Document:

exv10w2

Exhibit 10.2

PURCHASE AND SALE AGREEMENT

AMONG

HILLWOOD OIL & GAS, L.P., BURTEX MINERALS, L.P.,

CHIEF RESOURCES, LP, HILLWOOD ALLIANCE OPERATING COMPANY, L.P.,

CHIEF RESOURCES ALLIANCE PIPELINE LLC, CHIEF OIL & GAS LLC, BERRY BARNETT, L.P.,

COLLINS AND YOUNG, L.L.C. AND MARK ROLLINS

AS SELLERS

AND

QUICKSILVER RESOURCES INC.

AS PURCHASER

Executed on July 3, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE 1 PURCHASE AND SALE
	 	 	1	 
	Section 1.1 Purchase and Sale
	 	 	1	 
	Section 1.2 Assets
	 	 	1	 
	Section 1.3 Excluded Assets
	 	 	3	 
	Section 1.4 Effective Time; Proration of Costs and Revenues
	 	 	4	 
	Section 1.5 Delivery and Maintenance of Records
	 	 	5	 
	ARTICLE 2 PURCHASE PRICE
	 	 	5	 
	Section 2.1 Purchase Price
	 	 	5	 
	Section 2.2 Adjustments to Purchase Price
	 	 	6	 
	Section 2.3 Deposit
	 	 	7	 
	ARTICLE 3 TITLE MATTERS
	 	 	7	 
	Section 3.1 Sellers’ Title
	 	 	7	 
	Section 3.2 Definition of Defensible Title
	 	 	8	 
	Section 3.3 Definition of Permitted Encumbrances
	 	 	9	 
	Section 3.4 Notice of Title Defect Adjustments
	 	 	10	 
	Section 3.5 Casualty or Condemnation Loss
	 	 	13	 
	Section 3.6 Limitations on Applicability
	 	 	14	 
	Section 3.7 Government Approvals Respecting Assets
	 	 	14	 
	ARTICLE 4 ENVIRONMENTAL MATTERS
	 	 	15	 
	Section 4.1 Assessment
	 	 	15	 
	Section 4.2 NORM, Wastes and Other Substances
	 	 	16	 
	Section 4.3 Environmental Defects
	 	 	16	 
	Section 4.4 Inspection Indemnity
	 	 	17	 
	ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLERS
	 	 	17	 
	Section 5.1 Generally
	 	 	17	 
	Section 5.2 Existence and Qualification
	 	 	18	 
	Section 5.3 Power
	 	 	18	 
	Section 5.4 Authorization and Enforceability
	 	 	18	 
	Section 5.5 No Conflicts
	 	 	18	 
	Section 5.6 Liability for Brokers’ Fees
	 	 	18	 
	Section 5.7 Litigation
	 	 	19	 
	Section 5.8 Taxes and Assessments
	 	 	19	 
	Section 5.9 Compliance with Laws
	 	 	19	 
	Section 5.10 Contracts
	 	 	19	 
	Section 5.11 Payments for Hydrocarbon Production
	 	 	19	 
	Section 5.12 Governmental Authorizations
	 	 	20	 
	Section 5.13 Preference Rights and Transfer Requirements
	 	 	20	 
	Section 5.14 Payout Balances
	 	 	20	 
	Section 5.15 Outstanding Capital Commitments
	 	 	20	 
	Section 5.16 Imbalances
	 	 	21	 
	Section 5.17 Condemnation
	 	 	21	 
	Section 5.18 Bankruptcy
	 	 	21	 
	Section 5.19 PUHCA/NGA
	 	 	21	 
	Section 5.20 Investment Company
	 	 	21	 
	Section 5.21 No Tax Partnership
	 	 	21	 
	Section 5.22 Hedging
	 	 	21	 

i 

 

	 	 	 	 	 
	 	 	Page
	Section 5.23 Insurance
	 	 	22	 
	Section 5.24 Environmental
	 	 	22	 
	Section 5.25 Suspense Funds
	 	 	22	 
	Section 5.26 Purchase Entirely for Own Account
	 	 	22	 
	Section 5.27 Restricted Securities
	 	 	22	 
	Section 5.28 Legends
	 	 	23	 
	Section 5.29 Accredited Investor
	 	 	23	 
	Section 5.30 Disclosure of Information
	 	 	23	 
	Section 5.31 Residence
	 	 	23	 
	ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER
	 	 	23	 
	Section 6.1 Existence and Qualification
	 	 	23	 
	Section 6.2 Power
	 	 	24	 
	Section 6.3 Authorization and Enforceability
	 	 	24	 
	Section 6.4 No Conflicts
	 	 	24	 
	Section 6.5 Liability for Brokers’ Fees
	 	 	24	 
	Section 6.6 Litigation
	 	 	24	 
	Section 6.7 Financing
	 	 	25	 
	Section 6.8 [RESERVED]
	 	 	25	 
	Section 6.9 Limitation
	 	 	25	 
	Section 6.10 SEC Disclosure
	 	 	25	 
	Section 6.11 Bankruptcy
	 	 	25	 
	Section 6.12 Qualification
	 	 	25	 
	Section 6.13 SEC Reports; Financial Statements
	 	 	25	 
	Section 6.14 Purchaser Common Stock
	 	 	26	 
	ARTICLE 7 COVENANTS OF THE PARTIES
	 	 	27	 
	Section 7.1 Access
	 	 	27	 
	Section 7.2 Government Reviews
	 	 	27	 
	Section 7.3 Notification of Breaches
	 	 	27	 
	Section 7.4 Letters-in-Lieu; Assignments; Operatorship
	 	 	28	 
	Section 7.5 Public Announcements
	 	 	28	 
	Section 7.6 Operation of Business
	 	 	28	 
	Section 7.7 Preference Rights and Transfer Requirements
	 	 	29	 
	Section 7.8 Tax Matters
	 	 	31	 
	Section 7.9 Further Assurances
	 	 	31	 
	Section 7.10 Insurance
	 	 	31	 
	Section 7.11 Historical Financial Statements
	 	 	32	 
	Section 7.12 Lease Amendments
	 	 	32	 
	ARTICLE 8 CONDITIONS TO CLOSING
	 	 	33	 
	Section 8.1 Conditions of Sellers to Closing
	 	 	33	 
	Section 8.2 Conditions of Purchaser to Closing
	 	 	34	 
	ARTICLE 9 CLOSING
	 	 	35	 
	Section 9.1 Time and Place of Closing
	 	 	35	 
	Section 9.2 Obligations of Sellers at Closing
	 	 	35	 
	Section 9.3 Obligations of Purchaser at Closing
	 	 	36	 
	Section 9.4 Closing Payment & Post-Closing Purchase Price Adjustments
	 	 	36	 
	ARTICLE 10 TERMINATION
	 	 	37	 
	Section 10.1 Termination
	 	 	37	 
	Section 10.2 Effect of Termination
	 	 	38	 
	Section 10.3 Distribution of Deposit upon Termination
	 	 	38	 

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	 	 	Page
	ARTICLE 11 POST-CLOSING OBLIGATIONS; INDEMNIFICATION; LIMITATIONS; DISCLAIMERS AND WAIVERS
	 	 	39	 
	Section 11.1 Receipts
	 	 	39	 
	Section 11.2 Expenses
	 	 	39	 
	Section 11.3 Assumed Sellers Obligations
	 	 	39	 
	Section 11.4 Indemnities
	 	 	40	 
	Section 11.5 Indemnification Actions
	 	 	42	 
	Section 11.6 Release
	 	 	43	 
	Section 11.7 Limitation on Actions
	 	 	44	 
	Section 11.8 Disclaimers
	 	 	45	 
	Section 11.9 Waiver of Trade Practices Acts
	 	 	44	 
	Section 11.10 Recording
	 	 	45	 
	ARTICLE 12 REGISTRATION REQUIREMENTS
	 	 	46	 
	Section 12.1 Definitions
	 	 	46	 
	Section 12.2 Purchaser Covenants
	 	 	46	 
	Section 12.3 Obligations of the Purchaser
	 	 	47	 
	Section 12.4 Furnish Information
	 	 	47	 
	Section 12.5 Expense of Registration
	 	 	48	 
	Section 12.6 Indemnification
	 	 	48	 
	Section 12.7 Reports Under Exchange Act
	 	 	49	 
	ARTICLE 13 MISCELLANEOUS
	 	 	49	 
	Section 13.1 Counterparts
	 	 	49	 
	Section 13.2 Notice
	 	 	49	 
	Section 13.3 Sales or Use Tax Recording Fees and Similar Taxes and Fees
	 	 	51	 
	Section 13.4 Expenses
	 	 	51	 
	Section 13.5 Change of Name
	 	 	51	 
	Section 13.6 Replacement of Bonds, Letters of Credit and Guarantees
	 	 	51	 
	Section 13.7 Governing Law and Venue
	 	 	52	 
	Section 13.8 Captions
	 	 	52	 
	Section 13.9 Waivers
	 	 	52	 
	Section 13.10 Assignment
	 	 	52	 
	Section 13.11 Entire Agreement
	 	 	52	 
	Section 13.12 Amendment
	 	 	52	 
	Section 13.13 No Third-Party Beneficiaries
	 	 	53	 
	Section 13.14 References
	 	 	53	 
	Section 13.15 Construction
	 	 	53	 
	Section 13.16 Limitation on Damages
	 	 	53	 
	Section 13.17 Conspicuousness
	 	 	54	 
	Section 13.18 Severability
	 	 	54	 
	Section 13.19 Time of Essence
	 	 	54	 
	Section 13.20 Nature of Obligations
	 	 	54	 

iii 

 

EXHIBITS

	 	 	 
	Exhibit A

	 	Leases
	 
	Exhibit A-1

	 	Wells and Units
	 
	Exhibit A-2

	 	Equipment
	 
	Exhibit B

	 	Conveyance
	 
	Exhibit B-1

	 	Assignment

SCHEDULES

	 	 	 
	Schedule 1.2(e)

	 	Contracts
	 
	Schedule 1.2(f)

	 	Surface Contracts
	 
	Schedule 1.2(h)

	 	Pipelines
	 
	Schedule 1.3(e)

	 	Excluded Items
	 
	Schedule 1.4

	 	Proration of Costs and Revenues
	 
	Schedule 5.7(a)

	 	Litigation
	 
	Schedule 5.8

	 	Taxes and Assessments
	 
	Schedule 5.9

	 	Compliance with Laws
	 
	Schedule 5.13

	 	Preference Rights and Transfer Requirements
	 
	Schedule 5.15

	 	Outstanding Capital Commitments
	 
	Schedule 5.23

	 	Insurance
	 
	Schedule 5.24

	 	Environmental Matters
	 
	Schedule 5.25

	 	Suspense Funds
	 
	Schedule 6.4(b)

	 	Conflicts
	 
	Schedule 7.6

	 	Operation of Business
	 
	Schedule 8.2(i)

	 	Star of Texas Wells
	 
	Schedule 9.3(a)

	 	Closing Payment Allocation and Sellers’ Account Information
	 
	Schedule 9.3(e)

	 	Stock Component Allocation
	 

iv 

 

	 	 	 
	Schedule 13.20

	 	Liability Allocation Percentages

v 

 

DEFINITIONS

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

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

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

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

“AFE” means authority for expenditure.

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

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

“Agreement” means this Purchase and Sale Agreement.

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

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

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

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

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

“Assignment” has the meaning set forth in Section 3.1(e).

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

“Audited Special Financial Statements” has the meaning set forth in Section 7.11(c).

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

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

vi 

 

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

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

“C&Y” has the meaning set forth in the preamble to this Agreement.

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

“Chief Leases” means the Leases, as amended, set forth under the sub-heading “CHIEF LEASES” on
Exhibit A.

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

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

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

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

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

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

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

“Code” has the meaning set forth in Section 7.8(b).

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

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

“Contracts” has the meaning set forth in Section 1.2(e).

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

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

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

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

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

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

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

“Environmental Claim Date” has the meaning set forth in Section 4.3.

“Environmental Defect” has the meaning set forth in Section 4.3.

“Environmental Defect Amount” has the meaning set forth in Section 4.3.

vii 

 

“Environmental Defect Notice” has the meaning set forth in Section 4.3.

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

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

“Equipment” has the meaning set forth in Section 1.2(g).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” has the meaning set forth in Section 6.13.

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

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

“Expansion Agreement” means that certain Exploration and Participation Agreement dated January 1,
2005 by and among Chief Oil & Gas LLC, Chief Holdings LLC and Nortex, as amended.

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

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

“Governmental Authorizations” has the meaning set forth in Section 5.12.

viii 

 

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

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

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

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

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

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

“Imbalance” or “Imbalances” means over-production of Hydrocarbons or under-production of
Hydrocarbons or over-deliveries or under-deliveries with respect to Hydrocarbons produced from or
allocated to the Assets, regardless of whether such over-production of Hydrocarbons or
under-production of Hydrocarbons or over-deliveries or under-deliveries arise at the platform,
wellhead, pipeline, gathering system, transportation or other location.

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

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

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

“Independent Expert” has the meaning set forth in Section 4.3.

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

“Individual Environmental Deductible” has the meaning set forth in Section 4.3.

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

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

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

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

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

“Lowest Cost Response” means the response required or allowed under Environmental Laws that
addresses the condition present at the lowest cost (considered as a whole taking into consideration
any material negative impact such response may have on the operations of the relevant Assets and
any potential material additional costs or liabilities that may likely arise as a

ix

 

result of such response) as compared to any other response that is required or allowed under
Environmental Laws.

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

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

“NORM” means naturally occurring radioactive material.

“Nortex” means Nortex Minerals, L.P., a Texas limited partnership.

“Nortex Leases” means the Leases, as amended, set forth under the sub-heading “NORTEX LEASES” on
Exhibit A.

“Option” means all of the options held by Hillwood, as assignee of Nortex, (i) pursuant to the
Nortex Leases to participate as a working interest owner under the Nortex Leases, and (ii) pursuant
to the Expansion Agreement to participate as a working interest owner under the Subsequent Leases,
the Chief Leases and any leases acquired on Nortex Unleased Minerals (as defined in the Expansion
Agreement).

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

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

“Pipelines” has the meaning set forth in Section 1.2(h).

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

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

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

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

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

x 

 

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

“Purchaser Common Stock” means common stock of the Purchaser.

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

“Purchaser SEC Reports” has the meaning set forth in Section 6.13.

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

“Reference Lease” means the oil and gas lease, as amended, from Nortex Minerals, L.P. to Chief
Holdings LLC dated May 22, 2003 recorded at Volume 17110, Page 0220, Real Estate Records of Tarrant
County, Texas. References in this Agreement to specific provisions in the Reference Lease shall be
deemed to also include reference to the corresponding provisions (whether or not numbered or worded
the same), if any, in each of the other Nortex Leases and Subsequent Leases, as they may have been
amended, and in any Option Lease.

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

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

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

“Retained Asset” has the meaning set forth in Section 7.7(d).

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

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

“SEC” has the meaning set forth in Section 6.13.

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

“Securities Act” has the meaning set forth in Section 5.27.

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

“Sellers’ Auditor” has the meaning set forth in Section 7.11(b).

xi

 

“Seller Operated Assets” shall mean Assets operated by any Seller.

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

“Shares” has the meaning set forth in Section 5.26.

“Special Financial Statements” has the meaning set forth in Section 7.11(a).

“Star of Texas Assets” has the meaning set forth in Section 8.2(i).

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

“Subsequent Leases” means the Leases, as amended, set forth under the sub-heading “SUBSEQUENT
LEASES” on Exhibit A.

“Surface Contracts” has the meaning set forth in Section 1.2(f).

“Taxes” means all federal, state, local and foreign income, profits, franchise, sales, use, ad
valorem, property, severance, production, excise, stamp, documentary, real property transfer or
gain, gross receipts, goods and services, registration, capital, transfer or withholding taxes or
other governmental fees or charges imposed by any taxing authority, including any interest,
penalties or additional amounts which may be imposed with respect thereto.

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

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

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

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

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

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

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

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

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

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

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

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

“Transfer Requirement” means any consent, approval, authorization or permit of, or filing with or
notification to, any Person which is required to be obtained, made or complied with for or in
connection with any sale, assignment or transfer of any Asset or any interest therein, other than

xii

 

any consent of, notice to, filing with or other action by Governmental Bodies in connection with
the sale or conveyance of oil and/or gas leases or interests therein or Surface Contracts or
interests therein if such consent, notice, filing or action is not required prior to the assignment
of such oil and/or gas leases, Surface Contracts or interests or is customarily obtained subsequent
to the sale or conveyance (including consents from state agencies).

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

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

“Wells” has the meaning set forth in Section 1.2(c).

xiii

 

PURCHASE AND SALE AGREEMENT

     This Agreement is executed on July 3, 2008, by and among Hillwood Oil & Gas, L.P., a Texas
limited partnership (“Hillwood”), Burtex Minerals, L.P., a Texas limited partnership (“Burtex”),
Chief Resources, LP, a Texas limited partnership (“Chief LP”), Chief Resources Alliance Pipeline
LLC, a Texas limited liability company (“Chief Pipeline”), Chief Oil & Gas LLC, a Texas limited
liability company (“COG”), Hillwood Alliance Operating Company, L.P., a Texas limited partnership
(“Hillwood Alliance”), Berry Barnett, L.P., a Texas limited partnership (“Berry”), Collins and
Young, L.L.C., a Texas limited liability company (“C&Y”), Mark Rollins (“Rollins”), and Quicksilver
Resources Inc., a Delaware corporation (“Purchaser”). Hillwood, Hillwood Alliance, Burtex, Chief
LP, Chief Pipeline, Berry, C&Y and Rollins are sometimes referred to herein collectively as
“Sellers” and each, a “Seller.”

RECITALS

     A. Sellers own undivided interests in various oil and gas properties, either of record or
beneficially, more fully described in the exhibits hereto.

     B. Hillwood owns the Option to acquire from Chief LP up to a fifty percent (50%) working
interest in all wells to be drilled under certain of the Leases.

     C. Sellers desire to sell to Purchaser and Purchaser desires to purchase from Sellers the
properties and rights of Sellers hereafter described, in the manner and upon the terms and
conditions hereafter set forth.

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

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

ARTICLE 1

PURCHASE AND SALE

     Section 1.1 Purchase and Sale.

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

     Section 1.2 Assets.

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

 

 

     (a) All of the oil and gas leases, subleases and other leaseholds, overriding royalty
interests, net profits interests, carried interests, farmout rights, options and other properties
and interests described on Exhibit A, subject to such depth limitations and other restrictions as
may be set forth in the documents giving rise to such interests (provided, that none shall exclude
the Barnett Shale Formation) (collectively, the “Leases”), together with each and every kind and
character of right, title, claim and interest that Sellers have in and to the Leases, and the lands
currently pooled, unitized, communitized or consolidated therewith (the “Lands”);

     (b) The Option;

     (c) All oil, gas, water or injection wells located on the Leases and Lands, whether producing,
shut-in or temporarily abandoned, including the wells shown on Exhibit A-1 attached hereto and
future projected wells which have been allocated a value on Exhibit A-1 (the “Wells”);

     (d) All interests of Sellers in or to any currently existing pools or units that include any
Lands or all or a part of any Leases or include any Wells, including those pools or units shown on
Exhibit A-1 (the “Units”; the Units, together with the Leases, the Lands and Wells, being
hereinafter referred to as the “Properties”), and including all interests of Sellers in production
of Hydrocarbons from any such Unit, whether such Unit production of Hydrocarbons comes from Wells
located on or off of a Lease or the Lands, and all tenements, hereditaments and appurtenances
belonging to the Wells, Leases and Units;

     (e) All contracts, agreements and instruments by which the Properties are bound, or that
relate to or are otherwise applicable to the Properties, only to the extent applicable to the
Properties rather than Sellers’ other properties or Excluded Assets, including, but not limited to,
operating agreements, unitization, pooling and communitization agreements, declarations and orders,
joint venture agreements, farmin and farmout agreements, exploration agreements, participation
agreements, exchange agreements, transportation or gathering agreements, agreements for the sale
and purchase of oil, gas, casinghead gas or processing agreements to the extent applicable to the
Properties or the production of Hydrocarbons produced in association therewith from the Properties,
including those identified on Schedule 1.2(e) (hereinafter collectively referred to as
“Contracts”), provided that “Contracts” shall not include the instruments constituting the Leases
or the Surface Contracts;

     (f) All easements, permits, licenses, servitudes, rights-of-way, surface leases and other
surface rights (“Surface Contracts”) appurtenant to, and used or held for use in connection with
the Properties (including those identified on Schedule 1.2(f));

     (g) All equipment, machinery, fixtures and other tangible personal property and improvements
located on the Properties or Units and used or held for use in connection with the operation of the
Properties, including those identified on Exhibit A-2 (“Equipment”);

     (h) All flow lines, pipelines, gathering systems, meters and appurtenances thereto located on
the Properties or Units and used, or held for use, in connection with the operation of the
Properties, including those identified on Schedule 1.2(h) (“Pipelines”);

     (i) All Hydrocarbons produced from or attributable to the Leases, Units and Wells from and
after the Effective Time, together with Imbalances associated with the Properties;

     (j) All lease files; land files; well files; gas and oil sales contract files; gas processing
files; division order files; abstracts; title opinions; land surveys; logs, interpretive data,
technical

2

 

evaluations and technical outputs to the extent such logs, data, evaluations and outputs are
not subject to any third-party confidentiality restriction; maps; engineering data and reports; and
other books, records, data, files and accounting and financial records, in each case to the extent
related to the Assets, or used or held for use in connection with the maintenance or operation
thereof, but excluding (i) any books, records, data, files, maps and accounting records to the
extent disclosure or transfer is restricted by third-party agreement or applicable Law and the
necessary consents to transfer are not obtained pursuant to Section 7.7, (ii) computer or
communications software or intellectual property (including tapes, codes, data and program
documentation and all manifestations and technical information relating thereto), (iii)
attorney-client privileged communications and work product of Sellers’ legal counsel (other than
title opinions), (iv) reserve studies and evaluations, and (v) records relating to the negotiation
and consummation of the sale of the Assets (subject to such exclusions, the “Records”); and

     (k) Any seismic data related to the Properties, subject to Section 1.3(b).

Section 1.3 Excluded Assets.

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

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

     (b) all seismic data, including reprocessed data, to the extent that such data is not
transferable;

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

     (d) Sellers’ area-wide bonds, permits and licenses or other permits, licenses or
authorizations used in the conduct of Sellers’ businesses generally;

     (e) those items listed in Schedule 1.3(e);

     (f) all trade credits, account receivables, note receivables, take-or-pay amounts receivable
and other receivables attributable to the Assets with respect to any period of time prior to the
Effective Time;

     (g) fee mineral interests and royalties and all records relating thereto;

     (h) all right, title and interest of each Seller in and to vehicles used in connection with
the Assets;

     (i) all rights, titles, claims and interests of each Seller or any Affiliate of such Seller
(i) to or under any policy or agreement of insurance or any insurance proceeds, except to the
extent provided in Section 3.5, and (ii) to or under any bond or bond proceeds;

3

 

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

     (k) a nonexclusive right for Sellers (but no other Person) to freely use logs, maps,
engineering data and reports, reserve studies and evaluations, and other data and information being
transferred as a part of the Assets.

Section 1.4 Effective Time; Proration of Costs and Revenues.

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

     (b) Purchaser shall be entitled to all Hydrocarbon production from or attributable to the
Leases, Units and Wells at and after the Effective Time (and all products and proceeds attributable
thereto) and to all other income, proceeds, receipts and credits earned with respect to the Assets
at or after the Effective Time, and shall be responsible for (and entitled to any refunds with
respect to) all Property Costs incurred at and after the Effective Time. Sellers shall be entitled
to all Hydrocarbon production from or attributable to Leases, Units and Wells prior to the
Effective Time (and all products and proceeds attributable thereto) and to all other income,
proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and
shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred
prior to the Effective Time. “Earned” and “incurred,” as used in this Agreement, shall be
interpreted in accordance with GAAP and Council of Petroleum Accountants Society (COPAS) standards.
“Property Costs” means all costs attributable to the ownership and operation of the Assets
(including, without limitation, costs of insurance and ad valorem, property, severance, Hydrocarbon
production and similar Taxes based upon or measured by the ownership or operation of the Assets or
the production of Hydrocarbons therefrom, but excluding any other Taxes) and obligations to pay
working interests, royalties, overriding royalties and other interests payable to third parties on
account of production from the Assets and capital expenditures incurred in the ownership and
operation of the Assets in the ordinary course of business and, where applicable, in accordance
with the relevant operating or unit agreement, if any, and overhead costs charged to the Assets
under the relevant operating agreement or unit agreement, if any, or, if none, the amounts shown
under Schedule 1.4 shall be the overhead amounts deemed charged to the Assets, but excluding,
without limitation, liabilities, losses, costs and expenses attributable to (i) Claims for personal
injury or death, property damage or violation of any Law, (ii) obligations to plug wells or
dismantle, abandon and salvage facilities, (iii) obligations to remediate any contamination of
groundwater, surface water, soil, Equipment or Pipelines under applicable Environmental Laws, (iv)
obligations to furnish make-up gas according to the terms of applicable gas sales, gathering or
transportation contracts, (v) gas balancing obligations and (vi) obligations to pay working
interests, royalties, overriding royalties or other interests held in suspense by Sellers that are
reflected on Schedule 5.25, all of which are addressed in Article 11. For purposes of this Section
1.4, determination of whether Property Costs are attributable to the period before or after the
Effective Time shall be based on when services are rendered, when the goods are delivered or when
the work is performed. For clarification, the date an item or work is ordered is not the date of a
pre-Effective Time transaction for settlement purposes, but rather the date on which the item
ordered is delivered to the job site, or the date on which the work ordered is performed, shall be
the relevant date. For purposes of allocating Hydrocarbon production (and accounts receivable with
respect thereto) under this Section 1.4, (x) liquid Hydrocarbons shall be deemed to be “from or

4

 

attributable to” the Leases, Units and Wells when they pass through the pipeline connecting
into the storage facilities into which they are run and (y) gaseous Hydrocarbons shall be deemed to
be “from or attributable to” the Leases, Units and Wells when they pass through the delivery point
sales meters on the pipelines through which they are transported. Sellers shall utilize reasonable
interpolative procedures to arrive at an allocation of Hydrocarbon production when exact meter
readings or gauging and strapping data are not available. Sellers shall provide to Purchaser, no
later than three (3) Business Days prior to Closing, all data necessary to support any estimated
allocation for purposes of establishing the adjustment to the Purchase Price pursuant to Section
2.2 hereof that will be used to determine the Closing Payment. Taxes, right-of-way fees, insurance
premiums and other Property Costs that are paid periodically shall be prorated based on the number
of days in the applicable period falling before and the number of days in the applicable period
falling at or after the Effective Time, except that Hydrocarbon production, severance and similar
Taxes shall be prorated based on the number of units actually produced, purchased or sold or
proceeds of sale, as applicable, before, and at or after, the Effective Time. In each case,
Purchaser shall be responsible for the portion allocated to the period at and after the Effective
Time and Sellers shall be responsible for the portion allocated to the period before the Effective
Time.

Section 1.5 Delivery and Maintenance of Records.

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

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

ARTICLE 2

PURCHASE PRICE

Section 2.1 Purchase Price.

     (a) The purchase price for the Assets (the “Purchase Price”) shall consist of (i) Six Hundred
Ninety Three Million One Hundred Seventy Three Thousand Three Hundred Sixty Two Dollars
($693,173,362) in cash (the “Cash Component”) and (ii) a number of shares of Purchaser Common Stock
having a value of Two Hundred Twelve Million Four Hundred Forty Four Thousand Dollars
($212,444,000) as determined in accordance with Section 2.1(b) (the “Stock Component”), in each
case as adjusted as provided in Section 2.2.

     (b) The number of shares of Purchaser Common Stock to which the Sellers will be entitled
pursuant to Section 2.1(a) shall be determined by dividing $212,444,000 by the Volume Weighted
Average Price and rounding the result to the nearest whole share. The “Volume Weighted Average
Price” means the volume weighted average, for each of the fifteen (15) consecutive Trading Days
immediately prior to the third (3rd) Business Day prior to the Closing Date, of the per share
volume-weighted average prices as displayed under the heading “Bloomberg VWAP” on Bloomberg page
[“KWK<equity>AQR”]. The parties agree that the calculation of Volume Weighted Average Price
shall be carried to five (5) decimal places. The

5

 

Sellers agree not to engage in any buying, selling, trading, or any other transactions related
to Purchaser Common Stock or to any derivates, options, swaps, hedges, puts, calls, collars or
similar instruments relating to the Purchaser Common Stock prior to the Closing. “Trading Day”
means a day on which trading in securities generally occurs on the New York Stock Exchange or, if
Purchaser Common Stock is not then listed on the New York Stock Exchange, on the principal other
United States, national or regional securities exchange on which Purchaser Common Stock is then
listed or, if Purchaser Common Stock is not then listed on a United States, national or regional
securities exchange, in the principal other market on which Purchaser Common Stock is then traded.

Section 2.2 Adjustments to Purchase Price.

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

     (a) Reduced by the aggregate amount of the following proceeds received by Sellers between the
Effective Time and the Closing Date (with the period between the Effective Time and the Closing
Date referred to as the “Adjustment Period”): (i) proceeds from the sale of Hydrocarbons (net of
any royalties, overriding royalties or other burdens paid by Sellers to third parties on or payable
out of Hydrocarbon production, gathering, processing and transportation costs and any Hydrocarbon
production, severance, sales or excise Taxes not reimbursed to Sellers by the purchaser of
Hydrocarbon production) produced from or attributable to the Properties during the Adjustment
Period, and (ii) other proceeds earned with respect to the Assets during the Adjustment Period;

     (b) Reduced to the extent provided in (i) Section 7.7 with respect to Preference Rights and
Retained Assets and (ii) Section 8.2(i) with respect to the Star of Texas Assets;

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

     (d) Increased by the amount of all Property Costs and other costs attributable to the
ownership and operation of the Assets that are paid by Sellers and incurred at or after the
Effective Time (including any overhead costs under Schedule 1.4 deemed charged to the Assets with
respect to the Adjustment Period even though not actually paid), except any Property Costs and
other such costs already deducted in the determination of proceeds in Section 2.2(a);

     (e) Increased or reduced as agreed upon in writing by Sellers and Purchaser;

     (f) Reduced by the amount of funds held in suspense by Sellers, as reflected on Schedule 5.25
as such Schedule shall have been updated three (3) Business Days prior to Closing to reflect
additions to or payments from said suspense funds; and

6

 

     (g) Increased by the amount of actual transaction costs, in an amount not to exceed
$1,039,347, incurred by Sellers in effecting the contemplated transactions in Purchaser Common
Stock.

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

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

Section 2.3 Deposit.

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

ARTICLE 3

TITLE MATTERS

Section 3.1 Sellers’ Title.

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

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

     (c) Purchaser shall not be entitled to protection under Sellers’ special warranty of title in
the Conveyance against any Title Defect reported under this Article 3 and/or any Title

7

 

Defect disclosed in writing to Purchaser by Sellers or demonstrated by Sellers to have been
actually known by Purchaser prior to the Title Claim Date.

     (d) Notwithstanding anything herein provided to the contrary, if a Title Defect under this
Article 3 results from any matter which could also result in the breach of any representation or
warranty of Sellers set forth in Article 5, then Purchaser shall only be entitled to assert such
matter (i) before Closing, as a Title Defect to the extent permitted by this Article 3, or (ii)
after Closing, as a breach of Sellers’ special warranty of title contained in the Conveyance to the
extent permitted by this Section 3.1, and shall be precluded from also asserting such matter as the
basis of the breach of any such representation of warranty.

     (e) The assignment of the Option to be delivered by Hillwood to Purchaser shall be in
substantially the form of Exhibit B-1 hereto (the “Assignment”) and shall contain representations
and warranties that Purchaser shall acquire full and complete ownership of the Option to the
complete exclusion of any other Person.

Section 3.2 Definition of Defensible Title.

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

     (i) Entitles Sellers to receive a share of the Hydrocarbons produced, saved and
marketed from any Property shown in Exhibit A-1 throughout the duration of the
productive life of such Property (after satisfaction of all royalties, overriding
royalties, net profits interests or other similar burdens on or measured by
production of Hydrocarbons) (a “Net Revenue Interest”), of not less than the Net
Revenue Interest shown in Exhibit A-1 for such Property, except decreases in
connection with those operations in which Sellers may, with the written consent of
Purchaser, be a non-consenting co-owner after the date of this Agreement, decreases
resulting from the establishment or amendment, with the written consent of
Purchaser, of pools or units after the date of this Agreement, and except as stated
in such Exhibit A-1;

     (ii) Obligates Sellers to bear a percentage of the costs and expenses for the
maintenance and development of, and operations relating to, any Property shown in
Exhibit A-1 not greater than the “working interest” shown in Exhibit A-1 for such
Property without increase throughout the productive life of such Property, except as
stated in Exhibit A-1 and except increases resulting from contribution requirements
with respect to non-consenting co-owners under applicable operating agreements and
increases that are accompanied by at least a proportionate increase in Sellers’ Net
Revenue Interest; and

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

     (b) As used in this Agreement, the term “Title Defect” means any lien, charge, encumbrance,
obligation (including contract obligation), defect or other matter (including, without limitation a
discrepancy in Net Revenue Interest or working interest) that causes Sellers not to have Defensible
Title in and to the Properties shown in Exhibit A-1 as of the Effective Time and the Closing Date.
As used in this Agreement, the term “Title Benefit” shall mean any right, circumstance or condition
that operates to increase the Net Revenue Interest of Sellers in

8

 

any Property shown on Exhibit A-1 without causing a greater than proportionate increase in
Sellers’ working interest above that shown in Exhibit A-1 as of the Effective Time and the Closing
Date. Notwithstanding the foregoing, the following shall not be considered Title Defects:

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

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

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

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

     (v) the Option.

Section 3.3 Definition of Permitted Encumbrances.

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

     (a) Royalties and any overriding royalties, reversionary interests and other burdens to the
extent that the net cumulative effect of such burdens does not reduce Sellers’ Net Revenue Interest
below that shown in Exhibit A-1 or increase Sellers’ working interest above that shown in Exhibit
A-1 without a corresponding increase in the Net Revenue Interest;

     (b) All Leases to the extent that the net cumulative effect of such instruments does not
reduce Sellers’ Net Revenue Interest below that shown in Exhibit A-1 or increase Sellers’ working
interest above that shown in Exhibit A-1 without a corresponding increase in the Net Revenue
Interest, and other than any term or provision in any of the Leases that would have the effect of
excluding from the Properties the Barnett Shale Formation;

     (c) Preference Rights applicable to the Assets applicable to this or any future transaction;

     (d) Third-party consent requirements and similar restrictions applicable to this or any future
transaction;

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

     (f) Materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other
similar liens or charges arising in the ordinary course of business for amounts not yet delinquent
(including any amounts being withheld as provided by Law), or, if delinquent, being contested in
good faith by appropriate actions;

     (g) All rights to consent by, required notices to, filings with or other actions by
Governmental Bodies in connection with the sale or conveyance of the Assets or interests

9

 

therein if they are not required or customarily obtained prior to the sale or conveyance to
the extent applicable to this or any future transaction;

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

     (i) Surface Contracts and Contracts listed on Schedule 1.2(e) to the extent that they do not
individually reduce Sellers’ Net Revenue Interest below that shown in Exhibit A-1 or increase
Sellers’ working interest above that shown in Exhibit A-1 without a corresponding increase in Net
Revenue Interest and do not unreasonably interfere with the operation of the Assets affected
thereby, and other than any term or provision in any of the foregoing that would have the effect of
excluding from the Properties the Barnett Shale Formation;

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

     (k) Any encumbrance which is discharged by Sellers at or prior to Closing;

     (l) Any matters shown on Exhibit A-1; and

     (m) Liens granted under applicable joint operating agreements.

Section 3.4 Notice of Title Defect Adjustments.

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

     (b) Sellers shall have the right, but not the obligation, to deliver to Purchaser on or before
the Title Claim Date with respect to each Title Benefit a notice (a “Title Benefit Notice”)
including (i) a description of the Title Benefit, (ii) the Properties affected, (iii) the Allocated
Value of the Properties subject to such Title Benefit and (iv) the amount by which the Sellers
reasonably believe the Allocated Value of those Properties is increased by the Title Benefit, and
the computations and information upon which Sellers’ belief is based. Sellers shall be deemed to
have waived all Title Benefits for which it fails to provide to Purchaser a Title Benefit Notice on
or before the Title Claim Date.

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

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

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

     (ii) if applicable, terminate this Agreement.

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

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

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

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

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

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

     (iv) if the Title Defect represents an obligation, encumbrance, burden or
charge upon or other defect in title to the Title Defect Property of a type not
described in subsections (i), (ii) or (iii) above, then the Title Defect Amount
shall be determined by taking into account the Allocated Value of the Title Defect
Property, the portion of the Title Defect Property affected by the Title Defect, the

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legal effect of the Title Defect, the potential economic effect of the Title
Defect over the life of the Title Defect Property, the values placed upon the Title
Defect by Purchaser and Sellers and such other factors as are necessary to make a
proper evaluation; and

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

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

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

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(but not including) the Closing Date to (and including) the date on which such amount is paid
to Purchaser.

     (j) Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments
to the Purchase Price or other remedies provided by Sellers for individual Title Defects that do
not exceed $50,000 (“Individual Title Deductible”); and (ii) in no event shall there be any
adjustments to the Purchase Price or other remedies provided by Sellers for Title Defects unless
the sum of (a) the Title Defect Amounts attributable to all such Title Defects which exceed the
Individual Title Deductible, in the aggregate, excluding any Title Defects cured by Sellers, and
(b) the Environmental Defect Amounts attributable to all Environmental Defects, in the aggregate,
excluding any Environmental Defects cured by Sellers, exceeds a deductible in an amount equal to
two percent (2%) of the Purchase Price (“Aggregate Defect Deductible”), after which point Purchaser
shall be entitled to adjustments to the Purchase Price or other remedies only with respect to
uncured Title Defects and uncured Environmental Defects where the aggregate Title Defect Amounts
and Environmental Defect Amounts attributable thereto are in excess of such Aggregate Defect
Deductible.

Section 3.5 Casualty or Condemnation Loss.

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

     (b) Subject to the provisions of Sections 8.1(f) and 8.2(f) hereof, if, after the date of this
Agreement but prior to the Closing Date, any portion of the Assets is destroyed or damaged by fire
or other casualty or is taken in condemnation or under right of eminent domain, and the loss as a
result of such individual casualty or taking exceeds one percent (1%) of the Purchase Price,
Purchaser shall nevertheless be required to close and Sellers shall elect by written notice to
Purchaser prior to Closing either (i) to cause the Assets affected by any casualty or taking to be
repaired or restored to at least their condition prior to such casualty, at Sellers’ sole cost, as
promptly as reasonably practicable (which work may extend after the Closing Date), or (ii) to
indemnify Purchaser through a document reasonably acceptable to Sellers and Purchaser against any
costs or expenses that Purchaser reasonably incurs to repair the Assets subject to any casualty or
taking. In each case, Sellers shall retain all rights to insurance and other claims against third
parties with respect to the casualty or taking except to the extent the parties otherwise agree in
writing.

     (c) If, after the date of this Agreement but prior to the Closing Date, any portion of the
Assets is destroyed or damaged by fire or other casualty or is taken in condemnation or under right
of eminent domain, and the loss as a result of such individual casualty or taking is one percent
(1%) or less of the Purchase Price, Purchaser shall nevertheless be required to close and Sellers
shall, at Closing, pay to Purchaser all sums paid to Sellers by third parties by reason of such
casualty or taking and shall assign, transfer and set over to Purchaser or subrogate Purchaser to
all of Sellers’ right, title and interest (if any) in insurance claims, unpaid awards and other
rights against third parties (other than Affiliates of any Seller and its and their directors,
officers, employees and agents) arising out of the casualty or taking.

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Section 3.6 Limitations on Applicability.

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

Section 3.7 Government Approvals Respecting Assets

     (a) Federal and State Approvals. Purchaser, within thirty (30) days after Closing,
shall file for any requisite approval with the applicable government agencies all assignment
documents and other state and federal transfer documents required to effectuate the transfer of the
Assets. Purchaser further agrees promptly after Closing to take all other actions reasonably
required of it by federal or state agencies having jurisdiction to obtain all requisite regulatory
approvals with respect to this transaction and to use its reasonable commercial efforts to obtain
the approval by such federal or state agencies, as applicable, of Sellers’ assignment documents
requiring federal or state approval in order for Purchaser to be recognized by the federal or state
agencies as the owner of the Assets. Purchaser shall provide Sellers with the resignation and
designation of operator instruments and approved copies of the assignment documents and other state
and federal transfer documents as soon as they are available.

     (b) Title Pending Governmental Approvals. Until all of the governmental approvals
provided for in Section 3.7(a) have been obtained, the following shall occur with respect to the
affected portion of the Assets:

     (i) Sellers shall continue to hold record title to the affected Leases and
other affected portion of the Assets as nominee for Purchaser;

     (ii) Purchaser shall be responsible for all assumed obligations with respect to
the affected Leases and other affected portion of the Assets as if Purchaser were
the record owner of such Leases and other portion of the Assets as of the Effective
Time; and

     (iii) Sellers shall act as Purchaser’s nominee but shall be authorized to act
only upon and in accordance with Purchaser’s instructions, and Sellers shall have no
authority, responsibility or discretion to perform any tasks or functions with
respect to the affected Leases and other affected portion of the Assets other than
those that are purely administrative or ministerial in nature, unless otherwise
specifically requested and authorized by Purchaser in writing.

     (c) Denial of Required Governmental Approvals. If the federal or state agency fails
to grant approval within twenty-four (24) months after the Closing, Sellers may continue to hold
record title to the affected Leases and other affected Assets as Purchaser’s nominee or, at
Sellers’ sole option, Sellers may terminate this Agreement and all their obligations hereunder as
to the affected Leases and other affected portion of the Assets by giving sixty (60) days written
notice to Purchaser. Upon such termination: (i) this Agreement shall be null and void and
terminated only as to the affected Leases and other affected portion of the Assets, (ii) Purchaser
shall immediately reassign and return to Sellers the assignment documents and any and all other
documents, materials and data previously delivered to Purchaser with respect to the

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affected Leases and other affected portion of the Assets, and (iii) Sellers shall pay to
Purchaser the Allocated Value of the affected Property, without interest, less the proceeds of
Hydrocarbon production received by Purchaser (which shall be retained by Purchaser as its sole
property) net of all expenses, overhead, royalties and costs of operations (including plugging and
abandonment expenses but excluding mortgage interest and any burdens, liens or encumbrances created
by Purchaser that must be released prior to this payment) attributable to the affected Leases or
other affected portion of the Assets from the Effective Time forward. In no event, however, shall
Sellers ever be required to reimburse Purchaser for any expenditures associated with workovers,
recompletions, sidetracks, or the drilling, completion or plugging and abandonment of wells drilled
or work performed by Sellers.

ARTICLE 4

ENVIRONMENTAL MATTERS

Section 4.1 Assessment.

     From the date of the execution of this Agreement until the Closing Date, Sellers shall afford
to Purchaser and its officers, employees, agents and authorized representatives reasonable access
to the Assets, including the Records in accordance with Section 7.1. During such period, Sellers
shall also make available to Purchaser, upon reasonable notice and during regular business hours,
such personnel of Sellers knowledgeable with respect to the Assets in order that Purchaser may make
such diligent investigation as Purchaser considers desirable. Upon notice to Sellers, Purchaser
shall, subject to the provisions of Section 11.4(b)(vi), have the right to conduct an environmental
assessment of all or any portion of the Properties (the “Assessment”) to be conducted by a
reputable environmental consulting or engineering firm approved in advance in writing by Sellers,
but only to the extent that Sellers may grant such right without violating any obligations to any
third party. The Assessment shall be conducted at the sole cost and expense of Purchaser and shall
be subject to the indemnity provisions of Section 4.4 and Section 11.4(b)(vi). Prior to conducting
any sampling, boring, drilling or other invasive investigative activity with respect to the
Properties (“Invasive Activity”), Purchaser shall furnish for Sellers’ review a proposed scope of
such Invasive Activity, including a description of the activities to be conducted and a description
of the approximate locations of such activities. If any of the proposed activities may
unreasonably interfere with normal operation of the Properties, Sellers may request an appropriate
modification of the proposed Invasive Activity. Sellers shall have the right to be present during
any Assessment of the Properties and shall have the right, at their option and expense, to split
samples with Purchaser. After completing any Assessment of the Properties, Purchaser shall, at its
sole cost and expense, restore the Properties to their condition prior to the commencement of such
Assessment, unless Sellers request otherwise, and shall promptly dispose of all drill cuttings,
corings or other investigative-derived wastes generated in the course of the Assessment. Purchaser
shall maintain, and shall cause its officers, employees, representatives, consultants and advisors
to maintain, all information obtained by Purchaser pursuant to any Assessment or other due
diligence activity as strictly confidential in perpetuity, unless disclosure of any facts
discovered through such Assessment is required under any Environmental Laws. Purchaser shall
provide Sellers with a copy of all environmental reports prepared by, or on behalf of, Purchaser
with respect to any Assessment or Invasive Activity conducted on the Properties. In the event that
any necessary disclosures under applicable Environmental Laws are required with respect to matters
discovered by any Assessment conducted by, for or on behalf of Purchaser, Purchaser agrees that
Sellers shall be the responsible party for disclosing such matters to the appropriate Governmental
Bodies.

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Section 4.2 NORM, Wastes and Other Substances.

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

Section 4.3 Environmental Defects.

     If, as a result of its investigation pursuant to Section 4.1, Purchaser reasonably believes
that with respect to the Assets, there exists a violation of an Environmental Law or there exists a
condition that requires any of the Assets to be remediated under any Environmental Law (in each
case, an “Environmental Defect”), then on or before five (5) Business Days prior to the Closing
Date (the “Environmental Claim Date”), Purchaser may notify Sellers in writing of such
Environmental Defect (an “Environmental Defect Notice”). To be effective, each such notice shall
set forth (a) a description of the matter constituting the asserted Environmental Defect, (b) the
Assets affected by the Environmental Defect, (c) the estimated Lowest Cost Response to eliminate
the Environmental Defect in question (the “Environmental Defect Amount”) and (d) supporting
documents reasonably necessary for Sellers to verify the existence of the alleged Environmental
Defect and the Environmental Defect Amount. Sellers shall have the right, but not the obligation,
to cure any Environmental Defect before Closing or, provided that the parties shall have agreed to
the general plan of remediation with respect to such Environmental Defect and the time period by
which such remediation shall take place, after Closing. If Sellers disagree with any of
Purchaser’s assertions with respect to the existence of an Environmental Defect or the
Environmental Defect Amount applicable thereto, Purchaser and Sellers will attempt to resolve the
dispute prior to Closing. If the dispute cannot be resolved within ten (10) days of the first
meeting between Purchaser and Sellers, either party may submit the dispute to an environmental
consultant approved in writing by Sellers and Purchaser that is experienced in environmental
corrective action at oil and gas properties in the relevant jurisdiction and that shall not have
performed professional services for either party or any of their respective Affiliates during the
previous five years (the “Independent Expert”). The Independent Expert may elect to conduct the
dispute resolution proceeding by written submissions from Purchaser and Sellers with exhibits,
including interrogatories, supplemented with appearances by Purchaser and Sellers, if necessary, as
the Independent Expert may deem necessary. After the parties and Independent Expert have had the
opportunity to review all such submissions, the Independent Expert shall call for a final, written
offer of resolution from each party. The Independent Expert shall render its decision within
twenty (20) Business Days of receiving such offers. The Independent Expert may not award damages,
interest or penalties to either party with respect to any matter. The decision of the Independent
Expert shall be final and binding upon both parties, without right of appeal. Sellers and
Purchaser shall each bear its own legal fees and other costs of presenting its case to the
Independent Expert. Each party shall bear one-half of the costs and expenses of the Independent
Expert. The parties shall adjust the Purchase Price to reflect the Environmental Defect Amounts,
as agreed by the parties or as determined by the Independent Expert, for all uncured Environmental
Defects; provided, that

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notwithstanding anything to the contrary, (x) in no event shall there be any adjustments to the
Purchase Price for any individual uncured Environmental Defect or series of related uncured
Environmental Defects for which the Environmental Defect Amount therefor does not exceed $100,000
(“Individual Environmental Deductible”); and (y) in no event shall there be any adjustments to the
Purchase Price for any uncured Environmental Defect unless the aggregate Environmental Defect
Amounts attributable to all such Environmental Defects, taken together with the aggregate Title
Defect Amounts attributable to all uncured Title Defects, exceeds the Aggregate Defect Deductible,
after which point Purchaser shall be entitled to an adjustment to the Purchase Price or other
remedies only with respect to uncured Title Defects and uncured Environmental Defects where the
aggregate Title Defect Amounts and Environmental Defect Amounts attributable thereto are in excess
of such Aggregate Defect Deductible. To the extent the Independent Expert fails to determine any
disputed Environmental Defect Amounts prior to Closing, then, within ten (10) days after the
Independent Expert delivers written notice to Purchaser and Sellers of his award with respect to an
Environmental Defect Amount, Sellers shall pay to Purchaser the amount, if any, so awarded by the
Independent Examiner, plus interest payable on such amount at the Agreed Interest Rate from (but
not including) the Closing Date to (and including) the date on which such amount is paid to
Purchaser.

Section 4.4 Inspection Indemnity.

     PURCHASER HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE
SELLERS INDEMNITEES FROM AND AGAINST ANY AND ALL LOSSES AND CLAIMS RESULTING DIRECTLY FROM ANY DUE
DILIGENCE ACTIVITY CONDUCTED BY PURCHASER OR ITS AGENTS, WHETHER BEFORE OR AFTER THE EXECUTION OF
THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY LOSSES RESULTING, IN WHOLE OR IN PART, FROM THE
NEGLIGENCE (OTHER THAN THE GROSS NEGLIGENCE) OR STRICT LIABILITY OF ANY SELLER.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLERS

Section 5.1 Generally.

     (a) Any representation or warranty qualified “to the knowledge of Sellers” or “to Sellers’
knowledge” or with any similar knowledge qualification is limited to matters within the actual
knowledge of Mark Rollins, Mike Berry, Bill Burton, George Young, Jr., any Vice President of Chief
LP or Chief Pipeline, any other officer of any Seller, and any employee at a managerial or higher
level of any Seller. “Actual knowledge” for purposes of this Agreement means information actually
personally known by such persons.

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

     (c) Subject to the foregoing provisions of this Section 5.1 and Section 13.20, the disclaimers
and waivers contained in Sections 11.8 and 11.9 and the other terms and conditions of this
Agreement, Sellers represent and warrant to Purchaser the matters set out in Sections 5.2 through
5.31.

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Section 5.2 Existence and Qualification.

     Each Seller other than a natural person is duly organized, validly existing and in good
standing under the laws of the State of Texas.

Section 5.3 Power.

     Each Seller other than a natural person has the partnership or limited liability company power
to enter into and perform this Agreement and consummate the transactions contemplated by this
Agreement.

Section 5.4 Authorization and Enforceability.

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

Section 5.5 No Conflicts.

     Subject to compliance with the Preference Rights and Transfer Requirements set forth in
Schedule 5.13, the execution, delivery and performance of this Agreement by each Seller, and the
transactions contemplated herein will not (a) violate any provision of the certificate of formation
or limited partnership, partnership agreement, limited liability company agreement or other
constituent documents of any Seller, (b) result in default (with due notice or lapse of time or
both) or the creation of any lien or encumbrance or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license or agreement to which any Seller is a party or which affect the
Assets, (c) violate any judgment, order, ruling, or decree applicable to any Seller as a party in
interest, (d) violate any Laws applicable to any Seller or any of the Assets, except for (i) rights
to consent by, required notices to, filings with, approval or authorizations of, or other actions
by any Governmental Body where the same are not required prior to the assignment of the related
Asset or are customarily obtained subsequent to the sale or conveyance thereof and (ii) any matters
described in clauses (b), (c) or (d) above which would not have a Material Adverse Effect.

Section 5.6 Liability for Brokers’ Fees.

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

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Section 5.7 Litigation.

     Except as set forth in: (a) Schedule 5.7(a), no proceeding, action, suit for which Sellers
have received service of process, or other legal proceeding of any kind or nature before any
Governmental Body or arbitrator (including any take-or-pay claims) is pending or, to Sellers’
knowledge, threatened, which affects the Assets; and (b) to Sellers’ knowledge, no investigations
are currently pending and no suits have been filed which affect the Assets. No notice in writing
from any Governmental Body or other Person that could have a Material Adverse Effect has been
received by Seller claiming any violation of or noncompliance with any Law with respect to the
Assets (including any such Law concerning the conservation of natural resources).

Section 5.8 Taxes and Assessments.

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

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

Section 5.9 Compliance with Laws.

     Except as disclosed on Schedule 5.9, the Assets are, and the operation of the Assets is, in
compliance with the provisions and requirements of all Laws of all Governmental Bodies having
jurisdiction with respect to the Assets or the ownership, operation, development, maintenance or
use of any thereof, except where the failure to so comply would not have a Material Adverse Effect.
Notwithstanding the foregoing, Sellers make no representation or warranty, express or implied,
under this Section relating to any Environmental Liabilities or Environmental Law.

Section 5.10 Contracts.

     To the knowledge of Sellers, Sellers have paid their share of all costs payable by them under
the Contracts, except those being contested in good faith. Sellers are in compliance with all
Contracts, except such non-compliance as would not have a Material Adverse Effect.

Section 5.11 Payments for Hydrocarbon Production.

     To the knowledge of Sellers, (a) all rentals, royalties, excess royalty, overriding royalty
interests, Hydrocarbon production payments and other payments due and/or payable by Sellers to
overriding royalty holders and other interest owners under or with respect to the Assets and the
Hydrocarbons produced therefrom or attributable thereto have been paid, and (b) no Seller is
obligated under any contract or agreement for the sale of gas from the Assets containing a

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take-or-pay, advance payment, prepayment or similar provision, or under any gathering,
transmission or any other contract or agreement with respect to any of the Assets to gather,
deliver, process or transport any gas without then or thereafter receiving full payment therefor.

Section 5.12 Governmental Authorizations.

     To Sellers’ knowledge, Sellers have obtained and are maintaining all federal, state and local
governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations,
certificates, consents, rights, privileges and applications therefor (the “Governmental
Authorizations”) that are presently necessary or required for the ownership and operation of the
Seller Operated Assets as currently owned and operated, the loss of which would have a Material
Adverse Effect. Except as disclosed in Schedule 5.7(a) and except as would not have a Material
Adverse Effect, (a) Sellers have operated the Seller Operated Assets in accordance with the
conditions and provisions of such Governmental Authorizations, and (b) no written notices of
violation have been received by any Seller, and no proceedings are pending or, to Sellers’
knowledge, threatened in writing, that might result in any modification, revocation, termination or
suspension of any such Governmental Authorizations or which would require any corrective or
remediation action by Sellers.

Section 5.13 Preference Rights and Transfer Requirements.

     To Sellers’ knowledge, none of the Assets, or any portion thereof, is subject to any
Preference Right or Transfer Requirement that may be applicable to the transactions contemplated by
this Agreement, except for (a) Preference Rights and Transfer Requirements as are set forth on
Schedule 5.13 and (b) the Option.

Section 5.14 Payout Balances.

     To Sellers’ knowledge, none of the Wells and Units listed on Exhibit A-1 are subject to a
reversion or other adjustment at some level of cost recovery or payout (or passage of time or other
event other than termination of a Lease by its terms).

Section 5.15 Outstanding Capital Commitments.

     As of the date hereof, there are no outstanding AFEs or other commitments to make capital
expenditures that are binding on the Assets and that Sellers reasonably anticipate will
individually require expenditures by the owner of the Assets after the Closing Date in excess of
$150,000 other than those shown on Schedule 5.15.

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Section 5.16 Imbalances.

     There are no Imbalances as of April 1, 2008 arising with respect to the Assets, and as of
April 1, 2008, (a) no Person is entitled to receive any portion of the Sellers’ Hydrocarbons
produced from the Assets or to receive cash or other payments to “balance” any disproportionate
allocation of Hydrocarbons produced from the Assets under any operating agreement, gas balancing or
storage agreement, gas processing or dehydration agreement, gas transportation agreement, gas
purchase agreement or other agreements, whether similar or dissimilar, (b) Sellers are not
obligated to deliver any quantities of gas or to pay any penalties or other amounts in connection
with the violation of any of the terms of any gas contract or other agreement with shippers with
respect to the Assets and (c) Sellers are not obligated to pay any penalties or other payments
under any gas transportation or other agreement as a result of the delivery of quantities of gas
from the Wells in excess of the contract requirements.

Section 5.17 Condemnation.

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

Section 5.18 Bankruptcy.

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

Section 5.19 PUHCA/NGA.

     No Seller is a “holding company,” a “subsidiary company” of a “holding company,” an
“affiliate” of a “holding company,” an “affiliate” of a “subsidiary” of a “holding company” or a
“public-utility company” within the meaning of the Public Utility Holding Company Act of 1935, as
amended. No consent is required in connection with the transaction contemplated hereby under the
Natural Gas Policy Act of 1978, as amended. No Seller is an interstate pipeline company within the
meaning of the Natural Gas Act of 1938.

Section 5.20 Investment Company.

     No Seller is an investment company or a company controlled by an investment company within the
meaning of the Investment Company Act of 1940, as amended.

Section 5.21 No Tax Partnership.

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

Section 5.22 Hedging. 

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

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Section 5.23 Insurance. 

     Schedule 5.23 contains a true and complete list of all policies of insurance that are
maintained by Sellers and that cover or relate to any of the Assets for any period from and after
the Effective Time.

Section 5.24 Environmental. 

     To the knowledge of Sellers, except as set forth in Schedule 5.24 and as would not have a
Material Adverse Effect: (a) neither Sellers nor any prior owner or operator of the Assets has
caused or allowed the generation, use, treatment, storage or disposal of Hazardous Materials at or
on any of the Assets except in compliance with all applicable Environmental Laws; (b) Sellers have
conducted its operations on the Assets in compliance with all limitations, restrictions, standards
and obligations established under Environmental Laws; (c) Sellers have obtained all permits,
licenses, authorizations, registrations, consents and approvals granted by any Governmental Body or
otherwise required under Environmental Laws that are necessary for Sellers’ operations on the
Assets and have operated and are operating in compliance with such permits, licenses,
authorizations, registrations, consents and approvals; (d) there are no Environmental Liabilities
pending or threatened by or before any court or any other Governmental Body directed against any of
Sellers relating to Sellers’ operations on the Assets that pertain or relate to (i) any Remedial
Action under any applicable Environmental Law, (ii) non-compliances or alleged non-compliances by
Sellers of any Environmental Law, or (iii) personal injury or property damage claims relating to a
release of Hazardous Materials; and (e) there are no Adverse Environmental Conditions. Sellers
have provided Purchaser with copies of reports in Sellers’ possession reflecting any Adverse
Environmental Conditions of any Asset, any prior Phase I or II Environmental Site Assessments
relating to the Assets and any violations of Environmental Law known to Sellers that have not been
remedied.

Section 5.25 Suspense Funds. 

     Schedule 5.25 contains a listing showing all proceeds from production attributable to the
Assets that are held in suspense by Sellers as of the date of this Agreement and sets forth the
reason that such proceeds are being held in suspense.

Section 5.26 Purchase Entirely for Own Account. 

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

Section 5.27 Restricted Securities. 

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

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Section 5.28 Legends. 

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

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

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

Section 5.29 Accredited Investor. 

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

Section 5.30 Disclosure of Information.

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

Section 5.31 Residence. 

     If the Seller is an individual, then the Seller resides in the state or province identified in
the address of the Seller set forth in Section 13.2 hereof; if the Seller is a partnership,
corporation, limited liability company or other entity, then the office or offices of the Seller’s
principal place of business is identified in the address or addresses of the Seller set forth in
Section 13.2 hereof.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Purchaser represents and warrants to Sellers the following:

Section 6.1  Existence and Qualification.

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

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Purchaser or its properties. Purchaser is, or will be at the Closing, duly qualified to do
business as a foreign corporation in the respective jurisdictions where the Assets are located.

Section 6.2 Power.

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

Section 6.3 Authorization and Enforceability.

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

Section 6.4 No Conflicts.

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

Section 6.5 Liability for Brokers’ Fees.

     No Seller shall directly or indirectly have any responsibility, liability or expense as a
result of undertakings or agreements of Purchaser for brokerage fees, finder’s fees, agent’s
commissions or other similar forms of compensation in connection with this Agreement or any
agreement or transaction contemplated hereby.

Section 6.6 Litigation.

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

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Section 6.7 Financing.

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

Section 6.8  [RESERVED]

Section 6.9 Limitation.

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

Section 6.10 SEC Disclosure.

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

Section 6.11 Bankruptcy.

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

Section 6.12 Qualification.

     Purchaser is now, and hereafter shall continue to be, qualified to own and assume operatorship
of the Assets in all jurisdictions where the Assets to be transferred to it are located, and the
consummation of the transactions contemplated in this Agreement will not cause Purchaser to be
disqualified as such an owner or operator. To the extent required by the applicable state and
federal Governmental Bodies, Purchaser currently has, and will continue to maintain, lease bonds,
area-wide bonds or any other surety bonds as may be required by, and in accordance with, such state
or federal regulations governing the ownership and operation of the Assets.

Section 6.13 SEC Reports; Financial Statements.

     Purchaser has filed and made available to Seller all forms, reports and other documents
required to be filed by Purchaser with the Securities and Exchange Commission (the “SEC”) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), since January 1, 2007. All such
required forms, reports and other documents (including those that Purchaser may file after the date
hereof and prior to the Closing Date) are referred to herein as the

25

 

“Purchaser SEC Reports.” The Purchaser SEC Reports (i) were or will be filed on a timely
basis, (ii) were or will be prepared in compliance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder, and (iii) did not, or will not at the time
they were or are filed, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Since the last date on which
a Purchaser SEC Report was filed, there has been no material adverse change in the assets,
liabilities, condition (financial or otherwise), operating results, business or prospects of
Purchaser or in the ability of Purchaser to perform its obligations under this Agreement or that
could materially impair or prohibit the consummation of the transactions contemplated by this
Agreement.

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

Section 6.14 Purchaser Common Stock.

     As of June 27, 2008, Purchaser had (i) 400,000,000 authorized shares of Purchaser Common
Stock, of which 160,946,924 (together with an equivalent number of associated share purchase
rights) were issued or outstanding, (ii) issued and outstanding stock options and restricted stock
units to acquire 1,439,313 shares of Purchaser Common Stock under all stock option plans and
agreements, (iii) issued and outstanding debentures convertible into 9,816,256 shares of Purchaser
Common Stock, and (iv) no warrants to purchase any Purchaser Common Stock are outstanding under any
agreement. The issuance of the Purchaser Common Stock pursuant to this Agreement has been duly
authorized and upon consummation of the transactions contemplated by this Agreement, the Purchaser
Common Stock will have been validly issued, fully paid, non-assessable, and issued without
application of preemptive rights, have the rights, preferences, and privileges specified in
Purchaser’s Certificate of Incorporation, and will be free and clear of all liens and restrictions,
other than any liens or restrictions granted or incurred by the Sellers and the restrictions
imposed by this Agreement and the Securities Act and state securities and blue sky laws. Except as
stated in the first sentence of this Section 6.14, as of June 27, 2008, there were outstanding: (i)
no securities of Purchaser convertible into or exchangeable for shares of Purchaser Common Stock,
and (ii) no options, warrants, calls, rights (including preemptive rights), commitments, or
agreements to which Purchaser is a party or by which it is bound, in any case obligating Purchaser
to issue, deliver, sell, purchase, redeem, or acquire, or cause to be issued, delivered, sold,
purchased, redeemed, or acquired, any shares of Purchaser Common Stock or obligating Purchaser to
grant, extend or enter into any such option, warrant, call, right, commitment, or agreement.

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ARTICLE 7

COVENANTS OF THE PARTIES

Section 7.1 Access.

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

Section 7.2 Government Reviews.

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

Section 7.3 Notification of Breaches.

     Until the Closing,

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

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

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

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Section 10.1(b)), then such breach shall be considered not to have occurred for all purposes
of this Agreement.

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

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

     (b) Sellers will prepare, and Sellers and Purchaser will execute on the Closing Date, all
assignments necessary to convey to Purchaser all Leases in the form as prescribed by the applicable
Governmental Body and otherwise acceptable to Purchaser and Sellers.

     (c) Sellers make no representations or warranties to Purchaser as to transferability or
assignability of operatorship of any Seller Operated Assets. Rights and obligations associated
with operatorship of such Properties are governed by operating and similar agreements covering the
Properties and will be decided in accordance with the terms of such agreements. However, Sellers
will assist Purchaser in its efforts to succeed Sellers as operator of any Wells included in the
Assets. Purchaser shall, promptly following Closing, file all appropriate forms and declarations
or bonds with federal and state agencies relative to its assumption of operatorship. For all
Seller Operated Assets, Sellers shall execute and deliver to Purchaser, and Purchaser shall
promptly file, the appropriate forms with the applicable regulatory agency transferring
operatorship of such Assets to Purchaser.

Section 7.5 Public Announcements.

     Neither party shall make any press release or other public announcement regarding the
existence of this Agreement, the contents hereof or the transactions contemplated hereby without
the prior written consent of the other (which consent shall not be unreasonably withheld of
delayed); provided, however, the foregoing shall not restrict disclosures by Purchaser or Sellers
that are required by applicable securities or other laws or regulations or the applicable rules of
any stock exchange having jurisdiction over the disclosing party or its Affiliates; and provided,
further, that Purchaser may disclose the existence and contents of this Agreement and the
transactions contemplated hereby to the Standard & Poor’s and Moody’s rating agencies (provided
that such agencies are obligated to keep such information confidential).

Section 7.6 Operation of Business.

     Except as set forth on Schedule 7.6, until the Closing, Sellers (a) will operate their
business in the ordinary course, (b) will not, without the prior written consent of Purchaser,
which consent shall not be unreasonably withheld, (i) commit to any operation, or series of related
operations, reasonably anticipated by Sellers to require future capital expenditures by the owner
of the Assets in excess of $50,000, proportionate to Sellers’ working interest, (ii) make any
capital expenditures in excess of $50,000, proportionate to Sellers’ working interest, (iii) agree
not to participate in any operation or (iv) terminate, materially amend, execute or extend any
material agreements affecting the Assets; (c) will maintain insurance coverage on the Assets
presently furnished by nonaffiliated third parties in the amounts and of the types presently in
force, (d) will use commercially reasonable efforts to maintain in full force and effect all
Leases, (e) will maintain all governmental permits and approvals affecting the Assets, (f) will not
transfer, farmout, sell, hypothecate, encumber or otherwise dispose of any Assets except for sales
and dispositions of Hydrocarbon production and Equipment made in the ordinary course of business
consistent with past practices and (g) will not commit to do any of

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the foregoing. Purchaser’s approval of any action restricted by this Section 7.6 shall be
considered granted within ten (10) days (unless a shorter time is reasonably required by the
circumstances and such shorter time is specified in Sellers’ written notice) of Sellers’ notice to
Purchaser requesting such consent unless Purchaser notifies Sellers to the contrary in writing
during that period. In the event of an emergency, Sellers may take such action as a prudent
operator would take and shall notify Purchaser of such action promptly thereafter.

     Purchaser acknowledges that Sellers may own an undivided interest in certain of the Assets,
and Purchaser agrees that the acts or omissions of the other working interest owners who are not
affiliated with any Seller shall not constitute a violation of the provisions of this Section 7.6
nor shall any action required by a vote of working interest owners constitute such a violation so
long as such Seller has voted its interest in a manner consistent with the provisions of this
Section 7.6.

Section 7.7 Preference Rights and Transfer Requirements.

     (a) Purchaser’s purchase of the Assets is expressly subject to all validly existing and
applicable Preference Rights and Transfer Requirements. Prior to the Closing Date and, except with
respect to the Option which Purchaser is acquiring hereunder, Sellers shall initiate all procedures
that in Sellers’ good faith judgment are reasonably required to comply with or obtain the waiver of
all Preference Rights and Transfer Requirements with respect to the transactions contemplated by
this Agreement. Sellers shall use commercially reasonable efforts to obtain all applicable
consents and to obtain waivers of applicable Preference Rights. Sellers shall not be obligated to
pay any consideration to (or incur any cost or expense for the benefit of) the holder of any
Preference Right or Transfer Requirement in order to obtain the waiver thereof or compliance
therewith.

     (b) The portion of the Purchase Price to be allocated to any Asset or portion thereof affected
by a Preference Right (a “Preference Property”) or that becomes a Retained Asset shall be the
portion of the Purchase Price allocated thereto in Exhibit A-1. If a Preference Property or a
Retained Asset affects only a portion of a Property and a portion of the Purchase Price has not
been allocated specifically to such portion of a Property in Exhibit A-1, then the portion of the
Purchase Price to be allocated to such Preference Property or Retained Asset shall be determined in
a reasonable manner taking into account the net acreage (or net acre feet, as appropriate) that the
portion of such Property affected by such Preference Property or Retained Asset bears to the net
acreage (or net acre feet, as appropriate) in the entire Property. Any Preference Property or
Retained Asset that is a Property shall include a pro rata share of all of Sellers’ rights, title
and interest in, to and under all Contracts, Surface Contracts, Equipment, Hydrocarbon production
and Records included in the Assets that are directly related or attributable to such Preference
Property or Retained Asset.

     (c) If the holder of a Preference Right who has been offered a Preference Property pursuant to
Section 7.7(a) elects prior to Closing to purchase such Preference Property in accordance with the
terms of such Preference Right, and Sellers and Purchaser receive written notice of such election
prior to the Closing, such Preference Property will be eliminated from the Assets and the Purchase
Price shall be reduced by the portion of the Purchase Price allocated to such Preference Property
pursuant to Section 7.7(b).

     (d) If

     (i) a third party brings any suit, action or other proceeding prior to the
Closing seeking to restrain, enjoin or otherwise prohibit the consummation of the

29

 

transactions contemplated hereby in connection with a claim to enforce a
Preference Right;

     (ii) an Asset is subject to a Transfer Requirement, and such Transfer
Requirement is not waived, complied with or otherwise satisfied prior to the Closing
Date; or

     (iii) the holder of a Preference Right who has been offered a Preference
Property or who has been requested to waive its Preference Right pursuant to Section
7.7(a) does not elect to purchase such Preference Property or waive such Preference
Right with respect to the transactions contemplated by this Agreement prior to the
Closing Date and the time in which the Preference Right may be exercised has not
expired,

then, unless otherwise mutually agreed by Sellers and Purchaser, the Asset or portion thereof
affected by such Preference Right or Transfer Requirement (a “Retained Asset”) shall be held back
from the Assets to be transferred and conveyed to Purchaser at Closing, and the Purchase Price to
be paid at Closing shall be reduced by the portion of the Purchase Price that is allocated to such
Retained Asset pursuant to Section 7.7(b). Any Retained Asset so held back at the initial Closing
will be conveyed to Purchaser at a delayed Closing (which shall become the new Closing Date with
respect to such Retained Asset) within ten (10) days following the date on which the suit, action
or other proceeding, if any, referenced in clause (i) above is settled or a judgment is rendered
(and no longer subject to appeal) permitting transfer of the Retained Asset to Purchaser pursuant
to this Agreement and Sellers obtain, comply with, obtain a waiver of or notice of election not to
exercise or otherwise satisfy all remaining Preference Rights and Transfer Requirements with
respect to such Retained Asset as contemplated by this Section. At the delayed Closing, Purchaser
shall pay Sellers a purchase price equal to the amount by which the Purchase Price was reduced on
account of the holding back of such Retained Asset (as adjusted pursuant to Section 2.2 through the
new Closing Date therefor); provided, however, if all such Preference Rights and Transfer
Requirements with respect to any Retained Asset so held back at the initial Closing are not
obtained, complied with, waived or otherwise satisfied as contemplated by this Section within one
hundred eighty (180) days after the initial Closing has occurred with respect to any Assets, then
such Retained Asset shall be eliminated from the Assets and this Agreement, unless Sellers and
Purchaser mutually agree to proceed with a closing on such Retained Asset, in which case Purchaser
shall be deemed to have waived any objection (and shall be obligated to indemnify the Sellers
Indemnitees for all Claims) with respect to non-compliance with such Preference Rights and Transfer
Requirements with respect to such Retained Asset.

     (e) Purchaser acknowledges that it is purchasing the Option under the terms of this Agreement
and thereby acquiring all rights of Hillwood to participate as a working interest owner under
certain of the Leases. Accordingly, it is expressly understood and agreed that the Option shall
not be considered a Preference Right and shall not reduce the Purchase Price hereunder.

     (f) Purchaser acknowledges that Sellers desire to sell all of the Assets and would not have
entered into this Agreement but for Purchaser’s agreement to purchase all of the Assets as herein
provided. Accordingly, it is expressly understood and agreed that Sellers do not desire to sell
any Preference Property unless the sale of all of the Assets is consummated by the Closing Date in
accordance with the terms of this Agreement. In furtherance of the foregoing, Sellers’ obligation
hereunder to sell the Preference Properties to Purchaser is expressly conditioned upon the
consummation by the Closing Date of the sale of all of the Assets in accordance with the terms of
this Agreement, either by conveyance to Purchaser or

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conveyance pursuant to an applicable Preference Right; provided that nothing herein is
intended or shall operate to extend or apply any Preference Right to any portion of the Assets that
is not otherwise burdened thereby. Time is of the essence with respect to the parties’ agreement
to consummate the sale of the Assets by the Closing Date (or by the delayed Closing Date pursuant
to Section 7.7(d)).

Section 7.8 Tax Matters.

     (a) Subject to the provisions of Section 13.3, Sellers shall be responsible for all Taxes
related to the Assets (other than ad valorem, property, severance, Hydrocarbon production and
similar Taxes based upon or measured by the ownership or operation of the Assets or the production
of Hydrocarbons therefrom, which are addressed in Section 1.4) attributable to any period of time
at or prior to the Effective Time, and Purchaser shall be responsible for all such Taxes related to
the Assets attributable to any period of time after the Effective Time. Regardless of which party
is responsible, Sellers shall handle payment to the appropriate Governmental Body of all Taxes with
respect to the Assets that are required to be paid prior to Closing (and shall file all Tax Returns
with respect to such Taxes). If requested by Purchaser, Sellers will assist Purchaser with
preparation of all ad valorem and property Tax Returns due on or before December 31, 2008
(including any extensions requested). Sellers shall deliver to Purchaser within thirty (30) days of
filing copies of all Tax Returns filed by Sellers after the Effective Time relating to the Assets
and any supporting documentation provided by Sellers to taxing authorities, excluding Tax Returns
related to income tax, franchise tax or other similar Taxes.

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

Section 7.9 Further Assurances.

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

Section 7.10 Insurance.

     Effective as of the Closing Date, Purchaser shall carry and maintain the following: (a)
general liability insurance with combined single limits per occurrence of not less than
$10,000,000.00 for bodily injury and property damage, including property damage by blowout and
cratering, completed operations, and contractual liability with respect to any contract into

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which the Purchaser may enter under the terms of this Agreement; and (b) operators extra
expense insurance with limits of not less than $1,000,000.00 per occurrence, covering the costs of
controlling a blowout and certain other related and/or resulting costs and seepage and pollution
liability.

Section 7.11 Historical Financial Statements.

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

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

     (c) Sellers shall use best efforts to cause an independent registered public accounting firm
reasonably acceptable to Purchaser to issue an unqualified opinion with respect to the Special
Financial Statements (the Special Financial Statements and related audit opinion being hereinafter
referred to as the “Audited Special Financial Statements”) and to provide its written consent for
the use of its audit report with respect to the Special Financial Statements in reports,
registration statements or other documents filed by Purchaser or any of its Affiliates under the
Exchange Act or the Securities Act, as needed. Sellers shall take all reasonable action as may be
necessary to facilitate the completion of such audit and delivery of the Audited Special Financial
Statements to Purchaser or any of its Affiliates as soon as reasonably practicable, but no later
than sixty (60) days following the Closing Date.

     (d) Purchaser shall reimburse Sellers for all third party out-of-pocket costs incurred by
Sellers with respect to Sellers’ obligations under this Section 7.11.

Section 7.12 Lease Amendments.

     Prior to the Closing, Sellers shall cause each of the Nortex Leases and Subsequent Leases to
be amended as follows:

     (a) Clause (b) in Paragraph 7 of the Reference Lease will be deleted and replaced with the
following language: “(b) the depths from the surface down to one hundred (100) feet below the base
of the Barnett Shale Formation defined as the interval from the stratigraphic equivalent of the top
of the Barnett Shale Formation to the stratigraphic equivalent of the base of the Barnett Shale
Formation, as found in the Alliance D-1 Well (API #42-121-32247) located in the Greenberry Overton
Survey, A-972, Denton County, Texas. The top and base of the Barnett Shale Formation were found at
the measured depth of 7172 feet and 7566 feet, respectively, in the referenced well.”; and

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     (b) Paragraph 31, applicable to the Alliance “E” Operations Site, shall be amended to provide
that the election to purchase by the “Surface Owner” may not be exercised prior to ten (10) years
from and after August 8, 2008.

ARTICLE 8

CONDITIONS TO CLOSING

Section 8.1 Conditions of Sellers to Closing.

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

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

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

     (c) Pending Litigation. No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement or to recover damages from Sellers
on account therefrom shall be pending or threatened before any Governmental Body or arbitral
tribunal; provided, however, Closing shall proceed notwithstanding any suits, actions or other
proceedings seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated hereby brought by holders of Preference Rights seeking to enforce such rights with
respect to Assets with aggregate Allocated Values of less than one percent (1%) of the unadjusted
Purchase Price, and the Assets subject to such suits, actions or other proceedings shall be treated
in accordance with Section 7.7;

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

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

     (f) Casualty or Condemnation. The aggregate losses from casualties to the Assets and
takings of Assets under right of eminent domain shall be less than ten percent (10%) of the
unadjusted Purchase Price;

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

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

Section 8.2 Conditions of Purchaser to Closing.

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

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

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

     (c) Pending Litigation. No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement or to recover damages from
Purchaser on account therefrom shall be pending or threatened before any Governmental Body or
arbitral tribunal; provided, however, Closing shall proceed notwithstanding any suits, actions or
other proceedings seeking to restrain, enjoin or otherwise prohibit the consummation of the
transactions contemplated hereby brought by holders of Preference Rights seeking to enforce such
rights with respect to Assets with aggregate Allocated Values of less than one percent (1%) of the
unadjusted Purchase Price, and the Assets subject to such suits, actions or other proceedings shall
be treated in accordance with Section 7.7;

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

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

     (f) Casualty or Condemnation. The aggregate losses from casualties to the Assets and
takings of Assets under right of eminent domain shall be less than ten percent (10%) of the
unadjusted Purchase Price;

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

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     (h) Material Adverse Effect. The failure of Sellers to assign to Purchaser the
Retained Assets for which no adjustment to the Purchase Price occurs pursuant to Section 7.7(d)
does not result in a Material Adverse Effect; and

     (i) Historical Financial Statements. Purchaser reasonably believes that the Special
Financial Statements that have been provided by Sellers can be audited and that the Audited Special
Financial Statements will be delivered within the time period contemplated by Section 7.11;
provided, however, if the failure of such condition to be satisfied relates solely to the Assets
associated with the Wells described in Schedule 8.2(i) (the “Star of Texas Assets”), then the
parties agree that this condition to Closing shall nonetheless be deemed to be satisfied and such
Assets shall be held back from the Assets to be conveyed to Purchaser at Closing and the Purchase
Price shall be reduced by the portion of the Purchase Price that is allocated thereto in Exhibit
A-1; provided further, however, that if Sellers cause the Audited Special Financial Statements
relating to the Star of Texas Assets to be delivered to Purchaser on or before one hundred twenty
(120) days following the Closing Date, then Sellers shall cause the Star of Texas Assets to be
conveyed to Purchaser at a new closing for a purchase price equal to the amount by which the
Purchase Price was reduced on account of the holding back of such Assets (as adjusted pursuant to
Section 2.2 through the new closing date therefor).

ARTICLE 9

CLOSING

Section 9.1 Time and Place of Closing.

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

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

Section 9.2 Obligations of Sellers at Closing.

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

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

     (b) the Assignment, duly executed by Hillwood;

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

     (d) certificates duly executed by an authorized corporate officer of each Seller (other than a
natural person) or its respective general partner and Mark Rollins, dated as of Closing, certifying
(on behalf of such Seller in the case of an entity Seller) that the conditions set forth in
Sections 8.2(a) and 8.2(b) have been fulfilled; and

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     (e) one (1) original executed statement described in Treasury Regulation §1.1445-2(b)(2)
certifying that no Seller is a foreign person within the meaning of the Code.

Section 9.3 Obligations of Purchaser at Closing.

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

     (a) a wire transfer of the Cash Component of the Closing Payment in same-day funds to the
accounts of Sellers, and in the respective amounts, set forth on Schedule 9.3(a); provided,
however, by written notice to Purchaser at least five (5) Business Days prior to Closing, Sellers
can reallocate up to five percent (5%) of the Cash Component among the Sellers in a different
manner than set forth on such Schedule;

     (b) the Conveyance, duly executed by Purchaser;

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

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

     (e) stock certificates representing shares of Purchaser Common Stock in a value equal to the
Stock Component of the Closing Payment allocated in the manner shown on Schedule 9.3(e); provided,
however, by written notice to Purchaser at least three (3) Business Days prior to Closing, Sellers
can reallocate up to 5% of the Stock Component among the Sellers in a different manner than set
forth on such Schedule.

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

     (a) Not later than three (3) Business Days prior to the Closing Date, Sellers shall prepare
and deliver to Purchaser for its review and approval, based upon the best information available to
Sellers, a preliminary settlement statement estimating the Adjusted Purchase Price after giving
effect to all Purchase Price adjustments provided for in this Agreement and crediting the Deposit
and setting forth the calculation of the Volume Weighted Average Price, the Stock Component and the
Cash Component. The estimate delivered in accordance with this Section 9.4(a) shall constitute the
dollar amount to be paid by Purchaser to Sellers at the Closing in the form of the Cash Component
and the Stock Component (the “Closing Payment”).

     (b) As soon as reasonably practicable after the Closing but not later than one hundred and
twenty (120) days following the Closing Date, Sellers shall prepare and deliver to Purchaser a
statement setting forth the final calculation of the Adjusted Purchase Price and showing the
calculation of each adjustment, based, to the extent possible, on actual credits, charges, receipts
and other items before and after the Effective Time and taking into account all adjustments
provided for in this Agreement. Sellers shall, at Purchaser’s request, supply reasonable
documentation available to support any credit, charge, receipt or other item. As soon as reasonably
practicable, but not later than the 30th day following receipt of Sellers’ statement hereunder,
Purchaser shall deliver to Sellers a written report containing any changes that Purchaser proposes
be made to such statement. The parties shall undertake to agree on the final statement of the
Adjusted Purchase Price no later than one hundred eighty (180) days after the Closing Date. In the
event that the parties cannot reach agreement within such period of time, either party may refer
the remaining matters in dispute to PricewaterhouseCoopers or

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such other nationally-recognized independent accounting firm as may be accepted by Purchaser
and Sellers, for review and final determination. The accounting firm shall conduct the arbitration
proceedings in Fort Worth, Texas in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, to the extent such rules do not conflict with the terms of this
Section 9.4. The accounting firm’s determination shall be made within thirty (30) days after
submission of the matters in dispute and shall be final and binding on both parties, without right
of appeal. In determining the proper amount of any adjustment to the Purchase Price, the accounting
firm shall not increase the Purchase Price more than the increase proposed by Sellers nor decrease
the Purchase Price more than the decrease proposed by Purchaser, as applicable. The accounting firm
shall act as an expert for the limited purpose of determining the specific disputed matters
submitted by either party and may not award damages or penalties to either party with respect to
any matter. Sellers and Purchaser shall each bear their own legal fees and other costs of
presenting their cases. Each party shall bear one-half of the costs and expenses of the accounting
firm. Within ten (10) Business Days after the date on which the parties or the accounting firm, as
applicable, finally determines the disputed matters, (i) Purchaser shall pay to Sellers the amount
by which the Adjusted Purchase Price exceeds the Closing Payment or (ii) Sellers shall pay to
Purchaser the amount by which the Closing Payment exceeds the Adjusted Purchase Price, as
applicable. Any post-Closing payment pursuant to this Section 9.4(b) shall bear interest at the
Agreed Interest Rate from the Closing Date to the date both Purchaser and Sellers have executed the
final settlement statement and shall, consistent with Section 9.4(c), be made in cash, not
Purchaser Common Stock.

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

ARTICLE 10

TERMINATION

Section 10.1 Termination.

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

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

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

     (c) by Sellers, if (i) any of the representations and warranties of Purchaser contained in
this Agreement shall not be true and correct in all material respects (provided that any such
representation or warranty that is already qualified by a materiality standard or a material
adverse effect qualification shall not be further qualified); or (ii) Purchaser shall have failed
to fulfill in any material respect any of its obligations under this Agreement required to be
fulfilled

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prior to Closing; and, in the case of each of clauses (i) and (ii), such misrepresentation or
breach of warranty, covenant or agreement, if curable, has not been cured within ten (10) days
after written notice thereof from Sellers to Purchaser; provided that any cure period shall not
extend beyond the Termination Date and shall not extend the Termination Date; or

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

Section 10.2 Effect of Termination.

     If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and
of no further force or effect (except for the provisions of Sections 4.4, 5.6, 6.5, 7.5, 11.8,
11.9, 13.7, 13.13 and 13.16 of this Agreement and this Article 10, all of which shall continue in
full force and effect), and Sellers shall be free immediately to enjoy all rights of ownership of
the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without
any restriction under this Agreement. In the event this Agreement terminates under Section 10.1
because (i) any of the conditions to Closing set forth in Section 8.2(a) or Section 8.2(b) have not
been satisfied or (ii) Sellers’ refusal or inability to close notwithstanding the satisfaction of
the conditions precedent set forth in Section 8.1, then Purchaser shall be entitled to all remedies
available at law or in equity and shall be entitled to recover court costs and attorneys’ fees in
addition to any other relief to which Purchaser may be entitled.

Section 10.3 Distribution of Deposit upon Termination.

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

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

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

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ARTICLE 11

POST-CLOSING OBLIGATIONS; INDEMNIFICATION;

LIMITATIONS; DISCLAIMERS AND WAIVERS

Section 11.1 Receipts.

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

Section 11.2 Expenses.

     Any Property Costs that are not reflected in the adjustments to the Purchase Price following
the final adjustment pursuant to Section 9.4(b) shall be treated as follows: (a) all Property Costs
for which Sellers are responsible under Section 1.4 shall be the sole obligation of Sellers, and
Sellers shall promptly pay, or, if paid by Purchaser, promptly reimburse Purchaser for and hold
Purchaser harmless from and against, such Property Costs; and (b) all Property Costs for which
Purchaser is responsible under Section 1.4 shall be the sole obligation of Purchaser, and Purchaser
shall promptly pay, or, if paid by Sellers, promptly reimburse Sellers for and hold Sellers
harmless from and against, such Property Costs. Sellers are entitled to resolve all joint interest
audits and other audits of Property Costs covering periods for which Sellers are in whole or in
part responsible, provided that Sellers shall not agree to any adjustments to previously assessed
costs for which Purchaser is liable without the prior written consent of Purchaser, such consent
not to be unreasonably withheld. Sellers shall provide Purchaser with a copy of all applicable
audit reports and written audit agreements received by Sellers and relating to periods for which
Purchaser is partially responsible.

Section 11.3 Assumed Sellers Obligations.

     Without limiting Purchaser’s rights to indemnity under this Article 11, on the Closing Date,
Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be
fulfilled, performed, paid or discharged) all of the obligations and liabilities of Sellers, known
or unknown, with respect to the Assets, regardless of whether such obligations or liabilities arose
prior to, on or after the Effective Time, including, but not limited to, obligations to (a) furnish
makeup gas according to the terms of applicable gas sales, gathering or transportation contracts,
and to satisfy all other gas balancing obligations, if any, (b) pay working interests, royalties,
overriding royalties and other interests held in suspense that are reflected on Schedule 5.25, (c)
properly plug and abandon any and all wells, including inactive wells or temporarily abandoned
wells, drilled on the Properties or otherwise pursuant to the Assets, (d) replug any well, wellbore
or previously plugged well on the Properties to the extent required by Governmental Body, (e)
dismantle, salvage and remove any equipment, structures,

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materials, platforms, flowlines and property of whatever kind related to or associated with
operations and activities conducted on the Properties or otherwise pursuant to the Assets, (f)
clean up, restore and/or remediate the premises covered by or related to the Assets in accordance
with applicable agreements and Laws and (g) perform all obligations applicable to or imposed on the
lessee, owner or operator under the Leases and related contracts, or as required by applicable Laws
(all of such obligations and liabilities, subject to the exclusions below, herein being referred to
as the “Assumed Sellers Obligations”); provided, however, that Purchaser does not accrue any rights
or assume any obligations or liabilities of Sellers to the extent that they are (such excluded
obligations and liabilities, the “Excluded Sellers Obligations”):

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

     (ii) the continuing responsibility of the Sellers under Sections 11.1 and 11.2
or matters for which Sellers are required to indemnify Purchaser under Section
11.4(c);

     (iii) related to personal injury or death arising or occurring prior to the
Closing Date that are attributable to Sellers’ ownership or operation of the Assets;

     (iv) Retained Employee Liabilities; or

     (v) attributable to or arise out of any off-site Environmental Liabilities
occurring prior to the Closing Date that relate to the Assets.

Section 11.4 Indemnities.

     (a) Definitions.

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

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

     THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE OR
PASSIVE), STRICT LIABILITY OR OTHER FAULT (BUT

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EXCLUDING GROSS NEGLIGENCE AND WILLFUL MISCONDUCT) OF PURCHASER INDEMNITEES, SELLERS
INDEMNITEES, INVITEES AND/OR THIRD PARTIES; AND/OR

     A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR
SELLERS’ PROPERTY (INCLUDING, WITHOUT LIMITATION, THE ASSETS).

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

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

     (ii) the ownership, use or operation of the Assets after the Effective Time,
REGARDLESS OF FAULT;

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

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

     (v) Environmental Laws, Environmental Liabilities, Adverse Environmental
Conditions, the release of materials into the environment or protection of human
health, safety, natural resources or the environment, or any other environmental
condition of the Assets, REGARDLESS OF FAULT; and

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

     (c) Sellers Indemnity Obligation. From and after the Closing, subject only to the
limitations contained in Section 11.7, each Seller, severally, but not jointly and severally, on
its or his own behalf, shall be responsible for and indemnify, defend and hold harmless Purchaser
Indemnitees against and from all Claims to the extent caused by, arising out of or resulting from:

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

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

     (iii) any Excluded Sellers Obligations.

     (d) Additional Provisions.

     It is the intention of the parties that this Article 11 shall govern the allocation of risks
and liabilities between Purchaser and Sellers except to the extent that it is expressly stated
(whether

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elsewhere in this Article 11 or in some other Article hereof) that the provisions of such
other Article (or part thereof) shall control over the terms of all or part of this Article 11.

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

     In connection with Purchaser Indemnitees’ access to the Assets prior to Closing, the parties
acknowledge that such access may be subject to access agreements, releases or other agreements
required by Sellers or the operator of non-Seller Operated Properties. In the event of a conflict
between the provisions of such agreements and Section 11.4(b)(vi) of this Agreement, Section
11.4(b)(vi) of this Agreement shall control.

Section 11.5 Indemnification Actions.

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

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

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

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

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

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

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

Section 11.6 Release.

     (a) EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT, PURCHASER RELEASES, REMISES
AND FOREVER DISCHARGES SELLERS INDEMNITEES FROM ANY AND ALL CLAIMS, KNOWN OR UNKNOWN, WHETHER NOW
EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR OTHERWISE, WHICH PURCHASER MIGHT NOW OR
SUBSEQUENTLY MAY HAVE AGAINST SELLERS INDEMNITEES, RELATING DIRECTLY OR INDIRECTLY TO CLAIMS
ARISING OUT OF OR INCIDENT TO ENVIRONMENTAL LAWS, ENVIRONMENTAL LIABILITIES, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT, INCLUDING, WITHOUT LIMITATION, RIGHTS TO CONTRIBUTION UNDER THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, REGARDLESS OF FAULT.

     (b) Purchaser covenants and agrees that it will not attempt to avoid the effect of the release
made by it hereinabove by later arguing that at the time of the release it did not fully appreciate
the extent of any such environmental Claims.

Section 11.7 Limitation on Actions.

     (a) The representations and warranties of the parties in Articles 5 and 6 terminate six months
after Closing, except that Section 5.18 and Section 6.11 shall survive indefinitely. The remainder
of the representations, warranties, covenants and agreements provided for in this Agreement shall
survive Closing for one year except that covenants and agreements contemplated to be complied with
or performed following the Closing shall survive indefinitely. Representations, warranties,
covenants and agreements shall be of no further force and effect after the date of their
expiration, provided that there shall be no termination of any bona fide Claim asserted pursuant to
this Agreement with respect to the breach of such a representation, warranty, covenant or agreement
on or before its expiration date.

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     (b) The indemnities in Sections 11.4(b)(iii), 11.4(b)(iv), 11.4(c)(i) and 11.4(c)(ii) shall
terminate as of the termination date of each respective representation, warranty, covenant or
agreement that is subject to indemnification, except in each case as to Claims asserted pursuant to
this Agreement with respect to the breach of such representation, warranty, covenant or agreement
on or before such termination date. Purchaser’s indemnities in Sections 11.4(b)(i), 11.4(b)(ii),
11.4(b)(v) and 11.4(b)(vi) and Sellers’ indemnity in Section 11.4(c)(iii) shall continue without
time limit.

Section 11.8 Disclaimers.

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

     (b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE 5 OF THIS AGREEMENT, THE CERTIFICATES
OF SELLERS TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR IN THE CONVEYANCE OR IN THE ASSIGNMENT,
AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLERS EXPRESSLY DISCLAIM ANY REPRESENTATION
OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE
CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM OR ANY REPORT OF ANY PETROLEUM
ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE
ASSETS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE
ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS,
(V) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS OR THE PRESENCE, QUALITY OR QUANTITY OF
HYDROCARBON RESERVES ATTRIBUTABLE TO THE ASSETS, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY,
SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (VII) THE CONTENT, CHARACTER OR NATURE OF ANY
DESCRIPTIVE MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY THIRD PARTIES,
(VIII) WITH RESPECT TO DEVELOPMENT OF THE LEASES AFTER CLOSING, ANY SURFACE RESTRICTIONS, CONSENTS,
REQUIRED FROM SURFACE OWNERS, AND ALL PERMITS, BONDS AND EASEMENTS REQUIRED FROM THIRD PARTIES OR
GOVERNMENTAL BODIES, (IX) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR
COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR TO ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS,
REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR
ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD AND
AGREED BY THE PARTIES HERETO THAT PURCHASER SHALL BE

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DEEMED TO BE OBTAINING THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS
IS” AND “WHERE IS” WITH ALL FAULTS AND THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS AS PURCHASER DEEMS APPROPRIATE, AND (X) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM
PATENT OR TRADEMARK INFRINGEMENT.

     (c) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN THE CERTIFICATES OF
SELLERS TO BE DELIVERED PURSUANT TO SECTION 9.2(d), SELLERS HAVE NOT AND WILL NOT MAKE ANY
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS,
ENVIRONMENTAL LIABILITIES, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN
HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE
ASSETS, AND, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT, NOTHING IN THIS AGREEMENT
OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND PURCHASER SHALL BE DEEMED
TO BE TAKING THE ASSETS “AS IS” AND “WHERE IS” FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION.

Section 11.9 Waiver of Trade Practices Acts.

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

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

Section 11.10 Recording.

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

     The conveyance in the form attached as Exhibit B is intended to convey all of the Properties
being conveyed pursuant to this Agreement. Certain Properties or specific portions of the
Properties that are leased from, or require the approval to transfer by, a governmental entity are
conveyed under the Conveyance and also are described and covered by other separate assignments made
by Sellers to Purchaser on officially approved forms, or forms

45

 

acceptable to such entity, in sufficient multiple originals to satisfy applicable statutory
and regulatory requirements. The interests conveyed by such separate assignments are the same, and
not in addition to, the interests conveyed in the Conveyance attached as Exhibit B. Further, such
assignments shall be deemed to contain the special warranty of title of Sellers and all of the
exceptions, reservations, rights, titles, power and privileges set forth herein and in the
Conveyance as fully and only to the extent as though they were set forth in each such separate
assignment.

ARTICLE 12

REGISTRATION REQUIREMENTS

Section 12.1 Definitions.

     For purposes of this Article 12:

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

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

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

Section 12.2 Purchaser Covenants.

     The Purchaser covenants and agrees as follows:

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

     (b) If after twenty (20) Business Days after the Registration Statement has become effective,
the Purchaser furnishes to the Sellers a certificate signed by the Purchaser’s chief executive
officer stating that in the good faith judgment of the Purchaser’s Board of Directors it would be
materially detrimental to the Purchaser and its stockholders for the Registration Statement to be
used for resales of the Shares, because such action would (i) materially interfere with a
significant acquisition, corporate reorganization, or other similar transaction

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involving the Purchaser or (ii) require premature disclosure of material information that the
Purchaser has a bona fide business purpose for preserving as confidential, or if at any time the
Purchaser shall determine in good faith that the making of offers or sales of the Shares pursuant
to the Registration Statement would otherwise be unlawful as a result of an event or circumstance
outside of Purchaser’s control, then by notice to the Sellers, the Purchaser may suspend the rights
of the Sellers to make offers or sales of the Shares pursuant to the Registration Statement for a
period of not more than ninety (90) days; provided, however, that the Purchaser may not invoke this
right more than once. Upon receipt of any suspension notice referred to in the preceding sentence,
the Sellers shall immediately discontinue making offers or sales of the Shares under the shelf
registration statement until the Purchaser shall advise them in writing that it is again
permissible to do so.

Section 12.3 Obligations of the Purchaser.

     The Purchaser shall, as expeditiously as reasonably possible:

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

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

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

     (d) use its commercially reasonable efforts to register and qualify the securities covered by
the Registration Statement under such other securities or blue-sky laws of such states as shall be
reasonably requested by the Sellers; provided that the Purchaser shall not be required to qualify
to do business or to file a general consent to service of process in any such states;

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

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

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

Section 12.4 Furnish Information.

     It shall be a condition precedent to the obligations of the Purchaser to register the Shares
hereunder that the Sellers shall have furnished to the Purchaser such information regarding the
Sellers and the Assets, financial statements or other information within the reasonable control of
the Sellers as is reasonably required to effect the registration of the Shares, and the Purchaser
shall have the right to defer taking action with respect to any filings

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required to complete such registration, and any time periods with respect to filing or
effectiveness thereof shall be tolled correspondingly.

Section 12.5 Expense of Registration.

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

Section 12.6 Indemnification.

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

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

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

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

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Section 12.7 Rule 144.

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

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

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

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

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

     (c) No later than the seventh Business Day after the one year anniversary of the Closing Date,
Purchaser shall use its best efforts to cause its transfer agent to provide to the holders of the
Purchaser Common Stock, in exchange for certificates they surrender evidencing such shares that
bear the legend set forth in Section 5.28, certificates evidencing like numbers of shares that do
not bear such legend.

ARTICLE 13

MISCELLANEOUS

Section 13.1 Counterparts.

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

Section 13.2 Notice.

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

	 	 	 	 	 
	 

	 	If to Sellers :
	 	Chief Resources, LP

	 

	 	 	 	5956 Sherry Lane, Suite 1500
	 

	 	 	 	Dallas, Texas 75225
	 

	 	 	 	Attention: David M. Hundley

49

 

	 	 	 	 	 
	 

	 	 	 	Telephone: (214) 265-9590
	 

	 	 	 	Telecopy: (214) 265-9593
	 
	 	 	 	 
	 

	 	 	 	(for purposes of notices to each of Chief LP, COG and Chief
Pipeline)
	 
	 	 	 	 
	 

	 	 	 	Hillwood Oil & Gas, L.P.
	 

	 	 	 	13600 Heritage Parkway, Suite 200
	 

	 	 	 	Fort Worth, Texas 76177
	 

	 	 	 	Attention: Mark Rollins
	 

	 	 	 	Telephone: (817) 224-6031
	 

	 	 	 	Telecopy: (817) 224-6076
	 
	 	 	 	 
	 

	 	 	 	(for purposes of notices to each of Hillwood Alliance,
Burtex, Berry and Rollins)
	 
	 	 	 	 
	 

	 	 	 	Collins and Young, L.L.C.
	 

	 	 	 	430 Throckmorton Street, Suite 930
	 

	 	 	 	Fort Worth, Texas 76102
	 

	 	 	 	Attention: George M. Young, Jr.
	 

	 	 	 	Telephone: (817) 338-1118
	 

	 	 	 	Telecopy: (817) 338-1150
	 
	 	 	 	 
	 

	 	 	 	(for purposes of notices to C&Y)
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Don C. Plattsmier
	 

	 	(which shall not
	 	Kelly Hart & Hallman LLP
	 

	 	itself constitute
	 	201 Main Street, Suite 2500
	 

	 	notice)
	 	Fort Worth, TX 76102
	 

	 	 	 	Telephone: (817) 878-3505
	 

	 	 	 	Telecopy: (817) 878-9280
	 
	 	 	 	 
	 

	 	If to Purchaser:
	 	Quicksilver Resources Inc.
	 

	 	 	 	777 West Rosedale St.
	 

	 	 	 	Fort Worth, Texas 76104
	 

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

	 	 	 	Telephone: (817) 665-4939
	 

	 	 	 	Telecopy: (817) 665-5021

50

 

     With a copy to (which shall not itself constitute notice):

Fulbright & Jaworski L.L.P.

Fulbright Tower

1301 McKinney, Suite 5100

Houston, Texas 77010-3095

Attention: Deborah A. Gitomer

Telephone: (713) 651-5151

Telecopy: (713) 651-5246

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

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

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

Section 13.4
Expenses.

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

Section 13.5 Change of Name.

     As promptly as practicable, but in any case within thirty (30) days after the Closing Date,
Purchaser shall eliminate the names “Chief Resources, LLC,” “Chief Resources Alliance Pipeline
LLC”, “Chief” and “Hillwood Alliance Operating Company, L.P.” and any variants thereof from the
Assets acquired pursuant to this Agreement and, except with respect to such grace period for
eliminating existing usage, shall have no right to use any logos, trademarks or trade names
belonging to Sellers or any of their Affiliates.

Section 13.6 Replacement of Bonds, Letters of Credit and Guarantees.

     The parties understand that none of the bonds, letters of credit and guarantees, if any,
posted by Sellers with Governmental Bodies and relating to the Assets may be transferable to
Purchaser. Promptly following Closing, Purchaser shall obtain, or cause to be obtained in the name
of Purchaser, replacements for such bonds, letters of credit and guarantees, to the extent such
replacements are necessary to permit the cancellation of the bonds, letters of credit and

51

 

guarantees posted by Sellers or to consummate the transactions contemplated by this Agreement.

Section 13.7 Governing Law and Venue.

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

Section 13.8 Captions.

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

Section 13.9 Waivers.

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

Section 13.10 Assignment.

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

Section 13.11 Entire Agreement.

     The Confidentiality Agreement, this Agreement, the Exhibits and Schedules attached hereto and
the documents to be executed hereunder constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties pertaining to the subject
matter hereof.

Section 13.12 Amendment.

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

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

52

 

Section 13.13 No Third-Party Beneficiaries.

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

Section 13.14 References.

     In this Agreement:

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

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

     (c) Unless expressly provided to the contrary, a reference to any Article or Section means an
Article or Section of this Agreement;

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

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

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

Section 13.15 Construction.

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

Section 13.16 Limitation on Damages

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

53

 

Section 13.17 Conspicuousness.

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

Section 13.18 Severability.

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

Section 13.19 Time of Essence.

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

Section 13.20 Nature of Obligations.

     The obligations of each of the Sellers are several and not joint and shall be in proportion to
the allocation percentages reflected in Schedule 13.20.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

54

 

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

	 	 	 	 	 	 	 	 	 
	 	 	PURCHASER:  
	 
	 	 	 	 	 	 	 	 
	 	 	QUICKSILVER RESOURCES INC.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Glenn Darden	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Glenn Darden	 	 
	 	 	 	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	SELLERS:
	 
	 	 	 	 	 	 	 	 
	 	 	HILLWOOD OIL & GAS, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Hillwood Oil & Gas GP, LLC,	 	 
	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Mark Rollins	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Mark Rollins, President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BURTEX MINERALS, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Burtex Minerals Genpar, LLC,	 	 
	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ William K. Burton	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	William K. Burton, Manager	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	CHIEF RESOURCES, LP  
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Chief Resources (GP) LLC	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Trevor D. Rees-Jones	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Trevor D. Rees-Jones, Manager	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	HILLWOOD ALLIANCE

OPERATING COMPANY, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Hillwood Oil & Gas GP, LLC,	 	 
	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Mark Rollins	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Mark Rollins, President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	CHIEF RESOURCES ALLIANCE PIPELINE LLC
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Trevor D. Rees-Jones	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Trevor D. Rees-Jones, Manager	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BERRY BARNETT, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Berry Barnett Genpar, LLC,	 	 
	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Michael K. Berry	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	Michael K. Berry	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	Manager	 	 
	 

	 	 	 	 	 	 	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	CHIEF OIL & GAS LLC  
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ David Hundley	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	David Hundley, Vice President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	COLLINS AND YOUNG, L.L.C.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ George M. Young, Jr.	 	 
	 	 	 	 	 	 	 
	 	 	 	 	George M. Young, Jr., President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	/s/ Mark Rollins
	 	 	 	 	 
	 	 	MARK ROLLINSexv10w1

EXHIBIT 10.1

EXECUTION VERSION

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), effective as of July 1, 2008 (the
“Effective Date”), is between TRI-ISTHMUS GROUP, INC., a Delaware corporation (the
“Company”), and DAVID HIRSCHHORN (“Hirschhorn”). The Company and Hirschhorn are
collectively referred to in this Agreement as the “Parties.”

Background

The company wishes to employ Hirschhorn as its Chief Executive Officer, and the Parties desire to
provide for the employment of Hirschhorn as of the Effective Date in accordance with the terms of
this Agreement.

Terms of Agreement

The Parties agree as follows:

1. EMPLOYMENT. The Company employs Hirschhorn to devote his personal services to the
business and affairs of the Company, and Hirschhorn accepts such employment, on the terms and
conditions stated in this Agreement.

1.1. Duties. Hirschhorn’s title and position shall be Chief Executive Officer of the
Company. Hirschhorn’s duties will be those customarily performed by persons acting in that
capacity and those that may be designated by the Board of Directors of the Company (the
“Board”) consistent with the title and position of Chief Executive Officer of the
Company. Hirschhorn shall report directly to the Board. Hirschhorn shall also serve, upon
request and without additional compensation, as an officer or a director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity in which the Company
holds an equity interest or which it sponsors.

1.2. Full-Time Employee. Hirschhorn shall devote his full time (except for reasonable
vacation time and absence for any disability), attention, and best efforts to the
performance of his duties described in Article 1.1.

2. TERM. The term of Hirschhorn’s employment under this Agreement (the “Term”)
shall commence on the Effective Date and shall continue until July 1, 2013 or until terminated
pursuant to Article 5.

3. COMPENSATION. As compensation for the services rendered by Hirschhorn under this
Agreement, the Company shall, during the Term, pay or provide Hirschhorn the following:

3.1. Base Salary. The Company shall pay Hirschhorn during the Term a base salary equal to
Four Hundred Eighty Thousand Dollars ($480,000.00) for the first year
of the Agreement; Five Hundred Forty Thousand Dollars ($540,000.00) for the Second year of the
Agreement; Six Hundred Thousand Dollars ($600,000.00) for the third year of the Agreement;
Six Hundred Thirty Thousand Dollars ($630,000.00) for the fourth year of the Agreement; and
Six Hundred Sixty-One Thousand Five Hundred Dollars ($661,500)

 

 

for the fifth and final year
of the Agreement (“Base Salary”). Base Salary shall be paid in equal installments
every two weeks, in arrears, at the Company’s regular and routine payroll dates, or at such
intervals as may otherwise be agreed upon by the Parties, and in accordance with any other
payroll procedures of the Company. Base Salary shall be prorated in any fiscal year during
which Hirschhorn is employed under this Agreement for less than the entire fiscal year, in
accordance with the number of days in that fiscal year during which Hirschhorn is so
employed. Base Salary shall also be prorated (on a daily basis) for any partial payroll
period of employment under this Agreement.

3.2. Annual Incentive Bonus. In addition to the Base Salary, Hirschhorn shall be eligible
to receive an annual incentive bonus as determined by the Compensation Committee of the
Board (the “Compensation Committee”) of an amount not exceeding three times the Base
Salary (as described in Article 3.1) or ten percent (10%) of the Company’s EBITDA for the
immediately preceding fiscal year (the “Bonus”). To the extent declared, the Bonus
shall be due and payable within five (5) business days following the public disclosure of
the Company’s annual report (for the applicable fiscal year) on Form 10-K, as filed with the
Securities and Exchange Commission. For purposes hereof, “EBITDA” means an amount
for the Company and its subsidiaries based on the audited financial statements equal to (x)
consolidated net income from operations plus (y) without duplication and to the extent
deducted in computing net income, the sum of (a) interest expense, (b) taxes,
(c) depreciation expense, (d) amortization expense, and (e) one-time, non-recurring expenses
that are not related, directly or indirectly, to the operating activities of the Company for
the applicable fiscal year.

3.3. Option. Hirschhorn shall be eligible to participate in any stock option, performance
share, phantom stock, or similar long-term stock-based incentive plan adopted by the Company
for its employees in effect during the Term, including the Option Plan. The extent to which
Hirschhorn shall participate in any such plan will be determined by the Compensation
Committee. Concurrent with the Effective Date of this Agreement, Hirschhorn shall receive
options to purchase up to Six Million, Two Hundred, Fifty Thousand (6,250,000) shares of the
Company’s common stock at an initial exercise price of $0.625 per share. Such options shall
vest in equal installments over a five (5) year period commencing on the Effective Date of
this Agreement. The terms and conditions of these options shall be as set forth in an
option grant agreement between the Company and Hirschhorn.

3.4. Savings and Retirement Plans. Hirschhorn shall be eligible to participate in any
bonus, savings, deferred compensation, retirement or pension, or death benefit plan adopted
by the Company for its employees generally in effect during the Term.

3.5. Welfare Benefit Plans. Hirschhorn shall be eligible to participate in any life
insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program adopted by the Company covering its
employees generally in effect during the Term.

2

 

3.6. Paid Time Off. Hirschhorn shall be entitled to twenty (20) days of paid vacation or
time off (“PTO”) per fiscal year of the Company, in accordance with the Company’s
PTO policies, practices and procedures in effect during the Term. Such PTO shall, however,
be prorated in any fiscal year during which Hirschhorn is employed under this Agreement for
less than the entire fiscal year, in accordance with the number of days in that fiscal year
during which Hirschhorn is so employed.

3.7. Tax Withholding. The Company may deduct from any compensation or other amount payable
to Hirschhorn under this Agreement (including under Article 5) social security (FICA) taxes
and all federal, state, municipal, and other taxes or governmental charges as may, in the
Company’s judgment, be required.

3.8. Participation in Compensation and Benefit Plans. Hirschhorn’s participation during the
Term in any or all of the plans or programs adopted by the Company described in Articles 3.3
through 3.5 (“Compensation and Benefit Plans”) will be subject to the terms and
conditions of those Compensation and Benefit Plans as they now exist or may hereafter be
adopted, amended, restated, or discontinued by the Company, including the satisfaction of
all applicable eligibility requirements and vesting provisions of those Compensation and
Benefit Plans. The Company shall have no obligation under this Agreement to continue any or
all of the Compensation and Benefit Plans that now exist or are hereafter adopted. To the
extent that Hirschhorn is eligible to participate in any Compensation and Benefit Plan
existing on the date of this Agreement for which a plan description or plan materials are
available, the Company has provided to Hirschhorn, and Hirschhorn hereby acknowledges
receipt of, a copy of the correct and complete written plan description or plan materials
distributed to participants or prospective participants.

4. EXPENSE REIMBURSEMENT. During the Term, Hirschhorn may incur, and shall be reimbursed
by the Company on a monthly basis, in arrears, for the following:

4.1. General Expenses. Reasonable, ordinary and necessary, and documented business expenses
to the extent that Hirschhorn complies with, and reimbursement is permitted by, the
Company’s policies, practices and procedures.

4.2. Healthcare. The Company shall reimburse Hirschhorn for the amount of his individual
monthly healthcare insurance premiums paid by Hirschhorn pursuant to the Company’s
healthcare plan.

4.3. Company Car and Driver. The Company shall reimburse Hirschhorn for the cost of a car
service used by Hirschhorn for travel between the Company’s headquarters and its ambulatory
surgery centers and associated facilities in San Diego, California, to the extent that such
was a necessary expense related to Company business.

4.4. Business Travel. The Company shall reimburse Hirschhorn for business class airline
tickets purchased by Hirschhorn for travel on behalf of the Company to the extent that such
travel involves more than two hours of flight time.

5. ADDITIONAL BENEFITS. During the Term, the Company shall provide Hirschhorn with, and
pay for the expenses associated with, the following:

3

 

5.1. Auto Lease Allowance. Hirschhorn shall be entitled to a car allowance in the amount of
Five Hundred Dollars ($500.00) per month.

5.2. Term Life Insurance. Hirschhorn shall receive a term life insurance policy with a
death benefit of One Million Dollars ($1,000,000.00) for the first year of the Agreement;
One Million Five Hundred Thousand Dollars ($1,500,000.00) for the second and third years of
the Agreement; and Two Million Dollars ($2,000,000.00) for each of the fourth and fifth
years of the Agreement. The premiums for this term life insurance policy shall be paid by
the Company as long as Hirschhorn remains employed by the Company pursuant to this
Agreement.

5.3 Tax Preparation and Financial Planning. The Company shall reimburse Hirschhorn for
costs incurred in connection with his individual tax preparation and financial planning
services, up to an amount of Five Thousand Dollars ($5,000.000) per annum.

6. EMPLOYMENT TERMINATION. Either Party may terminate Hirschhorn’s employment under this
Agreement by giving written notice of termination to the other Party. If the Company is
terminating, it shall include in that notice a statement whether the termination is because of
Disability or for Cause or without Cause. The Parties’ respective rights and obligations upon the
termination of Hirschhorn’s employment under this Agreement are as follows:

6.1. Termination Generally. Upon any termination of Hirschhorn’s employment under this
Agreement, the Company shall pay or provide Hirschhorn the following:

6.1.a. Any amount of Base Salary earned by, but not yet paid to, Hirschhorn through
the effective date of termination of employment, as further described below (the
“Termination Date”);

6.1.b. All benefits that have been earned by or vested in, and are payable to,
Hirschhorn under, and subject to the terms (including all eligibility requirements)
of, the Compensation and Benefit Plans in which Hirschhorn participated through the
Termination Date;

6.1.c. All reimbursable expenses due, but not yet paid, to Hirschhorn as of the
Termination Date under Article 4; and

6.1.d. An amount equal to all accrued and unused PTO, calculated in accordance with
the Company’s PTO policies, practices, and procedures (including authorized
deductions and the deductions required by law), through the Termination Date.

The amount of Base Salary due under Article 6.1.a shall be paid no later than thirty (30)
business days after the Termination Date; the amounts or benefits due under Article 6.1.b
shall be paid or provided in accordance with the terms of the Compensation and Benefit Plans
under which such amounts or benefits are due to Hirschhorn; and the amounts due under
Articles 6.1.c and 6.1.d shall be paid in accordance with the terms
of the

4

 

Company’s
policies, practices, and procedures regarding reimbursable expenses and PTO, respectively.
Except as expressly provided below in this Article 6, upon paying or providing Hirschhorn
the preceding amounts or benefits, the Company shall have no further obligation or liability
under this Agreement for base salary or any other cash compensation or for any benefits
under any of the Compensation and Benefit Plans. Upon termination of Hirschhorn’s
employment, Hirschhorn shall be deemed to have resigned from any position as an officer or
director, or both, of any subsidiary, division, or affiliate of the Company or any other
entity in which the Company holds an equity interest or which it sponsors that Hirschhorn
then holds; no written resignation need be given or delivered to the Company.

In this Agreement, the Termination Date shall be (i) the date of Hirschhorn’s death, (ii)
the third business day after the date on which the Company gives notice of termination
because of Disability, or (iii) the date of termination specified in any other notice of
termination, or if not specified in the notice of termination, the date that notice of
termination is given.

In this Agreement, “Disability” means Hirschhorn’s permanent and total disability,
which shall be deemed to exist if he is unable reasonably to perform his duties under this
Agreement because of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for at least
ninety (90) consecutive days. Any Disability shall be determined by the Board or an
authorized committee or representative thereof (“Representative”), in its sole and
absolute discretion, upon receipt of competent medical advice from a qualified physician
selected by or acceptable to the Board or its Representative. Hirschhorn shall, if there is
any question about his Disability, submit to a physical examination by a qualified physician
selected by the Board or its Representative.

In this Agreement, “Cause” means any of the following: (i) Hirschhorn’s failure to
substantially perform his duties under this Agreement, other than any such failure resulting
from his incapacity due to physical or mental illness or Disability; (ii) Hirschhorn’s
engaging in any action which, or omitting to engage in any action the omission of which, has
been, is, or is reasonably expected to be substantially injurious (monetarily or otherwise)
to the Company or its business or reputation; (iii) Hirschhorn’s performance of any act or
omission constituting dishonesty that results, directly or indirectly, in significant gain
or enrichment of Hirschhorn or his family or affiliates at the expense of the Company; or
(iv) any breach by Hirschhorn of any obligation under any of Articles 7, 8, 9, and 10.
Whether an event or circumstance constituting Cause exists will be determined in good faith
by the Board or its Representative. If the Company believes that Cause for termination
exists under clause (i) above in this paragraph, the Company shall notify Hirschhorn of that
belief, and that notice shall describe the event or circumstance believed to constitute
Cause for termination. If that event or circumstance may reasonably be remedied or
corrected, Hirschhorn shall have thirty (30) days to effect that correction or remedy. If
not corrected or remedied within that thirty (30) day period,
Cause for termination shall immediately be deemed to exist, and Hirschhorn’s employment
shall be deemed terminated. If the Company believes that Cause for termination exists
under any of clauses (ii), (iii), and (iv) above in this paragraph, the

5

 

Company shall notify
Hirschhorn of that belief, and that notice shall constitute immediate termination of
Hirschhorn’s employment.

Hirschhorn may voluntarily terminate his employment under this Agreement only by giving at
least thirty (30) days’ prior written notice to the Company. Hirschhorn shall not be liable
to the Company for breach of this Agreement because of his termination of employment in
accordance with the preceding sentence.

6.2. Termination Without Cause or Upon Death or Disability. If Hirschhorn’s employment is
terminated by death or by the Company because of Disability or without Cause, Hirschhorn (or
his legal representative, estate, or heirs) shall be entitled to receive from the Company,
as liquidated damages:

6.2.a. A lump sum amount equal to three times the sum of Hirschhorn’s then current
annualized Base Salary plus any bonus paid in the fiscal year of the Company
preceding Termination pursuant to this Article 6.2 (the “Severance
Payments”); and

6.2.b. If Hirschhorn elects and maintains continued coverage under the Consolidated
Omnibus Benefits Reconciliation Act of 1985 and corresponding regulations
(“COBRA”), then for up to the twelve (12) consecutive months immediately
after the Termination Date, payments in an amount equal to the difference between
(i) the premiums paid or payable by Hirschhorn for coverage under COBRA for himself
and his dependents (if any) and (ii) the premiums that he would have paid for
comparable coverage under the Company’s then current group insurance plan or plans
if his employment under this Agreement had not ceased (the “Insurance
Payments”); except that the Insurance Payments shall expire or terminate
immediately upon Hirschhorn’s becoming eligible for coverage under another
employer’s plan or policy.

The Severance Payments shall be paid at the dates on which Hirschhorn’s Base Salary would
have been payable if his employment under this Agreement had not been terminated. The
Company will commence the Severance Payments and the Insurance Payments within ten (10)
business days after the first business day on which the release executed and delivered in
accordance with Article 6.4.a becomes irrevocable by Hirschhorn (or his legal
representative, estate, or heirs). The Company’s obligations for the Insurance Payments are
not intended to negate or impair any obligation of the Company or right of Hirschhorn under
COBRA. The Severance Payments and the Insurance Payments shall be in addition to the
amounts or benefits to which Hirschhorn is entitled under Article 6.1. Any Severance
Payments or Insurance Payments (or both) under this Article 6.2 shall not be deemed the
continuation of Hirschhorn’s employment for any purpose.

6.3. Termination Upon a Change in Control.

6.3.a Definitions. For purposes of this Article 6.3, the following definitions
apply:

6

 

6.3.a.i. An “Acquiring Person” shall mean any person that, together
with all Affiliates and Associates of such person, is the beneficial owner
of 50.1% or more of the outstanding Common Stock. The term “Acquiring
Person” shall not include the Company, any subsidiary of the Company,
any employee benefit plan of the Company (or trust with respect thereto) or
subsidiary of the Company, or any person holding Common Stock of the Company
for or pursuant to the terms of any such plan.

6.3.a.ii. “Affiliate” and “Associate” shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) in effect on the date of this Agreement.

6.3.a.iii For “Cause” shall have the meaning set forth in Article
6.1 above.

6.3.a.iv. “Change in Control” of the Company shall have occurred if
at any time during the term of this Agreement any of the following events
shall occur:

6.3.a.iv.A. The Company is merged, consolidated or reorganized into
or with another corporation or other legal person and as a result of
such merger, consolidation or reorganization less than 50.1% of the
combined voting power to elect directors of the then outstanding
securities of the remaining corporation or legal person or its
ultimate parent immediately after such transaction is available to be
received by all stockholders on a pro rata basis and is actually
received in respect of or exchange for voting securities of the
Company pursuant to such transaction;

6.3.a.iv.B. The Company sells all or substantially all of its assets
to any other corporation or other legal person not controlled by or
under common control with the Company;

6.3.a.iv.C. Any person or group (including any “person” as
such term is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act has become the beneficial owner (as the term
“beneficial owner” is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of
securities which when added to any securities already owned by such
person would represent in the aggregate 50% or more of the then
outstanding securities of the Company which are entitled to vote to
elect directors;

7

 

6.3.a.iv.D. If at any time, the Continuing Directors then serving on
the Board cease for any reason to constitute at least a majority
thereof;

6.3.a.iv.E. Any occurrence that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A or any
successor rule or regulation promulgated under the Exchange Act; or

6.3.a.iv.F. Such other events that cause a change in control of the
Company, as determined by the Board in its sole discretion;

provided, however, a Change in Control of the Company
shall not be deemed to have occurred as the result of any transaction
having one or more of the foregoing effects if such transaction is
both (1) proposed by, and (2) includes a significant equity
participation of, executive officers of the Company as constituted
immediately prior to the occurrence of such transaction or any
Company employee stock ownership plan or pension plan.

6.3.a.v. “Continuing Director” shall mean a director of the Company
who (i) is not an Acquiring Person, an Affiliate or Associate, a
representative of an Acquiring Person or nominated for election by an
Acquiring Person, and (ii) was either a member of the Board of the Company
on the date of this Agreement or subsequently became a director of the
Company and whose initial election or initial nomination for election by the
Company’s stockholders was approved by a majority of the Continuing
Directors then on the Board of the Company.

6.3.a.vi. “Disability” and “Disabled” shall have the meaning
set forth in Article 6.1 above.

6.3.a.vii. “Change in Control Severance Compensation” shall be as
follows:

6.3.a.vii.A. If Hirschhorn’s employment is terminated pursuant to a
Change in Control by way of an acquisition (including, without
limitation, asset, equity or otherwise) by an Acquiring Person, then
Hirschhorn will be entitled to a lump sum amount equal to three times
the sum of Hirschhorn’s then current annualized Base Salary plus any
bonus paid in the fiscal year of the Company preceding the date of
termination pursuant to this Article 6.3.

6.3.a.vii.B. If Hirschhorn’s employment is terminated pursuant to a
Change in Control by way of any other transaction other than that
described under Article 6.3.a.vii.A. above, then for a period of 12
months Hirschhorn is entitled to benefits substantially similar to

8

 

those which Hirschhorn was entitled to receive immediately prior to
the date of termination (pursuant to this Article 6.3 under the
Company’s health benefit programs and insurance programs, including,
without limitation, all of the Company’s “employee welfare benefit
plans” within the meaning of Section 3(1) of The Employee Retirement
Income Security Act of 1974, as amended.

6.3.a.vii.C. Upon Change in Control for any and all reasons, all
options granted to Hirschhorn previously pursuant to this Agreement
shall vest immediately.

6.3.a.vii.D. Upon Change in Control for any and all reasons,
Hirschhorn shall be entitled to retain full possession of any laptop
or notebook computer that was provided to him by the Company.

6.3.b Rights of Hirschhorn Upon Change in Control and Subsequent Termination.

6.3.b.i. The Company shall provide Hirschhorn, within ten (10) days
following the date of termination pursuant to this Article 6.3, Change in
Control Severance Compensation, but without affecting the rights of
Hirschhorn or the Company at law or in equity, if, within one year following
the occurrence of a Change in Control, any of the following two events shall
occur:

6.3.b.i.A. the Company terminates Hirschhorn’s employment during the
Term except for any of the following reasons:

     6.3.b.i.A.(1) Hirschhorn dies;

     6.3.b.i.A.(2) Hirschhorn becomes Disabled; or

     6.3.b.i.A.(3) The Company terminates Hirschhorn for Cause; or

6.3.b.ii.B. Hirschhorn terminates his employment after such Change in
Control and the Company commits any breach of this Agreement, which
is not cured within ten (10) calendar days after receipt by the
Company of written notice from Hirschhorn of such breach.

6.3.b.ii. Upon written notice given by Hirschhorn to the Company prior to
the receipt of Change in Control Severance Compensation, Hirschhorn, at his
sole option, may elect to have all or any part of any such amount paid to
him, without interest, on an installment basis selected by him.

9

 

6.3.b.iii. The payment of Change in Control Severance Compensation by the
Company to Hirschhorn shall not affect any rights and benefits which
Hirschhorn may have pursuant to any other agreement, policy, plan, program
or arrangement with the Company prior to the date of termination pursuant to
this Article 6.3, which rights shall be governed by the terms thereof,
except that payments hereunder after termination under this Article 6.3
shall reduce by an equal amount any sums payable after termination of
employment under Article 6.2 above, as may be amended, restated or modified.

6.3.b.iv. If any of the events set forth in Articles 6.3.b.i.A or
6.3.b.ii.B. of this Agreement occurs prior to a Change in Control but
following the commencement of any discussion authorized by the Board with a
third person that ultimately results in a Change in Control involving that
person or a different third party, such event shall be deemed to be a
termination or removal of Hirschhorn after a Change in Control for purposes
of this Agreement and shall entitle Hirschhorn to all benefits under this
Agreement.

6.4. Conditions to Severance Payments. Except as provided in Article 6.2.b and below in
this Article 6.4, none of the Severance Payments and the Insurance Payments under Article
6.2 will be subject to reduction as the result of future compensation earned or received by
Hirschhorn (including by self-employment), and Hirschhorn shall have no duty to mitigate his
damages. The Severance Payments and the Insurance Payments shall, however, be conditioned
upon:

6.4.a. The Company’s receipt of a Settlement Agreement, General Release, and
Covenant Not to Sue executed and performed by Hirschhorn (or his legal
representative, estate, or heirs) in substantially the form of Exhibit “A”
to this Agreement (the “Release Agreement”); and

6.4.b. the compliance by Hirschhorn (or his legal representative, estate, or heirs)
with Articles 7, 8, 9, and 10 after the Termination Date as specified in those
Articles, as well as with the Release Agreement.

The Company may cease or reduce the Severance Payments or the Insurance Payments (or both)
if, and the Company shall be entitled to a return of the Severance Payments and the
Insurance Payments (or both) made to the extent that, there is or has been any material
violation by Hirschhorn (or his legal representatives, estate, or heirs) of any of Articles
7, 8, 9, and 10 or of the Release Agreement.

6.5. Termination for Cause or by Hirschhorn. If Hirschhorn’s employment is terminated by
the Company for Cause or is voluntarily terminated by Hirschhorn, then Hirschhorn shall not
be entitled to any payments under this Agreement other than the amounts or benefits to which
he is entitled under Article 6.1.

10

 

6.6. Post-Termination Survival. The provisions of this Article 6 shall survive the
termination of Hirschhorn’s employment by the Company and its subsidiaries to the extent
necessary to effect the post-termination payments or benefits to which Hirschhorn is
entitled under the terms of this Article 6.

7. CONFIDENTIAL INFORMATION. The Company shall provide to Hirschhorn, during the Term,
access to various trade secrets, confidential information, and proprietary information of the
Company (which, in this Article 7 as well as in Articles 8, 9, and 10, shall include the Company’s
subsidiaries and affiliates) which are valuable and unique to the Company (“Confidential
Information”). Confidential Information includes the Company’s plans, policies, and procedures
as well as the plans, policies and procedures of other persons having relationships that are
material to the Company’s business and affairs. Hirschhorn shall not, either while in the employ
of the Company or at any time thereafter, (i) use any of the Confidential Information, or (ii)
disclose any of the Confidential Information to any person not an employee of the Company or not
engaged to render services to the Company, except (in either case) to perform his duties under this
Agreement or otherwise with the Company’s prior written consent. Nothing in this Article 7 shall
preclude Hirschhorn from the use or disclosure of information generally known to the public or not
considered confidential by the Company or from any disclosure to the extent required by law or
court order (though Hirschhorn must give the Company prior notice of any such required disclosure
and must cooperate with any reasonable requests of the Company to obtain a protective order
regarding, or to narrow the scope of, the Confidential Information required to be disclosed). All
files, records, documents, information, data, and similar items relating to the business or affairs
of the Company, whether prepared by Hirschhorn or otherwise coming into his possession, shall
remain the exclusive property of the Company and shall not be removed from the premises from the
Company, except in the ordinary course of business as part of Hirschhorn’s performance of his
duties under this Agreement, and (in any event) shall be promptly returned or delivered to the
Company (without Hirschhorn’s retaining any copies) upon the termination of employment under this
Agreement.

8. NONCOMPETITION. Hirschhorn acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable experience and
special training regarding the Company’s business and that the knowledge, experience, and training
he will acquire would enable him to injure the Company if he were to engage in any business that is
competitive with the business of the Company. Therefore, Hirschhorn shall not, at any time during
the Term and for the twelve (12) consecutive months immediately after the Termination Date,
directly or indirectly (as an employee, employer, consultant, agent, principal, partner,
shareholder, officer, director, or manager or in any other individual or representative capacity),
engage, invest, or participate in any business in direct competition with the business of the
Company within a fifty (50)-mile radius of each location, or set or group of locations, (i) at,
from, or to which the Company conducts or has conducted business or renders, provides, or delivers,
or has rendered, provided, or delivered, services or products during the Measurement Period (as
defined below) or (ii) that is or has been, during the Measurement Period, the subject of a
Proposal (as defined below) to conduct business or render, provide, or deliver services or products
thereat, therefrom, or thereto. “Measurement Period” means, with respect to Hirschhorn’s
activity (A) at any time during the Term, the Term, and (B) at any time on or after the Termination
Date, the six (6) consecutive months preceding, and including, the Termination Date.
“Proposal” means a written or formal proposal, bid, arrangement, understanding, or

11

 

agreement by the Company to or with another person that reflects or contains negotiated or
substantive terms, but does not include any marketing contact by the Company where the other person
has not solicited that contact or indicated any interest in doing business with the Company.
(Hirschhorn shall not be prohibited, however, from owning, as a passive investor, less than five
percent (5%) of the publicly traded stock or other securities of any entity engaged in a business
competitive with that of the Company.) Hirschhorn represents and agrees that (x) the Company has
agreed to provide him, and he will receive from the Company, special experience and knowledge,
including Confidential Information, (y) because the Confidential Information is valuable to the
Company, its protection (particularly from any competitive business) constitutes a legitimate
interest to be protected by the Company by enforcement of the restriction in this Article 8, and
(z) the enforcement of the restriction in this Article 8 would not be unduly burdensome to
Hirschhorn and that, in order to induce the Company to enter into this Agreement (which contains
various benefits to Hirschhorn and obligations of the Company with respect to Hirschhorn’s
employment), Hirschhorn is willing and able to engage, invest, or participate in business after the
Termination Date so as not to violate this Article 8. The Parties agree that the restrictions in
this Article 8 regarding scope of activity, duration, and geographic area are reasonable; however,
if any court should determine that any of those restrictions is unenforceable, that restriction
shall not thereby be terminated, but shall be deemed amended to the extent required to render it
enforceable.

9. NONSOLICITATION. Hirschhorn shall not, at any time within the twelve (12) consecutive
months immediately after the Termination Date, either directly or indirectly:

9.1. Disclose Contact Information. Make known to any person the names and addresses, or
other contact information, of any of the customers, suppliers, or other persons having
significant business relationships with the Company within the information technology
industry, so that such person could affect, or attempt to affect, any of those relationships
to the detriment of the Company; or

9.2. Solicit Employees. Solicit, recruit, or hire, or attempt to solicit, recruit, or hire,
any employee or consultant of the Company, or in any other manner attempt to induce any
employee or consultant of the Company to leave the employ of the Company or cease his or her
consulting or similar business relationship with the Company. References in this Article
9.2 to “any employee or consultant” shall include any person who was an employee or
consultant of the Company at any time within the six (6) consecutive months preceding, and
including, the Termination Date.

10. DEVELOPMENTS. Hirschhorn shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods, research, compositions,
and other developments, whether or not patentable or copyrightable, that Hirschhorn, by himself or
in conjunction with any other person, conceives, makes, develops, or acquires during the Term which
(i) are or relate to the properties, assets, or existing or contemplated business or research
activities of the Company, (ii) are suggested by, arise out of, or result from, directly or
indirectly, Hirschhorn’s association with the Company, or (iii) arise out of or result from,
directly or indirectly, the use of the Company’s time, labor, materials, facilities, or other
resources (“Developments”).

12

 

Hirschhorn hereby assigns, transfers, and conveys to the Company, and hereby agrees to assign,
transfer, and convey to the Company during or after the Term, all of his right and title to and
interest in all Developments. Hirschhorn shall, from time to time upon the request of the Company
during or after the Term, execute and deliver any and all instruments and documents and take any
and all other actions which, in the judgment of the Company or its counsel, are or may be
necessary or desirable to document any such assignment, transfer, and conveyance to the Company or
to enable the Company to file and process applications for, and to acquire, maintain, and enforce,
any and all patents, trademarks, registrations, or copyrights with respect to any of the
Developments, or to obtain any extension, validation, re-issue, continuance, or renewal of any such
patent, trademark, registration, or copyright. The Company will be responsible for the preparation
of any such instrument or document and for the implementation of any such proceedings and will
reimburse Hirschhorn for all reasonable expenses incurred by him in complying with this Article 10.

11. INDEMNIFICATION. To the extent Hirschhorn is an officer or director of the Company,
the Company shall include Hirschhorn under any existing or future (i) directors’ and officers’
liability insurance policy that the Company obtains and maintains or (ii) indemnification
agreements between the Company and other executives of the Company. Subject to the foregoing
sentence, the Company will indemnify Hirschhorn to the fullest extent permitted by the laws of the
Company’s state of incorporation in effect at that time or by the articles or certificate of
incorporation and by-laws of the Company, whichever affords the greater protection to Hirschhorn.

12. CERTAIN REMEDIES. Any breach or violation by Hirschhorn of any of Articles 7, 8, 9,
and 10 shall entitle the Company, as a matter of right, to an injunction issued by any court of
competent jurisdiction, restraining any further or continued breach or violation, or to specific
performance requiring the compliance with Hirschhorn’s covenants. This right to an injunction or
other equitable relief shall be in addition to, and not in lieu of, any other remedies to which the
Company may be entitled. The existence of any claim or cause of action of Hirschhorn against the
Company, or any subsidiary or affiliate of the Company, whether based on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of Hirschhorn’s
covenants in any of Articles 7, 8, 9, and 10. The covenants in Articles 7, 8, 9, and 10 and in
this Article 12 shall survive the termination of Hirschhorn’s employment under this Agreement.

13. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the Company and Hirschhorn and their respective legal
representatives, heirs, executors, administrators, and successors and assigns (as permitted by this
Article 13), including any successor to the Company by merger, consolidation, or reorganization
and any other person that acquires all or substantially all of the business and assets of the
Company. The Company shall have the right, without the need for any consent from Hirschhorn, to
assign its rights, benefits, remedies, and obligations under this Agreement to one or more other
persons. The rights, benefits, remedies, and obligations of Hirschhorn under this Agreement are
personal to Hirschhorn, however, and may not be assigned or delegated by him; except that this
shall not preclude (i) Hirschhorn from designating one or more beneficiaries to receive any amount
or benefit that may be paid or provided after Hirschhorn’s death or (ii) the legal representative
of Hirschhorn’s estate from assigning any right or benefit under this

13

 

Agreement to the person or persons entitled thereto under Hirschhorn’s will or the laws of
intestacy applicable to Hirschhorn’s estate, as the case may be.

14. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this Agreement, (ii)
this Agreement shall be construed and enforced as if that invalid or unenforceable provision never
constituted a part of this Agreement, and (iii) the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision, there shall be added
to this Agreement a provision as similar in its terms to that invalid or unenforceable provision as
may be possible and be valid and enforceable.

15. NOTICES. Any notice, request, or other communication to be given by either Party under
this Agreement by to the other shall be in writing and either (i) delivered in person, (ii)
delivered by prepaid same-day or overnight courier service, (iii) sent by certified mail, postage
prepaid with return receipt requested, or (iv) transmitted by facsimile, in any case addressed to
the other Party as follows:

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	To the Company:
	 	Tri-Isthmus Group, Inc.

9663 Santa Monica Blvd., #959

Beverly Hills, California 90210	 	 
	 

	 	 	 	Attention: Board of Directors

Facsimile:                                         	 	 
	 
	 	 	 	 	 	 
	 	 	with a copy (which shall not constitute notice) to:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Kirkpatrick & Lockhart Preston Gates Ellis, LLP

1717 Main Street, Suite 2800

Dallas, TX 75201	 	 
	 

	 	 	 	Attn: I. Bobby Majumder, Esq.

Facsimile: (214) 939-5849	 	 
	 
	 	 	 	 	 	 
	 

	 	To Hirschhorn:
	 	David Hirschhorn	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	Facsimile: (___) ___-___	 	 

or to such other address or facsimile number as the Party to be notified may have designated by
notice previously given in accordance with this Article 15. Communications delivered in person or
by courier service or transmitted by facsimile shall be deemed given and received as of actual
receipt (or refusal) by the addressee. Communications mailed as described above in this Article 15
shall be deemed given and received three (3) business days after mailing or upon actual receipt,
whichever is earlier.

16. CERTAIN DEFINED TERMS. In this Agreement, (i) “person” means an individual or
any corporation, partnership, trust, unincorporated association, limited liability company, or
other legal entity, whether acting in an individual, fiduciary, or other capacity, and any
government, court, or governmental agency, (ii) “include” and “including” do not
signify any

14

 

limitation, (iii) “Article” and “Section” means any Article and any Section,
respectively, of this Agreement, unless otherwise indicated, (iv) an “affiliate” of a
person means any other person controlling, controlled by, or under common control with that person,
and (v) “business day” means any Monday through Friday, other than any such weekday on
which the executive offices of the Company are closed. In addition, the use in this Agreement of
“year,” “annual,” “month,” or “monthly” (or similar terms) to
indicate a measurement period shall not itself be deemed to grant rights to Hirschhorn for
employment or compensation for that period.

17. ENTIRE AGREEMENT. This Agreement, with Exhibit “A”, constitutes the entire
agreement between the Company and Hirschhorn with respect to the subject matter hereof and
supersedes any prior agreement between the Company and Hirschhorn with respect to the same subject
matter.

18. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement, or waiver
of any term, provision, or condition of this Agreement, will be binding upon a Party unless the
amendment, modification, or waiver is in writing and signed by the Party to be bound. Any waiver
by a Party of a breach or violation of any provision of this Agreement by the other Party shall not
be deemed a waiver of any other provision or of any subsequent breach or violation.

19. GENDER. Whenever the context requires in this Agreement, words denoting gender in this
Agreement include the masculine, feminine, and neuter.

20. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations, and
duties of the Parties under this Agreement, shall be governed by, construed in accordance with, and
enforced under the laws of the State of Delaware. The exclusive venue of any action or proceeding
relating to this Agreement or its subject matter shall be in Los Angeles County, California.

21. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.

The Parties have executed this Agreement to be effective as of the date stated in the first
paragraph.

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	THE COMPANY:	 	EMPLOYEE:	 	 
	 
	 	 	 	 	 	 
	TRI-ISTHMUS GROUP, INC.,	 	 	 	 
	a Delaware corporation	 	/s/ David Hirschhorn	 	 
	 

	 	 	 	 

Signature
	 	 
	 
	 	 	 	 	 	 
	By: 

Name:

	 	/s/ Richardson E. Sells
 

Richardson E. Sells
	 	 	 	 
	Its:

	 	Director & Compensation Comm. Member
	 	David Hirschhorn	 	 
	

	 	 
	 	Printed Name	 	 

15

 

EXHIBIT “A”

Settlement Agreement, General Release, and Covenant Not to Sue

16

 

EXHIBIT “A”

SETTLEMENT AGREEMENT,

GENERAL RELEASE, AND COVENANT NOT TO SUE

     This Settlement Agreement, General Release, and Covenant Not to Sue (“Agreement”) is
made and entered into as of the                      day of                     , ___, by and between
                                         (“Employee”) and                              
           , a                     
corporation (the “Company”), hereinafter collectively referred to as the “parties”.

Recitals

     WHEREAS, Employee was employed by the Company as                                          under the terms of
an Executive Employment Agreement dated as of                     , 200___(the “Employment
Agreement”);

     WHEREAS, Employee’s employment under the Employment Agreement shall terminate effective
                    ,                      (the “Termination Date”); and

     WHEREAS, the parties desire to settle fully and finally, in the manner set forth herein, all
differences between them which have arisen, or which may arise, prior to, or at the time of, the
execution of this Agreement, including, but in no way limited to, any and all claims and
controversies arising out of the Employment Agreement, the employment relationship between Employee
and the Company, and the termination thereof;

Agreement

     NOW, THEREFORE, in consideration of the Recitals and the mutual promises, covenants and
agreements set forth herein, the parties covenant and agree as follows:

     1. Employee, for himself or herself and on behalf of his or her attorneys, heirs, assigns,
successors, executors, and administrators, IRREVOCABLY AND UNCONDITIONALLY RELEASES, ACQUITS, AND
FOREVER DISCHARGES the Company, its current and former parent, subsidiary, affiliated, and related
corporations, firms, associations, partnerships, limited liability companies, and other entities,
their successors and assigns, and the current and former owners, members, shareholders, managers,
directors, officers, partners, employees, agents, attorneys, representatives, and insurers of said
corporations, firms, associations, partnerships, limited liability companies, and other entities,
and their guardians, successors, assigns, heirs, executors, and administrators (hereinafter
collectively referred to as the “Releasees”), from any and all claims, complaints,
grievances, liabilities, obligations, promises, agreements, damages, causes of action, rights,
debts, demands, controversies, costs, losses, damages, and expenses (including, without limitation,
attorneys’ fees and expenses) whatsoever, other than any arising under this Agreement, under any
municipal, local, state, or federal law, common or statutory — including, but in no way limited
to, claims

17

 

under the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621, et seq. — for any
actions or omissions whatsoever, whether known or unknown and whether or not connected with the
Employment Agreement, the employment of Employee by the Company, or the termination thereof, which
existed or may have existed prior to, or contemporaneously with, the execution of this Agreement.

     2. Employee, for himself or herself and on behalf of his or her attorneys, heirs, assigns,
successors, executors, and administrators, COVENANTS NOT TO SUE OR OTHERWISE CONSENT TO PARTICIPATE
IN ANY ACTION AGAINST, any of the Releasees based upon any of the claims and other matters released
in paragraph 1 of this Agreement.

     3. Employee agrees that he or she will keep the terms, amount, and fact of this Agreement
STRICTLY AND COMPLETELY CONFIDENTIAL and that he or she will not communicate or otherwise disclose
to any employee (past, present, or future) of the Company or any of the other Releasees or to a
member of the general public the terms, amount, or fact of this Agreement, except as may be
required by law or compulsory process.

     4. Employee waives and releases forever any right or rights he or she might have to
employment, reemployment, or reinstatement with the Company or any of the other Releasees, except
as may be provided under the terms of this Agreement.

     5. Upon the expiration of seven (7) days after Employee’s execution of this Agreement, the
Company agrees to pay or provide Employee the Severance Payment as provided (and defined) in the
Employment Agreement.

     6. The parties hereto recognize that, by entering into this Agreement, the Company does not
admit, and does specifically deny, any violation of any local, state, or federal law, common or
statutory. The parties further recognize that this Agreement has been entered into in release and
compromise of any claims which might be asserted by Employee in connection with his or her
employment by the Company, or the termination thereof, and to avoid the expense and burden of any
litigation related thereto.

     7. The parties acknowledge and agree that in the event Employee materially breaches any
provision of this Agreement, (a) Employee will indemnify and hold the Company harmless from and
against any and all resulting damages, expense, or loss incurred by the Company (including, without
limitation, attorneys’ fees and expenses), (b) Employee will immediately repay to the Company in
full any payment made to him or her under the provisions of this Agreement, and (c) the Company
will be entitled to file counterclaims against Employee for breach of the covenant not to sue and
may recover from Employee any payment not repaid to the Company, as required by clause (b) of this
paragraph 7, as well as any and all other resulting actual or consequential damages.

     8. One or more waivers of a breach of any covenant, term, or provision of this Agreement by
either party shall not be construed as a waiver of a subsequent breach of the same covenant, term,
or provision, nor shall it be considered a waiver of any other then existing or subsequent breach
of a different covenant, term, or provision.

18

 

     9. If any provision or term of this Agreement is held to be illegal, invalid, or
unenforceable, (a) such provision or term shall be fully severable, (b) this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision had never
constituted part of this Agreement, and (c) the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically as a part of this
Agreement another provision or term as similar to the illegal, invalid, or unenforceable provision
as may be possible and that is legal, valid, and enforceable.

     10. The parties agree that should one party sue the other party for a breach of any provision
of this Agreement, the prevailing party shall be entitled to recover its attorneys’ fees and costs
of court. Each party shall have the right to sue for specific performance of this Agreement, and
for declaratory and injunctive relief.

     11. Either party may revoke this Agreement, within seven (7) days of the date of its execution
by Employee (the “Revocation Period”), by written notice to the other party. Employee
agrees that if he or she revokes this Agreement, he or she shall receive none of the benefits
provided for under its terms. Employee further understands and agrees that, unless the Company
receives from Employee, prior to the expiration of the Revocation Period, written notice of his or
her revocation of this Agreement, this Agreement and all of its terms shall have full force and
effect, and Employee shall have forever waived his or her right to revoke this Agreement.

     12. This Agreement constitutes the entire agreement of the parties, and supersedes all prior
and contemporaneous negotiations and agreements, oral or written, between the parties. All prior
and contemporaneous negotiations and agreements are deemed incorporated and merged into this
Agreement and are deemed to have been abandoned if not so incorporated. No representations, oral
or written, are being relied upon by either party in executing this Agreement other than the
express representations of this Agreement. This Agreement cannot be changed or terminated without
the express written consent of the parties.

     13. This Agreement shall be governed by and construed in accordance with the laws of the State
of Texas, except where preempted by federal law.

     14. By executing this Agreement, Employee acknowledges that (a) this Agreement has been
reviewed with him or her by a representative of the Company (see Attachment “A”, which is
attached hereto and incorporated herein by reference), (b) he or she has had at least twenty-one
(21) days to consider the terms of the Agreement (see Attachment “A”), and has considered
its terms for that period of time or has knowingly and voluntarily waived his or her right to do
so, (c) he or she has been advised by the Company in writing to consult with an attorney regarding
the terms of the Agreement (see Attachment “A”), (d) he or she has consulted with, or has
had sufficient opportunity to consult with, an attorney of his or her own choosing regarding the
terms of the Agreement, (e) any and all questions regarding the terms of this Agreement have been
asked and answered to his or her complete satisfaction, (f) he or she has read this Agreement and
fully understands its terms and their import, (g) except as provided by this Agreement, he or she
has no contractual right or claim to the benefits described herein, (h)

19

 

the consideration provided for herein is good and valuable, and (i) he or she is entering into
this Agreement voluntarily, of his or her own free will, and without any coercion, undue influence,
threat, or intimidation of any kind or type whatsoever.

20

 

     EXECUTED in                             
            ,         
             this                     day of                     , 200___.

	 	 	 	 	 	 	 
	 	 	EMPLOYEE:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 
	THE STATE OF

	 	 	 	§
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	§	 	 
	COUNTY OF

	 	 	 	§	 	 
	 

	 	 	 	 	 	 

     BEFORE ME, the undersigned, a Notary Public, on this day personally appeared
                                        , known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he or she executed the same for the purposes and
consideration therein expressed.

     GIVEN UNDER MY HAND AND SEAL OF OFFICE this                      day of                     , 200___.

	 	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 

	 	Notary Public, State of	 	 
	 

	 	 	 	 

[SEAL]

21

 

     EXECUTED in                     ,                      , this        
              day of                     , 200___.

	 	 	 	 	 	 	 
	 	 	THE COMPANY:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Its:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 
	THE STATE OF

	 	 	 	§
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	§	 	 
	COUNTY OF

	 	 	 	§	 	 
	 

	 	 	 	 	 	 

     BEFORE ME, the undersigned, a Notary Public, on this day personally appeared
                                        ,                             
             of                                         , known to me to be
the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he or
she executed the same as the act of that company for the purposes and consideration therein
expressed.

     GIVEN UNDER MY HAND AND SEAL OF OFFICE this                      day of                                        
 , 200___.

	 	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 

	 	Notary Public, State of	 	 
	 

	 	 	 	 

[SEAL]

22

 

ATTACHMENT “A”

NOTICE OF RIGHTS

     Attached hereto you will find a proposed Settlement Agreement, General Release, and Covenant
Not to Sue (“Agreement”) with respect to the termination of your employment. It is
required by law that you be given at least 21 days from the date of receipt of the proposed
Agreement within which to consider its terms. During this period, please feel free to contact the
person listed below to ask any questions regarding the Agreement, including, but not limited to,
the definitions of words which you do not know and the meanings of phrases, sentences, or
paragraphs which you do not understand. It is recommended that you consult with an attorney
regarding your legal rights with respect to the Agreement during this 21-day period.

ACKNOWLEDGMENT OF RECEIPT

     I acknowledge that I received a copy of                                         ’s proposed Settlement
Agreement, General Release, and Covenant Not to Sue at                     :                    .m. this ___day of
                    ,                     , and that the Agreement and the Notice of Rights above have been reviewed with
me by the person listed below.

	 	 	 	 	 	 	 
	 	 	EMPLOYEE:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 
	COMPANY:	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	Its:
	 	 	 	 
	 

	 	 	 	 

23

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