Document:

ex_10-1.htm

    Exhibit
10.1

     

     

     

    

      PURCHASE
AND SALE AGREEMENT

      

      BY
AND BETWEEN

       

      CROWN
OIL PARTNERS III, LP,

       

      AND

       

      BC
OPERATING, INC.,

       

      AS
SELLER

       

      AND

       

      LEGACY
RESERVES OPERATING LP,

      

      AS
BUYER

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

        TABLE OF
CONTENTS

         

                                                                                                                                                                                                                                                                            
PAGE

        
          
            	
                    1.

                  	
                    SALE
      AND PURCHASE OF THE ASSETS.

                  	
                    1

                  
	
                    1.1

                  	
                    Acquired
      Assets

                  	
                    1

                  
	
                    1.2

                  	
                    Excluded
      Assets.

                  	
                    2

                  
	
                    1.3

                  	
                    Assumed
      Liabilities

                  	
                    2

                  
	
                    2.

                  	
                    PURCHASE
      PRICE.

                  	
                    3

                  
	
                    2.1

                  	
                    Base
      Purchase Price.

                  	
                    3

                  
	
                    2.2

                  	
                    Deposit.

                  	
                    3

                  
	
                    2.3

                  	
                    Adjustments
      to the Base Purchase Price

                  	
                    3

                  
	
                    2.4

                  	
                    Allocation

                  	
                    4

                  
	
                    3.

                  	
                    CLOSING.

                  	
                    5

                  
	
                    3.1

                  	
                    Closing.

                  	
                    5

                  
	
                    3.2

                  	
                    Delivery
      by Seller

                  	
                    5

                  
	
                    3.3

                  	
                    Delivery
      by Buyer

                  	
                    5

                  
	
                    3.4

                  	
                    Further
      Cooperation

                  	
                    6

                  
	
                    4.

                  	
                    ACCOUNTING
      ADJUSTMENTS.

                  	
                    6

                  
	
                    4.1

                  	
                    Closing
      Adjustments.

                  	
                    6

                  
	
                    4.2

                  	
                    Strapping
      and Gauging

                  	
                    6

                  
	
                    4.3

                  	
                    Taxes

                  	
                    7

                  
	
                    4.4

                  	
                    Post-Closing
      Adjustments

                  	
                    7

                  
	
                    4.5

                  	
                    Suspended
      Funds

                  	
                    8

                  
	
                    4.6

                  	
                    Audit
      Adjustments

                  	
                    8

                  
	
                    4.7

                  	
                    Cooperation

                  	
                    8

                  
	
                    5.

                  	
                    DUE
      DILIGENCE: TITLE MATTERS.

                  	
                    8

                  
	
                    5.1

                  	
                    General
      Access

                  	
                    8

                  
	
                    5.2

                  	
                    Defensible
      Title

                  	
                    9

                  
	
                    5.3

                  	
                    Defect
      Letters.

                  	
                    10

                  
	
                    5.4

                  	
                    Effect
      of Title Defect

                  	
                    12

                  
	
                    5.5

                  	
                    Preferential
      Rights and Consents.

                  	
                    13

                  
	
                    6.

                  	
                    ENVIRONMENTAL
      ASSESSMENT.

                  	
                    15

                  
	
                    6.1

                  	
                    Physical
      Condition of the Assets

                  	
                    15

                  
	
                    6.2

                  	
                    Inspection
      and Testing.

                  	
                    15

                  
	
                    6.3

                  	
                    Notice
      of Adverse Environmental Conditions

                  	
                    16

                  
	
                    6.4

                  	
                    Rights
      and Remedies for Adverse Environmental Conditions.

                  	
                    17

                  
	
                    6.5

                  	
                    Remediation
      by Seller

                  	
                    18

                  
	
                    7.

                  	
                    REPRESENTATIONS
      AND WARRANTIES OF SELLER.

                  	
                    19

                  
	
                    7.1

                  	
                    Seller’s
      Representations and Warranties

                  	
                    19

                  
	
                    7.2

                  	
                    Scope
      of Representations of Seller.

                  	
                    23

                  
	
                    8.

                  	
                    REPRESENTATIONS
      AND WARRANTIES OF BUYER.

                  	
                    24

                  
	
                    8.1

                  	
                    Buyer’s
      Representations and Warranties

                  	
                    24

                  
	
                    9.

                  	
                    CERTAIN
      AGREEMENTS OF SELLER

                  	
                    25

                  
	
                    9.1

                  	
                    Maintenance
      of Assets

                  	
                    25

                  
	
                    9.2

                  	
                    Records

                  	
                    26

                  

          

           

        

      

      
        
          
          

        

        
          Page
i

          
            

          

        

        
          
          

        

      

    

     

    
      
        	
                9.3

              	
                Audit
      Rights.

              	
                26

              
	
                10.

              	
                CERTAIN
      AGREEMENTS OF BUYER

              	
                27

              
	
                10.1

              	
                Plugging
      Obligation

              	
                27

              
	
                10.2

              	
                Plugging
      Bond

              	
                27

              
	
                10.3

              	
                Seller’s
      Logos

              	
                27

              
	
                10.4

              	
                Like-Kind
      Exchanges

              	
                27

              
	
                11.

              	
                CONDITIONS
      PRECEDENT TO OBLIGATIONS OF BUYER

              	
                27

              
	
                11.1

              	
                No
      Litigation

              	
                27

              
	
                11.2

              	
                Representations
      and Warranties

              	
                27

              
	
                12.

              	
                CONDITIONS
      PRECEDENT TO THE OBLIGATIONS OF SELLER

              	
                28

              
	
                12.1

              	
                No
      Litigation

              	
                28

              
	
                12.2

              	
                Representations
      and Warranties

              	
                28

              
	
                13.

              	
                TERMINATION.

              	
                28

              
	
                13.1

              	
                Causes
      of Termination

              	
                28

              
	
                13.2

              	
                Effect
      of Termination.

              	
                28

              
	
                14.

              	
                INDEMNIFICATION.

              	
                29

              
	
                14.1

              	
                Indemnification
      by Seller

              	
                29

              
	
                14.2

              	
                Indemnification
      by Buyer

              	
                32

              
	
                14.3

              	
                Physical
      Inspection

              	
                32

              
	
                14.4

              	
                Notification

              	
                32

              
	
                15.

              	
                MISCELLANEOUS.

              	
                33

              
	
                15.1

              	
                Casualty
      Loss.

              	
                33

              
	
                15.2

              	
                Confidentiality.

              	
                33

              
	
                15.3

              	
                Notices

              	
                34

              
	
                15.4

              	
                Press
      Releases and Public Announcements

              	
                35

              
	
                15.5

              	
                Compliance
      with Express Negligence Test

              	
                35

              
	
                15.6

              	
                Governing
      Law

              	
                35

              
	
                15.7

              	
                Exhibits

              	
                35

              
	
                15.8

              	
                Fees,
      Expenses, Taxes and Recording.

              	
                35

              
	
                15.9

              	
                Assignment

              	
                36

              
	
                15.10

              	
                Entire
      Agreement

              	
                36

              
	
                15.11

              	
                Severability

              	
                36

              
	
                15.12

              	
                Captions

              	
                36

              
	
                15.13

              	
                Time
      of the Essence

              	
                36

              
	
                15.14

              	
                Counterpart
      Execution.

              	
                36

              

      

      

      
        
          
          

        

        
          Page
ii

          
            

          

        

        
          
          

        

      

    

     

    
      EXHIBITS

      

      A                      Leases
and Land

      B                      Wells
and Allocation of the Purchase Price

      C                      Equipment

      D                      Excluded
Assets

      E                      Form
of Assignment and Bill of Sale

      F                      Form
of Contract Operator Agreement

      7.1(E)              AFE’s

      7.1(G)              Pending
Litigation

      7.1(K)              Material
Agreements

      7.1(L)       
       Consents and Preferential Purchase
Rights

      

      
        
          
          

        

        
          Page
iii

          
            

          

        

        
          
          

        

      

       

      PURCHASE AND SALE
AGREEMENT

       

      This Purchase and Sale Agreement (this
“Agreement”) is entered into this 13th day of March, 2008, but effective as of
7:00 a.m. (Central Time) on January 1, 2008 (the “Effective Time”), by and
between CROWN OIL PARTNERS III,
LP, a Texas limited partnership (“Crown Oil”) and BC OPERATING, INC., a Texas
corporation (“BC Operating”) (Crown Oil and BC Operating are collectively
referred to herein as “Seller”) and LEGACY RESERVES OPERATING LP,
a Delaware limited partnership (“Buyer”). Buyer and Seller are collectively
referred to herein as the “Parties” and sometimes individually referred to as a
“Party.”

       

      RECITALS:

       

      
        	
                A.

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

              

      

       

      
        	
                B.

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

              

      

       

      WITNESSETH:

       

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

       

      1.           SALE
AND PURCHASE OF THE ASSETS.

       

      1.1           Acquired
Assets

       

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

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        
          
          

        

        
          Page
1

          
            

          

        

        
          
          

        

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

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

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

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

              

      

       

      1.2           Excluded
Assets.

       

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

       

      1.3           Assumed
Liabilities.

       

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

       

      
        
          
          

        

        
          Page
2

          
            

          

        

        
          
          

        

      

       

      2.           PURCHASE
PRICE.

       

      2.1           Base Purchase
Price.

       

        The
purchase price for the Assets is EIGHTY-TWO MILLION AND NO/100 DOLLARS
($82,000,000.00) (the “Cash Consideration”), subject to the adjustments provided
for herein.  If the conditions under the Unit Purchase Agreement,
dated as of November 7, 2007, among Legacy Reserves LP, Legacy Reserves GP, LLC
and the Purchasers named therein are met, then the Cash Consideration will be
reduced to FIFTY-FIVE MILLION AND NO/100 DOLLARS ($55,000,000.00) and the
remainder of the purchase price shall be paid with the issuance of 1,345,291
units (the “Units”) representing limited partner interests in Legacy Reserves LP
(the “Unit Consideration”, and together with the Cash Consideration, the “Base
Purchase Price”).

       

      2.2           Deposit.

       

      Within
three (3) days of the execution of this Agreement, Buyer shall deliver to
Seller, in cash by wire-transfer in immediately available funds to an account
designated by Seller, a Deposit in an amount equal to TWO MILLION SEVEN HUNDRED
FIFTY THOUSAND AND NO/100 DOLLARS ($2,750,000.00) (such amount together with all
accrued interest thereon, the “Deposit”).  Prior to Closing, the
Deposit shall be maintained by Seller in an interest bearing
account.  The Deposit shall be distributed to Seller and credited to
the Cash Consideration at Closing, or if this Agreement is terminated, shall be
distributed or retained pursuant to Article 13.  In the event the
Deposit is not delivered to Seller as prescribed, this Agreement shall
terminate.

      

      2.3           Adjustments to the Base
Purchase Price.

       

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

       

      
        	
                (A)

              	
                The
      Cash Consideration shall be adjusted upward
by:

              

      

       

      
        	
              	
                (i)

              	
                any
      amount determined to be due Seller pursuant to Section
  4.2;

              

      

       

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

      

      
        	
                 
      

              	
                (v)

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

              

      

       

      
        
          
          

        

        
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3

          
            

          

        

        
          
          

        

      

       

      
        	 	
                (vi)

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

              

      

      

      
        	
                (B)

              	
                The
      Cash Consideration shall be adjusted downward
  by:

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

      

      
        	
                 
      

              	
                (v)

              	
                the
      amount of the Deposit; and

              

      

       

      
        	
              	
                (vi)

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

              

      

       

      
        	
                (C)

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

              

      

       

      2.4           Allocation.

       

        The
Base Purchase Price shall be allocated to the Assets as set forth in Exhibit
B.  The Parties agree that the values allocated to various
portions of the Assets, which are set forth on Exhibit B (singularly
with respect to each item, the “Allocated Value” and collectively, the
“Allocated Values”), shall be binding on Seller and Buyer and shall be used only
for the purposes of adjusting the Cash Consideration pursuant to Sections 4.3
(relating to Taxes), 5.4 (relating to Title Defects), 15.1 (relating to Casualty
Losses), and 6.4 (relating to Adverse Environmental Conditions), and are not
intended as a measure of value for any other purpose.

       

      
        
          
          

        

        
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4

          
            

          

        

        
          
          

        

      

       

      3.           CLOSING.

       

      3.1           Closing.

       

        The
sale and purchase of the Assets (“Closing”) shall be held at 9:00 a.m. on April
30, 2008 (“Closing Date”).  The Closing will take place at the offices
of Seller, in Midland, Texas.

       

      3.2           Delivery by
Seller.

       

        At
Closing, Seller shall deliver to Buyer:

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

              	
                Executed
      change of operator forms as required by applicable governmental regulation
      with respect to all Assets operated by
Seller;

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

              	
                An
      executed Closing Adjustment
Statement;

              

      

       

      
        	
                (G)

              	
                An
      executed Non-Foreign Affidavit of
Seller;

              

      

       

      
        	
                (H)

              	
                Possession
      of the Records and all other
Assets;

              

      

       

      
        	
                (I)

              	
                The
      suspensed funds pursuant to Section
4.5;

              

      

       

      
        	
                (J)

              	
                An
      executed Contract Operator Agreement substantially in the form attached
      hereto as Exhibit F
      relating to BC Operating’s operation of all of the operated Assets located
      in Kansas and Oklahoma after the Closing (the “Contract Operator
      Agreement”); and

              

      

       

      
        	
                (K)

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

              

      

       

      3.3           Delivery by
Buyer.

       

        At
Closing, Buyer shall deliver to Seller:

       

      
        	
                (A)

              	
                The
      Cash Consideration set forth in the Closing Adjustment Statement by wire
      transfer in immediately available funds, less the
  Deposit;

              

      

       

      
        
          
          

        

        
          Page
5

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

              	
                The
      Unit Consideration by delivery of evidence of the issuance to Seller of
      such Unit Consideration;

              

      

       

      
        	
                (C)

              	
                An
      executed Contract Operator
Agreement;

              

      

       

      
        	
                (D)

              	
                An
      executed Closing Adjustment Statement;
and

              

      

       

      
        	
                (E)

              	
                Executed
      counterparts of the Assignment and Bill of
Sale.

              

      

       

      3.4           Further
Cooperation

       

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

       

      4.           ACCOUNTING
ADJUSTMENTS.

       

      4.1           Closing
Adjustments.

       

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

       

      4.2           Strapping and
Gauging

       

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

       

      
        
          
          

        

        
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6

          
            

          

        

        
          
          

        

      

       

      4.3           Taxes.

      

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      4.4           Post-Closing
Adjustments

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        
          
          

        

        
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7

          
            

          

        

        
          
          

        

      

       

      
        	
                (D)

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

              

      

       

      4.5           Suspended
Funds.

       

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

       

      4.6           Audit
Adjustments.

       

        Seller
retains all rights to adjustments resulting from any operating agreement and
other audit claims asserted against third party operators on transactions
occurring prior to the Effective Time (which includes Buyer, if
applicable).  Any credit received by Buyer pertaining to such an audit
claim shall be paid to Seller within thirty (30) days after
receipt.

       

      4.7           Cooperation.

       

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

       

      5.           DUE DILIGENCE: TITLE
MATTERS.

       

      5.1           General
Access.

       

      
        	
                (A)

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

              

      

       

      
        
          
          

        

        
          Page
8

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

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

              

      

      

      5.2           Defensible
Title.

       

        As
used herein the term Defensible Title shall mean:

       

      
        	
                (A)

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

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                 
      

              	
                (1)

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

              

      

      

      
        	
                 
      

              	
                (2)

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

              

      

      

      
        	
                 
      

              	
                (3)

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

              

      

      

      
        	
                 
      

              	
                (4)

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

              

      

       

      
        
          
          

        

        
          Page
9

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                (5)

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

              

      

      

      
        	
                 
      

              	
                (6)

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

              

      

       

      
        	
                 
      

              	
                (7)

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

              

      

      

      
        	
                 
      

              	
                (8)

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

              

      

      

      
        	
                 
      

              	
                (9)

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

              

      

      

      
        	
                 
      

              	
                (10)

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

              

      

      

      
        	
                 
      

              	
                (11)

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

              

      

      

      
        	
                 (12)

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

              

      

      

      5.3           Defect
Letters.

       

      
        	
                (A)

              	
                Buyer
      may from time to time and no later than April 25, 2008, at 5:00 p.m.,
      Central Time (the “Defect Notice Deadline”) notify Seller in writing (a
      “Notice”) of any matter which would cause title to all or part of the
      Assets not to be Defensible Title (“Title Defect”).  There shall
      be no adjustment to the Base Purchase Price unless the aggregate Title
      Defect Values of all Title Defects exceeds $1,000,000 (the “Title
      Defect Threshold”) (such amount being a threshold, not a
      deductible).  In order to provide Seller a reasonable
      opportunity to cure any Title Defects prior to Closing, Buyer shall use
      reasonable efforts to provide the Notice as soon as reasonably possible
      after becoming aware of or making its determination of the Title
      Defect.

              

      

       

      
        
          
          

        

        
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10

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

              	
                Upon
      timely delivery of a Notice by
Buyer:

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

       

      
        
          
          

        

        
          Page
11

          
            

          

        

        
          
          

        

      

       

      5.4           Effect of Title
Defect

       

      
        	
                (A)

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

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

       

      
        
          
          

        

        
          Page
12

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

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

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

       

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                (C)

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

              

      

       

      5.5           Preferential Rights and
Consents.

       

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

      

      
        	
                (A)

              	
                Consents.

              

      

       

      Except
for consents and approvals which are customarily obtained post-Closing, if a
necessary consent to assign any Lease has not been obtained as of the Closing,
then (i) the portion of the Assets for which such consent has not been
obtained shall not be conveyed at the Closing, (ii) the Allocated Value for
that Asset shall not be paid to Seller, and (iii) Seller shall use best
efforts to obtain such consent as promptly as possible following
Closing.  If such consent has been obtained as of the date on which
the Post-Closing Adjustment Statement becomes final, Seller shall convey the
affected Asset to Buyer effective as of the Effective Time and Buyer shall pay
Seller the Allocated Value of the affected Asset, less any proceeds from the
affected Asset received by Seller attributable to the period of time

       

      
        
          
          

        

        
          Page
13

          
            

          

        

        
          
          

        

      

       

      after the
Effective Time (calculated in accordance with Section 2.3).  If such
consent has not been obtained or has not been waived by Buyer as of the date on
which the Post-Closing Adjustment Statement becomes final, Seller shall
elect either to (i) challenge in court the enforceability of such consent
right, in which event Seller shall retain the affected Asset until such legal
challenge is finally resolved by settlement or non-appealable court order, after
which either Seller shall convey the affected Asset to Buyer under the terms of
this Agreement and Buyer shall pay the Allocated Value for such Asset, less any
proceeds received by Seller attributable to such Asset for the period from and
after the Effective Time (calculated in accordance with Section 2.3) or
(ii) retain the affected Asset and the Cash Consideration shall be reduced
by an amount equal to the Allocated Value of the retained Asset (with such
adjustment being an “Exclusion Adjustment”).  Buyer shall reasonably
cooperate with Seller in obtaining any required consent including providing
assurances of reasonable financial conditions, but Buyer shall not be required
to expend funds or make any other type of financial commitments a condition of
obtaining such consent.

      

      
        	
                (B)

              	
                Preferential Purchase
      Rights.

              

      

       

      
        	
                 
      

              	
                 (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

       

      
        
          
          

        

        
          Page
14

          
            

          

        

        
          
          

        

      

       

      
        	
                (C)

              	
                Exclusive
      Remedy.

              

      

       

      
        	
                 
      

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

              

      

      

      6.           ENVIRONMENTAL
ASSESSMENT.

       

      6.1           Physical Condition of the
Assets.

       

      
        	
                (A)

              	
                Buyer
      acknowledges that the Assets have been used for oil and gas drilling and
      production operations and possibly for the storage and disposal of waste
      materials or hazardous substances related to standard oil field
      operations.  Physical changes in or under the Assets or adjacent
      lands may have occurred as a result of such uses.  The Assets
      also may contain previously plugged and abandoned wells, buried pipelines,
      storage tanks and other equipment, whether or not of a similar nature, the
      locations of which may not now be known by Seller or be readily apparent
      by a physical inspection of the Assets.  Upon consummation of
      the Closing Buyer shall be deemed to have assumed the risk of expense,
      claim, damage or liability arising from any such matter referred to in
      this section, including without limitation the risk that the Assets may
      contain waste or contaminants and that adverse physical conditions,
      including the presence of waste or contaminants, may not have been
      revealed by Buyer’s investigation.  Consummation of the Closing
      shall transfer all responsibility and liability related to disposal,
      spills, waste or contamination on or below the Assets from Seller to
      Buyer.

              

      

       

      
        	
                (B)

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

              

      

       

      6.2           Inspection and
Testing.

       

      
        	
                (A)

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

              

      

       

      
        
          
          

        

        
          Page
15

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

              	
                Buyer
      waives and releases all claims against Seller, its affiliates, and each of
      their respective directors, officers, employees, agents, and other
      representatives and their successors and assigns (collectively, the
      “Seller’s Group”), for injury to or death of persons, or damage to
      property, arising in any way from the exercise of rights granted to Buyer
      in Section 6.2(A) above or the activities of Buyer or its employees,
      agents or contractors on the Assets pursuant to Section 6.2(A)
      above.  EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR
      WILLFUL MISCONDUCT OF THE SELLER’S GROUP, BUYER SHALL INDEMNIFY THE
      SELLER’S GROUP AGAINST AND HOLD THE MEMBERS OF THE SELLER’S GROUP HARMLESS
      FROM ANY AND ALL LOSS, COST, DAMAGE, EXPENSE OR LIABILITY, INCLUDING
      REASONABLE ATTORNEY’S FEES, WHATSOEVER ARISING OUT OF (I) ANY AND ALL
      STATUTORY OR COMMON LAW LIENS OR OTHER ENCUMBRANCES FOR LABOR OR MATERIALS
      FURNISHED IN CONNECTION WITH SUCH TESTS, SAMPLINGS, STUDIES OR SURVEYS AS
      BUYER MAY CONDUCT WITH RESPECT TO THE ASSETS; AND (II) ANY INJURY TO
      OR DEATH OF PERSONS OR DAMAGE TO PROPERTY OCCURRING IN, ON OR ABOUT THE
      ASSETS AS A RESULT OF SUCH EXERCISE OR
  ACTIVITIES.

              

      

       

      
        	
                (C)

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

              

      

       

      6.3           Notice of Adverse
Environmental Conditions.

       

        No
later than the Defect Notice Deadline (as defined in Section 5.3(A)), Buyer
shall notify Seller in writing of any Adverse Environmental Condition with
respect to the Assets.  Such notice shall describe in reasonable
detail the Adverse Environmental Condition and include the estimated
Environmental Defect Value attributable thereto (the “Environmental Defect
Notice”) based on an estimate of the cost to Remediate the Adverse Environmental
Condition.  There shall be no adjustment to the Cash Consideration

       

      
        
          
          

        

        
          Page
16

          
            

          

        

        
          
          

        

      

       

      unless
the aggregate Environmental Defect Values of all Adverse Environmental
Conditions exceeds $1,000,000 (the “Environmental Defect Threshold”) (such
amount being a threshold, not a deductible).  The “Environmental
Defect Value” attributable to any Adverse Environmental Condition shall be the
estimated amount (net to Seller’s interest) of all reasonable costs and claims
necessary to Remediate the Adverse Environmental Conditions, as reasonably
determined and estimated by Buyer.  The term “Adverse Environmental
Condition” means (i) the failure of the Assets to be in material compliance
with all applicable Environmental Laws; (ii) the Assets being subject to
any agreements, consent orders, decrees or judgments currently in existence
based on any Environmental Laws that negatively and materially impact the future
use of any portion of the Assets or that require any material change in the
present conditions of any of the Assets; or (iii) the Assets being subject
to any material uncured violations of or non-compliance with any applicable
Environmental Laws or any Lease or agreement.  Buyer shall be deemed
to have conclusively waived (i) all Adverse Environmental Conditions not
contained in an Environmental Defect Notice delivered to Seller on or before the
Defect Notice Deadline, and (ii) any remedy against Seller for Adverse
Environmental Conditions if the Environmental Defect Value of all Adverse
Environmental Conditions do not exceed the Environmental Defect
Threshold.

       

      6.4           Rights and Remedies for
Adverse Environmental Conditions.

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

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

              

      

       

      
        
          
          

        

        
          Page
17

          
            

          

        

        
          
          

        

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

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

              

      

       

      6.5           Remediation by
Seller.

       

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

       

      
        	
                (A)

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

              

      

       

      
        
          
          

        

        
          Page
18

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

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

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

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

              

      

       

      
        	
                (F)

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

              

      

       

      7.           REPRESENTATIONS AND
WARRANTIES OF SELLER.

       

      7.1           Seller’s Representations and
Warranties.

       

        Seller
represents and warrants to Buyer the following as of the date of execution of
this Agreement and the Closing:

       

      
        
          
          

        

        
          Page
19

          
            

          

        

        
          
          

        

      

       

      
        	
                (A)

              	
                Status.  Crown
      Oil is a limited partnership duly organized, legally existing and in good
      standing under the laws of the State of Texas.   BC
      Operating is a corporation duly organized, legally existing and in good
      standing under the laws of the State of
Texas.

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

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

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

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

              

      

       

      
        	
                (G)

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

              

      

       

      
        	
                (H)

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

              

      

       

      
        
          
          

        

        
          Page
20

          
            

          

        

        
          
          

        

      

       

      
        	
                (I)

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

              

      

       

      
        	
                (J)

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

              

      

       

      
        	
                (K)

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

              

      

       

      
        	
                (L)

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

              

      

       

      
        	
                (M)

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

              

      

       

      
        	
                (N)

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

              

      

       

      
        	
                (O)

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

              

      

       

      
        	
                (P)

              	
                Calls on
      Production.  There are no calls on production pertaining
      to the Assets that provide for payment at less than applicable current
      market prices.

              

      

       

      
        	
                (Q)

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

              

      

      

      
        	
                (R)

              	
                Investment.  In
      the event Units are issued to Seller, the Units are being acquired for
      Seller’s own account, not as a nominee or agent, and with no present
      intention of distributing the Units or any part thereof, and Seller has no
      present intention of selling or granting any participation in or otherwise
      distributing the same in any transaction in violation of the securities
      laws of the United States of America or any state, without prejudice,
      however, to Seller’s right at all times to sell or otherwise dispose of
      all or any part of the Units under a registration statement under the
      Securities Act of 1933, as amended (the “Securities Act”) and applicable
      state securities laws (it being understood by Seller that Buyer is not
      granting registration rights hereunder) or under an exemption from such
      registration available thereunder (including, without limitation, if
      available, Rule 144 promulgated thereunder).  If Seller should
      in the future decide to dispose of any of the Units, Seller understands
      and agrees (a) that Seller may do so only (i) in compliance with the
      Securities Act and applicable state securities law, as then in effect, or
      (ii) in the manner contemplated by any registration statement pursuant to
      which such securities are being offered, and (b) that stop-transfer
      instructions to that effect may be in effect with respect to such
      securities.

              

      

       

      
        
          
          

        

        
          Page
21

          
            

          

        

        
          
          

        

      

       

      
        	
                (S)

              	
                Nature of
      Seller.  Seller represents and warrants to, and covenants
      and agrees with, Buyer that, (a) Seller is an “accredited investor” within
      the meaning of Rule 501 promulgated by the Securities and Exchange
      Commission (the “Commission”) pursuant to the Securities Act and (b) by
      reason of Seller’s business and financial experience Seller has such
      knowledge, sophistication and experience in business and financial matters
      so as to be capable of evaluating the merits and risks of the prospective
      investment in the Units, is able to bear the economic risk of such
      investment and, at the present time, would be able to afford a complete
      loss of such investment.

              

      

      

      
        	
                (T)

              	
                Receipt of
      Information; Authorization.  Seller acknowledges that
      Seller (a) has access to the filings Legacy Reserves LP has made with the
      Commission, including the financial information contained therein, and (b)
      has been provided a reasonable opportunity to ask questions of and receive
      answers from Buyer regarding such matters described
    therein.

              

      

      

      
        	
                (U)

              	
                Restricted
      Securities.  Seller understands that the Units Seller is
      potentially acquiring are characterized as “restricted securities” under
      the federal securities laws inasmuch as they are being acquired from
      Legacy Reserves LP in a transaction not involving a public offering and
      that under such laws and applicable regulations such securities may be
      resold without registration under the Securities Act only in certain
      limited circumstances.  In this connection, Seller represents
      that Seller is knowledgeable with respect to Rule 144 of the Commission
      promulgated under the Securities
Act.

              

      

      

      (V)           Legend.  It
is understood that the Units will bear the following legend:

       

      “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION
OR RESALE AND MAY NOT BE PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT
AN EFFECTIVE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE PARTNERSHIP) IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT WITH RESPECT TO SUCH PLEDGE,
TRANSFER OR OTHER DISPOSITION.”

       

      
        
          
          

        

        
          Page
22

          
            

          

        

        
          
          

        

      

       

      7.2           Scope of Representations of
Seller.

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        
          
          

        

        
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      8.           REPRESENTATIONS AND
WARRANTIES OF BUYER.

       

      8.1           Buyer’s Representations and
Warranties

       

      .  Buyer
represents and warrants to Seller as follows as of the date hereof and the
Closing:

       

      
        	
                 
      

              	
                (A)

              	
                Status.

              

      

       

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

       

      
        	
                (B)

              	
                Authority.

              

      

       

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

       

      
        	
                (C)

              	
                Validity of
      Obligations.

              

      

       

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

       

      
        	
                (D)

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

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

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

              

      

       

      
        
          
          

        

        
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24

          
            

          

        

        
          
          

        

      

       

      
        	
                (G)

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

              

      

       

      
        	
                (H)

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

              

      

       

      9.           CERTAIN AGREEMENTS OF
SELLER

       

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

       

      9.1           Maintenance of
Assets.

       

        From
the date of this Agreement until Closing, Seller agrees that it
shall:

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      
        	
                (D)

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

              

      

       

      
        	
                (E)

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

              

      

       

      
        	
                (F)

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

              

      

       

      
        
          
          

        

        
          Page
25

          
            

          

        

        
          
          

        

      

       

      
        	
                (G)

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

              

      

       

      9.2           Records.

       

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

       

      9.3           Audit
Rights.

       

      Seller
agrees to make available to Buyer prior to and for a period of twelve (12)
months following Closing any and all existing information and documents in the
possession of Seller that Buyer may reasonably require to comply with Buyer’s
tax and financial reporting requirements and
audits.  Without limiting the generality of the foregoing, Seller will
use its commercially reasonable efforts after execution of this Agreement and
for eighteen (18) months following Closing to cooperate with the independent
auditors chosen by Buyer (“Buyer’s Auditor”) in connection with their audit of
any annual revenue and expenses statements of the Assets that Buyer or any of
its Affiliates requires to comply with their tax and financial reporting
requirements, and their review of any interim quarterly revenue and expense
statements of the Assets that Buyer requires to comply with such reporting
requirements.  Seller’s cooperation will include (i) such reasonable
access to Seller’s employees who were responsible for preparing the revenue and
expense statements and work papers and other supporting documents used in the
preparation of such financial statements as may be required by Buyer’s Auditor
to perform an audit in accordance with generally accepted auditing standards,
and (ii) delivery of one or more customary representation letters (in
substantially the form previously approved by Seller and Buyer) from Seller to
Buyer’s Auditor that are requested by Buyer to allow such auditors to complete
an audit (or review of any interim quarterly financials), and to issue an
opinion that in Buyer’s experience is acceptable with respect to an audit or
review of those revenue and expense statements required pursuant to this
Section.  Buyer will reimburse Seller, within three (3) business days
after demand therefor, for any reasonable out-of-pocket and overhead costs with
respect to any costs incurred by Seller in complying with the provisions of this
Section.  In the event that Buyer’s Auditors determine prior to May
31, 2008, that any of the Assets are not auditable due to insufficient financial
records, or for any reason determined by Auditors, then Buyer may exclude the
unauditable Assets from this sale and the Cash Consideration will be reduced by
the Allocated Value of said Assets.

       

      
        
          
          

        

        
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26

          
            

          

        

        
          
          

        

      

       

      10.           CERTAIN AGREEMENTS OF
BUYER.

       

        Buyer
agrees and covenants that unless Seller shall have consented otherwise in
writing, the following provisions shall apply:

       

      10.1           Plugging
Obligation.

       

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

       

      10.2           Plugging
Bond.

       

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

       

      10.3           Seller’s
Logos.

       

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

       

      10.4           Like-Kind
Exchanges.

       

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

       

      11.           CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER.

       

        All
obligations of Buyer under this Agreement are, at Buyer’s election, subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions:

       

      11.1           No
Litigation.

       

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

       

      11.2           Representations and
Warranties.

       

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

       

      
        
          
          

        

        
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27

          
            

          

        

        
          
          

        

      

       

      12.           CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF SELLER.

       

        All
obligations of Seller under this Agreement are, at Seller’s election, subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions:

       

      12.1           No
Litigation.

       

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

       

      12.2           Representations and
Warranties

       

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

       

      13.           TERMINATION.

       

      13.1           Causes of
Termination.

       

        This
Agreement and the transactions contemplated herein may be
terminated:

       

      
        	
                (A)

              	
                At
      any time by mutual consent of the
Parties.

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

              	
                By
      Buyer if, on the Closing Date, any of the conditions set forth in Article
      11 hereof shall not have been satisfied or
  waived.

              

      

       

      
        	
                (D)

              	
                By
      Seller if, on the Closing Date, any of the conditions set forth in Article
      12 hereof shall not have been satisfied or
  waived.

              

      

       

      
        	
                (E)

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

              

      

       

      13.2           Effect of
Termination.

       

      
        	
                (A)

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

              

      

       

      
        
          
          

        

        
          Page
28

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

              	
                Seller’s
      Breach.

              

      

       

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

       

      
        	
                (C)

              	
                Termination Pursuant
      to Section 13.1.

              

      

       

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

       

      
        	
                (D)

              	
                Effect of
      Termination.

              

      

       

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

       

      14.           INDEMNIFICATION.

       

      14.1           Indemnification by
Seller.

       

        UPON CLOSING, SELLER SHALL
TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND, INDEMNIFY, AND HOLD
HARMLESS BUYER, ITS AFFILIATES, AND EACH OF THEIR RESPECTIVE OWNERS, DIRECTORS,
OFFICERS, EMPLOYEES, 

       

      
        
          
          

        

        
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      AGENTS, OTHER
REPRESENTATIVES, SUCCESSORS AND ASSIGNS (COLLECTIVELY THE “BUYER GROUP”) FROM
AND AGAINST THE FOLLOWING:

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

              	
                OWNERSHIP AND
      OPERATION.  ALL LOSSES ARISING FROM SELLER’S OWNERSHIP OR
      OPERATION OF THE ASSETS PRIOR TO THE EFFECTIVE TIME DIRECTLY ASSOCIATED
      WITH THE FOLLOWING MATTERS:

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

      

      
        	
                 
      

              	
                (v)

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

              

      

      

      
        	
                 
      

              	
                (vi)

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

              

      

      

      
        	
                 
      

              	
                (vii)

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

              

      

       

      
        
          	
                   
      

                	
                  (viii)

                	
                  COSTS
      AND EXPENSES RELATING TO THE OWNERSHIP OR OPERATION OF THE ASSETS THAT ARE
      UNPAID AS OF THE CLOSING DATE AND THAT ARE ATTRIBUTABLE TO THE PERIOD OF
      TIME PRIOR OT THE EFFECTIVE TIME.

                

        

        
          
            
            

          

          
            Page
30

            
              

            

          

          
            
            

          

           

        

      

      
        	
                (D)

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

              

      

       

      
        	
                 
      

              	
                (i)

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

              

      

      

      
        	
                 
      

              	
                (1)

              	
                With
      regard to a breach of representations and warranties contained in Sections
      7.1(A), (B), (C), (D) and (G), for a period equal to the lesser of the
      applicable statute of limitations or four (4) years following the
      Closing;

              

      

       

      
        	
                 
      

              	
                (2)

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

              

      

       

      
        	
                 
      

              	
                (3)

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

              

      

       

      
        	
                 
      

              	
                (4)

              	
                With
      regard to the matters covered by Section 14.1 (C), for an indefinite
      period following the Closing.

              

      

       

      
        	
                 
      

              	
                (ii)

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

              

      

      

      
        	
                 
      

              	
                (iii)

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

              

      

      

      
        	
                 
      

              	
                (iv)

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

              

      

       

      
        
          
          

        

        
          Page
31

          
            

          

        

        
          
          

        

      

       

      14.2           Indemnification by
Buyer.

       

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

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      14.3           Physical
Inspection.

       

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

       

      14.4           Notification.

       

        As
soon as reasonably practical after obtaining knowledge thereof, the indemnified
Party shall notify the indemnifying Party of any claim or demand which the
indemnified Party has determined has given or could give rise to a claim for
indemnification under this Article 14.  Such notice shall specify the
agreement, representation or warranty with respect to which the claim is made,
the facts giving rise to the claim and the alleged basis for the claim, and the

       

      
        
          
          

        

        
          Page
32

          
            

          

        

        
          
          

        

      

       

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

       

      15.           MISCELLANEOUS.

       

      15.1           Casualty
Loss.

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      15.2           Confidentiality.

       

      
        	
                (A)

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

              

      

       

      
        
          
          

        

        
          Page
33

          
            

          

        

        
          
          

        

      

       

      
        	
                (B)

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

              

      

       

      
        	
                (C)

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

              

      

       

      15.3           Notices.

       

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

       

      SELLER:

       

      Crown Oil
Partners III, LP

      303
Veterans Airpark Lane, Suite 600

      Midland,
Texas  79705

      Attn:                      Brandon
M. Black

      Tel:           (432)
686-9696

      Fax:           (432)
686-0600

       

      BC
Operating, Inc.

      303
Veterans Airpark Lane, Suite 600

      Midland,
Texas  79705

      Attn:                      Brandon
M. Black

      Tel:           (432)
686-9696

      Fax:           (432)
686-0600

       

      
        
          
          

        

        
          Page
34

          
            

          

        

        
          
          

        

      

       

      BUYER:

       

      Legacy Reserves Operating
LP

      303 West Wall, Suite 1400

      Midland, Texas 79701

      Attn:                      Mr.
Kyle A. McGraw

      Tel:           (432)
689-5200

      Fax:           (432)
684-3774

      

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

       

      15.4           Press Releases and Public
Announcements.

       

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

       

      15.5           Compliance with Express
Negligence Test.

       

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

       

      15.6           Governing
Law.

       

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

       

      15.7           Exhibits.

       

        The
Exhibits attached to this Agreement are incorporated into and made a part of
this Agreement.  Seller agrees to provide to Buyer complete copies of
Exhibits 7.1(E), 7.1(K) and 7.1(L) to
this Agreement on or before April 2, 2008, promptly following which the Parties
agree that they will by amendment to this Agreement incorporate such Exhibits
into this Agreement.  The Parties further agree to supplement and
amend Exhibit A as necessary to include a complete description of all of the
Leases and Lands comprising the Assets.

       

      15.8           Fees, Expenses, Taxes and
Recording.

       

      
        	
                (A)

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

              

      

       

      
        	
                (B)

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

              

      

       

      
        
          
          

        

        
          Page
35

          
            

          

        

        
          
          

        

      

       

      
        	
                (C)

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

              

      

       

      15.9           Assignment.

       

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

       

      15.10                      Entire
Agreement.

       

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

       

      15.11                      Severability.

       

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

       

      15.12                      Captions.

       

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

       

      15.13                      Time of the
Essence.

       

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

      

      15.14                      Counterpart
Execution.

       

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

       

      
        
          
          

        

        
          Page
36

          
            

          

        

        
          
          

        

      

      

       

      Executed
as of the day and year first above written.

       

      
        
          	 	
                  SELLER:

                   

                  CROWN
      OIL PARTNERS III, LP

                  By:  Crown Ventures III, LLC,

                           Its General
      Partner

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Michael
      E. Black	 
	 	 	Michael
      E. Black	 
	 	 	Manager	 
	 	 	 	 

        

      

      
        
          	 	BC OPERATING ,
      INC.	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Michael
      E. Black	 
	 	 	Michael
      E. Black	 
	 	 	President	 
	 	 	 	 

        

      

    

     

    
      
        	 	
                BUYER:

                 

                LEGACY
      RESERVES OPERATING LP

                By:  Legacy Reserves Operating GP LLC

                         Its General
      Partner

                 

                By:  Legacy Reserves LP

                        Its sole
      member

                 

                By:  Legacy Reserves GP LLC,

                        Its General
      Partner

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/
      Kyle A. McGraw 	 
	 	 	Kyle
      A. McGraw	 
	 	 	Executive
      Vice President Business Development and Land	 
	 	 	 	 

      

    

     

     

    
      
        
        

      

      
        Page
37Filed by Bowne Pure Compliance

 

Exhibit 10.1

30 April 2008

Besmer S.A. de C.V. 

Francisco
Sarabia o. 721 PTE. 

Zona Centro 

Durango, Durango, Mexico

RE: ADDENDUM TO
THE LETTER OF INTENT DATED MARCH 12, 2008

Gentlemen:

The purpose of this ADDENDUM is to
extend the Letter of Intent (“Letter”), celebrated between Colorado
Goldfields, Inc. (“Acquirer”) and C.P. Victor Salas Gamero, ING.
Victor Salas Martos and Lilianan Salas Martos (“Sellers”), owners
of 100% of the capital stock of Besmer, S.A. de C.V., a mineral producing
company (the “Company”), with respect to a proposed transaction in
which the Acquirer, assigns or its successors will purchase a portion of the
capital stock of the Company property of the Sellers.

All the rights and obligations
established in the Letter are hereby ratified, and by mutual agreement, the
dates established in paragraph 11 CONCLUSIONS are changed from May 11,
2008 to May 30, 2008 and from May 25, 2008 to June 7, 2008.

Sincerely,

	 	 	 
	COLORADO GOLDFIELDS INC.	 	INDIVIDUALLY
	
/s/ TODD C. HENNIS	 	
/s/ ING. VICTOR SALAS MARTOS
	
PRESIDENT
 10920 W. ALAMEDA AVE.

SUITE 207
 LAKEWOOD, CO 80226
 TEL. 303-984-5324
 FAX. 303-484-2935 

	 	FRANCISCO SARABIA No. 721 PTE.
 ZONA CENTRO

DURANGO, DGO CP 34000
 TEL. (618) 811-65-24
 FAX. (618) 813-56-02 
	
 

	 	 
	

AS LEGAL REPRESENTATIVE FOR

C.P. VICTOR SALAS GAMERO
 
 /s/ ING. VICTOR SALAS MARTOS 

	 	
AS LEGAL REPRESENTATIVE FOR
 C.P. LILIANA
SALAS MARTOS
 
 /s/ ING. VICTOR SALAS MARTOS

 

10920 W. Alameda Avenue •
Suite 207 • Lakewood, CO 80226

 

5

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