporation, X-Pert Corporation, a Texas corporation, The 195 AF, Ltd.,
        a
        Texas family limited partnership, Cowboy Crude Oil & Gas,
        F.L.P.,  a Texas family limited partnership, and Cottonhead, Ltd., a
        Texas limited partnership (collectively referred to as “Seller”) and Legacy
        Reserves Operating LP, a Delaware limited partnership (“Buyer”). Buyer and
        Seller are collectively referred to herein as the “Parties” and sometimes
        individually referred to as a “Party.”

       

      RECITALS:

       

      
        	
                A.

              	
                Seller
                  desires to sell to Buyer certain oil, gas and mineral properties
                  and other
                  assets on the terms and conditions set forth in this
                  Agreement.

              

      

       

      
        	
                B.

              	
                Buyer
                  desires to purchase from Seller such oil, gas and mineral properties
                  and
                  other assets on the terms and conditions set forth in this
                  Agreement.

              

      

       

      WITNESSETH:

       

      In
        consideration of the mutual agreements contained in this Agreement and other
        good and valuable consideration, Buyer and Seller agree as follows:

       

      1.           SALE
        AND PURCHASE OF THE ASSETS.

       

      1.1           Acquired
        Assets.  Subject
        to the terms and conditions of this Agreement, Seller agrees to sell, convey
        and
        deliver to Buyer and Buyer agrees to purchase and acquire from Seller the
        following (collectively, the “Assets”):

       

      
        	
                (A)

              	
                All
                  of Seller’s right, title and interest in, to and under the oil, gas and/or
                  mineral  leases described on Exhibit A attached hereto
                  (the “Leases”), whether or not such interests are accurately or completely
                  described on Exhibit A, and all of Seller’s oil and gas leasehold,
                  mineral, royalty, overriding royalty, surface or other interests
                  in the
                  lands covered by the Leases or in the lands described on Exhibit A
                  (collectively, the “Land”), together with all the property and rights
                  incident thereto, including without limitation Seller’s rights in, to and
                  under all operating agreements; pooling, communitization and unitization
                  agreements; farmout agreements; joint venture agreements; product
                  purchase
                  and sale contracts; transportation, processing, treatment or gathering
                  agreements; leases; permits (the “Permits”); rights-of-way (the
                  “Rights-of-Way”); surface use agreements; surface leases; surface estates;
                  easements (the “Easements”); licenses; options; declarations; orders;
                  contracts; and instruments in any way relating to the Leases or
                  Land;

              

      

       

      
        	
                (B)

              	
                All
                  of Seller’s right, title and interest in and to the wells situated on or
                  used in conjunction with operations on the Leases and/or Land or
                  on land
                  pooled, communitized or unitized therewith (“Pooled Land”), including,
                  without limitation, all producing, non-producing, injection, disposal
                  and
                  water supply wells and the wells listed on Exhibit B attached
                  hereto (collectively, the “Wells”);

              

      

       

      
        
           

        

        
          Page
            1

          
            

          

        

        
           

        

      

       

      
        	
                (C)

              	
                All
                  of Seller’s right, title and interest in and to all of the personal
                  property, fixtures, improvements and other property, whether real,
                  personal or mixed, now or as of the Effective Time on, appurtenant
                  to or
                  used or obtained by Seller in connection with the Leases, Land,
                  Pooled
                  Land or Wells or with the production, injection, treatment, sale
                  or
                  disposal of hydrocarbons and all other substances produced therefrom
                  or
                  attributable thereto, including, without limitation, well equipment,
                  casing, tubing, tanks, generators, boilers, buildings, pumps, motors,
                  machinery, pipelines, gathering systems, power lines, telephone
                  and
                  telegraph lines, roads, field processing plants, field offices
                  and other
                  furnishings related thereto, all vehicles, rolling stock, pulling
                  units,
                  equipment leases, trailers, inventory in storage and storage yards
                  located
                  thereon or used in connection therewith, all of the equipment and
                  other
                  personal property described on Exhibit C attached hereto, and all
                  other improvements or appurtenances thereunto belonging (collectively,
                  the
                  “Equipment”);

              

      

       

      
        	
                (D)

              	
                All
                  of the oil and gas and associated hydrocarbons (“Oil and Gas”) in and
                  under or otherwise attributable to the Leases, Land, and Pooled
                  Land or
                  produced from the Wells;

              

      

       

      
        	
                (E)

              	
                To
                  the extent assignable, all governmental permits, licenses and
                  authorizations, as well as any applications for the same, related
                  to the
                  Leases, Land, Pooled Land and Wells or the use thereof;
                  and

              

      

       

      
        	
                (F)

              	
                All
                  of the files, records, and data of Seller relating to the items
                  described
                  in subsections (A), (B), (C), (D) and (E) above (the “Records”),
                  including, without limitation, lease records, well records, and
                  division
                  order records; well files and prospect files; title records (including
                  abstracts of title, title opinions and memoranda, and title curative
                  documents related to the Leases and Wells); contracts and contract
                  files;
                  correspondence; computer data files; micro-fiche data files; geological,
                  geophysical and seismic records, interpretations, data, maps and
                  information, production records, electric logs, core data, pressure
                  data,
                  decline curves and graphical production curves; and accounting
                  records, to
                  the extent only that the Records can be transferred without violation
                  of
                  any third-party restriction and are not protected by Seller’s
                  attorney-client privilege.

              

      

       

      1.2           Excluded
        Assets.  Notwithstanding
        the foregoing, the Assets shall not include, and there is excepted, reserved
        and
        excluded from the sale contemplated hereby the property described on Exhibit
        D attached hereto.

       

      1.3           Assumed
        Liabilities.  Subject
        to the terms of this Agreement, if Closing occurs, Buyer shall assume and
        agree
        to timely and fully pay, perform and otherwise discharge, without recourse
        to
        Seller or its affiliates, all of the liabilities and obligations of Seller
        and
        its affiliates, predecessors, successors, assigns or representatives, direct
        or
        indirect, known or unknown, asserted or unasserted, absolute or contingent,
        accrued or unaccrued, which relate, directly or indirectly, to the Assets,
        whether such liabilities and obligations accrue before, on or after the
        Effective Time (collectively, the “Assumed
        Liabilities”).  Notwithstanding the foregoing, the Assumed Liabilities
        shall not include, and there is excepted, reserved and excluded from the
        Assumed
        Liabilities, the liabilities and obligations for which Seller indemnifies
        Buyer
        pursuant to Section 14.1.

       

      
        
           

        

        
          Page
            2

          
            

          

        

        
           

        

      

       

      2.           PURCHASE
        PRICE.

       

      2.1           Base
        Purchase Price.  The
        purchase price for the Assets is SIXTY MILLION FIVE HUNDRED THOUSAND AND
        NO/100
        DOLLARS ($60,500,000.00) Base Purchase Price(the “Base Purchase Price”), subject
        to the adjustments provided for herein.

       

      2.2           Deposit. 
        Within
        three (3) days of the execution of this Agreement, Buyer shall deliver to
        Seller, in cash by wire-transfer in immediately available funds to an account
        designated by Seller, a Deposit in an amount equal to THREE MILLION TWENTY
        FIVE
        THOUSAND AND NO/100 DOLLARS ($3,025,000.00) (such amount together with all
        accrued interest thereon, the “Deposit”).  Prior to Closing, the
        Deposit shall be maintained by Seller in an interest bearing
        account.  The Deposit shall be distributed to Seller and credited to
        the Base Purchase Price at Closing, or if this Agreement is terminated, shall
        be
        distributed or retained pursuant to Article 13.  In the event the
        Deposit is not delivered to Seller as prescribed, this Agreement shall
        terminate.  This Agreement is expressly subject to Buyer obtaining
        approval of the board of directors of its general partner, which approval
        shall
        be obtained within three (3) business days after the execution of this
        Agreement.  In the event Buyer does not notify Seller of such board
        approval within three (3) business days after the execution of this Agreement,
        this Agreement shall terminate and be of no further force and
        effect.

      

      2.3           Adjustments
        to the Base Purchase Price.  At
        Closing, appropriate adjustments to the Base Purchase Price shall be made
        as
        follows in accordance with Section 4.1 (as adjusted, the “Purchase
        Price”):

       

      
        	
                (A)

              	
                The
                  Base Purchase Price shall be adjusted upward
                  by:

              

      

       

                
        (i)        any amount determined to be
        due Seller pursuant to Section 4.2;

      

      
        	
                 

              	
                (ii)

              	
                Property
                  Taxes and Severance Taxes related to the Assets paid by Seller
                  for the
                  period following the Effective Time as determined pursuant to Section
                  4.3;

              

      

      

      
        	
                 

              	
                (iii)

              	
                an
                  amount equal to the costs, expenses and other expenditures (whether
                  capitalized or expensed) paid by Seller in accordance with this
                  Agreement
                  that are attributable to the Assets for the period from and after
                  the
                  Effective Time;

              

      

      

      
        	
                 

              	
                (iv)

              	
                for
                  all operated wells, a monthly overhead fee of $400, prorated for
                  partial
                  months, per active Well while Seller is operating the Assets from
                  and
                  after the Effective Time;

              

      

      

      
        	
                 

              	
                (v)

              	
                an
                  amount equal to the amount of proceeds derived from the sale of
                  Oil and
                  Gas, net of royalties and severance taxes paid by Buyer, actually
                  received
                  by Buyer and directly attributable to the Wells which are, in accordance
                  with generally accepted accounting procedures, attributable to
                  the period
                  of time prior to the Effective
                  Time;

              

      

      
      

       

      
        
           

        

        
          Page
            3

          
            

          

        

        
           

        

      

       

      
        	
                 

                 

              	
                (vi)

              	
                an
                  amount equal to $7,873 per day for each day from, but not including,
                  October 1, 2007 until Closing, representing the daily interest
                  accruing on
                  the Base Purchase Price less the Deposit, based on a 5% annual
                  rate of
                  interest;

              

      

      
        	
                          
                  (vii)

              	
                any
                  other amount agreed upon in writing by Seller and
                  Buyer.

              

      

      

      
        	
                (B)

              	
                The
                  Base Purchase Price shall be adjusted downward
                  by:

              

      

       

      
        	
                 

              	
                (i)

              	
                an
                  amount equal to the amount of proceeds derived from the sale of
                  Oil and
                  Gas, net of royalties and severance taxes paid by Seller, actually
                  received by Seller and directly attributable to the Wells which
                  are, in
                  accordance with generally accepted accounting procedures, attributable
                  to
                  the period of time from and after the Effective
                  Time;

              

      

      

      
        	
                 

              	
                (ii)

              	
                an
                  amount equal to all expenditures, liabilities and costs relating
                  to the
                  Assets (other than Taxes related to the Assets) that are unpaid
                  as of the
                  Closing Date and assessed for or attributable to periods of time
                  or the
                  ownership of production prior to the Effective Time regardless
                  how such
                  expenditures, liabilities and costs are calculated provided that
                  to the
                  extent the actual amounts cannot be determined prior to the agreement
                  of
                  Buyer and Seller with respect to the Closing Adjustment Statement,
                  a
                  reasonable estimate of such expenditures, liabilities and costs
                  shall be
                  used;

              

      

      

      
        	
                 

              	
                (iii)

              	
                all
                  amounts related to Title Defects as determined pursuant to Section
                  5.4,
                  consents and preferential rights as determined pursuant to Section
                  5.6,
                  Adverse Environmental Conditions as determined pursuant to Section
                  6.4,
                  Exclusion Adjustments as determined pursuant to Sections 5.6 or
                  6.4, and
                  Casualty Losses as determined pursuant to Section
                  15.1;

              

      

      

      
        	
                 

              	
                (iv)

              	
                Property
                  Taxes and Severance Taxes related to the Assets to be paid by Seller
                  for
                  the period prior to the Effective Time as determined pursuant to
                  Section
                  4.3;

              

      

      

      
        	
                 

              	
                (v)

              	
                the
                  amount of the Deposit; and

              

      

       

               
        (vi)           any other
        amount agreed upon in writing by Seller and Buyer.

      

      
        	
                (C)

              	
                Seller
                  shall have the right to collect any receivable, refund or other
                  amounts
                  associated with periods prior to the Effective Time.  To the
                  extent that Buyer collects any such receivable, refund or other
                  amounts,
                  then Buyer shall promptly remit any such amounts to
                  Seller.

              

      

       

      2.4           Allocation.  The
        Base Purchase Price shall be allocated to the Assets as set forth in Exhibit
        B.  The Parties agree that the values allocated to various
        portions of the Assets, which are set forth on Exhibit B (singularly with
        respect to each item, the “Allocated Value” and collectively, the “Allocated
        Values”), shall be binding on Seller and Buyer and shall be used only for the
        purposes of adjusting the Base Purchase Price pursuant to Sections 4.3 (relating
        to Taxes), 5.4 (relating to Title Defects), 15.1 (relating to Casualty Losses),
        and 6 (relating to Adverse Environmental Conditions), and are not intended
        as a
        measure of value for any other purpose.

       

      
        
           

        

        
          Page
            4

          
            

          

        

        
           

        

      

       

      3.           CLOSING.

       

      3.1           Closing.  The
        sale and purchase of the Assets (“Closing”) shall be held at 9:00 a.m. on
        October 1, 2007 (“Closing Date”); provided however, that Buyer shall have the
        right to extend the Closing Date until October 15, 2007, at 9:00 a.m. by
        giving
        Seller written notice of such extension prior to October 1, 2007.  In
        the event Buyer extends the Closing Date as provided above, the Base Purchase
        Price shall be increased as set forth in Section 2.3(A)(vi).  The
        Closing will take place at the offices of Seller, in Pampa, Texas.

       

      3.2           Delivery
        by Seller.  At
        Closing, Seller shall deliver to Buyer (with all documents to be prepared
        by
        Buyer or Buyer’s counsel except those documents required under subsection E, I
        and L below):

       

      
        	
                (A)

              	
                A
                  separate Assignment and Bill of Sale executed by Seller for each
                  jurisdiction where the Assets are located, substantially in the
                  form
                  attached hereto as Exhibit E, effecting the sale, transfer,
                  conveyance and assignment of the Assets, with (i) a special warranty
                  of the real property title by, through and under Seller but not
                  otherwise,
                  and (ii) with all personal property and fixtures conveyed “AS IS,
                  WHERE IS,” with no warranties whatsoever, express, implied or
                  statutory;

              

      

       

      
        	
                (B)

              	
                Any
                  governmental forms required to effect transfer in accordance with
                  applicable regulations, including appropriate state and federal
                  assignments of record title and operating rights executed by
                  Seller;

              

      

       

      
        	
                (C)

              	
                Executed
                  letters in lieu of transfer orders instructing purchasers of production
                  to
                  pay to Buyer the proceeds of sales of Oil and Gas from the
                  Assets;

              

      

       

      
        	
                (D)

              	
                Executed
                  change of operator forms as required by applicable governmental
                  regulation;

              

      

       

      
        	
                (E)

              	
                Executed
                  releases of any mortgages or financing statements in favor of any
                  third
                  party that may be currently encumbering the
                  Assets;

              

      

       

      
        	
                (F)

              	
                An
                  executed Closing Adjustment
                  Statement;

              

      

       

      
        	
                (G)

              	
                An
                  executed Non-Foreign Affidavit of
                  Seller;

              

      

       

      
        	
                (H)

              	
                Possession
                  of the Records and all other
                  Assets;

              

      

       

      
        	
                (I)

              	
                The
                  suspensed funds pursuant to Section
                  4.5;

              

      

       

      
        	
                (J)

              	
                Services
                  Agreement executed by Seller providing for the contract services
                  of  David Smith ($750 per month) and J. D. Carr ($3,000 per
                  month) for a period of one year from Closing in the form of Exhibit
                  F
                  attached hereto (the “Services
                  Agreement”);

              

      

       

      
        
           

        

        
          Page
            5

          
            

          

        

        
           

        

      

       

      
        	
                (K)

              	
                An
                  executed Lease Agreement in the form of Exhibit G attached hereto
                  covering
                  the Office and Yard located at 1211 N. Price Rd, Pampa, Texas,
                  as further
                  described on Exhibit G attached hereto, providing for a real property
                  lease at $4,500 per month for a term of one year (the “Lease Agreement”);
                  and

              

      

       

      
        	
                (L)

              	
                Shareholder
                  or partner resolutions, as applicable, of each Seller, certified
                  by the
                  secretary or other appropriate officer of each Seller or of its
                  general
                  partner, authorizing the execution and performance of this Agreement
                  and
                  the transactions contemplated
                  hereby.

              

      

       

      3.3           Delivery
        by Buyer.  At
        Closing, Buyer shall deliver to Seller:

       

      
        	
                (A)

              	
                The
                  Base Purchase Price set forth in the Closing Adjustment Statement
                  by wire
                  transfer in immediately available funds, less the
                  Deposit;

              

      

       

      
        	
                 (B)

              	
                An
                  executed Closing Adjustment
                  Statement;

              

      

       

      
        	
                (C)

              	
                Executed
                  counterparts of the Assignment and Bill of
                  Sale;

              

      

       

      
        	
                (D)

              	
                Executed
                  counterparts of the Services Agreement;
                  and

              

      

       

      
        	
                (E)

              	
                Executed
                  counterparts of the Lease
                  Agreement.

              

      

       

      3.4           Further
        Cooperation.  At
        the Closing and thereafter as may be necessary, Seller and Buyer shall execute
        and deliver such other instruments and documents and take such other actions
        as
        may be reasonably necessary to evidence and effectuate the transactions
        contemplated by this Agreement.

       

      4.           ACCOUNTING
        ADJUSTMENTS.

       

      4.1           Closing
        Adjustments.  With
        respect to matters that can be determined as of the Closing, Seller shall
        prepare, in accordance with the provisions of this Article 4, a statement
        (the
“Closing Adjustment Statement”) with relevant supporting information setting
        forth each adjustment to the Base Purchase Price submitted by
        Seller.  Seller shall submit the Closing Adjustment Statement to
        Buyer, together with all records or data supporting the calculation of amounts
        presented on the Closing Adjustment Statement, no later than three (3) business
        days prior to the scheduled Closing Date.  Prior to the Closing, Buyer
        and Seller shall review the adjustments proposed by Seller in the Closing
        Adjustment Statement.  Agreed adjustments shall be taken into account
        in computing any adjustments to be made to the Base Purchase Price at the
        Closing.  When available, actual figures will be used for the
        adjustments at Closing.  To the extent actual figures are not
        available, estimates shall be used subject to final adjustments as described
        in
        Section 4.4 below.

       

      4.2           Strapping
        and Gauging  Seller
        will cause the Oil and Gas in the storage facilities located on, or utilized
        in
        connection with, the Leases to be measured, gauged or strapped as of the
        Effective Time.  Seller will cause the production meter charts (or if
        such do not exist, the sales meter charts) on the pipelines transporting
        Oil and
        Gas from the Leases to be read as of such time.  The Oil and Gas in
        such storage facilities above six inches or through the meters on the pipelines
        as of the Effective Time shall belong to Seller and shall be valued based
        on the
        price actually paid for Oil and Gas produced from the Assets for the month
        prior
        to the Effective Time, and the Oil and Gas placed in such storage facilities
        after the Effective Time and production upstream of the aforesaid meters
        shall
        belong to Buyer and become part of the Assets.  Buyer or Buyer’s
        representative shall have the option to witness the gauging by
        Seller.  In the event Buyer or Buyer’s representative exercising the
        option to witness the gauging by Seller, Buyer agrees that the waiver and
        release provisions set forth in Section 5.1(A) of this Agreement shall apply
        thereto.  This provision should not apply to any Assets that are not
        operated and/or owned by Seller.  There shall be no settlement for
        Stock in Tanks on non-operated or non-owned Assets.

       

      
        
           

        

        
          Page
            6

          
            

          

        

        
           

        

      

       

      4.3           Taxes.

      

      
        	
                (A)

              	
                Property
                  Taxes.  All ad valorem taxes, real property taxes, personal
                  property taxes and similar obligations assessed on the Assets (“Property
                  Taxes”) shall be apportioned as of the Effective Time between Buyer and
                  Seller.  Buyer shall file or cause to be filed all required
                     reports and returns incident to Property Taxes which are due
                  on or after
                  the Closing, and shall pay or cause to be paid to the taxing authorities
                  all such taxes reflected on such reports and returns.  The
                  Post-Closing Adjustment Statement shall settle all liability for
                  Property
                  Taxes, using estimates based on previous assessments to the extent
                  current
                  assessments are not known.

              

      

       

      
        	
                (B)

              	
                Sales
                  Taxes, Filing Fees, Etc. The Base Purchase Price is net of any sales
                  taxes or other transfer taxes.  Buyer shall be liable for any
                  sales tax or other transfer tax as well as any applicable conveyance,
                  transfer and recording fees, and real estate transfer stamp or
                  taxes
                  imposed upon the sale pursuant to this Agreement.  If Seller is
                  required by applicable state law to report and pay these taxes
                  or fees,
                  Buyer shall promptly reimburse Seller in full payment of the
                  invoice.

              

      

       

      
        	
                (C)

              	
                Severance
                  Taxes.  All production, severance or excise taxes,
                  conservation fees and other similar such taxes or fees (other than
                  income
                  taxes) payable on a current basis with respect to Oil and Gas produced
                  and
                  sold from the Assets (“Severance Taxes”) shall be borne by Seller to the
                  extent the production on which such taxes are based occurs during
                  Seller’s
                  ownership prior to the Effective Time and shall be borne by Buyer
                  to the
                  extent such production occurs after the Effective
                  Time.

              

      

       

      4.4           Post-Closing
        Adjustments

       

      
        	
                (A)

              	
                A
                  post-closing adjustment statement (the “Post-Closing Adjustment
                  Statement”) based on the actual income and expenses shall be prepared and
                  delivered by Seller to Buyer within ninety (90) days after the
                  Closing,
                  proposing further adjustments to the calculation of the Purchase
                  Price
                  based on the information then available.  Seller or Buyer, as
                  the case may be, shall be given access to and shall be entitled
                  to review
                  and audit the other Party’s records pertaining to the computation of
                  amounts claimed in such Post-Closing Adjustment
                  Statement.

              

      

       

      
        	
                (B)

              	
                Within
                  thirty (30) days after receipt of the Post-Closing Adjustment Statement,
                  Buyer shall deliver to Seller a written statement describing in
                  reasonable
                  detail its objections (if any) to any amounts or items set forth
                  on the
                  Post-Closing Adjustment Statement.  If Buyer does not raise
                  objections within such period, then the Post-Closing Adjustment
                  Statement
                  shall become final and binding upon the Parties at the end of such
                  period.

              

      

       

      
        
           

        

        
          Page
            7

          
            

          

        

        
           

        

      

       

      
        	
                (C)

              	
                If
                  Buyer raises objections, the Parties shall negotiate in good faith
                  to
                  resolve any such objections.  If the Parties are unable to
                  resolve any disputed item within thirty (30) days after Buyer’s receipt of
                  the Post-Closing Adjustment Statement, any disputed accounting
                  item shall
                  be submitted to a nationally recognized independent accounting
                  firm
                  mutually agreeable to the Parties who shall be instructed to resolve
                  such
                  disputed item within thirty (30) days.  The resolution of
                  disputes by the accounting firm so selected shall be set forth
                  in writing
                  and shall be conclusive, binding and non-appealable upon the Parties
                  with
                  respect to the accounting matters submitted and the Post-Closing
                  Adjustment Statement shall become final and binding upon the Parties
                  on
                  the date of such resolution.  The fees and expenses of such
                  accounting firm shall be paid one-half by Buyer and one-half by
                  Seller.

              

      

       

      
        	
                (D)

              	
                After
                  the Post-Closing Adjustment Statement has become final and binding
                  on the
                  Parties, Seller or Buyer, as the case may be, shall pay to the
                  other such
                  sums as are due to settle accounts between the Parties due to differences
                  between the estimated Purchase Price paid pursuant to the Closing
                  Adjustment Statement and the actual Purchase Price set forth on
                  the
                  Post-Closing Adjustment Statement.

              

      

       

      4.5           Suspended
        Funds.  At
        the Closing, Seller shall provide to Buyer a listing showing all proceeds
        from
        production attributable to the Leases which are currently held in suspense
        and
        shall transfer to Buyer all of those suspended proceeds.  Buyer shall
        be responsible for proper distribution of all the suspended proceeds, to
        the
        extent turned over to it by Seller, to the parties lawfully entitled to them
        and
        any claims related thereto, and Buyer hereby agrees to indemnify, defend
        and
        hold harmless Seller from and against any and all claims, liabilities, losses,
        costs and expenses arising out of or relating to those suspended proceeds
        and
        any claims related thereto after the Effective Time.  Seller shall
        remain responsible and liable for any claims, liabilities, losses, costs
        and
        expenses arising out of or relating to those suspended proceeds and any claims
        related thereto through the Closing Date.

       

      4.6           Cooperation.  Each
        Party covenants and agrees to promptly inform the other with respect to amounts
        owing under Sections 4.4 hereof.

       

      
        
           

        

        
          Page
            8

          
            

          

        

        
           

        

      

       

      5.           DUE
        DILIGENCE: TITLE MATTERS.

       

      5.1           General
        Access.

      

      
        	
                (A)

              	
                During
                  reasonable business hours, Seller agrees to grant Buyer physical
                  access to
                  the Assets to allow Buyer to conduct, at Buyer’s sole risk and expense,
                  on-site inspections and environmental assessments of the
                  Assets.  In connection with any such on-site inspections, Buyer
                  agrees not to interfere with the normal operation of the Assets
                  and agrees
                  to comply with all requirements of the operators of the
                  Wells.  If Buyer or its agents prepares an environmental
                  assessment of any Asset, Buyer agrees to keep such assessment confidential
                  and to furnish copies thereof to Seller.  In connection with
                  granting such access, Buyer represents that it is adequately insured
                  and
                  waives, releases and agrees to indemnify the Seller against all
                  claims for
                  injury to, or death of, persons or for damage to operations or
                  property
                  arising in any way from the access afforded to Buyer hereunder
                  or the
                  activities of Buyer, except to the extent caused by Seller’s gross
                  negligence or willful misconduct.  This waiver, release and
                  indemnity by Buyer shall survive termination of this
                  Agreement.

              

      

      

      
        	
                (B)

              	
                Upon
                  the execution of this Agreement, Seller shall give Buyer and its
                  representatives, employees, consultants, independent contractors,
                  attorneys and other advisors reasonable access to the Records during
                  regular office hours for any and all inspections and
                  copying.

              

      

      

      5.2           Defensible
        Title.  As
        used herein the term Defensible Title shall mean:

       

      
        	
                (A)

              	
                As
                  to the Assets, that record title of Seller
                  which:

              

      

       

      
        	
                 

              	
                (i)

              	
                entitles
                  Seller to receive not less than the interests shown in Exhibit B as
                  the “Net Revenue Interest” of all Oil and Gas produced, saved and marketed
                  from or allocated to the Wells, all without reduction, suspension
                  or
                  termination during the life of such Wells except as stated in such
                  Exhibit; and

              

      

      

      
        	
                 

              	
                (ii)

              	
                obligates
                  Seller to bear a percentage of the costs and expenses relating
                  to the
                  maintenance and development of, and operations relating to, the
                  Wells not
                  greater than the “Working Interest” shown in Exhibit B (without a
                  proportionate increase in the Net Revenue Interest), all without
                  increase
                  during the life of such Wells except as stated in such Exhibit;
                  and

              

      

      

      
        	
                (B)

              	
                That
                  title of Seller to the Assets is free and clear of liens, encumbrances
                  and
                  defects that materially and adversely affect the ownership, operation
                  or
                  use of the Assets, except for Permitted
                  Encumbrances.

              

      

       

      
        	
                (C)

              	
                As
                  used herein, the term “Permitted Encumbrances” shall mean any one or more
                  of the following:

              

      

       

      
        	
                 

              	
                (1)

              	
                Any
                  lessor’s royalties, overriding royalties, net profits interests, carried
                  interests, production payments, reversionary interests and similar
                  burdens
                  reflected in the public records, if the net cumulative effect of
                  the
                  burdens does not operate to reduce the Net Revenue Interest of
                  Seller
                  below the interests described in Exhibit
                  B;

              

      

       

      
        
           

        

        
          Page
            9

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                (2)

              	
                Any
                  increase in lessor’s royalty occasioned by the repeal or suspension of any
                  governmental regulation providing for the reduction of royalty
                  for wells
                  producing below defined threshold
                  amounts;

              

      

      

      
        	
                 

              	
                (3)

              	
                Division
                  orders and production sales contracts terminable without penalty
                  upon no
                  more than ninety (90) days notice to the
                  purchaser;

              

      

      

      
        	
                 

              	
                (4)

              	
                Preferential
                  Rights and required third party consents to assignment and similar
                  agreements with respect to which waivers or consents are obtained
                  from the
                  appropriate parties, or the appropriate time period for asserting
                  any such
                  right has expired without an exercise of the
                  right;

              

      

      

      
        	
                 

              	
                (5)

              	
                Materialman’s,
                  mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other
                  similar liens or charges arising in the ordinary course of business
                  for
                  obligations that are not delinquent and that will be paid and discharged
                  in the ordinary course of business, or if delinquent, that are
                  being
                  contested in good faith by appropriate action of which Buyer is
                  notified
                  in writing before Closing;

              

      

      

      
        	
                 

              	
                (6)

              	
                All
                  rights to consent by, required notices to, filings with, or other
                  actions
                  by governmental entities in connection with the sale or conveyance
                  of oil
                  and gas leases or interests therein if they are routinely obtained
                  subsequent to the sale or
                  conveyance;

              

      

      

      
        	
                 

              	
                (7)

              	
                Easements,
                  rights-of-way, servitudes, permits, surface leases and other rights
                  in
                  respect of surface operations that do not materially interfere
                  with the
                  oil and gas operations to be conducted on any Well or
                  Lease;

              

      

      

      
        	
                 

              	
                (8)

              	
                All
                  operating agreements, unit agreements, unit operating agreements,
                  pooling
                  agreements and pooling designations affecting the Assets that are
                  either
                  (i) of record in Seller’s chain of title or (ii) reflected or
                  referenced in the Records or (iii) included as Material Agreements on
                  Exhibit 7.1(K), to the extent the same do not decrease Seller’s Net
                  Revenue Interests below the interests set forth on Exhibit B or
                  increase Seller’s Working Interests above the interests set forth on
                  Exhibit B;

              

      

      

      
        	
                 

              	
                (9)

              	
                Conventional
                  rights of reassignment prior to release or surrender requiring
                  notice to
                  the holders of the rights;

              

      

      

      
        	
                 

              	
                (10)

              	
                All
                  rights reserved to or vested in any governmental, statutory or
                  public
                  authority to control or regulate any of the Assets in any manner,
                  and all
                  applicable laws, rules and orders of governmental
                  authority;

              

      

      

      
        	
                 

              	
                (11)

              	
                Defects
                  that are defensible by possession under applicable statutes of
                  limitation
                  for adverse possession or for prescription;
                  and

              

      

       

      
        
           

        

        
          Page
            10

          
            

          

        

        
           

        

      

       

      
        	
                          
                  (12)

              	
                All
                  other liens, charges, encumbrances, contracts, agreements, instruments,
                  obligations, defects and irregularities affecting the Assets that
                  individually or in the aggregate are not such as to materially
                  interfere
                  with or affect the operation, value or use of any of the Assets
                  and have
                  not prevented, and cannot reasonably be expected to prevent, Buyer
                  from
                  receiving the proceeds of production from the affected
                  Assets.

              

      

      

      
        	
                 

              	
                (13)         
                  Assumed Liabilities of Buyer as set out
                  herein.

              

      

      

      5.3           Defect
        Letters.

       

      
        	
                (A)

              	
                Buyer
                  may from time to time and no later than three (3) business days
                  prior to
                  Closing notify Seller in writing (a “Notice”) of any matter which would
                  cause title to all or part of the Assets not to be Defensible Title
                  (“Title Defect”), provided that no Title Defect shall be deemed to exist
                  unless the Title Defect Value thereof exceeds Ten Thousand Dollars
                  ($10,000.00). Further, there shall be no adjustment to the Base
                  Purchase
                  Price unless the aggregate Title Defect Values of all Title Defects
                  satisfying the condition in clause (i) exceed one percent (1%) of the
                  Base Purchase Price (the “Title Defect Threshold”) (such amount being a
                  threshold, not a deductible).  In order to provide Seller a
                  reasonable opportunity to cure any Title Defects prior to Closing,
                  Buyer
                  shall use reasonable efforts to provide the Notice as soon as reasonably
                  possible after becoming aware of or making its determination of
                  the Title
                  Defect.

              

      

       

      
        	
                (B)

              	
                In
                  the Notice, Buyer must describe with reasonable detail each alleged
                  Title
                  Defect it has discovered and the steps required to cure each Title
                  Defect,
                  include Buyer’s reasonable estimate of the Title Defect Value attributable
                  to each, and include all data and information in Buyer’s possession or
                  control bearing thereon.  Subject to the special warranty in the
                  Assignment and Bill of Sale delivered at Closing, Buyer shall be
                  deemed to
                  have conclusively waived all Title Defects not disclosed to Seller
                  in a
                  Notice on or before three (3) business days prior to
                  Closing.

              

      

       

      
        	
                (C)

              	
                Upon
                  timely delivery of a Notice by
                  Buyer:

              

      

       

      
        	
                 

              	
                (i)

              	
                within
                  three (3) business days after Seller’s receipt of the Title Defects
                  Notice, Seller shall notify Buyer whether Seller agrees with Buyer’s
                  claimed Title Defects and/or the proposed Title Defect Values therefor
                  (“Seller’s Response”).  If Seller does not agree with any
                  claimed Title Defect and/or the proposed Title Defect Value therefor,
                  then
                  the Parties shall enter into good faith negotiations and shall
                  attempt to
                  agree on such matters;

              

      

      

      
        	
                 

              	
                (ii)

              	
                within
                  one (1) business day after Seller’s notice of its cure of a Title Defect,
                  Buyer shall notify Seller whether Buyer agrees with Seller’s proposed cure
                  of a Title Defect (“Buyer’s Response”).  If Buyer does not agree
                  with any such cure, then the Parties shall enter into good faith
                  negotiations and shall attempt to agree on such
                  matters;

              

      

       

      
        
           

        

        
          Page
            11

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                (iii)

              	
                if
                  the Parties cannot reach agreement concerning either the existence
                  of a
                  Title Defect, Seller’s proposed cure of a Title Defect, or a Title Defect
                  Value within ten (10) days after Buyer’s receipt of Seller’s Response or
                  Seller’s receipt of Buyer’s Response, as applicable, upon either Party’s
                  request, the Parties shall mutually agree on and employ an attorney
                  experienced in title examination in the state where the Assets
                  are located
                  (“Title Consultant”) to resolve all points of disagreement relating to
                  Title Defects and Title Defect Values; provided that Seller or
                  Buyer may
                  elect not to proceed to Closing with regard to such Assets and
                  adjust the
                  Base Purchase Price in the amount of the Allocated Value and not
                  submit
                  such matter to arbitration;

              

      

      

      
        	
                 

              	
                (iv)

              	
                if
                  at any time any Title Consultant so chosen fails or refuses to
                  perform
                  hereunder, a new Title Consultant shall be chosen by the
                  Parties.  The cost of any such Title Consultant shall be borne
                  fifty percent (50%) by Seller and fifty percent (50%) by
                  Buyer.  Each Party shall present a written statement of its
                  position on the Title Defect and/or Title Defect Value in question
                  to the
                  Title Consultant within five (5) days after the Title Consultant
                  is
                  selected, and the Title Consultant shall make a determination of
                  all
                  points of disagreement in accordance with the terms and conditions
                  of this
                  Agreement within ten (10) business days of receipt of such position
                  statements.  The determination by the Title Consultant shall be
                  conclusive and binding on the Parties, and shall be enforceable
                  against
                  any Party in any court of competent jurisdiction.  If necessary,
                  the Closing Date shall be deferred only as to those Assets affected
                  by any
                  unresolved disputes regarding the existence of a Title Defect and/or
                  the
                  Title Defect Value until the Title Consultant has made a determination
                  of
                  the disputed issues with respect thereto and all subsequent dates
                  and
                  required activities with respect to any such Assets having reference
                  to
                  the Closing Date shall be correspondingly deferred; provided, however,
                  that, unless Seller and Buyer mutually agree to the contrary, the
                  Closing
                  Date shall not be deferred in any event for more than thirty (30)
                  days
                  beyond the scheduled Closing Date in Section 3.1.  Once the
                  Title Consultant’s determination has been expressed to both Parties, if
                  applicable, Seller shall have five (5) days in which to advise
                  Buyer in
                  writing which of the options available to Seller under Section
                  5.4 that
                  Seller elects regarding each of the Assets as to which the Title
                  Consultant has made a determination.  In evaluating whether a
                  Title Defect exists, due consideration shall be given to the length
                  of
                  time that the particular Asset has been producing Oil and Gas and
                  whether
                  such fact, circumstance or condition is of the type expected to
                  be
                  encountered in the area involved and is usual and customarily acceptable
                  to reasonable and prudent operators, working interest owners and/or
                  purchasers engaged in the business of the exploration, development,
                  and
                  operation of oil and gas
                  properties.

              

      

      

      5.4           Effect
        of Title Defect

       

      
        	
                (A)

              	
                In
                  the event Buyer provides Seller with a timely Notice and the Title
                  Defects
                  are valid and exceed the Title Defect Threshold, for those Title
                  Defects
                  not cured by Closing, Seller may, at its sole
                  discretion:

              

      

       

      
        
           

        

        
          Page
            12

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                (i)

              	
                adjust
                  the Base Purchase Price in the amount of the Title Defect Value
                  of the
                  Asset to which such Title Defect relates and proceed to Closing
                  on all
                  Assets; or

              

      

      

      
        	
                 

              	
                (ii)

              	
                proceed
                  with (a) Closing on those Assets not affected by the valid Title
                  Defects
                  and such Assets to which a Title Defect relates but for which Seller
                  has
                  elected to proceed to Closing with an adjustment of the Base Purchase
                  Price in the amount of the Title Defect Value of such Assets and
                  (b) defer Closing on those other Assets to which a Title Defect
                  relates and for which Seller has elected to attempt to cure such
                  Title
                  Defect and to not proceed to Closing, for which Buyer shall place
                  into
                  escrow an amount equal to the Allocated Values of the Assets affected
                  by
                  the valid Title Defects, which withheld amount shall be paid to
                  Seller
                  when the Asset affected by any valid Title Defect is cured or the
                  Title
                  Defect is waived by Buyer and the affected Asset is conveyed from
                  Seller
                  to Buyer.  If neither of the above occurs and if Seller later
                  determines it will not cure a Title Defect on or before thirty
                  (30) days
                  from the Closing Date, the amount in the escrow account attributable
                  to
                  such Title Defect will be returned to Buyer and Seller shall retain
                  such
                  Asset affected by such Title
                  Defect.

              

      

      

      
        	
                (B)

              	
                The
                  diminution in value of an Asset attributable to a valid Title Defect
                  (the
                  “Title Defect Value”) notified in a Notice shall be determined by the
                  following:

              

      

       

      
        	
                 

              	
                (i)

              	
                if
                  the valid Title Defect asserted is that the actual Net Revenue
                  Interest
                  attributable to the producing or valued formation in any Asset
                  is less
                  than that stated in the applicable Exhibit, then the Title Defect
                  Value is
                  the product of the Allocated Value attributed to the affected formation(s)
                  in such Asset, multiplied by a fraction, the numerator of which
                  is the
                  difference between the Net Revenue Interest set forth in the applicable
                  Exhibit and the actual Net Revenue Interest, and the denominator
                  of which
                  is the Net Revenue Interest stated in the applicable Exhibit;
                  or

              

      

      

      
        	
                 

              	
                (ii)

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

              

      

      

      
        	
                 

              	
                (iii)

              	
                Notwithstanding
                  the above, in no event shall the total of the Title Defect Values
                  related
                  to a particular Asset exceed the Allocated Value of such
                  Asset.

              

      

      

      
        	
                (C)

              	
                If
                  the aggregate value of (i) the Base Purchase Price adjustment for
                  Title Defect Values plus (ii) the Allocated Value of Assets which are
                  retained in lieu of cure or adjustment equals or exceeds ten percent
                  (10%)
                  of the Base Purchase Price, then by notice delivered prior to the
                  Closing
                  either Party may terminate this Agreement and neither Party shall
                  have any
                  further obligation to conclude the transfer of the Assets under
                  this
                  Agreement.

              

      

       

      
        
           

        

        
          Page
            13

          
            

          

        

        
           

        

      

       

      5.5           Preferential
        Rights and Consents.  Seller
        shall use its best efforts to obtain all required consents and to give notices
        required in connection with preferential purchase rights, so that the third
        party election date to exercise the preferential right will occur at least
        seven
        (7) business days prior to Closing.  If Buyer discovers other affected
        Assets during the course of Buyer’s due diligence activities, Buyer shall notify
        Seller immediately and Seller shall use its best efforts to obtain such consents
        and to give the notices required in connection with the preferential rights
        prior to Closing.

       

      
        	
                (A)

              	
                Consents. 
                  Except for consents and approvals which are customarily obtained
                  post-Closing, if a necessary consent to assign any Lease has not
                  been
                  obtained as of the Closing, then (i) the portion of the Assets for
                  which such consent has not been obtained shall not be conveyed
                  at the
                  Closing, (ii) the Allocated Value for that Asset shall not be paid to
                  Seller, and (iii) Seller shall use best efforts to obtain such
                  consent as promptly as possible following Closing.  If such
                  consent has been obtained as of the date on which the Post-Closing
                  Adjustment Statement becomes final, Seller shall convey the affected
                  Asset
                  to Buyer effective as of the Effective Time and Buyer shall pay
                  Seller the
                  Allocated Value of the affected Asset, less any proceeds from the
                  affected
                  Asset received by Seller attributable to the period of time after
                  the
                  Effective Time (calculated in accordance with Section 2.3).  If
                  such consent has not been obtained or has not been waived by Buyer
                  as of
                  the date on which the Post-Closing Adjustment Statement becomes
                  final,
                  Seller shall elect either to (i) challenge in court the
                  enforceability of such consent right, in which event Seller shall
                  retain
                  the affected Asset until such legal challenge is finally resolved
                  by
                  settlement or non-appealable court order, after which either Seller
                  shall
                  convey the affected Asset to Buyer under the terms of this Agreement
                  and
                  Buyer shall pay the Allocated Value for such Asset, less any proceeds
                  received by Seller attributable to such Asset for the period from
                  and
                  after the Effective Time (calculated in accordance with Section
                  2.3) or
                  (ii) retain the affected Asset and the Base Purchase Price shall be
                  reduced by an amount equal to the Allocated Value of the retained
                  Asset
                  (with such adjustment being an “Exclusion Adjustment”).  Buyer
                  shall reasonably cooperate with Seller in obtaining any required
                  consent
                  including providing assurances of reasonable financial conditions,
                  but
                  Buyer shall not be required to expend funds or make any other type
                  of
                  financial commitments a condition of obtaining such
                  consent.

              

      

      

      
        	
                (B)

              	
                Preferential
                  Purchase Rights.

              

      

       

      
        	
                 

              	
                 (i)

              	
                If
                  any preferential right to purchase any portion of the Assets is
                  exercised
                  prior to the Closing Date, or if the time frame for the exercise
                  of such
                  preferential purchase rights has not expired and Seller has not
                  received
                  notice of an intent not to exercise or waiver of the preferential
                  purchase
                  right, that portion of the Assets affected by such preferential
                  purchase
                  right shall be excluded from the Assets and the Base Purchase Price
                  shall
                  be adjusted downward by an amount equal to the Allocated Value
                  of such
                  affected Assets without the requirement for Buyer to give notice
                  (with
                  such adjustment being an “Exclusion Adjustment”). Notwithstanding any
                  other provision in this Agreement, if a preferential purchase right
                  subject to this Agreement is exercised, Buyer has the right, at
                  its sole
                  discretion, to terminate this Agreement, provided that the Allocated
                  Value
                  of all preferential rights exercised is equal to or exceeds ten
                  percent
                  (10%) of the Base Purchase Price.

              

      

       

      
        
           

        

        
          Page
            14

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                (ii)

              	
                If
                  a third party exercises its preferential right to purchase, but
                  fails to
                  consummate the purchase prior to the Closing, Seller shall retain
                  the
                  affected Assets and the Base Purchase Price shall be adjusted downward
                  by
                  an amount equal to the Allocated Value of such affected Assets
                  (with such
                  adjustment being an “Exclusion
                  Adjustment”).

              

      

      

      
        	
                 

              	
                (iii)

              	
                If
                  a third party exercises its preferential right to purchase, but
                  does not
                  consummate the purchase within the time frame specified in the
                  preferential purchase right, Seller agrees to convey the affected
                  Asset to
                  Buyer effective as of the Effective Time, and Buyer agrees to pay
                  Seller
                  the Allocated Value of the Affected
                  Asset.

              

      

      

      
        	
                 

              	
                (iv)

              	
                If
                  a preferential purchase right is not discovered prior to Closing,
                  and the
                  affected Asset is conveyed to Buyer at Closing, and the preferential
                  purchase right is exercised and subsequently consummated after
                  Closing,
                  Buyer agrees to convey such affected Assets to the party exercising
                  such
                  right on the same terms and conditions under which Seller conveyed
                  such
                  Assets to Buyer and retain all amounts paid by the party exercising
                  such
                  preferential right to purchase.  In the event of such exercise,
                  Buyer shall prepare, execute and deliver a form of conveyance of
                  such
                  Asset to such exercising party, such conveyance to be in form and
                  substance as provided in this Agreement, and Seller agrees to hold
                  harmless and indemnify Buyer from any and all liabilities and obligations
                  associated with such conveyed Asset, and to reimburse Buyer for
                  reasonable
                  expenses incurred by Buyer relating to the conveyed
                  Asset.

              

      

      

      
        	
                (C)

              	
                Exclusive
                  Remedy.

              

      

       

      
        	
                 

              	
                  The
                  remedies set forth in this Section 5.5 are the exclusive remedies
                  under
                  this Agreement for exercised preferential purchase rights and required
                  consents to assign the Assets.

              

      

      

      6.           ENVIRONMENTAL
        ASSESSMENT.

       

      6.1           Physical
        Condition of the Assets.

       

      
        	
                (A)

              	
                Buyer
                  acknowledges that the Assets have been used for oil and gas drilling
                  and
                  production operations and possibly for the storage and disposal
                  of waste
                  materials or hazardous substances related to standard oil field
                  operations.  Physical changes in or under the Assets or adjacent
                  lands may have occurred as a result of such uses.  The Assets
                  also may contain previously plugged and abandoned wells, buried
                  pipelines,
                  storage tanks and other equipment, whether or not of a similar
                  nature, the
                  locations of which may not now be known by Seller or be readily
                  apparent
                  by a physical inspection of the Assets.  Buyer understands that
                  Seller does not have the requisite information with which to determine
                  the
                  exact nature or condition of the Assets nor the effect any such
                  use has
                  had on the physical condition of the Assets.  Pursuant to the
                  Safe Water Drinking and Toxic Enforcement Act of 1986, Buyer is
                  hereby
                  notified and assumes the risk that detectable amounts of chemicals
                  known
                  to cause cancer, birth defects and other reproductive harm may
                  be found
                  in, on or around the Assets.  Upon consummation of the Closing
                  Buyer shall be deemed to have assumed the risk of expense, claim,
                  damage
                  or liability arising from any such matter referred to in this section,
                  including without limitation the risk that the Assets may contain
                  waste or
                  contaminants and that adverse physical conditions, including the
                  presence
                  of waste or contaminants, may not have been revealed by Buyer’s
                  investigation.  Consummation of the Closing shall transfer all
                  responsibility and liability related to disposal, spills, waste
                  or
                  contamination on or below the Assets from Seller to
                  Buyer.

              

      

       

      
        
           

        

        
          Page
            15

          
            

          

        

        
           

        

      

       

      
        	
                (B)

              	
                In
                  addition, Buyer acknowledges that some oil field production equipment
                  located on the Assets may contain asbestos and/or naturally-occurring
                  radioactive material (“NORM”).  In this regard, Buyer expressly
                  understands that NORM may affix or attach itself to inside of wells,
                  materials and equipment as scale or in other forms, and that wells,
                  materials and equipment located on the Assets described herein
                  may contain
                  NORM and that NORM-containing materials may be buried or have been
                  otherwise disposed of on the Assets.  Buyer also expressly
                  understands that special procedures may be required for the removal
                  and
                  disposal of asbestos and NORM from the Assets where it may be found,
                  and
                  that upon consummation of the Closing Buyer shall be deemed to
                  have
                  assumed all liability when such activities are
                  performed.

              

      

       

      6.2           Inspection
        and Testing.

       

      
        	
                (A)

              	
                Prior
                  to Closing, Buyer shall have the right, at its sole cost and risk,
                  to
                  review Seller’s Phase I environmental assessments of the Assets, if any
                  exist, and to conduct any further environmental assessment of the
                  Assets
                  it deems appropriate, to the extent that Seller has the authority
                  to grant
                  such right to Buyer.  Buyer shall immediately provide to Seller
                  any data obtained from such assessments, including any reports
                  and
                  conclusions.  Seller and Buyer shall keep all information
                  relating to such assessments strictly confidential whether or not
                  Closing
                  occurs, except as may be required pursuant to any Environmental
                  Laws.

              

      

       

      
        	
                (B)

              	
                Buyer
                  waives and releases all claims against Seller, its affiliates,
                  and each of
                  their respective directors, officers, employees, agents, and other
                  representatives and their successors and assigns (collectively,
                  the
                  “Seller’s Group”), for injury to or death of persons, or damage to
                  property, arising in any way from the exercise of rights granted
                  to Buyer
                  hereby or the activities of Buyer or its employees, agents or contractors
                  on the Assets.  EXCEPT TO THE EXTENT CAUSED BY THE GROSS
                  NEGLIGENCE OR WILLFUL MISCONDUCT OF THE SELLER’S GROUP, BUYER SHALL
                  INDEMNIFY THE SELLER’S GROUP AGAINST AND HOLD THE MEMBERS OF THE SELLER’S
                  GROUP HARMLESS FROM ANY AND ALL LOSS, COST, DAMAGE, EXPENSE OR
                  LIABILITY,
                  INCLUDING REASONABLE ATTORNEY’S FEES, WHATSOEVER ARISING OUT OF (I) ANY
                  AND ALL STATUTORY OR COMMON LAW LIENS OR OTHER ENCUMBRANCES FOR
                  LABOR OR
                  MATERIALS FURNISHED IN CONNECTION WITH SUCH TESTS, SAMPLINGS, STUDIES
                  OR
                  SURVEYS AS BUYER MAY CONDUCT WITH RESPECT TO THE ASSETS; AND (II) ANY
                  INJURY TO OR DEATH OF PERSONS OR DAMAGE TO PROPERTY OCCURRING IN,
                  ON OR
                  ABOUT THE ASSETS AS A RESULT OF SUCH EXERCISE OR
                  ACTIVITIES.

              

      

       

      
        
           

        

        
          Page
            16

          
            

          

        

        
           

        

      

       

      
        	
                (C)

              	
                “Environmental
                  Laws” means all applicable local, state, and federal laws, rules,
                  regulations, and orders regulating or otherwise pertaining to:
                  (i) the use, generation, migration, storage, removal, treatment,
                  remedy, discharge, release, transportation, disposal, or cleanup
                  of
                  pollutants, contamination, hazardous wastes, hazardous substances,
                  hazardous materials, toxic substances or toxic pollutants;
                  (ii) surface waters, ground waters, ambient air and any other
                  environmental medium on or off any Lease; or (iii) the environment,
                  habitat protection or health and safety-related matters; including
                  the
                  following as from time to time amended and all others whether similar
                  or
                  dissimilar: the Comprehensive Environmental Response, Compensation,
                  and
                  Liability Act of 1980, as amended by the Superfund Amendments and
                  Reauthorization Act of 1986, the Resource Conservation and Recovery
                  Act of
                  1976, as amended by the Used Oil Recycling Act of 1980, the Solid
                  Waste
                  Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
                  Amendments of 1984, the Hazardous Materials Transportation Act,
                  the Toxic
                  Substance Control Act, the Clean Air Act, the Clean Water Act,
                  the Safe
                  Drinking Water Act, the National Environmental Policy Act, the
                  Endangered
                  Species Act, the Oil Pollution Act of 1990, and all regulations
                  promulgated pursuant thereto.

              

      

       

      6.3           Notice
        of Adverse Environmental Conditions.  No
        later than three (3) business days prior to Closing, Buyer shall notify Seller
        in writing of any Adverse Environmental Condition with respect to the
        Assets.  Such notice shall describe in reasonable detail the Adverse
        Environmental Condition and include the estimated Environmental Defect Value
        attributable thereto (the “Environmental Defect Notice”) based on a verifiable
        estimate of the cost to Remediate the Adverse Environmental
        Condition.  No Adverse Environmental Condition shall be deemed to
        exist unless the Environmental Defect Value exceeds Ten Thousand Dollars
        ($10,000.00) in each individual case.  Further, there shall be no
        adjustment to the Base Purchase Price unless the aggregate Environmental
        Defect
        Values of all Adverse Environmental Conditions satisfying the condition in
        clause (i) exceeds one percent (1%) of the Base Purchase Price (the
“Environmental Defect Threshold”) (such amount being a threshold, not a
        deductible).  The “Environmental Defect Value” attributable to any
        Adverse Environmental Condition shall be the estimated amount (net to Seller’s
        interest) of all reasonable costs and claims necessary to Remediate the Adverse
        Environmental Conditions, as reasonably determined and estimated by
        Buyer.  The term “Adverse Environmental Condition” means (i) the
        failure of the Assets to be in material compliance with all applicable
        Environmental Laws; (ii) the Assets being subject to any agreements,
        consent orders, decrees or judgments currently in existence based on any
        Environmental Laws that negatively and materially impact the future use of
        any
        portion of the Assets or that require any material change in the present
        conditions of any of the Assets; or (iii) the Assets being subject to any
        material uncured notices of violations of or non-compliance with any applicable
        Environmental Laws or any Lease or agreement.  Buyer shall be deemed
        to have conclusively waived (i) all Adverse Environmental Conditions not
        contained in an Environmental Defect Notice delivered to Seller on or before
        three (3) business days prior to Closing and (ii) any remedy against Seller
        for such Adverse Environmental Conditions.

       

      6.4           Rights
        and Remedies for Adverse Environmental Conditions.

       

      
        	
                (A)

              	
                With
                  respect to any Adverse Environmental Conditions affecting one or
                  more of
                  the Assets which exceed the Environmental Defect Threshold, Seller
                  may on
                  an Asset-by-Asset basis (i) Remediate the Adverse Environmental
                  Conditions prior to Closing, but Seller shall have no obligation
                  to do so,
                  and proceed to Closing with no adjustment of the Base Purchase
                  Price;
                  (ii) proceed to Closing and adjust the Base Purchase Price in an
                  amount equal to the applicable Environmental Defect Value; or
                  (iii) retain the affected Asset and reduce the Base Purchase Price by
                  the Allocated Value of the affected Asset (“Exclusion
                  Adjustment”).

              

      

       

      
        
           

        

        
          Page
            17

          
            

          

        

        
           

        

      

       

      
        	
                (B)

              	
                Buyer
                  waives any Adverse Environmental Condition for which Buyer has
                  received an
                  adjustment to the Base Purchase Price in accordance with Section
                  6.4(A).

              

      

       

      
        	
                (C)

              	
                If
                  Buyer delivers a valid Environmental Defect Notice to Seller and
                  if the
                  aggregate of the Environmental Defects claimed is less than or
                  equals the
                  Environmental Defect Threshold, Buyer will be deemed to have accepted
                  the
                  Assets “where-is, as-is” with respect to all Adverse Environmental
                  Conditions in, on or under the Assets and the Adverse Environmental
                  Condition(s) in, on and under the Assets will be deemed to be part
                  of the
                  Assumed Liabilities.  The Environmental Defect Threshold is a
                  threshold and not a deductible.  The Environmental Defect
                  Threshold and the Title Defect Threshold are separate and distinct
                  and
                  operate independently.

              

      

       

      
        	
                (D)

              	
                If
                  the aggregate value of (i) the Base Purchase Price adjustment for
                  Adverse Environmental Conditions plus (ii) any Exclusion Adjustments
                  in lieu of Remediating any Adverse Environmental Conditions equals
                  or
                  exceeds ten percent (10%) of the Base Purchase Price, either Party
                  may
                  terminate this Agreement and neither Party shall have any further
                  obligation to conclude the transfer of the Assets under this
                  Agreement.

              

      

       

      
        	
                (E)

              	
                The
                  term “Remediate” or “Remediation” means, with respect to any valid Adverse
                  Environmental Condition, the undertaking and completion of those
                  actions
                  and activities necessary to eliminate or correct such Adverse
                  Environmental Condition to the degree sufficient that such Adverse
                  Environmental Condition no longer constitutes an Adverse Environmental
                  Condition as defined above.  Seller shall promptly notify Buyer
                  at such time as it believes that it has Remediated an Adverse
                  Environmental Condition.  Buyer shall promptly notify Seller
                  whether it agrees such condition is Remediated.  If Buyer fails
                  to notify Seller of its determination with respect to such Remediation
                  within ten (10) business days following Seller’s notice, such Adverse
                  Environmental Condition shall be deemed
                  Remediated.

              

      

       

      
        	
                (F)

              	
                If
                  Seller and Buyer are unable to agree on the amount of the Environmental
                  Defect Value within ten (10) business days after Seller’s receipt of the
                  Environmental Defect Notice or that an Adverse Environmental Condition
                  exists, has been Remediated or is required to be Remediated, then
                  the
                  dispute will be submitted to a mutually acceptable company with
                  recognized
                  expertise in the oil and gas environmental remediation and regulation
                  field (the “Environmental Consultant”) whose determination shall be final
                  and binding upon the Parties.  Seller and Buyer shall each bear
                  their respective costs and expenses incurred in connection with
                  any such
                  dispute, and one-half (1/2) of the fees, costs and expenses charged
                  by the
                  Environmental Consultant.  Each Party shall present a written
                  statement of its position on the Adverse Environmental Condition
                  and/or
                  the Environmental Defect Value in question to the Environmental
                  Consultant
                  within five (5) business days after the Environmental Consultant
                  is
                  selected, and the Environmental Consultant shall make a determination
                  of
                  all points of disagreement in accordance with the terms and conditions
                  of
                  this Agreement within ten (10) business days of receipt of such
                  position
                  statements.  If necessary, the Closing Date shall be deferred
                  only as to those Assets affected by any unresolved disputes regarding
                  the
                  existence of an Adverse Environmental Condition and/or the Environmental
                  Defect Value until the Environmental Consultant has made a determination
                  of the disputed issues with respect thereto and all subsequent
                  dates and
                  required activities with respect to any such Assets having reference
                  to
                  the Closing Date shall be correspondingly deferred; provided, however,
                  that, unless Seller and Buyer mutually agree to the contrary, the
                  Closing
                  Date shall not be deferred in any event for more than thirty (30)
                  days
                  beyond the scheduled Closing Date in Section 3.1.  All Assets as
                  to which no such dispute(s) exist shall be conveyed to Buyer subject
                  to
                  the terms of this Agreement at Closing.  Once the Environmental
                  Consultant’s determination has been expressed to both Parties, if
                  applicable, Seller shall have five (5) business days in which to
                  advise
                  Buyer in writing which of the options available to Seller under
                  Section
                  6.4(A) Seller elects regarding each of the Assets as to which the
                  Environmental Consultant has made a
                  determination.

              

      

       

      
        
           

        

        
          Page
            18

          
            

          

        

        
           

        

      

       

      6.5           Remediation
        by Seller.  If
        Seller elects to Remediate an Adverse Environmental Condition or is required
        by
        a governmental or regulatory agency to Remediate an Adverse Environmental
        Condition, the following will govern the Remediation:

       

      
        	
                (A)

              	
                Seller
                  shall be responsible for all negotiations and contacts with federal,
                  state, and local agencies and authorities.  Buyer may not make
                  any independent contacts with any agency, authority, or other third
                  party
                  with respect to the Adverse Environmental Condition or Remediation
                  and
                  shall keep all information regarding the Adverse Environmental
                  Condition
                  and Remediation confidential, except in each instance to the extent
                  required by applicable law.

              

      

       

      
        	
                (B)

              	
                Seller
                  shall Remediate the Adverse Environmental Condition to the level
                  agreed
                  upon by Seller and Buyer (or failing such agreement to the level
                  determined by the Environmental Consultant), but in no event shall
                  Seller
                  be required to Remediate the Adverse Environmental Condition beyond
                  the
                  level required by the applicable Environmental Laws, Lease or agreement
                  in
                  effect at the Effective Time.

              

      

       

      
        	
                (C)

              	
                Buyer
                  shall grant and warrant access and entry to the Assets after Closing
                  to
                  Seller and third parties conducting assessments or Remediation,
                  to the
                  extent and as long as necessary to conduct and complete the assessment
                  or
                  Remediation work, to remove equipment and facilities, and to perform
                  any
                  other activities reasonably necessary in connection with assessment
                  or
                  Remediation.

              

      

       

      
        	
                (D)

              	
                Buyer
                  shall facilitate Seller’s ingress and egress or assessment or Remediation
                  activities after the Closing.  Seller shall make reasonable
                  efforts to perform the work so as to minimize disruption to Buyer’s
                  business activities.

              

      

       

      
        	
                (E)

              	
                Seller
                  shall continue Remediation of the Adverse Environmental Condition
                  until
                  the first of the following occurs:

              

      

       

      
        
           

        

        
          Page
            19

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                (i)

              	
                the
                  appropriate governmental authorities provide notice to Seller or
                  Buyer
                  that no further Remediation of the Adverse Environmental Condition
                  is
                  required; or

              

      

      

      
        	
                 

              	
                (ii)

              	
                the
                  Adverse Environmental Condition has been Remediated to the level
                  required
                  by the applicable Environmental Laws, Lease or agreement, or as
                  agreed by
                  the Parties.

              

      

      

      
        	
                 

              	
                 Upon
                  the occurrence of either (i) or (ii) above, Seller shall notify
                  Buyer that
                  Remediation of the Adverse Environmental Condition is complete
                  and provide
                  a copy of the notification described in (i) above, if
                  applicable.  Upon delivery of said notice, Seller shall be
                  released from all liability and have no further obligations under
                  any
                  provisions of this Agreement in connection with an Adverse Environmental
                  Condition.

              

      

       

      
        	
                (F)

              	
                Until
                  Seller completes Remediation of an Adverse Environmental Condition,
                  Seller
                  and Buyer shall each notify the other of any pending or threatened
                  claim,
                  action, or proceeding by any authority or private party that relates
                  to or
                  would affect the environmental condition, the assessment, or the
                  Remediation of the Assets.

              

      

       

      7.           REPRESENTATIONS
        AND WARRANTIES OF SELLER.

       

      7.1           Seller’s
        Representations and Warranties.  Seller
        represents and warrants to Buyer the following as of the date of execution
        of
        this Agreement and the Closing:

       

      
        	
                (A)

              	
                Status.  The
                  Operating Co, Nova Oil & Gas, Inc., and X-Pert Corporation are each
                  corporations duly organized, legally existing and in good standing
                  under
                  the laws of the State of Texas.   The 195 AF, Ltd, Cowboy
                  Crude Oil & Gas, F.L.P., and Cottonhead, Ltd., are each limited
                  partnerships duly organized, legally existing and in good standing
                  under
                  the laws of the State of Texas.

              

      

       

      
        	
                (B)

              	
                Authority.  Seller
                  owns the Assets and has the requisite power and authority to enter
                  into
                  this Agreement, to carry out the transactions contemplated hereby,
                  to
                  transfer the Assets in the manner contemplated by this Agreement,
                  and to
                  undertake all of the obligations of Seller set forth in this
                  Agreement.

              

      

       

      
        	
                (C)

              	
                Validity
                  of Obligations.  The execution, delivery and performance of
                  this Agreement and the transactions contemplated hereby have been
                  duly and
                  validly authorized by all requisite action on the part of Seller
                  as
                  required under its formation documents.  This Agreement and any
                  documents or instruments delivered by Seller at the Closing shall
                  constitute legal, valid and binding obligations of Seller enforceable
                  in
                  accordance with their terms subject, however, to the effects of
                  bankruptcy, insolvency, reorganization, moratorium and other laws
                  for the
                  protection of creditors, as well as to general principles of equity,
                  regardless of whether such enforceability is considered in a proceeding
                  in
                  equity or at law.

              

      

       

      
        	
                (D)

              	
                No
                  Violation.  The execution and delivery of this Agreement
                  does not, and the fulfillment of and compliance with the terms
                  and
                  conditions hereof will not, as of Closing, violate, or be in conflict
                  with, any provision of Seller’s governing documents, or any statute, rule
                  or regulation applicable to Seller or any agreement or instrument
                  to which
                  Seller is a party or by which it is bound, or, to Seller’s knowledge,
                  violate, or be in conflict with any judgment, decree or order applicable
                  to Seller or require the approval or consent of any third party
                  (subject
                  to governmental consents and approvals customarily obtained after
                  the
                  Closing).

              

      

       

      
        
           

        

        
          Page
            20

          
            

          

        

        
           

        

      

       

      
        	
                (E)

              	
                AFE’s.  With
                  respect to the joint, unit or other operating agreements relating
                  to the
                  Assets, except as set forth in Exhibit 7.1(E), there are no
                  outstanding calls or payments under authorities for expenditures
                  for
                  payments relating to the Assets which are due or which Seller has
                  committed to make which have not been
                  made.

              

      

       

      
        	
                (F)

              	
                Contractual
                  Restrictions.  Seller has not entered into any contracts for
                  or received prepayments, take-or-pay arrangements, buydowns, buyouts
                  for
                  Oil and Gas, or storage of the same relating to the Assets which
                  Buyer
                  shall be obligated to honor and make deliveries of Oil and Gas
                  without
                  receiving full payment therefor or pay refunds of amounts previously
                  paid
                  under such contracts or
                  arrangements.

              

      

       

      
        	
                (G)

              	
                Litigation.  Except
                  as set forth in Exhibit 7.1(G), there is no suit, action or
                  proceeding pending or, to Seller’s knowledge, threatened against Seller or
                  the Assets that could have an adverse affect upon the ownership,
                  operation
                  or value of any of the Assets.

              

      

       

      
        	
                (H)

              	
                Permits
                  and Consents.  With respect to Assets for which Seller is
                  the operator, Seller has (i) acquired all material permits, licenses,
                  approvals and consents from appropriate governmental bodies, authorities
                  and agencies to conduct operations on the Assets in compliance
                  with
                  applicable laws, rules, regulations, ordinances and orders; and
                  (ii) is in material compliance with all such permits, licenses,
                  approvals and consents.

              

      

       

      
        	
                (I)

              	
                Broker’s
                  Fees.  Seller has incurred no obligation or liability,
                  contingent or otherwise, for brokers’ or finders’ fees in respect of the
                  matters provided for in this Agreement for which Buyer shall have
                  any
                  responsibility.

              

      

       

      
        	
                (J)

              	
                Taxes.  (i) Seller
                  has filed (with respect to the Assets) all material returns for
                  Property
                  Taxes and Severance Taxes that are due, (ii) all payments (with
                  respect to the Assets) shown to be due on such returns have been
                  paid, and
                  (iii) there is no material dispute or claim concerning any Property
                  Tax or Severance Tax liability of the Seller (with respect to the
                  Assets)
                  claimed or raised by any tax authority in
                  writing.

              

      

       

      
        	
                (K)

              	
                Material
                  Agreements.  To the best of Seller’s knowledge, all
                  agreements material to the ownership, operation or value of the
                  Assets are
                  listed in Exhibit 7.1(K) (“Material Agreements”).  The
                  Material Agreements are in full force and effect and Seller is
                  not in
                  default with respect to any of its material obligations
                  thereunder.

              

      

       

      
        	
                (L)

              	
                Consents
                  and Preferential Purchase Rights.  To the best of Seller’s
                  knowledge, Exhibit 7.1(L) lists all consents and preferential
                  purchase rights contained in the Leases or Material
                  Agreements.

              

      

       

      
        	
                (M)

              	
                Gas
                  Imbalances.  There are no gas imbalances with respect to the
                  Assets as of the Effective Time.

              

      

       

      
        
           

        

        
          Page
            21

          
            

          

        

        
           

        

      

       

      
        	
                (N)

              	
                Royalties.  All
                  rentals, royalties and other payments due under the Leases have
                  been
                  properly paid, except those amounts properly being held in
                  suspense.

              

      

       

      
        	
                (O)

              	
                Production
                  Sales Contracts.  There are no production sales contracts
                  pertaining to the Assets that provide for a fixed price and that
                  cannot be
                  cancelled at any time upon ninety (90) days (or less) prior
                  notice.

              

      

       

      
        	
                (P)

              	
                Calls
                  on Production.  Except as set forth on Exhibit 7.1(P), there
                  are no calls on production pertaining to the Assets that provide
                  for
                  payment at less than applicable current market
                  prices.

              

      

      

      
        	
                (Q)

              	
                Compliance
                  with Laws.  To Seller’s knowledge, Seller’s ownership and
                  operation of the Assets has been in compliance with all applicable
                  statutes, laws, rules and regulations, except to the extent any
                  non-compliance would not have a material adverse affect on the
                  ownership,
                  value or operation of the Assets.

              

      

      

      7.2           Scope
        of Representations of Seller.

       

      
        	
                (A)

              	
                Information
                  About the Assets.  Except as expressly set forth in this
                  Agreement or in the Assignment and Bill of Sale, Seller disclaims
                  all
                  liability and responsibility for any representation, warranty,
                  statements
                  or communications (orally or in writing) to Buyer, including any
                  information contained in any opinion, information or advice that
                  may have
                  been provided to Buyer by any employee, officer, director, agent,
                  consultant, engineer or engineering firm, representative, partner,
                  member,
                  beneficiary, owner or contractor of Seller wherever and however
                  made,
                  including those made in any data room or internet site and any
                  supplements
                  or amendments thereto or during any negotiations with respect to
                  this
                  Agreement or any confidentiality agreement previously executed
                  by the
                  Parties with respect to the Asset.  EXCEPT AS SET FORTH IN
                  ARTICLE 7 OF THIS AGREEMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION,
                  EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS
                  OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
                  BUYER IN
                  CONNECTION WITH THE ASSETS OR OTHERWISE CONSTITUTING A PORTION
                  OF THE
                  ASSETS; (ii) THE PRESENCE, QUALITY AND QUANTITY OF HYDROCARBON
                  RESERVES
                  (IF ANY) ATTRIBUTABLE TO THE ASSETS, INCLUDING WITHOUT LIMITATION
                  SEISMIC
                  DATA AND SELLER’S INTERPRETATION AND OTHER ANALYSIS THEREOF;
                  (iii) THE ABILITY OF THE ASSETS TO PRODUCE HYDROCARBONS, INCLUDING
                  WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION
                  OPPORTUNITIES; (iv) IMBALANCE OR PAYOUT ACCOUNT INFORMATION,
                  ALLOWABLES, OR OTHER REGULATORY MATTERS; (v) THE PRESENT OR FUTURE
                  VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE
                  DERIVED
                  FROM THE ASSETS; (vi) THE ENVIRONMENTAL CONDITION OF THE ASSETS;
                  (vii) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR;
                  (viii) THE TAX ATTRIBUTES OF ANY ASSET; (ix) ANY OTHER MATTERS
                  CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED
                  TO
                  BUYER BY SELLER OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS;
                  AND,
                  (x) THE COMPLETENESS OR ACCURACY OF THE INFORMATION CONTAINED IN
                  ANY
                  EXHIBIT HERETO.  ANY DATA, INFORMATION OR OTHER RECORDS
                  FURNISHED BY SELLER ARE PROVIDED TO BUYER AS A CONVENIENCE AND
                  BUYER’S
                  RELIANCE ON OR USE OF THE SAME IS AT BUYER’S SOLE
                  RISK.

              

      

       

      
        
           

        

        
          Page
            22

          
            

          

        

        
           

        

      

       

      
        	
                (B)

              	
                Independent
                  Investigation.  Buyer agrees that it has, or by Closing will
                  have, made its own independent investigation, analysis and evaluation
                  of
                  the Assets and the transaction contemplated by this Agreement (including
                  Buyer’s own estimate and appraisal of the extent and value of Seller’s Oil
                  and Gas reserves attributable to the Assets and an independent
                  assessment
                  and appraisal of the environmental risks and liabilities associated
                  with
                  the acquisition of the Assets).  Buyer agrees that it has had,
                  or will have prior to Closing, access to all information necessary
                  to
                  perform its investigation and has not relied and will not rely
                  on any
                  representations by Seller other than those expressly set forth
                  in this
                  Agreement

              

      

       

      8.           REPRESENTATIONS
        AND WARRANTIES OF BUYER.

       

      8.1           Buyer’s
        Representations and Warranties.  Buyer
        represents and warrants to Seller as follows as of the date hereof and the
        Closing:

       

      
        
          	
                   

                	
                  (A)

                	
                  Status.
                    Buyer is a limited partnership duly organized, validly existing
                    and in
                    good standing under the laws of the State of
                    Delaware.

                

        

         

        
          	
                  (B)

                	
                  Authority.
                    Buyer has the power and authority to enter into this Agreement,
                    to carry
                    out the transactions contemplated hereby and to undertake all
                    of the
                    obligations of Buyer set out in this
                    Agreement.

                

        

         

        
          	
                  (C)

                	
                  Validity
                    of Obligations.  The consummation of the transactions
                    contemplated by this Agreement will not in any respect violate,
                    nor be in
                    conflict with, any provision of Buyer’s partnership agreement or other
                    governing documents, or any agreement or instrument to which
                    Buyer is a
                    party or is bound, or any judgment, decree, order, statute, rule
                    or
                    regulation applicable to Buyer (subject to governmental consents
                    and
                    approvals customarily obtained after the Closing).  This
                    Agreement and the documents executed and delivered by Buyer in
                    connection
                    with the Closing shall constitute legal, valid and binding obligations
                    of
                    Buyer, enforceable in accordance with their terms, subject, however,
                    to
                    the effects of bankruptcy, insolvency, reorganization, moratorium
                    and
                    other laws for the protection of creditors, as well as to general
                    principles of equity, regardless of whether such enforceability
                    is
                    considered in a proceeding in equity or at
                    law.

                

        

         

      

      
        	
                (D)

              	
                Qualification
                  and Bonding.  Buyer is, or will be on the Closing Date, in
                  compliance with the bonding and liability insurance requirements
                  of all
                  applicable state or federal laws or regulations that could affect
                  Buyer’s
                  ability or authority to own and operate the Assets and is qualified
                  to own
                  any federal, Indian or state oil and gas leases that constitute
                  part of
                  the Assets.

              

      

       

      
        	
                (E)

              	
                Non-Security
                  Acquisition.  Buyer intends to acquire the Assets for its
                  own benefit and account and is not acquiring the Assets with the
                  intent of
                  distributing fractional undivided interests thereof such as would
                  be
                  subject to regulation by federal or state securities laws, and
                  if, in the
                  future, it should sell, transfer or otherwise dispose of the Assets
                  or
                  fractional undivided interests therein, it will do so in compliance
                  with
                  any applicable federal and state securities
                  laws.

              

      

       

      
        
           

        

        
          Page
            23

          
            

          

        

        
           

        

      

       

      
        	
                (F)

              	
                Evaluation.  By
                  reason of Buyer’s knowledge and experience in the evaluation, acquisition
                  and operation of oil and gas properties, Buyer has evaluated the
                  merits
                  and risks of purchasing the Assets from Seller and has formed an
                  opinion
                  based solely upon Buyer’s knowledge and experience and not upon any
                  representations or warranties by
                  Seller.

              

      

       

      
        	
                (G)

              	
                Financing.  Buyer
                  has sufficient cash, available lines of credit or other sources
                  of
                  immediately available funds to enable it to pay the Purchase Price
                  to
                  Seller at the Closing.

              

      

       

      
        	
                (H)

              	
                Broker’s
                  Fees.  Buyer has incurred no obligation or liability,
                  contingent or otherwise, for brokers’ or finders’ fees in respect of the
                  matters provided for in this Agreement for which Seller shall have
                  any
                  responsibility.

              

      

       

      9.           CERTAIN
        AGREEMENTS OF SELLER.  Seller
        agrees and covenants that, unless Buyer shall have otherwise agreed in writing,
        the following provisions shall apply:

       

      9.1           Maintenance
        of Assets.  From
        the Effective Time until Closing, Seller agrees that it shall:

       

      
        	
                (A)

              	
                Administer
                  and operate the operated Assets in a good and workmanlike manner
                  and in
                  accordance with the applicable operating
                  agreements.

              

      

       

      
        	
                (B)

              	
                Not
                  introduce any new methods of management, operation or accounting
                  with
                  respect to any or all of the
                  Assets.

              

      

       

      
        	
                (C)

              	
                Use
                  commercially reasonable efforts to maintain and keep the Assets
                  in full
                  force and effect; and fulfill all contractual or other covenants,
                  obligations and conditions imposed upon Seller with respect to
                  the Assets,
                  including, but not limited to, payment of royalties, delay rentals,
                  shut-in gas royalties and any and all other required
                  payments.

              

      

       

      
        	
                (D)

              	
                Except
                  to the extent necessary or advisable to avoid forfeiture or penalties,
                  not
                  enter into agreements to drill new wells or to rework, plug back,
                  deepen,
                  plug or abandon any Well, nor commence any drilling, reworking
                  or
                  completing or other operations on the Leases which requires estimated
                  expenditures exceeding Ten Thousand Dollars ($10,000.00), net to
                  the
                  working interest of Seller, for each operation (except for emergency
                  operations and operations required under presently existing contractual
                  obligations) without obtaining the prior written consent of Buyer
                  (which
                  consent shall not be unreasonably withheld, delayed or conditioned);
                  provided that the terms of this paragraph (D) shall not apply to
                  any
                  expenditures of Seller which will not be charged to
                  Buyer.

              

      

       

      
        	
                (E)

              	
                Not
                  voluntarily relinquish its position as operator to anyone other
                  than Buyer
                  with respect to any of the operated Assets or voluntarily abandon
                  any of
                  the Wells other than as required pursuant to the terms of a Lease
                  or by
                  regulation.

              

      

       

      
        
           

        

        
          Page
            24

          
            

          

        

        
           

        

      

       

      
        	
                (F)

              	
                Not,
                  without the prior written consent of Buyer (which consent shall
                  not be
                  unreasonably withheld, delayed or conditioned), (i) enter into any
                  agreement or arrangement (other than one constituting a Permitted
                  Encumbrance) transferring, selling or encumbering any of the Assets
                  (other
                  than in the ordinary course of business, including ordinary course
                  sales
                  of production, inventory or salvage); (ii) grant any preferential or
                  other right to purchase or agree to require the consent of any
                  party not
                  otherwise required to consent to the transfer and assignment of
                  the Assets
                  to Buyer; (iii) enter into any new sales contracts, transportation
                  contract or supply contracts which cannot be cancelled upon thirty
                  (30)
                  days or less prior notice; or (iv) incur or agree to incur any
                  contractual obligation  (absolute or contingent) with respect to
                  the Assets except as otherwise provided herein (including ordinary
                  course
                  sales of production, inventory or salvage or pursuant to any disclosed
                  AFEs covering the Assets).

              

      

       

      
        	
                (G)

              	
                To
                  the extent known to Seller, provide Buyer with prompt written notice
                  of
                  (i) any claims, demands, suits or actions made against Seller which
                  materially affect the Assets; or (ii) any proposal from a third party
                  to engage in any material transaction (e.g., a farmout) with respect
                  to
                  the Assets.

              

      

       

      9.2           Records.  Seller
        shall have the right to make and retain copies of the Records as Seller may
        desire prior to the delivery of the Records to Buyer.  Buyer, for a
        period of seven (7) years after the Closing Date, shall make available to
        Seller
        (at the location of such Records in Buyer’s organization) access to such Records
        as Buyer may have in its possession (or to which it may have access) upon
        written request of Seller, during normal business hours; provided, however,
        that
        Buyer shall not be liable to Seller for the loss of any Records by reason
        of
        clerical error or inadvertent loss or destruction of Records.

       

      9.3           Audit
        Rights.  Seller
        agrees to make available to Buyer prior to and for a period of twelve (12)
        months following Closing any and all existing information and documents in
        the
        possession of Seller that Buyer may reasonably require to comply with Buyer’s
        tax and financial reporting requirements and audits.  Without limiting
        the generality of the foregoing, Seller will use its commercially reasonable
        efforts after execution of this Agreement and for twelve (12) months following
        Closing to cooperate with the independent auditors chosen by Buyer (“Buyer’s
        Auditor”) in connection with their audit of any annual revenue and expenses
        statements of the Assets that Buyer or any of its Affiliates requires to
        comply
        with their tax and financial reporting requirements, and their review of
        any
        interim quarterly revenue and expense statements of the Assets that Buyer
        requires to comply with such reporting requirements.  Buyer’s
        cooperation will include (i) such reasonable access to Seller’s employees who
        were responsible for preparing the revenue and expense statements and work
        papers and other supporting documents used in the preparation of such financial
        statements as may be required by Buyer’s Auditor to perform an audit in
        accordance with generally accepted auditing standards, and (ii) delivery
        of one
        or more customary representation letters (in substantially the form previously
        approved by Seller and Buyer) from Seller to Buyer’s Auditor that are requested
        by Buyer to allow such auditors to complete an audit (or review of any interim
        quarterly financials), and to issue an opinion that in Buyer’s experience is
        acceptable with respect to an audit or review of those revenue and expense
        statements required pursuant to this Section.  Buyer will reimburse
        Seller, within three (3) business days after demand therefor, for any reasonable
        out-of-pocket and overhead costs with respect to any costs incurred by Seller
        in
        complying with the provisions of this Section.

       

      
        
           

        

        
          Page
            25

          
            

          

        

        
           

        

      

       

      10.           CERTAIN
        AGREEMENTS OF BUYER.  Buyer
        agrees and covenants that unless Seller shall have consented otherwise in
        writing, the following provisions shall apply:

       

      10.1           Plugging
        Obligation.  Upon
        consummation of the Closing, Buyer shall perform and assume all liability
        for
        the necessary and proper plugging and abandonment of all Wells and all surface
        restoration and reclamation required by law or the Leases, in each case to
        the
        extent the same relate to the Assets conveyed to Buyer.

       

      10.2           Plugging
        Bond.  Buyer
        shall post, prior to Closing, the necessary bonds or letters of credit as
        required by the state in which the Leases are located for the plugging of
        all
        Wells, and provide Seller with a copy of same, and provide proof satisfactory
        to
        Seller that the applicable state has accepted such bonds or letters of credit
        as
        sufficient assurance to cover the plugging of all Wells and related
        matters.  Further, Buyer shall provide to Seller copies of the
        approval by any applicable regulatory agencies concerning change of operatorship
        of the Assets if Buyer is duly elected Operator.

       

      10.3           Seller’s
        Logos.  Commencing
        no later than sixty (60) days after Closing, Buyer shall promptly cover or
        cause
        to be covered by decals or new signage any names and marks on the Assets
        used by
        Seller, and all variations and derivatives thereof and logos relating thereto,
        and shall not thereafter make any use whatsoever of such names, marks and
        logos.

       

      10.4           Like-Kind
        Exchanges.  Each
        Party consents to the other Party’s assignment of its rights and obligations
        under this Agreement to its Qualified Intermediary (as that term is defined
        in
        Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations), or to its Qualified
        Exchange Accommodation Titleholder (as that term is defined in Rev. Proc.
        2000-37), in connection with effectuation of a like-kind
        exchange.  However, Seller and Buyer acknowledge and agree that any
        assignment of this Agreement to a Qualified Intermediary or to a Qualified
        Exchange Accommodation Titleholder does not release either Party from any
        of
        their respective liabilities and obligations to each other under the
        Agreement.  Each Party agrees to cooperate with the other to attempt
        to structure the transaction as a like-kind exchange.  The electing
        Party shall indemnify and hold harmless the non-electing Party from and against
        all claims, expenses (including reasonable attorney’s fees and court costs) and
        liabilities resulting from any such like-kind exchange.

       

      11.           CONDITIONS
        PRECEDENT TO OBLIGATIONS OF BUYER.  All
        obligations of Buyer under this Agreement are, at Buyer’s election, subject to
        the fulfillment, prior to or at the Closing, of each of the following
        conditions:

       

      11.1           No
        Litigation.  At
        the Closing, no suit, action or other proceeding shall be pending before
        any
        court or governmental agency which attempts to prevent the occurrence of
        the
        transactions contemplated by this Agreement.

       

      11.2           Representations
        and Warranties.  All
        representations and warranties of Seller contained in this Agreement shall
        be
        true in all material respects as of the Closing as if such representations
        and
        warranties were made as of the Closing Date (except for those representations
        or
        warranties that are expressly made only as of another specific date, which
        representations and warranties shall be true in all material respects as
        of such
        other date) and Seller shall have performed and satisfied in all material
        respects all covenants and fulfilled all conditions required by this Agreement
        to be performed and satisfied by Seller at or prior to the Closing.

       

      
        
           

        

        
          Page
            26

          
            

          

        

        
           

        

      

       

      12.           CONDITIONS
        PRECEDENT TO THE OBLIGATIONS OF SELLER.  All
        obligations of Seller under this Agreement are, at Seller’s election, subject to
        the fulfillment, prior to or at the Closing, of each of the following
        conditions:

       

      12.1           No
        Litigation.  At
        the Closing, no suit, action or other proceeding shall be pending before
        any
        court or governmental agency which attempts to prevent the occurrence of
        the
        transactions contemplated by this Agreement.

       

      12.2           Representations
        and Warranties.  All
        representations and warranties of Buyer contained in this Agreement shall
        be
        true in all material respects as of the Closing, as if such representations
        and
        warranties were made as of the Closing Date (except for those representations
        or
        warranties that are expressly made only as of another specific date, which
        representations and warranties shall be true in all material respects as
        of such
        other date) and Buyer shall have performed and satisfied in all material
        respects all covenants and fulfilled all conditions required by this Agreement
        to be performed and satisfied by Buyer at or prior to the Closing.

       

      13.           TERMINATION.

       

      13.1           Causes
        of Termination.  This
        Agreement and the transactions contemplated herein may be
        terminated:

       

      
        	
                (A)

              	
                At
                  any time by mutual consent of the
                  Parties.

              

      

       

      
        	
                (B)

              	
                By
                  either Party as provided in Sections 5.4(C), 5.5(B) or 6.4(D) pertaining
                  to Title Defects, preferential rights or Adverse Environmental
                  Conditions,
                  respectively.

              

      

       

      
        	
                (C)

              	
                By
                  Buyer if, on the Closing Date, any of the conditions set forth
                  in Article
                  11 hereof shall not have been satisfied or waived; provided, however,
                  that
                  Seller shall have the right to satisfy such condition for a period
                  of
                  twenty (20) days following delivery of notice from Buyer regarding
                  such
                  failure.

              

      

       

      
        	
                (D)

              	
                By
                  Seller if, on the Closing Date, any of the conditions set forth
                  in Article
                  12 hereof shall not have been satisfied or waived; provided, however,
                  that
                  with respect to any condition other than a material failure of
                  Buyer to
                  perform its obligations under Section 3.2, as to which the granting
                  of any
                  cure period shall be entirely within Seller’s sole and absolute
                  discretion, Buyer shall have the right to satisfy such condition
                  for a
                  period of twenty (20) days following delivery of notice from Seller
                  regarding such failure.

              

      

       

      
        	
                (E)

              	
                By
                  Seller or Buyer if Closing has not occurred on or before October
                  15,
                  2007.

              

      

       

      
        	
                (F)

              	
                Notwithstanding
                  anything contained herein, a Party shall not have the right to
                  terminate
                  this Agreement pursuant to clause (C), (D) or (E) above if such
                  Party is
                  at such time in material breach of any provision of this
                  Agreement.

              

      

       

      
        
           

        

        
          Page
            27

          
            

          

        

        
           

        

      

       

      13.2           Effect
        of Termination.

       

      
        	
                (A)

              	
                Buyer’s
                  Breach.  If Closing does not occur because Buyer wrongfully
                  fails to tender performance at Closing or otherwise breaches this
                  Agreement prior to Closing, and Seller is ready to close and is
                  not in
                  material breach of this Agreement, Seller shall have the right
                  to
                  terminate this Agreement and retain the Deposit, together with
                  interest
                  thereon, as liquidated damages.  Buyer’s failure to close shall
                  not be considered wrongful if (i) conditions to Buyer’s obligation to
                  close under Article 11 are not satisfied through no fault of Buyer
                  and are
                  not waived, or (ii) Buyer has terminated this Agreement as of right
                  under Section 13.1.  The remedy set forth herein shall be
                  Seller’s sole and exclusive remedy for Buyer’s wrongful failure to close
                  hereunder and Seller expressly waives any and all other remedies,
                  legal
                  and equitable, that it otherwise may have for Buyer’s failure to
                  close.

              

      

       

      
        	
                (B)

              	
                Seller’s
                  Breach.  If
                  Closing does not occur because Seller wrongfully fails to tender
                  performance at Closing or otherwise breaches this Agreement prior
                  to
                  Closing, and Buyer is ready to close and is not in material breach
                  of this
                  Agreement, Buyer may terminate this Agreement, in which event Seller
                  will
                  return the Deposit, together with interest thereon, to Buyer immediately
                  after the determination that the Closing will not occur.  If
                  Buyer elects not to terminate this Agreement upon any such breach
                  by
                  Seller, Buyer shall retain all legal remedies for Seller’s breach of this
                  Agreement, including, without limitation, specific performance
                  of this
                  Agreement.  Seller’s failure to close shall not be considered
                  wrongful if (i) conditions to Seller’s conditions to close under
                  Article 12 are not satisfied through no fault of Seller and are
                  not
                  waived; or (ii) Seller has terminated this Agreement as of right
                  under Section 13.1.

              

      

       

      
        	
                (C)

              	
                Termination
                  Pursuant to Section 13.1.  If
                  Buyer or Seller terminates this Agreement pursuant to Section 13.1
                  in the
                  absence of a breach by the other Party, Seller shall return the
                  Deposit
                  and all accrued interest thereon to Buyer and neither Buyer nor
                  Seller
                  shall have any liability to the other Party for termination of
                  this
                  Agreement.  If Buyer or Seller terminates this Agreement
                  pursuant to Section 13.1 and asserts that a breach of this Agreement
                  has
                  occurred, the notice of termination shall include a statement describing
                  the nature of the alleged breach together with supporting
                  documentation.

              

      

       

      
        	
                (D)

              	
                Effect
                  of Termination.  In
                  the event of the termination of this Agreement pursuant to the
                  provisions
                  of this Article 13 or elsewhere in this Agreement, this Agreement
                  shall
                  become void and have no further force and effect and, except as
                  provided
                  in this Article 13, for the indemnities provided for in Sections
                  6.2(B)
                  and 14.3, any breach of this Agreement prior to such termination
                  and any
                  continuing confidentiality requirement, neither Party shall have
                  any
                  further right, duty or liability to the other hereunder.  Upon
                  termination, Buyer agrees to return to Seller or destroy all materials,
                  documents and copies thereof provided, obtained or discovered in
                  the
                  course of any due diligence investigations of the
                  Assets.

              

      

       

      14.           INDEMNIFICATION.

       

      
        
           

        

        
          Page
            28

          
            

          

        

        
           

        

      

       

      14.1           Indemnification
        by Seller.  UPON
        CLOSING, SELLER SHALL TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND,
        INDEMNIFY, AND HOLD HARMLESS BUYER, ITS AFFILIATES, AND EACH OF THEIR RESPECTIVE
        OWNERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, OTHER REPRESENTATIVES,
        SUCCESSORS AND ASSIGNS (COLLECTIVELY THE “BUYER GROUP”) FROM AND AGAINST THE
        FOLLOWING:

       

      
        	
                (A)

              	
                MISREPRESENTATIONS.  ALL
                  CLAIMS, DEMANDS, LIABILITIES, JUDGMENTS, LOSSES AND REASONABLE
                  COSTS,
                  EXPENSES AND ATTORNEYS’ FEES (INDIVIDUALLY A “LOSS” AND COLLECTIVELY, THE
                  “LOSSES”) ARISING FROM THE BREACH BY SELLER OF ANY REPRESENTATION OR
                  WARRANTY SET FORTH IN THIS AGREEMENT THAT SURVIVES
                  CLOSING;

              

      

       

      
        	
                (B)

              	
                BREACH
                  OF COVENANTS.  ALL LOSSES ARISING FROM THE BREACH BY SELLER
                  OF ANY COVENANT SET FORTH IN THIS AGREEMENT;
                  AND

              

      

       

      
        	
                (C)

              	
                OWNERSHIP
                  AND OPERATION.  ALL LOSSES ARISING FROM SELLER’S OWNERSHIP
                  OR OPERATION OF THE ASSETS PRIOR TO THE EFFECTIVE TIME DIRECTLY
                  ASSOCIATED
                  WITH THE FOLLOWING MATTERS, EXCLUDING ANY ONSITE ENVIRONMENTAL
                  CLAIMS NOT
                  RAISED BY BUYER PRIOR TO CLOSING:

              

      

       

      
        	
                 

              	
                (i)

              	
                DAMAGES
                  TO PERSONS OR PROPERTY, OR DEATH, FOR CLAIMS ASSERTED BY ANY THIRD
                  PARTY
                  AND ACCRUING PRIOR TO THE EFFECTIVE
                  TIME;

              

      

      

      
        	
                 

              	
                (ii)

              	
                THE
                  VIOLATION BY SELLER OF THE TERMS OF ANY AGREEMENT BINDING UPON
                  SELLER;

              

      

      

      
        	
                 

              	
                (iii)

              	
                CLAIMS
                  AGAINST SELLER BY CO-OWNERS, PARTNERS, JOINT VENTURERS AND OTHER
                  PARTICIPANTS IN THE WELLS;

              

      

      

      
        	
                 

              	
                (iv)

              	
                THE
                  IMPROPER PAYMENT OF ROYALTIES, RENTALS AND SIMILAR PAYMENTS BY
                  SELLER
                  UNDER THE LEASES PRIOR TO THE EFFECTIVE
                  TIME;

              

      

      

      
        	
                 

              	
                (v)

              	
                THE
                  LITIGATION MATTERS SET FORTH ON EXHIBIT
                  7.1(G);

              

      

      

      
        	
                 

              	
                (vi)

              	
                AD
                  VALOREM, PROPERTY, SEVERANCE AND SIMILAR TAXES ATTRIBUTABLE TO
                  THE PERIOD
                  OF TIME PRIOR TO THE EFFECTIVE TIME;
                  AND

              

      

       

      
        	
                 

              	
                (vii)

              	
                ANY
                  CONTAMINATION OR CONDITION THAT IS THE RESULT OF ANY OFF-SITE DISPOSAL
                  BY
                  SELLER OR ITS AFFILIATES OF ANY POLLUTANTS, CONTAMINANTS OR HAZARDOUS
                  MATERIAL ON, IN OR BELOW ANY PROPERTIES NOT INCLUDED IN THE ASSETS
                  PRIOR
                  TO THE EFFECTIVE TIME.

              

      

       

      
        
           

        

        
          Page
            29

          
            

          

        

        
           

        

      

       

      
        	
                (D)

              	
                Notwithstanding
                  the above, the following limitations shall apply to Seller’s
                  indemnification obligations:

              

      

       

      
        	
                 

              	
                (i)

              	
                Seller
                  shall not be obligated to indemnify Buyer for any Loss unless Buyer
                  has
                  delivered a written notice of such Loss within the Survival Period
                  (as
                  defined below) applicable to such Loss.  Any Loss for which
                  Seller does not receive written notice before the end of the Survival
                  Period shall be deemed to be an Assumed Liability.  The
                  “Survival Period” applicable to Losses shall
                  mean:

              

      

      

      
        	
                 

              	
                (1)

              	
                With
                  regard to a breach of representations and warranties contained
                  in Sections
                  7.1(A), (B), (C) and (D), for four (4) year  period following
                  the Closing;

              

      

       

      
        	
                 

              	
                (2)

              	
                With
                  regard to a breach of all of the other representations and warranties
                  by
                  Seller in this Agreement for a period of one (1) year following
                  the
                  Closing;

              

      

       

      
        	
                 

              	
                (3)

              	
                With
                  regard to a breach of a covenant by Seller, for a period equal
                  to the
                  lesser of the applicable statute of limitations period or four
                  (4) years
                  following the Closing; and

              

      

       

      
        	
                 

              	
                (4)

              	
                With
                  regard to the matters covered by Section 14.1 (C), for a four (4)
                  year
                  period following the Closing.

              

      

       

      
        	
                 

              	
                (ii)

              	
                Seller
                  shall have no liability or obligation for any Losses, unless and
                  until and
                  only to the extent that the aggregate Losses for which Buyer is
                  entitled
                  to recover under this Agreement exceeds one percent (1%) of the
                  Base
                  Purchase Price (the “Indemnity Deductible”) (such amount being a
                  deductible and not a threshold).

              

      

      

      
        	
                 

              	
                (iii)

              	
                The
                  amount of Losses required to be paid by Seller to indemnify Buyer
                  pursuant
                  to this Agreement shall be reduced to the extent of any amounts
                  actually
                  received by Buyer pursuant to the terms of the insurance policies
                  (if any)
                  covering such claim and any tax benefits received by
                  Buyer.

              

      

      

      
        	
                 

              	
                (iv)

              	
                Except
                  as specifically provided in Section 14.1(C)), Seller’s indemnification
                  obligations shall not cover any liabilities, duties and obligations
                  relating to properly plugging and abandoning wells, restoring and
                  reclaiming the surface, removal of all pipelines, equipment, and
                  related
                  facilities now or hereafter located on the Assets, and cleaning
                  up,
                  restoring and Remediation of the Assets in accordance with the
                  Environmental Laws and the relevant Leases, or any other violation
                  or
                  claimed violation of Environmental Laws (including but not limited
                  to the
                  payment of fines, penalties, monetary sanctions or other civil
                  liabilities) or the presence, disposal, release or threatened release
                  of
                  any hazardous substance or hazardous waste from the Assets into
                  the
                  atmosphere or into or upon land or any water course or body of
                  water,
                  including groundwater, whether or not attributable to Seller’s activities
                  or the activities of third parties.  All such matters are
                  covered exclusively by Article 6 of this
                  Agreement.

              

      

       

      
        
           

        

        
          Page
            30

          
            

          

        

        
           

        

      

       

      14.2           Indemnification
        by Buyer.  UPON
        CLOSING, BUYER SHALL TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND,
        INDEMNIFY, AND HOLD HARMLESS SELLER’S GROUP FROM AND AGAINST THE
        FOLLOWING:

       

      
        	
                (A)

              	
                MISREPRESENTATIONS.  ALL
                  LOSSES ARISING FROM THE BREACH BY BUYER OF ANY REPRESENTATION OR
                  WARRANTY
                  SET FORTH IN THIS AGREEMENT THAT SURVIVES
                  CLOSING;

              

      

       

      
        	
                (B)

              	
                BREACH
                  OF COVENANTS.  ALL LOSSES ARISING FROM THE BREACH BY BUYER
                  OF ANY COVENANT SET FORTH IN THIS
                  AGREEMENT;

              

      

       

      
        	
                (C)

              	
                ASSUMED
                  LIABILITIES.  ALL LOSSES ARISING FROM OR COMPRISING THE
                  ASSUMED LIABILITIES.

              

      

       

      14.3           Physical
        Inspection.  BUYER
        INDEMNIFIES AND AGREES TO RELEASE, DEFEND, INDEMNIFY AND HOLD HARMLESS THE
        SELLER’S GROUP FROM AND AGAINST ANY AND ALL CLAIMS ARISING FROM BUYER’S
        INSPECTING AND OBSERVING THE ASSETS, INCLUDING (A) CLAIMS 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; AND (B) CLAIMS, DEMANDS, LOSSES, DAMAGES,
        LIABILITIES, JUDGMENTS, CAUSES OF ACTION, COSTS OR EXPENSES FOR PERSONAL
        INJURIES TO OR DEATH OF EMPLOYEES OF THE SELLER’S GROUP OR THIRD PARTIES, AND
        DAMAGE TO THE PROPERTY OF THE SELLER’S GROUP OR THIRD PARTIES.  THE
        FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN
        INDEMNIFICATION OF THE SELLER’S GROUP FROM AND AGAINST CLAIMS ARISING OUT OF OR
        RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE ASSETS OR THE SELLER’S
        GROUP’S SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR
        FAULT BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER’S
        GROUP.

       

      14.4           Notification.  As
        soon as reasonably practical after obtaining knowledge thereof, the indemnified
        Party shall notify the indemnifying Party of any claim or demand which the
        indemnified Party has determined has given or could give rise to a claim
        for
        indemnification under this Article 14.  Such notice shall specify the
        agreement, representation or warranty with respect to which the claim is
        made,
        the facts giving rise to the claim and the alleged basis for the claim, and
        the
        amount (to the extent then determinable) of liability for which indemnity
        is
        asserted.  In the event any action, suit or proceeding is brought with
        respect to which a Party may be liable under this Article 14, the defense
        of the
        action, suit or proceeding (including all settlement negotiations and
        arbitration, trial, appeal, or other proceeding) shall be at the discretion
        of
        and conducted by the indemnifying Party.  If an indemnified Party
        shall settle any such action, suit or proceeding without the written consent
        of
        the indemnifying Party (which consent shall not be unreasonably withheld),
        the
        right of the indemnified Party to make any claim against the indemnifying
        Party
        on account of such settlement shall be deemed conclusively denied.  An
        indemnified Party shall have the right to be represented by its own counsel
        at
        its own expense in any such action, suit or proceeding, and if an indemnified
        Party is named as the defendant in any action, suit or proceeding, it shall
        be
        entitled to have its own counsel and defend such action, suit or proceeding
        with
        respect to itself at its own expense.  Subject to the foregoing
        provisions of this Article 14, neither Party shall, without the other Party’s
        written consent, settle, compromise, confess judgment or permit judgment
        by
        default in any action, suit or proceeding if such action would create or
        attach
        any liability or obligation to the other Party.  The Parties agree to
        make available to each other, and to their respective counsel and accountants,
        all information and documents reasonably available to them which relate to
        any
        action, suit or proceeding, and the Parties agree to render to each other
        such
        assistance as they may reasonably require of each other in order to ensure
        the
        proper and adequate defense of any such action, suit or proceeding.

       

      
        
           

        

        
          Page
            31

          
            

          

        

        
           

        

      

       

      15.           MISCELLANEOUS.

       

      15.1           Casualty
        Loss.

       

      
        	
                (A)

              	
                An
                  event of casualty means volcanic eruptions, acts of God, fire,
                  explosion,
                  earthquake, wind storm, flood, drought, condemnation, the exercise
                  of any
                  right of eminent domain, confiscation and seizure (a
                  “Casualty”).  A Casualty does not include depletion due to
                  normal production and depreciation or failure of equipment or
                  casing.

              

      

       

      
        	
                (B)

              	
                If,
                  prior to the Closing, a Casualty occurs (or Casualties occur) which
                  results in a reduction in the value of any of the Assets (“Casualty
                  Loss”), (i) Seller shall retain such Asset and such Asset shall be
                  the subject of an adjustment to the Base Purchase Price in the
                  same manner
                  set forth in Section 5.4 hereof, or (ii) at the Closing, Seller shall
                  assign to Buyer the right to receive all insurance proceeds or
                  other sums
                  payable to Seller by reason of such Casualty Loss, the Base Purchase
                  Price
                  shall not be adjusted by reason of such payment, and Seller shall
                  convey
                  the affected Asset to Buyer.  In the event a Casualty Loss
                  results in a five percent (5%) or greater reduction in the value
                  of an
                  affected Asset, Buyer shall have the right to exclude such Asset
                  from the
                  sale and receive a reduction of the Base Purchase Price based on
                  the
                  Allocated Value of such Asset.

              

      

       

      
        	
                (C)

              	
                For
                  purposes of determining the diminution in value of an Asset as
                  a result of
                  a Casualty Loss, the Parties shall use the same methodology as
                  applied in
                  determining the diminution in value of an Asset as a result of
                  a Title
                  Defect as set forth in Section 5.4.

              

      

       

      15.2           Confidentiality.

       

      
        	
                (A)

              	
                Prior
                  to Closing, to the extent not already public, Buyer shall not disclose
                  to
                  any party that it is conducting negotiations with Seller or has
                  entered
                  into this Agreement other than as expressly permitted in the
                  confidentiality agreement executed by Buyer in Seller’s favor prior to the
                  execution of this Agreement, which shall continue to apply until
                  the
                  Closing and thereafter in the event of termination of this Agreement
                  prior
                  to the Closing. Buyer shall exercise all due diligence in safeguarding
                  and
                  maintaining secure all engineering, geological and geophysical
                  data,
                  seismic data, reports and maps, the results and findings of Buyer
                  with
                  regard to its due diligence associated with the Assets (including
                  without
                  limitation with regard to due diligence associated with environmental
                  and
                  title matters) and other data relating to the Assets (collectively,
                  the
                  “Confidential Information”).  Buyer acknowledges that, prior to
                  Closing, all Confidential Information shall be treated as confidential.
                  Notwithstanding the foregoing, Seller understands that Buyer has
                  public
                  reporting obligations that may require public announcement of certain
                  information relating to this Agreement.  Seller and Buyer shall
                  consult with each other with regard to all publicity and other
                  releases at
                  or prior to the Closing concerning this Agreement and the transaction
                  contemplated hereby and, except as required by applicable law or
                  other
                  applicable rules or regulations of any governmental body or stock
                  exchange, neither party shall issue any publicity or other release
                  without
                  the prior written consent of the other party, such consent not
                  to be
                  unreasonably withheld.

              

      

       

      
        
           

        

        
          Page
            32

          
            

          

        

        
           

        

      

       

      
        	
                (B)

              	
                In
                  the event of termination of this Agreement for any reason, Buyer
                  shall not
                  use or knowingly permit others to use such Confidential Information
                  in a
                  manner detrimental to Seller, and will not disclose any such Confidential
                  Information to any person, firm, corporation, association or other
                  entity
                  for any reason or purpose whatsoever, except to Seller or to a
                  governmental agency pursuant to a valid subpoena or other order
                  or
                  pursuant to applicable governmental regulations, rules or
                  statutes.

              

      

       

      
        	
                (C)

              	
                The
                  undertaking of confidentiality shall not diminish or take precedence
                  over
                  any separate confidentiality agreement between the
                  Parties.  Should this Agreement terminate, such separate
                  confidentiality agreement shall remain in full force and
                  effect.

              

      

       

      15.3           Notices.  Any
        notice, request, demand, or consent required or permitted to be given hereunder
        shall be in writing and delivered in person or by certified letter, with
        return
        receipt requested, or by facsimile addressed to the Party for whom intended
        at
        the following addresses:

       

      SELLER:

       

      The
        Operating Co., on behalf of all Sellers

      1211
        N.
        Price Rd.

      Pampa,
        Texas 79065

      Attn:                      Mr.
        David Smith

      Tel:           (806)
        669-1417

      Fax:           (806)
        665-5107

      

      BUYER:

       

      Legacy
        Reserves Operating
        LP

      303
        West Wall, Suite 1600

      Midland,
        Texas 79701

      Attn:                      Mr.
        Kyle A. McGraw

      Tel:           (432)
        682-2516

      Fax:           (432)
        684-3774

      

      or
        at
        such other address as any of the above shall specify by like notice to the
        other.

       

      15.4           Press
        Releases and Public Announcements.  Buyer
        is permitted to issue a press release and filing on Form 8-K with the Securities
        and Exchange Commission related to the acquisition.  Notwithstanding
        the foregoing, no press release or any public announcement shall identify
        the
        principals of Seller without Seller’s prior written consent, which consent shall
        not be unreasonably withheld.

       

      
        
           

        

        
          Page
            33

          
            

          

        

        
           

        

      

       

      15.5           Compliance
        with Express Negligence Test.  THE
        PARTIES AGREE THAT THE INDEMNIFICATION OBLIGATIONS OF THE INDEMNIFYING PARTY
        SHALL BE WITHOUT REGARD TO THE NEGLIGENCE (EXCLUDING GROSS NEGLIGENCE) OR
        STRICT
        LIABILITY OF THE INDEMNIFIED PERSON(S), WHETHER THE NEGLIGENCE OR STRICT
        LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE.

       

      15.6           Governing
        Law.  This
        Agreement is governed by and must be construed according to the laws of the
        State of Texas, excluding any conflicts-of-law rule or principle that might
        apply the law of another jurisdiction.  All disputes related to this
        Agreement shall be submitted exclusively to the jurisdiction of the courts
        of
        the State of Texas and venue shall be in the civil district courts of Pampa,
        Gray County, Texas.

       

      15.7           Exhibits.  The
        Exhibits attached to this Agreement are incorporated into and made a part
        of
        this Agreement.

       

      15.8           Fees,
        Expenses, Taxes and Recording.

       

      
        	
                (A)

              	
                Each
                  Party shall be solely responsible for all costs and expenses incurred
                  by
                  it in connection with this transaction (including, but not limited
                  to fees
                  and expenses of its counsel and accountants) and shall not be entitled
                  to
                  any reimbursements from the other Party, except as otherwise provided
                  in
                  this Agreement.

              

      

       

      
        	
                (B)

              	
                Buyer
                  shall file all necessary Tax returns and other documentation with
                  respect
                  to all transfer, documentary, sales, use, stamp, registration and
                  other
                  similar Taxes and fees, and, if required by applicable law, Seller
                  shall
                  join in the execution of any such Tax returns and other
                  documentation.  Notwithstanding anything set forth in this
                  Agreement to the contrary, Buyer shall pay any transfer, documentary,
                  sales, use, stamp, registration and other similar Taxes and fees
                  incurred
                  in connection with this Agreement and the transactions contemplated
                  hereby.  Buyer shall also pay any equipment lease transfer fees
                  or other fees or expenses incurred in connection with transfer
                  of the
                  Assets to Buyer except as otherwise provided by this
                  Agreement.

              

      

       

      
        	
                (C)

              	
                Buyer
                  shall, at its own cost, promptly record all instruments of conveyance
                  and
                  sale in the appropriate office of the state and county in which
                  the lands
                  covered by such instrument are located.  Buyer shall immediately
                  file for and obtain the necessary approval of all federal, Indian,
                  tribal
                  or state government agencies to the assignment of the
                  Assets.  The assignment of any state, federal or Indian tribal
                  oil and gas leases shall be filed in the appropriate governmental
                  offices
                  on a form required and in compliance with the applicable rules
                  of the
                  applicable government agencies.  Buyer shall supply Seller with
                  a true and accurate photocopy reflecting the recording information
                  of all
                  the recorded and filed assignments within a reasonable period of
                  time
                  after their recording and filing.  In the event that Seller
                  undertakes to record and/or file the conveyance instruments and
                  other
                  documents associated with this transfer of interest, Buyer shall
                  reimburse
                  Seller for all associated fees at Post
                  Closing.

              

      

       

      
        
           

        

        
          Page
            34

          
            

          

        

        
           

        

      

       

      15.9           Assignment.  This
        Agreement or any part hereof may not be assigned by either Party without
        the
        prior written consent of the other Party; provided, however, upon notice
        to the
        other Party, either Party shall have the right to assign all or part of its
        rights (but none of its obligations) under this Agreement in order to qualify
        transfer of the Assets as a “like-kind” exchange for federal tax purposes as
        provided in Section 10.4.  Subject to the foregoing, this Agreement is
        binding upon the Parties hereto and their respective successors and
        assigns.

       

      15.10                      Entire
        Agreement.  This
        Agreement constitutes the entire agreement reached by the Parties with respect
        to the subject matter hereof, superseding all prior negotiations, discussions,
        agreements and understandings, whether oral or written, relating to such
        subject
        matter.

       

      15.11                      Severability.  In
        the event that any one or more covenants, clauses or provisions of this
        Agreement shall be held invalid or illegal, such invalidity or unenforceability
        shall not affect any other provisions of this Agreement.

       

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

       

      15.13                      Time
        of the Essence.  The
        parties recognize and agree that time is of the essence of this
        Agreement.

      

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

       

      15.15  Preferential
        Right to Purchase.  For a period beginning on the date of Closing,
        and continuing for a period of five (5) years, should Buyer desire to sell
        all
        or any part of its interests in the Assets purchased under this agreement,
        it
        shall promptly give written notice to David Smith, with full information
        concerning its proposed disposition, which shall include the name and address
        of
        the prospective transferee (who must be ready, willing and able to purchase),
        the purchase price, a legal description sufficient to identify the property,
        and
        all other terms of the offer.  David Smith shall have an optional
        prior right, for a period of twenty (20) days after the notice is delivered,
        to
        purchase for the stated consideration on the same terms and conditions the
        interest which Buyer proposes to sell.  However, there shall be no
        preferential right to purchase in those cases where Buyer wishes to mortgage
        its
        interests, or to transfer title to its interests to its mortgagee in lieu
        of or
        pursuant to foreclosure of a mortgage of its interests, or to dispose of
        its
        interests by merger, reorganization, consolidation, or by sale of all or
        substantially all of its Oil and Gas assets to any party, or by transfer
        of its
        interests to a subsidiary or parent company or to a subsidiary of a parent
        company, or to any company in which such party owns a majority of the
        stock.

       

      
        
           

        

        
          Page
            35

          
            

          

        

        
           

        

      

       

      Executed
        as of the day and year first above written.

       

      
        	 	
                SELLER:

                 

                The Operating Co.

              	 
	 	 	 	 
	
                 

              	
                By:
                  

              	/s/ Alfred
                J.
                Smith	 
	 	 	Alfred
                J.
                Smith	 
	 	 	President	 
	 	 	 	 

      

    

    	 	Nova
            Oil & Gas, Inc.	 
	 	 	 	 
	
             

          	
            By:
              

          	/s/ Alfred
            J. Smith	 
	 	 	Alfred
            J. Smith	 
	 	 	President	 
	 	 	 	 

    	 	X-Pert
            Corporation	 
	 	 	 	 
	
             

          	
            By:
              

          	/s/ Alfred
            J. Smith	 
	 	 	Alfred
            J. Smith	 
	 	 	President	 
	 	 	 	 

    	 	
            The
              195 AF, Ltd.

            By: O&G Service Company, LLC,
              its

            general partner

          	 
	 	 	 	 
	
             

          	
            By:
              

          	/s/ Alfred
            J. Smith	 
	 	 	Alfred
            J. Smith	 
	 	 	President	 
	 	 	 	 

    	 	
            Cowboy
              Crude Oil & Gas, F.L.P.

            By: Six S Energy, Inc., its general
              partner

          	 
	 	 	 	 
	
             

          	
            By:
              

          	/s/ David
            H. Smith	 
	 	 	David
            H. Smith	 
	 	 	President	 
	 	 	 	 

    	 	Cottonhead,
            Ltd.	 
	 	 	 	 
	
             

          	
            By:
              

          	/s/ J.
            D. Carr	 
	 	 	J.
            D. Carr	 
	 	 	General
            Partner	 
	 	 	 	 

     

    
      
         

      

      
        Page
          36

        
          

        

      

      
         

      

    

     

    
      	 	
              BUYER:

               

              LEGACY RESERVES OPERATING
                LP

              By:  LEGACY RESERVES OPERATING GP LLC, ITS
                GENERAL PARTNER

              By:  LEGACY RESERVES LP, ITS SOLE
                MEMBER

              By:  LEGACY RESERVES GP, LLC, ITS GENERAL
                PARTNER

            	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Cary
              D. Brown	 
	 	 	Cary
              D. Brown	 
	 	 	Chairman
              and Chief Executive Officer	 
	 	 	 	 

    

     

    
      
         

      

      
        Page
          37Filed by Bowne Pure Compliance

 

AMENDED AND RESTATED STOCK OPTION PLAN

OF

GMX RESOURCES INC.

(As amended effective May 22, 2007 to increase number of shares to 850,000)

1. Purpose of the Plan

This Amended and Restated Stock Option Plan (the “Plan”) is intended as an incentive to
managerial and other key employees of GMX RESOURCES INC. (the “Company”), and its subsidiaries.
Its purposes are to retain employees with a high degree of training, experience, and ability, to
attract new employees whose services are considered unusually valuable, to encourage the sense of
proprietorship of such persons, and to stimulate the active interest of such persons in the
development and financial success of the Company. Options granted under the Plan may be either
“incentive stock options” as provided by Section 422 of the Internal Revenue Code of 1986, as
amended, and as may be further amended from time to time ( the “Internal Revenue Code” or “Code”)
or options which do not qualify as incentive stock options.

2. Administration of the Plan

(a) Administration. The Plan shall be administered by the Board of Directors of the
Company, or if the Board so authorizes, by a committee (the “Committee”) of the Board of Directors
consisting of not less than two (2) members of the Board of Directors. Unless the context
otherwise requires, references herein to the Committee shall be references to the Board of
Directors or the Committee. Members of the Committee shall serve at the pleasure of the Board, and
the Board may from time to time remove members from, or add members to, the Committee. A majority
of the members of the Committee shall constitute a quorum for the transaction of business. Action
approved in writing by a majority of the members of the Committee then serving shall be fully
effective as if the action had been taken by unanimous vote at a meeting duly called and held.

(b) Authority. The Committee is authorized to construe and interpret the Plan, to
promulgate, amend and rescind rules and regulations relating to the implementation of the Plan and
to make all other determinations necessary or advisable for the administration of the Plan. The
Committee may designate persons other than members of the Committee to carry out its
responsibilities under such conditions and limitations as it may prescribe, except that the
Committee may not delegate its authority with regard to selection for participation of, and the
granting of options to, persons subject to Sections 16(a) and 16(b) of the Exchange Act. Any
determination, decision or action of the Committee in connection with the construction,
interpretation, administration, or application of the Plan shall be final, conclusive and binding
upon all persons participating in the Plan and any person validly claiming under or through persons
participating in the Plan. The Company shall effect the granting of options under the Plan in
accordance with the determinations made by the Committee, by execution of instruments in writing in
such form as approved by the Committee.

 

 

 

3. Designation of Participants

Persons eligible for options under the Plan shall consist of managerial and other key
employees of the Company and/or its subsidiaries who hold positions of significant responsibilities
or whose performance or potential contribution, in the sole judgment of the Committee, will benefit
the future success of the Company. In addition, all Non-employee Directors of the Company shall be
eligible for options under the plan in accordance solely with the provisions of Section 7 hereof.

4. Shares Subject to the Plan

Subject to adjustment as provided in Section 9 hereof, there shall be subject to the Plan
eight hundred fifty thousand (850,000) shares of common stock subject of the Company, par value
$0.001 per share. The shares subject to the Plan shall consist of authorized but unissued shares or
treasury shares held by the Company. Any of such shares that may remain unsold and that are not
subject to outstanding options at the termination of the Plan shall cease to be subject to the
Plan, but until termination of the Plan, the Company shall at all times make available a sufficient
number of shares to meet the requirements of the Plan. Should any option expire or be canceled
prior to its exercise in full, or a portion of an option is surrendered in payment for the exercise
of an option or satisfaction of any tax withholding obligations, the shares theretofore subject to
such options may again be subjected to an option under the Plan. Any shares not subject to
outstanding options at the expiration of the Plan or at any time during the life of the Plan may be
dedicated to other plans that the Company may adopt and to the extent so dedicated, such shares
shall not be subject to this Plan.

5. Option Price

(a) Price. The purchase price for each share placed under option pursuant to the Plan
shall be determined by the Committee, but shall in no event be less than 100% of the Fair Market
Value (as defined below) of such share on the date the option is granted.

(b) Fair Market Value. “Fair Market Value” means the average of the high and low
sales prices of the shares of Common Stock on any national securities exchange on which the shares
are listed on the day on which such value is to be determined or, if no shares were traded on such
day, on the next preceding day on which shares were traded, as reported by such exchange, by
National Quotation Bureau, Inc. or other national quotation service. If the Common Stock is not
listed on a national securities exchange, Fair Market Value means the average of the closing “bid”
and “asked” prices of the shares of Common Stock in the over-the-counter market on the date on
which such value is to be determined or, if such prices are not available, the last sales price on
such day or, if no shares were traded on such day, on the next preceding day on which the shares
were traded, as reported by the National Association of Securities Dealers Automatic Quotation
System (NASDAQ) or other national quotation service. If at any time shares of Common Stock are not
traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value
determined by the Committee, taking into consideration those factors affecting or reflecting
value that they deem appropriate. For purposes of determining the purchase price of an
incentive stock option, Fair Market Value shall in any event be determined in accordance with
Section 422 of the Code.

2

 

 

6. Terms and Exercise of Options

(a) General. The Committee, in granting options hereunder, shall have discretion to
determine the times when, and the terms upon which, options shall be exercisable, including such
provisions as deemed advisable to permit qualification as “incentive stock options” within the
meaning of Section 422 of the Internal Revenue Code, as the same may from time to time be amended
for options intended to qualify as such, and incentive stock options outstanding under the Plan may
be amended, if necessary, to permit such qualification. The Committee shall designate at the time
of granting of any option whether such option or any portion thereof shall be an “incentive stock
option.” Each option shall be evidenced by an agreement between the Company and the optionee
containing provisions consistent with this Plan and such other provisions as the Committee may
determine as provided herein. Unless otherwise determined by the Committee at the time of grant,
all options shall become exercisable at the rate of 25% of the total shares subject to the option
on each of the first four (4) anniversary dates of the date of grant. The Committee shall also be
entitled to accelerate the date any outstanding option becomes exercisable at any time.

(b) Term. In the event of the death of an optionee while in the employ of the
Company, any unvested portion of the option as of the date of death shall be vested as of the date
of death and the option shall be exercisable in full by the heirs or other legal representatives of
the optionee within twelve (12) months following the date of death. In the event of termination of
employment for any reason other than death or termination for cause (and except as otherwise
provided in subsection (e) below) such option shall be exercisable by the employee or his legal
representative within three (3) months of the date of termination as to all then vested portions.
In addition, the Committee may in its sole discretion, approve acceleration of the vesting of any
unvested portions of the option. If an optionee’s employment with the Company is terminated for
cause, the option shall terminate as of the date of such termination of employment and the optionee
shall have no further rights to exercise any portion of the option. “Termination for cause” means
any discharge for violation of the policies and procedures of the Company or for other job
performance or conduct that is detrimental to the best interests of the Company, as determined by
the Committee in its sole discretion. Notwithstanding any of the foregoing, in no event may an
option be exercised more than ten (10) years after the date of its grant.

(c) Method of Exercise. Options may be exercised, whether in whole or in part, by
written notification to the Company accompanied by cash or a certified check for the aggregate
purchase price of the number of shares being purchased, or upon exercise of an option, the optionee
shall be entitled (unless otherwise provided in the agreement evidencing the option), without the
requirement of
further approval or other action by the Committee, to pay for the shares (i) by tendering
stock of the Company that has been owned by the optionee for at least six (6) months with such
stock to be valued at the Fair Market Value (as determined under Section 5) on the date immediately
preceding the date of exercise or (ii) with a combination of cash and stock that has been owned by
the optionee for at least six (6) months as provided above.

3

 

 

In addition, upon exercise of an option, the optionee may, with the prior approval of the
Committee, pay for the shares (a) by tendering stock of the Company already owned by the optionee
but that has not been held by the optionee for at least six (6) months with such stock to be valued
at the Fair Market Value (as determined under Section 5) on the date immediately preceding the date
of exercise, (b) surrendering a portion of the option with such surrendered option to be valued
based on the difference between the Fair Market Value (as determined under Section 5) of the shares
surrendered on the date immediately preceding the date of exercise and the aggregate option
purchase price of the shares surrendered (“Surrender Value”), or (c) with a combination of cash,
stock of the Company that has not been held by the optionee for at least six (6) months or
surrender of options.

The Committee may also permit optionees, either on a selective or aggregate basis, to
simultaneously exercise options and sell the shares of common stock thereby acquired, pursuant to a
brokerage or similar arrangement, approved in advanced by the Committee, and use the proceeds from
such sale as payment of the purchase price of the shares being acquired upon exercise of any
option.

(d) Limitations Applicable To Incentive Options. To the extent the aggregate Fair
Market Value of stock (determined as of the date of grant) with respect to which incentive stock
options are exercisable for the first time by any individual during any calendar year (under all
Company plans) exceeds one hundred thousand dollars ($100,000), such options shall be treated as
options that are not incentive stock options. Options intended to be incentive options shall have
such additional terms and provisions as required by the Internal Revenue Code.

(e) Continued Service as a Director. Any provisions of the Plan to the contrary
notwithstanding, for purposes of Section 6(b) above, in the event an optionee who is also a
director of the Company ceases to be employed by the Company but continues to serve as a director
of the Company, the Committee, in its sole discretion, may determine that all or a portion of such
optionee’s options shall not expire three (3) months following the date of termination of
employment with the Company as is provided in Section 6(b) above, but instead shall continue in
full force and effect until the such optionee ceases to be a director of the Company, but in no
event beyond the stated expiration date of the options as set forth in the applicable option
agreement. Termination of any such option in connection with the optionee’s termination of service
as a director shall be in accordance with the provisions of Section 6(b) above; provided, however,
that (i) the terms “employ” and “employment” as used therein shall be replaced with the terms
“service” and “service on the Board of Directors,” respectively, and (ii) the phrase “termination
for cause” shall
mean any removal from the Board of Directors for cause in accordance with applicable law and
the Certificate of Incorporation and Bylaws of the Company.

(f) Individual Limitation. Subject to adjustment from time to time, as provided in
Section 9, not more than 200,000 shares of common stock of the Company may be made subject to
Options under the Plan to any individual in the aggregate in any one (1) calendar year, such
limitations to be applied in a manner consistent with the requirements of, and only to the extent
required for compliance with, the exclusion from the limitation or deductibility of compensation
under Section 162(m) of the Code.

4

 

 

7. Non-employee Director Options

Notwithstanding anything elsewhere in the Plan to the contrary, each person who is a member of
the Board of Directors of the Company but who is not an employee of the Company (a “Non-employee
Director”) shall be eligible for grants of stock options under the Plan solely in accordance with
the provisions of this Section 7. The following provisions of this Section 7 shall apply to the
granting of stock options to Non-employee Directors:

(a) Exercise Price. The purchase price for each share placed under an option for a
Non-employee Director shall be equal to 100% of the Fair Market Value of such share on the date the
option is granted.

(b) Vesting and Term. Unless otherwise determined by the Committee at the time of
grant, all options shall become exercisable at the rate of 25% of the total shares subject to the
option on each of the first four (4) anniversary dates of the date of grant. The Committee shall
also be entitled to accelerate the date any outstanding option becomes exercisable at any time.
The period during which a Non-employee Director option may be exercised shall be ten (10) years
from the date of grant, subject to earlier termination in accordance with the provisions of Section
6(b) hereof; provided, however that (i) the terms “employ” and “employment” as used therein shall
be replaced with the terms “service” and “service on the Board of Directors,” respectively, and
(ii) the phrase “termination for cause” shall mean any removal from the Board of Directors for
cause in accordance with applicable law and the Certificate of Incorporation and Bylaws of the
Company.

(c) Method of Exercise. Options granted to Non-employee Directors may be exercised in
the manner provided in Section 6(c) hereof.

(d) Other Provisions. All options granted to Non-employee Directors shall be subject
to the other provisions of general applicability to options granted under the Plan, including
without limitation, the
provisions of Section 8 (“Assignability”), Section 9 (“Changes in Capitalization”) and Section
10 (“Change in Control”) hereof.

8. Assignability

During an optionee’s lifetime, an option may be exercisable only by the optionee and options
granted under the Plan and the rights and privileges conferred thereby shall not be subject to
execution, attachment or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution. Notwithstanding the foregoing or any other provisions
of the Plan, to the extent permitted by applicable law, the Committee may, in its sole discretion,
permit recipients of options that do not qualify as incentive stock options under Section 422 of
the Internal Revenue Code to transfer such non-incentive options by gift or other means pursuant to
which no consideration is given for such transfer. The Committee shall impose in connection with
any non-incentive options transferred pursuant to the foregoing sentence such limitations and
restrictions as it deems appropriate. Any other attempt to transfer, assign, pledge, hypothecate
or otherwise dispose of any option under the Plan or of any right or privilege conferred thereby,
contrary to the provisions of the Plan, or the sale or levy or any attachment or similar process
upon the rights and privileges conferred thereby, shall be null and void ab initio.

5

 

 

9. Changes in Capitalization

(a) No Effect on Company Rights. Subject to the other provisions of this Plan, the
existence of the Plan and the options granted hereunder shall not affect or restrict in any way the
right or power of the Board or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital structure or its
business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company’s capital stock or the rights thereof,
any issue of shares of Common Stock or shares of any other class of capital stock or warrants or
rights to acquire such shares, the dissolution or liquidation of the Company or any sale or
transfer of all or any part of its assets or business, or any other corporate act or proceeding.

(b) Changes in Capitalization; Reorganizations. In the event of any change in
capitalization affecting the common stock of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form
of reorganization, liquidation, or any other change affecting the common stock (including a merger
or reorganization in which the Company is not the surviving entity or survives only as a subsidiary
of another entity) (“Change in Capitalization”), such proportionate adjustments, shall be made with
respect to the aggregate number and type of securities for which options may be granted under the
Plan, the number and type of securities (including securities of a surviving or acquiring entity or
cash, property or other consideration) covered by each outstanding option, and the exercise price
of outstanding options, in each case to the end that optionees shall be entitled upon exercise of
options to
receive the same number and kind of stock, securities, cash, property or other consideration
that the optionee would have receive in connection with the Change in Capitalization if such option
had been exercised immediately preceding such Change in Capitalization.

(c) Other Distributions. The Committee may also make such adjustments in the number
of shares covered by, and the price or other value of any outstanding options in the event of a
spin-off or other distribution (other than normal cash dividends) of Company assets to
shareholders.

10. Change in Control

(a) Effect on Options. In the event of a Change in Control (as defined below) of the
Company, in addition to any adjustments required by Section 9(b):

(i) all options outstanding on the date of such Change in Control shall become
immediately and fully exercisable, and

(ii) an optionee will be permitted to surrender for cancellation within sixty (60) days
after such Change in Control, any option or portion of such option to the extent not yet
exercised and the optionee will be entitled to receive a cash payment in an amount equal to
the excess, if any, of (A) the Fair Market Value on the date preceding the date of
surrender, of the shares subject to the option or portion thereof surrendered, over (B) the
aggregate exercise price for the shares under the option or portion thereof surrendered.

6

 

 

(b) Change in Control. A “Change in Control” of the Company shall mean the occurrence
after the effective date of the Plan of:

(i) An acquisition (other than directly from the Company) of any voting securities of
the Company (the “Voting Securities”) by any “Person” (as the term person is used for
purposes of Section 13(d) or 14(d) of the Exchange Act) immediately after which such Person
has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of fifty percent (50%) or more of the combined voting power of the Company’s then
outstanding Voting Securities;

(ii) The individuals who, as of the date of adoption of the Plan by the Board, are
members of the Board (the “Incumbent Board”), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if the election, or
nomination for election by the Company’s common shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Plan, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or threatened
‘election contest’ (as described in Rule 14A-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest; or

(iii) The consummation of:

(A) A merger, consolidation or reorganization involving the Company, unless

(1) the shareholders of the Company, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least sixty
percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the “Surviving Corporation”) in substantially the same
proportion as their ownership of the Voting Securities immediately before
such merger, consolidation or reorganization,

(2) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation, and

(3) no Person, other than the Company, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation, or any Subsidiary or any Person who,
immediately prior to such merger, consolidation or reorganization had
Beneficial Ownership of fifty percent (50%) or more of the then outstanding
Voting Securities, has Beneficial Ownership of fifty percent (50%) or more
of the combined voting power of the Surviving Corporation’s then outstanding
voting securities;

7

 

 

(B) A complete liquidation or dissolution of the Company; or

(C) An agreement for the sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a transfer to a Subsidiary).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount
of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the
Company that, by reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities
which increases the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.

11. Registration and Listing

The Company from time to time shall take such steps as may be necessary to cause the issuance
of shares upon the exercise of options granted under the Plan to be registered under the Securities
Act of 1933, as amended, and such other federal or state securities laws as may be applicable. The
Company shall also from time to time take such steps as may be necessary to list the shares
issuable upon exercise of options granted under the Plan for trading on such stock exchanges on
which the Company’s then outstanding shares are admitted to listed trading.

12. Effective and Expiration Dates of Plan

This Plan became effective as of October 30, 2000, the date of its original approval by the
Board of Directors and the Shareholders of the Company. No options shall be granted pursuant to
this Plan after October 30, 2010, except with respect to awards then outstanding.

13. Amendments or Termination

The Committee may at any time amend, alter or discontinue the Plan in such manner as it may
deem advisable. Any such amendment or alteration may be effected without the approval of the
shareholders of the Company, except to the extent such approval may be required by applicable laws
or by the rules of any securities exchange upon which the Company’s outstanding shares are admitted
to listed trading.

No amendment, alteration or discontinuation of the Plan shall adversely affect any stock
option grants made prior to the time of such amendment, alteration or discontinuation, except with
the consent of the holder of the affected options.

8

 

 

14. Governmental Regulations

Notwithstanding any provision hereof, or any option granted hereunder, the obligation of the
Company to sell and deliver shares under any such option shall be subject to all applicable laws,
rules and regulations and to such approvals by any governmental agencies or national securities
exchange as may be required, and the optionee shall agree that he will not exercise any option
granted hereunder, and that the Company will not be obligated to issue any shares under any such
option, if the exercise thereof or if the issuance of such shares shall constitute a violation by
the optionee or the Company of any applicable law or regulation. The Company shall be entitled to
require as a condition to the issuance of any shares of Common Stock upon exercise of an option
that the optionee remit an amount sufficient, in the Company’s opinion, to satisfy all FICA,
federal, state or other withholding tax requirements related thereto. Unless otherwise provided in
the Agreement evidencing the option, an optionee shall be entitled, without the requirement of
further approval or other action by the Committee, to satisfy such obligation in whole or in part
(i) by tendering stock of the Company already owned by the optionee with such stock to be valued at
the Fair Market Value (as determined under Section 5) on the date immediately preceding the date of
exercise of the options, (ii) by surrendering a portion of his or her option with such surrendered
option to be valued at the Surrender Value (as
determined under Section 6(c)), or (iii) by a combination of cash, stock of the Company and
surrender of options.

15. Governing Law

The Plan and all actions taken thereunder shall be governed by and construed in accordance
with the laws of the state of Oklahoma and applicable federal law.

16. Severability

If any provision of this Plan is determined to be invalid or unenforceable for any reason, the
remaining provisions of the Plan shall remain in effect and be interpreted to reasonably effect the
intent of the Plan.

 

9

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