Document:

THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE
SECURITIES
      LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
      PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
      WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT AND ANY APPLICABLE STATE
      SECURITIES LAWS, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
      1933 ACT.

    

    IN
      ADDITION, A PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF MARCH 21, 2008 (THE
      “PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
      PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
      THE
      PARTIES WITH RESPECT TO THIS WARRANT.

    

    
      
        

      

    China
      Kangtai Cactus Corporation

    

    COMMON
      STOCK PURCHASE WARRANT “B”

    

    
      	
              Number
                of Shares:

            	
              600,000

            	
              Holder:
                T Squared Investments LLC

            
	 	 	
              c/o
                T Squared Capital LLC

            
	
              Original
                Issue Date:

            	
              July
                16, 2008

            	
              Attn:
                Thomas M. Sauve

            
	 	 	
              Title:
                Managing Member

            
	
              Expiration
                Date:

            	
              July
                15, 2011

            	
              1325
                Sixth Avenue, Floor 28

            
	 	 	
              New
                York, NY 10019

            
	
              Exercise
                Price per Share:

            	
              $1.25

            	
              Tel:
                212-763-8615

            
	 	 	Fax:
              212-671-1403

    

    

    China
      Kangtai Cactus Bio-Tech, Inc., a company organized and existing under the laws
      of the State of Nevada (the “Company”),
      hereby certifies that, for value received, T
      Squared Investments LLC,
      or its
      registered assigns (the “Warrant
      Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company
      up
      to Six Hundred Thousand (600,000) shares (as adjusted from time to time as
      provided in Section 7, the “Warrant
      Shares”)
      of
      common stock, $.001 par value (the “Common
      Stock”),
      of
      the Company at a price $1.25 per Warrant Share (as adjusted from time to time
      as
      provided in Section 7, the “Exercise
      Price”),
      at
      any time and from time to time from and after the date thereof and through
      and
      including 5:00 p.m. New York City time on July 16, 2011 (or eighteen months
      of effectiveness of a Registration Statement subsequent to the issuance hereof
      (such eighteen months to be extended by one month for each month or portion
      of a
      month during which a Registration Statement’s effectiveness has lapsed or been
      suspended), whichever is longer) (the “Expiration Date”), and subject to the
      following terms and conditions:

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        1 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1. Registration
      of Warrant.
      The
      Company shall register this Warrant upon records to be maintained by the Company
      for that purpose (the “Warrant
      Register”),
      in
      the name of the record Warrant Holder hereof from time to time. The Company
      may
      deem and treat the registered Warrant Holder of this Warrant as the absolute
      owner hereof for the purpose of any exercise hereof or any distribution to
      the
      Warrant Holder, and for all other purposes, and the Company shall not be
      affected by notice to the contrary.

     

    2. Investment
      Representation.
      The
      Warrant Holder by accepting this Warrant represents that the Warrant Holder
      is
      acquiring this Warrant for its own account or the account of an affiliate for
      investment purposes and not with the view to any offering or distribution and
      that the Warrant Holder will not sell or otherwise dispose of this Warrant
      or
      the underlying Warrant Shares in violation of applicable securities laws. The
      Warrant Holder acknowledges that the certificates representing any Warrant
      Shares will bear a legend indicating that they have not been registered under
      the United States Securities Act of 1933, as amended (the “1933
      Act”)
      and
      may not be sold by the Warrant Holder except pursuant to an effective
      registration statement or pursuant to an exemption from registration
      requirements of the 1933 Act and in accordance with federal and state securities
      laws. If this Warrant was acquired by the Warrant Holder pursuant to the
      exemption from the registration requirements of the 1933 Act afforded by
      Regulation S thereunder, the Warrant Holder acknowledges and covenants that
      this
      Warrant may not be exercised by or on behalf of a Person during the one year
      distribution compliance period (as defined in Regulation S) following the date
      hereof. “Person”
      means an
      individual, partnership, firm, limited liability company, trust, joint venture,
      association, corporation, or any other legal entity.

     

    3. Validity
      of Warrant and Issue of Shares.
      The
      Company represents and warrants that this Warrant has been duly authorized
      and
      validly issued and warrants and agrees that all of Common Stock that may be
      issued upon the exercise of the rights represented by this Warrant will, when
      issued upon such exercise, be duly authorized, validly issued, fully paid and
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof. The Company further warrants and agrees that during the period
      within which the rights represented by this Warrant may be exercised, the
      Company will at all times have authorized and reserved a sufficient number
      of
      Common Stock to provide for the exercise of the rights represented by this
      Warrant.

     

    4. Registration
      of Transfers and Exchange of Warrants.

     

    a. Subject
      to compliance with the legend set forth on the face of this Warrant, the Company
      shall register the transfer of any portion of this Warrant in the Warrant
      Register, upon surrender of this Warrant with the Form of Assignment attached
      hereto duly completed and signed, to the Company at the office specified in
      or
      pursuant to Section 12. Upon any such registration or transfer, a new warrant
      to
      purchase Common Stock, in substantially the form of this Warrant (any such
      new
      warrant, a “New
      Warrant”),
      evidencing the portion of this Warrant so transferred shall be issued to the
      transferee and a New Warrant evidencing the remaining portion of this Warrant
      not so transferred, if any, shall be issued to the transferring Warrant Holder.
      The acceptance of the New Warrant by the transferee thereof shall be deemed
      the
      acceptance of such transferee of all of the rights and obligations of a Warrant
      Holder of a Warrant.

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        2 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    b. This
      Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
      the
      office of the Company specified in or pursuant to Section 9 for one or more
      New
      Warrants, evidencing in the aggregate the right to purchase the number of
      Warrant Shares which may then be purchased hereunder. Any such New Warrant
      will
      be dated the date of such exchange.

     

    
      
        5.
          Exercise
          of Warrants.

      

    

     

    a. Upon
      surrender of this Warrant with the Form of Election to Purchase attached hereto
      duly completed and signed to the Company, at its address set forth in Section
      12, and upon payment and delivery of the Exercise Price per Warrant Share
      multiplied by the number of Warrant Shares that the Warrant Holder intends
      to
      purchase hereunder, in lawful money of the United States of America, in cash
      or
      by certified or official bank check or checks, to the Company, all as specified
      by the Warrant Holder in the Form of Election to Purchase, the Company shall
      promptly (but in no event later than 7 business days after the Date of Exercise
      (as defined herein)) issue or cause to be issued and cause to be delivered
      to or
      upon the written order of the Warrant Holder and in such name or names as the
      Warrant Holder may designate (subject to the restrictions on transfer described
      in the legend set forth on the face of this Warrant), a certificate for the
      Warrant Shares issuable upon such exercise, with such restrictive legend as
      required by the 1933 Act. Any person so designated by the Warrant Holder to
      receive Warrant Shares shall be deemed to have become holder of record of such
      Warrant Shares as of the Date of Exercise of this Warrant.

     

    b. A
“Date
      of Exercise” means the date on which the Company shall have received (i) this
      Warrant (or any New Warrant, as applicable), with the Form of Election to
      Purchase attached hereto (or attached to such New Warrant) appropriately
      completed and duly signed, and (ii) payment of the Exercise Price for the number
      of Warrant Shares so indicated by the Warrant Holder to be
      purchased.

     

    c. This
      Warrant shall be exercisable at any time and from time to time for such number
      of Warrant Shares as is indicated in the attached Form of Election To Purchase.
      If less than all of the Warrant Shares which may be purchased under this Warrant
      are exercised at any time, the Company shall issue or cause to be issued, at
      its
      expense, a New Warrant evidencing the right to purchase the remaining number
      of
      Warrant Shares for which no exercise has been evidenced by this
      Warrant.

     

    d. 
      (i) Notwithstanding
      anything contained herein to the contrary but subject to Section 6, the holder
      of this Warrant may, should a registration statement pursuant to the
      Registration Agreement not be made effective within 120 days post Closing,
      exercise this Warrant in whole or in part and, in lieu of making the cash
      payment otherwise contemplated to be made to the Company upon such exercise
      in
      payment of the Aggregate Exercise Price, elect instead to receive upon such
      exercise the “Net
      Number”
of
      shares of Common Stock determined according to the following formula (a
“Cashless
      Exercise”):

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        3 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Net
      Number = (A x (B - C))/B

     

    (ii) For
      purposes of the foregoing formula:

     

    A=
      the
      total number shares with respect to which this Warrant is then being
      exercised.

     

    B=
      the
      last reported sale price (as reported by Bloomberg) of the Common Stock on
      the
      trading day immediately preceding the date of the Exercise Notice.

     

    C=
      the
      Warrant Exercise Price then in effect at the time of such exercise.

     

    e. The
      holder of this Warrant agrees not to elect a Cashless Exercise for a period
      of
      twelve (12) months. The holder of this Warrant also agrees not to elect a
      Cashless Exercise so long as there is an effective registration statement for
      the Warrant Shares.

     

    f. Provided
      that the Warrant Shares are Registrable Securities (as defined in the
      Registration Rights Agreement) and are registered pursuant to an effective
      registration statement, at any time commencing on the date hereof if the
      Company’s volume weighted average share price over a thirty (30) day period (“30
      Day VWAP”) exceeds $2.50 per share, the Warrant Holder shall be forced to
      exercise this Warrant within thirty (30) calendar days from the date the 30
      Day
      VWAP exceeds $2.50 per share (“Forced Exercise Period”). Any portion of this
      Warrant not exercise during the Forced Exercise Period shall terminate upon
      at
      the end of such period. This clause is also subject to a volume restriction
      of
      approximately 25% of the daily average volume. The Company can not force the
      investor to exercise into more than 4.9% clause below. 

     

    6. Maximum
      Exercise.
      The
      Warrant Holder shall not be entitled to exercise this Warrant
      on a Date of Exercise in connection with that number of shares of Common Stock
      which would be in excess of the sum of (i) the number of shares of Common Stock
      beneficially owned by the Warrant Holder and its affiliates on an exercise
      date,
      and (ii) the number of shares of Common Stock issuable upon the exercise of
      this
      Warrant with respect to which the determination of this limitation is being
      made
      on an exercise date, which would result in beneficial ownership by the Warrant
      Holder and its affiliates of more than 4.9% of the outstanding shares of Common
      Stock on such date. This Section 6 may be waived or amended only with the
      consent of the Holder and the consent of holders of a majority of the shares
      of
      outstanding Common Stock of the Company who are not Affiliates. For the purposes
      of the immediately preceding sentence, the term “Affiliate” shall mean any
      person: (a) that directly, or indirectly through one or more intermediaries,
      controls, or is controlled by, or is under common control with, the Company;
      or
      (b) who beneficially owns (i) any shares of the Company’s Series A Convertible
      Preferred Stock, (ii) the Company’s Common Stock Purchase Warrant “A” dated July
      __, 2008, or (iii) this Warrant. For the purposes of the immediately preceding
      sentence, beneficial ownership shall be determined in accordance with Section
      13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
      thereunder.

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        4 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7. Adjustment
      of Exercise Price and Number of Shares.
      The
      character of the shares of stock or other securities at the time issuable upon
      exercise of this Warrant and the Exercise Price therefore, are subject to
      adjustment upon the occurrence of the following events, and all such adjustments
      shall be cumulative:

     

    a. Adjustment
      for Stock Splits, Stock Dividends, Recapitalizations, Etc.
      The
      Exercise Price of this Warrant and the number of shares of Common Stock or
      other
      securities at the time issuable upon exercise of this Warrant shall be
      appropriately adjusted to reflect any stock dividend, stock split, combination
      of shares, reclassification, recapitalization or other similar event affecting
      the number of outstanding shares of stock or securities.

     

    b. Adjustment
      for Reorganization, Consolidation, Merger, Etc.
      In case
      of any consolidation or merger of the Company with or into any other
      corporation, entity or person, or any other corporate reorganization, in which
      the Company shall not be the continuing or surviving entity of such
      consolidation, merger or reorganization (any such transaction being hereinafter
      referred to as a "Reorganization"),
      then,
      in each case, the holder of this Warrant, on exercise hereof at any time after
      the consummation or effective date of such Reorganization (the "Effective
      Date"),
      shall
      receive, in lieu of the shares of stock or other securities at any time issuable
      upon the exercise of the Warrant issuable on such exercise prior to the
      Effective Date, the stock and other securities and property (including cash)
      to
      which such holder would have been entitled upon the Effective Date if such
      holder had exercised this Warrant immediately prior thereto (all subject to
      further adjustment as provided in this Warrant).

     

    c. Certificate
      as to Adjustments.
      In case
      of any adjustment or readjustment in the price or kind of securities issuable
      on
      the exercise of this Warrant, the Company will promptly give written notice
      thereof to the holder of this Warrant in the form of a certificate, certified
      and confirmed by the Board of Directors of the Company, setting forth such
      adjustment or readjustment and showing in reasonable detail the facts upon
      which
      such adjustment or readjustment is based.

     

    d. The
      Company fails to meet certain earnings per share
      projections.
      In the
      event the Company earns between $0.0670 and $0.0335 (50% Decline) per share
      (where such earnings in this paragraph shall always be defined as earnings
      on a
      pre tax fully diluted basis (including dilution from any options, warrants
      and
      convertible securities) as reported for the audited sixth months ended June
      30,
      2008 from continuing operations before any non-cash items the then current
      Exercise Price to the Investor at the time the audited numbers are reported
      to
      the SEC shall be decrease proportionately by 0% if the pre tax earnings (for
      first six months ended June 30, 2008) are $0.0670 per share or greater and
      by
      50% if the pre tax earnings (for first six months ended June 30, 2008) are
      $0.0335 per share (50% decrease). For example if the earnings are $0.0536 per
      share or less (20% Decline) then the then current Exercise Price to the investor
      shall be reduced by 20%. Such adjustment shall be made automatically within
      five
      business days of the audited numbers being reported to the SEC. 

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        5 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    e. In
      the
      event the Company earns between $0.1559 and $0.0780 (50% Decline) per share
      (where such earnings in this paragraph shall always be defined as earnings
      on a
      pre tax fully diluted basis (including dilution from any options, warrants
      and
      convertible securities) as reported for the audited fiscal year ending 2008
      from
      continuing operations before any non-cash items the then current Exercise Price
      to the Investor at the time the audited numbers are reported to the SEC shall
      be
      decrease proportionately by 0% if the pre tax earnings are $0.1559 per share
      or
      greater and by 50% if the pre tax earnings are $0.0780 per share (50% decrease).
      For example if the earnings are $ 0.1247 per share or less (20% Decline) then
      the then current Exercise Price to the investor shall be reduced by 20%. Such
      adjustment shall be made automatically within five business days of the audited
      numbers being reported to the SEC.

     

    f. The
      Company sells, grants or issues any shares, options, warrants, or any instrument
      convertible into shares or equity in any form below the exercise price per
      share
      of the warrant.
      In the
      event the Company sells, grants or issues any shares, options, warrants, or
      any
      instrument convertible into shares or equity in any form below the current
      exercise price per share of the warrant, then the current exercise price per
      share for the warrant shall be adjusted to a price determined by multiplying
      such exercise price by a fraction, the numerator of which shall be the number
      of
      shares of Common Stock Outstanding (defined below) immediately prior to such
      issuance plus the number of shares of Common Stock that the aggregate
      consideration received by the Company for such issuance would purchase at such
      exercise price; and the denominator of which shall be the number of shares
      of
      Common Stock Outstanding (as defined below) immediately prior to such issuance
      plus the number of shares issued at such issuance. For purposes of this
Section
      7(f),
      the
      term “Common Stock Outstanding” shall mean and include the following: (1)
      outstanding Common Stock, (2) Common Stock issuable upon conversion of
      outstanding Preferred Stock, (3) Common Stock issuable upon exercise of
      outstanding warrants. Shares described in (1) through (4) above shall be
      included whether vested or unvested, whether contingent or non-contingent and
      whether exercisable or not yet exercisable.

     

    8. Fractional
      Shares.
      The
      Company shall not be required to issue or cause to be issued fractional Warrant
      Shares on the exercise of this Warrant. The number of full Warrant Shares that
      shall be issuable upon the exercise of this Warrant shall be computed on the
      basis of the aggregate number of Warrants Shares purchasable on exercise of
      this
      Warrant so presented. If any fraction of a Warrant Share would, except for
      the
      provisions of this Section 8, be issuable on the exercise of this Warrant,
      the
      Company shall, at its option, (i) pay an amount in cash equal to the Exercise
      Price multiplied by such fraction or (ii) round the number of Warrant Shares
      issuable, up to the next whole number.

     

    9. Sale
      or Merger of the Company.
      Upon
      a
      Change in Control, the restriction contained in Section 6 shall immediately
      be
      released and the Warrant Holder will have the right to exercise this Warrant
      concurrently with such Change in Control event. For purposes of this Warrant,
      the term “Change in Control” shall mean a consolidation or merger of the Company
      with or into another company or entity in which the Company is not the surviving
      entity or the sale of all or substantially all of the assets of the Company
      to
      another company or entity not controlled by the then existing stockholders
      of
      the Company in a transaction or series of transactions.

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        6 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10. Notice
      of Intent to Sell or Merge the Company.
      The
      Company will give Warrant Holder ten (10) business days notice before the event
      of a sale of all or substantially all of the assets of the Company or the merger
      or consolidation of the Company in a transaction in which the Company is not
      the
      surviving entity.

     

    11. Issuance
      of Substitute Warrant.
      In the
      event of a merger, consolidation, recapitalization or reorganization of the
      Company or a reclassification of Company shares of stock, which results in
      an
      adjustment to the number of shares subject to this Warrant and/or the Exercise
      Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
      Warrant reflecting the adjusted number of shares and/or Exercise Price upon
      the
      surrender of this Warrant to the Company.

     

    12. Notice.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed to have been given (i) on the date they are delivered if delivered in
      person; (ii) on the date initially received if delivered by facsimile
      transmission followed by registered or certified mail confirmation; (iii) on
      the
      date delivered by an overnight courier service; or (iv) on the third business
      day after it is mailed by registered or certified mail, return receipt requested
      with postage and other fees prepaid as follows:

     

    If
      to
      the Company:

     

    China
      Kangtai Cactus Bio-Tech, Inc.

    99
      Taibei
      Road

    Limin
      Economic and Technological Development Zone

    Harbin,
      China 150025

    Attn:
      Jinjiang Wang

    

    If
      to
      the Warrant Holder:

    

    T
      Squared
      Investments LLC

    c/o
      T
      Squared Capital LLC

    1325
      Sixth Avenue, Floor 28

    New
      York,
      New York 10019

    Attn:
      Thomas M. Sauve

    

    
      
        13.
          Miscellaneous.

      

    

     

    a. This
      Warrant shall be binding on and inure to the benefit of the parties hereto
      and
      their respective successors and permitted assigns. This Warrant may be amended
      only by a writing signed by the Company and the Warrant Holder.

     

    b. Nothing
      in this Warrant shall be construed to give to any person or corporation other
      than the Company and the Warrant Holder any legal or equitable right, remedy
      or
      cause of action under this Warrant; this Warrant shall be for the sole and
      exclusive benefit of the Company and the Warrant Holder.

    

      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        7OF
        9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    c. This
      Warrant shall be governed by, construed and enforced in accordance with the
      internal laws of the State of New York without regard to the principles of
      conflicts of law thereof.

     

    d. The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    e. In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceablilty of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonably
      substitute therefore, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant.

     

    f. The
      Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
      rights of a shareholder of the Company, either at law or equity, and the rights
      of the Warrant Holder are limited to those expressed in this
      Warrant.

     

    [SIGNATURES
      ON FOLLOWING PAGE]

     

    
 

    WARRANT
      “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

    AND
      T SQUARED INVESTMENTS LLC

    PAGE
      8 OF 9

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      the
      authorized officer as of the date first above stated.

     

    CHINA
      KANGTAI CACTUS BIO-TECH, INC., a Nevada corporation

    
 

    
      	
              By:

            	
              /s/
                Jinjiang Wang

            
	
              Jinjiang
                Wang, President and Chief Executive
                Officer

            

    

     

    
      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLC

      PAGE
        9 OF 9

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    FORM
      OF ELECTION TO PURCHASE

    

    (To
      be
      executed by the Warrant Holder to exercise the right to purchase shares of
      Common Stock under the foregoing Warrant)

    

    To:
      China
      Kangtai Cactus Bio-Tech, Inc.:

    

    In
      accordance with the Warrant enclosed with this Form of Election to Purchase,
      the
      undersigned hereby irrevocably elects to purchase ______________ shares of
      Common Stock (“Common Stock”), $.001 par value, of China Kangtai Cactus
      Bio-Tech, Inc., Inc and encloses the warrant and $____ for each Warrant Share
      being purchased or an aggregate of $________________ in cash or certified or
      official bank check or checks, which sum represents the aggregate Exercise
      Price
      (as defined in the Warrant) together with any applicable taxes payable by the
      undersigned pursuant to the Warrant.

    

    The
      undersigned requests that certificates for the shares of Common Stock issuable
      upon this exercise be issued in the name of:

    

      
        	 

	 
	  

	 
	 

	
                (Please
                  print name and address)

              
	 
	 

	
                (Please
                  insert Social Security or Tax Identification
                  Number)

              

      

    

    

    If
      the
      number of shares of Common Stock issuable upon this exercise shall not be all
      of
      the shares of Common Stock which the undersigned is entitled to purchase in
      accordance with the enclosed Warrant, the undersigned requests that a New
      Warrant (as defined in the Warrant) evidencing the right to purchase the shares
      of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
      in the name of and delivered to:

     

    
      
        	 

	 
	 

	 
	  

	
                (Please
                  print name and address)

              

      

      

      
        	
                Dated:
                  

              	 
	
              
	 	 
	 	 
	
                Name
                  of Warrant Holder:

              
	 	 
	
                (Print)
                  

              	 
	 	 
	
                (By:)
                  

              	 
	 	 
	
                (Name:)
                  

              	 

	 	 
	
                (Title:)
                  

              	 

      

    

     

    Signature
      must conform in all respects to name of Warrant Holder as specified on the
      face
      of the Warrant

     

    
      WARRANT
        “B” AGREEMENT BETWEEN CHINA KANGTAI CACTUS BIO-TECH, INC.

      AND
        T SQUARED INVESTMENTS LLCExhibit 10.1
    

    

    

    
      ASSET PURCHASE AND SALE AGREEMENT
    

    
      THIS ASSET PURCHASE AND SALE AGREEMENT dated July 18, 2008, is
      made by and between Segundo Navarro Drilling, Ltd., a Texas
      limited partnership ("Seller"), and Vanguard
      Permian, LLC, a Delaware limited liability company and Vanguard
      Natural Resources, LLC, a Delaware limited liability company
      (collectively "Buyer").
    

    
      W I T N E S S E T H:
    

    
      WHEREAS, Seller desires to sell, assign and convey to Buyer, and
      Buyer desires to purchase and accept from Seller, Seller’s interest in
      certain oil and gas wellbores as described on Exhibit I, forty-five
      percent (45%) working interest equal to a 33.75% net revenue interest in
      certain oil and gas properties as described herein on Exhibit II and
      fifty percent (50%) working interest equal to a 37.5% net revenue
      interest in certain oil and gas properties as described herein on
      Exhibit III; and
    

    
      WHEREAS, Seller and Buyer deem it in their mutual best interests
      to execute and deliver this Agreement;
    

    
      NOW, THEREFORE, in consideration of the foregoing Recitals and
      the mutual covenants and agreements contained herein, Seller and Buyer
      do hereby agree as follows:
    

    
      ARTICLE I  

PROPERTIES TO BE SOLD AND
      PURCHASED
    

    
      Section 1.1.  Assets Included.  Subject
      to Section 1.2, Seller agrees to sell and Buyer agrees to
      purchase, for the consideration hereinafter set forth, and subject to
      the terms and provisions herein contained, the following described
      properties, rights and interests:
    

    
             (a)  That working interest and net revenue interest in and to
      those wellbores described in Exhibit I attached hereto and
      made a part hereof for all purposes and all rights of Seller to produce
      oil, gas and other minerals from those wellbores and all rights of
      Seller in and to the oil, gas and other minerals that may be produced
      from those wellbores under the leases described in Exhibit I;
    

    
             (b)  Concurrent rights, titles and interests with Seller in and
      to, or otherwise derived from, the leases described in Exhibit I, all
      presently existing and valid oil, gas or mineral unitization, pooling,
      and/or communitization agreements, declarations and/or orders and in and
      to the wellbores covered and the units created thereby (including all
      units formed under orders, rules, regulations, or other official acts of
      any federal, state, or other authority having jurisdiction, voluntary
      unitization agreements, designations and/or declarations) relating to
      the wellbores described in paragraph (a) above;
    

    
             (c)  A proportionate interest in the rights, titles and interests
      associated with all presently existing and valid production sales (and
      sales related) contracts, operating agreements, and other agreements and
      contracts to the extent and to the extent they relate to any of the
      wellbores described in paragraph (a) above, or to the extent
      and only to the extent they relate to the development, operation, or
      maintenance thereof or the treatment, storage, transportation or
      marketing of production therefrom (or allocated thereto).

    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
             (d)  All rights, titles and interests of Seller in and to all
      materials, supplies, machinery, equipment, improvements and other
      personal property and fixtures (including all wells, wellhead equipment,
      pumping units, tanks and surface leases and other surface rights, all
      permits and licenses, and all other appurtenances being used or held for
      use in connection with, or otherwise related to, the exploration,
      development, operation or maintenance of any of the wellbores described
      in paragraph (a) above;
    

    
             (e)  All of Seller's production records, and well files, which
      relate to the wellbores described in paragraph (a) above;
    

    
             (f)  Without limitation of the foregoing but subject to Section 1.2,
      forty-five percent (45%) working interest equal to a 33.75% net revenue
      interest in and to those leases described in Exhibit II
      attached hereto and made a part hereof for all purposes (SAVE AND EXCEPT
      THE WELLBORES DESCRIBED IN EXHIBIT I ATTACHED HERETO);
    

    
             (g)  Without limitation of the foregoing but subject to Section 1.2,
      forty-five percent (45%) working interest equal to a 33.75% net revenue
      interest in and to the oil, gas and other minerals in and under or that
      may be produced from the leases described in Exhibit II
      attached hereto (SAVE AND EXCEPT THE WELLBORES DESCRIBED IN EXHIBIT I
      ATTACHED HERETO), whether such leases be described in a description set
      forth in such Exhibit II or be described in such Exhibit II
      by reference to another instrument;
    

    
             (h)  Forty-five percent (45%) of Seller’s rights, titles and
      interests in and to, or otherwise derived from, all presently existing
      and valid oil, gas or mineral unitization, pooling, and/or
      communitization agreements, declarations and/or orders and in and to the
      properties covered and the units created thereby (including all units
      formed under orders, rules, regulations, or other official acts of any
      federal, state, or other authority having jurisdiction, voluntary
      unitization agreements, designations and/or declarations) relating to
      the leases and properties described in paragraphs (f) and (g)
      above and none other and, with respect to such rights and interests that
      relate to any of the leases and properties described in paragraphs (f)
      and (g) above as well as other leases and properties of Seller,
      concurrent rights, titles and interests with Seller in and to such
      rights and interests to the extent and only to the extent they relate to
      the leases and properties described in paragraphs (f) and (g)
      above;
    

    
             (i)   Forty-five percent (45%) of Seller’s rights, titles and
      interests in and to all presently existing and valid production sales
      (and sales related) contracts, operating agreements, and other
      agreements and contracts to the extent and only to the extent they
      relate to any of the leases and properties described in paragraphs (f),
      (g) and (h) above, to the extent and only to the extent they relate
      to the exploration, development, operation, or maintenance thereof and
      none other or the treatment, storage, transportation or marketing of
      production therefrom  and none other (or allocated thereto) and, with
      respect to such rights and interests that relate to any of the leases
      and properties described in paragraphs (f), (g) and (h)
      above as well as other leases and properties of Seller, concurrent
      rights, titles and interests with Seller in and to such rights and
      interests to the extent and only to the extent they relate to the leases
      and properties described in paragraphs (f), (g) and (h)
      above;

    

    
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             (j)  Forty-five percent (45%) of Seller’s rights, titles and
      interests in and to all easements, rights-of-way, surface leases and
      other surface rights, all permits and licenses, and all other
      appurtenances being used or held for use in connection with, or
      otherwise to the extent and only to the extent they relate to, the
      exploration, development, operation or maintenance of any of the
      properties described in paragraphs (f), (g) and (h) above
      and none other, or the treatment, storage, transportation or marketing
      of production therefrom and none other (or allocated thereto) and, with
      respect to such rights and interests that relate to any of the leases
      and properties described in paragraphs (f), (g) and (h)
      above as well as other leases and properties of Seller, concurrent
      rights, titles and interests with Seller in and to such rights and
      interests to the extent and only to the extent they relate to the leases
      and properties described in paragraphs (f), (g) and (h)
      above;
    

    
             (k)  Without limitation of the foregoing but subject to Section 1.2,
      fifty percent (50%) working interest equal to a 37.5% net revenue
      interest in and to those leases described in Exhibit III
      attached hereto and made a part hereof for all purposes (SAVE AND EXCEPT
      THE WELLBORES DESCRIBED IN EXHIBIT I ATTACHED HERETO);
    

    
             (l)  Without limitation of the foregoing but subject to Section 1.2,
      fifty percent (50%) working interest equal to a 37.5% net revenue
      interest in and to the oil, gas and other minerals in and under or that
      may be produced from the leases described in Exhibit III
      attached hereto (SAVE AND EXCEPT THE WELLBORES DESCRIBED IN EXHIBIT I
      ATTACHED HERETO) whether such lands be described in a description set
      forth in such Exhibit III or be described in such Exhibit III
      by reference to another instrument;
    

    
             (m)  One-half (1/2) of Seller’s rights, titles and interests in
      and to, or otherwise derived from, all presently existing and valid oil,
      gas or mineral unitization, pooling, and/or communitization agreements,
      declarations and/or orders and in and to the properties covered and the
      units created thereby (including all units formed under orders, rules,
      regulations, or other official acts of any federal, state, or other
      authority having jurisdiction, voluntary unitization agreements,
      designations and/or declarations) relating to the properties described
      in paragraph (k) and (l) above and none other and, with
      respect to such rights and interests that relate to any of the leases
      and properties described in paragraphs (k) and (l) above as
      well as other leases and properties of Seller, concurrent rights, titles
      and interests with Seller in and to such rights and interests to the
      extent and only to the extent they relate to the leases and properties
      described in paragraphs (k) and (l) above;
    

    
             (n)  One-half (1/2) of Seller’s rights, titles and interests in
      and to all presently existing and valid production sales (and sales
      related) contracts, operating agreements, and other agreements and
      contracts to the extent and only to the extent they relate to any of the
      properties described in paragraphs (k), (l) and (m) above
      and none other, or to the extent and only to the extent they relate to
      the exploration, development, operation, or maintenance thereof or the
      treatment, storage, transportation or marketing of production therefrom
      and none other (or allocated thereto) and, with respect to such rights
      and interests that relate to any of the leases and properties described
      in paragraphs (k), (l) and (m)  above as well as other
      leases and properties of Seller, concurrent rights, titles and interests
      with Seller in and to such rights and interests to the extent and only
      to the extent they relate to the leases and properties described in paragraphs (k),
      (l) and (m)  above;
    

    
      

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             (o)  One-half (1/2) of Seller’s rights, titles and interests in
      and to all easements, rights-of-way, surface leases and other surface
      rights, all permits and licenses, and all other appurtenances being used
      or held for use in connection with, or otherwise to the extent of and
      only to the extent related to, the exploration, development, operation
      or maintenance of any of the properties described in paragraphs (k),
      (l) and (m) above and none other, or to the extent of and only to
      the extent of the treatment, storage, transportation or marketing of
      production therefrom and none other (or allocated thereto) and, with
      respect to such rights and interests that relate to any of the leases
      and properties described in paragraphs (k), (l) and (m)  above
      as well as other leases and properties of Seller, concurrent rights,
      titles and interests with Seller in and to such rights and interests to
      the extent and only to the extent they relate to the leases and
      properties described in paragraphs (k), (l) and (m)  above;
    

    
            (p)  As used herein:  (i) "Oil
      and Gas Properties" means the properties and interests
      described in paragraphs (a), (f), (g), (k) and (l) above, save and
      except for any such properties or assets that are Excluded Assets; and
      (ii) "Properties" means the Oil and Gas
      Properties plus the properties and interests described in
      paragraphs (b), (c), (d), (e), (h), (i), (j), (m), (n) and (o) above,
      save and except for any such properties or assets that are Excluded
      Assets.
    

    
      Section 1.2.  Assets Excluded.  Notwithstanding
      anything herein contained to the contrary, the Properties do not
      include, and there is hereby excepted and reserved unto Seller, the
      following:
    

    
             (a)  Any accounts receivable or accounts payable accruing before
      the Effective Date including, but not limited to, all payments held in
      suspense for title or other reasons that are customary in the industry
      and which payments are attributable to periods of time prior to the
      Effective Date;
    

    
             (b)  All corporate, financial, tax and legal (other than title)
      records of Seller;
    

    
             (c)  All oil, gas or other hydrocarbon production from or
      attributable to the Properties with respect to all periods prior to the
      Effective Date, all proceeds attributable thereto, and all oil, gas or
      other hydrocarbons that, at the Effective Date, are owned by Seller and
      are in storage or within processing plants;
    

    
             (d)  Any refund of costs, taxes or expenses borne by Seller or
      Seller's predecessors in title attributable to periods prior to the
      Effective Date;
    

    
             (e)  Any and all proceeds from the settlements of contract
      disputes with purchasers of oil, gas or other hydrocarbons from the
      Properties, including settlement of take-or-pay disputes, insofar as
      said proceeds are attributable to periods of time prior to the Effective
      Date;
    

    
             (f)  Any and all proceeds from settlements with regard to
      reclassification of gas produced from the Properties, insofar as said
      proceeds are attributable to periods of time prior to the Effective Date;
    

    
             (g)  All claims (including insurance claims) and causes of action
      of Seller against one or more third parties arising from acts, omission
      or events occurring prior to the Effective Date and all claims under any
      joint interest audit attributable to any period prior to the Effective
      Date;

    

    
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             (h)  Any geological, geophysical or seismic data, materials or
      information, including maps, interpretations records or other technical
      information related to or based upon any such data, materials or
      information, and any other asset, data, materials or information, the
      transfer of which is restricted or prohibited under the terms of any
      third party license, confidentiality agreement or other agreement or the
      transfer of which would require the payment of a fee or other
      consideration to any third party; provided, however, that if any such
      data, materials or information is transferable upon payment of a fee or
      other consideration, and if Buyer has paid such fee or other
      consideration prior to the Closing Date, then such data, materials or
      information shall be transferred to Buyer;
    

    
      The properties and interests specified in the foregoing paragraphs (a)
      through (h) of this Section 1.2 are herein
      collectively called the "Excluded Assets".
    

    
      ARTICLE II  

PURCHASE PRICE
    

    
      Section 2.1.  Purchase Price.  
    

    

    

    
      The purchase price for the Properties is FIFTY-THREE MILLION, FOUR
      HUNDRED THOUSAND DOLLARS and NO/100 ($53,400,000.00) (the “Purchase
      Price”).  The Purchase Price, as adjusted pursuant to this Article II
      and the other applicable provisions hereof, is herein called the "Adjusted
      Purchase Price".   The Adjusted Purchase Price shall be paid by
      Buyer to Seller under the following terms:
    

    

    

    
      (i)       Sixty Percent (60%) of the Adjusted Purchase Price
      to be paid to Seller in cash at Closing;
    

    
      (ii)      The balance of the Adjusted Purchase Price shall be paid to
      Seller by Vanguard Natural Resources, LLC (“VNR”), the parent of Buyer,
      by the issuance of Common units representing LLC interests in VNR (“VNR
      Units”), such VNR Units to be issued on the Closing Date;
    

    
      (iii)     The VNR Units shall be issued based on Unit Closing Price;
    

    
      (iv)      The number of the VNR Units shall be determined by dividing
      that portion of the Adjusted Purchase Price payable in VNR Units by the
      Unit Closing Price; provided if the number so determined contains a
      fraction, such number shall be rounded upward to the nearest whole
      number; and
    

    
      (v)       Any adjustments to the Purchase Price shall be made on a
      proportionate basis between the cash portion of the Purchase Price to be
      paid on the Closing Date and the portion of the Purchase Price to be
      paid in VNR Units on the Closing Date.

    

    
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      The VNR Units will be issued subject to the terms and provisions of a
      Unit Restriction Agreement substantially in the form of the instrument
      attached hereto as Exhibit 2.1, to be executed by Seller and
      VNR at Closing.
    

    
      Section 2.2         Accounting
      Adjustments.
    

    
             (a)  Appropriate adjustments shall be made between Buyer and
      Seller so that (i) all expenses (including all drilling costs, all
      capital expenditures, and all overhead charges under applicable
      operating agreements, and all other overhead charges actually charged by
      third parties) which are incurred in the operation of the Properties
      after the Effective Date will be borne by Buyer, and all proceeds (net
      of applicable production, severance, and similar taxes) from the sale of
      oil, gas or other minerals produced from the Oil and Gas Properties
      after the Effective Date will be received by Buyer, and (ii) all
      expenses which are incurred in the operation of the Properties before
      the Effective Date will be borne by Seller and all proceeds (net of
      applicable production, severance, and similar taxes) from the sale of
      oil, gas or other minerals produced therefrom before the Effective Date
      will be received by Seller.  It is agreed that, in making such
      adjustments:  (i) oil which was produced from the Oil and Gas Properties
      and which was, on the Effective Date, stored in tanks located on the Oil
      and Gas Properties (or located elsewhere but used to store oil produced
      from the Oil and Gas Properties prior to delivery to oil purchasers) and
      above pipeline connections shall be deemed to have been produced before
      the Effective Date (it is recognized that such tanks were not gauged on
      the Effective Date for the purposes of this Agreement and that
      determination of the volume of such oil in storage will be based on the
      best available data, which may include estimates), (ii) ad valorem taxes
      assessed with respect to a period which the Effective Date splits shall
      be prorated based on the number of days in such period which fall on
      each side of the Effective Date (with the day on which the Effective
      Date falls being counted in the period after the Effective Date), such
      proration to be adjusted after Closing in the event actual ad valorem
      taxes are different than projected, with appropriate payments from
      Seller to Buyer or from Buyer to Seller, as the case may be,  and
      (iii) no consideration shall be given to the local, state or federal
      income tax liabilities of any party.
    

    
      Section 2.3.        Closing
      and Post-Closing Accounting Settlements.
    

    
      (a)       At or before Closing, the parties shall determine, based upon
      the best information reasonably available to them, the amount of the
      adjustments provided for in Section 2.2.  If the amount of
      adjustments so determined which would result in a credit to Buyer exceed
      the amount of adjustments so determined which would result in a credit
      to Seller, Buyer shall receive a credit, for the amount of such excess,
      against the Purchase Price to be paid at Closing, and, if the converse
      is true, Buyer shall pay to Seller, at Closing (in addition to amounts
      otherwise then owed), the amount of such excess.
    

    
      (b)       Operating revenues and expenses shall be settled after Closing
      and paid in the same manner applicable to operating revenues and
      expenses as provided in the Operating Agreement attached as Exhibit
      7.10.
    

    
      (c)       On or before 90 days after Closing, Buyer and Seller shall
      review any additional information which may then be available pertaining
      to the adjustments provided for in Section 2.2, shall
      determine if any additional adjustments (whether the same be made to
      account for expenses or revenues not considered in making the
      adjustments made at Closing, or to correct errors made in such
      adjustments) should be made beyond those made at Closing, and shall make
      any such adjustments by appropriate payments from Seller to Buyer or
      from Buyer to Seller in cash.  Following such additional adjustments, no
      further adjustments shall be made under this Section 2.3,
      except that, any adjustments to the proration of ad valorem taxes used
      at Closing shall be made after such 90 day period promptly following
      such time as the actual ad valorem taxes become known.
    

    
      

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      Section 2.4.        Payment
      of Adjusted Purchase Price.  The Adjusted Purchase
      Price shall be paid to Seller as follows:
    

    
      (a)       At Closing, Buyer shall pay to Seller by bank transfer in
      immediately available funds to the account designated by Seller an
      amount equal to the cash portion of the Adjusted Purchase Price.
    

    
      (b)       Also at Closing, Buyer shall deliver to Seller completed
      transfer documents from VNR whereby Seller shall receive VNR units in an
      amount equal to the non-cash portion of the Adjusted Purchase Price.
    

    
      ARTICLE III  

THE CLOSING
    

    
      The closing of the transactions contemplated hereby (the "Closing")
      shall take place (i) at the offices of Seller, at 10:00 a.m. (local
      time) on July 28, 2008, or (ii) at such other time or place or on such
      other date as the parties hereto shall agree.  The date on which the
      Closing is required to take place is herein referred to as the "Closing
      Date".  All Closing transactions shall be deemed to have occurred
      simultaneously.
    

    
      ARTICLE IV  

REPRESENTATIONS AND
      WARRANTIES OF SELLER
    

    
      Except as provided in Seller's Disclosure Schedule, Seller hereby
      represents and warrants to Buyer on the date of Seller’s execution of
      this Agreement and on the Closing Date as follows:
    

    
      Section 4.1.  Organization and Existence.  Seller
      is a Texas Limited Partnership duly formed, validly existing, and in
      good standing under the laws of the State of Texas.  
    

    
      Section 4.2.  Power and Authority.  Seller
      has all requisite power and authority to execute, deliver, and perform
      this Agreement and each other agreement, instrument, or document
      executed or to be executed by Seller in connection with the transactions
      contemplated hereby to which it is a party and to consummate the
      transactions contemplated hereby and thereby.  The execution, delivery,
      and performance by Seller of this Agreement and each other agreement,
      instrument, or document executed or to be executed by Seller in
      connection with the transactions contemplated hereby to which it is a
      party, and the consummation by it of the transactions contemplated
      hereby and thereby, have been duly authorized by all necessary  action
      of Seller.
    

    
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      Section 4.3.  Valid and Binding Agreement.  This
      Agreement has been duly executed and delivered by Seller and
      constitutes, and each other agreement, instrument, or document executed
      or to be executed by Seller in connection with the transactions
      contemplated hereby to which it is a party has been, or when executed
      will be, duly executed and delivered by Seller and constitutes, or when
      executed and delivered will constitute, a valid and legally binding
      obligation of Seller, enforceable against it in accordance with their
      respective terms, except that such enforceability may be limited by
      (a) applicable bankruptcy, insolvency, reorganization, moratorium, and
      similar laws affecting creditors' rights generally and (b) equitable
      principles which may limit the availability of certain equitable
      remedies (such as specific performance) in certain instances.
    

    
      Section 4.4.  Non-Contravention.  Other
      than requirements (if any) that there be obtained consents to assignment
      (or waivers of preferential rights to purchase) from third parties,
      neither the execution, delivery, and performance by Seller of this
      Agreement and each other agreement, instrument, or document executed or
      to be executed by Seller in connection with the transactions
      contemplated hereby to which it is a party nor the consummation by it of
      the transactions contemplated hereby and thereby do and will
      (a) conflict with or result in a violation of any provision of the
      charter, bylaws or other governing instruments of Seller, (b) conflict
      with or result in a violation of any provision of, or constitute (with
      or without the giving of notice or the passage of time or both) a
      default under, or give rise (with or without the giving of notice or the
      passage of time or both) to any right of termination, cancellation, or
      acceleration under, any bond, debenture, note, mortgage or indenture, or
      any material lease, contract, agreement, or other instrument or
      obligation to which Seller is a party or by which Seller or any of its
      properties may be bound, (c) result in the creation or imposition of any
      lien or other encumbrance upon the properties of Seller, or (d) violate
      any Applicable Law binding upon Seller, except, in the instance of clause (b)
      or clause (d) above, for any such conflicts, violations,
      defaults, terminations, cancellations or accelerations which would not,
      individually or in the aggregate, have a Material Adverse Effect.
    

    
      Section 4.5.  Approvals.  Other than
      requirements (if any) that there be obtained consents to assignment (or
      waivers of preferential rights to purchase) from third parties, no
      consent, approval, order, or authorization of, or declaration, filing,
      or registration with, any court or governmental agency or of any third
      party is required to be obtained or made by Seller in connection with
      the execution, delivery, or performance by Seller of this Agreement,
      each other agreement, instrument, or document executed or to be executed
      by Seller in connection with the transactions contemplated hereby to
      which it is a party or the consummation by it of the transactions
      contemplated hereby and thereby, except for such consents, approvals,
      orders, authorizations, declarations, filings or registrations which, if
      not obtained or made (as applicable), would not, individually or in the
      aggregate, have a Material Adverse Effect.
    

    
      Section 4.6.  Pending Litigation.  There
      are no Proceedings pending or, to Seller's Knowledge, threatened against
      or affecting Seller or the Properties (including any actions challenging
      or pertaining to Seller's title to any of the Properties), or affecting
      the execution and delivery of this Agreement by Seller or the
      consummation of the transactions contemplated hereby by Seller.  
    

    
      Section 4.7.  Basic Documents.  The oil,
      gas and/or mineral leases, Seller's interests in which comprise parts of
      the Oil and Gas Properties, and all other material contracts and
      agreements, licenses, permits and easements, rights-of-way and other
      rights-of-surface use comprising any part of or otherwise relating to
      the Properties (such leases and such material contracts, agreements,
      licenses, permits, easements, rights-of-way and other rights-of-surface
      use being herein called the "Basic Documents"), are in all
      material respects in full force and effect and constitute valid and
      binding obligations of the parties thereto.  Seller is not in breach or
      default (and no situation exists which with the passing of time or
      giving of notice would create a breach or default) of its obligations
      under the Basic Documents, and (to the best of Seller's knowledge) no
      breach or default by any third party (or situation which with the
      passage of time or giving of notice would create a breach or default)
      exists, to the extent such breach or default (whether by Seller or such
      a third party) could reasonably be expected to materially adversely
      affect the ownership, operation, value or use of any Oil and Gas
      Property after the Effective Date.  All payments (including all delay
      rentals, royalties, shut-in royalties and valid calls for payment or
      prepayment under operating agreements) owing under Basic Documents have
      been and are being made (timely, and before the same became delinquent)
      by Seller (and, where the non-payment of same by a third party could
      materially adversely affect the ownership, operation, value or use of an
      Oil and Gas Property after the Effective Date, have been and are being
      made, to Seller's Knowledge, by such third parties).  Schedule 4.7 of
      the Seller Disclosure Schedule is a list of all material contracts and
      agreements to which any of the Oil and Gas Properties are bound,
      including (a) joint operating agreements, (b) agreements with any
      Affiliate of Seller, (c) any Production Sales Contracts, (d) any
      agreement of Seller to sell, lease, farmout or otherwise dispose of any
      of its interests in the Oil and Gas Properties other than conventional
      rights of reassignment, (e) gas balancing agreements, (f) exploration
      agreements, (g) pooling, unitization or communitization agreement,
      (h) area of mutual interest agreements, (i) Hedges and (j) agreements
      containing seismic licenses, permits and other rights to geological or
      geophysical data and information directly or indirectly relating to the
      Oil and Gas Properties.
    

    
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      Section 4.8.  Commitments, Abandonments or
      Proposals.  Except as set forth in Schedule 4.8 of the Seller
      Disclosure Schedule:  (a) Seller has incurred no expenses, and has made
      no commitments to make expenditures in connection with the ownership or
      operation of the Properties after the Effective Date, other than routine
      expenses incurred in the normal operation of existing wells on the Oil
      and Gas Properties in accordance with generally accepted practices in
      the oil and gas industry; (b) Seller has not abandoned any wells (or
      removed any material items of equipment, except those replaced by items
      of materially equal suitability and value) on the Oil and Gas Properties
      since the Effective Date; and (c) no proposals are currently outstanding
      (whether made by Seller or by any other party) to drill additional
      wells, or to deepen, plug back, or rework existing wells, or to conduct
      other operations for which consent is required under the applicable
      operating agreement, or to conduct any other operations other than
      normal operation of existing wells on the Oil and Gas Properties, or to
      abandon any wells, on the Oil and Gas Properties.
    

    
      Section 4.9.  Production Sales Contracts.  There
      exist no agreements or arrangements for the sale of Hydrocarbons from
      the Oil and Gas Properties (including calls on, or other rights to
      purchase, production, whether or not the same are currently being
      exercised) other than (a) production sales contracts (in this Section,
      the "Scheduled Production Sales Contracts") disclosed
      in Schedule 4.9 of the Seller Disclosure Schedule or (b) agreements or
      arrangements which are cancelable on 90 days notice or less without
      penalty or detriment.  Seller is presently receiving a price for all
      production from (or attributable to) each Oil and Gas Property covered
      by a Scheduled Production Sales Contract as computed in accordance with
      the terms of such contract, and is not having deliveries of gas from any
      Oil and Gas Property subject to a Scheduled Production Sale Contract
      curtailed substantially below such property's delivery capacity.
    

    
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      Section 4.10.  Plugging and Abandonment.  Except
      for wells listed in Schedule 4.10 of the Seller Disclosure Schedule,
      there are no dry holes, or shut in or otherwise inactive wells, drilled
      by Seller, or to Seller’s Knowledge, any other party, located on the Oil
      and Gas Properties or on lands pooled or unitized therewith, except for
      wells that have been plugged and abandoned, and except for wells drilled
      to depths not included within the Oil and Gas Properties or within units
      in which the Oil and Gas Properties participate which have never been
      completed in such depths.
    

    
      Section 4.11.  Permits.  Seller has all
      Permits necessary or appropriate to own and operate the Properties as
      presently being owned and operated, except for such Permits the absence
      of which would not be reasonably expected to have a Material Adverse
      Effect, and such Permits are in full force and effect (and are
      transferable to Buyer or are subject to being routinely replaced by a
      license or permit issued to Buyer as a successor owner of the
      Properties).  Except as set forth in Schedule 4.11 of the Seller
      Disclosure Schedule, Seller has not received written notice of any
      violations in respect of any Permits and, to Seller's Knowledge, there
      are no violations in respect of any Permit and no one has communicated
      to Seller that there are any violations in respect of any Permit, except
      for such violations which would not reasonably be expected to have a
      Material Adverse Effect.
    

    
      Section 4.12.  Payment of Expenses.  All
      expenses (including all bills for labor, materials and supplies used or
      furnished for use in connection with the Properties, and all severance,
      production, ad valorem and other similar taxes) relating to the
      ownership or operation of the Properties, have been, and are being, paid
      (timely, and before the same become delinquent) by Seller, except such
      expenses and taxes as are disputed in good faith by Seller and for which
      an adequate accounting reserve has been established by Seller.  Seller
      is not delinquent with respect to its obligations to bear costs and
      expenses relating to the development and operation of the Oil and Gas
      Properties.
    

    
      Section 4.13.  Compliance with Laws.  The
      ownership and operation of the Properties have been in compliance with
      all Applicable Laws, except for such non-compliance which, individually
      or in the aggregate, would not reasonably be expected to have a Material
      Adverse Effect.  Without limiting the foregoing, all wells on the Oil
      and Gas Properties have been located, drilled and completed in material
      compliance with all Applicable Laws relating thereto.
    

    
      Section 4.14.  Environmental Matters.
    

    
             (a)  Seller, and to Seller’s Knowledge, all prior owners of the
      Properties, have  operated the Properties in compliance with
      Environmental Laws, except for such non-compliance which, individually
      or in the aggregate, would not reasonably be expected to have a Material
      Adverse Effect.
    

    
             (b)  To Seller’s Knowledge, there are no liabilities,
      responsibilities, claims, suits, losses, costs (including remedial,
      removal, response, abatement, clean-up, investigative, or monitoring
      costs and any other related costs and expenses), other causes of action,
      damages, settlements, expenses, charges, assessments, liens, penalties,
      fines, pre-judgment and post-judgment interest, attorneys' fees and
      other legal fees attributable to the period of Seller’s ownership of the
      Properties, or to Seller’s Knowledge, attributable to the period
      preceding Seller’s ownership of the Properties (i) pursuant to any
      agreement, order, notice, or responsibility, directive (including
      directives embodied in Environmental Laws), injunction, judgment, or
      similar documents (including settlements), arising out of or in
      connection with any Environmental Laws, or (ii) pursuant to any claim by
      a Governmental Entity or other Person for personal injury, property
      damage, damage to natural resources, remediation, or payment or
      reimbursement of response costs incurred or expended by the governmental
      authority or person pursuant to common law or statute (collectively "Environmental
      Liabilities") pending or, to Seller's Knowledge, threatened by or
      before any Governmental Entity directed against Seller relating to the
      development or operation of the Properties that pertain or relate to
      (A) any remedial obligations under any applicable Environmental Law,
      (B) violations by Seller of any Environmental Law, (C) personal injury
      or property damage claims relating to a release of Environmental
      Contaminants, or (D) response, removal, or remedial costs under CERCLA,
      RCRA or any similar state laws.
    

    
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             (c)  To Seller’s Knowledge, all Environmental Permits required
      under Environmental Laws that are necessary to the operation of the
      Properties by Seller have been obtained and are in full force and effect
      and Seller is unaware of any basis for revocation or suspension of any
      such environmental permits.
    

    
             (d)  To Seller’s Knowledge there has been no disposal or release
      of any Environmental Contaminants on, at, or under the Oil and Gas
      Properties by Seller, or  any other party, except in compliance with
      Environmental Laws.
    

    
             (e)  To Seller’s Knowledge, there are no written notices of
      violation, non-compliance, or similar notifications relating to
      Environmental Liabilities currently pending or threatened, relating or
      pertaining to the Properties.
    

    
      Section 4.15.  Imbalances; Prepayments.  All
      proceeds from the sale of Hydrocarbons attributable to the Oil and Gas
      Properties are currently being paid in full and as of the Closing Date
      no imbalances exist between Seller and the third party purchasers of the
      Hydrocarbons.  Seller is not obligated by virtue of a take or pay
      payment, advance payment or other similar payment (other than royalties,
      overriding royalties and similar arrangements), to deliver Hydrocarbons,
      or proceeds from the sale thereof, attributable to the Oil and Gas
      Properties at some future time without receiving payment therefor at or
      after the time of delivery.
    

    
      Section 4.16.  State of Repair.  All
      wells, wellhead equipment, pumping units, flowlines, tanks, buildings,
      injection facilities, saltwater disposal facilities, compression
      facilities, gathering systems, fixtures and equipment that are necessary
      to conduct normal operations on the Oil and Gas Properties are in good
      working condition, reasonable wear and tear excepted and are being
      maintained in a state adequate to conduct normal operations, except for
      such conditions which, individually or in the aggregate, would not be
      reasonably expected to have a Material Adverse Effect.
    

    
      Section 4.17.  Intellectual Property. Seller
      owns or has valid licenses or other rights to use all patents,
      copyrights, trademarks, software, databases, geological data,
      geophysical data, engineering data, maps, interpretations and other
      technical information used in connection with its ownership and
      operation of the Oil and Gas Properties as presently conducted, subject
      to the limitations contained in the agreements governing the use of the
      same, which limitations are customary for companies engaged in the
      business of the exploration and production of Hydrocarbons.
    

    
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      Section 4.18.  Taxes.
    

    
             (a)  All ad valorem and severance taxes due and payable for the
      Properties through the year 2007 have been paid.
    

    
             (b)  With respect to all Taxes related to the Properties, (i) all
      reports, returns, statements (including estimated reports, returns or
      statements), and other similar filings (the "Tax Returns")
      relating to the Properties required to be filed on or before the date
      hereof by Seller with respect to any Taxes for any period ending on or
      before the date hereof have been timely filed with the appropriate
      Governmental Entity, (ii) such Tax Returns are true and correct in all
      material respects, and (iii) all Taxes reported on such Tax Returns have
      been paid, except those being contested in good faith.
    

    
             (c)  With respect to all Taxes related to the Properties
      (i) there are not currently in effect any extension or waiver by Seller
      of any statute of limitations of any jurisdiction regarding the
      assessment or collection of any Tax related to the Properties and
      (ii) there are no administrative proceedings or lawsuits pending against
      the Properties or Seller with respect to the Properties by any taxing
      authority.
    

    
             (d)  None of the Properties were bound as of the Effective Date
      or will be bound following the Closing by any tax partnership agreement
      binding upon Seller.
    

    
      Section 4.19.  Fees and Commissions.  No
      broker, investment banker, financial advisor or other Person is entitled
      to any broker's, finder's, financial advisor's or other similar fee or
      commission in connection with the transactions contemplated by this
      Agreement based upon arrangements made by or on behalf of Seller.
    

    
      Section 4.20.  Disclaimer of Warranties.  Other
      than those expressly set out in this Article IV or in the
      Conveyance, Seller hereby expressly disclaims any and all
      representations or warranties with respect to the Properties or the
      transaction contemplated hereby, and Buyer agrees that the Properties
      are being sold by Seller "where is" and "as is", with all
      faults.  Specifically as a part of (but not in limitation of) the
      foregoing, Buyer acknowledges that Seller has not made, and Seller
      hereby expressly disclaims, any representation or warranty (express,
      implied, under common law, by statute or otherwise) as to the condition
      of the Properties (INCLUDING SELLER DISCLAIMS ANY IMPLIED OR EXPRESS
      WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
      CONFORMITY TO MODELS OR SAMPLES OF MATERIALS).
    

    
      Section 4.21. Investment Representations.
    

    
      The Seller (i) understands that the VNR Units have not been registered
      under the Securities Act; (ii) understands that the VNR Units are being
      issued pursuant to an exemption from registration contained in the
      Securities Act based in part upon its representations contained in this
      Agreement; and (iii) hereby represents and warrants as follows:
    

    
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      (a) The Seller has substantial experience in evaluating and investing in
      securities issued by companies similar to VNR so that it is capable of
      evaluating the merits and risks of its investment in VNR and has the
      capacity to protect its own interests. The Seller must bear the economic
      risk of this investment indefinitely unless the VNR Units are registered
      pursuant to the Securities Act, or an exemption from registration is
      available. The Seller also understands that there is no assurance that
      any exemption from registration under the Securities Act will be
      available and that, even if available, such exemption may not allow it
      to transfer all or any portion of the VNR Units under the circumstances,
      in the amounts or at the times it might propose.
    

    
      (b) The Seller is acquiring the VNR Units for its own account for
      investment only, and not with a view towards their distribution. The
      Seller is not an entity formed for the specific purpose of acquiring the
      VNR Units.
    

    
      (c) The Seller represents that by reason of its, or of its management’s,
      business or financial experience, it has the capacity to protect its own
      interests in connection with the transactions contemplated in this
      Agreement. Further, the Seller is aware of no publication of any
      advertisement in connection with the transactions contemplated in the
      Agreement.
    

    
      (d) The Seller represents that it is an Accredited Investor.
    

    
      (e) The Seller has read VNR’s financial statements and has had an
      opportunity to discuss VNR’s business, management and financial affairs
      with officers and management of VNR and has had the opportunity to
      review VNR’s operations and facilities.
    

    
      (f) The office or offices of the Seller in which its investment decision
      was made is located at the address or addresses of the Seller set forth
      in Section 12.2.
    

    
      THE SELLER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET
      FORTH IN ARTICLE V, NEITHER THE BUYER, VNR NOR ANY OF THEIR RESPECTIVE
      AFFILIATES, NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS,
      MEMBERS OR EMPLOYEES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
      IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE BUYER, VNR OR THEIR
      RESPECTIVE SUBSIDIARIES, OR ANY OF THEIR RESPECTIVE ASSETS, LIABILITIES
      OR OPERATIONS.
    

    
      ARTICLE V  

REPRESENTATIONS AND
      WARRANTIES OF BUYER
    

    
      Buyer hereby represents and warrants to Seller on the date of Buyer’s
      execution of this Agreement and on the Closing Date as follows:
    

    
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      Section 5.1.  Organization and Existence.  Buyer
      is a Delaware limited liability company duly organized, legally existing
      and in good standing under the laws of the State of Delaware.
    

    
      Section 5.2.  Power and Authority.  Buyer
      has full company power and authority to execute, deliver, and perform
      this Agreement and each other agreement, instrument, or document
      executed or to be executed by Buyer in connection with the transactions
      contemplated hereby to which it is a party and to consummate the
      transactions contemplated hereby and thereby.  The execution, delivery,
      and performance by Buyer of this Agreement and each other agreement,
      instrument, or document executed or to be executed by Buyer in
      connection with the transactions contemplated hereby to which it is a
      party, and the consummation by it of the transactions contemplated
      hereby and thereby, have been duly authorized by all necessary company
      action of Buyer.
    

    
      Section 5.3.  Valid and Binding Agreement.  This
      Agreement has been duly executed and delivered by Buyer and constitutes,
      and each other agreement, instrument, or document executed or to be
      executed by Buyer in connection with the transactions contemplated
      hereby to which it is a party has been, or when executed will be, duly
      executed and delivered by Buyer and constitutes, or when executed and
      delivered will constitute, a valid and legally binding obligation of
      Buyer, enforceable against it in accordance with their respective terms,
      except that such enforceability may be limited by (a) applicable
      bankruptcy, insolvency, reorganization, moratorium, and similar laws
      affecting creditors' rights generally and (b) equitable principles which
      may limit the availability of certain equitable remedies (such as
      specific performance) in certain instances.
    

    
      Section 5.4.  Non-Contravention.  The
      execution, delivery, and performance by Buyer of this Agreement and each
      other agreement, instrument, or document executed or to be executed by
      Buyer in connection with the transactions contemplated hereby to which
      it is a party and the consummation by it of the transactions
      contemplated hereby and thereby do not and will not (a) conflict with or
      result in a violation of any provision of the membership agreement or
      other governing instruments of Buyer, (b) conflict with or result in a
      violation of any provision of, or constitute (with or without the giving
      of notice or the passage of time or both) a default under, or give rise
      (with or without the giving of notice or the passage of time or both) to
      any right of termination, cancellation, or acceleration under, any bond,
      debenture, note, mortgage, indenture, lease, contract, agreement, or
      other instrument or obligation to which Buyer is a party or by which
      Buyer or any of its properties may be bound, (c) result in the creation
      or imposition of any lien or other encumbrance upon the properties of
      Buyer, or (d) violate any Applicable Law binding upon Buyer.
    

    
      Section 5.5.  Approvals.  No consent,
      approval, order, or authorization of, or declaration, filing, or
      registration with, any court or governmental agency or of any third
      party is required to be obtained or made by Buyer in connection with the
      execution, delivery, or performance by Buyer of this Agreement and each
      other agreement, instrument, or document executed or to be executed by
      Buyer in connection with the transactions contemplated hereby to which
      it is a party or the consummation by it of the transactions contemplated
      hereby and thereby.
    

    
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      Section 5.6.  Pending Litigation.  There
      are no Proceedings pending or, to Buyer's Knowledge, threatened against
      or affecting the execution and delivery of this Agreement by Buyer or
      the consummation of the transactions contemplated hereby by Buyer.
    

    
      Section 5.7.  Knowledgeable Purchaser.  Buyer
      is a knowledgeable purchaser, owner and operator of oil and gas
      properties, has the ability to evaluate (and in fact has evaluated) the
      Properties for purchase, and is acquiring the Properties for its own
      account and not with the intent to make a distribution within the
      meaning of the Securities Act (and the rules and regulations pertaining
      thereto) or a distribution thereof in violation of any other applicable
      securities laws.  
    

    
      Section 5.8.  Fees and Commissions.  No
      broker, investment banker, financial advisor or other Person is entitled
      to any broker's, finder's, financial advisor's or other similar fee or
      commission in connection with the transactions contemplated by this
      Agreement based upon arrangements made by or on behalf of Buyer.
    

    
      ARTICLE VI  

CERTAIN COVENANTS OF
      SELLER PENDING CLOSING
    

    
      Section 6.1.  Access to Files.  From the
      date hereof until Closing, Seller will give Buyer, and its attorneys and
      other representatives, access at all reasonable times to the Properties
      and to any contract files, lease or other title files, production files,
      well files, accounting records and other files of Seller pertaining to
      the ownership and/or operation of the Properties, and Seller will use
      its reasonable best efforts to arrange for Buyer, and its attorneys and
      other representatives, to have access to any such files in the office of
      Seller.  Seller shall not be obligated to provide Buyer with access to
      any records or data which Seller cannot provide to Buyer without, in its
      opinion, breaching confidentiality agreements with other parties.  All
      information obtained by Buyer shall be maintained in strict confidence,
      for use solely in connection with its evaluation of the Properties, and
      shall not be disclosed to any other party without Seller's prior written
      consent.
    

    
      Section 6.2.  Conduct of Operations.  Seller
      will (i) continue the routine operation of the Properties in the
      ordinary course of business and as would a prudent operator;
      (ii) operate the Properties in material compliance with all Applicable
      Laws and Environmental Laws, in compliance with all oil, gas or mineral
      leases, and in material compliance with all Basic Documents other than
      such leases; and (iii) fulfill all obligations (including all
      obligations to make payments under leases or other Basic Documents)
      under such leases, and under such other Basic Documents and, in all
      material respects, under such Applicable Laws and Environmental
      Laws.  Without limitation of the foregoing, the failure to perform an
      obligation, when such failure could result in forfeiture or termination
      of rights of Seller under a Basic Document, shall be considered material
      for purposes hereof.
    

    
      Section 6.3.  Restrictions on Certain Actions.  Seller
      will not, without Buyer's prior consent:
    

    
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             (a)  except as described on Schedule 6.3 of the Seller’s
      Disclosure Schedule, expend any funds in excess of twenty five
      thousand dollars ($25,000), or make any commitments to expend funds
      (including entering into new agreements which would obligate Seller to
      expend funds in excess of $25,000), or otherwise incur any other
      obligations or liabilities, in connection with the ownership or
      operation of the Properties after the Effective Date, other than routine
      expenses incurred in the normal operation of the existing wells on the
      Oil and Gas Properties and except in the event of an emergency requiring
      immediate action to protect life or preserve the Properties;
    

    
             (b)  except where necessary to prevent the termination of an oil
      and gas lease or other material agreement governing Seller's interest in
      the Properties, propose the drilling of any additional wells, or propose
      the deepening, plugging back or reworking of any existing wells, or
      propose the conducting of any other operations which require consent
      under the applicable operating agreement, or propose the conducting of
      any other operations other than the normal operation of the existing
      wells on the Oil and Gas Properties, or propose the abandonment of any
      wells on the Oil and Gas Properties (and Seller agrees that it will
      advise Buyer of any such proposals made by third parties and will
      respond to each such proposal made by a third party in the manner
      requested by Buyer);
    

    
             (c)  sell, transfer or abandon any portion of the Properties
      other than items of materials, supplies, machinery, equipment,
      improvements or other personal property or fixtures forming a part of
      the Properties (and then only if the same is replaced with an item of
      substantially equal suitability, free of liens and security interests,
      which replacement item will then, for the purposes of this Agreement,
      become part of the Properties); or
    

    
             (d)  release (or permit to terminate), or modify or reduce its
      rights under, any oil, gas or mineral lease forming a part of the Oil
      and Gas Properties, or any other Basic Document, or enter into any new
      agreements which would be Basic Documents, or modify any existing
      production sales contracts or enter into any new production sales
      contracts, except contracts terminable by Seller with notice of 60 days
      or less.
    

    
      Section 6.4.  Payment of Expenses.  Seller
      will cause all expenses (including all bills for labor, materials and
      supplies used or furnished for use in connection with the Properties and
      all severance, production, and similar taxes) relating to the ownership
      or operation of the Properties prior to the date of Closing to be
      promptly paid and discharged, except for expenses disputed in good faith.
    

    
      Section 6.5.  Preferential Rights and Third Party
      Consents.  Seller will request, from the
      appropriate parties (and in accordance with the documents creating such
      rights and/or requirements), waivers of the preferential rights to
      purchase, or requirements that consent to assignment be obtained, which
      are identified in Section 6.5 of the Seller Disclosure Schedule.  Seller
      shall have no obligation hereunder other than to so request such waivers
      (i.e., Seller shall have no obligation to assure that such
      waivers are obtained), and if all such waivers (or any other waivers of
      preferential rights to purchase or requirements that consent be obtained
      to assignment, even if the same are not listed on such Section 6.5) are
      not obtained, Buyer may treat any waiver which is not obtained as a
      matter which causes Seller's title to not be sufficient to meet the
      standards set forth in Article VIII; provided, however, that
      if the unobtained waiver is a waiver of a preferential right to
      purchase, and if both Buyer and Seller agree to this treatment of such
      matter (and agree upon an appropriate allocation of the Purchase Price),
      Seller will tender (at the agreed allocated portion of the Purchase
      Price) the required interest in the Property affected by such unwaived
      preferential right to purchase to the holder, or holders, of such right
      who have elected not to waive such preferential right to purchase, and
      if, and to the extent that, such preferential right to purchase is
      exercised by such party or parties, such interest in such Property will
      be excluded from the transaction contemplated hereby and the Purchase
      Price will be reduced by the amount paid, or to be paid, by the party
      exercising such preferential right to purchase (and Seller shall collect
      such amount from such purchaser).
    

    
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      Section 6.6.  Exclusive Negotiations.  In
      consideration of the time, expense and effort to be expended by Buyer in
      connection with the transactions contemplated hereby, Seller will not,
      and will use its Reasonable Best Efforts to insure that its Affiliates
      and representatives do not, directly or indirectly, solicit any offer
      from, initiate or engage in any discussions or negotiations with, or
      provide any information to, any Person (other than Buyer, its Affiliates
      and representatives) concerning any possible proposal regarding a
      transaction involving the Properties.  Seller shall promptly advise
      Buyer orally and in writing of any inquiry or proposal by a third party
      regarding such a transaction.
    

    

    

    
      ARTICLE VII  

ADDITIONAL AGREEMENTS OF
      THE PARTIES
    

    
      Section 7.1.  Reasonable Best Efforts.  Each
      party hereto agrees that it will not voluntarily undertake any course of
      action inconsistent with the provisions or intent of this Agreement and
      will use its Reasonable Best Efforts to take, or cause to be taken, all
      action and to do, or cause to be done, all things reasonably necessary,
      proper, or advisable under Applicable Laws to consummate the
      transactions contemplated by this Agreement, including (i) cooperation
      in determining whether any consents, approvals, orders, authorizations,
      waivers, declarations, filings, or registrations of or with any
      Governmental Entity or third party are required in connection with the
      consummation of the transactions contemplated hereby; (ii) Reasonable
      Best Efforts to obtain any such consents approvals, orders,
      authorizations, and waivers and to effect any such declarations,
      filings, and registrations; (iii) Reasonable Best Efforts to cause to be
      lifted or rescinded any injunction or restraining order or other order
      adversely affecting the ability of the parties to consummate the
      transactions contemplated hereby; (iv) Reasonable Best Efforts to
      defend, and cooperation in defending, all Proceedings challenging this
      Agreement or the consummation of the transactions contemplated hereby;
      and (v) the execution of any additional instruments necessary to
      consummate the transactions contemplated hereby.
    

    
      Section 7.2.  Notice of Litigation.  Until
      the Closing, (i) Buyer, upon learning of the same, shall promptly notify
      Seller of any Proceeding which is commenced or threatened against Buyer
      and which affects this Agreement or the transactions contemplated hereby
      and (ii)  Seller, upon learning of the same, shall promptly notify Buyer
      of any Proceeding which is commenced or threatened against Seller which
      affects this Agreement or the transactions contemplated hereby.
    

    
      Section 7.3.  Notification of Certain Matters.  Seller
      shall give prompt notice to Buyer of:  (i) the occurrence or
      nonoccurrence of any event the occurrence or nonoccurrence of which
      would be likely to cause any representation or warranty made by Seller
      in Article III to be untrue or inaccurate at or prior to the
      Closing and (ii) any failure of Seller to comply with or satisfy any
      covenant, condition, or agreement to be complied with or satisfied by
      Seller hereunder prior to Closing.  Buyer shall give prompt notice to
      Seller of:  (i) the occurrence or nonoccurrence of any event the
      occurrence or nonoccurrence of which would be likely to cause any
      representation or warranty contained in Article VI to be
      untrue or inaccurate at or prior to the Closing, and (ii) any failure of
      Buyer to comply with or satisfy any covenant, condition, or agreement to
      be complied with or satisfied by Buyer hereunder prior to Closing.  The
      delivery of any notice pursuant to this Section shall not be deemed
      to:  (x) modify the representations or warranties hereunder of the party
      delivering such notice, (y) modify the conditions set forth in Article X
      or (z) limit or otherwise affect the remedies available hereunder to the
      party receiving such notice.
    

    
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      Section 7.4.  Fees and Expenses.  All
      fee and expenses incurred in connection with this Agreement by Seller
      will be borne by and paid by Seller.  All fees and expenses incurred in
      connection with this Agreement by Buyer will be borne by and paid by
      Buyer.
    

    
      Section 7.5.  Public Announcement.   After
      the execution of this Agreement, Seller and Buyer shall issue the press
      release attached hereto as Exhibit 7.5.
    

    
      Section 7.6.  Casualty Loss Prior to Closing.  In
      the event of damage by fire or other casualty to the Properties after
      the Effective Date and prior to the Closing, then this Agreement shall
      remain in full force and effect, and (unless Buyer and Seller shall
      otherwise agree) in such event
    

    
             (a)  as to each such Property so damaged which is an Oil and Gas
      Property, the parties shall mutually agree on a Purchase Price
      adjustment unless  Seller should be entitled to make any claims under
      any insurance policy with respect to such damage, in which case Seller
      shall, at Seller's election, either collect (and when collected pay over
      to Buyer), or assign to Buyer, such claims, and
    

    
             (b)  as to each such Property which is other than an Oil and Gas
      Property, Seller shall, at Seller's election, either collect (and when
      collected pay over to Buyer), or assign to Buyer, any and all insurance
      claims relating to such loss, and Buyer shall take title to the Property
      affected by such loss without reduction of the Purchase Price.
    

    
      Section 7.7.  Books and Records.  At or
      promptly after Closing (but in any event within five Business Days after
      the Closing), Seller shall make available for copying  all books and
      records pertaining to the Properties that are in Seller's possession or
      control.
    

    
      Section 7.8.  Further Assurances.  After
      the Closing, Buyer and Seller shall execute and deliver, and shall
      otherwise cause to be executed and delivered, from time to time, such
      further instruments, notices, division orders, transfer orders and other
      documents, and do such other and further acts and things, as may be
      reasonably necessary to more fully and effectively grant, convey and
      assign the Properties to Buyer.
    

    
      Section 7.9.  Hedges.
    

    
      Seller arranged for a financial hedge as more fully described on Schedule
      7.9.1 of Seller’s Disclosure Schedule of production from the Oil and
      Gas Properties commencing on July 1, 2008 (the “Hedge”).  At Closing,
      Seller shall assign, and Buyer shall cause Buyer to assume, the Hedge by
      having Buyer execute a Novation Agreement in the form of such Novation
      Agreement attached hereto as set forth in Schedule 7.9.2 of
      Seller' Disclosure Schedule.  The “Novation Date”, as such term is used
      herein (and as such term is used in the relevant documents comprising
      and governing the novation of the Hedge) shall be the date upon which
      Closing occurs.
    

    
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      Section 7.10.       Operation
      of the Assets Post Closing.  
    

    
      At the Closing, the Parties agree to enter into  mutually agreeable
      Operating Agreements affecting the Oil and Gas Properties on the agreed
      AAPL Form (Exhibit 7.10) containing the following provisions, among
      others:
    

    	
        Lewis Petro Properties, Inc. (“LPP”) will be the Operator of the Oil
        and Gas Properties, however in the event that Seller (or its
        affiliate) sells more than fifty percent (50%) of its interest in the
        Oil and Gas Properties to a non-affiliated third party or parties,
        Buyer shall have the right to take over operations effective as of the
        date of the sale.
      
	
        LPP shall propose the drilling of 6 wells in 2008 and 7 wells per year
        (beginning in 2009) through 2013. No more than 1 well shall be
        drilling at any time without the mutual consent of both parties
      
	
        Should LPP fail to propose said wells, Buyer shall have the right to
        propose same.
      
	
        In the event a well is proposed and a party elects not to participate
        in said well, then, provided the well is drilled timely, the
        non-consenting party shall assign to the consenting party all of its
        right, title and interest in the well and in the 40 acres of leasehold
        around such well.
      
	
        LPP shall serve as the marketing representative for Buyer for the sale
        of its natural gas, oil/condensate, NGL’s from processing and Buyer
        shall be entitled to the same benefits of pricing and other terms as
        if Buyer had been a signatory to said contracts. LPP shall make
        disbursement of revenues to Buyer within five (5) days after receipt
        of corresponding revenues but no later than thirty (30) days following
        the end of the calendar month in which production occurs.
      
	
        A right of first refusal to acquire any interest subject to the
        Operating Agreement and being sold by a party.
      
	
        In the accounting procedure to be included in the Operating Agreement,
        the Operator shall be entitled to the following fees for providing
        services to Buyer, proportionately reduced to Buyer’s interest:

        	
            Operating/Gauging Fee: $505.00 per month per producing well (with
            a 4% per year escalator commencing on June 1, 2011)
          

      
	
        As to the wellbores described on Exhibit I and for regulatory purposes
        only, Buyer shall have the right to use, designate and assign as much
        as forty acres around the borehole of each well for purposes of
        obtaining permits, assigning allowables and allocating allowable
        production. In the event the use, designation or assignment of such
        acreage would materially impede, impair or curtail the Operator’s
        rights to acquire drilling permits or to maximize allowables for wells
        drilled on the Properties, including wells the Parties may drill on
        acreage otherwise assigned to said well by Buyer, Buyer will take all
        commercially reasonable actions to designate and assign other acreage
        on the Properties to the borehole for the purposes described above.
        Seller will take all commercially reasonable actions to give effect to
        any designations and assignments made by Buyer as contemplated by this
        paragraph.
      

    
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        While Buyer will have the right to re-complete a well up the hole
        within the existing wellbore described in Exhibit I, Buyer is strictly
        prohibited from the following activities, without the consent of
        Seller:

        	
            Deepening an existing well;
          
	
            Moving down the well to perforate or stimulate;
          
	
            Drilling a horizontal lateral from the well.
          

      

    
      Section 7.11        Gates
      Production Company Participation.
    

    
      Subject to certain limitations, the parties recognize and agree that the
      Gates Production Company, Inc. (“Gates Production”) has a contractual
      right to participate and acquire a ten percent (10%) working interest in
      all wells to be drilled on lands covered by the Gates “N” Lease, which
      is more fully described on Exhibit II, attached hereto.  If Gates
      Production exercises its option to participate, then the ten percent
      (10%) working interest shall be derived from Seller’s retained
      fifty-five percent (55%) interest in the Gates ”N” Lease.  In the event
      that Gates Production elects not to participate in any given well
      drilled under the Gates “N” Lease (a “Non-Election Well”), then Buyer
      (except when Buyer is a non-consenting party) shall be obligated to
      acquire an additional five percent (5%) working interest equal to a
      3.75% net revenue interest in that Non-Election Well.  Buyer shall pay
      Seller $22,500 for leasehold costs associated with the additional 5%
      working interest in a Non-Election Well.  
    

    
      Further, Seller has the right, pursuant to an agreement with Gates
      Mineral Company, Ltd., (“Gates Mineral”) to drill up to two additional
      wells on the Gates “Amended-Consolidated” Lease (which is more fully
      described on Exhibit III) in lieu and satisfaction of Seller’s drilling
      obligation on a lease between Seller and Gates Mineral Company, Ltd.
      which is not a part of this transaction.  In the event Seller chooses to
      drill such obligation wells on the Gates “Amended-Consolidated” Lease,
      Gates will have the right to participate and acquire a ten percent (10%)
      working interest in such wells.  If Seller chooses to drill such
      obligation wells on the Gates “Amended-Consolidated” Lease and if Gates
      elects to participate for its ten percent (10%) share, then the ten
      percent 10% working interest shall be derived by deducting five percent
      (5%) from Buyer and five percent (5%) from Seller.  In such a case,
      Seller shall pay or credit Buyer in the amount of $22,500 for leasehold
      costs associated with the five percent (5%) working interest derived
      from Buyer.
    

    
      Section 7.12        Audit.
    

    
      Within 45 days after Closing, Seller shall cause its outside auditor to
      audit the revenues and direct operating expenses for the Oil and Gas
      Properties for the calendar year 2007.  Such outside auditor shall agree
      that said financial data and related audit opinion can be used by VNR in
      its public filings. The cost of preparing said audit shall be paid by
      Buyer.  Also, Seller will provide Buyer unaudited statement of revenues
      and direct operating expenses for the six months ended June 30, 2008 for
      the Oil and Gas Properties prepared on the same basis as the audited
      statement for 2007 and will assist Buyer in preparing the unaudited
      reserve disclosures as required by FASB 69.
    

    
      Section 7.13        Confidentiality.
    

    
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      The parties agree that the terms and conditions of this Agreement shall
      be treated as confidential as to third parties or disclosure to third
      parties concerning the Agreement without the prior written consent of
      the other, except as may be required by law or the rules of any stock
      exchange or securities market.  Notwithstanding anything herein to the
      contrary, the parties agree that Seller shall be allowed to disclose the
      terms and conditions of this Agreement to one or more Lessors for the
      purposes of obtaining consents to assign and/or addressing any rights of
      first refusal existing as of the date of this Agreement and (ii) VNR
      shall be allowed to file a Form 8-K and issue the press release attached
      as Exhibit 7.5in connection with the transactions contemplated by this
      Agreement and VNR shall be allowed to disclose the terms and conditions
      of this Agreement to its financing sources.
    

    
      Section 7.14.       Gathering
      Agreement.
    

    
                The parties agree that at the Closing they will enter into a
      Gathering Agreement in the form attached hereto as Exhibit 7.14.
    

    
      Section 7.15        Transfer
      Restrictions.
    

    
      (a)       The Seller understands that the VNR Units are being offered in
      a transaction not involving a public offering within the meaning of the
      Securities Act and that the offer and sale of the VNR Units has not been
      registered under the Securities Act and, unless so registered, the VNR
      Units may not be sold except as permitted in the following
      sentence.  The Seller agrees that, if in the future the Seller decides
      to offer, resell, pledge or otherwise transfer such VNR Units, such VNR
      Units may be offered, resold, pledged or otherwise transferred only
      (i) to VNR or a subsidiary thereof, (ii) pursuant to a registration
      statement that has been declared effective under the Securities Act, or
      (iii) pursuant to an available exemption from the registration
      requirements of the Securities Act, subject to compliance with any
      applicable securities laws of any jurisdiction.  The Seller understands
      that the transfer agent for the Common units representing limited
      liability interests in VNR will not be required to accept for
      registration or transfer any of the VNR Units acquired by the Seller
      hereunder, except upon presentation of evidence satisfactory to VNR and
      the transfer agent that the foregoing restrictions on transfer have been
      complied with.  The Seller acknowledges that VNR reserves the right
      prior to any offer, sale or other transfer of the VNR Units to require
      the delivery of an opinion of counsel, certifications and/or other
      information reasonably satisfactory to VNR.  The Seller agrees not to
      engage in hedging transactions with regard to the VNR Units unless in
      compliance with the Securities Act.
    

    
      (b)       Seller agrees to the imprinting, so long as is required by
      this Section 7.15(b), of the following legend on any certificate
      evidencing VNR Units:
    

    
      THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
      EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
      RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
      FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
      OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
      LAWS.  NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE PLEDGED IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
      ARRANGEMENT SECURED BY SUCH SECURITIES.

    

    
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      Certificates evidencing VNR Units shall not be required to contain such
      legend or any other legend following any sale of such VNR Units pursuant
      to an effective registration statement or Rule 144, or if such legend is
      not required under applicable requirements of the Securities Act
      (including judicial interpretations and pronouncements issued by the
      Staff of the Securities and Exchange Commission).
    

    
      (c)       Removal of Legend.  The
      Seller may request VNR to remove the legend described in Section 7.15(b)
      from the certificates evidencing the VNR Units by submitting to VNR such
      certificates, together with an opinion of counsel reasonably
      satisfactory to VNR to the effect that such legend is no longer required
      under the Securities Act or applicable state laws, as the case may be.
      VNR shall cooperate with the Seller to effect the removal of such legend.
    

    
                Section
      7.16        Development
      Leases Limited to Forty-One PUDs.
    

    
      Buyer and Seller hereby acknowledge and agree that development of the
      Leases collectively described on Exhibits II and III hereto (the
      “Development Leases”) shall be limited to no more than forty-one wells
      (PUDs).  The Buyer and Seller further agree that each producing well
      shall earn a 40 acre unit surrounding each said well under the
      Development Leases (unless a lesser unit is prescribed by the terms of
      the lease, in which case the retained unit size shall be reduced to the
      lesser size).  The Buyer and Seller shall mutually agree to the
      configuration of each retained unit.  If and when the forty-one PUDs
      have been drilled and if the Development Leases have not all terminated,
      then the Buyer agrees to assign any unearned acreage remaining in any of
      the Development Leases to Seller within 30 days of abandonment or
      completion of the 41st well.  Notwithstanding any term to the
      contrary, this Section 7.16 shall survive the Closing until the
      obligations set forth herein have been met or the Development Leases
      terminate, whichever is sooner.  
    

    

    

    
      ARTICLE VIII  

DUE DILIGENCE
      EXAMINATION
    

    
      Section 8.1.  Buyer Indemnification.
    

    
      BUYER HEREBY INDEMNIFIES AND SHALL DEFEND AND HOLD SELLER, AFFILIATES
      THEREOF, AND ITS AND THEIR RESPECTIVE OWNERS, OFFICERS, DIRECTORS,
      EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS
      HARMLESS FROM AND AGAINST ANY AND ALL OF THE FOLLOWING CLAIMS ARISING
      FROM BUYER'S INSPECTING AND OBSERVING THE PROPERTIES:  (I) CLAIMS FOR
      PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF BUYER, ITS CONTRACTORS,
      AGENTS, CONSULTANTS, AND REPRESENTATIVES, AND DAMAGE TO THE PROPERTY OF
      BUYER OR OTHERS ACTING ON BEHALF OF BUYER, EXCEPT FOR INJURIES OR DEATH
      CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER,
      AFFILIATES THEREOF OR ITS OR THEIR RESPECTIVE EMPLOYEES, CONTRACTORS,
      AGENTS, CONSULTANTS, OR REPRESENTATIVES; AND (II) CLAIMS FOR PERSONAL
      INJURIES TO OR DEATH OF EMPLOYEES OF SELLER OR THIRD PARTIES, AND DAMAGE
      TO THE PROPERTY OF SELLER OR THIRD PARTIES, TO THE EXTENT CAUSED BY THE
      NEGLIGENCE, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT OF BUYER.  TO THE
      EXTENT PROVIDED ABOVE, THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES
      INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM
      AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM
      THE CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR
      CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED
      PARTIES.  THE PARTIES HERETO AGREE THAT THE FOREGOING COMPLIES WITH THE
      EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
    

    
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      ARTICLE IX  

CONDITIONS
      PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
    

    
      Section 9.1.  Conditions Precedent to the Obligations of
      Buyer.  The obligations of Buyer under this Agreement are
      subject to each of the following conditions being met:
    

    
             (a)  Each and every representation of Seller under this Agreement
      shall be true and accurate in all material respects as of the date when
      made (except that where any statement in a representation and warranty
      expressly includes a standard of materiality, such statement shall be
      true and accurate in all respects giving effect to such standard) and
      shall be deemed to have been made again at and as of the time of Closing
      and shall at and as of such time of Closing be true and accurate in all
      material  respects (except that where any statement in a representation
      and warranty expressly includes a standard of materiality, such
      statement shall be true and accurate in all respects giving effect to
      such standard), except as to changes specifically contemplated by this
      Agreement or consented to by Buyer.
    

    
             (b)  Seller shall have performed and complied in all material
      respects with (or compliance therewith shall have been waived by Buyer)
      each and every covenant, agreement and condition required by this
      Agreement to be performed or complied with by Seller prior to or at the
      Closing.
    

    
             (c)  Seller shall have delivered a certificate executed by the
      president of Seller dated the Closing Date, representing and certifying
      in such detail as Buyer may reasonably request that the conditions set
      forth in subsections (a) and (b) above have been
      fulfilled.
    

    
             (d)  No Proceeding (excluding any Proceeding initiated by Buyer
      or any of its affiliates) shall, on the Closing Date, be pending or
      threatened before any Governmental Entity seeking to restrain, prohibit,
      or obtain damages or other relief in connection with the consummation of
      the transactions contemplated by this Agreement.
    

    
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             (e)  Buyer shall have received a release of any liens covering or
      affecting the Properties, executed in recordable form in form and
      substance agreeable to Buyer.
    

    
             (f)  Buyer shall have received conveyances of the Properties
      executed and delivered by Seller, which conveyances shall be
      substantially in the form of the instruments attached hereto as Exhibit 9.1(f)
      in all material respects (collectively the "Conveyance").
    

    
             (g)  Buyer shall have received a certificate of non-foreign
      status in form, date and content reasonably acceptable to Buyer,
      executed and delivered by Seller pursuant to Section 1445 of the Code
      and the regulations promulgated thereunder.
    

    
             (h)  Buyer shall have received all other agreements, instruments
      and documents which are required by other terms of this Agreement to be
      executed or delivered by Seller or any other party to Buyer prior to or
      in connection with the Closing.
    

    
      Section 9.2.  Conditions Precedent to the
      Obligations of Seller.  The obligations of Seller under this
      Agreement are subject to each of the following conditions being met:
    

    
             (a)  Each and every representation of Buyer under this Agreement
      shall be true and accurate in all material respects as of the date when
      made and shall be deemed to have been made again at and as of the time
      of Closing and shall at and as of such time of Closing be true and
      accurate in all respects except as to changes specifically contemplated
      by this Agreement or consented to by Seller.
    

    
             (b)  Buyer shall have performed and complied in all material
      respects with (or compliance therewith shall have been waived by Seller)
      each and every covenant, agreement and condition required by this
      Agreement to be performed or complied with by Buyer prior to or at the
      Closing.
    

    
             (c)  No Proceeding (excluding any Proceeding initiated by Seller
      or any of its affiliates) shall, on the Closing Date, be pending or
      threatened before any Governmental Entity seeking to restrain, prohibit,
      or obtain damages or other relief in connection with the consummation of
      the transactions contemplated by this Agreement.
    

    
             (d)  Seller shall have received all other agreements, instruments
      and documents which are required by other terms of this Agreement to be
      executed or delivered by Buyer or any other party to Seller prior to or
      in connection with the Closing.
    

    
      ARTICLE X  

TERMINATION,
      AMENDMENT AND WAIVER
    

    
      Section 10.1.  Termination.  This
      Agreement may be terminated and the transactions contemplated hereby
      abandoned at any time prior to the Closing in the following manner:
    

    
             (a)  by mutual written consent of Seller and Buyer; or
    

    
             (b)  by either Seller or Buyer, if:
    

    
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                 (i)  the Closing shall not have occurred on or before July
      31, 2008, unless such failure to close shall be due to a breach of this
      Agreement by the party seeking to terminate this Agreement pursuant to
      this clause (i); or
    

    
                (ii)  there shall be any statute, rule, or regulation that
      makes consummation of the transactions contemplated hereby illegal or
      otherwise prohibited or a Governmental Entity shall have issued an
      order, decree, or ruling or taken any other action permanently
      restraining, enjoining, or otherwise prohibiting the consummation of the
      transactions contemplated hereby, and such order, decree, ruling, or
      other action shall have become final and nonappealable.
    

    
      (c)        by Seller, if (i) Buyer shall have failed to fulfill in any
      material respect any of its obligations under this Agreement; or
      (ii) any of the representations and warranties of Buyer contained in
      this Agreement shall not be true and correct in all material respects
      and, in the case of each of clauses (i) and (ii),
      such failure, misrepresentation, or breach of warranty (provided it can
      be cured) has not been cured within ten days after written notice
      thereof from the Seller to Buyer; or
    

    
      (d)       by Buyer, if (i) Seller shall have failed to fulfill in any
      material respect any of their obligations under this Agreement, or
      (ii) any of the representations and warranties of Seller contained in
      this Agreement shall not be true and correct in all material respects
      (except that where any statement in a representation and warranty
      expressly includes a standard of materiality, such statement shall be
      true and accurate in all respects giving effect to such standard) and,
      in the case of clauses (i) and (ii), such failure,
      misrepresentation or breach of warranty (provided it can be cured) has
      not been cured within ten days after written notice thereof from Buyer
      to Seller.
    

    
      Section 10.2.  Effect of Termination.  In
      the event of the termination of this Agreement pursuant to Section 10.1
      by the Seller, on the one hand, or Buyer, on the other, written notice
      thereof shall forthwith be given to the other party or parties
      specifying the provision hereof pursuant to which such termination is
      made, and this Agreement shall become void and have no effect, except
      that the agreements contained in this Article X, in Sections 7.4,
      7.5 and 8.3 and in Articles XII and XIII
      shall survive the termination hereof..  
    

    
      Section 10.3.  Amendment.  This Agreement
      may not be amended except by an instrument in writing signed by or on
      behalf of all the parties hereto.
    

    
      Section 10.4.  Waiver.  Seller, on the
      one hand, or Buyer, on the other, may:  (i) waive any inaccuracies in
      the representations and warranties of the other contained herein or in
      any document, certificate, or writing delivered pursuant hereto, or
      (ii) waive compliance by the other with any of the other's agreements or
      fulfillment of any conditions to its own obligations contained
      herein.  Any agreement on the part of a party hereto to any such waiver
      shall be valid only if set forth in an instrument in writing signed by
      or on behalf of such party.  No failure or delay by a party hereto in
      exercising any right, power, or privilege hereunder shall operate as a
      waiver thereof nor shall any single or partial exercise thereof preclude
      any other or further exercise thereof or the exercise of any other
      right, power, or privilege.
    

    
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      ARTICLE XI  

SURVIVAL OF
      REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
    

    
      Section 11.1.  Survival.
    

    
      (a)  The representations and warranties of the parties hereto contained
      in this Agreement or in any certificate, instrument, or document
      delivered pursuant hereto shall survive the Closing, regardless of any
      investigation made by or on behalf of any party, provided that (i) any
      representation and warranty of Seller contained in Sections 4.7
      through 4.18 pertaining to the payment of (x) royalties and (y)
      severance and other similar taxes shall survive until the second
      anniversary of the Closing Date and (ii) all other the representations
      and warranties of Seller contained in Sections 4.7 through 4.18
      shall survive until the first anniversary of the Closing Date (such
      anniversary date and time of expiration called a "Survival Date").  From
      and after a Survival Date, no party hereto shall be under any liability
      with respect to any representation or warranty to which such Survival
      Date relates, except with respect to matters as to which notice has been
      received in accordance with Section 11.1(b).
    

    
      (b)  No party hereto shall have any indemnification obligation pursuant
      to this Article XI or otherwise in respect of any
      representation, warranty or covenant unless it shall have received from
      the party seeking indemnification written notice of the existence of the
      claim for or in respect of which indemnification in respect of such
      representation, warranty or covenant is being sought, and such written
      notice is given on or before the applicable Survival Date.  Such notice
      shall set forth with reasonable specificity (i) the basis under this
      Agreement, and the facts that otherwise form the basis of such claim,
      (ii) the estimate of the amount of such claim (which estimate shall not
      be conclusive of the final amount of such claim) and an explanation of
      the calculation of such estimate, including a statement of any
      significant assumptions employed therein, and (iii) the date on and
      manner in which the party delivering such notice became aware of the
      existence of such claim.
    

    
      (c)  From the Closing Date through the Survival Date, any claim for
      indemnification for any title defect(s) by Buyer from Seller pertaining
      to Section 4.7 (“Basic Documents”) is only enforceable to the extent the
      aggregate sum of all claims for title defect(s) is in excess of 2.5% of
      the Purchase Price.
    

    
      Section 11.2.  Seller's Indemnification
      Obligations.  Seller shall, on the date of Closing, agree (and,
      upon delivery to Buyer of the Conveyance, shall be deemed to have
      agreed), subject to the limitations and procedures contained in this Article XI,
      following the Closing, to indemnify and hold Buyer, its Affiliates and
      its and their respective successors and permitted assigns and all of
      their respective stockholders, partners, members, managers, directors,
      officer, employees, agents and representatives harmless from and against
      any and all claims, obligations, actions, liabilities, damages or
      expenses (a) resulting from any misrepresentation or breach of any
      warranty, covenant or agreement of Seller contained in this Agreement or
      any certificate delivered by Seller at the Closing, (b) relating to the
      Excluded Assets, or (c) relating to the ownership or operation of the
      Properties before the Effective Date.
    

    
      26
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      Section 11.3.  Buyer's Indemnification
      Obligations.  Buyer shall, on the date of Closing, agree (and,
      upon delivery to Buyer of the Conveyance, shall be deemed to have
      agreed), subject to the limitations and procedures contained in this Article XI,
      following the Closing, to indemnify and hold Seller harmless from and
      against any and all claims, obligations, actions, liabilities, damages,
      costs or expenses, (collectively, "Seller's Losses")
      (a) resulting from any misrepresentation or breach of any warranty,
      covenant or agreement of Buyer contained in this Agreement or any
      certificate delivered by Buyer at the Closing, or (b) relating to
      Buyer's ownership and operation of the Properties after the Effective
      Date.
    

    
      Section 11.4.  Indemnification Proceedings.  In
      the event that any claim or demand for which a party (an "Indemnifying
      Party"), would be liable to the another party under Section 11.2
      or Section 11.3 (an "Indemnified Party") is
      asserted against or sought to be collected from an Indemnified Party by
      a third party, the Indemnified Party shall with reasonable promptness
      notify the Indemnifying Party of such claim or demand, but the failure
      so to notify the Indemnifying Party shall not relieve the Indemnifying
      Party of its obligations under this Article XI, except to
      the extent the Indemnifying Party demonstrates that the defense of such
      claim or demand is materially prejudiced thereby.  The Indemnifying
      Party shall have 30 days from receipt of the above notice from the
      Indemnified Party (in this Section 11.4, the "Notice
      Period") to notify the Indemnified Party whether or not the
      Indemnifying Party desires, at the Indemnifying Party's sole cost and
      expense, to defend the Indemnified Party against such claim or demand;
      provided, that the Indemnified Party is hereby authorized prior to and
      during the Notice Period to file any motion, answer or other pleading
      that it shall deem necessary or appropriate to protect its interests or
      those of the Indemnifying Party and not prejudicial to the Indemnifying
      Party.  If the Indemnifying Party elects to assume the defense of any
      such claim or demand, the Indemnified Party shall have the right to
      employ separate counsel at its own expense and to participate in the
      defense thereof.  If the Indemnifying Party elects not to assume the
      defense of such claim or demand (or fails to give notice to the
      Indemnified Party during the Notice Period), the Indemnified Party shall
      be entitled to assume the defense of such claim or demand with counsel
      of its own choice, at the expense of the Indemnifying Party.  If the
      claim or demand is asserted against both the Indemnifying Party and the
      Indemnified Party and based on the advice of counsel reasonably
      satisfactory to the Indemnifying Party it is determined that there is a
      conflict of interest which renders it inappropriate for the same counsel
      to represent both the Indemnifying Party and the Indemnified Party, the
      Indemnifying Party shall be responsible for paying separate counsel for
      the Indemnified Party; provided, however, that the Indemnifying Party
      shall not be responsible for paying for more than one separate firm of
      attorneys to represent all of the Indemnified Parties, regardless of the
      number of Indemnified Parties.  If the Indemnifying Party elects to
      assume the defense of such claim or demand, (i) no compromise or
      settlement thereof may be effected by the Indemnifying Party without the
      Indemnified Party's written consent (which shall not be unreasonably
      withheld) unless the sole relief provided is monetary damages that are
      paid in full by the Indemnifying Party and (ii) the Indemnifying Party
      shall have no liability with respect to any compromise or settlement
      thereof effected without its written consent (which shall not be
      unreasonably withheld).
    

    
      Section 11.5.  Indemnification Exclusive Remedy.  Indemnification
      pursuant to the provisions of this Article XI shall be the
      exclusive remedy of the parties hereto for any misrepresentation or
      breach of any warranty, covenant or agreement contained in this
      Agreement or in any closing document executed and delivered pursuant to
      the provisions hereof or thereof, or any other claim arising out of the
      transactions contemplated by this Agreement.
    

    
      27
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      Section 11.6.  Limited to Actual Damages; No
      Consequential Damages.  The indemnification
      obligations of the parties pursuant to this Article XI shall
      be limited to actual Damages and shall not include incidental,
      consequential, indirect, punitive, or exemplary Damages, provided that
      any incidental, consequential, indirect, punitive, or exemplary Damages
      recovered by a third party (including a Governmental Entity, but
      excluding any Affiliate of any party) against a party entitled to
      indemnity pursuant to this Article XI shall be included in
      the Damages recoverable under such indemnity.
    

    
      ARTICLE XII  

MISCELLANEOUS MATTERS
    

    
      Section 12.1.  Dispute Resolution.
    

    
      (a)  Any and all claims, disputes, controversies or other matters in
      question arising out of or relating to this Agreement, any provision
      hereof, the alleged breach of any such provision, or in any way relating
      to the subject matter of this Agreement or the relationship among the
      parties created by this Agreement, involving the parties, their
      affiliates and/or their respective representatives (all of which are
      referred to herein as "Disputes"), even though some or all
      of such Disputes allegedly are extra-contractual in nature, whether such
      Disputes sound in contract, tort, or otherwise, at law or in equity,
      under state or federal law, whether provided by statute or the common
      law, for damages or any other relief, shall be resolved solely in
      accordance with this Section 12.1.
    

    
      (b)  If a Dispute occurs that the senior representatives of the parties
      responsible for the transaction contemplated by this Agreement have been
      unable, in good faith, to settle or agree upon within a period of 15
      days after such Dispute arose, the Seller shall nominate and commit one
      of its senior officers, and Buyer shall nominate and commit one of its
      senior officers, to meet at a mutually agreed time and place not later
      than 30 days after the Dispute has arisen to attempt to resolve
      same.  If such senior management have been unable to resolve such
      Dispute within a period of 15 days after such meeting, or if such
      meeting has not occurred within 45 days following such Dispute arising,
      then any party shall have the right, by written notice to the other, to
      resolve the Dispute  by arbitration in accordance with the provisions of Section 12.1(d).
    

    
      (c)  Intentionally Deleted
    

    
      (d)  Any Dispute that is not resolved pursuant to the foregoing
      provisions of this Section 12.1 shall be settled exclusively
      and finally by arbitration in accordance with this Section 12.1(d).
    

    
      (i)  Such arbitration shall be conducted pursuant to the Federal
      Arbitration Act, except as expressly provided otherwise in this
      Agreement.  The validity, construction, and interpretation of this Section 12.1(d),
      and all procedural aspects of the arbitration conducted pursuant hereto,
      including the determination of the issues that are subject to
      arbitration (i.e., arbitrability), the scope of the arbitrable issues,
      allegations of "fraud in the inducement" to enter into this Agreement or
      this arbitration provision, allegations of waiver, laches, delay or
      other defenses to arbitrability, and the rules governing the conduct of
      the arbitration (including the time for filing an answer, the time for
      the filing of counterclaims, the times for amending the pleadings, the
      specificity of the pleadings, the extent and scope of discovery, the
      issuance of subpoenas, the times for the designation of experts, whether
      the arbitration is to be stayed pending resolution of related litigation
      involving third parties not bound by this Agreement, the receipt of
      evidence, and the like), shall be decided by the arbitrators.  The
      arbitration shall be administered by the American Arbitration
      Association (the "AAA"), and shall be conducted pursuant to
      the Commercial Arbitration Rules of the AAA (the "Rules"),
      except as expressly provided otherwise in this Agreement.  The
      arbitration proceedings shall be subject to any optional rules contained
      in the Rules for emergency measures and, in the case of Disputes with
      respect to amounts in excess of $1 million, optional rules for large and
      complex cases.
    

    
      28
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      (ii)  The arbitrators shall permit and facilitate such discovery as they
      determine is appropriate in the circumstances, taking into account the
      needs of the parties and the desirability of making discovery
      expeditious and cost-effective.  Such discovery may include pre-hearing
      depositions, particularly depositions of witnesses who will not appear
      personally to testify, if there is a demonstrated need therefore.  The
      arbitrators may issue orders to protect the confidentiality of
      proprietary information, trade secrets and other sensitive information
      disclosed in discovery.
    

    
      (iii)  All arbitration proceedings hereunder shall be conducted in San
      Antonio, Bexar County, Texas or such other mutually agreeable location.
    

    
      (iv)  All arbitration proceedings hereunder shall be before a panel of
      three (3) arbitrators appointed in accordance with the Rules consisting
      of Persons (which can include lawyers) having at least ten (10) years of
      experience in or relating to the oil and gas industry.
    

    
      (v)  In deciding the substance of the Dispute, the arbitrators shall
      refer to the substantive laws of the State of Texas for guidance
      (excluding choice-of-law principles that might call for the application
      of the laws of another jurisdiction).  Matters relating to arbitration
      shall be governed by the Federal Arbitration Act.
    

    
      (vi)  The parties shall request the arbitrators to conduct a hearing as
      soon as reasonably practicable after appointment of the third
      arbitrator, and to render a final decision completely disposing of the
      Dispute that is the subject of such proceedings as soon as reasonably
      practicable after the final hearing.  The parties shall instruct the
      arbitrators to impose time limitations they consider reasonable for each
      phase of such proceeding, including, without limitation, limits on the
      time allotted to each party for the presentation of its case and
      rebuttal.  The arbitrators shall actively manage the proceedings as they
      deem best so as to make the proceedings fair, expeditious, economical
      and less burdensome than litigation.  To provide for speed and
      efficiency, the arbitrators may:  (i) limit the time allotted to each
      party for presentation of its case; and (ii) exclude testimony and other
      evidence they deem irrelevant or cumulative.
    

    
      29
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      (vii)  Notwithstanding any other provision in this Agreement to the
      contrary, the parties expressly agree that the arbitrators shall have
      absolutely no authority to award consequential, incidental, special,
      treble, exemplary or punitive damages of any type under any
      circumstances regardless of whether such damages may be available under
      Applicable Law, or under the Federal Arbitration Act or the Rules.
    

    
      (viii)  The parties agree that there shall be no transcript of any
      hearing before the arbitrators.  The parties shall request that final
      decision of the arbitrators be in writing, be as brief as possible, set
      forth the reasons for such final decision, and if the arbitrators award
      monetary damages to either party, contain a certification by the
      arbitrators that they have not included any incidental, special, treble,
      exemplary or punitive damages.  To the fullest extent permitted by law,
      the arbitration proceeding and the arbitrators' decision and award shall
      be maintained in confidence by the parties and the parties shall
      instruct the arbitrators to likewise maintain such matters in confidence.
    

    
      (ix)  The fees and expenses of the arbitrators shall be borne equally by
      Sellerand Buyer, but the decision of the arbitrators may include such
      award of the arbitrators' fees and expenses and of other costs and
      attorneys' fees as the arbitrators determine appropriate (provided that
      such award of costs and fees may not exceed the amount of such costs and
      fees incurred by the losing party in the arbitration).
    

    
      (x)  The decision and award of the arbitrators shall be binding upon the
      parties and final and nonappealable to the maximum extent permitted by
      law, and judgment thereon may be entered in a court of competent
      jurisdiction and enforced by any party as a final judgment of such court.
    

    
      Section 12.2.  Notices.  All notices,
      requests, demands, and other communications required or permitted to be
      given or made hereunder by any party hereto shall be in writing and
      shall be deemed to have been duly given or made if (i) delivered
      personally, (ii) transmitted by first class registered or certified
      mail, postage prepaid, return receipt requested, (iii) sent by a
      recognized prepaid overnight courier service (which provides a receipt),
      or (iv) sent by telecopy or facsimile transmission, with receipt
      acknowledged, to the parties at the following addresses (or at such
      other addresses as shall be specified by the parties by like notice):
    

    

    

    
      If to Seller:

    

    
      Segundo Navarro Drilling, Ltd.
10101 Reunion Place, Suite 1000
San
      Antonio, Texas 78216
210.384.3200
210.340.0267:fax
    

    

    

    
      30
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      If to Buyer:

Vanguard Natural Resources, LLC
    

    
      Vanguard Permian, LLC
    

    
      7700 San Felipe, Ste. 485
Houston, Texas 77063
832.327.2255
832.327.2260:fax

    

    
      Such notices, requests, demands, and other communications shall be
      effective upon receipt.
    

    
      Section 12.3.  Entire Agreement.  This
      Agreement, the Seller Disclosure Schedule, together with the Exhibits,
      and other writings referred to herein or delivered pursuant hereto,
      constitute the entire agreement between the parties hereto with respect
      to the subject matter hereof and supersede all prior agreements and
      understandings, both written and oral, between the parties with respect
      to the subject matter hereof.
    

    
      Section 12.4.  Injunctive Relief.  The
      parties hereto acknowledge and agree that irreparable damage would occur
      in the event any of the provisions of this Agreement were not performed
      in accordance with their specific terms or were otherwise breached.  It
      is accordingly agreed that the parties shall be entitled to an
      injunction or injunctions to prevent breaches of the provisions of this
      Agreement, and shall be entitled to enforce specifically the provisions
      of this Agreement, in any court of the United States or any state
      thereof having jurisdiction, in addition to any other remedy to which
      the parties may be entitled under this Agreement or at law or in equity.
    

    
      Section 12.5.  Binding Effect; Assignment; No
      Third Party Benefit.  This Agreement shall be binding upon and
      inure to the benefit of the parties hereto and their respective heirs,
      legal representatives, successors, and permitted assigns.  Except as
      otherwise expressly provided in this Agreement, neither this Agreement
      nor any of the rights, interests, or obligations hereunder shall be
      assigned by any of the parties hereto without the prior written consent
      of the other parties.  Except as provided in Article XI,
      nothing in this Agreement, express or implied, is intended to or shall
      confer upon any Person other than the parties hereto, and their
      respective heirs, legal representatives, successors, and permitted
      assigns, any rights, benefits, or remedies of any nature whatsoever
      under or by reason of this Agreement.
    

    
      Section 12.6.  Severability.  If any
      provision of this Agreement is held to be unenforceable, this Agreement
      shall be considered divisible and such provision shall be deemed
      inoperative to the extent it is deemed unenforceable, and in all other
      respects this Agreement shall remain in full force and effect; provided,
      however, that if any such provision may be made enforceable by
      limitation thereof, then such provision shall be deemed to be so limited
      and shall be enforceable to the maximum extent permitted by Applicable
      Law.
    

    
      Section 12.7.  GOVERNING LAW.  THIS AGREEMENT SHALL
      BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
      INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF
      CONFLICTS OF LAWS THEREOF.
    

    
      31
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      Section 12.8.  Counterparts.  This
      instrument may be executed in any number of identical counterparts, each
      of which for all purposes shall be deemed an original, and all of which
      shall constitute collectively, one instrument.  It is not necessary that
      each party hereto execute the same counterpart so long as identical
      counterparts are executed by each such party hereto.  This instrument
      may be validly executed and delivered by facsimile or other electronic
      transmission.
    

    
      Section 12.9.  Like-Kind Exchange.
    

    
      NOTWITHSTANDING ANY PROVISION HEREIN to the contrary, either party shall
      have the right to elect to consummate this transaction in whole or in
      part as a tax free exchange pursuant to Section 1031 of the Internal
      Revenue Code.  In the event a party so elects, it may transfer the
      Property to a “qualified intermediary” (as defined in Treasury
      Regulation Section 1.1031(k)-1), subject to this Agreement, and pursuant
      to an agreement between the party and the “qualified intermediary” which
      meets one of the safe harbors contained in Treasury Regulation Section
      1.1031(k)-1), which provides that the “qualified intermediary” will
      transfer all or part of the Property to the other party in accordance
      with the terms of this Agreement and that the Proceeds shall not be
      distributed to the party outright or otherwise, but shall be distributed
      to such “qualified intermediary".  Each party electing to consummate
      this transaction in whole or in part as a tax free exchange shall be
      responsible for ensuring that such agreement meets the requirements of a
      safe harbor and shall provide the other party with the name of the
      qualified person in writing prior to the execution of this
      Agreement.  The parties agree to accommodate one another in effectuating
      a like-kind exchange of the Property in exchange for exchange property
      selected by each party, but in no event shall a party be required or
      obligated to incur any liabilities, costs or expenses in connection with
      accommodating the other party in effectuation of a like-kind exchange.
    

    
      ARTICLE XIII  

DEFINITIONS AND
      REFERENCES
    

    
      Section 13.1.  Certain Defined Terms.  When
      used in this Agreement, the following terms shall have the respective
      meanings assigned to them in this Section 13.1:
    

    
      “Accredited Investor” means an “accredited investor” as
      such term is defined in Rule 501(a) of Regulation D promulgated under
      the Securities Act.
    

    
      "Affiliate" means any Person directly or indirectly
      controlling, controlled by or under common control with a Person.
    

    
      "Agreement" means this Asset Purchase and Sale Agreement, as
      hereafter amended or modified in accordance with the terms hereof.
    

    
      32
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      "Applicable Law" means any statute, law, principle of common
      law, rule, regulation, judgment, order, ordinance, requirement, code,
      writ, injunction, or decree of any Governmental Entity, exclusive of
      Environmental Laws.
    

    
      "Business Day" means a day other than a Saturday, Sunday or
      day on which commercial banks in the State of Texas are authorized or
      required to be closed for business.
    

    
      "Code" means the Internal Revenue Code of 1986, or any
      successor statute thereto, as amended.
    

    
      "Dollars" or "$" means U.S. Dollars.
    

    
      "Effective Date" means 7:00 a.m., local time at the location
      of the Properties, on June 1, 2008.
    

    
      "Environmental Contaminants" means any pollutant, waste,
      contaminant, or hazardous, extremely hazardous, or toxic material,
      substance, chemical or waste identified, defined or regulated as such
      under any Environmental Law.
    

    
      "Environmental Laws" means all national, state, municipal or
      local laws, rules, regulations, statutes, ordinances or orders of any
      Governmental Entity pertaining to the protection of human health or the
      environment, including the Comprehensive Environmental Response,
      Compensation and Liability Act, as amended by the Superfund Amendments
      and Reauthorization Act, 42 U.S.C. § 9601 et seq. ("CERCLA"),
      the Solid Waste Disposal Act, as amended by the Resource Conservation
      and Recovery Act, 42 U.S.C. § 6901 et seq. ("RCRA"),
      the Federal Water Pollution Control Act, as amended by the Clean Water
      Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. §7401 et
      seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., and
      any similar state or local statutes.
    

    
      "Environmental Permits" means those Permits relating to
      environmental, health or safety necessary for the ownership and
      operation of the Oil and Gas Properties.
    

    
      "Governmental Entity" means any court or tribunal in any
      jurisdiction (domestic or foreign) or any federal, state, county,
      municipal or other governmental or quasi-governmental body, agency,
      authority, department, board, commission, bureau or instrumentality.
    

    
      "Hedge" means any future derivative, swap, collar, put,
      call, cap, option or other contract that is intended to benefit from,
      relate to, or reduce or eliminate the risk of fluctuations in interest
      rates, basis risk or the price of commodities, including Hydrocarbons.
    

    
      "Hydrocarbons" means oil, gas, other liquid or gaseous
      hydrocarbons, or any of them or any combination thereof, and all
      products and substances extracted, separated, processed and produced
      therefrom.
    

    
      "IRS" means the Internal Revenue Service.
    

    
      "Knowledge" of a specified Person (or similar references to
      a Person's knowledge) means all information, after reasonable
      investigation, is known to (a) in the case of a Person who is an
      individual, such Person, or (b) in the case of a Person which is
      corporation or other entity, a current executive officer or employee who
      devoted substantive attention to matters of such nature during the
      ordinary course of his employment by such Person.  
    

    
      33
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      "Lien" means any claim, lien, mortgage, security interest,
      pledge, charge, option, right-of-way, easement, encroachment, or
      encumbrance of any kind.
    

    
      "Material Adverse Effect" means any change, development, or
      effect (individually or in the aggregate) which is, or is reasonably
      likely to be, materially adverse (i) to the business, assets, results of
      operations or condition (financial or otherwise) of a party, or (ii) to
      the ability of a party to perform on a timely basis any material
      obligation under this Agreement or any agreement, instrument, or
      document entered into or delivered in connection herewith provided
      that none of the following shall be deemed to constitute, and none
      of the following shall be taken into account in determining whether
      there has been, a Material Adverse Effect: (1) any adverse change,
      event, development, or effect arising from or relating to (a) general
      business or economic conditions, (b) national or international political
      or social conditions, including the engagement-or continuation by the
      United States in hostilities, whether or not pursuant to the declaration
      of a national emergency or war, or the occurrence of any military or
      terrorist attack upon the United States, or any of its territories,
      possessions, or diplomatic or consular offices or upon any military
      installation, equipment or personnel of the United States, or (c)
      financial, banking, or securities markets (including any disruption
      thereof and any decline in the price of any security, commodity or
      market index).
    

    
      "Permits" means licenses, permits, franchises, consents,
      approvals, variances, exemptions, and other authorizations of or from
      Governmental Entities.
    

    
      "Person" means any individual, corporation, partnership,
      joint venture, association, joint-stock company, trust, enterprise,
      unincorporated organization, or Governmental Entity.
    

    
      "Proceedings" means all proceedings, actions, claims, suits,
      investigations, and inquiries by or before any arbitrator or
      Governmental Entity.
    

    
      "Reasonable Best Efforts" means a party's reasonable best
      efforts in accordance with reasonable commercial practice.
    

    
      "Securities Act" shall mean the Securities Act of 1933, as
      amended, and all rules and regulations under such Act.
    

    
      "Seller Disclosure Schedule" shall mean a schedule delivered
      by Seller to Buyer on the date hereof which sets forth additional
      information regarding the representations and warranties of Seller
      contained herein and information called for hereby.
    

    
      "Taxes" means any income taxes or similar assessments or any
      sales, excise, occupation, use, ad valorem, property, production,
      severance, transportation, employment, payroll, franchise, or other tax
      imposed by any United States federal, state, or local (or any foreign or
      provincial) taxing authority, including any interest, penalties, or
      additions attributable thereto.
    

    
      “Unit Closing Price” means the average closing price
      of VNR Units on the NYSE Arca over the twenty consecutive trading days
      prior to the Closing Date, provided however that the Unit Closing Price
      shall not be greater than $16.75 (ceiling) or less than $15.75 (floor).
    

    
      34
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      Section 13.2.  Certain Additional Defined Terms.  In
      addition to such terms as are defined in the preamble of and the
      recitals to this Agreement and in Section 13.1, the
      following terms are used in this Agreement as defined in the Articles or
      Sections set forth opposite such terms:
    

    
    	
          Defined Term
        	
          Reference
        
	
          AAA
        	
          Section 12.1(d)(i)
        
	
          Adjusted Purchase Price
        	
          Section 2.1
        
	
          Basic Documents
        	
          Section 4.7
        
	
          Closing
        	
          Article III
        
	
          Closing Date
        	
          Article III
        
	
          Defensible Title
        	
          Section 8.1(d)(i)
        
	
          Development Leases
        	
          Section 7.16
        
	
          Disputes
        	
          Section 12.1(a)
        
	
          Environmental Liabilities
        	
          Section 4.14(b)
        
	
          Excluded Assets
        	
          Section 1.2
        
	
          Hedge
        	
          Section 7.9
        
	
          Indemnified Party
        	
          Section 11.5
        
	
          Indemnifying Party
        	
          Section 11.5
        
	
          Independent Expert
        	
          Section 12.1(c)
        
	
          Notice Period
        	
          Section 11.5
        
	
          Oil and Gas Properties
        	
          Section 1.1
        
	
          Properties
        	
          Section 1.1
        
	
          Purchase Price
        	
          Section 2.1
        
	
          Rules
        	
          Section 12.1(d)(i)
        
	
          Scheduled Production Sales Contracts
        	
          Section 4.9
        
	
          Seller's Losses
        	
          Section 11.3
        
	
          Tax Returns
        	
          Section 4.18(b)
        
	
          Unit Closing Price
        	
          Section 2.1
        
	
          Wellbore
        	
          Section 1.1
        

    

    
      Section 13.3.  References, Titles and Construction.
    

    
      (a)  All references in this Agreement to articles, sections, subsections
      and other subdivisions refer to corresponding articles, sections,
      subsections and other subdivisions of this Agreement unless expressly
      provided otherwise.
    

    
      (b)  Titles appearing at the beginning of any of such subdivisions are
      for convenience only and shall not constitute part of such subdivisions
      and shall be disregarded in construing the language contained in such
      subdivisions.
    

    
      (c)  The words "this Agreement", "this instrument", "herein", "hereof",
      "hereby", "hereunder" and words of similar import refer to this
      Agreement as a whole and not to any particular subdivision unless
      expressly so limited.
    

    
      (d)  Words in the singular form shall be construed to include the plural
      and vice versa, unless the context otherwise
      requires.  Pronouns in masculine, feminine and neuter genders shall be
      construed to include any other gender.
    

    
      35
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      (e)  Unless the context otherwise requires or unless otherwise provided
      herein, the terms defined in this Agreement which refer to a particular
      agreement, instrument or document also refer to and include all
      renewals, extensions, modifications, amendments or restatements of such
      agreement, instrument or document, provided that nothing contained in
      this subsection shall be construed to authorize such renewal, extension,
      modification, amendment or restatement.
    

    
      (f)  Examples shall not be construed to limit, expressly or by
      implication, the matter they illustrate.
    

    
      (g)  The word "or" is not intended to be exclusive and the word
      "includes" and its derivatives means "includes, but is not limited to"
      and corresponding derivative expressions.
    

    
      (h)  No consideration shall be given to the fact or presumption that one
      party had a greater or lesser hand in drafting this Agreement.
    

    
      (i)  All references herein to "$" or "dollars" shall refer to U.S.
      Dollars.
    

    
      (j)  Exhibits I, II, III, 2.1, 7.5, 7.10,  7.14,
      and 9.1(f) are attached hereto.  Each such Exhibit is
      incorporated herein by reference for all purposes and references to this
      Agreement shall also include such Exhibit unless the context in which
      used shall otherwise require.
    

    
      (k)  Seller’s Disclosure Schedules 4.7, 4.8, 4.9, 4.10,
      4.11, 6.3, 6.5, 7.9.1, and 7.9.2 are attached hereto.  Each such
      Schedule is incorporated herein by reference for all purposes and
      references to this Agreement shall also include such Schedule unless the
      context in which used shall otherwise require.
    

    
      [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
    

    
      36
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

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

    
    	
           
        	
          
            SELLER:
          

        
	

        	
           
        
	

        	
          
            SEGUNDO NAVARRO DRILLING, LTD. by and through TERCERO
            NAVARRO, INC. its general partner
          

        
	

        	
           
        
	

        	
           
        
	

        	
          
            By: /s/ Rodney Lewis
          

        
	

        	
          Rodney R. Lewis, President
        
	

        	
           
        
	

        	
          
            BUYER:
          

        
	

        	
           
        
	

        	
          
            VANGUARD PERMIAN, LLC
          

        
	

        	
          by and through VANGUARD NATURAL GAS, LLC, its sole member
        
	

        	
           
        
	

        	
          
            By: /s/ Scott W. Smith
          

        
	

        	
          Name: Scott W. Smith
        
	

        	
          Title: President
        
	

        	
           
        
	

        	
          VANGUARD NATURAL RESOURCES, LLC
        
	

        	
           
        
	

        	
           
        
	

        	
          
            By: /s/ Scott W. Smith
          

        
	

        	
          Name: /s/ Scott W. Smith
        
	

        	
          Title: President

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