Document:

Unassociated Document

    Purchase
and Sale Agreement

    

    By
And Between

    

    MitEnergy Upstream
LLC,

    as
Seller,

    

    And

    

    Energy
XXI, Inc.,

    as
Buyer

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TABLE
OF CONTENTS

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                          
                                                                                                            
                                                                                                              
                                                                                                                
                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                        
                                                                                                                          
                                                                                                                            
                                                                                                                              
                                                                                                                                
                                                                                                                                  
                                                                                                                                    
                                                                                                                                      
                                                                                                                                        
                                                                                                                                          
                                                                                                                                            
                                                                                                                                              
                                                                                                                                                
                                                                                                                                                  
                                                                                                                                                    
                                                                                                                                                      
                                                                                                                                                        
                                                                                                                                                          
                                                                                                                                                            
                                                                                                                                                              
                                                                                                                                                                	
                                                                                                                                                                        ARTICLE
      1

                                                                                                                                                                      	 
      	
                                                                                                                                                                        DEFINITIONS

                                                                                                                                                                      	 
      	
                                                                                                                                                                        1

                                                                                                                                                                      
	
                                                                                                                                                                        ARTICLE
      2

                                                                                                                                                                      	 
      	
                                                                                                                                                                        SALE
      AND TRANSFER OF ASSETS; CLOSING

                                                                                                                                                                      	 
      	
                                                                                                                                                                        17

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        2.01.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Assets

                                                                                                                                                                      	 
      	
                                                                                                                                                                        17

                                                                                                                                                                      
	
                                                                                                                                                                        2.02.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Purchase
      Price

                                                                                                                                                                      	 
      	
                                                                                                                                                                        17

                                                                                                                                                                      
	
                                                                                                                                                                        2.03.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Closing

                                                                                                                                                                      	 
      	
                                                                                                                                                                        18

                                                                                                                                                                      
	
                                                                                                                                                                        2.04.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Closing
      Obligations

                                                                                                                                                                      	 
      	
                                                                                                                                                                        18

                                                                                                                                                                      
	
                                                                                                                                                                        2.05.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Allocations
      and Adjustments

                                                                                                                                                                      	 
      	
                                                                                                                                                                        20

                                                                                                                                                                      
	
                                                                                                                                                                        2.06.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Assumption

                                                                                                                                                                      	 
      	
                                                                                                                                                                        23

                                                                                                                                                                      
	
                                                                                                                                                                        2.07.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Retained
      Liabilities

                                                                                                                                                                      	 
      	
                                                                                                                                                                        24

                                                                                                                                                                      
	
                                                                                                                                                                        2.08.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Imbalances
      and Future Delivery/Payment Obligations

                                                                                                                                                                      	 
      	
                                                                                                                                                                        25

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        ARTICLE
      3

                                                                                                                                                                      	 
      	
                                                                                                                                                                        REPRESENTATIONS
      AND WARRANTIES OF SELLER

                                                                                                                                                                      	 
      	
                                                                                                                                                                        26

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        3.01.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Organization
      and Good Standing

                                                                                                                                                                      	 
      	
                                                                                                                                                                        26

                                                                                                                                                                      
	
                                                                                                                                                                        3.02.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Authority;
      No Conflict

                                                                                                                                                                      	 
      	
                                                                                                                                                                        27

                                                                                                                                                                      
	
                                                                                                                                                                        3.03.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Bankruptcy

                                                                                                                                                                      	 
      	
                                                                                                                                                                        28

                                                                                                                                                                      
	
                                                                                                                                                                        3.04.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Taxes

                                                                                                                                                                      	 
      	
                                                                                                                                                                        28

                                                                                                                                                                      
	
                                                                                                                                                                        3.05.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Legal
      Proceedings; Orders

                                                                                                                                                                      	 
      	
                                                                                                                                                                        28

                                                                                                                                                                      
	
                                                                                                                                                                        3.06.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Brokers

                                                                                                                                                                      	 
      	
                                                                                                                                                                        29

                                                                                                                                                                      
	
                                                                                                                                                                        3.07.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Tax
      Sharing Agreements

                                                                                                                                                                      	 
      	
                                                                                                                                                                        29

                                                                                                                                                                      
	
                                                                                                                                                                        3.08.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Consents
      and Preferential Purchase Rights

                                                                                                                                                                      	 
      	
                                                                                                                                                                        29

                                                                                                                                                                      
	
                                                                                                                                                                        3.09.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Imbalances
      and Future Delivery/Payment Obligations

                                                                                                                                                                      	 
      	
                                                                                                                                                                        29

                                                                                                                                                                      
	
                                                                                                                                                                        3.10.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Contracts

                                                                                                                                                                      	 
      	
                                                                                                                                                                        29

                                                                                                                                                                      
	
                                                                                                                                                                        3.11.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Laws
      and Regulations

                                                                                                                                                                      	 
      	
                                                                                                                                                                        31

                                                                                                                                                                      
	
                                                                                                                                                                        3.12.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Non-Consent
      Operations

                                                                                                                                                                      	 
      	
                                                                                                                                                                        31

                                                                                                                                                                      
	
                                                                                                                                                                        3.13.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Outstanding
      Capital Commitments

                                                                                                                                                                      	 
      	
                                                                                                                                                                        31

                                                                                                                                                                      
	
                                                                                                                                                                        3.14.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Operation
      of Assets Since Effective Time

                                                                                                                                                                      	 
      	
                                                                                                                                                                        31

                                                                                                                                                                      
	
                                                                                                                                                                        3.15.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        No
      Pooling, Unitization, Communitization or Spacing Orders

                                                                                                                                                                      	 
      	
                                                                                                                                                                        31

                                                                                                                                                                      
	
                                                                                                                                                                        3.16.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Material
      Factor

                                                                                                                                                                      	 
      	
                                                                                                                                                                        32

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        ARTICLE
      4

                                                                                                                                                                      	 
      	
                                                                                                                                                                        REPRESENTATIONS
      AND WARRANTIES OF BUYER

                                                                                                                                                                      	 
      	
                                                                                                                                                                        32

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        4.01.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Organization
      and Good Standing

                                                                                                                                                                      	 
      	
                                                                                                                                                                        32

                                                                                                                                                                      
	
                                                                                                                                                                        4.02.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Authority;
      No Conflict

                                                                                                                                                                      	 
      	
                                                                                                                                                                        32

                                                                                                                                                                      
	
                                                                                                                                                                        4.03.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Certain
      Proceedings

                                                                                                                                                                      	 
      	
                                                                                                                                                                        33

                                                                                                                                                                      
	
                                                                                                                                                                        4.04.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Knowledgeable
      Investor

                                                                                                                                                                      	 
      	
                                                                                                                                                                        33

                                                                                                                                                                      
	
                                                                                                                                                                        4.05.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Securities
      Laws

                                                                                                                                                                      	 
      	
                                                                                                                                                                        33

                                                                                                                                                                      
	
                                                                                                                                                                        4.06.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Due
      Diligence

                                                                                                                                                                      	 
      	
                                                                                                                                                                        33

                                                                                                                                                                      
	
                                                                                                                                                                        4.07.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Basis
      of Buyer’s Decision

                                                                                                                                                                      	 
      	
                                                                                                                                                                        33

                                                                                                                                                                      
	
                                                                                                                                                                        4.08.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Material
      Factor

                                                                                                                                                                      	 
      	
                                                                                                                                                                        34

                                                                                                                                                                      
	
                                                                                                                                                                        4.09.

                                                                                                                                                                      	 
      	
                                                                                                                                                                        Brokers

                                                                                                                                                                      	 
      	
                                                                                                                                                                        34

                                                                                                                                                                      
	 	 	 	 	 
	
                                                                                                                                                                        ARTICLE
      5

                                                                                                                                                                      	 
      	
                                                                                                                                                                        COVENANTS
      OF SELLER

                                                                                                                                                                      	 
      	
                                                                                                                                                                        34

                                                                                                                                                                      

                                                                                                                                                              

                                                                                                                                                            

                                                                                                                                                          

                                                                                                                                                        

                                                                                                                                                      

                                                                                                                                                    

                                                                                                                                                  

                                                                                                                                                

                                                                                                                                              

                                                                                                                                            

                                                                                                                                          

                                                                                                                                        

                                                                                                                                      

                                                                                                                                    

                                                                                                                                  

                                                                                                                                

                                                                                                                              

                                                                                                                            

                                                                                                                          

                                                                                                                        

                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                

                                                                                                              

                                                                                                            

                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                  

                                                                                                

                                                                                              

                                                                                            

                                                                                          

                                                                                        

                                                                                      

                                                                                    

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      	
              5.01.

            	 
      	
              Access
      and Investigation

            	 
      	
              34

            
	
              5.02.

            	 
      	
              Operation
      of the Assets

            	 
      	
              34

            
	
              5.03.

            	 
      	
              Insurance

            	 
      	
              36

            
	
              5.04.

            	 
      	
              Consent
      and Waivers

            	 
      	
              36

            
	
              5.05.

            	 
      	
              Notification

            	 
      	
              37

            
	
              5.06.

            	 
      	
              Satisfaction
      of Conditions

            	
               
      

            	
              37

            
	 	 	 	 	 
	
              ARTICLE
      6

            	 
      	
              COVENANTS
      OF BUYER

            	 
      	
              37

            
	 	 	 	 	 
	
              6.01.

            	 
      	
              Notification

            	 
      	
              37

            
	
              6.02.

            	 
      	
              Limitations
      on Sections 5.05 & 6.01

            	 
      	
              37

            
	
              6.03.

            	 
      	
              Satisfaction
      of Conditions

            	 
      	
              38

            
	 	 	 	 	 
	
              ARTICLE
      7

            	 
      	
              CONDITIONS
      PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

            	 
      	
              38

            
	 	 	 	 	 
	
              7.01.

            	 
      	
              Accuracy
      of Representations

            	 
      	
              38

            
	
              7.02.

            	 
      	
              Seller’s
      Performance

            	 
      	
              38

            
	
              7.03.

            	 
      	
              No
      Proceedings

            	 
      	
              38

            
	 	 	 	 	 
	
              ARTICLE
      8

            	 
      	
              CONDITIONS
      PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

            	 
      	
              38

            
	 	 	 	 	 
	
              8.01.

            	 
      	
              Accuracy
      of Representations

            	 
      	
              39

            
	
              8.02.

            	 
      	
              Buyer’s
      Performance

            	 
      	
              39

            
	
              8.03.

            	 
      	
              No
      Proceedings.

            	 
      	
              39

            
	 	 	 	 	 
	
              ARTICLE
      9

            	 
      	
              TERMINATION

            	 
      	
              39

            
	 	 	 	 	 
	
              9.01.

            	 
      	
              Termination
      Events

            	 
      	
              39

            
	
              9.02.

            	 
      	
              Effect
      of Termination

            	 
      	
              40

            
	 	 	 	 	 
	
              ARTICLE
      10

            	 
      	
              INDEMNIFICATION;
      REMEDIES

            	 
      	
              40

            
	 	 	 	 	 
	
              10.01.

            	 
      	
              Survival

            	 
      	
              40

            
	
              10.02.

            	 
      	
              Indemnification
      and Payment of Damages by Seller

            	 
      	
              40

            
	
              10.03.

            	 
      	
              Indemnification
      and Payment of Damages by Buyer

            	 
      	
              41

            
	
              10.04.

            	 
      	
              Time
      Limitations

            	 
      	
              43

            
	
              10.05.

            	 
      	
              Limitations
      on Amount — Seller

            	 
      	
              43

            
	
              10.06.

            	 
      	
              Limitations
      on Amount — Buyer

            	 
      	
              43

            
	
              10.07.

            	 
      	
              Procedure
      for Indemnification – Third Party Claims

            	 
      	
              43

            
	
              10.08.

            	 
      	
              Procedure
      for Indemnification – Other Claims

            	 
      	
              45

            
	
              10.09.

            	 
      	
              Extent
      of Representations and Warranties

            	 
      	
              45

            
	
              10.10.

            	 
      	
              Compliance
      With Express Negligence Test

            	 
      	
              46

            
	
              10.11.

            	 
      	
              Limitations
      of Liability

            	 
      	
              46

            
	 	 	 	 	 
	
              ARTICLE
      11

            	 
      	
              TITLE
      MATTERS, CASUALTIES AND ENVIRONMENTAL MATTERS

            	 
      	
              46

            

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    
      	
              11.01.

            	 
      	
              Title
      Examination and Access

            	 
      	
              46

            
	
              11.02.

            	 
      	
              Preferential
      Purchase Rights

            	 
      	
              47

            
	
              11.03.

            	 
      	
              Required
      Consents

            	 
      	
              47

            
	
              11.04.

            	 
      	
              Defensible
      Title

            	 
      	
              48

            
	
              11.05.

            	 
      	
              Title
      Defects

            	 
      	
              48

            
	
              11.06.

            	 
      	
              Seller’s
      Right to Cure

            	 
      	
              50

            
	
              11.07.

            	 
      	
              Contested
      Title Defects

            	 
      	
              50

            
	
              11.08.

            	 
      	
              Limitations
      on Adjustments for Title Defects

            	 
      	
              51

            
	
              11.09.

            	 
      	
              Interest
      Additions

            	 
      	
              52

            
	
              11.10.

            	 
      	
              Reconveyance

            	 
      	
              52

            
	
              11.11.

            	 
      	
              Casualty
      Loss and Condemnation

            	 
      	
              52

            
	
              11.12.

            	 
      	
              Environmental
      Release

            	 
      	
              53

            
	 	 	 	 	 
	
              ARTICLE
      12

            	 
      	
              GENERAL
      PROVISIONS

            	 
      	
              54

            
	 	 	 	 	 
	
              12.01.

            	 
      	
              Records

            	 
      	
              54

            
	
              12.02.

            	 
      	
              Expenses

            	 
      	
              54

            
	
              12.03.

            	 
      	
              Notices

            	 
      	
              54

            
	
              12.04.

            	 
      	
              Jurisdiction;
      Service of Process

            	 
      	
              56

            
	
              12.05.

            	 
      	
              Further
      Assurances

            	 
      	
              56

            
	
              12.06.

            	 
      	
              Waiver

            	 
      	
              56

            
	
              12.07.

            	 
      	
              Entire
      Agreement and Modification

            	 
      	
              57

            
	
              12.08.

            	 
      	
              Assignments,
      Successors, and No Third-Party Rights

            	 
      	
              57

            
	
              12.09.

            	 
      	
              Severability

            	 
      	
              58

            
	
              12.10.

            	 
      	
              Article
      and Section Headings, Construction

            	 
      	
              58

            
	
              12.11.

            	 
      	
              Time
      of Essence

            	 
      	
              59

            
	
              12.12.

            	 
      	
              Governing
      Law

            	 
      	
              59

            
	
              12.13.

            	 
      	
              Counterparts

            	 
      	
              59

            
	
              12.14.

            	 
      	
              Special
      Waivers

            	 
      	
              59

            
	
              12.15.

            	 
      	
              Arbitration

            	 
      	
              61

            
	
              12.16.

            	 
      	
              Tax
      Deferred Exchange

            	 
      	
              61

            
	
              12.17.

            	 
      	
              Press
      Release

            	 
      	
              62

            
	
              12.18.

            	 
      	
              Confidentiality

            	 
      	
              62

            
	
              12.19.

            	 
      	
              Financial
      Information

            	 
      	
              65

            
	
              12.20.

            	 
      	
              Amendments
      of Disclosure Schedules

            	 
      	
              66

            

    

     

    EXHIBITS AND
SCHEDULES

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    Exhibit
      “A”

                                  	 
      	
                                    Schedule
      of Wells

                                  
	
                                    Exhibit
      “B-1”

                                  	 
      	
                                    Schedule
      of Leases

                                  
	
                                    Exhibit
      “B-2”

                                  	 
      	
                                    Schedule
      of Contracts

                                  
	
                                    Exhibit
      “C-1”

                                  	 
      	
                                    Form
      of Assignment of Record Title (OCS
Leases)

                                  

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      	
              Exhibit
      “C-2”

            	 
      	
              Form
      of Assignment of Operating Rights (OCS Leases)

            
	
              Exhibit
      “C-3”

            	 
      	
              Form
      of Assignment and Bill of Sale of Oil and Gas Lease (State
      Leases)

            
	
              Exhibit
      “C-4”

            	 
      	
              Form
      of General Assignment, Bill of Sale and Conveyance

            
	
              Exhibit
      “C-5”

            	 
      	
              Form
      of Assignment of Overriding Royalty Interests

            
	
              Exhibit
      “C-6”

            	 
      	
              Form
      of Assignment of OCS Pipeline Right-of-Way Grant

            
	
              Exhibit
      “D”

            	 
      	
              Seller’s
      Disclosure Schedule

            
	
              Exhibit
      “E”

            	 
      	
              Buyer’s
      Disclosure Schedule

            
	
              Exhibit
      “F”

            	 
      	
              Form
      of Certificates

            
	
              Exhibit
      “G”

            	 
      	
              Certain
      Excluded Assets

            
	
              Schedule
      2.02

            	 
      	
              Allocation
      of Purchase Price

            

    

     

    
      
         

      

      
        iv

        
          

        

      

      
         

      

    

    PURCHASE AND SALE
AGREEMENT

    

    This
Purchase and Sale Agreement (this “Agreement”) is made
as of November 20, 2009, by and between MitEnergy Upstream LLC, a
Delaware limited liability company (“Seller”) and Energy XXI, Inc., a Delaware
corporation (“Buyer”).

     

    RECITALS

     

    Seller
desires to sell, and Buyer desires to purchase, undivided interests in certain
oil, gas, and mineral properties and related assets and contracts, for the
consideration and on the terms set forth in this Agreement.

     

    AGREEMENT

     

    For and
in consideration of the promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, agree as follows:

     

    ARTICLE
1

     

    DEFINITIONS

     

    For
purposes of this Agreement, in addition to other capitalized terms defined in
this Agreement, the following terms have the meanings specified or referred to
in this Article 1 when capitalized:

     

    “AAA” – as defined in Section
12.15.

     

    “Affiliate” – an Affiliate of a Person
means any other Person that directly or indirectly, through one or more
intermediaries, Controls, is Controlled by or is under common Control with the
first mentioned Person.  For purposes of this definition, “Control”
with respect to a Person, means the ownership by one Person, directly or
indirectly, of fifty percent (50%) or more of the Voting Stock of such Person;
and the terms “Controls,” “Controlled by,” and other derivatives shall be
construed accordingly.  For purposes of this definition, “Voting
Stock” means capital stock issued by a corporation, the membership or limited
liability company interests of a limited liability company, or the equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors or
limited liability company managers (or persons performing similar functions) of
such Person.

     

    “Affiliate
Buyer” – as defined in Section
12.08.

     

    “Aggregate
Title Defect Value”
– as defined in Section 11.08.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    “Agreed
Interest Rate” –
LIBOR plus two percent (2%) per annum.

     

    “Allocated
Values” – the
values assigned among the Assets as set forth on Schedule 2.02.

     

    “Assets” – all of Seller’s Record
Title interests, Operating Rights, working interests, net revenue interests,
overriding royalty interests, net profits interests, carried interests, rights
and interests under non-consent or non-participation provisions of operating or
similar agreements, post-payout interests, claim or cause of action interests
and any other interests of a similar nature attributable to the following,
except to the extent constituting Excluded Assets:  (i) the Leases,
(ii) the Equipment, (iii) Hydrocarbons produced after the Effective Time, (iv)
the Contracts, (v) the Claims, (vi) the Surface Rights, and (vii) the Asset
Records.

     

    “Asset
Records” – Copies
(or duplicate originals, if available) of all lease files, land files, well
files, gas and oil sales contract files, gas processing files, division order
files, abstracts, title opinions, land surveys, cores, logs, geological and
geophysical information, maps, engineering data and reports, production records,
reserve studies and evaluations (insofar as they cover and exist within the
boundaries of the Assets), and other books, records, data, files, maps and
accounting records, in each case to the extent related to the Assets, or used or
held for use in connection with the ownership, use, maintenance or operation
thereof.

     

    “Assumed
Liabilities” – as
defined in Section 2.06.

     

    “Breach” – a “Breach” of a material
representation, warranty, covenant, obligation, or other provision of this
Agreement or any instrument delivered pursuant to this Agreement shall be deemed
to have occurred if there is or has been any inaccuracy in or breach of, or any
failure to perform or comply with, such material representation, warranty,
covenant, obligation, or other provision.

     

    “Business
Day” – any day
other than a Saturday, Sunday, or any other day on which commercial banks in the
United States of America or Japan are authorized or required by law or executive
order to close.

     

    “Buyer
Affiliate Assets”
– the interests owned by Buyer or any Affiliate of Buyer prior to the Effective
Time in or to (i) the Leases, (ii) the Equipment, (iii) Hydrocarbons produced
after the Effective Time, (iv) the Contracts, (v) the Claims, (vi) the Surface
Rights, and (vii) the Asset Records.

     

    “Buyer
Group” – as
defined in Section 10.02.

     

    “Buyer’s
Closing Documents”
– as defined in Section 4.02(a).

     

    “Buyer’s
Disclosure Schedule”
– the disclosure schedule attached as Exhibit E.

     

    “Buyer’s
Filings” – as
defined in Section 10.03(g).

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Claims” – All of Seller’s right,
title and interest in and to any claims, demands, causes of action, rights of
recovery, rights of set-off, rights to refunds and similar rights against third
parties (including, without limitation, (i) claims against insurers under the
insurance policies required to be maintained until Closing pursuant to Section
5.03 and (ii) claims for indemnification and contribution) to the extent related
to (a) the ownership, use, construction, maintenance or operation of the Assets
after the Effective Time, (b) any damage to the Assets occurring prior to the
Effective Time and not repaired or replaced prior to the Effective Time, or (c)
the Assumed Liabilities, or any portion thereof, if any, including any claims
for refunds, prepayments, offsets, recoupment, judgments and the like, whether
received as payment or credit against future liabilities, in each case to the
extent related to the matters covered by clauses (a), (b) or (c) above;
provided, however, that the term “Claims” shall not include (1) any claims or
causes of action against Seller or any Affiliate of Seller, (2) any claims or
causes of action with respect to any Excluded Asset, (3) any claims or rights
against insurers or other third parties for Retained Liabilities for which
Seller is responsible under this Agreement, and (4) any claims or rights against
insurers, other than, in the case of clause (4) above, (I) claims or rights
under the insurance policies required to be maintained until Closing pursuant to
Section 5.03 (except for Retained Liabilities) and (II) claims or rights to any
insurance proceeds for the damages referenced in (b) above to the extent Seller
does not apply such insurance proceeds against repair or replacement costs
incurred by Seller with respect to the Assets.

     

    “Closing” – as defined in Section
2.03.

     

    “Closing
Date” – as
defined in Section 2.03.

     

    “Confidential
Information” –
all information disclosed by Seller or Seller’s Representatives to Buyer or
Buyer’s Representatives in connection with this Agreement which is non-public,
private, confidential or proprietary, including, but is not limited to, all
“Information” under the Prior Confidentiality Agreement, all information
provided to Buyer pursuant to Section 12.19, all geological and/or geophysical
data, maps, records, interpretations, graphs, reports, documents, valuations,
statements, analyses, compilations, studies or other documents and all other
technical, economic or descriptive information, data or concepts relating to the
Assets that are disclosed by Seller or Seller’s Representatives to Buyer or
Buyer’s Representatives in any form or format, together with all copies, notes
and other reproductions made by Buyer or its Representatives of any Confidential
Information.  Confidential Information, however, shall not include any
information:

     

    
      	
               
      

            	
              (a)

            	
              that
      was in Buyer’s or any of its Affiliate’s proper possession prior to the
      disclosure thereof by Seller or Seller’s Representatives to Buyer or
      Buyer’s Representatives,

            

    

     

    
      	
               
      

            	
              (b)

            	
              comes
      into the possession of Buyer or any of its Affiliates after the date
      hereof through a third party source other than Seller or Seller’s
      Representatives who had a right to obtain such
  information,

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (c)

            	
              that
      otherwise is presently, or hereafter becomes, a part of the public
      knowledge or literature without default by Buyer or any of its Affiliates
      of its obligations under Section 12.18(b) through (e) of this Agreement,
      or

            

    

     

    
      	
               
      

            	
              (d)

            	
              that
      is independently developed by Buyer or any of its
    Affiliates.

            

    

     

    “Consent” – any approval, consent,
ratification, waiver, or other authorization (including any Governmental
Authorization) from any Person which is required to be obtained in connection
with the execution or delivery of this Agreement or the consummation of the
Contemplated Transactions.

     

    “Contemplated
Transactions” –
all of the transactions contemplated by this Agreement, including, but not
limited to:

     

    
      	
               
      

            	
              (a)

            	
              the
      sale of the Assets by Seller to
Buyer;

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      execution, delivery, and performance of the Instruments of Conveyance and
      all other instruments and documents required under this
      Agreement;

            

    

     

    
      	
               
      

            	
              (c)

            	
              the
      performance by Buyer and Seller of their respective covenants and
      obligations under this Agreement;
and

            

    

     

    
      	
               
      

            	
              (d)

            	
              Buyer’s
      acquisition, ownership, and exercise of control over the
      Assets.

            

    

     

    “Contract” – any valid and subsisting
contract, agreement or instrument by which any of the Assets are bound, or that
directly relates to or is otherwise directly applicable to any of the Assets,
only to the extent applicable to the Assets rather than Seller’s other
properties, including but not limited to, operating agreements, unitization,
pooling and communitization agreements, declarations and orders, joint venture
agreements, farmin and farmout agreements, water rights agreements, platform
agreements, production handling agreements, exploration agreements,
participation agreements, exchange agreements, transportation or gathering
agreements, agreements for the sale and purchase of Hydrocarbons or processing
agreements to the extent applicable to the Assets or the production of
Hydrocarbons from the Assets, including, without limitation, those listed on
Exhibit B-2 that are valid and subsisting and directly relate to or are
otherwise directly applicable to any of the Assets, but excluding any contracts,
agreements and instruments to the extent transfer is prohibited by any bona fide
third party restriction or Legal Requirement and the necessary consents to
transfer are not obtained as contemplated by Section 11.03.

     

    “Covered
Liabilities” – as
defined in Section 2.06.

     

    “Cure” – as defined in Section
11.06.

     

    “Cure
Notice” – as
defined in Section 11.06.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “DTPA” – as defined in Section
12.14.

     

    “Damages” – as defined in Section
10.02.

     

    “Defect
Value” – as defined in Section
11.05.

     

    “Defensible
Title” – as
defined in Section 11.04.

     

    “De
Minimis Title
Defect Cost” – as
defined in Section 11.08.

     

    “Deposit
Amount” – Five
percent (5%) of the Purchase Price that is paid to Seller in accordance with
Section 2.02.  If applicable, the Deposit Amount shall also include
the additional amount equal to five percent (5%) of the Purchase Price that is
paid to Seller in accordance with Section 2.03 in connection with an extension
of the Intended Closing Date.

     

    “EC 270
Withdrawal” – All
monetary obligations and transfer requirements attributable to Seller’s
post-Effective Time election to withdraw from the East Cameron, Block 270 lease
and forfeit its rights and interests in and under said lease and the applicable
operating agreement, including Seller’s obligations from and after the Effective
Time under Article XVIII of the East Cameron 270 Operating Agreement dated
January 1, 1971, between Pennzoil Offshore Gas Operators, Inc., Mesa Petroleum
Co., Texas Production Company and Mobil Oil Corporation, as amended through the
Effective Time.

     

    “EI 330
Platform Costs” –
all plugging, abandonment and removal costs with respect to the Eugene Island
330 “A” and “C” Platforms and the wells associated with such Platforms that are
incurred by or on behalf of Seller prior to November 1, 2009.

     

    “Effective
Time” – July 1,
2009, at 7:00 a.m., Central Time.

     

    “Encumbrance” – any charge, equitable
interest, privilege, lien, option, pledge, collateral assignment, security
interest, right of first refusal, restriction, reservation, encroachment, defect
or irregularity of any kind.

     

    “Environment” – soil, land, surface or
subsurface strata, surface waters (including navigable waters, ocean waters,
streams, ponds, drainage basins, and wetlands), groundwater, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.

     

    “Environmental
Condition”
–  (i) any condition existing prior to the Closing Date with
respect to the Assets, the air, land, soil, surface, seabed, subsurface strata,
surface water, ground water, or sediments, or Hazardous Materials released or
migrating from the Assets, which causes an Asset to be subject to Remediation
under, or not in compliance with an Environmental Law, or (ii) any operating
practice or similar course of conduct by Seller or its Affiliates (or the
operator) with respect to the Assets that existed or commenced prior to the
Closing Date with respect to matters governed by or regulated under
Environmental Laws that is not in compliance with such Environmental
Laws.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    “Environmental
Law” – any Legal
Requirement that requires or relates to:

     

    
      	
               
      

            	
              (a)

            	
              advising
      appropriate authorities, employees, and the public of intended or actual
      releases of pollutants or hazardous substances or materials that could
      have significant impact on the
Environment;

            

    

     

    
      	
               
      

            	
              (b)

            	
              preventing
      or reducing to acceptable levels the release of pollutants or hazardous
      substances or materials into the
Environment;

            

    

     

    
      	
               
      

            	
              (c)

            	
              reducing
      the quantities, preventing the release, or minimizing the hazardous
      characteristics of wastes that are
generated;

            

    

     

    
      	
               
      

            	
              (d)

            	
              protecting
      resources, species, or ecological
amenities;

            

    

     

    
      	
               
      

            	
              (e)

            	
              reducing
      to acceptable levels the risks inherent in the transportation of hazardous
      substances, pollutants, oil, or other potentially harmful
      substances;

            

    

     

    
      	
               
      

            	
              (f)

            	
              cleaning
      up pollutants that have been released, preventing the threat of release,
      or paying the costs of such clean up or
  prevention;

            

    

     

    
      	
               
      

            	
              (g)

            	
              making
      responsible parties pay private parties, or groups of them, for damages
      done to their health or the Environment, or permitting self-appointed
      representatives of the public interest to recover for injuries done to
      public assets; or

            

    

     

    
      	
               
      

            	
              (h)

            	
              protecting
      human health and safety.

            

    

     

    “Environmental
Liabilities” –
any cost, damage, expense, liability, obligation, or other responsibility
arising from or under either an Environmental Law or third party claims relating
to the Environment, Environmental Conditions, or the release, handling, use or
disposal of Hazardous Materials, and which relates to the Assets or the
ownership or operation of the same.

     

    “Equipment” – any and all wells, equipment,
and facilities located on the Leases, including, but not limited to, the Wells,
pumps, platforms, well equipment (surface and subsurface), saltwater disposal
wells, water wells, lines and facilities, sulfur recovery facilities,
compressors, compressor stations, dehydration facilities, treatment facilities,
pipeline gathering lines, flow lines, transportation lines, valves, meters,
separators, tanks, tank batteries, and other fixtures to the extent that the
same are used for or held for use in connection with, and attributable to
Seller’s ownership or operation of, the Leases.  The Equipment also
includes all Wells listed on Exhibit A, and all platforms, well equipment
(surface and subsurface), lines and facilities and other fixtures and personal
property related to such Wells, whether or not such Wells and related property
are located on the Leases.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    “Excluded
Assets” – the
following assets, which are not covered by the transaction contemplated by this
Agreement:

     

    
      	
               
      

            	
              (a)

            	
              (i)
      all trade credits, accounts receivable, notes receivable. and other
      receivables attributable to the Assets with respect to any period of time
      prior to the Effective Time and (ii) all deposits, cash, checks in process
      of collection, cash equivalents, and funds attributable to the Assets with
      respect to any period of time prior to the Effective
  Time;

            

    

    

    
      	
               
      

            	
              (b)

            	
              all
      company, financial, and tax records of Seller, subject to Section 12.01
      below;

            

    

    

    
      	
               
      

            	
              (c)

            	
              all
      claims and causes of action of Seller (other than the Claims) (i) arising
      from acts, omissions, or events, or damage to or destruction of property
      occurring prior to the Effective Time, and (ii) affecting any of the other
      Excluded Assets;

            

    

    

    
      	
               
      

            	
              (d)

            	
              all
      rights, titles, claims, and interests of Seller (i) under any policy or
      agreement of insurance or indemnity, (ii) under any bond, or (iii) to any
      insurance proceeds or awards; provided that these exclusions shall not
      prejudice Seller's assignment to Buyer of Seller’s interests in the
      Claims;

            

    

    

    
      	
               
      

            	
              (e)

            	
              all
      Hydrocarbons produced from or attributable to the Assets with respect to
      all periods prior to the Effective Time (excluding all rights and
      interests with respect to Imbalances as of the Effective Time), together
      with all proceeds from or attributable to such
    Hydrocarbons;

            

    

    

    
      	
               
      

            	
              (f)

            	
              claims
      of Seller for refund of, or loss carry forwards with respect to (i)
      production, ad valorem, or any other taxes attributable to any period
      prior to the Effective Time, or (ii) income or franchise taxes or any
      other taxes attributable to any of the other Excluded
    Assets;

            

    

    

    
      	
               
      

            	
              (g)

            	
              all
      amounts due or payable to Seller as adjustments or refunds under any
      Contracts, with respect to periods prior to the Effective Time,
      specifically including, without limitation, (i) credits, adjustments, or
      refunds under the Deep Water Royalty Relief Act or any other act, statute,
      rule, law, or regulation, and (ii) amounts recoverable from audits under
      operating agreements, but excluding all rights and interests with respect
      to Imbalances as of the Effective
Time;

            

    

    

    
      	
               
      

            	
              (h)

            	
              all
      amounts due or payable to Seller as adjustments to insurance premiums
      related to any period prior to the Effective Time or after
      Closing;

            

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              (i)

            	
              all
      proceeds, benefits, income, or revenues accruing (and any security or
      other deposits made) with respect to (i) the Assets prior to the Effective
      Time, but excluding all rights and interests with respect to Imbalances as
      of the Effective Time; and (ii) any of the other Excluded
      Assets;

            

    

    

    
      	
               
      

            	
              (j)

            	
              all
      legal files; attorney-client communications or attorney work product;
      records and documents subject to confidentiality provisions, claims of
      privilege or other restrictions on access; and auditor’s reports;
      provided, however, that Buyer shall be entitled to receive copies of title
      abstracts and title opinions with respect to the Assets and these copies
      (but not the originals) will be included in the Assets, with the
      understanding that Seller makes no representation regarding the accuracy
      of any such title abstracts or title
opinions;

            

    

    

    
      	
               
      

            	
              (k)

            	
              any
      interpretive seismic, geochemical, and geophysical information and data,
      or other proprietary information relating thereto licensed by unaffiliated
      third parties to Seller;

            

    

    

    
      	
               
      

            	
              (l)

            	
              all
      of Seller’s and its Affiliates’ intellectual property, including but not
      limited to proprietary computer software, patents, trade secrets,
      copyrights, names, marks, and
logos;

            

    

    

    
      	
               
      

            	
              (m)

            	
              all
      of Seller’s contracts the primary purpose of which is intended to benefit
      from or reduce or eliminate the risk of fluctuations in (i) the price of
      commodities, including oil, natural gas and natural gas liquids, (ii)
      interest rates, or (iii) securities, including futures, hedge, swap,
      collar, put, call, floor, cap and option contracts for such
      purpose;

            

    

    

    
      	
               
      

            	
              (n)

            	
              all
      claims or causes of action against Pogo Producing Company or its
      successors, assigns or insurers under or pursuant to that certain Purchase
      and Sale Agreement dated as of April 20, 2006, by and between Pogo
      Producing Company and MitEnergy Upstream LLC, as amended;
    and

            

    

    

    
      	
               
      

            	
              (o)

            	
              all
      of Seller’s transportation and production marketing or sales agreements
      set forth in Exhibit “G”.

            

    

    

    “Existing
Environmental Liabilities” – All Environmental
Liabilities arising out of the operation or ownership of the Assets on or prior
to the Closing Date, other than Environmental Defects.

     

    “EXXI” – as defined in Section
12.08.

     

    “Final
Amount” – as defined in Section
2.05(c).

     

    “Final
Settlement Date”
– as defined in Section 2.05(c).

     

    “Final
Settlement Statement”
– as defined in Section 2.05(c).

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    “Future
Delivery/Payment Obligation” – any obligation of Seller
(i) under any contract or agreement for the sale of gas from the Assets
containing a take-or-pay, advance payment, prepayment, or similar provision, or
under any gathering, transmission, or any other contract or agreement with
respect to any of the Assets, to gather, deliver, process, or transport any gas
without then or thereafter receiving full payment therefor, (ii) to deliver any
quantities of gas or to pay any penalties or other amounts, in connection with
the violation of any of the terms of any gas contract or other agreement with
shippers with respect to the Assets, or (iii) to pay any penalties or other
payments under any gas transportation or other agreement as a result of the
delivery of quantities of gas from the Wells in excess of the contract
requirements; provided that Future Delivery/Payment Obligations shall not
include any Imbalances.

     

    “Governmental
Authorization” –
any approval, consent, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.

     

    “Governmental
Body” –
any:

     

    
      	
               
      

            	
              (a)

            	
              nation,
      state, county, city, town, village, district, or other jurisdiction of any
      nature;

            

    

     

    
      	
               
      

            	
              (b)

            	
              federal,
      state, local, municipal, foreign, or other
  government;

            

    

     

    
      	
               
      

            	
              (c)

            	
              governmental
      or quasi-governmental authority of any nature (including any governmental
      agency, branch, department, official, or entity and any court or other
      tribunal);

            

    

     

    
      	
               
      

            	
              (d)

            	
              multi-national
      organization or body; or

            

    

     

    
      	
               
      

            	
              (e)

            	
              body
      exercising, or entitled to exercise, any administrative, executive,
      judicial, legislative, police, regulatory, or taxing authority or power of
      any nature.

            

    

     

    “Hazardous
Materials” – any
material, pollutant, contaminant, substance or waste that is regulated by any
Governmental Body under any Environmental Laws.

     

    “Hydrocarbons” – oil, gas, minerals, and
other gaseous and liquid hydrocarbons or any combination of the foregoing,
produced from and attributable to the Leases.

     

    “Imbalances” – over-production or
under-production or over-deliveries or under-deliveries with respect to
Hydrocarbons produced from or allocated to the Assets, regardless of whether
such over-production or under-production or over-deliveries or under-deliveries
arise at the platform, wellhead, pipeline, gathering system, transportation
system, processing plant or other location, including, without limitation, any
imbalances under gas balancing or similar agreements, platform imbalances under
production handling agreements, imbalances under processing agreements and
imbalances under gathering or transportation agreements.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    “Instruments
of Conveyance” –
the instruments of conveyance transferring title to the Assets.  For
each OCS Lease, Seller and Buyer shall execute, acknowledge, and deliver five
(5) originals of an assignment substantially in the form of Exhibit “C-1,” where
Seller owns Record Title, or Exhibit “C-2,” where Seller owns only Operating
Rights.  For each State Lease, Seller and Buyer shall execute,
acknowledge, and deliver multiple originals (as reasonably requested by either
party) of an Assignment and Bill of Sale substantially in the form of Exhibit
“C-3,” along with such counterpart instruments as may be required by the
relevant Governmental Body, prepared on the form promulgated by such
Governmental Body.  In addition, Seller and Buyer shall execute,
acknowledge, and deliver multiple originals (as reasonably requested by either
party) of (a) a general assignment, bill of sale and conveyance covering all
Assets, substantially in the form of Exhibit “C-4,” (b) an Assignment of
Overriding Royalty Interest, substantially in the form of Exhibit “C-5,” for the
overriding royalty interests included in the Assets, (c) an Assignment of OCS
Pipeline Right-of-Way Grant, substantially in the form of Exhibit “C-6,”
for each federal OCS pipeline right-of-way grant included in the Assets for
which the MMS recognizes Seller’s title, and (d) such other instruments as may
be necessary to convey all of the Assets in forms that are mutually acceptable
to the parties.  The foregoing general assignment, bill of sale and
conveyance shall incorporate Seller’s Special Warranty.

     

    “Intended
Closing Date” – as defined in Section
2.03.

     

    “Interest
Addition” – as
defined in Section 11.09.

     

    “Interest
Addition Notice”
– as defined in Section 11.09.

     

    “Interest
Addition Rejection Notice” – as defined in Section
11.09.

     

    “Interest
Addition Value” –
as defined in Section 11.09.

     

    “IRC” – the Internal Revenue Code
of 1986 or any successor law, and regulations issued by the IRS pursuant to the
Internal Revenue Code or any successor law.

     

    “IRS” – the United States Internal
Revenue Service or any successor agency, and, to the extent relevant, the United
States Department of the Treasury.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    “JBIC
Liens” –
collectively the liens, mortgages, uniform commercial code filings, security
interests, collateral assignments, pledges and other encumbrances created with
respect to the Assets by or in connection with (i) that certain Deed of Trust,
Mortgage, Assignment, Security Agreement, Fixture Filing and Financing Statement
dated as of March 23, 2007, from MitEnergy Upstream LLC, as Mortgagor, to First
American Title Company, as Trustee, and Japan Bank for International
Cooperation, as Mortgagee, covering certain of the Assets, (ii) that certain
Deed of Trust, Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement (Alabama) dated as of March 23, 2007, from MitEnergy
Upstream LLC, as Mortgagor, to First American Title Company, as Trustee, and
Japan Bank for International Cooperation, as Mortgagee, covering certain of the
Assets, and (iii) that certain Security Agreement dated as of March 23, 2007,
between MitEnergy Upstream LLC, as borrower or debtor, and Japan Bank for
International Cooperation, as lender or secured party.

     

    “Knowledge” – an individual will be
deemed to have “Knowledge” of a particular fact or other matter only if such
individual is actually aware of such fact or other matter.  A Person
(other than an individual) will be deemed to have “Knowledge” of a particular
fact or other matter if any individual who is serving as an officer or director
of such Person has, or at any relevant time had, Knowledge of such fact or other
matter.

     

    “Leases” – the oil, gas, and mineral
leases described on Exhibit B-1, together with all interest derived from the
such leases in or to any pools or units which include any lands covered by any
such leases or all or a part of any such leases or include any Wells, including
those pools or units shown on Exhibit B-1, and including all interest derived
from such leases in production from any such pooled area or unit, whether such
pooled area or unit production comes from Wells located on or off of a Lease,
and all tenements, hereditaments and appurtenances belonging to such leases and
such pooled areas or units.

     

    “Legal
Requirement” –
any federal, state, local, municipal, foreign, international, or multinational
law, administrative order, constitution, ordinance, principle of common law,
regulation, statute, or treaty.

     

    “LIBOR” – for the day in question or
the previous banking day if the day in question is not a banking day, the
interest rate per annum (rounded upward to the nearest whole multiple of 1/16 of
1% per annum if such rate is not such a multiple) equal to the rate per annum at
which six (6) months deposits in U.S. Dollars are offered by the principal
office of Barclays Bank in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) on such day.

     

    “MMS” – the United States
Department of the Interior Minerals Management Service.

     

    “Net
Revenue Interest”
– for any Well or Lease (or the specified zone(s) therein), Seller’s share of
the Hydrocarbons produced, saved, and marketed therefrom (after satisfaction of
all royalties, overriding royalties, nonparticipating royalties, net profits
interests, or other similar burdens on or measured by production of
Hydrocarbons).

     

    “OCS
Lease” – a Lease of submerged
lands under the Outer Continental Shelf Lands Act, issued by the
MMS.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    “Operating
Rights” – with respect to an OCS
Lease, a leasehold interest that entitles the holder to conduct drilling and
related operations, but the holder of which does not have a contractual
relationship with the MMS, and cannot relinquish or terminate the OCS
Lease.

     

    “Order” – any award, decision,
injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made,
or rendered by any court, administrative agency, or other Governmental Body or
by any arbitrator having jurisdiction over the matter in question.

     

    “Organizational
Documents” –
(a) the articles or certificate of incorporation and the bylaws of a
corporation; (b) the certificate of formation or articles of organization
and limited liability company agreement or regulations of a limited liability
company; (c) the certificate of limited partnership and limited partnership
agreement of a limited partnership; (d) similar formation and organization
documents of other entities, and (e) any amendment to any of the
foregoing.

     

    “Other
Consumer Laws” – as defined in Section
12.14.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    “Permitted
Encumbrance” –
any of the following:  (a) any obligations or duties reserved to or
vested in any municipality or other Governmental Body to regulate any Asset in
any manner including all applicable Legal Requirements, except to the extent any
of the same have been applied or exercised, individually or in the aggregate, in
a manner which operates to reduce Seller’s Net Revenue Interest in a Well below
that shown in Exhibit A or increase Seller’s Working Interest in a Well above
that shown in Exhibit A without a proportionate increase in the Net Revenue
Interest; (b) the terms and conditions of  all leases, options,
servitudes, contracts for sale, purchase, exchange, refining or processing of
Hydrocarbons, operating agreements, construction agreements, construction and
operation agreements, participation agreements, shoot-to-earn agreements,
exploration agreements, partnership agreements, processing agreements, plant
agreements, pipeline, gathering, exchange, and transportation agreements,
disposal agreements, permits, licenses, and any other agreements affecting the
Assets, including those set forth as Contracts on Exhibit B-2 attached hereto,
but only to the extent that they do not, individually or in the aggregate, (i)
operate to reduce Seller’s Net Revenue Interest in a Well below that shown in
Exhibit A or increase Seller’s Working Interest in a Well above that shown in
Exhibit A without a proportionate increase in the Net Revenue Interest or (ii)
except in the case of Contracts listed on Exhibit B-2, adversely affect the
ownership and/or operation of the affected Assets (as currently used or owned)
in any material respect; (c) the Consents identified in Part 3.08 of the
Seller’s Disclosure Schedule with respect to which prior to Closing (i) waivers
or consents have been obtained from the appropriate Person, (ii) the applicable
period of time for asserting such rights has expired without any exercise of
such rights, or (iii) mutually agreed upon arrangements have been made by the
parties to allow Buyer to receive substantially the same economic benefits as if
all such waivers and consents had been obtained;(d) easements, rights-of-way,
servitudes, permits, surface leases, and other similar rights on, over, or in
respect of any of the Assets, as long as any such encumbrances, individually or
in the aggregate, do not interfere in any material respect with the exploration,
development or operation of the Assets burdened thereby; (e) lessor’s royalties,
overriding royalties, production payments, net profits interests, reversionary
interests, and similar burdens with respect to a Well if the net cumulative
effect of such burdens does not operate to reduce Seller’s Net Revenue Interest
in such Well below that shown in Exhibit A or increase Seller’s Working Interest
in such Well above that shown in Exhibit A without a proportionate increase in
the Net Revenue Interest; (f) the EC 270 Withdrawal; (g) all agreements,
instruments, documents, liens, encumbrances, and other matters which are
described in any Schedule or Exhibit (other than Exhibit B-2) to this Agreement;
(h) any Imbalances and Future Delivery/Payment Obligations associated with the
Assets; (i) the JBIC Liens, subject to appropriate releases and/or termination
statements providing for the release and termination of the JBIC Liens being
delivered by Seller to Buyer in connection with the Closing; (j)
any materialman’s, mechanics’, repairman’s, employees’, contractors’,
operators’ or other similar liens, security interests or charges for liquidated
amounts arising in the ordinary course of business incidental to construction,
maintenance, development, production or operation of the Assets or the
production or processing of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of business or, if
delinquent, that are being contested in good faith; (k) any liens for Taxes not
yet delinquent or, if delinquent, that are being contested in good faith in the
ordinary course of business; (l) such other defects or irregularities of title
or Encumbrances as Buyer may have waived in writing or which Buyer shall be
deemed to have waived pursuant to the provisions of Section 11.05 hereof
(except, for purposes of Seller’s Special Warranty only, any matter deemed
waived by Buyer pursuant to Section 11.05 unless Buyer asserted such matter as a
Title Defect pursuant to Section 11.05, such matter was disclosed to Buyer in
connection with Buyer’s due diligence prior to Closing or Buyer had Knowledge of
such matter prior to Closing); (m) any matter which proportionately (or to
a greater extent) also affects or burdens the Buyer Affiliate Assets; and (n)
conventional rights of reassignment obligating Seller to reassign its interests
in any portion of the Leases to a third party in the event Buyer intends to
release or abandon such interest prior to the expiration of the primary term or
other termination of such interest.

     

    “Person” – any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental
Body.

     

    “Post-Closing
Amount” – as defined in Section
2.05(c).

     

    “Post-Closing
Date” – as defined in Section
2.05(c).

     

    “Preferential
Purchase Right” –
any right or agreement that enables any Person to purchase or acquire any Asset
or any interest therein or portion thereof as a result of or in connection with
the execution or delivery of this Agreement or the consummation or performance
of the terms and conditions contemplated by this Agreement.

     

    “Preliminary
Amount” – as
defined in Section 2.05(a).

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    “Prior
Confidentiality Agreement” – that certain
Confidentiality Agreement dated as of November 11, 2009, by and between
MitEnergy Upstream LLC and Energy XXI, Inc.

     

    “Proceeding” – any action, arbitration,
audit, hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or
arbitrator.

     

    “Property
Costs” – as
defined in Section 2.05(a).

     

    “Purchase
Price” – as
defined in Section 2.02.

     

    “Record
Title” – with respect to an OCS
Lease, an ownership interest in the contractual lease document with the MMS,
which includes the right to explore for and develop oil, gas, or sulphur
resources, as well as responsibilities for all lease liabilities created or
established during tenure of ownership, and which also includes the right to
relinquish the OCS Lease.

     

    “Rejection
Notice” – as defined in Section
11.07.

     

    “Remediate” or
“Remediation” – affirmative
actions or remedial work taken to remove or otherwise remedy an Environmental
Condition, including but not limited to (i) any survey, site assessment, audit,
investigation, inspection, sampling, analysis, removal, excavation, pump and
treat, cleanup, disposal, storage, handling, or treatment and (ii) any action
required to bring any Asset or operating practice or
similar course of conduct by Seller or its Affiliates (or the operator) into
compliance with Environmental Laws.

     

    “Representative” – with respect to a
particular Person, any director, officer, employee, agent, consultant, advisor,
or other representative of such Person, including legal counsel, accountants,
and financial advisors.

     

    “Retained
Liabilities” – as
defined in Section 2.07.

     

    “S-3” – as defined in Section
2.03.

     

    “SEC” – as defined in Section
2.03.

     

    “Seller’s
Closing Documents” – as defined in Section 3.02
(a).

     

    “Seller’s
Disclosure Schedule” – the disclosure schedule
attached as Exhibit D.

     

    “Seller
Group” – as
defined in Section 10.03.

     

    “Seller’s
Special Warranty”
– If the Closing occurs, then effective as of the Closing Date, Seller shall
make the following special warranty of title:

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (a)

            	
              Seller
      warrants Defensible Title to the Assets unto Buyer against every Person
      whomsoever lawfully claiming or to claim the same or any part thereof by,
      through or under Seller, but not otherwise, subject, however, to (i) all
      agreements, encumbrances and other matters that are reflected or
      referenced in any document in Seller’s chain of title (excluding, however,
      any documents in which Seller is a party, other than the assignments and
      other documents conveying or transferring title into Seller) with respect
      to the Assets that as of the date of this Agreement is of record in the
      files of the Minerals Management Service or the county or parish adjacent
      to the lease relating to such Asset or in other appropriate public
      records, (ii) the Permitted Encumbrances, and (iii) any Title Defect
      asserted by Buyer pursuant to Article
11.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Said
      special warranty of title shall run with the title to the Assets and shall
      inure to the benefit of, and be enforceable by, Buyer’s respective
      successors and assigns with respect to the Assets, subject to the
      limitations set forth below.  Seller shall not have any
      liability or obligation with respect to any breach of said special
      warranty of title unless, on or before the earlier of December 30, 2010,
      or one (1) year after the Closing, Buyer or its successor or assign gives
      Seller a Title Defect Notice with respect to such breach of special
      warranty of title.

            

    

     

    
      	
               
      

            	
              (c)

            	
              For
      purposes of Seller’s special warranty of title, the value of the Assets
      shall be deemed to be the Allocated Value thereof, as adjusted for any
      adjustment in the Purchase Price hereunder.  Recovery on
      Seller’s special warranty of title shall be limited to an amount (without
      any interest accruing thereon) equal to the reduction in the Purchase
      Price to which Buyer would have been entitled had Buyer asserted the Title
      Defect giving rise to such breach of Seller’s special warranty of title as
      a Title Defect pursuant to Article 11, in each case taking into
      account the limitations on adjustments pursuant to Section
      11.08.  A breach of Seller’s special warranty may only be
      asserted by delivery to Seller of a Title Defect Notice.  Seller
      shall have the right, but not the obligation, to cure any Title Defect
      asserted by Buyer as a breach of Seller’s special warranty of title
      in the manner provided in Article 11, mutatis
      mutandis.  Buyer agrees to reasonably cooperate with any
      attempt by Seller to cure any such Title Defect.  Buyer’s rights
      with respect to Seller’s special warranty of title do not limit Buyer’s
      remedies under Article 11, however, no double recovery shall be allowed
      under Article 11 and Seller’s special warranty of
  title.

            

    

     

    “State
Lease” – a Lease from any state
of the United States of America, or from a Governmental Body of any state of the
United States of America.

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    “Surface
Rights” – All
easements, permits, licenses, servitudes, rights-of-way, surface or seabed
leases and other surface or seabed rights appurtenant to, and used or held for
use in connection with the Assets, excluding any such easements, permits and
other rights to the extent transfer is restricted by any Legal Requirement and
the necessary authorizations or consents to transfer under such Legal
Requirement are not obtained.

     

    “Tax” – any tax (including any
income tax, capital gains tax, value-added tax, sales tax, property tax,
severance tax, gift tax, or estate tax), levy, assessment, tariff, duty
(including any customs duty), deficiency, or other fee, and any related charge
or amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other contract relating to
the sharing or payment of any such tax, levy, assessment, tariff, duty,
deficiency, or fee.

     

    “Tax
Return” – any
return (including any information return), report, statement, schedule, notice,
form, or other document or information filed with or submitted to, or required
to be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection, or payment of any Tax or in connection
with the administration, implementation, or enforcement of or compliance with
any Legal Requirement relating to any Tax.

     

    “Threatened” – a claim, Proceeding,
dispute, action, or other matter will be deemed to have been “Threatened” if any
demand or statement has been made (orally or in writing) to a party or any of
its officers, directors, or employees that would lead a prudent Person to
conclude that such a claim, Proceeding, dispute, action, or other matter is
likely to be asserted, commenced, taken, or otherwise pursued in the
future.

     

    “Title
Claim Date” – as
defined in Section 11.05.

     

    “Title
Defect” – any matter (other
than a Permitted Encumbrance) affecting the Assets that is created by, through
or under Seller (but not otherwise) and would cause Buyer not to receive
Defensible Title pursuant to the terms of this Agreement.  Any matter
affecting the Assets that has not been created by, through or under Seller shall
not constitute a Title Defect.  Any agreement, encumbrance or other
matter affecting the Assets that has been created by, through or under both
Seller and Buyer or any Affiliate of Buyer shall not constitute a Title
Defect.

     

    “Title
Defect Notice(s)”
– as defined in Section 11.05.

     

    “UTPCPL” – as defined in Section
12.14.

     

    “Wells” – oil and gas wells located
on the Leases, and more particularly described on Exhibit A, which Exhibit A may
also include possible well locations and exploratory prospects.  The
Wells also include all wells listed on Exhibit A, whether or not such wells are
located on the Leases.

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    “Working
Interest” – for
any Well (or the specified zone(s) therein) or Lease, that share of costs and
expenses associated with the exploration, maintenance, development and operation
of such Well or Lease that Seller is required to bear and pay.

     

    ARTICLE
2

     

    SALE
AND TRANSFER OF ASSETS; CLOSING

     

    2.01.                  Assets.  Subject
to the terms and conditions of this Agreement, at the Closing, Seller shall sell
and transfer the Assets to Buyer.

     

    2.02.                  Purchase
Price.  Subject to any adjustments that may be made under
Section 2.05, the purchase price (the “Purchase Price”) for
the Assets will be Two Hundred
Eighty-three Million Dollars ($283,000,000.00).  The Purchase
Price for the Assets shall be allocated among the Assets as set forth in
Schedule 2.02 hereto.  The amount so allocated to a part of the Assets
shall constitute the Allocated Values for such part of the
Assets.  Seller and Buyer agree to be bound by the allocation set
forth in Schedule 2.02 for purposes of Article 11
hereof.  Contemporaneously herewith, Buyer has paid to Seller the
Deposit Amount.  If the Closing timely occurs, the Deposit Amount
(without interest) shall be applied as a credit toward the Purchase Price;
provided, however, in the event the Intended Closing Date is extended pursuant
to Section 2.03 and the Closing timely occurs, the Deposit Amount plus interest
at the Agreed Interest Rate shall be applied as a credit toward the Purchase
Price.  If the Closing does not timely occur as a result of the
Breach, in any material respect, by Buyer of the terms of this Agreement and
there has been no Breach, in any material respect, by Seller of the terms of
this Agreement, the Deposit Amount (together with any interest earned thereon by
Seller) shall be retained by Seller as its sole and exclusive remedy and as
liquidated damages (and not as a penalty).  If the Closing does not
timely occur for any other reason, the Deposit Amount plus interest at the
Agreed Interest Rate shall be immediately returned to Buyer; provided, however,
if the Closing does not timely occur as a result of the Breach, in any material
respect, by Seller of the terms of this Agreement and there has been no Breach,
in any material respect, by Buyer of the terms of the Agreement, Buyer at its
option may (a) terminate this Agreement, in which event Seller shall be
immediately obligated to pay the Deposit Amount plus interest at the Agreed
Interest Rate to Buyer, or (b) enforce specific performance of the duties and
obligations of Seller under this Agreement.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    2.03.                
Closing.  The
purchase and sale (the “Closing”) provided
for in this Agreement shall take place at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010, at 10:00 a.m.
(local time) on or before January 27, 2010, or at such other time and place as
the parties may agree in writing (the “Intended Closing
Date”).  In the event Buyer’s ultimate parent entity, Energy
XXI (Bermuda) Limited, files a post effective amendment to a currently filed
Registration Statement on Form S-3, or a new Registration Statement on Form S-3,
in connection with the transactions contemplated by this Agreement (in either
case the “S-3”)
with the Securities and Exchange Commission (“SEC”), and if, after
all reasonable efforts have been made by Buyer’s ultimate parent entity to
obtain approval thereof, the S-3 is not declared effective by the SEC on or
before January 13, 2010, the Intended Closing Date shall be extended until ten
(10) Business Days after the S-3 is declared effective, but in no event later
than March 31, 2010, unless a later date is mutually agreed to in writing by the
parties; provided, however, the Intended Closing Date shall not be extended
pursuant to the foregoing unless (i) Buyer, on or before January 18, 2010, gives
Seller notice of such failure of the S-3 to become effective and (ii) on or
before January 27, 2010, Buyer pays to Seller, by wire transfer to the account
specified by Seller in written notice given by Seller to Buyer, an amount equal
to five percent (5%) of the Purchase Price to be held by Seller as part of the
Deposit Amount.  In the event the Intended Closing Date is so extended
by Buyer, Buyer shall pay Seller interest on the Purchase Price at the Agreed
Interest Rate, as provided for hereafter in Section
2.05(b)(i)(B).  The date the Closing occurs, whether on the Intended
Closing Date or on the extended Closing Date provided for above, is referred to
hereafter as the “Closing Date”.  Subject to the provisions of
Articles 9, 10, and 11, failure to consummate the purchase and sale provided for
in this Agreement on the date and time and at the place determined pursuant to
this Section 2.03 shall not result in the termination of this Agreement and
shall not relieve any party of any obligation under this
Agreement.  Six (6) Business Days prior to the Closing Date, Seller
will deliver to Buyer a statement setting forth in reasonable detail Seller’s
determination of the Preliminary Amount based upon the best information
available at the time the statement is prepared.

     

    2.04.                  Closing
Obligations.  At the Closing:

     

    
      	
               
      

            	
              (a)

            	
              Seller
      shall deliver (and execute, as appropriate), or cause to be delivered (and
      executed, as appropriate), to
Buyer:

            

    

     

    
      	
               
      

            	
              (i)

            	
              the
      Instruments of Conveyance dated as of the Closing
  Date;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              possession
      of the Assets;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              a
      certificate, in substantially the form set forth in Exhibit F, executed by
      Seller (a) representing and warranting to Buyer that each of Seller’s
      representations and warranties in this Agreement is accurate in all
      material respects (or, with respect to representations and warranties
      qualified by materiality, in all respects) as of the Closing Date as if
      made on the Closing Date (other than representations and warranties that
      refer to a specified date which need only be true and correct on and as of
      such specified date) and (b) certifying as to the incumbency for each
      officer of Seller executing this Agreement, the Instruments of Conveyance
      or other documents delivered pursuant to this
  Agreement;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              certified
      copies of resolutions of Seller’s board of managers or other managing
      authority, as appropriate, authorizing and approving the execution,
      delivery, and performance of the
Agreement;

            

    

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (v)

            	
              such
      documents as Buyer or counsel for Buyer may reasonably request, including
      but not limited to letters-in-lieu of transfer order to purchasers of
      production from the Wells;

            

    

     

    
      	
               
      

            	
              (vi)

            	
              fully
      executed counterparts of releases (including all release request forms
      required in any filing jurisdiction), in recordable form and reasonably
      acceptable to Buyer, sufficient to release of record all JBIC Liens when
      recorded or filed by Buyer, together with appropriate forms of UCC
      termination statements sufficient to terminate any financing statements
      filed with respect to the JBIC Liens;
and

            

    

     

    
      
        	
              	
                (vii)

              	
                true
      and complete copies of all consents and waivers received by Seller
      pursuant to Sections 5.04, 11.02 and
11.03.

              

      

    

     

    
      	
               
      

            	
              (b)

            	
              Buyer
      shall deliver (and execute, as appropriate) to
  Seller:

            

    

     

    
      	
               
      

            	
              (i)

            	
              the
      Preliminary Amount, less the Deposit Amount and any interest accrued
      thereon, by wire transfer to the account(s) specified by Seller in written
      notice given by Seller to Buyer at least five (5) Business Days prior to
      the Closing Date;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              the
      Instruments of Conveyance dated as of the Closing
  Date;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              a
      certificate, in substantially the form set forth in Exhibit F, executed by
      Buyer (a) representing and warranting to Seller that each of Buyer’s
      representations and warranties in this Agreement is accurate in all
      material respects as of the Closing Date as if made on the Closing Date
      and (b) certifying as to the incumbency for each officer of Buyer
      executing this Agreement, the Instruments of Conveyance or other documents
      delivered pursuant to this
Agreement;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              certified
      copies of resolutions of Buyer’s board of directors or other managing
      authority, as appropriate, authorizing and approving the execution,
      delivery, and performance of the Agreement;
and

            

    

     

    
      	
               
      

            	
              (v)

            	
              such
      other documents as Seller or counsel for Seller may reasonably
      request.

            

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    

    2.05.                  Allocations
and Adjustments.  If the Closing occurs:

     

    
      	
               
      

            	
              (a)

            	
              Notwithstanding
      the effective time of the Instruments of Conveyance, Buyer shall be
      entitled to all revenues, production, proceeds, income, and products from
      or attributable to the Assets on and after the Effective Time, and to all
      other income, proceeds, receipts and credits earned with respect to the
      Assets on or after the Effective Time, and shall be responsible for (and
      entitled to any refunds with respect to) all Property Costs attributable
      to the Assets and incurred on and after the Effective
      Time.  Seller shall be entitled to all revenues, production,
      proceeds, income, accounts receivable, and products from or attributable
      to the Assets prior to the Effective Time, and shall be responsible for
      (and entitled to any refunds with respect to) all Property Costs
      attributable to the Assets and incurred prior to the Effective Time.
      “Earned” and “incurred”, as used in this Agreement, shall be interpreted
      in accordance with generally accepted accounting principles and Council of
      Petroleum Accountants Society (COPAS) standards.  “Property Costs”
      shall mean all amounts attributable to the operation and ownership of the
      Assets incurred in the ordinary course of business and not in Breach of
      this Agreement.  For purposes of allocating revenues,
      production, proceeds, income, accounts receivable, and products under this
      Section, (i) liquid hydrocarbons produced into storage facilities will be
      deemed to be “from or attributable to” the Wells when they pass through
      the pipeline connecting into the storage facilities into which they are
      run, and (ii) gaseous hydrocarbons and liquid hydrocarbons produced into
      pipelines will be deemed to be “from or attributable to” the Wells when
      they pass through the delivery point sales meters on the pipelines through
      which they are transported.  In order to accomplish the
      foregoing allocation of production, the parties shall rely upon gauging,
      metering, and strapping procedures conducted by Seller (or, at Seller’s
      election, the applicable operator) on or about the Effective Time to the
      extent possible and, unless demonstrated to be inaccurate, shall utilize
      reasonable interpolating procedures to arrive at an allocation of
      production when exact gauging, metering, and strapping data is not
      available on hand as of the Effective Time.  Ad valorem taxes
      for 2009 shall be prorated on a daily basis, with Buyer liable for the
      portion allocated to the period on and after the Effective Time and Seller
      liable for the portion allocated to the period before the Effective
      Time.  If the amount of such taxes for part, or all, of the
      Assets is not available on the Closing Date, proration of taxes shall be
      made on the basis of taxes assessed in the previous year, with a
      subsequent cash adjustment of such proration to be made between Seller and
      Buyer when actual tax figures are available.  After Closing,
      Buyer will be responsible for paying to the appropriate taxing authority
      all 2009 ad valorem taxes with respect to the Assets, subject to Seller
      giving Buyer credit against the Purchase Price or paying to Buyer Seller's
      prorated share of the 2009 ad valorem taxes in accordance with this
      Section 2.05.  The premiums for the insurance required to be
      maintained by Seller pursuant to Section 5.03 that accrue after the
      Effective Time and are attributable to insurance coverage for the period
      after the Effective Time until the Closing will constitute Property
      Costs.  Property Costs shall not include any amounts under
      clauses (b), (c) and (d) of the definition of Retained
      Liabilities.  The “Preliminary
      Amount” shall be the Purchase Price, adjusted as provided in
      Section 2.05(b), based upon the best information available at time of the
      Closing.

            

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (b)

            	
              The
      Purchase Price shall be, without
duplication,

            

    

     

    
      	
               
      

            	
              (i)

            	
              increased
      by the following amounts:

            

    

     

    
      	
               
      

            	
              (A)

            	
              the
      aggregate amount of all non-reimbursed Property Costs which are
      attributable to the period from and after the Effective Time and which
      have been incurred and paid by Seller with respect to the Wells and
      Leases;

            

    

     

    
      	
               
      

            	
              (B)

            	
              in
      the event the Intended Closing Date is extended by Buyer pursuant to the
      provisions of Section 2.03, an amount equal to interest at the Agreed
      Interest Rate accruing on the Purchase Price (prior to adjustment under
      this Section 2.05(b)) from the date of this Agreement until the extended
      or actual Closing Date;

            

    

     

    
      	
               
      

            	
              (C)

            	
              any
      Assumed Liabilities paid by Seller after the Effective Time and prior to
      the Closing;

            

    

     

    
      	
               
      

            	
              (D)

            	
              any
      other upward adjustment mutually agreed upon by the
    parties;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              decreased
      by the following amounts:

            

    

     

    
      	
               
      

            	
              (A)

            	
              the
      aggregate amount of (i) proceeds received by Seller from the sale of
      Hydrocarbons produced from and attributable to the Assets from and after
      the Effective Time for which Buyer is entitled under Section 2.05(a) and
      (ii) other proceeds received with respect to the Assets for which Buyer
      would otherwise be entitled under Section
  2.05(a);

            

    

     

    
      	
               
      

            	
              (B)

            	
              the
      amount of any downward adjustment relating to Title Defects as set forth
      in Article 11;

            

    

     

    
      	
               
      

            	
              (C)

            	
              the
      aggregate amount of all downward adjustments pursuant to Article
      11;

            

    

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (D)

            	
              Seller’s
      share of estimated 2009 ad valorem taxes through the Effective Time;
      and

            

    

     

    
      	
               
      

            	
              (E)

            	
              the
      amount of any downward adjustment mutually agreed upon by the
      parties.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Subject
      to the arbitration provisions of Article 12.15 as to adjustments under
      Section 2.05(b)(ii)(B), as soon as practicable after Closing, but no later
      than ninety (90) days following the Closing Date, Seller shall prepare and
      submit to Buyer, a statement (the “Final Settlement
      Statement”) setting forth each adjustment or payment which was not
      finally determined as of the Closing Date and showing the values used to
      determine such adjustments to reflect the final adjusted Purchase
      Price.  On or before sixty (60) days after receipt of the Final
      Settlement Statement, Buyer shall deliver to Seller a written report
      containing any changes that Buyer proposes be made to the Final Settlement
      Statement. During this sixty (60) day period, Buyer shall be given
      reasonable access to Seller's books and records relating to the matters
      required to be accounted for in the Final Settlement Statement, permitted
      to review the working papers of Seller relating to the Final Settlement
      Statement, and given reasonable access to the employees of Seller
      primarily responsible for the preparation of the Final Settlement
      Statement.  Seller and Buyer shall undertake to agree with
      respect to the amounts due pursuant to the post-closing adjustment no
      later than one hundred fifty (150) days after the Closing Date (the “Post-Closing
      Date”).  If Seller and Buyer are unable to agree by the
      Post-Closing Date as to adjustment matters not subject to arbitration in
      accordance with this Agreement, Seller and Buyer shall nevertheless adjust
      the Purchase Price to take into account all agreed-upon adjustments at
      that time.  The Purchase Price, as adjusted on the Post-Closing
      Date, shall be called the “Post-Closing
      Amount.”  If (a) the Post-Closing Amount is more than the
      Preliminary Amount, Buyer shall pay to Seller the amount of the
      difference; or (b) the Post-Closing Amount is less than the Preliminary
      Amount, Seller shall pay to Buyer the amount of the
      difference.  Such payment, together with interest at the Agreed
      Interest Rate, calculated from the Closing Date to the date of payment,
      shall be made within five (5) Business Days after the Post-Closing Date by
      wire transfer to accounts specified by Seller or Buyer, as
      appropriate.  For those adjustment matters not subject to
      arbitration, and as to which Seller and Buyer are unable to reach
      agreement by the Post-Closing Date, Seller shall select a
      nationally-recognized independent accounting firm in Houston, Texas, from
      a list of two such firms provided by Buyer (none of which shall be the
      independent accounting firm regularly used by Buyer or Seller), which firm
      shall determine the Purchase Price adjustment or payment amount in
      accordance with the terms and conditions set forth in this
      Agreement.  The decision of such independent accounting firm
      shall be binding on Seller and Buyer, and the fees and expenses of such
      independent accounting firm shall be borne one-half (1/2) by Seller and
      one-half (1/2) by Buyer.  The date upon which the Purchase Price
      is established, as provided in the preceding sentence, shall be called the
      “Final
      Settlement Date,” and the final adjusted Purchase Price shall be
      called the “Final
      Amount.”  If (a) the Final Amount is more than the
      Post-Closing Amount, Buyer shall pay to Seller the amount of the
      difference; or (b) the Final Amount is less than the Post-Closing Amount,
      Seller shall pay to Buyer the amount of the difference.  Such
      payment, together with interest at the Agreed Interest Rate, calculated
      from the Closing Date to the date of payment, shall be made within five
      (5) Business Days of the Final Settlement Date by wire transfer to
      accounts specified by Seller or Buyer, as
  appropriate.

            

    

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    2.06.                  Assumption.  If
the Closing occurs, from and after the Closing Date, Buyer shall assume, pay,
and discharge the following liabilities insofar as allocable to the Assets
(“Assumed
Liabilities”):

     

    Any and
all duties, claims, damages, expenses, fines, penalties, costs (including
attorneys’ fees and expenses), liabilities, and obligations (“Covered
Liabilities”) (i) attributable to or resulting from the ownership or
operation of the Assets from and after the Effective Time under any Contract
(including any Imbalances, subject to Seller’s obligations under Section 2.08),
Governmental Authorization, or Lease (except for the Retained Liabilities),
(ii) imposed by any Legal Requirement relating to the Assets with respect
to any event, condition, occurrence or circumstance existing or occurring on or
after the Effective Time, (iii) attributable to Seller for plugging,
abandonment, surface restoration, removal and decommissioning of the oil, gas,
injection, water or other wells, platforms, structures, facilities, pipelines
and other equipment located on the lands covered by the Leases and other Assets
(including all decommissioning obligations of Seller under 30 CFR §250.1700,
et seq.), excluding the
EI 330 Platform Costs, (iv) from any act, omission, event, condition or
occurrence accruing or occurring subsequent to the Effective Time relating to
the Assets, including any event, condition or occurrence (including any injury,
death or damage to person or property) on or after the Effective Time resulting
from the condition or state, prior to the Effective Time, of any improvement,
structure, fixture, equipment or personal property included in or constituting
part of the Assets, which condition or state of such Assets shall include any
defects or flaws in such Assets or any weaknesses or other problematic
conditions caused by a failure to maintain, improve or modify such Assets,
regardless of whether such condition or state of such Assets constitutes a
violation of Environmental Laws or any other Law that occurred or existed prior
to the Effective Time (except for the Retained Liabilities), (v) all
repair, restoration, replacement and removal costs (other than EI 330 Platform
Costs) incurred after the Effective Time relating to any hurricane, storm, fire,
explosion or other casualty with respect to the Assets occurring prior to the
Effective Time, (vi) attributable to or resulting from any and all
Environmental Liabilities relating to the Assets, (vii) any loss or lack
of, or defect in, or encumbrance against title to any Asset (except to the
extent Buyer can recover therefor pursuant to Seller’s Special Warranty), and
(viii) attributable to the EC 270 Withdrawal; provided, however, the
provisions of this Section 2.06 shall not relieve Seller from (a) liability
resulting from a material Breach, if any, of its representations, warranties, or
covenants under this Agreement, as provided in Article 10, (b) Seller’s
obligations under Seller’s Special Warranty, or (c) those obligations of Seller
under Article 11 that continue after the Closing Date.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    The
Assumed Liabilities shall not include any Retained Liabilities.

     

    2.07.                  Retained
Liabilities.  Seller shall retain, perform, pay and discharge
the following (collectively “Retained Liabilities”):

    

    
      	
               
      

            	
              (a)

            	
              all
      repair, restoration, replacement and removal costs relating to any
      hurricane, storm, fire, explosion or other casualty with respect to the
      Assets incurred by Seller with respect to the Assets prior to the
      Effective Time pursuant to the accounting procedure under any operating
      agreement covering any of the
Assets;

            

    

     

    
      	
               
      

            	
              (b)

            	
              all
      EI 330 Platform Costs;

            

    

     

    
      	
               
      

            	
              (c)

            	
              all
      Covered Liabilities attributable to or resulting from any claim for
      personal injury or death occurring between the Effective Time and the
      Closing Date to the extent Seller has liability for such claim and such
      claim arises out of or is attributable to Seller’s use, ownership or
      operation of the Assets; provided, however, that Seller’s obligations
      under this clause (b) shall be limited to the amount of Seller’s insurance
      coverage (excluding any deductibles, co-payments and Seller self insurance
      amounts) with respect to such claims under the insurance policies required
      to be maintained until Closing pursuant to Section 5.03;
    and

            

    

     

    
      	
               
      

            	
              (d)

            	
              any
      liability arising prior to the Effective Time with respect to gas pipeline
      Imbalances.

            

    

    

    The
Retained Liabilities shall not include any Assumed Liabilities.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    2.08.                  Imbalances
and Future Delivery/Payment Obligations.  Should either party
discover any inaccuracy in Parts 3.09(a), 3.09(c) or 3.09(d) of the Seller’s
Disclosure Schedule prior to six (6) months after the Closing, it shall promptly
give the other party notice of such inaccuracy.  Either party may
assert one or more claims for an adjustment under this Section by delivering a
written notice of each such claim to the other party prior to six (6) months
after the Closing or, in the case of Buyer, within five (5) Business Days after
Buyer's receipt of notice of such inaccuracy from Seller as required by this
Section 2.08, if later.  If it is determined that there is an
inaccuracy in the Imbalances set forth in Part 3.09(a) of the Seller’s
Disclosure Schedule or in the Future Delivery/Payment Obligations set forth in
Part 3.09(c) of the Seller’s Disclosure Schedule, then (i) if such claim is made
before Closing, an adjustment to the Purchase Price will be made as set forth
below or (ii) if such claim is made after Closing, a post-Closing adjustment to
the Purchase Price will be made as set forth below (and in the case of a
post-Closing adjustment, the payor will also pay the payee interest at the
Agreed Interest Rate on the amount of the adjustment from the date of Closing to
the date of payment): 

     

    (a)   
Imbalances.

     

    
      	
               
      

            	
              (i)

            	
              If
      Seller’s total net Imbalance reflects that the Seller is more overproduced
      or less underproduced than as set forth in Part 3.09(a) of the Seller’s
      Disclosure Schedule, then the Purchase Price shall be reduced by the net
      change in the total Imbalance times $4.00 per MMBtu (or, with respect to
      oil Imbalances, $70.00 per barrel);
or

            

    

     

    
      	
               
      

            	
              (ii)

            	
              If
      Seller’s total net Imbalance reflects that the Seller is more
      underproduced or less overproduced than as set forth in Part 3.09(a) of
      the Seller’s Disclosure Schedule, then the Purchase Price shall be
      increased by the net change in the total Imbalance times $4.00 per MMBtu
      (or, with respect to oil Imbalances, $70.00 per
  barrel).

            

    

     

    (b)   
Future Delivery/Payment Obligations.

     

    
      	
               
      

            	
              (i)

            	
              If
      the value of Seller’s total Future Delivery/Payment Obligations is greater
      than the value of Seller’s total Future Delivery/Payment Obligations as
      set forth in Part 3.09(c) of the Seller’s Disclosure Schedule (with gas
      delivery obligations being valued at the rate of $4.00 per MMBtu, oil
      delivery obligations being valued at $70.00 per barrel, and penalty
      payment obligations being valued at the dollar amount thereof), then the
      Purchase Price shall be reduced by the net change in the value of Seller’s
      total Future Delivery/Payment Obligations;
or

            

    

     

    
      	
               
      

            	
              (ii)

            	
              If
      the value of Seller’s total Future Delivery/Payment Obligations is less
      than the value of Seller’s total Future Delivery/Payment Obligations as
      set forth in Part 3.09(c) of the Seller’s Disclosure Schedule (with gas
      delivery obligations being valued at the rate of $4.00 per MMBtu, oil
      delivery obligations being valued at $70.00 per barrel, and penalty
      payment obligations being valued at the dollar amount thereof), then the
      Purchase Price shall be increased by the net change in the value of
      Seller’s total Future Delivery/Payment
  Obligations.

            

    

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    This
Section 2.08 provides the exclusive remedy for any inaccuracies in Parts 3.09(a)
or 3.09(c) of the Seller’s Disclosure Schedule.  With respect to any
claims made before Closing, an adjustment to the Purchase Price will be made at
Closing in the manner provided above.  With respect to any claims made
after Closing, post-Closing adjustments to the Purchase Price will be made in
the manner provided above.  If the Purchase Price is reduced as a
result of any such post-Closing adjustment, Seller will pay to Buyer the amount
of such adjustment, plus interest at the Agreed Interest Rate on the amount of
the adjustment from the date of Closing to the date of payment by
Seller.  If the Purchase Price is increased as a result of any such
post-Closing adjustment, Buyer will pay to Seller the amount of such adjustment,
plus interest at the Agreed Interest Rate on the amount of the adjustment from
the date of Closing to the date of payment by Buyer.  If one or more
claims are made under this Section 2.08 post-Closing, the amount owing with
respect to any post-Closing claim will take into account the other adjustments
to the Purchase Price (at Closing and post-Closing) made pursuant to this
Section 2.08.  No deductible or limitation of liability under this
Agreement shall be applied to reduce Seller’s and Buyer's respective obligations
under this Section 2.08.  Notwithstanding anything to the contrary
contained in this Section 2.08, no adjustment to the Purchase Price will be
required (i) under Section 2.08(a) if it is determined that the actual
total net Imbalance volumes are within 2% above or below those shown in Part
3.09(a) of Seller’s Disclosure Schedule or (ii) under Section 2.08(b) if it
is determined that actual value of Seller’s total Future Delivery/Payment
Obligations are within 2% above or below the value shown in Part 3.09(c) of
Seller’s Disclosure Schedule.

    

    ARTICLE
3

     

    REPRESENTATIONS
AND WARRANTIES OF SELLER

     

    Seller
represents and warrants to Buyer, as of the date of this Agreement, as follows
(provided, however, that notwithstanding anything in this Article 3 to the
contrary, Seller makes no representation or warranty whatsoever, express or
implied, in this Article 3 with respect to (i) any Environmental Law,
Environmental Condition or Environmental Liabilities, (ii) the condition,
adequacy, operability, state of repair, merchantability, conformity to models or
samples of materials or fitness for a particular purpose of the Assets, it being
expressly understood that all Assets are to be conveyed “As Is” And “Where Is,”
with All Faults, (iii) compliance of the Assets with the provisions and
requirements of Legal Requirements, or (iv) Seller’s title to any of the
Assets.):

     

    3.01.                  Organization
and Good Standing.  Seller is a Delaware limited liability
company, duly formed, validly existing, and in good standing under the laws of
the state of Delaware and every state in which it is qualified to do business,
with full company power and authority to conduct its business as it is now being
conducted, and to own or use the properties and assets that it purports to own
or use.  Seller is not a “foreign person” for purposes of Section 1445
or Section 7701 of the IRC.

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    3.02.                  Authority;
No Conflict.

     

    
      	
               
      

            	
              (a)

            	
              This
      Agreement constitutes the legal, valid, and binding obligation of Seller,
      enforceable against Seller in accordance with its terms, except as such
      enforceability may be limited by applicable bankruptcy or other similar
      laws affecting the rights and remedies of creditors generally and by
      general principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law).  Upon the
      execution and delivery by Seller of the Instruments of Conveyance and any
      other documents executed and delivered by Seller at the Closing
      (collectively, the “Seller’s Closing
      Documents”), Seller’s Closing Documents shall constitute the legal,
      valid, and binding obligations of Seller, enforceable against Seller in
      accordance with their respective terms, except as such enforceability may
      be limited by applicable bankruptcy or other similar laws affecting the
      rights and remedies of creditors generally and by general principles of
      equity (regardless of whether such enforceability is considered in a
      proceeding in equity or at law).  Except as set forth in Part
      3.02 of the Seller’s Disclosure Schedule, Seller has the absolute and
      unrestricted right, power, authority, and capacity to execute and deliver
      this Agreement and Seller’s Closing Documents, and to perform its
      obligations under this Agreement and Seller’s Closing
      Documents.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Except
      as set forth in Part 3.02 of the Seller’s Disclosure Schedule,
      neither the execution and delivery of this Agreement by Seller nor the
      consummation or performance of any of the Contemplated Transactions by
      Seller shall, directly or indirectly (with or without notice or lapse of
      time):

            

    

     

    
      	
               
      

            	
              (i)

            	
              contravene,
      conflict with, or result in a violation of (A) any provision of the
      Organizational Documents of Seller, or (B) any resolution adopted by the
      board of managers or the members of
Seller;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              contravene,
      conflict with, or result in a violation of, or give any Governmental Body
      or other Person the right to challenge any of the Contemplated
      Transactions, to terminate, accelerate or modify any terms of, or to
      exercise any remedy or obtain any relief under, any Contract or agreement
      or any Legal Requirement or Order to which Seller, or any of the Assets,
      may be subject;

            

    

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (iii)

            	
              contravene,
      conflict with, or result in a violation of any of the terms or
      requirements of, or give any Governmental Body the right to revoke,
      withdraw, suspend, cancel, terminate, or modify, any
      Governmental  Authorization that relates to the
      Assets;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              result
      in the imposition or creation of any Encumbrance upon or with respect to
      any of the Assets.

            

    

     

    3.03.                  Bankruptcy.  There
are no bankruptcy, or bankruptcy related reorganization or arrangement,
proceedings being contemplated by Seller or, to the Knowledge of Seller, pending
or Threatened against Seller.

     

    3.04.                  Taxes.  Seller
has filed or caused to be filed all Tax Returns that it has been or was required
to file, either separately or as a member of a consolidated group, pursuant to
applicable Legal Requirements.  All Tax Returns filed by (or that
include on a consolidated basis) Seller are true, correct, and complete to the
Knowledge of Seller.  Seller has paid all Taxes that have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Seller, to the extent not being contested in good faith without, to
the Knowledge of Seller, any lien for Taxes having been filed or recorded
against any of the Assets.  Seller does not have any Knowledge of any
Threatened Tax assessment against it except as disclosed in Part 3.04 of
the Seller’s Disclosure Schedule.  To the Knowledge of Seller, except
as disclosed in Part 3.04 of the Seller’s Disclosure Schedule, none of the
Assets were bound as of the Effective Time and/or will be bound following the
Closing by any tax partnership agreement of or binding upon Seller or its
assigns affecting any of the Assets.

     

    3.05.                  Legal
Proceedings; Orders.  

     

    
      	
               
      

            	
              (a)

            	
              To
      the Knowledge of Seller, except as set forth in Part 3.05 of the Seller’s
      Disclosure Schedule, there is no pending Proceeding against Seller or any
      of its Affiliates:

            

    

     

    
      	
               
      

            	
              (i)

            	
              that
      relates to or may affect any of the Assets;
or

            

    

     

    
      	
               
      

            	
              (ii)

            	
              that
      challenges, or that may have the effect of preventing, delaying, making
      illegal, or otherwise interfering with, any of the Contemplated
      Transactions.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Except
      as set forth in Part 3.05 of the Seller’s Disclosure Schedule, to Seller’s
      Knowledge: (1) no Proceeding of the type referenced in Section 3.05 (a)
      has been Threatened, (2) no event has occurred nor does any circumstance
      exist that may give rise to or serve as a basis for the commencement of
      any such Proceeding, and (3) no basis exists for any claim by any employee
      of Seller or any other person under any Legal Requirement for which Buyer
      could become liable as a successor or
otherwise.

            

    

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              Except
      as set forth in Part 3.05 of the Seller’s Disclosure Schedule, to Seller’s
      Knowledge, there is no Order adversely affecting the use or ownership of
      the Assets to which Seller, or any of the Assets, is
    subject.

            

    

     

    3.06.                  Brokers.  Seller
has not incurred any obligation or liability, contingent or otherwise, for
broker’s or finder’s fees with respect to the transactions contemplated by this
Agreement other than obligations that are the sole responsibility of
Seller.

     

    3.07.                  Tax
Sharing Agreements.  There are no tax sharing agreements or any
other contract relating to the sharing or payment of any Tax for which Buyer
will have any liability in connection with the Contemplated
Transactions.

     

    3.08.                  Consents
and Preferential Purchase Rights.  Except with respect to MMS
and State of Louisiana, Department of Natural Resources (or Louisiana Mineral
Board) assignment approvals, to Seller’s Knowledge, Part 3.08 of the Seller’s
Disclosure Schedule sets forth all Consents and Preferential Purchase Rights,
other than those Consents which the parties have agreed not to request pursuant
to Section 11.03.

     

    3.09.                  Imbalances
and Future Delivery/Payment Obligations.  To Seller's
Knowledge, (i) except as set forth in Part 3.09(a) of the Seller’s Disclosure
Schedule, there are no Imbalances as of the Effective Time; (ii) the current
status of Imbalances is as set forth in Part 3.09(b) of the Seller’s Disclosure
Schedule; (iii) except as set forth in Part 3.09(c) of the Seller’s Disclosure
Schedule, there are no Future Delivery/Payment Obligations as of the Effective
Time; and (iv) except as set forth in Part 3.09(d) of the Seller’s Disclosure
Schedule, no Future Delivery/Payment Obligations have been incurred after the
Effective Time.  Notwithstanding anything to the contrary contained in
this Agreement, Seller makes no representation or warranty with respect to gas
pipeline Imbalances, which, pursuant to Section 2.07, constitute Retained
Liabilities. 

     

    3.10.                  Contracts.  

     

    
      	
               
      

            	
              (a)

            	
              Set
      forth on Part 3.10 of the Seller’s Disclosure Schedule (and segregated in
      Part 3.10 among the below categories) is a true and correct description of
      each contract, agreement, lease or similar arrangement (but only as to
      Seller's Knowledge in the case of any contract, agreement, lease or
      similar arrangement to which the Assets were subject when acquired by
      Seller) which is included in the Assets (or by which any of the Assets is
      bound) and which:

            

    

     

    
      	
               
      

            	
              (i)

            	
              is
      between Seller and any Affiliate of
Seller;

            

    

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (ii)

            	
              is
      a contract for the sale, purchase, processing or transportation of any
      Hydrocarbons or any other Assets, except those Hydrocarbon sales,
      purchase, processing or transportation agreements which can be terminated
      by Seller and its assigns upon not more than thirty (30) days notice
      without penalty or detriment to Seller and its
  assigns;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              creates
      a purchase option, right of first refusal, call or preferential purchase
      right on any Hydrocarbons;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              creates
      any area of mutual interest or similar provision with respect to the
      acquisition by Seller or its assigns of any interest in any Hydrocarbons,
      land or asset, or contains any restrictions on the ability of Seller or
      its assigns to compete with any other
Person;

            

    

     

    
      	
               
      

            	
              (v)

            	
              is
      a participation, partnership, joint venture, farmout, farmin or similar
      agreement;

            

    

     

    
      	
               
      

            	
              (vi)

            	
              creates
      or evidences any Preferential Purchase Right or
  Consent;

            

    

     

    
      	
               
      

            	
              (vii)

            	
              evidences
      an obligation in excess of $100,000.00 to pay a deferred purchase price of
      property, except accounts payable arising in the ordinary course of
      business; or

            

    

     

    
      	
               
      

            	
              (viii)

            	
              evidences
      a lease or rental of any land, building or other improvements or portion
      thereof, excluding Leases.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Seller
      has made available to Buyer complete and correct copies of all Contracts
      and Leases listed on Exhibit B-2 and Exhibit B-1 and/or Part 3.10 of the
      Seller’s Disclosure Schedule (but only as to Seller's Knowledge in the
      case of any contract, agreement, lease or similar arrangement to which the
      Assets were subject when acquired by
Seller).

            

    

     

    
      	
               
      

            	
              (c)

            	
              Except
      as set forth on Parts 3.02 and 3.10 of the Seller’s Disclosure Schedule,
      and except where the failure would not have a material adverse effect on
      the operations or value of  the Assets, taken as a whole, (1)
      all Contracts are in full force and effect; (2) there are no violations or
      breaches of any Contract or existing facts or circumstances which upon
      notice or the passage of time or both will constitute a violation or
      breach thereof; (3) no notice of the exercise or attempted exercise of
      premature termination, price reduction, market-out or curtailment of any
      Contract has been received by Seller or any Affiliate of Seller; (4) no
      notice has been received by Seller or any Affiliate of Seller that any
      party thereto intends not to honor its obligations under any Contract; and
      (5) Seller is not participating in any discussions or negotiations
      regarding modification of any
Contract.

            

    

     

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (d)

            	
              Except
      as set forth in Part 3.08 of the Seller’s Disclosure Schedule, the
      Contracts are freely assignable without the consent of third parties (but
      only as to Seller's Knowledge in the case of any Contract to which the
      Assets were subject when acquired by
Seller).

            

    

     

    3.11.                  Laws and
Regulations.  Seller has in effect all Governmental
Authorizations necessary for it to own or lease the Assets and to carry on its
business with respect to the Assets, and there has occurred no default under any
such Governmental Authorization.

     

    3.12.                  Non-Consent
Operations.  Seller has not elected not to participate in any
operation or activity proposed with respect to the Assets which could result in
any of Seller’s interest in any Assets becoming subject to a penalty or
forfeiture as a result of such election not to participate in such operation or
activity, except to the extent reflected in the Net Revenue Interests and
Working Interests set forth in Exhibit A.

     

    3.13.                  Outstanding
Capital Commitments.  To Seller’s Knowledge, as of the
Effective Time and as of the date of this Agreement, there were and are no
outstanding AFEs or other commitments to make capital expenditures which are
binding on Seller or the Assets and which Seller reasonably anticipates will
individually require expenditures by the owner of the Assets after the Effective
Time in excess of $150,000.00, other than those shown on Part 3.13 of the
Seller’s Disclosure Schedule.

     

    3.14.                  Operation
of Assets Since Effective Time.  From the Effective Time until
the date of this Agreement (other than the EC 270 Withdrawal), Seller (a) has
conducted the business with respect to the Assets only in the ordinary course of
business, (b) has conducted such business in the manner required under Section
5.02(a)(i) through (iv) had such provisions been applicable during such period,
and (c) has not taken any action for which consent or waiver by Buyer would have
been required under Section 5.02(b)(ii), (v), (vi), (vii) or (viii) had such
provisions been applicable during such period.

     

    3.15.                  No
Pooling, Unitization, Communitization or Spacing Orders.  As of
the date of this Agreement, Seller represents and warrants that no pooling,
unitization, communitization or spacing orders or agreements have been entered
or promulgated after the Effective Time, and Seller has not received any notice
of any proposed pooling, unitization, communitization or spacing orders or
agreements, with respect to the Assets that would cause any change to Seller’s
Net Revenue Interests or Working Interests as set forth in Exhibit A hereto.

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    

    3.16.                  Material
Factor.  Seller acknowledges that Seller's representations
under this Article are a material inducement to Buyer to enter into this
Agreement and close the Contemplated Transactions with Seller.

     

    ARTICLE
4

     

    REPRESENTATIONS
AND WARRANTIES OF BUYER

     

    Buyer
represents and warrants to Seller, as of the date of this Agreement, as
follows:

     

    4.01.                  Organization
and Good Standing.  Buyer is duly organized, validly existing,
and in good standing under the laws of Delaware and in each jurisdiction in
which it conducts business, and, prior to the Closing, in each jurisdiction in
which the Assets are located.

     

    4.02.                  Authority;
No Conflict.  

     

    
      	
               
      

            	
              (a)

            	
              This
      Agreement constitutes the legal, valid, and binding obligation of Buyer,
      enforceable against Buyer in accordance with its terms, except as such
      enforceability may be limited by applicable bankruptcy or other similar
      laws affecting the rights and remedies of creditors generally and by
      general principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law).  Upon the
      execution and delivery by Buyer of the Instruments of Conveyance and any
      other documents executed and delivered by Buyer at the Closing
      (collectively, the “Buyer’s Closing
      Documents”), the Buyer’s Closing Documents shall constitute the
      legal, valid, and binding obligations of Buyer enforceable against Buyer
      in accordance with their respective terms, except as such enforceability
      may be limited by applicable bankruptcy or other similar laws affecting
      the rights and remedies of creditors generally and by general principles
      of equity (regardless of whether such enforceability is considered in a
      proceeding in equity or at law).  Buyer has the absolute and
      unrestricted right, power, authority, and capacity to execute and deliver
      this Agreement and the Buyer’s Closing Documents, and to perform its
      obligations under this Agreement and the Buyer’s Closing
      Documents.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Except
      as disclosed to Seller on Part 4.02 of the Buyer’s Disclosure Schedule,
      neither the execution and delivery of this Agreement by Buyer nor the
      consummation or performance of any of the Contemplated Transactions by
      Buyer shall give any Person the right to prevent, delay, or otherwise
      interfere with any of the Contemplated
  Transactions.

            

    

     

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              Except
      with respect to MMS assignment approvals, or as disclosed to Seller on
      Part 4.02 of the Buyer’s Disclosure Schedule, Buyer is not and shall not
      be required to give any notice to or obtain any Consent from any Person in
      connection with the execution and delivery of this Agreement or the
      consummation or performance of any of the Contemplated
      Transactions

            

    

     

    
      	
               
      

            	
              (d)

            	
              Buyer
      is or by the Intended Closing Date will be qualified with the MMS to own
      the Assets.

            

    

     

    4.03.                  Certain
Proceedings.  There is no pending Proceeding that has been
commenced against Buyer that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.  To Buyer’s Knowledge, no such Proceeding has been
Threatened.  There are no bankruptcy, or bankruptcy related
reorganization or arrangement, proceedings being contemplated by Buyer or, to
the Knowledge of Buyer, pending or Threatened against Buyer.

     

    4.04.                  Knowledgeable
Investor.  Buyer is an experienced and knowledgeable investor
in the oil and gas business.  Prior to entering into this Agreement,
Buyer was advised by its own legal, tax, and other professional counsel
concerning this Agreement, the Contemplated Transactions, the Assets, and their
value, and it has relied solely thereon and the representations and obligations
of Seller in this Agreement and the documents to be executed by Seller in
connection with this Agreement at Closing.  Buyer is acquiring the
Assets for its own account and not for distribution.

     

    4.05.                  Securities
Laws.  The solicitation of offers and the sale of the Assets by
Seller have not been registered under any securities laws.  Buyer
represents that at no time has it been presented with or solicited by or through
any public promotion or any form of advertising in connection with this
transaction.  Buyer represents that it intends to acquire the Assets
for its own benefit and account and that it is not acquiring the Assets with the
intent of distributing fractional, undivided interests that would be subject to
regulation by federal or state securities laws, and that if it sells, transfers,
or otherwise disposes of the Assets or fractional undivided interests therein,
it shall do so in compliance with applicable federal and state securities
laws.

     

    4.06.                  Due
Diligence.  Without limiting or impairing any representation,
warranty, covenant or agreement of Seller contained in this Agreement and the
Seller's Closing Documents, or Buyer's right to rely thereon, Buyer represents
that it has performed, or shall perform before the Closing, sufficient review
and due diligence with respect to the Assets, which includes reviewing well data
and other files in performing necessary evaluations, assessments, and other
tasks involved in evaluating the Assets to satisfy its requirements completely
and to enable it to make an informed decision to acquire the Assets under the
terms of this Agreement.

     

    4.07.                  Basis of
Buyer’s Decision.  Buyer represents that by reason of its
knowledge and experience in the evaluation, acquisition, and operation of oil
and gas properties, Buyer has evaluated the merits and the risks of purchasing
the Assets from Seller, and has formed an opinion based solely on Buyer’s
knowledge and experience, Buyer’s due diligence and Seller’s representations,
warranties, covenants and agreements contained in this Agreement, and not on any
other representations or warranties by Seller.  Buyer represents that
it has not relied and shall not rely on any statements by Seller or its
representatives (other than those representations, warranties, covenants and
agreements of Seller contained in this Agreement) in making its decision to
enter into this Agreement or to close this transaction.

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    4.08.                  Material
Factor.  Buyer acknowledges that Buyer's representations under
this Article are a material inducement to Seller to enter into this Agreement
and close the Contemplated Transactions with Buyer.

     

    4.09.                  Brokers.  Buyer
has not incurred any obligation or liability, contingent or otherwise, for
broker’s or finder’s fees with respect to the transactions contemplated by this
Agreement other than obligations that are the sole responsibility of
Buyer.

     

    ARTICLE
5

     

    COVENANTS
OF SELLER

     

    5.01.                  Access
and Investigation.  Between the date of this Agreement and the
Closing Date, Seller shall (a) afford Buyer and its Representatives reasonable
access to Seller’s personnel, properties, contracts, books and records, and
other documents and data, (b) furnish Buyer and its Representatives with copies
of all such contracts, books and records, and other existing documents and data
as Buyer may reasonably request (and upon Buyer’s request use reasonable efforts
to obtain the consent of third party operators to give Buyer and its
Representatives reasonable access to similar information with respect to Assets
not operated by Buyer or an Affiliate of Buyer), and (c) furnish Buyer and its
Representatives with such additional financial, operating, and other data and
information as Buyer may reasonably request;
provided
that, except as expressly provided in this agreement and in the seller's closing
documents, Seller makes no warranty, and expressly disclaims all warranties as
to the accuracy or completeness of the documents, information, books, records,
files, and other pertinent data that it may provide to
Buyer.

     

    5.02.                  Operation
of the Assets. 

     

    
      	
               
      

            	
              (a)

            	
              Between
      the date of this Agreement and the Closing Date, Seller shall conduct the
      business relating to the Assets only in the ordinary course of
      business.  By way of example, and not as a limitation, during
      such period, Seller shall use commercially reasonable efforts
      to:

            

    

     

    
      	
               
      

            	
              (i)

            	
              maintain
      the Assets and operate the Assets or cause the Assets to be operated in
      the ordinary course of business;

            

    

     

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (ii)

            	
              pay
      or cause to be paid all bonuses
      and  rentals,  royalties, overriding royalties,
      shut-in royalties, and minimum royalties and development and operating
      expenses, current taxes, and other payments incurred with respect to the
      Assets except (i) royalties held in suspense as a result of title issues
      and that do not give any third party a right to cancel an interest in an
      Asset and (ii) expenses or royalties being contested in good faith and for
      which adequate reserves have been provided, unless the nonpayment of such
      contested expenses or royalties could result in the loss of a Lease, in
      which case Seller will notify Buyer and obtain Buyer’s approval prior to
      withholding such payment;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              maintain
      the personal property comprising part of the Assets in at least as good a
      condition as it is on the date hereof, subject to ordinary wear and
      tear;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              safeguard
      and maintain confidential all records of a nonpublic nature (including
      without limitation geological and geophysical data and maps and
      interpretations thereof) that relate to the Assets;
  and

            

    

     

    
      	
               
      

            	
              (v)

            	
              keep
      Buyer reasonably informed regarding current and proposed activities and
      operations relating to the Assets, except for activities and information
      relating to the Buyer Affiliate
Assets.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Similarly,
      between the date of this Agreement and Closing, Seller shall not, without
      Buyer’s consent (and except for operations and other matters in which
      Buyer or an Affiliate of Buyer
participates):

            

    

     

    
      	
               
      

            	
              (i)

            	
              take
      any action that would cause its representations or warranties under this
      Agreement to be materially incorrect as of the Closing Date except in the
      ordinary course of business;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              abandon
      any Asset (except for the abandonment of producing leases not capable of
      producing in paying quantities after the expiration of their primary
      terms);

            

    

     

    
      	
               
      

            	
              (iii)

            	
              commence,
      propose, or agree to participate in any single operation with respect to
      the Wells or Leases with an anticipated cost in excess of $50,000 except
      for emergency operations;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              elect
      to participate in any single operation proposed by a third party with
      respect to the Wells or Leases with an anticipated cost in excess of
      $50,000, except for emergency
operations;

            

    

     

    
      	
               
      

            	
              (v)

            	
              terminate
      or materially amend or modify any
Contract;

            

    

     

    
      	
               
      

            	
              (vi)

            	
              waive
      any right of material value under any
Contract;

            

    

     

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (vii)

            	
              sell,
      lease, encumber, or otherwise dispose of all or any portion of any Assets,
      except for sales of Hydrocarbons in the ordinary course of business under
      Hydrocarbon sales agreements which meet the requirements of paragraph
      (viii) below or which are listed in Part 3.10(a)(ii) of Seller’s
      Disclosure Schedule; or

            

    

     

    
      	
               
      

            	
              (viii)

            	
              enter
      into any new production sales, processing, gathering, or transportation
      agreement with respect to the Wells not terminable by Buyer without
      penalty after Closing on thirty (30) days notice or
  less.

            

    

     

    
      	
               
      

            	
              (c)

            	
              The
      obligations of Seller in this Section 5.02 which have reference to
      operations or activities that pursuant to existing contracts are carried
      out or performed by a third party operator, shall be construed to require
      only that Seller use its reasonable best efforts (without being obligated
      to incur any expense or institute any cause of action) to cause the
      operator of such portion of the Assets to take such actions or render such
      performance within the constraints of the applicable operating agreements
      and other applicable agreements.

            

    

     

    
      	
               
      

            	
              (d)

            	
              After
      consultation with Buyer, Seller, at its option, may perform any of its
      obligations attributable to the EC 270 Withdrawal and monetary obligations
      paid by Seller pursuant to such performance shall be Property Costs
      included in Section 2.05(b)(ii)(A).

            

    

     

    5.03.                  Insurance.  Seller
shall maintain in force during the period from the date of this Agreement until
Closing, all of Seller’s general liability, workers compensation, auto
liability, property and casualty and well control insurance policies in the
amounts and with the coverages currently maintained by Seller covering the
Assets.  Notwithstanding the foregoing, the premiums for such
insurance that accrue after the Effective Time and are attributable to insurance
coverage for the period after the Effective Time until the Closing will
constitute Property Costs.

     

    5.04.                  Consent
and Waivers.  Seller agrees to use commercially reasonable
efforts to obtain prior to Closing written waivers of all Preferential Purchase
Rights and all waivers and Consents necessary for the transfer of the Assets to
Buyer; provided that in the event Seller is unable to obtain all such waivers
and Consents after using such reasonable efforts, such failure to satisfy shall
not constitute a Breach of this Agreement. 

     

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

    5.05.                  Notification.  Between
the date of this Agreement and the Closing Date, Seller shall promptly notify
Buyer in writing if Seller obtains Knowledge of any fact or condition that
causes or constitutes a Breach, in any material respect, of any of Buyer’s
representations and warranties as of the date of this Agreement, or if Seller
obtains Knowledge of the occurrence after the date of this Agreement of any fact
or condition that would (except as expressly contemplated by this Agreement)
cause or constitute a Breach, in any material respect, of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition.  During
the same period, Seller shall promptly notify Buyer if Seller obtains Knowledge
of the occurrence of any Breach, in any material respect, of any covenant of
Seller in this Article 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Article 7 impossible or
unlikely.  The covenants and agreements set forth in Section 6.02 are
incorporated into this Section as covenants and agreements of
Seller.

     

    5.06.                  Satisfaction
of Conditions.  Between the date of this Agreement and the
Closing Date, Seller shall use commercially reasonable efforts to cause the
conditions in Article 7 to be satisfied; provided that in the event Seller is
unable to satisfy such conditions after using such commercially reasonable
efforts, such failure to satisfy shall not constitute a Breach of this Section
5.06; provided further, however, the foregoing shall not constitute a waiver of
Seller’s Breach of any of the other provisions of this Article 5 or any other
Breach of this Agreement, including any Breach resulting Seller’s failure to
perform its obligations under Section 2.04. 

     

    ARTICLE
6

     

    COVENANTS
OF BUYER

     

    6.01.                  Notification.  Between
the date of this Agreement and the Closing Date, Buyer shall promptly notify
Seller in writing if Buyer obtains Knowledge of any fact or condition that
causes or constitutes a Breach, in any material respect, of any of Seller’s
representations and warranties as of the date of this Agreement, or if Buyer
obtains Knowledge of the occurrence after the date of this Agreement of any fact
or condition that would (except as expressly contemplated by this Agreement)
cause or constitute a Breach, in any material respect, of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition.  During
the same period, Buyer shall promptly notify Seller if Buyer obtains Knowledge
of the occurrence of any Breach, in any material respect, of any covenant of
Buyer in this Article 6 or of the occurrence of any event that may make the
satisfaction of the conditions in Article 8 impossible or unlikely.

     

    6.02.                  Limitations
on Sections 5.05 & 6.01.  Should there be any dispute as to
whether a party had Knowledge that a representation or warranty of the other
party had been Breached or would be Breached in any material respect or that any
covenant or agreement of the other party had been Breached in any material
respect, the burden of proof regarding such party’s Knowledge shall be on the
party claiming that Knowledge existed.  There shall be no Breach of
the covenants in Section 5.05 or Section 6.01 as a result of a party’s failure
to report a Breach of any representation or warranty or a Breach of any covenant
or agreement of which it had Knowledge if the party subject to the Breach also
had Knowledge thereof prior to Closing.

     

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

    6.03.                  Satisfaction
of Conditions.  Between the date of this Agreement and the
Closing Date, Buyer shall use commercially reasonable efforts to cause the
conditions in Article 8 to be satisfied; provided that in the event Buyer is
unable to satisfy such conditions after using such commercially reasonable
efforts such failure to satisfy shall not constitute a Breach of this Section
6.03; provided further, however, the foregoing shall not constitute a waiver of
Buyer's Breach of any of the other provisions of this Article 6 or any other
Breach of this Agreement, including any Breach resulting Buyer’s failure to
perform its obligations under Section 2.04. 

     

    ARTICLE
7

     

    CONDITIONS
PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

     

    Buyer's obligation to purchase the
Assets and to take the other actions required to be taken by Buyer at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer, in whole or in
part):

     

    7.01.                  Accuracy
of Representations.  All of Seller’s representations and
warranties in this Agreement must have been accurate in all material respects
(or, with respect to representations and warranties qualified by materiality, in
all respects) as of the date of this Agreement, and must be accurate in all
material respects (or, with respect to representations and warranties qualified
by materiality, in all respects) as of the Closing Date as if made on the
Closing Date (other than representations and warranties that refer to a
specified date which need only be true and correct on and as of such specified
date).

     

    7.02.                  Seller’s
Performance.  

     

    
      	
               
      

            	
              (a)

            	
              All
      of the covenants and obligations that Seller is required to perform or to
      comply with pursuant to this Agreement at or prior to the Closing must
      have been duly performed and complied with in all material
      respects.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Seller
      must deliver, or be prepared to deliver, each document required to be
      delivered by it pursuant to
Section 2.04.

            

    

     

    7.03.                  No
Proceedings.  Since the date of this Agreement, there must not
have been commenced or Threatened against Seller, or against any Affiliates
thereof, any Proceeding (other than by Buyer or an Affiliate of Buyer) seeking
to restrain, enjoin or otherwise prohibit or make illegal, or seeking to recover
material damages on account of, any of the Contemplated Transactions.

     

    ARTICLE
8

     

    CONDITIONS
PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

     

    Seller’s
obligation to sell the Assets and to take the other actions required to be taken
by Seller at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by
Seller, in whole or in part):

     

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    8.01.                  Accuracy
of Representations.  All of Buyer’s representations and
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.

     

    8.02.                  Buyer’s
Performance.  

     

    
      	
               
      

            	
              (a)

            	
              All
      of the covenants and obligations that Buyer is required to perform or to
      comply with pursuant to this Agreement at or prior to the Closing must
      have been duly performed and complied with in all material
      respects.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Buyer
      must deliver, or be prepared to deliver, each document required to be
      delivered by it pursuant to
Section 2.04.

            

    

     

    8.03.                  No
Proceedings..  Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Affiliates
thereof, any Proceeding (other than by Seller or an Affiliate of Seller) seeking
to restrain, enjoin or otherwise prohibit or make illegal, or seeking to recover
material damages on account of, any of the Contemplated
Transactions.

     

    ARTICLE
9

     

    TERMINATION

     

    9.01.                  Termination
Events.  This Agreement may, by written notice given prior to
or at the Closing, be terminated:

     

    
      	
               
      

            	
              (a)

            	
              by
      either Buyer or Seller if a Breach, in any material respect, has been
      committed by the other party and such Breach has not been waived or
      cured;

            

    

     

    
      	
               
      

            	
              (b)

            	
              by
      mutual consent of Buyer and Seller;

            

    

     

    
      	
               
      

            	
              (c)

            	
              by
      either Buyer or Seller if the Closing has not occurred (other than through
      the failure of any party seeking to terminate this Agreement to comply
      fully with its obligations under this Agreement) on or before the date
      scheduled for Closing in Section 2.03, or such later date as the parties
      may agree upon in writing;

            

    

     

    
      	
               
      

            	
              (d)

            	
              by
      Buyer if the conditions in Article 7 have not been satisfied on or before
      the Closing Date;

            

    

     

    
      	
               
      

            	
              (e)

            	
              by
      Seller if the conditions in Article 8 have not been satisfied on or before
      the Closing Date; or

            

    

     

    
      	
               
      

            	
              (f)

            	
              as
      provided in Article 11.

            

    

     

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

    9.02.                  Effect of
Termination.  Each party's rights of termination under Article
11 are in addition to the rights it may have under this Article 9.  If
this Agreement is terminated pursuant to Section 9.01, all further obligations
of the parties under this Agreement shall terminate, but such termination shall
not impair nor restrict the rights of either party against the other with
respect to the Deposit Amount or under Article 10.

     

    ARTICLE
10

     

    INDEMNIFICATION;
REMEDIES

     

    10.01.                Survival.  All
representations, warranties, covenants, and agreements contained in this
Agreement shall survive the Closing and continue until December 30, 2010 (or, if
termination of this Agreement occurs under Article 9, then on the earlier of
December 30, 2010, or one (1) year following the termination under Article 9, in
the case of Sections 10.02(c), 10.03(c) and 10.03(d) only), except:

     

    
      	
               
      

            	
              (a)

            	
              if
      another survival period for making a claim is expressly provided in the
      underlying covenant or agreement, then such other survival period shall
      apply with respect to such specific covenant or
  agreement;

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      indemnities contained in this Article 10 shall survive the Closing and
      continue in accordance with their respective terms set forth below in this
      Article 10; and

            

    

     

    
      	
               
      

            	
              (c)

            	
              the
      representations, warranties, covenants, and agreements in Article 12 and
      Sections 3.01, 3.06, 3.07, 4.01 and 4.09 shall continue
      indefinitely.

            

    

     

    10.02.                  Indemnification
and Payment of Damages by Seller.  Except as otherwise limited
in this Article 10, from and after the Closing (or before or after the Closing
in the case of Section 10.02(c) below) Seller shall defend, indemnify and hold
harmless Buyer and its Affiliates and the respective Representatives of Buyer
and/or its Affiliates (collectively, the “Buyer Group”) for,
and shall pay to the Buyer Group the amount of, any loss, liability, claim, or
damage (including reasonable legal fees and costs of investigation), whether or
not involving a third-party claim (collectively, “Damages”), arising
from any and all of the following:

     

    
      	
               
      

            	
              (a)

            	
              any
      Breach of any representation or warranty made by Seller in this Agreement,
      or in any certificate delivered by Seller pursuant to this
      Agreement;

            

    

     

    
      	
               
      

            	
              (b)

            	
              any
      Breach by Seller of any covenant or obligation of Seller in this
      Agreement;

            

    

     

    
      	
               
      

            	
              (c)

            	
              any
      claim by any Person for brokerage or finder's fees or commissions or
      similar payments based upon any agreement or understanding alleged to have
      been made by any such Person with Seller (or any Person acting on its
      behalf) in connection with any of the Contemplated
      Transactions;

            

    

     

    
      
         

      

      
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              (d)

            	
              any
      Retained Liabilities;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      use, ownership, or operation of the Assets by Seller or any Affiliate of
      Seller prior to the Effective Time, except to the extent (i) assumed by
      Buyer as Assumed Liabilities or (ii) constituting Damages attributable to
      the use, ownership, or operation of the Buyer Affiliate Assets by Buyer or
      an Affiliate of Buyer; and

            

    

     

    
      	
               
      

            	
              (f)

            	
              the
      use, ownership, or operation of the Excluded
  Assets.

            

    

     

    Except for Buyer's termination rights
under Articles 9 and 11 of this Agreement, the remedies provided in this Article
10 (if Closing occurs) and Section 2.02 (if Closing does not occur) are Buyer's
and Buyer Group's exclusive remedies for Seller's Breaches.  Seller’s
obligations under this Section 10.02 are not intended to cover, and shall not
release Buyer Group from, any obligations and responsibilities that any member
of Buyer Group may have (i) as operator of the Assets before or after the
Effective Time, (ii) as owner of an undivided interest in the Leases, the
Equipment, the Contracts or the Surface Rights before and after the
Effective Time, or (iii) as a participating party in any non-consent or similar
operation in which a member of Seller Group does not participate before or after
the Effective Time.

     

    10.03.                Indemnification
and Payment of Damages by Buyer.  Except as otherwise limited
in this Article 10, from and after the Closing (or before or after the Closing
in the case of Sections 10.03(c) and 10.03(d) below) Buyer shall defend,
indemnify and hold harmless Seller and its Affiliates and the respective
Representatives of Seller and/or its Affiliates (collectively, the “Seller Group”) for,
and shall pay to Seller Group the amount of any Damages arising from any and all
of the following:

     

    
      	
               
      

            	
              (a)

            	
              any
      Breach of any representation or warranty made by Buyer in this Agreement
      or in any certificate delivered by Buyer pursuant to this
      Agreement;

            

    

     

    
      	
               
      

            	
              (b)

            	
              any
      Breach by Buyer of any covenant or obligation of Buyer in this
      Agreement;

            

    

     

    
      	
               
      

            	
              (c)

            	
              any
      claim by any Person for brokerage or finder's fees or commissions or
      similar payments based upon any agreement or understanding alleged to have
      been made by any such Person with Buyer (or any Person acting on its
      behalf) in connection with any of the Contemplated Transactions;
      or

            

    

     

    
      
         

      

      
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              (d)

            	
              any
      loss, liability, claim, damage or suit which any of Buyer's employees or
      agents or their heirs, executors, or assigns may assert against Seller,
      based upon injury to person, including death or to property, arising in
      any manner whatsoever from any inspections of Seller’s property prior to
      Closing, WHETHER
      OR NOT BASED UPON STRICT LIABILITY OR CAUSED BY THE SOLE OR CONCURRENT
      NEGLIGENCE (WHETHER ACTIVE OR PASSIVE) OF SELLER, OR ANY PERSON OR ENTITY,
      UNLESS SUCH INJURY WAS OCCASIONED SOLELY BY THE GROSS NEGLIGENCE OR
      INTENTIONAL TORT OF SELLER OR ANY OFFICER, DIRECTOR, OR EMPLOYEE OR AGENT
      THEREOF;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      use, ownership, or operation of the Assets from and after the Effective
      Time, excluding any Damages arising from any Retained
      Liabilities;

            

    

     

    
      	
               
      

            	
              (f)

            	
              the
      Assumed Liabilities; and

            

    

     

    
      	
               
      

            	
              (g)

            	
              Damages
      arising out of or based on any untrue statement or alleged untrue
      statement of a material fact contained in any Registration Statement
      (including the S-3), Form 8-K, Form 10-K or any other filing made by Buyer
      or any Affiliate of Buyer with the SEC or in any amendment or supplement
      thereto (collectively, “Buyer’s
      Filings”) or in connection with any offer or sales of securities by
      Buyer or any Affiliate of Buyer or arising out of or based upon any
      omission or alleged omission to state therein a material fact required to
      be stated therein or necessary to make the statements therein not
      misleading, except insofar as such Damages arise out of or are based upon
      any untrue statement or omission of a material fact or alleged untrue
      statement or omission of a material fact which has been made therein or
      omitted therefrom in reliance upon and in conformity with the information
      of a material fact relating to the Assets furnished in writing by Seller
      to Buyer pursuant to Section 12.19 expressly for use in connection with
      Buyer’s Filings or with any offer or sale of securities by Buyer or any
      Affiliate of Buyer; notwithstanding anything hereto to the contrary, the
      indemnities contained in this Section 10.03(g) shall survive the Closing
      and continue indefinitely.

            

    

     

    Except for Seller’s termination rights
under Articles 9 and 11 of this Agreement, the remedies provided in this Article
10 (if Closing occurs) and Section 2.02 (if Closing does not occur) are Seller's
and Seller Group’s exclusive remedies for Buyer's Breaches.  Buyer's
indemnities under Sections 10.03(e) and (f) are subject and subordinate to any
claims for indemnity that Buyer may have against Seller pursuant to Section
10.02(a) or 10.02(b).  Buyer’s obligations under Sections 10.03(e) and
(f) are not intended to cover, and shall not release Seller Group from, any
obligations and responsibilities that any member of Seller Group may have as
owner of the Excluded Assets from and after the Effective Time.

    
      
         

      

      
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    10.04.                Time
Limitations.  Neither Seller nor Buyer shall have any liability
(for indemnification or otherwise) with respect to any Breach of any
representation, warranty, covenant or agreement under this Agreement unless,
during the survival period set forth in Section 10.01 with respect to such
representation, warranty, covenant or agreement, the other party notifies the
Breaching party of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by the party asserting such
claim.  Claims for indemnity under Sections 10.02(a), 10.02(b),
10.03(a) and 10.03(b) with respect to the Breach of any representation,
warranty, covenant or agreement may only be made during the survival period set
forth in Section 10.01 with respect to the particular representation, warranty,
covenant or agreement as to which a claim of Breach is being
made.  Claims for indemnity under Sections 10.02(d) and 10.02(e) must
be made by written notice delivered to Seller on or before December 30, 2010, or
shall be waived and released.  The parties’ respective indemnity
obligations under Section 10.02(c), 10.02(f), 10.03(c), 10.03(d), 10.03(e),
10.03(f) and 10.03(g) shall survive indefinitely.

     

    10.05.                Limitations
on Amount — Seller.  If the Closing occurs, Seller shall have
no liability under Section 10.02 until the total of all Damages indemnified
thereunder, and as to which the liability threshold under this Section is
applicable, exceeds one percent (1%) of the Purchase Price, and then Seller
shall be liable for the entire amount of such Damages, not to exceed, however,
twenty-five  percent (25%) of the Purchase
Price.  Notwithstanding the foregoing and anything to the contrary in
the Agreement (other than the proviso to this sentence), no limit on liability
under this Section and no deductible or liability threshold under this Agreement
shall be applied to reduce Seller’s obligations under Section 10.02 with respect
to Sections 2.05, 2.08, 3.01, 3.06, 3.07, 3.09 (in regard to Part 3.09(d) of the
Seller’s Disclosure Schedule), 3.15, 5.02, 5.03, 10.02(c), 10.02(d), 10.02(f),
12.01, 12.02, 12.05 and 12.16 or Article 11; provided, however, that aggregate
liability of Seller for Damages under or in connection with this Agreement,
whether for indemnification or otherwise, shall never exceed the Purchase
Price.

     

    10.06.                Limitations
on Amount — Buyer.  If the Closing occurs, Buyer shall have no
liability under Section 10.03 until the total of all Damages indemnified
thereunder, and as to which the liability threshold under this Section is
applicable, exceeds one percent (1%) of the Purchase Price, and then Buyer shall
be liable for the entire amount of such Damages, not to exceed, however,
twenty-five percent (25%) of the Purchase Price.  Notwithstanding the
foregoing and anything to the contrary in the Agreement, no limit on liability
under this Section and no deductible or liability threshold under this Agreement
shall be applied to reduce Buyer’s obligations under Section 10.03 with respect
to Sections 2.02, 2.05, 2.08, 4.01, 4.09, 10.03(c), 10.03(d), 10.03(e),
10.03(f), 10.03(g), 12.02, and 12.05.

     

    10.07.                Procedure
for Indemnification – Third Party Claims.  

     

    
      	
               
      

            	
              (a)

            	
              Promptly
      after receipt by an indemnified party under Section 10.02 or 10.03 of a
      claim for Damages or notice of the commencement of any Proceeding against
      it, such indemnified party shall, if a claim is to be made against an
      indemnifying party under such Section, give notice to the indemnifying
      party of the commencement of such claim.  The failure of any
      indemnified party to give notice of a claim as provided in this Section
      10.07 shall not relieve the indemnifying party of its obligations under
      this Article 10 except to the extent such failure results in insufficient
      time being available to permit the indemnifying party to effectively
      defend against the claim or otherwise prejudices the indemnifying party’s
      ability to defend against the
claim.

            

    

    
      
         

      

      
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              (b)

            	
              If
      any Proceeding referred to in Section 10.07(a) is brought against an
      indemnified party and it gives notice to the indemnifying party of the
      commencement of such Proceeding, the indemnifying party shall be entitled
      to participate in such Proceeding and, to the extent that it wishes
      (unless (i) the indemnifying party is also a party to such Proceeding and
      the indemnified party determines in good faith that joint representation
      would be inappropriate, or (ii) the indemnifying party fails to provide
      reasonable assurance to the indemnified party of its financial capacity to
      defend such Proceeding and provide indemnification with respect to such
      Proceeding), to assume the defense of such Proceeding with counsel
      reasonably satisfactory to the indemnified party and, after notice from
      the indemnifying party to the indemnified party of its election to assume
      the defense of such Proceeding, the indemnifying party shall not, as long
      as it diligently conducts such defense, be liable to the indemnified party
      under this Article 10 for any fees of other counsel or any other expenses
      with respect to the defense of such Proceeding, in each case subsequently
      incurred by the indemnified party in connection with the defense of such
      Proceeding.  If the indemnifying party assumes the defense of a
      Proceeding, no compromise or settlement of such claims may be effected by
      the indemnifying party without the indemnified party's consent unless (A)
      there is no finding or admission of any violation of Legal Requirements or
      any violation of the rights of any Person and no effect on any other
      claims that may be made against the indemnified party, and (B) the sole
      relief provided is monetary damages that are paid in full by the
      indemnifying party, and (C) the indemnified party shall have no liability
      with respect to any compromise or settlement of such claims effected
      without its consent.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Notwithstanding
      the foregoing, if an indemnified party determines in good faith that there
      is a reasonable probability that a Proceeding may adversely affect it or
      its Affiliates other than as a result of monetary damages for which it
      would be entitled to indemnification under this Agreement, the indemnified
      party may, by notice to the indemnifying party, assume the exclusive right
      to defend, compromise, or settle such Proceeding, but the indemnifying
      party shall not be bound by any determination of a Proceeding so defended
      or any compromise or settlement effected without its consent (which may
      not be unreasonably withheld).

            

    

     

    
      
         

      

      
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    10.08.               
Procedure
for Indemnification – Other Claims.  A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.

     

    10.09.               
Extent of
Representations and Warranties.  

     

    
      	
               
      (a)    

            	
              Except
      as and to the extent expressly set forth in this Agreement or the Seller's
      Closing Documents, Seller makes no representations or warranties
      whatsoever, and disclaims all liability and responsibility for any
      representation, warranty, statement or information made or communicated
      (orally or in writing) to Buyer (including any opinion, information or
      advice which may have been provided to Buyer by any Affiliate or
      Representative of Seller or by any investment bank or investment banking
      firm, any petroleum engineer or engineering firm, Seller’s counsel or any
      other agent, consultant or representative).  Without limiting
      the generality of the foregoing, except as and to the extent expressly set
      forth in this Agreement or the Seller's Closing Documents, Seller
      expressly disclaims and negates any representation or warranty, express,
      implied, at common law, by statute, or otherwise relating to (a) the title
      to any of the Assets, (b) the condition or adequacy of the Assets
      (including without limitation, any implied or express warranty of
      merchantability, of fitness for a particular purpose, or of conformity to
      models or samples of materials), it being distinctly understood the Assets
      are being sold “As Is,” “Where Is” and “With All Faults As To All
      Matters,” (c) any infringement by Seller of any patent or proprietary
      right of any third party, (d) any information, data, or other materials
      (written or oral) furnished to Buyer by or on behalf of Seller (including
      without limitation, in respect of geological and engineering data, the
      existence or extent of oil, gas, or the mineral reserves, the
      recoverability of such reserves, any product pricing assumptions, and the
      ability to sell oil or gas production after Closing), and (e) the
      environmental condition and other condition of the Assets (including any
      Environmental Conditions) and any potential liability (including any
      Environmental Liability) arising from or related to the
      Assets.  Buyer and Seller agree that, to the extent required by
      applicable law to be effective, the disclaimers of certain warranties and
      representations contained in this Agreement are “conspicuous”
      disclaimers.

            

    

    
      
         

      

      
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    10.10.              
Compliance
With Express Negligence Test. The
parties agree that the obligations of Seller to defend, indemnify and hold
harmless any member of the Buyer Group pursuant to this Article 10, and the
obligations Buyer to defend, indemnify and hold harmless any member of the
Seller Group pursuant to this Article 10, shall be without regard to the
negligence or strict liability of the indemnified Person (and such indemnified
Person shall be entitled to indemnification notwithstanding such indemnified
Person’s negligence or strict liability), in all cases whether the negligence or
strict liability is active, passive, joint, concurrent, or sole or whether gross
or simple negligence or willful misconduct of such indemnified
Person.  The foregoing
is a specifically bargained for allocation of risk among the parties, which the
parties agree and acknowledge satisfies the express negligence rule and
conspicuousness requirement under Texas law.

     

    10.11.              
Limitations
of Liability.  In no event shall Seller or Buyer ever be liable
to the other for any consequential, special, indirect, exemplary, or punitive
damages relating to or arising out of the Contemplated Transactions; provided,
however, that any consequential, special, indirect, exemplary, or punitive
damages recovered by a third party (including a Governmental Body, but excluding
any Affiliate of any party) against a party entitled to indemnity pursuant to
this Article 10 shall be included in the Damages recoverable under such
indemnity.

     

    ARTICLE
11

     

    TITLE
MATTERS, CASUALTIES AND ENVIRONMENTAL MATTERS

     

    11.01.              
Title
Examination and Access.  Buyer may make or cause to be made at
its expense such examination as it may desire of the title of Seller to the
Assets.  For such purposes, Seller shall (a) give to Buyer and its
Representatives full access at any reasonable time to all of the files, records,
contracts, correspondence, computer output and data files, maps, data, reports,
plats, abstracts of title, lease files, well files, unit files, division order
files, production marketing files, title opinions, title files and title
records, title insurance policies, ownership maps, surveys, and any other
information, data, records, and files that Seller has (or has access to)
relating in any way to the title to the Assets, the past or present operation
thereof, and the marketing of production therefrom, except, however, where
restricted by license agreements or other agreements or contracts with a
non-affiliated third party; (b) furnish to Buyer all other information in the
possession of or available to Seller with respect to the title to the Assets as
Buyer may from time to time reasonably request, except to the extent that Seller
is prohibited therefrom by any agreement or contract to which it is a party or
of which it is a beneficiary with a non-affiliated third party; and (c)
authorize Buyer and its representatives to consult with attorneys, abstract
companies, and other Representatives of Seller, whether utilized in the past or
presently, concerning title-related matters with respect to the
Assets.

    
      
         

      

      
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    11.02.              
Preferential
Purchase Rights.  Within ten
(10) Business Days following the execution of this Agreement, Seller shall
initiate all procedures required to comply with or obtain the waiver of all
Preferential Purchase Rights which are applicable to the transactions
contemplated by this Agreement prior to the Closing Date.  To the
extent any such Preferential Purchase Rights are exercised by any holders
thereof, or such Preferential Purchase Rights have not expired by their terms or
been waived prior to the Closing Date, then the Assets subject to such
Preferential Purchase Rights shall not be sold to Buyer and shall be excluded
from the Assets and sale under this Agreement.  The Purchase Price
shall be adjusted downward by the Allocated Value of the Assets so
excluded.  If any holder of a Preferential Purchase Right applicable
to this transaction initially elects to exercise that preferential right, but
subsequently refuses or elects not to consummate the purchase under the
preferential right (whether such failure occurs before or after the Closing
Date), or if, after the Closing, the time period for a holder to exercise such a
Preferential Purchase Right expires, the parties agree that Buyer shall purchase
such interests covered by the preferential right in accordance with Allocated
Value thereof (subject to the adjustments pursuant to Section 2.05) and the
closing of such transaction shall take place on a date designated by Seller not
more than ninety (90) days after the Closing Date.

     

    11.03.              
Required
Consents.  Within ten (10) Business Days following the
execution of this Agreement, Seller shall initiate all procedures required to
comply with or obtain all Consents required for the transfer of the
Assets.  If Seller shall fail to obtain any Consent required for the
transfer of any Asset, Seller’s failure shall be handled as
follows:

     

    
      	
               
      

            	
              (a)

            	
              If
      the holder of the right to consent affirmatively refuses to consent prior
      to Closing, such refusal shall be considered a Title Defect under this
      Article and the Purchase Price shall be adjusted downward by the Allocated
      Value of the affected Asset.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Except
      for approvals from Governmental Bodies normally received subsequent to
      assignment, if Seller and Buyer reasonably believe a Consent will be
      obtained within a reasonable period of time subsequent to Closing, the
      Asset shall be held by Seller for the benefit of Buyer after Closing and
      Seller shall provide Buyer with the economic benefits thereof until such
      Consent is received or until ninety (90) days after the Closing, if later,
      and Buyer shall pay for the Asset at the Closing in accordance with this
      Agreement as though the Consent had been obtained.  If Seller
      obtains the Consent within ninety (90) days after the Closing, then Seller
      shall deliver conveyances of the Asset to Buyer.  If the Consent
      is not obtained or is affirmatively refused within ninety (90) days after
      the Closing, Seller shall promptly pay to Buyer an amount equal to the
      Allocated Value of the affected Asset (less any net revenues (revenues net
      of Property Costs) received by Buyer in connection with such Asset) plus
      interest on such amount from the Closing Date until paid at the Agreed
      Interest Rate, and Seller’s holding for the benefit of Buyer shall
      thereupon terminate.

            

    

     

    
      
         

      

      
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    The
parties agree that no Consents will be requested with respect to any Wells
listed on Exhibit A which are not located on the Leases and that such failure to
request or obtain a Consent shall not cause such Wells and the Equipment with
respect thereto from being included in the Assets for purposes of Buyer’s
obligations under Section 2.06 and Article 10.

    

    11.04.               
Defensible
Title.  As used herein, the term “Defensible Title”
shall mean, as to the Assets, that title which:

     

    
      	
               
      

            	
              (a)

            	
              Entitles
      Seller, as to each Well (or the specified zone(s) therein), to receive and
      retain without suspension, reduction or termination, not less than the Net
      Revenue Interest set forth for such Well (or the specified zone(s)
      therein) in Exhibit A, through the plugging, abandonment, and salvage of
      such Well (or the specified zone(s) therein), except for any decrease (i)
      caused by orders of the appropriate regulatory body having jurisdiction
      over the Well that are promulgated after the Closing Date that concern
      pooling, unitization, communitization, or spacing matters; or (ii) caused
      by Buyer, its successors or
assigns;

            

    

     

    
      	
               
      

            	
              (b)

            	
              Obligates
      Seller, as to each Well (or the specified zone(s) therein), to bear not more than
      the Working Interest set forth for such Well (or the specified zone(s)
      therein) in Exhibit A, through the plugging, abandonment, and salvage of
      such Well (or the specified zone(s) therein), except for any increase (i)
      caused by Buyer, its successors or assigns; (ii) that also results in the
      Net Revenue Interest associated with the Well being proportionately
      increased; or (iii) caused by orders of the appropriate regulatory body
      having jurisdiction over the Well that are promulgated after the Closing
      Date that concern pooling, unitization, communitization, or spacing
      matters;

            

    

     

    
      	
               
      

            	
              (c)

            	
              Is
      free and clear of all Encumbrances except for Permitted Encumbrances;
      and

            

    

     

    
      	
               
      

            	
              (d)

            	
              In
      the case of Assets other than Wells (such as pipeline interests), entitles
      Seller to the ownership interest reflected in Exhibit
  A.

            

    

     

    11.05.              
Title
Defects. Buyer shall notify
Seller in writing of Title Defects (“Title Defect
Notice(s)”) no later than 5:00 p.m. Central Time on the tenth (10th)
Business Day prior to the Closing Date (the “Title Claim
Date”).  The Title Defect Notice shall state with reasonable
specificity:  (i) the Asset affected; (ii) the particular Title Defect
claimed; (iii) Buyer’s good faith estimate of the amount the Title Defect
reduces the Allocated Value of the affected Asset (such amount being the “Defect Value”); and
(iv) appropriate documentation, if any, substantiating Buyer’s
claim.  Without limiting Seller’s Special Warranty, Buyer shall
conclusively be deemed to have waived any Title Defects not asserted by a Title
Defect Notice no later than 5:00 p.m. Central Time on the Title Claim
Date.  For all Title Defects asserted in Title Defect Notices, Seller
shall have the option of (a) curing the Title Defect, (b) contesting the Title
Defect or Buyer’s good faith estimate of the Defect Value, (c) adjusting the
Purchase Price downward by Buyer’s good faith estimate of the Defect Value,
subject to the limitations set forth below, or (d) excluding the affected Asset
and reducing the Purchase Price by the Allocated Value
thereof.  Seller shall notify Buyer in writing of its election no more
than five (5) Business Days following its receipt of a Title Defect Notice, and
Seller's failure to make an election shall be deemed an election under clause
(c) of the preceding sentence.

    
      
         

      

      
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    The Defect Value shall be determined
pursuant to the following guidelines, where applicable:

     

    
      	
               
      

            	
              (a)

            	
              if
      the Title Defect causes the actual Net Revenue Interest attributable to
      any Well (or the specified zone(s) therein) to be less than that stated in
      Exhibit A, then the Defect Value is the product of the Allocated Value of
      such Asset, multiplied by a fraction, the numerator of which is the
      difference between the Net Revenue Interest set forth in Exhibit A and the
      actual Net Revenue Interest to the extent such difference is caused by the
      asserted Title Defect, and the denominator of which is the Net Revenue
      Interest stated in Exhibit A;

            

    

     

    
      	
               
      

            	
              (b)

            	
              if
      the Title Defect causes Seller to have a greater Working Interest in a
      Well (or the specified zone(s) therein) than the Working Interest
      specified therefor in Exhibit A, without a corresponding increase in
      the Net Revenue Interest, the Defect Value shall be equal to the present
      value (discounted at 10% compounded annually) of the increase in the costs
      and expenses reasonably forecasted by Seller and Buyer with respect to
      such Well (or the specified zone(s) therein) for the period from and after
      the Effective Time which is attributable to such increase in the Seller’s
      Working Interest that is caused by the asserted Title
    Defect;

            

    

    

    
      	
               
      

            	
              (c)

            	
              if
      the Title Defect results from the existence of a lien, security interest,
      pledge or collateral assignment created by, through or under Seller, the
      Defect Value shall be an amount sufficient to fully discharge such lien,
      security interest, pledge or collateral
  assignment;

            

    

    

    
      	
               
      

            	
              (d)

            	
              if
      the Title Defect results from any matter not described in
      paragraphs (a), (b) or (c) above, the Defect Value shall be an amount
      equal to the difference between the value of the Well(s) (or the specified
      zone(s) therein) or other Asset with such Title Defect and the value of
      the Well(s) (or the specified zone(s) therein) or other Asset without such
      Title Defect (taking into account the Allocated Value of the affected
      Asset);

            

    

    

    
      	
               
      

            	
              (e)

            	
              if
      a Title Defect is not effective or does not affect a Well (or the
      specified zone(s) therein) or other Asset throughout the entire productive
      life of such Well (or the specified zone(s) therein) or other Asset, such
      fact shall be taken into account in determining the Defect
      Value.

            

    

    
      
         

      

      
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    In no
event, however, shall the total of the Defect Values related to a particular
Asset exceed the Allocated Value of such Asset.

    

    11.06.              
Seller’s
Right to Cure. If Seller elects to cure
a Title Defect, then Seller shall so notify Buyer in writing within five (5)
Business Days after receipt of the particular Title Defect Notice (“Cure
Notice”).  Seller shall either cure the Title Defect to the
reasonable satisfaction of Buyer (“Cure”), or if Seller
is unable to Cure such Title Defect within sixty (60) days after receipt of the
Title Defect Notice, adjust the Purchase Price downward by Buyer’s good faith
estimate of the Defect Value set forth in the Title Defect Notice, subject to
the limitations set forth below.

     

    If Seller
elects to cure a Title Defect but is unable to do so prior to Closing, Seller
shall convey the affected Asset to Buyer and Buyer shall pay for the affected
Asset at Closing in accordance with this Agreement as though the Title Defect
had been Cured; however, if Seller is unable to Cure the Title Defect
within sixty (60) days after receipt of the Title Defect Notice, then Seller, at
its sole option, shall either (a) adjust the Purchase Price downward by the
Defect Value of that particular Title Defect and shall promptly pay to Buyer an
amount equal to such Defect Value plus interest thereon at the Agreed Interest
Rate from the Closing Date until paid, or (b) elect to have Buyer reconvey the
affected Asset to Seller, whereupon the Purchase Price shall be adjusted
downward by the Allocated Value of the affected Asset, less any net revenues
(revenues net of Property Costs) received by Buyer in connection with the
affected Asset, and Seller shall promptly pay to Buyer an amount equal to such
downward adjustment plus interest thereon at the Agreed Interest Rate from the
Closing Date until paid.

     

    11.07.             
 Contested
Title Defects. If Seller contests the
existence of a Title Defect or Buyer’s good faith estimate of the Defect Value,
then Seller shall so notify Buyer in writing no more than five (5) Business Days
after Seller’s receipt of the Title Defect Notice (“Rejection
Notice”).  The Rejection Notice shall state with reasonable
specificity the basis of Seller’s rejection of the Title Defect or of Buyer’s
good faith estimate of the Defect Value.  Within ten (10) days after
Buyer’s receipt of the Rejection Notice, representatives of Buyer and Seller,
knowledgeable in title matters, shall meet and, within twenty (20) days after
Buyer’s receipt of such Rejection Notice, either: (i) agree to mutually reject
the particular Title Defect, or (ii) agree on the validity of such Title Defect
and the Defect Value, in which case Seller shall have sixty (60) days after the
date of such agreement within which to Cure such Title Defect and failing such
Cure, to adjust the Purchase Price as provided above.  If the parties
cannot agree on either options (i) or (ii) in the preceding sentence, the Title
Defect or the Defect Value subject to the Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section
12.15.  For any Title Defect asserted by Buyer in a Title Defect
Notice by the Title Claim Date, if Seller fails to timely deliver a Rejection
Notice or a Cure Notice, or, if applicable, to notify Buyer that Seller elects
to exclude the affected Asset and reduce the Purchase Price by the Allocated
Value thereof, then Seller shall be deemed to have accepted the validity of the
Title Defect and Buyer’s good faith estimate of the Defect Value, and the
Purchase Price shall be adjusted downward by an amount equal to the Defect Value
of the Title Defect.

    
      
         

      

      
        50

        
          

        

      

      
         

      

    

    In the
event a contested Title Defect cannot be resolved prior to Closing, Seller shall
convey the affected Asset to Buyer and Buyer shall pay for the Asset at Closing
in accordance with this Agreement as though there were no Title Defect; however,
if the Title Defect contest results in a determination that a Title Defect
exists, and Seller elects not to Cure or is unable to Cure the Title Defect
within sixty (60) days after such determination, then Seller, at its sole
option, shall either (a) adjust the Purchase Price downward by the Defect Value
of that particular Title Defect and shall promptly pay to Buyer an amount equal
to such Defect Value plus interest thereon at the Agreed Interest Rate from the
Closing Date until paid, or (b) elect to have Buyer reconvey the affected Asset
to Seller, whereupon the Purchase Price shall be adjusted downward by the
Allocated Value of the affected Asset, less any net revenues (revenues net of
Property Costs) received by Buyer in connection with the affected Asset, and
Seller shall promptly pay to Buyer an amount equal to such downward adjustment
plus interest thereon at the Agreed Interest Rate from the Closing Date until
paid.

     

    11.08.           
   Limitations
on Adjustments for Title Defects. Notwithstanding the
provisions of Sections 11.04, 11.05, 11.06, and 11.07, Seller is obligated to
adjust the Purchase Price to account for Title Defects only if the aggregate
Defect Value of all Title Defects that Seller has agreed to pay pursuant to
Sections 11.05 or 11.06 or which are resolved pursuant to Section 11.07 (the
“Aggregate Title
Defect Value”) exceeds a deductible (not a threshold) equal to Five
Hundred Thousand Dollars ($500,000.00).  If the Defect Value for any
single Asset is less than Fifty Thousand Dollars ($50,000.00) (“De
Minimis Title
Defect Cost”), such value shall not be considered in calculating the
Aggregate Title Defect Value.  The aggregated Defect Value(s) for any
Asset shall never exceed the Allocated Value of such Asset.  If the
sum of (i) the Aggregate Title Defect Value (including any unresolved disputed
Title Defects and any uncured Title Defects, whether or not Seller has elected
to attempt to cure), plus (ii) the aggregate value of Assets requiring consent
to assign for which a consent has not been obtained by the Closing Date, plus
(iii) in connection only with Buyer’s election to terminate, the aggregate value
of Assets subject to preferential purchase rights that have not expired or been
waived by the Closing Date exceeds twenty-five percent (25%) of the unadjusted
Purchase Price, either Buyer or Seller may terminate this Agreement upon written
notice to the other, and neither party shall thereafter have any further rights
or obligations hereunder; provided, however, that the amounts covered by clause
(iii) of this sentence shall not be taken into account for purposes of
determining if Seller has a right to terminate this
Agreement.  Buyer's claims for Breach by Seller of Section 5.02 shall
not be subject to the limitations of this Section.

    
      
         

      

      
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    11.09.             
 Interest
Additions. If Seller discovers an
increase in the Net Revenue Interest shown on Exhibit A with respect to an Asset
that is free of Title Defects (an “Interest Addition”),
then Seller shall, from time to time and without limitation, have the right to
give Buyer written notice of such Interest Additions (“Interest Addition
Notice”), as soon as practicable but not later than the Title Claim Date,
stating with reasonable specificity the Asset affected, the particular Interest
Addition claimed, and Seller’s good faith estimate of the amount the additional
interest increases the value of the affected Asset over and above that Asset’s
Allocated Value (“Interest Addition
Value”).  The Interest Addition Value shall be determined by
multiplying the Allocated Value of the subject Well (or the specified zone(s)
therein) by a fraction, the numerator of which is the increase in the Net
Revenue Interest in such Well (or the specified zone(s) therein) over the Net
Revenue Interest specified therefor in Exhibit A, and the denominator of which
is the Net Revenue Interest specified for such Well (or the specified zone(s)
therein) in Exhibit A.  Seller shall conclusively be deemed to have
waived any additional interest not asserted by an Interest Addition Notice on or
before the Title Claim Date.  If Buyer agrees with the existence of
the Additional Interest and Seller’s good faith estimate of the Interest
Addition Value, then any Purchase Price adjustment which Seller is required to
make pursuant to Section 11.08 shall be decreased by the amount of the Interest
Addition Value.  If Buyer contests the existence of the Interest
Addition or Seller’s good faith estimate of the Interest Addition Value, then
Buyer shall so notify Seller in writing within five (5) Business Days after
Buyer’s receipt of the Interest Addition Notice (“Interest Addition Rejection
Notice”).  The Interest Addition Rejection Notice shall state
with reasonable specificity the basis of Buyer’s rejection of the Additional
Interest or of Buyer’s good faith estimate of the Interest Addition
Value.  Within ten (10) days after Seller’s receipt of the Interest
Addition Rejection Notice, representatives of Buyer and Seller, knowledgeable in
title matters, shall meet and either (a) agree to mutually reject the Interest
Addition in which case Seller shall waive the Interest Addition, or (b) agree on
the validity of such Interest Addition and the Interest Addition Value, in which
case any Purchase Price adjustment which Seller is required to make pursuant to
Section 11.08 shall be decreased accordingly.  If the parties cannot
agree on either option (a) or (b) in the preceding sentence, the Interest
Addition subject to the Interest Addition Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section
12.15.  If Buyer fails to timely deliver an Interest Addition
Rejection Notice, Buyer shall be deemed to have accepted the validity of the
Interest Addition and Seller’s good faith estimate of the Interest Addition
Value, and Seller shall be entitled to setoff any Purchase Price adjustment as
described above.  Buyer shall also promptly furnish Seller with
written notice of any Interest Addition which is discovered by any of Buyer’s or
any of its Affiliate’s employees, title attorneys, landmen, or other title
examiners while conducting Buyer’s title review, due diligence, or investigation
with respect to the Assets.

     

    11.10.            
  Reconveyance.  If
the Purchase Price is adjusted downward by one-hundred percent (100%) of the
Allocated Value of any Asset, Buyer shall, at Seller’s sole option to be
exercised no later than sixty (60) days after such Purchase Price adjustment,
reconvey to Seller the Asset (effective as of the Effective Time).  In
connection with such reconveyance, Buyer shall pay Seller all revenues received
by Buyer with respect to such reconveyed Assets and Seller shall reimburse Buyer
for all Property Costs paid by Buyer with respect to such reconveyed
Assets.

     

    11.11.             
 Casualty
Loss and Condemnation.  

     

    
      	
               
      

            	
              (a)

            	
              If
      after the date of execution of this Agreement and prior to the Closing any
      part of the Assets is destroyed by fire or other casualty or if any part
      of the Assets is taken in condemnation or under the right of eminent
      domain or if proceedings for such purposes are pending or Threatened,
      Seller shall promptly give Buyer written notice of such occurrence,
      including reasonable particulars with respect thereto, and this Agreement
      shall remain in full force and effect notwithstanding any such
      destruction, taking, proceeding, or
threat.

            

    

    
      
         

      

      
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              (b)

            	
              With
      regard to a loss occurring after the date of execution of this Agreement,
      except to the extent permitted or required pursuant to this Agreement,
      after the date of execution of this Agreement, without Buyer’s prior
      consent, no insurance or condemnation proceeds with respect to such loss
      shall be committed or applied by Seller prior to the Closing Date to
      repair, restore, or replace a damaged or taken portion of the Assets if
      the cost to repair, restore, or replace a damaged or taken portion of the
      Assets is projected to exceed $50,000.  To the extent such
      proceeds are not committed or applied by Seller prior to the Closing Date
      in accordance with this Section 11.11(b), Seller shall at the Closing pay
      to Buyer all sums paid to Seller by reason of such destruction or taking,
      less any reasonable costs and expenses incurred by Seller in collecting
      such proceeds.  In addition and to the extent such proceeds have
      not been committed or applied by Seller in accordance with this Section
      11.11(b), in such repair, restoration, or replacement, Seller shall
      transfer to Buyer, at Closing, without recourse against Seller, all of the
      right, title, and interest of Seller in and to any unpaid insurance or
      condemnation proceeds arising out of such destruction or taking, less any
      reasonable costs and expenses incurred by Seller in collecting such
      proceeds.  Any such funds which have been committed by Seller
      for repair, restoration, or replacement as aforesaid shall be paid by
      Seller for such purposes or, at Seller’s option, delivered to Buyer upon
      Seller’s receipt from Buyer of adequate assurance and indemnity that
      Seller shall incur no liability or expense as a result of such
      commitment.

            

    

     

    11.12.            
 Environmental
Release.  All Environmental Liabilities are Assumed
Liabilities.  The Buyer Group shall have no rights to recovery from or
indemnification by any member of the Seller Group for Environmental Liabilities
or any Environmental Condition under this Agreement or under or pursuant to any
law or other Legal Requirement, and all rights or remedies which any member of
the Buyer Group may have at or under any law or other Legal Requirement with
respect to any Environmental Liabilities or Environmental Conditions are
expressly waived.  BUYER, ON BEHALF OF ALL BUYER GROUP
MEMBERS, DOES HEREBY AGREE, WARRANT AND COVENANT (A) THAT THE BUYER GROUP
RELEASES, ACQUITS AND FOREVER DISCHARGES ALL SELLER GROUP MEMBERS FROM ANY AND
ALL CLAIMS, DEMANDS AND CAUSES OF ACTION OF WHATSOEVER NATURE, INCLUDING WITHOUT
LIMITATION ALL CLAIMS, DEMANDS AND CAUSES OF ACTION FOR CONTRIBUTION AND
INDEMNITY UNDER STATUTE OR COMMON LAW, WHICH COULD BE ASSERTED NOW OR IN THE
FUTURE AND THAT RELATE TO OR IN ANY WAY ARISE OUT OF ENVIRONMENTAL LIABILITIES
OR ENVIRONMENTAL CONDITIONS AND (B) FROM AND AFTER CLOSING, THAT ALL BUYER GROUP
MEMBERS WARRANT, AGREE AND COVENANT NOT TO SUE OR INSTITUTE ARBITRATION AGAINST
ANY SELLER GROUP MEMBERS UPON ANY CLAIM, DEMAND OR CAUSE OF ACTION FOR INDEMNITY
AND CONTRIBUTION THAT HAS BEEN ASSERTED OR COULD BE ASSERTED FOR ANY
ENVIRONMENTAL LIABILITIES OR ENVIRONMENTAL CONDITIONS.

     

    
      
         

      

      
        53

        
          

        

      

      
         

      

    

    ARTICLE
12

     

    GENERAL
PROVISIONS

     

    12.01.          
    Records.  Seller
shall retain its original records and documents relating to the Assets,
including but not limited to land and lease files, division of interest computer
printouts, contract files, well files, and copies of well
logs.  Seller, at Seller’s cost, shall use reasonable efforts to
deliver the Asset Records that are included in the Assets to Buyer (FOB Seller's
office) within thirty (30) days following Closing. 

     

    

    12.02.           
  Expenses.  Except
as otherwise expressly provided in this Agreement each party to this Agreement
shall bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the Contemplated Transactions,
including all fees and expenses of agents, representatives, counsel, and
accountants.  Seller shall bear the filing or recording fees for
recording or filing the releases and termination statements delivered by Seller
to Buyer at Closing pursuant to Section 2.04(a)(vi).

     

    12.03.     
        Notices.  All
notices, consents, waivers, and other communications under this Agreement must
be in writing and shall be deemed to have been duly given when (a) delivered by
hand (with written confirmation of receipt), (b) sent by fax (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, (c) sent by electronic mail with receipt acknowledged,
or (d) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and fax numbers set forth below (or to such other addresses and fax
numbers as a party may designate by notice to the other party):

     

    
      	
               
      

            	
              Seller:

            

    

    MitEnergy
Upstream LLC

    9
Greenway Plaza

    Suite
1250

    Houston,
Texas 77046

    Fax:  713-960-0247

    Phone:  713-960-0577

    Attention:  Tomohiro
Sunada, Vice President and Company Secretary

    
      
         

      

      
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    with
copies to:

    

    Mitsui
& Co., Ltd.

    E&P
Division, Business Department II

    2-1,
Ohtemachi 1-Chome,

    Chiyoda-Ku,
Tokyo, Japan

    Fax:  +81.3.
3285. 9126

    Phone:  +81.3.
3285. 6588

    Attention:  
 Motohiro Desaki, GM, Business Department III,

    E&P
Division

    

    and

    

    Mitsui
Oil Exploration Co., Ltd.

    Projects
& New Ventures Div.

    Hibiya
Central Building 11th floor.

    2-9,
Nishi Shimbashi 1-Chome,

    Minato-Ku,
Tokyo, Japan

    Fax:  +81.3.3502.5768

    Phone:  +81.3.3502.5782

    Attention:  Takeshi
Kasuga, Unit General Manager, Unit 2

    

    and

    

    Fulbright &
Jaworski L.L.P.

    1301
McKinney, Suite 5100

    Houston,
Texas 77010

    Fax:  713.651.5246

    Phone:  713.651.3702

    Attention: George
F. Kutzschbach

    

    
      
        	  	
                Buyer:

              	
                Energy
      XXI, Inc.

              

      

    

    1021 Main
(One City Centre), Suite 2626

    Houston,
Texas 77002

    Fax: 713-351-3334

    Phone:
 713-351-3034

    Attention:  J.
Granger Anderson III

    
      
         

      

      
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    with a
copy to:

    

    Gieger,
Laborde & Laperouse, L.L.C.

    701
Poydras Street, Suite 4800

    New
Orleans, Louisiana  70139

    Telephone: 504-654-1333

    Fax: 504-561-1011

    Attention: Lambert
M. Laperouse

     

    12.04.       
       Jurisdiction;
Service of Process.  Without
limiting the parties agreement to arbitrate in section 12.15, any action or
proceeding seeking a temporary or preliminary injunction to enforce any
provision of, or based on any right arising out of, this Agreement or the
Contemplated Transactions must be brought against any of the parties in the
courts of the State of Texas, County of Harris, or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
Texas (Houston Division), and each of the parties consents to the jurisdiction
of such courts (and of the appropriate appellate courts) for such limited
purpose in any such action or proceeding and waives any objection to venue laid
therein for such limited purpose.  Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.

     

    12.05.            
  Further
Assurances.  The parties agree (a) to furnish upon request
to each other such further information, (b) to execute, acknowledge and
deliver to each other such other documents, and (c) to do such other acts
and things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this
Agreement.  If following Closing, either party receives any monies or
properties to which the other party is entitled pursuant to the terms of this
Agreement, the party receiving such monies or properties shall promptly advise
the other party of such receipt and pay or deliver such monies or properties to
the other party in accordance with the terms of this Agreement.

     

    12.06.           
  Waiver.  The
rights and remedies of the parties to this Agreement are cumulative and not
alternative.  Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement shall operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege shall preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.  To
the maximum extent permitted by applicable law, (a) no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no
waiver that may be given by a party shall be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party
shall be deemed to be a waiver of any obligation of such party or of the right
of the party giving such notice or demand to take further action without notice
or demand as provided in this Agreement or the documents referred to in this
Agreement.

    
      
         

      

      
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    12.07.             
 Entire
Agreement and Modification.  This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter.  This Agreement may not be amended
except by a written agreement executed by Buyer and Seller.  No
representation, promise, inducement, or statement of intention with respect to
the subject matter of this Agreement has been made by any party which is not
embodied in this Agreement together with the documents, instruments, and
writings that are delivered pursuant hereto, and none of the parties shall be
bound by or liable for any alleged representation, promise, inducement. or
statement of intention not so set forth.

     

    12.08.          
    Assignments,
Successors, and No Third-Party Rights.  Neither party may
assign any of its rights under this Agreement without the prior written consent
of the other party (which consent may be granted or denied at the discretion of
the other party), and in the event of such consent, such assignment nevertheless
shall not relieve such party of any of its obligations under this Agreement
without the prior written consent of the other party; provided that (i) after
Closing Seller, without consent or prior written approval, may assign any or all
of its rights and obligations under this Agreement to any Affiliate of Seller,
including Seller’s right to enforce and exercise any indemnification and hold
harmless rights of Seller Group under Article 10 and the right to make and
administer any claim for indemnity or hold harmless hereunder; provided,
however, that no such assignment shall relieve Seller of any of its obligations
or liabilities under this Agreement, and (ii) prior to Closing Buyer may assign
all of its rights and obligations under this Agreement to an Affiliate of Buyer
without consent or prior written approval; provided, however, that no such
assignment shall relieve Buyer of any of its obligations or liabilities under
this Agreement.  Subject to the preceding sentences, this Agreement
shall apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties.  Nothing expressed or
referred to in this Agreement shall be construed to give any Person other than
the parties to this Agreement or any other agreement contemplated herein (and
the Buyer Group and Seller Group who are entitled to indemnification under
Article 10), any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement.  This
Agreement, any other agreement contemplated herein, and all provisions and
conditions hereof and thereof are for the sole and exclusive benefit of the
parties to this Agreement and such other agreements (and the Buyer Group and
Seller Group who are entitled to indemnification under Article 10), and their
respective successors and permitted assigns.  Notwithstanding the
foregoing, any indemnitee under Article 10 which is a third party shall be
indemnified and held harmless under the terms of this Agreement only to the
extent that a party (or its successor or permitted assign) expressly elects to
exercise such right of indemnity and hold harmless on behalf of such third party
indemnitee pursuant to Article 10; and no party (or its successor or permitted
assign) shall have any direct liability or obligation to any third party or be
liable to any third party for any election or non-election or any act or failure
to act under or in regard to any term of this Agreement.  Any claim
for indemnity or hold harmless hereunder on behalf of an indemnitee must be made
and administered by a party to this Agreement (or its successor or permitted
assign).

    
      
         

      

      
        57

        
          

        

      

      
         

      

    

    If Energy
XXI, Inc. (the “EXXI”) assigns its
rights and obligations under this Agreement to an Affiliate of EXXI (the “Affiliate Buyer”),
EXXI and Affiliate Buyer shall have joint and several liability and
responsibility for all of the obligations of EXXI and Affiliate Buyer in this
Agreement, and the following provisions shall apply:

    

    
      	
               
      

            	
              (a)

            	
              Affiliate
      Buyer irrevocably and unconditionally authorizes and empowers EXXI to (i)
      make or give any approval, waiver, request, consent, instruction or other
      communication on behalf of Affiliate Buyer, as Affiliate Buyer could do
      for itself with respect to this Agreement and the transactions
      contemplated hereby, including with respect to the amendment of any
      provision hereof, and (ii) execute and deliver all instruments and
      documents of every kind incidental to the foregoing with the same effect
      as if Affiliate Buyer had executed and delivered such instruments and
      documents itself.

            

    

    

    
      	
               
      

            	
              (b)

            	
              Affiliate
      Buyer authorizes and empowers EXXI to receive all demands, notices or
      other communications directed to Affiliate Buyer under this
      Agreement.  Accordingly, any demands, notices or other
      communications directed to Affiliate Buyer hereunder shall be deemed
      effective if properly given to
EXXI.

            

    

    

    
      	
               
      

            	
              (c)

            	
              The
      joint and several obligations of EXXI and Affiliate Buyer are direct and
      primary.  Seller may enforce the obligations of EXXI and
      Affiliate Buyer under this Agreement against EXXI or Affiliate Buyer
      without first suing the other or joining (or giving notice to) the other
      in any suit or other enforcement action.  Seller may enforce any
      and all rights or remedies it may have hereunder solely against EXXI or
      solely against Affiliate Buyer without joining or giving any notice to the
      other and without in any manner releasing or waiving any liability or
      obligations of the other.

            

    

    

    12.09.          
    Severability.  If
any provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement shall remain in
full force and effect.  Any provision of this Agreement held invalid
or unenforceable only in part or degree shall remain in full force and effect to
the extent not held invalid or unenforceable.

     

    12.10.            
  Article
and Section Headings, Construction.  The headings of Sections
and Articles in this Agreement are provided for convenience only and shall not
affect its construction or interpretation.  All references to
“Section” or “Article” refer to the corresponding Section or Article of this
Agreement.  Unless expressly provided to the contrary, “hereunder”,
“hereof’, “herein” and words of similar import are references to this Agreement
as a whole and not any particular Section or other provision of this
Agreement.  Each definition of a defined term herein shall be equally
applicable both to the singular and the plural forms of the term so
defined.  All words used in this Agreement shall be construed to be of
such gender or number, as the circumstances require.  Unless otherwise
expressly provided, the word “including” does not limit the preceding words or
terms.  Each of Seller and Buyer has had substantial input into the
drafting and preparation of this Agreement and has had the opportunity to
exercise business discretion in relation to the negotiation of the details of
the transactions contemplated hereby. This Agreement is the result of
arm’s-length negotiations from equal bargaining positions. It is expressly
agreed that this Agreement shall not be construed against any party, and no
consideration shall be given or presumption made, on the basis of who drafted
this Agreement or any particular provision hereof or who supplied the form of
Agreement.

    
      
         

      

      
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    12.11.          
    Time of
Essence.  With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.

     

    12.12.             
 Governing
Law.  This Agreement and the relationship of the parties with
respect to the Contemplated Transactions shall be governed by the laws of the
State of Texas without regard to conflicts of laws principles, except that the
law of another jurisdiction shall apply to this Agreement and the Contemplated
Transactions insofar as it is mandatory that the law of such other jurisdiction
apply to this Agreement and the Contemplated Transactions as a result of this
Agreement and the Contemplated Transactions covering or relating to a part of
the Assets for which it is mandatory that the law of such other jurisdiction,
wherein or adjacent to which such part of the Assets are located, shall
apply.

     

    12.13.         
     Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original copy of this Agreement and all of which, when taken
together, shall be deemed to constitute one and the same agreement.

     

    12.14.               
Special
Waivers.

    

    
      	
               
      

            	
              (a)

            	
              Waiver of Trade
      Practices Acts.

            

    

     

    
      	
               
      

            	
              (i)

            	
              It
      is the intention of the parties that Buyer's rights and remedies with
      respect to this transaction and with respect to all acts or practices of
      Seller, past, present or future, in connection with this transaction shall
      be governed by legal principles other than the Texas Deceptive Trade
      Practices—Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.41
      et seq. (the “DTPA”), the
      Louisiana unfair trade practices and consumer protection law, La. R.S.
      51:1402, et seq. (the “UTPCPL”), or
      similar Laws from other jurisdictions (“Other Consumer
      Laws”).  As such, Buyer hereby waives the applicability
      of the DTPA, the UTPCPL and Other Consumer Laws to this transaction and
      any and all duties, rights or remedies that might be imposed by the DTPA,
      the UTPCPL and/or Other Consumer Laws, whether such duties, rights and
      remedies are applied directly by the DTPA, the UTPCPL or Other Consumer
      Laws themselves or indirectly in connection with other
      statutes.  Buyer acknowledges, represents and warrants that it
      is purchasing the goods and/or services covered by this Agreement for
      commercial or business use; that it has assets of $25 million or more
      according to its most recent financial statement prepared in accordance
      with generally accepted accounting principles; that it has knowledge and
      experience in financial and business matters that enable it to evaluate
      the merits and risks of a transaction such as this; and that it is not in
      a significantly disparate bargaining position with Seller.  In
      furtherance of the foregoing,

            

    

    
      
         

      

      
        59

        
          

        

      

      
         

      

    

    WAIVER
OF CONSUMER RIGHTS

     

    BUYER
WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT,
SECTION 17.41 ET SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS
SPECIAL RIGHTS AND PROTECTIONS.  AFTER CONSULTATION WITH AN ATTORNEY
OF BUYER’S OWN SELECTION, BUYER VOLUNTARILY CONSENTS TO THIS
WAIVER.

     

    
      	
               
      

            	
              (ii)

            	
              Buyer
      expressly recognizes that the price for which Seller has agreed to perform
      its obligations under this Agreement has been predicated upon the
      inapplicability of the DTPA, the UTPCPL and Other Consumer Laws and this
      waiver of the DTPA, the UTPCPL and Other Consumer Laws.  Buyer
      further recognizes that Seller, in determining to proceed with the
      entering into of this Agreement, has expressly relied on this waiver and
      the inapplicability of the DTPA, the UTPCPL and Other Consumer
      Laws.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Redhibition
      Waiver.  Buyer waives all rights in redhibition pursuant
      to Louisiana Civil Code Articles 2475 and 2520 through 2548, and
      acknowledges that this express waiver shall be considered a material and
      integral part of this sale and the consideration thereof.  Buyer
      acknowledges that this waiver has been brought to its attention and has
      been explained in detail and that Buyer has voluntarily and knowingly
      consented to this waiver of warranty of fitness and warranty against
      redhibitory vices and defects for the
Assets.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Buyer
      further recognizes that Seller, in determining to proceed with entering
      into this Agreement, has expressly relied on the provisions of this
      Section 12.14.

            

    

     

    
      
         

      

      
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    12.15.     
         Arbitration.  It
is agreed, as a severable and independent arbitration agreement separately
enforceable from the remainder of this Agreement, that all disputes,
controversies, or claims (whether contractual, tortious, equitable, statutory or
otherwise) that may arise among the parties (or any Person included in Buyer
Group or Seller Group) arising out of or in any way relating to this Agreement
shall be finally and exclusively submitted to, and determined by, binding
arbitration.  The arbitration proceedings shall be held in Houston,
Texas.  The arbitration shall be conducted before a single arbitrator
pursuant to the then current Commercial Arbitration Rules of the American
Arbitration Association (the “AAA”).  The
AAA shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim or bear any relationship to either
party and who maintains such independence throughout the arbitration
proceedings. The arbitrator must be a licensed and practicing attorney
(including any attorney practicing in-house for a company, with an outside law
firm, as a solo practitioner, or as a professional arbitrator) or a retired
judge of a state or federal court.  If the arbitrator should die,
withdraw or otherwise become incapable of serving, or refuse to serve, a
successor arbitrator shall be selected and appointed in the same manner as the
original arbitrator.  In the event of any conflict between the
Commercial Arbitration Rules of the AAA and the provisions of this Section
12.15, the provisions of this Section 12.15 shall govern and
control.  The arbitrator shall apply the laws of the State of Texas
(without regard to conflict of law rules) to the dispute, controversy, or claim,
except that the law of another jurisdiction shall apply to this Agreement and
the Contemplated Transactions insofar as this Agreement and the Contemplated
Transactions cover or relate to a part of the Assets for which it is mandatory
that the law of another jurisdiction, wherein or adjacent to which such part of
the Assets are located, shall apply.  To the extent that they are not
inconsistent with the Commercial Arbitration Rules of the AAA, evidentiary
questions shall be governed by the Texas Rules of Evidence.  The
arbitration shall proceed in the absence of a party who, after due notice, fails
to answer or appear; provided, however, that an award shall not be made solely
on the default of a party, but the arbitrator shall require the party who is
present to submit such evidence as the arbitrator may determine is reasonably
required to make an award.  The arbitrator’s award shall be in writing
and shall set forth findings and conclusions upon which the arbitrator based the
award.  The prevailing party in the arbitration shall be entitled to
recover its reasonable attorneys’ fees, costs, and expenses incurred in
connection with the arbitration, as determined by the
arbitrator.  Consequential, indirect, special, exemplary or punitive
damages shall not be allowed except those payable to third parties (and
permitted under Section 10.11) for which liability is allocated among the
parties by the arbitration award.  Any award pursuant to the
arbitration shall be final and binding upon the parties and judgment on the
award may be entered in any federal, state, or international court having
jurisdiction, or application may be made to such court for a judicial
confirmation of the award and an order and judgment enforcing the same, as the
case may be.  The provisions of this Section shall survive the
termination of this Agreement.  Notwithstanding the foregoing, this
Section shall not prevent any party from seeking temporary or preliminary
injunctive relief from a court of competent jurisdiction under appropriate
circumstances; provided, however, such action shall not constitute a waiver of
the provisions of this Section.

     

    12.16.    
         Tax
Deferred Exchange.  If Seller so requests, Buyer agrees to
cooperate with Seller in a tax-deferred exchange described in Section 1031 of
the Internal Revenue Code of 1986, as amended.  Notwithstanding the
foregoing, Buyer shall not be obligated to enter into any agreement or to
consent to an assignment of Seller’s rights or obligations hereunder which may
have the effect of (i) impairing the title to the Assets, (ii) increasing
Buyer’s obligations or liability hereunder or resulting in any additional cost,
expense, or liability to Buyer; or (iii) requiring Buyer to execute a purchase
agreement for the purchase of the exchange property or to take record title to
the exchange property.  Seller hereby agrees to indemnify, defend, and
hold Buyer harmless from and against any and all costs, expenses, claims,
damages, losses, or liabilities (including, without limitation, reasonable
attorney fees and costs) incurred by Buyer in connection with any exchange
transaction or transactions or the performance by Buyer of its obligations
pursuant to this Section.

    
      
         

      

      
        61

        
          

        

      

      
         

      

    

    12.17.          
    Press
Release.  Until six (6) months after the Closing Date, neither
Buyer nor Seller shall make any press release or other public announcement
respecting this Agreement or the Contemplated Transactions without the consent
of the other party, which shall not be unreasonably withheld, conditioned, or
delayed, unless the party desiring to make the release or other announcement is
advised by its counsel that the release or other announcement is required to
comply with any Legal Requirement or stock exchange rule; provided, however,
that the foregoing shall not prevent Buyer or Seller from recording the
Instruments of Conveyances delivered at Closing or from complying with any
disclosure requirements of Governmental Bodies that are applicable to the
transfer of the Assets from Seller to Buyer.  In the event that any
party wishes or is required to make a press release or other public announcement
respecting this Agreement or the Contemplated Transactions that is subject to
the restrictions of this Section, such party will provide the other with a draft
of the press release or other public announcement for review at least five (5)
Business Days prior to the time that such press release or other public
announcement is to be made.  The parties will attempt in good faith to
expeditiously reach agreement on such press release or other public announcement
and the contents thereof.  Failure to provide comments back to the
other party within five (5) Business Days of receipt of the draft release or
announcement will be deemed consent to the public disclosure of such press
release or other public announcement and the content thereof.  If the
proposed press release or other public announcement contains any information
required to be kept confidential under Section 12.18, the withholding of consent
by the other party shall not be deemed to be unreasonable.

     

    12.18.         
     Confidentiality.

    

    
      	
               
      

            	
              (a)

            	
              Each
      party shall keep confidential, and cause its Affiliates and instruct its
      officers, directors, employees and advisors to keep confidential, all
      terms and provisions of this Agreement, except (i) as required by Legal
      Requirements or any standards or rules of any stock exchange to which such
      party or any of its Affiliates is subject, (ii) for information which is
      available to the public on the Closing Date, or thereafter becomes
      available to the public other than as a result of a breach of this
      Section, (iii) to the extent required to be disclosed in connection with
      complying with or obtaining a waiver of any Preferential Purchase Right or
      Consent, (iv) to the extent required to be disclosed in connection with a
      party becoming qualified with the MMS or the Louisiana State Mineral
      Board, and (v) to the extent that such party must disclose the same in any
      court or arbitration proceedings brought by it to enforce its rights
      hereunder.  This Section shall not prevent Buyer or Seller from
      recording the Instruments of Conveyances delivered at Closing or from
      complying with any disclosure requirements of Governmental Bodies that are
      applicable to the transfer of the Assets from Seller to
      Buyer.  The covenant set forth in this Section 12.18(a) shall
      terminate two (2) years after the Closing
Date.

            

    

     

    
      
         

      

      
        62

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (b)

            	
              Until
      Closing occurs (and for a period of two (2) years after the date hereof
      with respect to Confidential Information included in Seller’s financial
      statements), the Confidential Information shall be used solely for
      purposes of this Agreement (including Buyer’s due diligence with respect
      to the Assets), shall be held confidential by Buyer and its
      Representatives, and shall not be disclosed in any way by Buyer or its
      Representatives to any third party without Seller’s prior written
      approval, provided that the Buyer may, without such approval, disclose
      Confidential Information:

            

    

     

    
      	
               
      

            	
              (i)

            	
              to
      any outside professional consultants or advisers, upon obtaining a similar
      undertaking of confidentiality (but excluding this proviso) from such
      consultants;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      any bank, financial institution, investment bank, private equity fund or
      other bona fide lender from whom Buyer is seeking or obtaining finance for
      the Purchase Price or part thereof, upon obtaining a similar undertaking
      of confidentiality (but excluding this proviso) from such
      lender;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              to
      the extent required by any applicable Legal Requirements, or the
      requirements of the U.S. Securities and Exchange Commission or any
      recognized stock exchange or over-the-counter exchange, in compliance with
      its rules and regulations;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              to
      any Governmental Body lawfully requesting such information, subject to the
      terms set forth in Section
12.18(c);

            

    

     

    
      	
               
      

            	
              (v)

            	
              to
      those of Buyer’s Representatives and Affiliates who need to know such
      Confidential Information for the purposes of this Agreements and who shall
      (i) be advised by Buyer of this Section 12.18 and (ii) agree to be bound
      by the provisions hereof;

            

    

     

    
      
         

      

      
        63

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              If
      Buyer is requested to disclose any Confidential Information in connection
      with any legal or administrative proceeding or investigation, Buyer will
      notify Seller immediately in writing of the existence, terms and
      circumstances surrounding such a request so that Seller may, in its sole
      discretion, seek a protective order or other appropriate remedy and/or
      take steps to resist or narrow the scope of the disclosure sought by such
      request.  Buyer agrees to assist Seller in seeking a protective
      order or other remedy, if requested by Seller.  If a protective
      order or other remedy is not obtained and, in the written opinion of
      Buyer’s counsel, disclosure is required by Legal Requirements, Buyer may
      make such disclosure without liability under this Agreement, provided that
      Buyer furnishes only that portion of the Confidential Information which is
      required to be disclosed by Legal Requirements, Buyer gives Seller notice
      of the information to be disclosed as far in advance of its disclosure as
      practicable and Buyer uses all reasonable efforts to ensure that
      confidential treatment will be accorded to all such disclosed Confidential
      Information.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Buyer
      shall be fully liable and responsible for any Breach by Buyer, its
      Affiliates or any of Buyer’s or its Affiliate’s Representatives of
      subsections (b) through (e) of this Section 12.18 and Buyer agrees that
      any such Breach shall cause immediate and irreparable injury to
      Seller.  In addition to any remedies at law, Seller shall be
      entitled to equitable relief from a court of competent jurisdiction,
      including, but not limited to, temporary restraining orders, preliminary
      injunctions and permanent
injunctions.

            

    

     

    
      	
               
      

            	
              (e)

            	
              If
      this Agreement terminates prior to the Closing, promptly upon receipt of
      written notice from Seller demanding the return by Buyer of the
      Confidential Information, Buyer shall immediately (and cause its
      Affiliates and Buyer’s or its Affiliate’s Representatives to
      immediately):

            

    

     

    
      	
               
      

            	
              (i)

            	
              deliver
      to Seller all documents, all copies of such documents and other materials
      in whatever form (including interpretations and maps) or in or on which
      any such Confidential Information is contained or recorded that is in its
      possession, custody or control or in the possession, custody or control of
      Buyer, its Affiliates or Buyer’s or its Affiliates’ Representatives or any
      other Person to whom the Confidential Information was disclosed by Buyer,
      its Affiliates or such Representatives, or in lieu of delivering any
      portion of such Confidential Information to Seller, Buyer may destroy such
      portion of the Confidential Information and provide Seller with a written
      certification from an officer of Buyer that it has destroyed such portion
      of the Confidential Information;
and

            

    

     

    
      	
               
      

            	
              (ii)

            	
              destroy,
      delete or otherwise stop holding any other Confidential Information,
      whether held in electronic or any other
form;

            

    

     

    provided,
however, that:

    
      
         

      

      
        64

        
          

        

      

      
         

      

    

    

    (1)           the
foregoing obligation to deliver, destroy, delete or otherwise stop holding any
Confidential Information shall not apply to corporate documents which are
required to be retained by law or which are presented to Buyer’s or any of its
Affiliate’s executive board (or the equivalent thereof), in which case Buyer or
such Affiliate will take appropriate measures to preserve its confidentiality
until destroyed; and

    

    (2)           the
obligation to delete or otherwise stop holding any Confidential Information from
any computer, word processor or other devices shall not apply to automatically
made back-up copies of computer records.  To the extent that computer
back-up procedures create such copies Buyer or its Affiliate may retain these
for the period normally used to archive back-up computer records and all back-up
copies of computer records; however, such back-up computer records and back-up
copies of computer records shall be shall be subject to the provisions of this
Agreement for the term of this Agreement or until the same are earlier
destroyed.

    

    
      	
               
      

            	
              (f)

            	
              The
      covenants set forth in Section 12.18(b) through (e) shall terminate upon
      Closing; provided that Buyer shall remain liable to Seller for, and shall
      defend, indemnify and hold harmless Seller Group from and against, any
      Damages incurred by or claimed against Seller Group resulting from any
      Breach by Buyer, its Affiliates or any of Buyer’s or its Affiliate’s
      Representatives of subsections (b) through (e) of this Section 12.18 prior
      to such termination.

            

    

     

    12.19.            
  Financial
Information.  Seller will use commercially reasonable efforts
to provide to Buyer within ten (10) Business Days of the execution of this
Agreement such financial information as Buyer reasonably requires to prepare
disclosures required by Statement of Financial Accounting Standards No. 69 -
Disclosures about Oil and Gas Producing Activities for each of the twelve-month
periods ended June 30, 2009, 2008, and 2007.  Until Closing, Seller
agrees to cooperate with Buyer’s independent accountants as may be reasonably
necessary in connection with the preparation of the disclosures referred to in
the immediately preceding sentence, including Buyer’s preparation of audited
statements of revenue and direct operating expenses of the Assets for each of
the twelve-month periods ended June 30, 2009, 2008, and 2007 to be included in
the Registration Statement, Form 8-K, Form 10-K or other filings to be made by
Buyer with the SEC. Buyer will retain independent accountants to perform the
audit of the statements of revenue and direct operating expenses of the
Assets.  Buyer will reimburse Seller for all reasonable costs and
expenses of Seller with respect to Seller’s performance of its obligations under
this Section 12.19.  Seller will provide to Buyer a copy of Seller’s
audited financial statements for each of the years ended December 31, 2007 and
2008 and Seller’s unaudited financial statements for the six months ended June
30, 2009.

    
      
         

      

      
        65

        
          

        

      

      
         

      

    

    12.20.           
   Amendments
of Disclosure Schedules.  Prior to Closing, Seller may, from
time to time, by delivering a written copy thereof to Buyer, supplement or amend
its disclosure schedules attached to this Agreement relating to any
representations or warranties of Seller, to include reference to any matter
relating to Seller or the Assets which first arises or occurs after the date of
execution of this Agreement and does not result from a Breach by Seller of any
of its covenants or of any of its representations and warranties made as of the
date of this Agreement.  Any such supplement or amendment of any such
disclosure schedule by Seller will be effective to cure and correct any Breach
by Seller or failure to satisfy any condition to Closing that would have existed
absent such amendment or supplement.

     

    [Signature Page
Follows]

    
      
         

      

      
        66

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.

     

    
      
        
          
            
              
                
                  
                    	 	
                            SELLER:

                          
	 	 
      
	 	
                            MitEnergy
      Upstream LLC

                          
	 	 
      	 
      
	 	
                            By:

                          	
                            /s/ Kohei Omori

                          
	 	
                            Name:
      Kohei Omori

                          
	 	
                            Title:
      Executive Vice President and Chief Compliance
  Officer

                          
	 	 
      	 
      
	 	
                            BUYER:

                          
	 	 
      
	 	
                            Energy
      XXI, Inc.

                          
	 	 
      	 
      
	 	
                            By:

                          	
                            /s/ Ben Marchive

                          
	 	
                            Name:
      Ben Marchive

                          
	 	
                            Title: President

                          

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        67

        
          

        

      

      
         

      

    

     

    [jpg.exhibit10]Exhibit
4.1

     

    "THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH
SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY FURTHER QUALIFICATION
REQUIREMENTS UNDER APPLICABLE STATE LAW."

     

    Date:
November 19, 2009

     

    WARRANT
TO PURCHASE COMMON STOCK

     

    OF

     

    PATIENT
SAFETY TECHNOLOGIES, INC.

     

    This
certifies that, for value received, CARDINAL HEALTH, INC. (“Holder”) is entitled, subject
to the terms and conditions set forth below, to purchase from PATIENT SAFETY TECHNOLOGIES,
INC., a Delaware corporation (the “Company”), up to 1,250,000
shares of the Company’s Common Stock (the “Warrant Shares”) at an
exercise price of $2.00 per share (the “Exercise
Price”).  The number, character and Exercise Price of the
Warrant Shares are subject to adjustment as provided below and all references to
“Warrant Shares” and “Exercise Price” herein shall be deemed to include any such
adjustment or series of adjustments. This Warrant is issued pursuant to Section 1(a) of that
certain Warrant Purchase Agreement between the Company and the original Holder
hereof dated as of November 19, 2009 (the “Purchase Agreement”). The
holder of this Common Stock Warrant is subject to certain restrictions, and
entitled to certain rights, as set forth in the Registration Rights Agreement,
dated on even date herewith (the “Registration Rights
Agreement”).  The term “Common Stock Warrant” as used
herein shall mean this Common Stock Warrant and any Common Stock Warrants
delivered in substitution or exchange therefor as provided herein.

     

    This
Common Stock Warrant is subject to the following terms and
conditions:

     

    1.           Term of Common Stock
Warrant. Subject to the terms and conditions set forth herein, this
Common Stock Warrant shall be exercisable, in whole or in part (but in no event
for less than the lesser of (i) 25,000 Warrant Shares and (ii) the remaining
Warrant Shares exercisable hereunder), on any business day during the period
(the “Exercise Period”)
commencing on the Closing
Date (as defined in the Purchase Agreement) and ending on the earlier to
occur of (x) the fifth anniversary date of the Closing Date, (y) a merger or
consolidation of the Company with or into any other person or entity, or tender
offer, or the sale of all or substantially all of the Company’s assets and
properties to any other person or entity (collectively, each a “Reorganization),
whereby in each instance the stockholders of the Company receive for each share
of the Company’s Common Stock held by them cash and/or securities with a fair
market value as determined in such transaction in excess of 110% of the Exercise
Price, and (z) the conditions set forth in Section 11 below.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    2.           Exercise of Common Stock
Warrant.

     

    (a)           Cash
Exercise.  This Common Stock Warrant may be exercised by the
Holder during the Exercise Period by (i) the surrender of this Common Stock
Warrant to the Company, with the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company) and (ii) the delivery of payment to the Company, for the account of the
Company, by cash, wire transfer of immediately available funds to a bank account
specified by the Company, or by certified or bank cashier’s check, in an amount
equal to the Exercise Price multiplied by the number of Warrant Shares for which
this Common Stock Warrant is being exercised as specified in the Notice of
Exercise, such payment to be made in lawful money of the United States of
America.  The Company agrees that such Warrant Shares shall be deemed
to be issued to the Holder as the record holder of such Warrant Shares as of the
close of business on the date on which this Common Stock Warrant shall have been
exercised and surrendered and payment made for the Warrant Shares as
aforesaid.  A stock certificate or certificates for the Warrant Shares
specified in the Notice of Exercise shall be delivered to the Holder as promptly
as practicable, and in any event within five (5) business days,
thereafter.  If this Common Stock Warrant shall have been exercised
only in part and has not otherwise expired, the Company shall, at the time of
delivery of the stock certificate or certificates, deliver to the Holder a new
Common Stock Warrant evidencing the right to purchase the remaining Warrant
Shares, which new Common Stock Warrant shall in all other respects be identical
with this Common Stock Warrant.  No adjustments shall be made on
Warrant Shares issuable on the exercise of this Common Stock Warrant for any
cash dividends or distributions paid or payable to holders of record of any
capital stock of the Company (except for Common Stock dividends as provided in
Section 10(c) below) prior to the date as of which the Holder shall be deemed to
be the record holder of such Warrant Shares.

     

    (b)           Net Issue
Exercise.  In lieu of exercising this Common Stock Warrant
pursuant to Section 2(a)
above, during the Exercise Period, the Holder may elect to convert this Common
Stock Warrant or any portion hereof into Warrant Shares, the aggregate value of
which shares shall be equal to the value of this Common Stock Warrant or portion
thereof being so converted.  The conversion right may be exercised by
the Holder by surrender of this Common Stock Warrant to the Company, with a duly
executed Notice of Exercise marked to reflect the Holder’s intention to exercise
the conversion right hereunder, in which event the Company shall issue to the
Holder a number of shares computed using the following formula:

     

    X = Y (A-B)

    A

     

    
      	
               
      

            	
              Where

            	
              X
      =

            	
              the
      number of shares to be issued to Holder under this Section 2(b)
      upon exercise of the conversion rights under this Section
      2(b);

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              Y
      =

            	
              the
      number of Warrant Shares otherwise purchasable under this Common Stock
      Warrant or, if only a portion of the Common Stock Warrant is exercised,
      the number of Warrant Shares with respect to which the Common Stock
      Warrant is being exercised (as adjusted to the date of such
      calculation);

            

    

     

    
      	
               
      

            	
              A
      =

            	
              the
      Fair Market Value (determined in the manner provided below) of one share
      of the Warrant Shares subject to this Common Stock Warrant as of the date
      of exercise of this Common Stock
Warrant;

            

    

     

    
      	
               
      

            	
              B
      =

            	
              the
      Exercise Price (as adjusted to the date of such
    calculation).

            

    

     

    (c)           Fair Market
Value.  For purposes of the above calculation, “Fair Market Value” of one
share of Warrant Shares shall be the sum of (i) the average of the closing bid
and asked prices of the Common Stock quoted in the Over-The-Counter Market
Summary or the last reported sale price of the Common Stock or the closing price
quoted on the Nasdaq National Market or any exchange on which the Common Stock
is listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal (or such other reference reasonably relied upon by the
Company if not so published), for the  twenty (20) trading days prior
to the date as of which the fair market value is being determined plus (ii) the
fair market value of (A) any securities (other than Common Stock) receivable
upon exercise of this Common Stock Warrant as a result of an adjustment pursuant
to Section 11 and (B) any other property receivable upon exercise of this Common
Stock Warrant as a result of an adjustment pursuant to Section 11(d) (the
“Adjustment Consideration”); provided, however, that if no Common Stock is then
quoted or listed or the fair market value of the Adjustment Consideration cannot
be determined by applying the procedures set forth in clause (i), the fair
market value of one share of Warrant Shares shall be determined by the Board of
Directors of the Company in good faith within ten (10) days of the date of the
Company’s receipt of Notice of Exercise based upon an arm’s length transaction
between a willing buyer and a willing seller and determined without reference to
any discount for minority interest, restrictions on transfer, disparate voting
rights among classes of capital stock or lack of marketability with respect to
capital stock and such determination (including the basis therefor) shall be
promptly provided to the Holder.  Such determination by the Board of
Directors shall be binding on the Holder unless the Holder objects thereto in
writing within ten (10) business days of receipt.  In the event the
Company and the Holder cannot agree on the Fair Market Value within ten (10)
business days of the date of the Holder’s objection, the Fair Market Value shall
be determined by a disinterested appraiser (which shall be a national or
regional investment bank or national accounting firm) mutually selected by the
Company and the Holder, the fees and expenses of which shall be paid by the
Company unless such determination results in a Fair Market Value no more
than  ten percent (10%) in excess of the Fair Market Value initially
determined by the Board of Directors of the Company, in which case such fees and
expenses shall be borne by the Holder.  Any selection of a
disinterested appraiser shall be made in good faith within seven (7) business
days after the end of the last ten (10) business day period referred to above
and any determination of Fair Market Value by a disinterested appraiser shall be
made within thirty (30) days of the date of selection.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (d)           Delivery of Common
Stock.  This Common Stock Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Warrant Shares issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date.  As promptly as practicable on or after such date and in
any event within five (5) business days thereafter, the Company at its expense
shall issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of shares issuable upon such
exercise.  In the event that this Common Stock Warrant is exercised in
part, the Company at its expense will execute and deliver with such certificate
or certificates a new Common Stock Warrant of like tenor exercisable for the
number of shares for which this Common Stock Warrant may then be
exercised.   Holder’s sole recourse for the Company’s failure to
deliver such certificate(s) hereunder shall be governed by Section 4 under the
Purchase Agreement; provided, however, that any penalties established under such
Section 4 shall be suspended for any period of time during which Holder is
disputing the “Fair Market Value” under Section 2(c) above such that the number
of shares issuable has not yet been determined.

     

    3.           No Fractional Shares or
Scrip/Minimum Exercise.  No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Common
Stock Warrant.  In lieu of any fractional share to which the Holder
would otherwise be entitled, the Company shall make a cash payment equal to the
difference between the Fair Market Value of one share of Warrant Shares and the
Exercise Price multiplied by such fraction (after aggregating all shares
issuable upon exercise thereof).

     

    4.           Replacement of Common Stock
Warrant.  On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Common Stock
Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement and security reasonably satisfactory in form and substance
to the Company or, in the case of mutilation, on surrender and cancellation of
this Common Stock Warrant, the Company at its expense shall execute and deliver,
in lieu of this Common Stock Warrant, a new Common Stock Warrant of like tenor
and amount.

     

    5.           Rights of a
Stockholder.  Subject to Section 10 of this
Common Stock Warrant, the Holder shall not be entitled to vote or receive
dividends or be deemed the holder of Warrant Shares for any purpose, and nothing
contained herein shall be construed to confer upon the Holder, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value, or change of stock to no par value, consolidation, merger, conveyance
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Common Stock Warrant shall have been
exercised as provided herein and then only as to the shares for which this
Common Stock Warrant has been so exercised.

     

    6.           Transfer of Common Stock
Warrant.

     

    (a)           Common Stock Warrant
Register.  The Company will maintain a register (the “Common Stock Warrant
Register”) containing the names and addresses of the Holder or
Holders.  Any Holder of this Common Stock Warrant or any portion
thereof may change such Holder’s address as shown on the Common Stock Warrant
Register by written notice to the Company requesting such change.  Any
notice or written communication required or permitted to be given to the Holder
may be delivered or given by mail to such Holder as shown on the Common Stock
Warrant Register and at the address shown on the Common Stock Warrant
Register.  Until this Common Stock Warrant is transferred on the
Common Stock Warrant Register of the Company, the Company may treat the Holder
as shown on the Common Stock Warrant Register as the absolute owner of this
Common Stock Warrant for all purposes, notwithstanding any notice to the
contrary.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (b)           Common Stock Warrant
Agent.  The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Common Stock Warrant
Register referred to in Section 6(a) above,
issuing the Common Stock Warrant Shares or other securities then issuable upon
the exercise of this Common Stock Warrant, exchanging this Common Stock Warrant,
replacing this Common Stock Warrant or any or all of the foregoing; provided
that such appointment shall not relieve the Company of its obligations
hereunder.  Thereafter, any such registration, issuance, exchange or
replacement, as the case may be, shall be made at the office of such
agent.

     

    (c)           Transferability and
Nonnegotiability of Common Stock Warrant.  This Common Stock
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee and compliance with the requirements set forth in
Section 6(d) and
6(e) below. Subject to the provisions of this Common Stock Warrant, title
to this Common Stock Warrant may be transferred by endorsement (by the Holder
executing the Assignment Form annexed hereto) and delivery in the same manner as
a negotiable instrument transferable by endorsement and delivery.

     

    (d)           Exchange of Common Stock
Warrant Upon a Transfer.  On surrender of this Common Stock
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Common Stock Warrant with respect to compliance with the
Act and applicable state securities laws and with the other limitations on
assignments and transfers contained in this Section 6, the
Company at its expense shall issue to or on the order of the Holder a new Common
Stock Warrant or Common Stock Warrants of like tenor, in the name of the Holder
or as the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise hereof at the time of
such surrender.

     

    (e)           Compliance with Securities
Laws.

     

    (i)           The
Holder of this Common Stock Warrant, by acceptance hereof, acknowledges that
this Common Stock Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Holder’s own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Common Stock Warrant or any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Act or any applicable state securities
laws.  Holder hereby represents and warrants that such Holder is and
any transferee hereunder shall be an “accredited investor” as such term is
defined under Regulation D promulgated by the Securities and Exchange
Commission. Any transferee of this Common Stock Warrant shall represent in
writing that it is an “accredited investor” as a condition to such
transfer.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (ii)           Subject
to the terms of the Purchase Agreement, this Common Stock Warrant and all
Warrant Shares issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities laws):

     

      "THE SECURITIES REPRESENTED BY THIS
INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B)
THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES
REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND ANY FURTHER QUALIFICATION REQUIREMENTS
UNDER APPLICABLE STATE LAW.”

     

    7.           Reservation of
Stock.  The Company covenants that during the Exercise Period,
the Company will reserve from its authorized and unissued shares a sufficient
number of shares to provide for the issuance of Warrant Shares upon the exercise
of this Common Stock Warrant.  The Company further covenants that all
shares issued upon the exercise of rights represented by this Common Stock
Warrant and payment of the Exercise Price, in the amount and otherwise all as
set forth herein, shall be free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer by Holder
occurring contemporaneously).  The Company further covenants that its
issuance of this Common Stock Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Common Stock Warrant.  The
Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the trading market upon
which the Common Stock may be listed.

     

    8.           Notices.  All
notices required or permitted hereunder to be given shall be in writing and
shall be telecopied or mailed by registered or certified mail, postage prepaid,
or otherwise delivered by hand or by messenger or overnight
courier,

     

    
      
        	
                If
      to the Company:

              	
                Patient
      Safety Technologies, Inc.

              
	 
      	
                43460
      Ridge Park Drive, Suite 140

              
	 
      	
                Temecula,
      CA 92951

              
	 
      	
                Attention:
      Steven H. Kane, President and Chief

                   Executive
      Officer

              
	 
      	
                Facsimile:
      951.587.6237

              
	 
      	 
      
	
                With
      a copy to:

              	
                Reed
      Smith LLP

              
	 
      	
                101
      Second Street, 20th
      Floor

              
	 
      	
                San
      Francisco, CA 94105

              
	 
      	
                Attn:
      Donald C. Reinke

              
	 
      	
                Facsimile:
      415.391.8269

              
	 
      	 
      
	
                If
      to any Holder:

              	
                The
      address set forth on the Company’s
records.

              

      

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    9.           Amendments. Any term
of this Common Stock Warrant hereunder may be amended, waived or terminated
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company, and the
Holder.  Any amendment, waiver or termination effected in accordance
with this Section
9 shall be binding upon the Company, the Holder and each transferee of
the Common Stock Warrants (and of any securities into which this Common Stock
Warrant is convertible).

     

    10.           Adjustments.  The
Exercise Price and the number of shares purchasable hereunder are subject to
adjustment from time to time as follows:

     

    (a)           Reclassification,
etc.  If the Company, at any time while this Common Stock
Warrant or any portion thereof is exercisable and remains outstanding and
unexpired, by reclassification of securities or otherwise, shall change any of
the securities as to which purchase rights under this Common Stock Warrant exist
into the same or a different number of securities of any other class or classes,
this Common Stock Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result of such
change with respect to the securities that were subject to the purchase rights
under this Common Stock Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section
10.

     

    (b)           Split, Subdivision or
Combination of Shares.  If the Company, at any time while this
Common Stock Warrant or any portion thereof is exercisable and remains
outstanding and unexpired, shall split, subdivide or combine the outstanding
shares of Warrant Shares into a different number of shares of Warrant Shares,
then (i) in the case of a split or subdivision, the Exercise Price for such
securities shall be proportionately decreased and the Warrant Shares issuable
upon exercise of this Common Stock Warrant shall be proportionately increased,
and (ii) in the case of a combination, the Exercise Price for such Warrant
Shares shall be proportionately increased and the securities issuable upon
exercise of this Common Stock Warrant shall be proportionately
decreased.  If the Warrant Shares are convertible into any other stock
or securities of the Company, then if all of the outstanding Warrant Shares
should be converted at any time  during the Exercise Period of this
Common Stock Warrant into shares of the Company’s Common Stock or other stock or
securities of the Company then (i) this Common Stock Warrant immediately shall
become exercisable for that number of shares of such stock or securities
(subject to further adjustment as herein provided) which would have been
received if this Common Stock Warrant had been exercised in full and the Warrant
Shares received thereupon had been simultaneously converted immediately prior to
such event, (ii) the Exercise Price hereunder shall be appropriately adjusted
and (iii) all references herein to Warrant Shares shall be automatically deemed
amended to be references to the stock or securities into which the Warrant
Shares was converted.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    (c)           Adjustments for Dividends in
Stock or Other Securities.  If, while this Common Stock Warrant
or any portion hereof is exercisable and remains outstanding and unexpired, the
holders of Common Stock (or any shares of stock or securities at the time
receivable upon exercise of this Common Stock Warrant) shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
capital stock or any other securities, or any rights or options to subscribe
for, purchase or otherwise acquire any of the foregoing, by way of dividend,
then and in each case, Holder shall be entitled to receive upon exercise of this
Common Stock Warrant, in addition to the number of shares of the security
receivable upon exercise of this Common Stock Warrant, and without payment of
any additional consideration therefor, the amount of such capital stock and
other securities that the Holder would hold on the date of such exercise had it
been the holder of record of such capital stock as of the date on which the
holders of capital stock received or became entitled to receive such capital
stock or other securities.

     

    (d)           Merger, Consolidation or
Sale of Assets.  If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section
10) or a merger or consolidation of the Company with or into any other
person or entity, or the sale of all or substantially all of the Company’s
assets and properties to any other person or entity, then as a part of such
reorganization, merger, consolidation or sale, unless this Common Stock Warrant
has expired in accordance with the terms set forth in Section 1 above, provision
shall be made so that the Holder shall thereafter be entitled to receive upon
the exercise of this Common Stock Warrant, the number of shares of stock or
other securities or property of the Company, or of the successor corporation
resulting from such reorganization, merger, consolidation or sale, to which a
holder of the number of shares of Common Stock issuable upon the exercise of
this Common Stock Warrant would have received if this Common Stock Warrant had
been exercised immediately prior to such reorganization, merger, consolidation
or sale and all references herein to Warrant Shares shall be automatically
deemed amended to be references to the shares of stock or other securities or
property receivable upon exercise of this Common Stock Warrant; provided, that,
as a condition to any merger, consolidation, or sale of substantially all of the
assets of the Company, unless this Common Stock Warrant has expired in
accordance with the terms set forth in Section 1 above, the Company shall
require that the surviving corporation assume in writing the obligations
pursuant to this Common Stock Warrant.

     

    (e)           Calculations.  All
calculations under this Section 10 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 10,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     

    (f)           Notice to
Holder.

     

    (i)            Whenever
an adjustment is made pursuant to any provision of this Section 10, the Company
shall promptly mail to the Holder a notice setting forth such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (ii)           If
(A) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property or
(B) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each case, the
Company shall cause to be mailed to the Holder at its last address as it shall
appear upon the Common Stock Warrant Register, at least twenty (20) calendar
days prior to the applicable effective date, a notice stating the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.

     

    (iii)             In
the event the Company intends to declare a dividend in cash or other property on
its Common Stock, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Common Stock Warrant Register, at least
fifteen (15) calendar days prior to the applicable record date, a notice
describing the dividend and providing the record date for such
dividend.

     

    11.           Early
Exercise/Termination. If for a sixty (60) consecutive trading day period
the average of the closing bid and asked prices of the Common Stock quoted in
the Over-The-Counter Market Summary or the last reported sale price of the
Common Stock or the closing price quoted on the Nasdaq National Market or any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal (or such other
reference reasonably relied upon by the Company if not so published) is greater
than or equal to Fifty Percent (50%) above the Exercise Price with at least an
average of Fifty Thousand (50,000) shares traded per day (appropriately adjusted
for stock splits, combinations, reclassifications and the like) during such
period (the “Early Termination  Event”), then on the tenth business
day following written notice from the Company notifying Holder of the Early
Termination Event, if Holder has not elected to exercise this Warrant for cash
pursuant to Section 2(a) above on or prior to such 10th
business day, then this Warrant shall be deemed automatically exercised on such
10th
business day pursuant to the cashless/net exercise provisions under Section 2(b)
above; provided, however, that until Holder has complied with the Warrant
delivery and any other obligations under Section 2(d), the Company shall have no
obligation to deliver share certificates nor shall any damages begin to accrue
for failure to deliver such certificates until Holder’s compliance under Section
2(d).

     

    12.           No
Impairment.  The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Common Stock
Warrant and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder against
impairment.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    13.           Right of First
Refusal.  For a period of the earlier to occur of a
Reorganization and one year following the Closing Date (the “RofFR Period”),
Holder has the right of first refusal to purchase  Holder’s Pro Rata
Share (as defined below), of any “New Securities” (as defined below) that the
Company may issue during the RofFR Period at a price below Fair Market
Value.  Holder’s “Pro Rata
Share” for purposes of this right of first refusal is the ratio of
(a) the number of Warrant Shares exercised or exercisable under Holder’s
Warrants to (b) a number of shares of Common Stock equal to the sum of (1)
the total number of shares of Common Stock then outstanding plus (2) the total
number of shares of Common Stock into which all then-outstanding Common Stock
Equivalents (as defined below) are then convertible. “New
Securities” shall mean any Common Stock or Preferred Stock of the
Company, whether now authorized or not, and rights, options or warrants to
purchase such Common Stock or Preferred Stock, and securities of any type
whatsoever that are, or may become, convertible or exchangeable into such Common
Stock or Preferred Stock; provided, however, that the
term “New Securities” does not include (i) the
issuance of Common Stock or Common Stock Equivalents upon the conversion or
exercise of any securities or rights to acquire securities of the Company or a
Subsidiary outstanding on the Closing Date (including any adjustments provided
thereunder or any issuances that trigger an adjustment to the number of Warrant
Shares hereunder), (ii) the issuance of any Common Stock or Common Stock
Equivalents pursuant to any Company equity incentive plan approved by the
Company’s stockholders and in place as of the Closing Date, (iii) the issuance
of Common Stock or Common Stock Equivalents pursuant to acquisitions of other
entities by the Company by merger, purchase of substantially all of the assets
or other reorganization,  (iv) the issuance of Common Stock or Common
Stock Equivalents in connection with strategic transactions or joint ventures
approved by a majority of the disinterested directors of the Company, or (v) the
issuance of Common Stock or Common Stock Equivalents in connection with any
product sale,  technology license or acquisition, development
agreement, or marketing agreement. “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock. In the event that the Company proposes to undertake an issuance of New
Securities, it shall give to Holder a written notice of its intention to issue
New Securities (the “Notice”),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Holder shall have 15
days from the date such Notice is delivered to agree in writing to purchase
Holder’s Pro Rata Share of such New Securities for the price and upon the
general terms specified in the Notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased (not to
exceed Holder’s Pro Rata Share).  If Holder fails to so agree in
writing within such fifteen-day period to purchase Holder’s full Pro Rata Share
of an offering of New Securities, then Holder shall forfeit the right hereunder
to purchase that part of its Pro Rata Share of such New Securities that Holder
did not so agree to purchase. In the event that Holder fails to exercise in full
the right of first refusal within such fifteen-day period, then the Company
shall have one hundred twenty days thereafter to sell the balance of the New
Securities on financial terms no less favorable to the investors in question
than as set forth in the Notice without having to again offer the New Securities
to Holder under the provisions of this Section 13.

     

    14.           Miscellaneous.

     

    (a)           This
Common Stock Warrant and all acts and transactions pursuant hereto and the
rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Delaware without regard
to the conflict of law provisions thereof and venue shall be established in the
State of Delaware.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (b)           In
the event of a dispute with regard to the interpretation of this Common Stock
Warrant, the prevailing party may collect the cost of attorney’s fees,
litigation expenses or such other expenses as may be incurred in the enforcement
of the prevailing party’s rights hereunder.

     

    (c)           This
Common Stock Warrant shall be exercisable as provided for herein, except that in
the event that the expiration date of this Common Stock Warrant shall fall on a
day other than a business day, the expiration date for this Common Stock Warrant
shall be extended to 5:00 p.m. Eastern standard time on the first business day
following such day.  For all purposes of this Common Stock Warrant, a
business day shall mean any day, other than a Saturday or a Sunday, upon which
banks are open for business in Delaware.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, PATIENT SAFETY TECHNOLOGIES, INC. has caused this Common Stock
Warrant to be executed as of the date first above written.

    

    
      
        	
                COMPANY:

              
	 
      
	
                PATIENT
      SAFETY TECHNOLOGIES INC.

              
	
                a
      Delaware corporation

              
	 
      
	
                By:

              	
                   

              
	 
      	
                Steven
      H. Kane

              
	 
      	
                President
      and Chief Executive Officer

              
	 
      
	
                AGREED AND
      ACCEPTED:

              
	 
      
	
                HOLDER:

              
	 
      
	
                CARDINAL
      HEALTH, INC.

              
	 
      
	
                By:

              
	 
      
	
                    

              
	
                [Print
      Name]

              
	 
      
	
                   

              
	
                [Title]

              

      

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    NOTICE
OF EXERCISE

     

    To:           PATIENT
SAFETY TECHNOLOGIES, INC.

     

    (1)           The
undersigned hereby:

     

    
      	
               
      

            	
               ̈

            	
              elects
      to purchase __________ shares of Warrant Shares (as defined in the
      attached Common Stock Warrant) of PATIENT SAFETY TECHNOLOGIES, INC.
      pursuant to the terms of the attached Common Stock Warrant, and tenders
      herewith payment of the purchase price for such shares in full;
      or

            

    

     

    
      	
               
      

            	
               ̈

            	
              elects
      to exercise the conversion right features under Section 2(b) of
      the attached Common Stock Warrant with respect to __________ shares of
      Warrant Shares of PATIENT SAFETY TECHNOLOGIES, INC. pursuant to the terms
      of such Common Stock Warrant.

            

    

     

    (2)           Please
issue a certificate or certificates representing said shares of Warrant Shares
in the name of the undersigned:

     

    
      
        
          
            
              
                
                  
                    
                      	 	
                                 

                            	 
	 	
                              (Name)

                            	 
	 	 
      	 
	 	
                                 

                            	 
	 	
                              (Name)

                            	 

                    

                  

                

              

            

          

        

      

    

     

    (3)           Please
issue a new Common Stock Warrant for the unexercised portion of the attached
Common Stock Warrant in the name of the undersigned:

    

    
      
        
          
            
              
                
                  	 
      	 
      	
                             

                        	 
	 
      	 
      	
                          (Name)

                        	 
	 	 	 	 
	
                             

                        	 
      	
                             

                        	 
	
                          (Date)

                        	
                            

                        	
                          (Signature)

                        	 

                

              

            

          

        

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    ASSIGNMENT
FORM

     

    FOR VALUE
RECEIVED, the undersigned registered owner of this Common Stock Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Common Stock Warrant, with respect to the number of
shares of Warrant Shares (as defined in the this Common Stock Warrant) set forth
below:

     

    
      
        
          
            
              
                	
                        Name of Assignee

                      	 	
                        Address

                      	 	
                        No. of
Shares

                      

              

            

          

        

      

    

     

    and does
hereby irrevocably constitute and appoint the Secretary of the Company to make
such transfer on the books of PATIENT SAFETY TECHNOLOGIES, INC. maintained for
such purpose, with full power of substitution in the premises.

     

    The
Assignee represents that it will not offer, sell or otherwise dispose of this
Common Stock Warrant or any shares of stock to be issued upon exercise hereof or
conversion thereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended, or any applicable state
securities laws.

     

    Dated:                                                      

     

    
      
        
          
            
              	 	
                         

                    	 
	 	
                      Signature
      of Holder

                    	 

            

          

        

      

    

     

    The
undersigned hereby agrees to be bound by the terms of the attached Common Stock
Warrant on this __ day of __________, 20__.

     

    ASSIGNEE:

     

    
      
        
          
            
              	
                         

                    	 
	
                      [Name]

                    	 
	 
      	 
	
                      By:

                    	
                         

                    	 
	
                      Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}]]