Document:

ex_10-1.htm

    PURCHASE
      AND SALE AGREEMENT

    

    THIS
      PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into as of the
      29th day of March, 2007, by and between AMERISTATE EXPLORATION,
      LLC, a Texas  limited liability company whose address is 401
      Congress, Suite 2900, Austin, Texas 78701 ("Seller"), and LEGACY
      RESERVES OPERATING LP, a Delaware limited partnership, whose address is
      303 West Wall, Suite 1600, Midland, Texas  79701
      ("Purchaser").

    

    R
      E C I T A L S:

    

    Seller
      desires to sell, and Purchaser desires to purchase, certain oil and gas
      properties and related rights on the terms and conditions set forth in this
      Agreement.

    

    NOW,
      THEREFORE, in consideration of the premises, the mutual covenants, agreements,
      and obligations hereinafter set forth, and other good and valuable
      consideration, the legal sufficiency of which is hereby acknowledged, Seller
      and
      Purchaser have agreed and do hereby agree as follows:

    

    ARTICLE
      I

    

    SALE
      AND PURCHASE

    

    1.01           Effective
      Time. The effective date and time of the purchase and sale
      contemplated hereby shall be 7:00 a.m., local time where the applicable
      properties are situated, on January 1, 2007 (the “Effective Time”).

    

    1.02           The
      Assets.  Subject to all of the terms and conditions of
      this Agreement, Seller agrees to sell, convey, and deliver to Purchaser, and
      Purchaser agrees to purchase, pay for, and accept from Seller, effective as
      of
      the Effective Time, all of the following assets, less the Excluded Assets
      (hereinafter defined), (as so limited, the “Assets”):

    

    
      	
               

            	
              (a)

            	
              All
                of Seller's right, title, and interest in and to the oil and gas
                leases,
                lands, and other property rights described on Exhibit
                A attached hereto and made a part hereof for all purposes
                (collectively, the "Leases"), including, without limitation, all
                leasehold, overriding royalty, royalty, mineral, surface or other
                interests in the Leases or in the lands covered by the
                Leases;

            

    

    

     

      
        	
                 

              	
                (b)

              	
                All
                  of Seller's right, title, and interest in and to all improvements,
                  fixtures, personal property, easements, permits, licenses, servitudes,
                  and
                  rights-of-way to the extent the same are situated upon and used
                  or held
                  for use in connection with the exploration, development, or operation
                  of
                  the Leases, or the production, treating, storage, or transportation
                  of
                  oil, gas, other hydrocarbons, or other minerals or the disposal
                  of water
                  or other wastes

              

      

      

      

      
        
          
          

        

        
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      therefrom,
        including, without limitation, all wells (whether producing, plugged and
        abandoned, shut-in, injection, disposal, or water supply wells), tanks, boilers,
        buildings, machinery and other equipment, pipelines, power lines, telephone
        and
        telegraph lines, roads, and other appurtenances to the extent the same are
        situated upon and used or held for future use in connection with the
        exploration, development, or operation of the Assets and/or the production,
        treating, storing, or transportation of oil, gas, other hydrocarbons, or
        other
        minerals or the disposal of water or other wastes therefrom;

    

    

    
      	
               

            	
              (c)

            	
              All
                of Seller's right, title, and interest in, to, under, or derived
                from any
                presently existing and valid unitization, communitization and pooling
                agreements and the units created thereby (including all units formed
                by
                voluntary agreements and those formed under orders, regulations,
                rules, or
                other official acts of any federal, state, or other governmental
                agency
                having jurisdiction);

            

    

    

    
      	
               

            	
              (d)

            	
              All
                of Seller's right, title, and interest in, to, under, or derived
                from all
                of the presently existing and valid oil, casinghead gas and gas sales,
                purchase, exchange, operating, and processing contracts and agreements,
                and all other contracts, agreements, and instruments relating to
                the
                Leases, including, but not limited to, the agreements listed on
                Exhibit A attached hereto and made a part hereof
                for all purposes (the "Contracts");

            

    

    

    
      	
               

            	
              (e)

            	
              To
                the extent transferable, copies of all of Seller's  seismic,
                geological, and geophysical data, records, information, and
                interpretations in any way related to the Leases or any lands or
                leases
                pooled, communitized or unitized therewith (the "Geoscientific Rights
                and
                Data");

            

    

    

    
      	
               

            	
              (f)

            	
              All
                of Seller's right, title, and interest in and to all lease files,
                land
                files, well files, production records, division order files, abstracts,
                title opinions, and contract files, insofar as they are directly
                related
                to the Leases or any lands or leases pooled, communitized or unitized
                therewith (collectively, the “Records”);
                and

            

    

    

    
      	
               

            	
              (h)

            	
              All
                of Seller's right, title, and interest in and to all oil, gas, and
                other
                hydrocarbon substances produced from or attributable or allocable
                to the
                Leases on and after the Effective
                Time.

            

    

    

    1.03           Excluded
      Assets.  Notwithstanding anything in this Agreement to
      the contrary, the Assets do not include, and Seller hereby expressly excludes
      from this sale and reserves unto itself, its successors and assigns, any and
      all
      rights, titles, and interests of Seller in and to the following 

     

    
      
        
        

      

      
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      (collectively,
        the “Excluded Assets”):  (a) Seller's corporate, financial, and tax
        records and legal files, except that Seller will provide Purchaser with copies
        of any tax records that are necessary for Purchaser's ownership, administration,
        or operation of the Assets; (b) all claims and causes of action of Seller
        arising from or related to the ownership or operation of the Leases for all
        periods of time prior to the Effective Time; (c) all prepayments, deposits,
        and
        advances of Seller with respect to the Leases;  and (d) all oil, gas,
        and other hydrocarbon substances produced from or attributable or allocable
        to
        Seller's interest in the Leases for periods prior to the Effective
        Time.

    

    
       

    

    

    ARTICLE
      II

    

    CONSIDERATION

    

    2.01           Purchase
      Price.  As the monetary consideration for the sale and
      transfer of the Assets pursuant to this Agreement, Purchaser shall pay to Seller
      at the Closing (hereinafter defined) the sum of FIVE MILLION FIVE HUNDRED
      THOUSAND DOLLARS ($5,500,000) (the “Purchase Price”), subject to adjustment as
      hereinafter provided in this Agreement.  Seller and Purchaser agree to
      allocate the Purchase Price among the Assets as shown on attached
Schedule 2.01 and agree to be bound by such allocation
      for federal income tax purposes and all other purposes incident to this
      Agreement.

    

    2.02           Like-Kind
      Exchange Rights of Seller.  In lieu of the sale of the
      Assets to Purchaser for the cash consideration provided herein, Seller shall
      have the right at any time prior to Closing to assign all or a portion of its
      rights under this Agreement to a qualified intermediary in order to effectuate
      the transactions contemplated hereby in a manner that will comply, either in
      whole or in part, with the requirements of a “like-kind exchange” pursuant to
      Section 1031 of the Internal Revenue Code of 1986, as amended (the
“Code”).  If Seller assigns its rights under this Agreement pursuant
      to this Section 2.02, Seller agrees to notify Purchaser in writing of the
      assignment prior to Closing.  If Seller so assigns its rights under
      this Agreement, Purchaser agrees to (i) consent in writing to Seller’s
      assignment of its rights under this Agreement, (ii) deposit the adjusted
      Purchase Price in the qualified escrow or qualified trust account designated
      by
      Seller at Closing, and (iii) take such further actions, at Seller’s cost, as are
      reasonably required to effectuate the transactions contemplated hereby pursuant
      to Code Section 1031, but, in so acting, Purchaser shall have no liability
      to
      any party in connection with such actions.  All risk associated with
      any like kind exchange and compliance thereof with applicable laws, rules,
      and
      regulations shall be the sole responsibility of Seller, and Seller agrees to
      indemnify and hold Purchaser harmless from and against all costs, expenses,
      liabilities, and obligations which arise as a result of Purchaser’s facilitation
      of any such exchange pursuant to this Section 2.02.

    

    
      
        
        

      

      
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    ARTICLE
      III

    

    REPRESENTATIONS
      AND WARRANTIES OF SELLER

    

    Seller
      represents, warrants, and covenants to and with Purchaser as
      follows:

    

    3.01
      Organization/Good Standing.  Seller is a Texas
      limited liability company duly organized, validly existing, and in good standing
      under the laws of the state of its formation and is in good standing in all
      jurisdictions where it conducts business.

    

    3.02           Power.  Seller
      has the requisite power and authority to enter into and perform this Agreement
      and the transactions contemplated hereby.  The execution, delivery,
      and performance of this Agreement by Seller, and the transactions contemplated
      hereby, will not (a) violate any provision of Seller's articles of organization
      or other governing documents, (b) conflict with, result in a breach of,
      constitute a default (or an event that with the lapse of time or notice, or
      both, would constitute a default) under any agreement or instrument to which
      Seller is a party or by which such Seller is bound, (c) violate any judgment,
      order, ruling, or decree applicable to Seller and entered or delivered in a
      proceeding in which Seller was or is a named party, or (d) to the best knowledge
      of Seller, violate any applicable law, rule or regulation.

    

    3.03           Authorization.  The
      execution, delivery, and performance of this Agreement and the transactions
      contemplated hereby have been duly and validly authorized by all requisite
      action on the part of Seller.  This Agreement has been duly executed
      and delivered on behalf of Seller, and at the Closing all documents and
      instruments required hereunder to be executed and delivered by Seller shall
      be
      duly executed and delivered.  This Agreement constitutes, and such
      documents and instruments shall constitute, legal, valid, and binding
      obligations of Seller, enforceable in accordance with their terms, subject,
      however, to the effect of bankruptcy, insolvency, reorganization, moratorium,
      and similar laws from time to time in effect relating to the rights and remedies
      of creditors, as well as to general principles of equity (regardless of whether
      such enforceability is considered in a proceeding in equity or at
      law).

    

    3.04           Brokers.  Seller
      has incurred no obligation or liability, contingent or otherwise, for brokers'
      or finders' fees in respect of the matters provided for in this Agreement which
      will be the responsibility of Purchaser, and any such obligation or liability
      that might exist shall be the sole obligation of Seller.

    

    3.05           Foreign
      Person.  Seller is not a “foreign person” within the
      meaning of the Code.

    

    3.06           Suits.  Except
      as set forth on attached Schedule 3.06, there is no
      suit, action, claim, investigation or inquiry by any person or entity or by
      any
      administrative agency or governmental authority and no legal, administrative
      or
      arbitration proceeding pending or, to Seller's knowledge, threatened against
      Seller, any Affiliate of Seller or the Assets, which could materially
      adversely

     

    
      
        
        

      

      
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      affect
        the use, operation, or value of the Assets or the consummation of the
        transaction contemplated by this Agreement.

    

    

    3.07           Royalties.  To
      Seller’s knowledge, all rentals, royalties and other payments due under the
      Leases have been paid, except those amounts properly held in suspense and where
      such failure would not have a material adverse effect on any of the
      Assets.

    

    3.08           Taxes.  To
      Seller’s knowledge, all ad valorem, property, production, severence, excise and
      similar taxes and assessments based on or measured by the ownership of the
      Assets or the production of hydrocarbons or receipt of proceeds from the Assets
      that have become due and payable have been paid.

    

    3.09           Contracts.  To
      Seller’s knowledge, all of the Contracts (i) are in full force and effect, and
      (ii) Seller is not in default with respect to any of its material obligations
      thereunder.

    

    3.10           No
      Violation of Laws.  To Seller's
      knowledge, Seller has not violated any applicable laws (excluding Environmental
      Laws which are handled exclusively under Article V) with respect to the
      ownership or operation of the Assets.

    

    3.11           Prepayments.  To
      Seller’s knowledge, there have been no advanced, take or pay or other
      prepayments with respect to the Assets that would obligate Seller or Purchaser
      to deliver hydrocarbon production from the Assets after the Effective Time
      without receiving full payment therefor.

    

    3.12           Production
      Sales Contracts.  To Seller’s knowledge,
      there are no production sales contracts pertaining to the Assets that provide
      for a fixed price and that cannot be cancelled at any time upon 90 days (or
      less) prior notice.

    

    3.13           Preferential
      Purchase Rights and Third Party
      Consents.  To Seller's knowledge, except
      as set forth on Schedule 3.13 attached hereto, there are
      no preferential purchase rights or third party consents to assignment pertaining
      to the Assets or the transaction contemplated hereby.

    

    3.14           Outstanding
      Capital Commitments.  Except as set
      forth on Schedule 3.14 attached hereto, there are no
      pending AFE's with respect to which the time period for responding has not
      yet
      expired, and there are no outstanding AFE's or other commitments to make capital
      expenditures which are binding on Seller or the Assets and which Seller
      reasonably anticipates will severally require expenditures in excess of $50,000
      to the interest of Seller.

    

    3.15           Gas
      Imbalances.  To the knowledge of Seller,
      except as set forth on Schedule 3.15 attached hereto,
      there are no gas imbalances with respect to the Assets.

    

    Except
      as expressly provided in this
      Agreement or in the Assignment and Bill of Sale, Seller

     

    
      
        
        

      

      
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    makes
      no
      representations or warranties whatsoever and disclaims all liability and
      responsibility for any other representation, warranty, statement or information
      made or communicated (orally or in writing) to Purchaser (including, but not
      limited to, any information contained in the files or any opinions, information
      or advice which may have been provided to Purchaser by any officer, member,
      manager, employee, agent, consultant or representative of Seller or any of
      its
      Affiliates).  Purchaser acknowledges that Seller has not made,
AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION
      OR
      WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING
      TO
      (a) THE CONDITIONS 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), (b) ANY INFRINGEMENT BY SELLER
      OF
      ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (c) ANY INFORMATION,
      DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF
      OF SELLER (INCLUDING WITHOUT LIMITATION, WITH RESPECT TO GEOLOGICAL DATA, THE
      EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY
      OF
      OR THE COST OF RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY
      PRODUCT PRICING ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION
      AFTER
      CLOSING); provided, however, that the foregoing disclaimer and negation
      of representations and warranties shall not affect or impair the representations
      of Seller as set forth in this Article III or in the Assignment and Bill of
      Sale. THE SALE OF THE WELLS, EQUIPMENT AND FACILITIES HEREUNDER SHALL BE
      "AS IS, WHERE IS, WITH ALL FAULTS."

    

    ARTICLE
      IV

    

    REPRESENTATIONS
      AND WARRANTIES OF PURCHASER

    

    Purchaser
      represents and warrants to Seller that:

    

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

    

    4.02           Power.  Purchaser
      has the requisite power and authority to enter into and perform this Agreement
      and the transactions contemplated hereby.  The execution, delivery and
      performance of this Agreement by Purchaser, and the transactions contemplated
      hereby, will not (a) violate any provision of Purchaser's limited partnership
      agreement or other governing documents; (b) to the best knowledge of Purchaser,
      conflict with, result in a breach of, constitute a default (or an event that
      with the lapse of time or notice, or both, would constitute a default) under
      any
      agreement or instrument to which Purchaser is a party or by which Purchaser
      is
      bound, (c) to the best knowledge of Purchaser, violate any judgment, order,
      ruling, or decree applicable to Purchaser and entered or delivered in
      a

     

    
      
        
        

      

      
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      proceeding
        in which Purchaser was or is a named party; or (d) to the best knowledge
        of
        Purchaser, violate any applicable law, rule or regulation.

    

    

    4.03           Authorization.  The
      execution, delivery and performance of this Agreement and the transactions
      contemplated hereby have been duly and validly authorized by all requisite
      action on the part of Purchaser.  This Agreement has been duly
      executed and delivered on behalf of Purchaser, and at the Closing all documents
      and instruments required hereunder to be executed and delivered by Purchaser
      shall have been duly executed and delivered.  This Agreement and such
      documents and instruments shall constitute legal, valid, and binding obligations
      of Purchaser, enforceable in accordance with their terms, subject, however,
      to
      the effect of bankruptcy, insolvency, reorganization, moratorium, and similar
      laws from time to time in effect relating to the rights and remedies of
      creditors, as well as to general principles of equity (regardless of whether
      such enforceability is considered in a proceeding in equity or at
      law).

    

    4.04           Brokers.  Purchaser
      has not incurred any obligation or liability, contingent or otherwise, for
      brokers' or finders' fees in respect of the matters provided for in this
      Agreement which will be the responsibility of Seller, and any such obligation
      or
      liability that might exist shall be the sole obligation of
      Purchaser.

    

    ARTICLE
      V

    

    PURCHASER’S
      DUE DILIGENCE REVIEW

    

    5.01           Access
      of Purchaser; Confidentiality.  Pending Closing, Seller
      will make available to Purchaser, for examination in Seller's offices during
      normal business hours, such of the Records and such other existing records,
      files, data, and other information of Seller relating to the Assets as Purchaser
      may reasonably request and as Seller may lawfully provide without violating
      any
      existing agreements with third parties respecting confidentiality or
      dissemination thereof, including, but not limited to, any such lease files,
      land
      files, well files, production purchase and sale contracts, division order files,
      abstracts, title opinions, engineering and geological reports, maps, logs,
      and
      well records of Seller relating to the Assets.  Prior to Closing,
      Purchaser, at Purchaser's sole expense, may copy any portion of the Records
      which Purchaser deems necessary for purposes incident to this
      Agreement.  To the extent Seller may confer authority to do so, Seller
      shall likewise permit Purchaser and its authorized representatives to conduct,
      at Purchaser’s sole risk and expense, on-site inspections and inventories of the
      Assets, including, without limitation, Phase I environmental
      assessments.  Purchaser shall keep and hold all records and other
      information of a non-public information derived from its examinations,
      inspections, and assessments pursuant to the foregoing strictly confidential
      and
      shall not disclose the same to any third party without the prior written consent
      of Seller.  If this transaction fails to close for any reason,
      Purchaser shall immediately return to Seller or, at Seller’s option, destroy all
      such records obtained by Purchaser from Seller.  Purchaser
      additionally agrees to indemnify and hold Seller harmless from and against
      any
      and all claims, demands, causes of action, liabilities, losses, and/or expenses
      (including reasonable attorneys’ fees

     

    
      
        
        

      

      
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      and
        costs
        of court) that may be suffered or incurred by Seller in connection with any
        inspections or assessments conducted by Purchaser, SAVE AND EXCEPT AS MAY
        BE
        OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL ACT OF SELLER.

    

    

    5.02           Examination
      and Review of Assets.

    

                          (a)           Assertion
      of Defects.  Purchaser may, at its sole cost, conduct
      such title examinations or investigations, and other examinations and
      investigations for which any required approvals from third parties are obtained,
      as it may in its sole discretion chose to conduct with respect to the Assets
      in
      order to determine whether or not any Defects (hereinbelow de­fined)
      exist.  Should, as a result of such examinations and investigations or
      otherwise, matters come to Purchaser’s attention which would constitute Defects,
      and should there be one or more of such Defects which Purchaser is unwilling
      to
      waive, Purchaser shall notify Seller in writing of such Defects by no later
      than
      three (3) days prior to the Closing Date.  Any Defects of which
      Purchaser so provides notice are herein referred to as “Asserted
      Defects.”  All Defects with respect to which Purchaser fails to so
      give notice to Seller shall be deemed waived by Purchaser for all
      purposes.

    

    (b)           Treatment
      of Asserted Defects.  In the event that Purchaser timely
      notifies Seller of Asserted Defects, Seller shall, at its sole option, have
      the
      option to deal with any particular such Asserted Defect in any of the following
      manners:

    

    (i)           Seller
      may attempt to cure, prior to Closing, such Asserted Defect or may, at any
      time
      before the Closing Date, postpone the Closing by designating a new Closing
      Date
      not later than fifteen (15) days after the prior Closing Date, if Seller desires
      additional time to attempt to cure (including determining if it will attempt
      to
      cure) such Asserted Defect; or

    

    (ii)           Seller
      shall have the right to handle such Asserted Defect in accordance with the
      provisions of Section 5.04, below.

    

    (c)           Definition
      of Defect.  As used in this Agreement, the term “Defect”
shall mean any of the following:

    

    (i)           Seller’s
      ownership of the Assets is such that, based upon customary title examination
      standards in the jurisdiction where the Assets are situated, it (a) will entitle
      Seller to receive a decimal share of the oil, gas, and other hydrocarbons
      produced from the lands to which it has become effective that is less than
      the
      decimal share set forth on attached Exhibit A under the
      column headed “Net Revenue Interest” or (b) causes Seller to be obligated to
      bear a decimal share of the cost of operation of the Assets that is greater
      than
      the decimal share set forth on attached Exhibit A under
      the column headed “Working Interest” (without at least a proportionate increase
      in the share of production to which Seller is entitled to receive from the
      applicable lands);

    

    
      
        
        

      

      
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    (ii)           Seller’s
      ownership of the Assets is subject to a lien other than (a) liens which will
      be
      released at or before Closing, (b) liens for taxes not yet delinquent, or (c)
      a
      mechanic’s or materialman’s lien (or other similar lien) or a lien under an
      operating agreement or similar agreement, to the extent the same relates to
      expenses incurred which are not yet delinquent;

    

    (iii)           Subject
      to the provisions of Section 5.03 hereof, Seller’s transfer of the Assets is
      subject to a preferential right of purchase or a required consent from third
      parties, unless a waiver of such preferential right or the execution of such
      consent has been obtained with respect to the transaction contemplated hereby
      or, in the case of a preferential right of purchase, an appropriate tender
      of
      the applicable interests has been made to the party holding such right and
      the
      period of time required for such party to exercise such right has expired
      without exercise of such right;

    

    (iv)           The
      Assets are in violation or have been cited for violation of Applicable
      Environmental Laws (hereinafter defined) in any material respect.  As
      used in this Agreement, Applicable Environmental Laws shall mean all federal,
      state, or local laws, rules, orders, or regulations pertaining to the
      environment, including those relating to hazardous substances; or

    

    (v)           The
      Assets are encumbered or burdened by any contract or agreement (other than
      those
      specifically described on attached Exhibit A) which
      materially interferes with or impairs the use, value, and/or enjoyment
      thereof.

    

    5.03           Preferential
      Rights/Consents to Transfer.  Purchaser acknowledges that
      certain preferential purchase rights or rights of approval or consent in favor
      of third parties may exist with respect to the Assets.  Seller shall
      use reasonable efforts to notify all holders of preferential rights or rights
      of
      consent to assignment of its intention to convey the Assets to Purchaser at
      Closing and of such terms and conditions of this Agreement to which the holders
      of such rights are entitled.  Seller shall promptly notify Purchaser
      if any preferential rights are exercised, any consents or approvals are denied,
      or if the requisite period has elapsed without such rights having been exercised
      or such consents or approvals having been received.  If, prior to
      Closing, any such preferential rights are timely and properly exercised, or
      Seller is unable to obtain a necessary consent or approval prior to Closing,
      the
      portion of the Assets so affected shall be withdrawn from this Agreement and
      the
      Purchase Price reduced proportionately to reflect the withdrawal of such
      interests.  If any additional third party preferential purchase rights
      are discovered after Closing, or if a third-party holder of preferential rights
      alleges improper notice, Purchaser agrees to cooperate with Seller in giving
      effect to any such valid third party preferential purchase rights.  If
      any such valid third party preferential purchase rights are validly exercised
      after Closing, Purchaser shall satisfy all preferential purchase right
      obligations of Seller to such holder(s) and Purchaser shall be entitled to
      receive (and Seller hereby assigns to Purchaser all of Seller's rights to)
      all
      proceeds received from such holder in connection with such preferential purchase
      rights.

    

    5.04           Adjustments
      to Purchase Price.  If any Asserted Defects are timely
      and properly presented by Purchaser to Seller and Seller is unable or unwilling
      to cure the same, Purchaser and

     

    
      
        
        

      

      
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      Seller
        shall, with respect to the Assets affected by such matters, attempt in good
        faith to agree upon an appropriate adjustment to the Purchase Price to account
        for such matters.  If Purchaser and Seller are unable in good faith to
        agree upon an appropriate adjustment pursuant to the foregoing, then either
        Seller or Purchaser may terminate this Agreement and, except as otherwise
        specifically provided in this Agreement, neither party shall have any further
        rights or obligations hereunder.

    

    

    ARTICLE
      VI

    

    OPERATION
      OF THE ASSETS PENDING CLOSING

    

    Seller
      covenants and agrees that from and after the execution and delivery of this
      Agreement and until the Closing Date:

    

    6.01           Maintenance
      of Assets.  Seller will not sell, transfer, assign,
      convey, or otherwise dispose of any of the Assets, other than (a) oil, gas,
      and
      other hydrocarbons produced, saved, and sold in the ordinary course of business
      and (b) personal property and equipment which is replaced with property and
      equipment of comparable or better value and utility in the ordinary and routine
      maintenance and operation of the Assets.

    

    6.02           No
      Encumbrances.  Seller will not create any lien, security
      interest, or encumbrance on the Assets, the oil or gas attributable to the
      Assets, or the proceeds thereof.

    

    6.03           Operations.  Seller
      will, subject to the rights of affected parties under applicable
      agreements:

    

    
      	
               

            	
              (a)

            	
              cause
                the Assets to be developed, maintained, and operated in compliance
                with
                applicable laws, ordinances, rules, regulations, and orders and in
                a
                prudent, good, and workmanlike manner, maintain insurance now in
                force
                with respect to the Assets, and pay or cause to be paid all costs
                and
                expenses in connection therewith;

            

    

    

    
      	
               

            	
              (b)

            	
              not
                participate in the drilling of any new well on the Assets or fail
                to
                participate in operations on the Assets proposed by other parties,
                without
                the advance written consent of Purchaser, which consent (which may
                not be
                unreasonably withheld) or non-consent must be given by Purchaser
                within
                three (3) business days of notice thereof from
                Seller;

            

    

    

    
      	
               

            	
              (c)

            	
              not
                take any action or fail to take any action which is reasonably expected
                to
                result in any termination of the leases forming a part of the
                Assets;

            

    

    

    
      	
               

            	
              (d)

            	
              perform
                and comply with all of its obligations under agreements relating
                to or
                affecting the Assets;

            

    

    

    
      
        
        

      

      
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          10

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
              (e)

            	
              carry
                on its business with respect to the Assets in substantially the same
                manner as it has heretofore, not introducing any new method of management,
                operation, or accounting with respect to the Assets except as may
                be
                required by applicable statutes, rules, or regulations or by applicable
                presently existing contractual
                obligations;

            

    

    

    
      	
               

            	
              (f)

            	
              not
                enter into or assume any contract, agreement or commitment which
                is not in
                the ordinary course of business as heretofore conducted or which
                involves
                payments, receipts or potential liabilities with respect to one individual
                Asset of more than $10,000, excluding emergency
                expenditures;

            

    

    

    
      	
               

            	
              (g)

            	
              not
                resign or otherwise voluntarily relinquish its rights as operator
                of any
                Asset for which it serves as operator on the date
                hereof;

            

    

    

    
      	
               

            	
              (h)

            	
              not
                grant any preferential right to purchase or similar right or agree
                to
                require the consent of any party to the transfer and assignment of
                the
                Assets to Purchaser, subject to existing contractual
                obligations;

            

    

    

    
      	
               

            	
              (i)

            	
              not
                enter into any gas sales contract or crude oil sales or supply contract
                with respect to the Assets which is not terminable without penalty
                upon
                notice of thirty (30) days or less;

            

    

    

    
      	
               

            	
              (j)

            	
              not
                enter into any transaction the effect of which, considered as a whole,
                would be to cause Seller's ownership interest in any of the Assets
                to be
                altered from its ownership interest as of the date
                hereof;

            

    

    

    
      	
               

            	
              (k)

            	
              not
                enter into any settlement of or relinquish any outstanding receivables
                which are a part of the Assets (including, without limitation, the
                right
                to receive any retroactive price adjustments, take-or-pay monies,
                FERC
                mandated refunds, accounting adjustments, and tax
                adjustments);

            

    

    

    
      	
               

            	
              (l)

            	
              if
                any approval or consent by any federal, state, or local governmental
                authority is required to vest good and indefeasible title to any
                of the
                Assets in Purchaser at Closing, exercise its best efforts, as reasonably
                requested in writing by Purchaser, to obtain all such required approvals
                or consents at Purchaser's expense;

            

    

    

    
      	
               

            	
              (m)

            	
              through
                Closing, give prompt written notice to Purchaser of any notice of
                default
                (or written threat of default, whether disputed or denied) received
                or
                given by Seller under any instrument or agreement affecting the Assets
                to
                which Seller is a party or by which it or any of the Assets is bound;
                and

            

    

     

    
      
        
        

      

      
        Page
          11

        
          

        

      

      
        
        

      

    

     

    
      	
               

               

            	
              (n)

            	
              to
                the extent in can do so without violating any third party agreement
                and
                subject to the rights of third parties, exercise its best efforts
                to
                provide (as soon as is practicable) Purchaser with a copy of each
                authority for expenditure and contract affecting the Assets entered
                into
                after the date hereof.

            

    

    

    
      	
              ARTICLE
                VII

            

    

    

    
      	
              CONDITIONS
                TO THE OBLIGATION OF

            

    

    
      	
              SELLER
                TO CLOSE

            

    

    

    Seller's
      obligation to consummate the transactions provided for herein is subject only
      to
      the satisfaction or waiver by Seller on or before the Closing Date of the
      following conditions, and Purchaser shall use its reasonable endeavors to cause
      each such condition to be so satisfied or waived:

    

    7.01           Representations.  The
      representations and warranties of Purchaser contained in this Agreement shall
      be
      true and correct in all material respects on the Closing Date as though made
      on
      and as of that date.

    

    7.02           Performance.  Purchaser
      shall have performed in all material respects all obligations, covenants, and
      agreements required to be performed by it under this Agreement at or prior
      to
      the Closing.

    

    7.04           Pending
      Matters.  No suit, action, or other proceeding by a third
      party or a governmental authority shall be pending or threatened which seeks
      substantial damages from Seller in connection with, or seeks to restrain,
      enjoin, or otherwise prohibit, the consummation of the transactions contemplated
      by this Agreement.

    

    ARTICLE
      VIII

    

    CONDITIONS
      TO THE OBLIGATION

    OF
      PURCHASER TO CLOSE

    

    Purchaser's
      obligation to consummate the transactions provided for herein is subject only
      to
      the satisfaction or waiver by Purchaser on or before the Closing Date of the
      following conditions, and Seller shall utilize its reasonable endeavors to
      cause
      each such condition to be so satisfied or waived:

    

    
      
        
        

      

      
        Page
          12

        
          

        

      

      
        
        

      

    

     

    8.01           Representations.  The
      representations and warranties of Seller contained in this Agreement shall
      be
      true and correct in all material respects on the Closing Date as though made
      on
      and as of that date.

    

    8.02           Performance.  Seller
      shall have performed in all material respects all obligations, covenants, and
      agreements required to be performed by Seller under this Agreement at or prior
      to the Closing.

    

    
      	
              8.03

            	
              Pending
                Matters.  No suit, action, or other proceeding by a
                third party or a governmental entity shall be pending or threatened
                which
                seeks substantial damages from Purchaser in connection with or, seeks
                to
                restrain, enjoin or otherwise prohibit, the consummation of the
                transactions contemplated by this
                Agreement.

            

    

    

    
      	
              ARTICLE
                IX

            

    

    

    
      	
              CLOSING

            

    

    

    9.01           Time
      and Place of Closing.  If the conditions to Closing have
      been satisfied or expressly waived by the party entitled to the benefits
      thereof, the consummation of the transactions contemplated hereby (“Closing”)
      shall take place at Seller’s offices in Austin, Texas on April 30, 2007, or at
      such other place and time or in such other manner agreed upon by Seller and
      Purchaser (“Closing Date”).

    

    9.02           Deliveries
      at Closing.  At the Closing:

    

    
      	
               

            	
              (a)

            	
              Seller
                shall execute, acknowledge and deliver to Purchaser an Assignment
                and Bill
                of Sale in substantially the form attached hereto as Exhibit
                B (the “Assignment and Bill of Sale”), conveying the Assets
                to Purchaser as provided hereby and warranting title to the interests
                set
                forth on Exhibit A hereto against all claims by, through, or under
                Seller;

            

    

    

    
      	
               

            	
              (b)

            	
              Seller
                and Purchaser shall execute, acknowledge, and deliver transfer orders
                or
                letters in lieu thereof prepared by Purchaser and directing all purchasers
                of production to make payment to Purchaser of proceeds attributable
                to the
                Assets with respect to periods from and after the Effective
                Time;

            

    

    

    
      	
               

            	
              (c)

            	
              Purchaser
                shall deliver the adjusted Purchase Price as provided in Article
                II;

            

    

    

    
      	
               

            	
              (d)

            	
              Purchaser
                and Seller shall execute and deliver a settlement statement (the
                "Preliminary Settlement Statement") prepared by Seller and setting
                forth
                the Purchase Price and all adjustments thereto agreed upon by the
                parties,
                using the best information available, subject to Section
                14.14;

            

    

     

    
      
        
        

      

      
        Page
          13

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
              (e)

            	
              Seller
                shall deliver to Purchaser possession of the
                Assets;

            

    

    

    
      	
               

            	
              (f)

            	
              Seller
                shall execute and deliver to Purchaser an affidavit attesting to
                its
                non-foreign status;

            

    

    

    
      	
               

            	
              (g)

            	
              Seller
                shall deliver to Purchaser appropriate change of operator forms on
                those
                Assets operated by Seller;

            

    

    

    
      	
               

            	
              (h)

            	
              Seller
                shall execute, acknowledge and deliver to Purchaser appropriate state
                and
                federal assignments of record title and operating rights where
                applicable;

            

    

    

    
      	
               

            	
              (i)

            	
              Seller
                shall deliver to Purchaser the Suspense
                Funds;

            

    

    

    
      	
               

            	
              (j)

            	
              Seller
                shall deliver to Purchaser evidence sufficient to show that this
                Agreement
                and the transactions contemplated hereby have been approved by all
                necessary actions by the managers or members of Seller;
                and

            

    

    

    
      	
               

            	
              (k)

            	
              Purchaser
                and Seller shall execute such other instruments and take such other
                action
                as may be necessary to carry out their respective obligations under
                this
                Agreement.

            

    

    

    ARTICLE
      X

    

    POST-CLOSING
      OBLIGATIONS

    

    10.01                      Receipts
      and Credits; Imbalances; Suspense Funds.  Subject to all
      of the terms of this Agreement, all monies, refunds, proceeds, receipts,
      credits, receivables, accounts and income attributable to the purchased Assets
      (a) for all periods of time from and after the Effective Time shall be the
      sole
      property and entitlement of the Purchaser, and, to the extent received by
      Seller, Seller shall fully disclose and account therefor to Purchaser promptly,
      and (b) for all periods of time prior to the Effective Time shall be the sole
      property and entitlement of Seller, and if received by Purchaser, Purchaser
      shall fully disclose and account therefor to Seller promptly.  Seller
      and Purchaser recognize that as of the Effective Time there may be over or
      under
      imbalances with respect to gas production, gathering, transportation, or
      processing attributable to the Assets  (“Imbalances”) and hereby agree
      that, upon Closing, Purchaser shall acquire and assume (and indemnify and hold
      Seller harmless from) the benefits, burdens, and obligations of all Imbalances
      existing as of the Effective Time, whether known or unknown. At Closing, Seller
      shall deliver to Purchaser all amounts in Seller's possession due third party
      owners of interests in the Assets, and Purchaser agrees that it shall be solely
      responsible for the disposition of such funds, the payment thereof to the
      rightful owners and the payment, if any, of royalty thereon (the “Suspense
      Funds”).

    

    
      
        
        

      

      
        Page
          14

        
          

        

      

      
        
        

      

    

     

    10.02                      Costs
      and Liabilities; Indemnity.

    

    
      	
               

            	
              (a)

            	
              As
                used in this Agreement, “claims” shall include costs, expenses,
                obligations, claims, demands, causes of action, liabilities, damages,
                fines, penalties, and judgments of any kind or character, whether
                matured
                or unmatured, absolute or contingent, accrued or unaccrued, liquidated
                or
                unliquidated, known or unknown, and all costs and fees (including,
                without
                limitation, interest, attorneys' fees, costs of experts, court costs,
                and
                costs of investigation) incurred in connection therewith, including,
                but
                not limited to, claims arising from or directly or indirectly related
                to
                royalty, operating, suspense, and capital obligations attributable
                to the
                Assets.

            

    

    

    
      	
               

            	
              (b)

            	
              Upon
                Closing and without further action or documentation, Purchaser shall
                assume, be responsible for and comply with all duties and obligations,
                express or implied, arising subsequent to the Effective Time with
                respect
                to the Assets, including, without limitation, those arising under
                or by
                virtue of any recorded lease, contract, agreement, instrument, or
                document
                or of any permit, law, statute, rule, regulation, or order of any
                governmental authority or court, together with all duties and obligations,
                express or implied, for the plugging and abandonment of any wells
                included
                among the Assets and the restoration of the surface estate covered
                by the
                Leases, regardless of whether arising prior or subsequent to the
                Effective
                Time (collectively, the “Assumed
                Obligations”).

            

    

    

    
      	
               

            	
              (c)

            	
              Upon
                and as of Closing, Purchaser shall indemnify, defend, and hold Seller
                harmless from and against any and all claims arising from or in connection
                with (i) the breach of any representations, warranties, or covenants
                of
                Purchaser under this Agreement, (ii)  the ownership and
                operation of the Assets for all periods subsequent to the Effective
                Time,
                and (iii) the Assumed Obligations.

            

    

    

    
      	
               

            	
              (d)

            	
              Upon
                and as of Closing, Seller shall indemnify, defend, and hold Purchaser
                harmless from and against any and all claims arising from or in connection
                with (i) the breach of any representations, warranties, or covenants
                of
                Seller under this Agreement and (ii) except for the Assumed Obligations
                or
                as otherwise expressly provided in this Agreement, the ownership
                and
                operation of the Assets for all periods prior to the Effective
                Time.

            

    

    

    10.03                      Further
      Assurances.  After Closing, Seller and Purchaser agree to
      take such further actions and to execute, acknowledge, and deliver all such
      further documents that are necessary or useful in carrying out the purposes
      of
      this Agreement or of any document delivered pursuant hereto, including, but
      not
      limited to, the execution and delivery of such federal and state forms prepared
      by

     

    
      
        
        

      

      
        Page
          15

        
          

        

      

      
        
        

      

       

      Purchaser
        as may be requisite for recognition of the transfer of the Assets by applicable
        federal and state authorities.

    

    

    10.04                      Delivery
      of Records.  As soon as reasonably possible but no later
      than thirty (30) days after the Closing Date, Seller shall deliver originals
      (or
      copies where originals are not available) of the Records to Purchaser;
provided, that Seller (i) shall exercise its best efforts to provide
      Purchaser at Closing or as soon thereafter as is practicable with all Records
      necessary to assume and conduct operations of the Assets, and (ii) shall have
      the right to retain, as its own, original Records that pertain to the Excluded
      Assets and copies of all other Records.

    

    10.05                      Financial
      Reporting.  Seller agrees to make
      available to Purchaser prior to and for a period of twelve months following
      Closing any and all existing information and documents in the possession of
      Seller that Purchaser may reasonably require to comply with Purchaser's tax
      and
      financial reporting requirements and audits.  Without limiting the
      generality of the foregoing, Seller will use its commercially reasonably efforts
      pending and for twelve months following Closing to cooperate with the
      independent auditors chosen by Purchaser ("Purchaser's Auditor") in connection
      with their audit of any annual revenue and expense statements of the Assets
      that
      Purchaser or any of its Affiliates requires to comply with their tax and
      financial reporting requirements, and their review of any interim quarterly
      revenue and expense statements of the Assets that Purchaser requires to comply
      with such reporting requirements, but in no event shall Seller be required
      pursuant to this Section to cooperate with respect to more than the period
      beginning July 1, 2005 and continuing through the Closing.  Seller's
      cooperation will include (i) such reasonable access to Seller's employees who
      were responsible for preparing the revenue and expense statements and work
      papers and other supporting documents used in the preparation of such financial
      statements as may be required by Purchaser's Auditor to perform an audit in
      accordance with generally accepted auditing standards, and (ii) delivery of
      one
      or more customary representation letters (in substantially the form previously
      approved by Seller and Purchaser) from Seller to Purchaser's Auditor that are
      requested by Purchaser to allow such auditors to complete an audit (or review
      of
      any interim quarterly financials), and to issue an opinion that in Purchaser's
      experience is acceptable with respect to an audit or review of those revenue
      and
      expense statements required pursuant to this
      Section.    Purchaser will reimburse Seller, within three
      (3) business days after demand therefor, for any reasonable out-of-pocket and
      overhead costs with respect to any costs incurred by Seller in complying with
      the provisions of this Section.

    

    The
      provisions of this Article X shall
      survive Closing and shall not merge into the Assignment and Bill of
      Sale.

    

    
      
        
        

      

      
        Page
          16

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XI

    

    TERMINATION

    

    11.01                      Right
      of Termination.  This Agreement and the transactions
      contemplated hereby may be terminated at any time at or prior to the
      Closing:

    

    
      	
               

            	
              (a)

            	
              By
                mutual consent of the parties;

            

    

    

    
      	
               

            	
              (b)

            	
              By
                Purchaser by notice delivered to Seller on or before Closing if all
                conditions described in Article VIII shall not have been met and
                such
                noncompliance shall not have been caused or waived by the actions
                or
                inactions of Purchaser;

            

    

    

    
      	
               

            	
              (c)

            	
              By
                Seller by notice delivered to Purchaser on or before Closing if all
                conditions described in Article VII shall not have been met and such
                noncompliance shall not have been caused or waived by the actions
                or
                inactions of Seller; or

            

    

    

    
      	
               

            	
              (d)

            	
              By
                Seller or Purchaser pursuant to Section 5.04 or Section 13.02
                hereof.

            

    

    

    11.02  Redelivery
      of Documents.  If this Agreement is terminated as
      provided in this Article XI, each party will redeliver all documents, work
      papers, and other materials of the other party relating to the transaction
      contemplated by this Agreement, whether obtained before or after the execution
      of this Agree­ment, to the party furnishing the same, and all
      informa­tion received by any party to this Agreement with respect to the
      business of any other party shall not at any time be used for the advantage
      of,
      or disclosed to third parties by, such party to the detriment of the party
      furnishing such information; provided, however, that this Section 11.02 shall
      not apply to any documents, work papers, materials, or information which is
      a
      matter of public knowledge or which has heretofore been or is hereafter
      published in any publication for public distribution or filed as public
      information with any governmental authority or is otherwise in the public
      domain.

    

    11.03                      Remedies
      for Failure to Close.  (a) If Seller fails or refuses to
      close without cause or justification authorized in this Agreement, and if
      Purchaser is not in default hereunder and is itself ready, willing, and able
      to
      close hereunder, Purchaser shall be entitled to seek specific performance of
      this Agreement and/or recover its actual damages for the breach hereof by Seller
      through institution of appropriate litigation; and (b) If Purchaser fails or
      refuses to close without cause or justification authorized in this Agreement,
      and if Seller is not in default hereunder and is itself ready, willing, and
      able
      to close hereunder, Seller, as its exclusive remedy, shall be entitled to
      recover its actual damages for the breach hereof by Purchaser through
      institution of appropriate litigation.

    

    
      
        
        

      

      
        Page
          17

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                XII

            

    

    

    
      	
              TAXES

            

    

    

    12.01                      Proration
      of Ad Valorem and Property Taxes.  All ad valorem taxes,
      real property taxes, personal property taxes, and similar obligations concerning
      the Assets with respect to the tax period in which the Effective Time occurs
      (“Property Taxes”) shall be prorated between the parties at the Closing as of
      the Effective Time.

    

    12.02                      Sales
      Taxes.  The Purchase Price excludes any sales taxes or
      other taxes required to be paid in connection with the sale of property pursuant
      to this Agreement.  Purchaser shall be liable for all sales, use, and
      other taxes, conveyance, transfer, and recording fees and real estate transfer
      stamps or taxes that may be imposed on any transfer of property pursuant to
      this
      Agreement.  These taxes shall be collected and remitted under
      applicable law.  Purchaser shall indemnify and hold Seller harmless
      with respect to the payment of any of these taxes including any interest or
      penalties assessed thereon.

    

    12.03                      Other
      Taxes.  All taxes (other than income taxes) which are
      imposed on or with respect to the production of oil, natural gas, or other
      hydrocarbons or minerals or the receipt of proceeds therefrom (including but
      not
      limited to severance, production, and excise taxes) shall be apportioned between
      the parties based upon the respective shares of production taken by the
      parties.

    

    12.04                      Cooperation.  Each
      party to this Agreement shall provide the other party with reasonable access
      to
      all relevant documents, data, and other information which
      may be required by the other party for the purpose of preparing tax returns
      and
      responding to any audit by any taxing jurisdiction.  Each party to
      this Agreement shall cooperate with all reasonable
      requests of the other party made in connection with contesting the imposition
      of
      taxes.  Notwithstanding anything to the contrary in this Agreement,
      neither party to this Agreement shall be required at any time to disclose to
      the
      other party any tax return or other confidential tax information.

    

    ARTICLE
      XIII

    

    CONDITION
      OF THE ASSETS

    

    13.01                      Acceptance
      of Assets by Purchaser.  EXCEPT AS OTHERWISE EXPRESSLY
      SET FORTH IN THIS AGREEMENT, PURCHASER, UPON CLOSING HEREUNDER, ACCEPTS ALL
      OF
      THE ASSETS IN THEIR "AS
      IS,
      WHERE IS" CONDITION, WITH ALL FAULTS AND DEFECTS, WHETHER LATENT OR PATENT,
      AND
      WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY SELLER, EXPRESS, IMPLIED,
      OR
      STATUTORY, AS TO CONDITION, MERCHANTABILITY, CONFORMITY TO MODELS OR SAMPLES,
      OF
      FITNESS FOR A PARTICULAR PURPOSE.
      

      
        
          
          

        

        
          Page
            18

          
            

          

        

        
          
          

        

      

       

      13.02                      Casualty
        Loss.  In the event of any material damage by fire or
        other casualty to any of the Assets prior to the Closing (“Casualty Loss”), this
        Agreement shall remain in full force and effect, and as to each affected
        Asset,
        Seller shall at its election either collect (and when collected pay over
        to
        Purchaser) or assign to Purchaser any and all insurance claims related to
        such
        damage, and Purchaser shall take title to the affected Asset without reduction
        in the Purchase Price; provided, however, that if the amount necessary to
        repair
        any such damage and restore the Assets to their condition immediately prior
        to
        such casualty exceeds ten percent (10%) of the Purchase Price, either Seller
        or
        Purchaser may terminate this Agreement by written notice to the other and,
        except as otherwise expressly provided in this Agreement, neither party shall
        have any further rights or obligations hereunder.

      

      ARTICLE
        XIV

      

      MISCELLANEOUS

      

      14.01                      Governing
        Law.  This Agreement and all instruments executed in
        accordance herewith shall be governed by and interpreted in accordance with
        the
        laws of the State of Texas, without regard to conflict of law rules that
        would
        direct application of the laws of another jurisdiction, except that the
        Assignment and Bill of Sale shall be governed by and interpreted in accordance
        with the laws of the State of New Mexico.  In the event of any
        litigation or other proceeding in connection with this Agreement, the venue
        for
        any such proceeding shall be in a court of competent jurisdiction located
        in
        Travis County, Texas, and the prevailing party shall be entitled to recover
        its
        reasonable attorneys’ fees and costs incurred therein from the other party, in
        addition to any damages awarded.

      

      14.02                      Entire
        Agreement.  This Agreement, all agreements and
        instruments executed in connection herewith constitute the entire agreement
        between the parties and supersede all prior agreements, understandings,
        negotiations and discussions, whether oral or written, of the
        parties.  No supplement, amendment, alteration, modification, waiver,
        or termination of this Agreement shall be binding unless executed in writing
        by
        the parties hereto.

      

      14.03                      Waiver.  No
        waiver of any of the provisions of this Agreement shall be deemed or shall
        constitute a waiver of any other provisions hereof (whether or not similar),
        nor
        shall such waiver constitute a continuing waiver unless otherwise expressly
        provided.

      

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

      

       

      14.05                      Assignability.  Except
        pursuant to a like kind exchange pursuant to Section 2.02, prior to Closing,
        and
        except for assignments to Affiliates (hereinafter defined) which may be made
        without necessity of consent, neither party hereto shall assign this Agreement
        or any of its rights or

       

      
        
          
          

        

        
          Page
            19

          
            

          

        

        
          
          

        

         

        obligations
          hereunder without the prior written consent of the other party, which may
          be
          withheld for any or no reason.  Any assignment made without such
          consent shall be void.  Except as otherwise provided herein, this
          Agreement shall be binding upon and inure to the benefit of the parties
          hereto
          and their respective permitted successors and assigns.

      

       

      

      14.06                      Notices.  Any
        notice provided or permitted to be given under this Agreement shall be in
        writing, and may be served by personal delivery or by registered or certified
        U.S. mail, addressed to the party to be notified, postage prepaid, return
        receipt requested.  Notice deposited in the mail in the manner
        hereinabove described shall be deemed to have been given and received on
        the
        date of the delivery as shown on the return receipt.  Notice served in
        any other manner (including by facsimile delivery) shall be deemed to have
        been
        given and received only if and when actually received by the
        addressee.  For purposes of notice, the addresses of the parties shall
        be as follows:

      

      SELLER:

      

      Ameristate
        Exploration, LLC

      401
        Congress Ave., Suite 2900

      Austin,
        Texas 78701

      Telephone  (512)
        391-0300

      Fax:  (512)
        391-0301

      Attn:
        Steven R. Foy

      

      William
        M. Kerr, Jr.

      Kelly
        Hart & Hallman LLP

      301
        Congress Avenue, Ste. 2000

      Austin,
        Texas 78701-2944

      Direct:
        512.495.6421

      

      Fax:
        512.495.6600

      

      PURCHASER:

      

      Legacy
        Reserves Operating LP

      303
        West
        Wall, Suite 1600

      Midland,
        Texas 79701

      Telephone
        (432) 682-2516

      Fax:
        (432) 684-3774

      Attn:
        Kyle A. McGraw, Executive Vice President,

       Business
        Development and Land

      

      

      
        
          
          

        

        
          Page
            20

          
            

          

        

        
          
          

        

      

      

      Each
        party shall have the right, upon giving three (3) days prior notice to the
        other
        in the manner hereinabove provided, to change its address for purposes of
        notice
        to any other appropriate street address.

      

      14.07                      Expenses.  Each
        party shall be solely responsible for all expenses incurred by it in connection
        with this transaction (including, without limitation, fees and expenses of
        its
        own legal counsel and accountants).

      

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

      

      14.09                      No
        Third-Party Beneficiaries.  This Agreement is not
        intended to create, nor shall it be construed to create, any rights in any
        third
        party under doctrines concerning third party beneficiaries.

      

      14.10                      DTPA Waiver.  To
        the extent applicable to the Assets or any portion thereof, Purchaser hereby
        waives the provi­sions of the Texas Deceptive Trade Practices Act, Chapter
        17, Subchapter E, Sections 17.41 through 17.63 inclusive (other than Section
        17.555 which is not waived), Tex. Bus. & Com. Code.  In order to
        evidence its ability to grant such waiver, Purchaser hereby expressly recognizes
        and represents to Seller that Purchaser is not in a significantly disparate
        bargaining position and (i) Purchaser is represented by legal counsel in
        this
        transaction or (ii) Purchaser is in the business of seeking or acquiring,
        by
        purchase or lease, goods or services for commercial or business use, has
        assets
        of Five Million Dollars or more according to its most recent financial statement
        prepared in accordance with generally accepted accounting principles,
        and  has knowledge and experience in financial and business matters
        that enable it to evaluate the merits and risks of the transaction contemplated
        hereby.

      

      14.11                      Counterparts.  This
        Agreement may be executed in one or more counterparts, each of which shall
        be
        deemed an original, but all of which together shall constitute one and the
        same
        instrument.

      

      14.12                      Certain
        Definitions.  As used in this Agreement, (a) the term
“Affiliate” means, as to any Person, each other Person that directly or
        indirectly (through one or more intermediaries or otherwise) controls, is
        controlled by, or is under common control with, such Person; and (b) the
        term
“Person” means an individual, corporation, partnership, association, joint stock
        company, trust or trustee thereof, estate or executor thereof, unincorporated
        organization or joint venture, court or other governmental unit or any agency
        or
        subdivision thereof, or any other legally recognizable entity.

      

      14.13                      Construction
        of Ambiguity.  In the event of any ambiguity in any of
        the terms or conditions of this Agreement, including any exhibits hereto
        and
        whether or not placed of public

       

      
        
          
          

        

        
          Page
            21

          
            

          

        

        
          
          

        

      

       

      record,
        such ambiguity shall not be construed for or against any party hereto on
        the
        basis that such party did not author the same.

      

      14.14                      Accounting.

      

      
        	
                 

              	
                A.

              	
                Seller
                  shall deliver to Purchaser on or before the second business day
                  prior to
                  Closing the Preliminary Settlement Statement setting forth any
                  adjustments
                  to the Purchase Price provided for in or required by this
                  Agreement.  The Preliminary Settlement Statement shall be
                  prepared in accordance with this Agreement and with standard industry
                  and
                  accounting practices.  In connection with the preparation of the
                  Preliminary Settlement Statement, the Purchase Price shall be (1)
                  increased by (a) the out-of-pocket costs and expenses that are
                  attributable to the Assets for the period from the Effective Time
                  to the
                  Closing Date that are paid or incurred by Seller (but expressly
                  excluding
                  Seller's internal costs for administrative overhead), and (b) other
                  amounts due Seller and contemplated hereby, and (2) reduced by
                  (a)proceeds
                  received by Seller for hydrocarbons attributable to the Assets
                  produced
                  after the Effective Time, and (b) other amounts due Purchaser and
                  contemplated hereby.

              

      

      

      
        	
                 

              	
                B.

              	
                Within
                  90 days after the Closing, Seller shall make a good faith effort
                  to
                  prepare, in accordance with this Agreement and with standard industry
                  and
                  accounting practices, and deliver to Purchaser, a final accounting
                  statement showing the proration and calculation of credits and
                  payment
                  obligations of Purchaser and Seller hereunder.  As soon as
                  reasonably practicable after receipt thereof, Purchaser shall deliver
                  to
                  Seller a written report containing any changes that
                  Purchaser proposes to be made to such statement.  The parties
                  shall use their best efforts to reach agreement (the “Final Accounting”)
                  on the final accounting statement on or before the 120th day after
                  the
                  Closing Date (such date the “Final Accounting Date” whether or not Seller
                  and Purchaser have agreed on the Final Accounting).  Once the
                  Final Accounting has been agreed to by Purchaser and Seller, there
                  shall
                  be no further adjustments to the Purchase
                  Price.

              

      

      

      14.15                      Survival.  The
        representations and warranties of Seller set forth in Sections 3.07 through
        3.15
        and the covenants and agreements of Seller and Purchaser to be performed
        prior
        to or at the Closing shall terminate upon the Closing and be of no further
        force
        or effect.  All other representations, warranties, covenants and
        agreements shall survive the Closing indefinitely.

      

      

      

      [THIS
        SPACE INTENTIONALLY LEFT BLANK]

      

 

    
      
        
        

      

      
        Page
          22

        
          

        

      

    

            EXECUTED
      as of
      the date first set forth above.

    
      	 	
              SELLER:

               

              AMERISTATE EXPLORATION, LLC, a Texas
                limited liability company

            	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Steven
              R.
              Foy	 
	 	 	Steven
              R.
              Foy	 
	 	 	Vice
              President	 
	 	 	 	 

    

    	 	
            PURCHASER:

             

            LEGACY RESERVES OPERATING LP, a
              Delaware limited partnership

          	 
	 	 	 	 
	
            Date

          	
            By:
              

          	/s/ Kyle
            A. McGraw	 
	 	 	Kyle
            A. McGraw	 
	 	 	
            Executive
              Vice President

            Business Development and LandFiled by Bowne Pure Compliance

 

Exhibit 10.1

CRM HOLDINGS, LTD.

2007 EMPLOYEE STOCK PURCHASE PLAN

1. Purpose. The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock through accumulated payroll
deductions. It is the intention of the Company to have the Plan qualify as an “employee stock
purchase plan” under Section 423 of the Code. The provisions of the Plan, accordingly, will be
construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis
consistent with the requirements of Section 423 of the Code.

2. Definitions.

“Applicable Laws” means the requirements relating to the administration of equity-based awards
under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

“Board” means the Company’s Board of Directors.

“Change in Control” means the occurrence of any of the following events: (i) any person or
group becomes the beneficial owner of securities of the Company representing more than 40% of the
then voting power of the Company; (ii) members of the Board at the Effective Date of this Plan or
who were appointed after the Effective Date by at least two-thirds (2/3) of the members of the
Board at the time of the appointment no longer constitute two-thirds (2/3) of the Board during the
term hereof; (iii) a merger/consolidation/amalgamation of the Company occurs wherein the Company
voting securities immediately prior thereto do not constitute at least 60 percent of the combined
voting securities after the merger/consolidation/amalgamation; or (iv) the shareholders approve a
plan of complete liquidation or winding-up or an agreement for the sale or disposition of all or
substantially all of the Company’s assets.

“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the
Code herein will be a reference to any successor or amended section of the Code.

“Committee” means the Compensation Committee of the Board, the composition and governance of
which is established in the Committee’s Charter as approved from time to time by the Board and
subject to the rules and regulations of The Nasdaq Stock Market, LLC, and other corporate
governance documents of the Company. No action of the Committee shall be void or deemed to be
without authority due to the failure of any member, at the time the action was taken, to meet any
qualification standard set forth in the Committee Charter or the Plan. To the extent that a
Compensation Committee shall not be in office, the Committee shall be the full Board. The Committee
shall consist of such number of non-employee directors as may be required and each such
non-employee director shall satisfy such requirements as may be necessary to qualify for exemptions
under Rule 16b-3 or qualifying Awards under Code Section 162(m) as performance-based compensation
and to comply with the rules and regulations of The Nasdaq Stock Market, LLC.

 

 

 

“Common Stock” means the Company’s common shares of par value US$0.01 per share.

“Company” means CRM Holdings, Ltd., a Bermuda company.

“Compensation” means an Eligible Employee’s base straight time gross earnings, commissions (to
the extent such commissions are an integral, recurring part of compensation), but exclusive of
payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, income
as the result of restricted stock vesting, and other compensation.

“Designated Subsidiary” means any Subsidiary that has been designated by the Committee from
time to time in its sole discretion as eligible to participate in the Plan.

“Director” means a member of the Board.

“Effective Date” shall mean the date the Plan is adopted by the Company’s shareholders, in
accordance with Section 24 of this Plan.

“Eligible Employee” means any individual (i) who is an employee of Employer within the meaning
of Section 3401(c) of the Code and (ii) whose customary employment is at least twenty (20) hours
per week and more than five (5) months in any calendar year by the Employer. For purposes of the
Plan, the employment relationship will be treated as continuing intact while the individual is on
sick leave or other leave of absence that the Employer approves. Where the period of leave exceeds
ninety (90) days and the individual’s right to reemployment is not guaranteed either by statute or
by contract, the employment relationship will be deemed to have terminated on the ninety-first
(91st) day of such leave. The Committee, in its discretion, from time to time may, prior
to an Offering Date for all options to be granted on such Offering Date, determine (on a uniform
and nondiscriminatory basis) that the definition of Eligible Employee will or will not include an
individual if he or she: (i) has not completed at least two (2) years of service since his or her
last hire date (or such lesser period of time as may be determined by the Committee in its
discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period
of time as may be determined by the Committee in its discretion), (iii) customarily works not more
than five (5) months per calendar year (or such lesser period of time as may be determined by the
Committee in its discretion), or (iv) is a highly compensated employee under Section 414(q) of the
Code.

“Employer” means any one or all of the Company and its Designated Subsidiaries.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, including the rules and
regulations promulgated thereunder.

“Exercise Date” means the last Trading Day of each Offering Period. The Committee, it its sole
discretion, from time-to-time may, prior to an Offering Period for all options to be granted on
such Offering Date, determine (on a uniform and nondiscriminatory basis) when the Exercise Dates
will occur during an Offering Period.

“Fair Market Value” means, as of any date and unless the Committee determines otherwise, the
value of Common Stock determined as follows:

 

2

 

(i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq Global Select Market, its Fair Market Value will be
the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system on the date of determination, as reported in The Wall Street Journal or
such other source as the Committee deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value will be the mean of the closing bid and asked prices
for the Common Stock on the date of determination, as reported in The Wall Street Journal or such
other source as the Committee deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value
thereof will be determined in good faith by the Committee.

“Offering Date” means the first Trading Day of each Offering Period.

“Offering Periods” means the period of time the Committee may determine prior to an Offering
Date, for options to be granted on such Offering Date, during which an option granted under the
Plan may be exercised, not to exceed twenty-seven (27) months. Unless the Committee provides
otherwise, Offering Periods will have a duration of approximately three (3) months, (i) commencing
on the first Trading Day on or after January 1 and terminating on the last Trading Day occurring in
the period ending the following March 31, (ii) commencing on the first Trading Day on or after
April 1 and terminating on the last Trading Day occurring in the period ending with the following
June 30, (iii) commencing on the first Trading Day on or after July 1 and terminating on the last
Trading Day occurring in the period ending with the following September 30, or (iv) commencing on
the first Trading Day on or after October 1 and terminating on the last Trading Day occurring in
the period ending with the following December 31. The duration and timing of Offering Periods may
be changed pursuant to Sections 4 and 20.

“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

“Plan” means this CRM Holdings, Ltd. 2007 Employee Stock Purchase Plan.

“Purchase Price” shall be determined by the Committee (on a uniform and nondiscriminatory
basis) prior to an Offering Date for all options to be granted on such Offering Date, subject to
compliance with Section 423 of the Code (or any successor rule or provision or any other applicable
law, regulation or stock exchange rule) or pursuant to Section 20. Unless and until the Committee
provides otherwise, the Purchase Price will be equal to eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock on the Offering Date or the Exercise Date, whichever is
lower.

“Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined
in Section 424(f) of the Code.

“Trading Day” means a day on which the national stock exchange upon which the Common Stock is
listed is open for trading.

 

3

 

3. Eligibility.

(a) Offering Periods. Any Eligible Employee on a given Offering Date will be eligible
to participate in the Plan, subject to the requirements of Section 5.

(b) Limitations. Any provisions of the Plan to the contrary notwithstanding, no
Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately
after the grant, such Eligible Employee (or any other person whose stock would be attributed to
such Eligible Employee pursuant to Section 424(d) of the Code) would own common shares of the
Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such
shares possessing five percent (5%) or more of the total combined voting power or value of all
classes of the capital shares of the Company or of any Parent or Subsidiary of the Company, or (ii)
to the extent that his or her rights to purchase shares under all employee stock purchase plans (as
defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company
accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of shares (determined
at the Fair Market Value of the stock at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive three (3) month
Offering Periods, with a new Offering Period commencing on the first Trading Day on or after
January 1, April 1, July1 and October 1 of each year, or on such other date as the Committee shall
determine. The Committee will have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.

5. Participation. An Eligible Employee may participate in the Plan pursuant to Section
3(a) by (i) submitting to the Company’s Human Resources office (or its designee), on or before a
date prescribed by the Committee prior to an applicable Offering Date, a properly completed
subscription agreement authorizing payroll deductions in the form provided by the Committee for
such purpose, or (ii) following an electronic or other enrollment procedure prescribed by the
Committee.

6. Payroll Deductions.

(a) At the time a participant enrolls in the Plan pursuant to Section 5, he or she will elect
to have payroll deductions made on each pay day during the Offering Period in an amount not
exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during
the Offering Period; provided, however, that should a pay day occur on an Exercise Date, a
participant will have the payroll deductions made on such day applied to his or her account under
the subsequent Offering Period. A participant’s subscription agreement will remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.

(b) Payroll deductions authorized by a participant will commence on the first pay day
following the Offering Date and will end on the last pay day prior to the Exercise Date
of such Offering Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof.

 

4

 

(c) All payroll deductions made for a participant will be credited to his or her account under
the Plan and will be withheld in whole percentages only. A participant may not make any additional
payments into such account.

(d) A participant may discontinue his or her participation in the Plan as provided in Section
10, or may increase or decrease the rate of his or her payroll deductions during the Offering
Period by (i) properly completing and submitting to the Company’s Human Resources office (or its
designee), on or before a date prescribed by the Committee prior to an applicable Exercise Date, a
new subscription agreement authorizing the change in payroll deduction rate in the form provided by
the Committee for such purpose, or (ii) following an electronic or other procedure prescribed by
the Committee. If a participant has not followed such procedures to change the rate of payroll
deductions, the rate of his or her payroll deductions will continue at the originally elected rate
throughout the Offering Period and future Offering Periods (unless terminated as provided in
Section 10). The Committee may, in its sole discretion, limit the nature and/or number of payroll
deduction rate changes that may be made by participants during any Offering Period. Any change in
payroll deduction rate made pursuant to this Section 6(d) will be effective as of the first full
payroll period following five (5) business days after the date on which the change is made by the
participant (unless the Committee, in its sole discretion, elects to process a given change in
payroll deduction rate more quickly).

(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and Section 3(b), or if the Committee reasonably anticipates a participant has contributed
a sufficient amount to purchase a number of shares of Common Stock equal to or in excess of the
applicable limit for such Offering Period (as set forth in Section 7 or as established by the
Committee), a participant’s payroll deductions may be decreased to zero percent (0%) at any time
during an Offering Period. Subject to Section 423(b)(8) of the Code and Section 3(c) hereof, or for
participants who have had their contributions reduced due to the applicable limits on the maximum
number of shares that may be purchased in any Offering Period, payroll deductions will recommence
at the rate originally elected by the participant effective as of the beginning of the first
Offering Period which is scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.

(f) At the time the option is exercised, in whole or in part, or at the time some or all of
the Common Stock issued under the Plan is disposed of, the participant must make adequate provision
for the Company’s or Employer’s federal, state, or any other tax liability payable to any
authority, national insurance, social security or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At any time, the
Company or the Employer may, but will not be obligated to, withhold from the participant’s
compensation the amount necessary for the Company or the Employer to meet applicable withholding
obligations, including any withholding required to make available to the Company or the Employer
any tax deductions or benefits attributable to sale or early disposition of Common Stock by the
Eligible Employee.

 

5

 

7. Grant of Option. On the Offering Date of each Offering Period, each Eligible
Employee participating in such Offering Period will be granted an option to purchase on the
Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of
shares of Common Stock determined by dividing such Eligible Employee’s payroll deductions
accumulated prior to such Exercise Date and retained in the Eligible Employee’s account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall an Eligible
Employee be permitted to purchase for the calendar year in which the option is outstanding, more
than the number of shares obtained by dividing the “applicable dollar amount” by the Fair Market
Value on the first day of each Offering Period of a share of Common Stock (subject to any
adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(c) and 13. For this purpose, the “applicable dollar amount” is
$25,000, reduced by the Fair Market Value on the first day of each Offering Period of Common Stock
previously purchased by the Eligible Employee under this Plan during the calendar year. The
Eligible Employee may accept the grant of such option with respect to any Offering Period under the
Plan, by electing to participate in the Plan in accordance with the requirements of Section 5.
Exercise of the option will occur as provided in Section 8, unless the participant has withdrawn
pursuant to Section 10. The option will expire on the last day of the Offering Period.

8. Exercise of Option.

(a) Unless a participant withdraws from the Plan as provided in Section 10, his or her option
for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date,
and the maximum number of full shares subject to the option will be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No
fractional shares of Common Stock will be purchased; any payroll deductions accumulated in a
participant’s account which are not sufficient to purchase a full share will be retained in the
participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10. Any other funds left over in a participant’s account after
the Exercise Date will be returned to the participant. During a participant’s lifetime, a
participant’s option to purchase shares hereunder is exercisable only by him or her.

(b) Notwithstanding any contrary Plan provision, if the Committee determines that, on a given
Exercise Date, the number of shares of Common Stock with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were available for sale under
the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares of
Common Stock available for sale under the Plan on such Exercise Date, the Committee may in its sole
discretion provide that the Company will make a pro rata allocation of the shares of Common Stock
available for purchase on such Offering Date or Exercise Date, as applicable, in as uniform a
manner as will be practicable and as it will determine in its sole discretion to be equitable among
all participants exercising options to purchase Common Stock on such Exercise Date, and either (x)
continue all Offering Periods then in effect or (y) terminate any or all Offering Periods then in
effect pursuant to Section 20. The Company may make a pro rata allocation of the shares available
on the Offering Date of any applicable Offering Period pursuant to the preceding sentence,
notwithstanding any authorization
of additional shares for issuance under the Plan by the Company’s shareholders subsequent to
such Offering Date.

 

6

 

9. Delivery. As soon as administratively practicable after each Exercise Date on which
a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her option in a form
determined by the Committee (in its sole discretion) and pursuant to rules established by the
Committee. The Company may permit or require that shares be deposited directly with a employee
stock purchase plan administrator/broker designated by the Company or to a designated agent of the
Company, and the Company may utilize electronic or automated methods of share transfer. The Company
may require that shares be retained with such broker or agent for a designated period of time
and/or may establish other procedures to permit tracking of disqualifying dispositions of such
shares. No participant will have any voting, dividend, or other shareholder rights with respect to
shares of Common Stock subject to any option granted under the Plan until such shares have been
purchased and delivered to the participant as provided in this Section 9.

10. Withdrawal.

(a) Pursuant to procedures established by the Committee, a participant may withdraw all but
not less than all the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by (i) submitting to the Company’s Human
Resources office (or its designee) a written notice of withdrawal in the form prescribed by the
Committee for such purpose, or (ii) following an electronic or other withdrawal procedure
prescribed by the Committee. All of the participant’s payroll deductions credited to his or her
account will be paid to such participant as promptly as practicable after the effective date of his
or her withdrawal and such participant’s option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of shares will be made for such
Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant re-enrolls in the
Plan in accordance with the provisions of Section 5.

(b) A participant’s withdrawal from an Offering Period will not have any effect upon his or
her eligibility to participate in any similar plan which may hereafter be adopted by the Company or
in succeeding Offering Periods which commence after the termination of the Offering Period from
which the participant withdraws.

11. Termination of Employment. Upon a participant’s ceasing to be an Eligible
Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant’s account during the Offering Period but not
yet used to purchase shares of Common Stock under the Plan will be returned to such participant or,
in the case of his or her death, to the person or persons entitled thereto under Section 15, and
such participant’s option will be automatically terminated.

12. Interest. No interest will accrue on the payroll deductions of a participant in
the Plan.

 

7

 

13. Stock.

(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section
19 hereof, the maximum number of shares of Common Stock which will be made available for sale under
the Plan will be 200,000 common shares.

(b) Until the shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), a participant will only have the
rights of an unsecured creditor with respect to such shares, and no right to vote or receive
dividends or any other rights as a shareholder will exist with respect to such shares.

(c) Shares of Common Stock to be delivered to a participant under the Plan will be registered
in the name of the participant or in the name of the participant and his or her spouse.

14. Administration. The Plan will be administered by the Committee, which Committee
will be constituted to comply with Applicable Laws. The Committee will have full and exclusive
discretionary authority to construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Committee will, to the full extent permitted by law, be final and binding
upon all parties. Notwithstanding any provision to the contrary in this Plan, the Committee may
adopt rules or procedures relating to the operation and administration of the Plan to accommodate
the specific requirements of local laws and procedures for jurisdictions outside of the United
States. Without limiting the generality of the foregoing, the Committee is specifically authorized
to adopt rules and procedures regarding eligibility to participate, the definition of Compensation,
handling of payroll deductions, making of contributions to the Plan (including, without limitation,
in forms other than payroll deductions), establishment of bank or trust accounts to hold payroll
deductions, payment of interest, conversion of local currency, obligations to pay payroll tax,
determination of beneficiary designation requirements, withholding procedures and handling of stock
certificates which vary with local requirements.

15. Designation of Beneficiary.

(a) A participant may designate a beneficiary who is to receive any shares of Common Stock and
cash, if any, from the participant’s account under the Plan in the event of such participant’s
death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may designate a beneficiary who is
to receive any cash from the participant’s account under the Plan in the event of such
participant’s death prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent will be required for such designation to be
effective, to extent required by local law.

(b) Such designation of beneficiary may be changed by the participant at any time by notice in
a form determined by the Committee. In the event of the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of such participant’s
death, the Company will deliver such shares and/or cash to the executor or committee of the estate
of the participant, or if no such executor or committee has been
appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives of the participant,
or if no spouse, dependent or relative is known to the Company, then to such other person as the
Company may designate.

 

8

 

(c) All beneficiary designations under this Section 15 will be made in such form and manner as
the Committee may prescribe from time to time.

16. Transferability. Neither payroll deductions credited to a participant’s account
nor any rights with regard to the exercise of an option or to receive shares of Common Stock under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution or as provided in Section 15) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition will be without effect, except
that the Company may treat such act as an election to withdraw from an Offering Period in
accordance with Section 10.

17. Use of Funds. The Company may use all payroll deductions received or held by it
under the Plan for any corporate purpose, and the Company will not be obligated to segregate such
payroll deductions. Until shares of Common Stock are issued, participants will only have the rights
of an unsecured creditor with respect to such shares.

18. Reports. Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Eligible Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price, the number of
shares of Common Stock purchased and the remaining cash balance, if any.

19. Adjustments, Dissolution, Liquidation, Merger or Change in Control.

(a) Adjustments. In the event that any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company, or other change in the
corporate structure of the Company affecting the Common Stock occurs, the Committee, in order to
prevent dilution or enlargement of the benefits or potential benefits intended to be made available
under the Plan, shall, in such manner as it may deem equitable, adjust the number and class of
Common Stock which may be delivered under the Plan, the Purchase Price per share and the number of
shares of Common Stock covered by each option under the Plan which has not yet been exercised, and
the numerical limits of Section 7.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, any Offering Period then in progress will be shortened by setting a new
Exercise Date (the “ New Exercise Date “), and will terminate immediately prior to the consummation
of such proposed dissolution or liquidation, unless provided otherwise by the Committee. The New
Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. The
Committee will notify each participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant’s option has been changed to the New
Exercise Date and that the participant’s option will be exercised
automatically on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10.

 

9

 

(c) Merger or Change in Control. In the event of a merger or Change in Control, each
outstanding option will be assumed or an equivalent option substituted by the successor corporation
or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation
refuses to assume or substitute for the option, the Offering Period with respect to which such
option relates will be shortened by setting a new Exercise Date (the “New Exercise Date”) and will
end on the New Exercise Date. The New Exercise Date will occur before the date of the Company’s
proposed merger or Change in Control. The Committee will notify each participant in writing prior
to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to
the New Exercise Date and that the participant’s option will be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as
provided in Section 10.

20. Amendment or Termination.

(a) The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any
part thereof, at any time and for any reason. If the Plan is terminated, the Committee, in its
discretion, may elect to terminate all outstanding Offering Periods either immediately or upon
completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner
than originally scheduled, if determined by the Committee in its discretion), or may elect to
permit Offering Periods to expire in accordance with their terms (and subject to any adjustment
pursuant to Section 19). If the Offering Periods are terminated prior to expiration, all amounts
then credited to participants’ accounts which have not been used to purchase shares of Common Stock
will be returned to the participants (without interest thereon, except as otherwise required under
local laws) as soon as administratively practicable.

(b) Without shareholder consent and without limiting Section 20(a), the Committee will be
entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in
a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated
by a participant in order to adjust for delays or mistakes in the Company’s processing of properly
completed withholding elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the purchase of Common
Stock for each participant properly correspond with amounts withheld from the participant’s
Compensation, and establish such other limitations or procedures as the Committee determines in its
sole discretion advisable which are consistent with the Plan.

(c) In the event the Committee determines that the ongoing operation of the Plan may result in
unfavorable financial accounting consequences, the Committee may, in its discretion and, to the
extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such
accounting consequence including, but not limited to:

 

10

 

(i) amending the Plan to conform with the safe harbor definition under Statement of Financial
Accounting Standards 123(R), including with respect to an Offering Period underway at the time;

(ii) altering the Purchase Price for any Offering Period including an Offering Period underway
at the time of the change in Purchase Price;

(iii) shortening any Offering Period so that Offering Period ends on a new Exercise Date,
including an Offering Period underway at the time of the Board action;

(iv) reducing the maximum percentage of Compensation a participant may elect to set aside as
payroll deductions; and

(v) reducing the maximum number of shares of Common Stock a participant may purchase during
any Offering Period.

Such modifications or amendments will not require shareholder approval or the consent of any Plan
participants.

21. Notices. All notices or other communications by a participant to the Company under
or in connection with the Plan will be deemed to have been duly given when received in the form and
manner specified by the Company at the location, or by the person, designated by the Company for
the receipt thereof.

22. Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with
respect to an option unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock exchange upon which the
shares may then be listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time of any such exercise
that the shares are being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.

23. Term of Plan. The Plan will become effective upon the later to occur of its
adoption by the Board or its approval by the shareholders of the Company. It will continue in
effect for a term of ten (10) years, unless sooner terminated under Section 20.

24. Shareholder Approval. The Plan will be subject to approval by the shareholders of
the Company within twelve (12) months after the date the Plan is adopted by the Board. Such
shareholder approval will be obtained in the manner and to the degree required under Applicable
Laws.

 

11

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