Document:

Exhibit 10.2

 

 

PURCHASE
AND SALE AGREEMENT

 

BETWEEN

 

ODESSA
EXPLORATION INCORPORATED

 

AS
SELLER

 

AND

 

STALLION
PANHANDLE 2001, L.P.

 

AS
PURCHASER

 

Executed on August 7, 2003

 

 

Table of Contents

 

	
  DEFINITIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  RECITALS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1
  PURCHASE AND SALE

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Purchase and Sale

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.2

  	
  Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.3

  	
  Excluded Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.4

  	
  Effective
  Time; Proration of Costs and Revenues

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.5

  	
  Delivery,
  Copying and Maintenance of Records

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2
  PURCHASE PRICE

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Purchase Price

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.2

  	
  Adjustments
  to Purchase Price

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.3

  	
  Allocation
  of Purchase Price

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.4

  	
  Deposit

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3
  TITLE MATTERS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Seller’s Title

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.2

  	
  Definition
  of Defensible Title

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.3

  	
  Definition
  of Permitted Encumbrances

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.4

  	
  Notice of
  Title Defects

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.5

  	
  Consents
  to Assignment and Preferential Rights to Purchase

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.6

  	
  Casualty
  or Condemnation Loss

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.7

  	
  Limitations
  on Applicability

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4
  INSPECTION OF PREMISES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Assessment

  	
   

  

 

i

 

	
  Section 4.2

  	
  Notice
  of Alleged Adverse Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.3

  	
  Remedies
  for Alleged Adverse Conditions.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.4

  	
  Alleged
  Adverse Conditions Thresholds

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.5

  	
  Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.6

  	
  Indemnity
  Regarding Access.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5
  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Disclaimers

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.2

  	
  Existence
  and Qualification

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.3

  	
  Power

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.4

  	
  Authorization
  and Enforceability.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.5

  	
  No Conflicts

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.6

  	
  Liability
  for Brokers’ Fees

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.7

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.8

  	
  Taxes and
  Assessments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.9

  	
  Outstanding
  Capital Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.10

  	
  Compliance with
  Laws

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.11

  	
  Operating Costs

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.12

  	
  Condemnation

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.13

  	
  Bankruptcy

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.14

  	
  PUHCA/NGA

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.15

  	
  Investment Company

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.16

  	
  Non-foreign Person

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6
  REPRESENTATIONS AND WARRANTIES OF PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Existence
  and Qualification.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.2

  	
  Power.

  	
   

  

 

ii

 

	
  Section 6.3

  	
  Authorization
  and Enforceability.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.4

  	
  No Conflicts.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.5

  	
  Liability
  for Brokers’ Fees.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.6

  	
  Litigation.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.7

  	
  Financing.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.8

  	
  Limitation.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7
  COVENANTS OF THE PARTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Disclaimer.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.2

  	
  Government
  Reviews.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.3

  	
  Notification
  of Breaches.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.4

  	
  Letters-in-Lieu;
  Assignments; Operator.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.5

  	
  Public
  Announcements.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.6

  	
  Subsequent
  Operations.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.7

  	
  Consents.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.8

  	
  Tax Matters.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.9

  	
  Further
  Assurances.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8
  CONDITIONS TO CLOSING

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Conditions
  of Seller to Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.2

  	
  Conditions
  of Purchaser to Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9
  CLOSING

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.1

  	
  Time
  and Place of Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.2

  	
  Obligations
  of Seller at Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.3

  	
  Obligations
  of Purchaser at Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.4

  	
  Closing
  Payment and Post-Closing Purchase Price Adjustments.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10
  TERMINATION

  	
   

  

 

iii

 

	
  Section 10.1

  	
  Termination.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.2

  	
  Effect of
  Termination.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.3

  	
  Distribution
  of Deposit Upon Termination.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11
  POST -CLOSING OBLIGATIONS; INDEMNIFICATION; LIMITATIONS; DISCLAIMERS AND
  WAIVERS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.1

  	
  Receipts.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.2

  	
  Expenses.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.3

  	
  Assumption
  and Indemnification.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.4

  	
  Indemnification
  Actions.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.5

  	
  Survival.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.6

  	
  Limitation
  of Liability.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.7

  	
  Independent
  Investigation.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.8

  	
  Disclaimer
  Regarding Information.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.9

  	
  Waiver
  of Trade Practices Acts.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.1

  	
  Counterparts.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.2

  	
  Notice.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.3

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.4

  	
  Expenses.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.5

  	
  Change of Name.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.6

  	
  Replacement
  of Bonds. Letters of Credit and Guarantees.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.7

  	
  Governing Law.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.8

  	
  Captions.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.9

  	
  Waivers.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.10

  	
  Assignment.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.11

  	
  Entire Agreement.

  	
   

  

 

iv

 

	
  Section 12.12

  	
  Amendment.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.13

  	
  No
  Third-Party Beneficiaries.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.14

  	
  References.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.15

  	
  Construction.

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.2(a)

  	
  Leases

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.2(b)

  	
  Wells

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.2(c)

  	
  Units

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.2(h)

  	
  License
  to Seismic Data

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.3(i)

  	
  Excluded Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.3

  	
  Allocated
  Values

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 3.1(b)

  	
  Assignment, Conveyance
  and Bill of Sale

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.7

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.9

  	
  Outstanding
  Authority For Expenditures

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 7.4

  	
  Letters-in-Lieu

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 7.7

  	
  Consents
  to Assign and Preferential Rights to Purchase

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  8.1(g) and Exhibit 8.2(f)

  	
  Average Baseline Gas Price

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  9.2(d) and 9.3(d)

  	
  Certificate

  	
   

  
					

 

v

 

PURCHASE
AND SALE AGREEMENT

 

This Purchase and Sale
Agreement (the “Agreement”), is executed on August 7, 2003, by and between
Odessa Exploration Incorporated, a Delaware corporation (“Seller”), and
Stallion Panhandle 2001, L.P., a Texas limited partnership (“Purchaser”).

 

DEFINITIONS

 

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

 

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

 

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

 

“Agreed Interest Rate” has
the meaning set forth in Section 2.2.

 

“Agreement” has the meaning
set forth in the first paragraph of this Agreement.

 

“Alleged Adverse Conditions”
means a single environmental or physical condition which (a) is asserted
by Purchaser in accordance with Section 4.2, which as of Closing, is not in
compliance with the then existing Laws and Environmental Laws and
(b) requires the expenditure of remediation costs exceeding $20,000 net to
Seller’s interests.

 

Allocated Value” has the meaning set forth
in Section 2.3.

 

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

 

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

 

“Assumed Seller Obligations”
has the meaning set forth in Section 11.3(a).

 

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

 

“Claim Notice” has the
meaning set forth in Section 11 .4.

 

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

 

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

 

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

 

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

 

“Confidentiality Agreement”
means that certain Confidentiality Agreement by and between Seller and
Purchaser dated October 23, 2002.

 

1

 

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

 

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

 

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

 

“Damages” has the meaning set
forth in Section 11.3(f).

 

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

 

“Deposit” has the meaning set
forth in Section 2.4.

 

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

 

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

 

“Environmental Claim” shall
mean, as of the Closing Date, any action or proceeding before any Governmental
Body, or written notice to Seller by any Person, alleging potential liability
arising out of or resulting from any actual or alleged violation of, or any
remedial obligation under, any Environmental Law with respect to the Properties
occurring prior to the Effective Time.

 

“Environmental Laws” means,
as the same have been amended as of the Effective Time, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.;
the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.;
the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.
(the “Clean Water Act”); the Clean Air Act, 42 U.S.C. § 7401 et seq.
the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.,
the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil
Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; and the Safe
Drinking Water Act, 42 U.S.C. §§ 300f through 300j; and all similar Laws
as of the Effective Time of any Governmental Body having jurisdiction over the
property in question addressing pollution or protection of the environment and
all regulations implementing the foregoing, including, but not limited to, the
Texas Railroad Commission and all other Texas governmental subdivisions with
authority over environmental matters.

 

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

 

2

 

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

 

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

 

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

 

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

 

“Indemnify” has the meaning
set forth in Section 11.3(b).

 

“Indemnified Party” has the
meaning set forth in Section 11.4.

 

“Indemnifying Party” has the
meaning set forth in Section 11.4.

 

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

 

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

 

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

 

“Liabilities” has the meaning
set forth in Section 11.3(b).

 

“Litigation Expenses” has the
meaning set forth in Section 11.3(b).

 

“Material Adverse Effect”
means any adverse effect on the ownership, operation or value of the Assets, as
currently operated, which (a) is material to the ownership, operation or value
of the Assets, taken as a whole, for purposes of determining whether the
conditions to Closing have been satisfied or (b) exceeds $500,000 in value for
all other purposes under this Agreement, provided, however, that “Material Adverse
Effect” shall not include general changes in industry or economic conditions or
changes in laws or in regulatory policies.

 

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

 

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

 

“Person” means any individual,
firm, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization, government or agency or
subdivision thereof or any other entity.

 

“Prompt Month” shall mean, at any given
time, the next calendar month for which natural gas futures contracts are
trading.

 

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

 

3

 

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

 

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

 

“Purchaser” has the meaning
set forth in the first paragraph of this Agreement.

 

“Purchaser Indemnitees” shall
mean Purchaser, its officers, directors, shareholders, members, employees,
agents, representatives, affiliates, subsidiaries, successors, assigns,
contractors and subcontractors.

 

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

 

“Seller” has the meaning set
forth in the first paragraph of this Agreement.

 

“Seller Indemnitees” shall
mean Seller, its officers, directors, shareholders, members, employees, agents,
representatives, Affiliates, subsidiaries, successors, assigns, contractors and
subcontractors.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

“Working Interest” has the
meaning set forth in Section 3.2(b).

 

RECITALS:

 

WHEREAS, Seller desires
to sell various oil and gas properties to Purchaser and Purchaser desires to
purchase from Seller the properties and rights of Seller hereafter described,
subject to the terms of this Agreement.

 

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

 

ARTICLE 1

PURCHASE AND SALE

 

Section 1.1                                   Purchase
and Sale.

 

At the Closing, and upon
the terms and subject to the conditions of this Agreement, Seller agrees to
sell and convey to Purchaser and Purchaser agrees to purchase, accept and pay
for the Assets (as defined in Section 1.2).

 

Section 1.2                                   Assets.

 

As used herein, the term
“Assets” means, subject to the terms and conditions of this Agreement, all of
Seller’s right, title, interest and estate, real or personal, recorded or
unrecorded, movable or immovable, tangible or intangible, in and to the
following:

 

(a)          All
right, title and interest of Seller in and to all of the oil and gas leases;
oil, gas and mineral leases; subleases and other leaseholds; carried interests;
farmout rights; options; fee minerals; and other properties and interests
described on Exhibit 1.2(a),
subject to such depth limitations, exclusions and other restrictions as may be
set forth on Exhibit 1.2(a)
(collectively, the “Leases”), together with each and every kind and character
of right, title, claim, and interest that Seller has in and to the Leases and
the lands covered thereby, pooled, unitized, communitized or consolidated
therewith (the “Lands”);

 

(b)         All
right, title and interest of Seller in and to oil, gas, water, disposal or
injection wells located on the Lands, whether producing, not producing,
shut-in, temporarily abandoned or permanently abandoned, including the
interests in the wells shown on Exhibit 1.2(b) attached hereto (the “Wells”);

 

(c)          All
leasehold interest of Seller in or to any pools or units which include any
Lands or all or a part of any Leases or include any Wells, including those
pools or units shown on Exhibit 1.2(c) (the “Units”; the Units, together with
the Leases, Lands and Wells, being hereinafter referred to as the
“Properties”), and including all leasehold

 

5

 

interest of Seller
in production from any such Unit, whether such Unit production comes from Wells
located on or off of a Lease, and all tenements, hereditaments and
appurtenances belonging to the Leases and Units;

 

(d)         All
of Seller’s interest in, to and under or derived from all contracts, agreements
and instruments by which the Assets are bound, or that relate to or are
otherwise applicable to the Assets, to the extent applicable to the Assets
rather than Seller’s other properties, including but not limited to, operating
agreements, unitization, pooling and communitization agreements, declarations
and orders, joint venture agreements, farmin and farmout agreements, water
rights agreements, exploration agreements, participation agreements, exchange agreements,
transportation or gathering agreements, agreements for the sale and purchase of
oil, gas, casinghead gas or processing agreements to the extent applicable to
the Assets or the production of oil and gas and other minerals and products
produced in association therewith from the Assets (all of which are hereinafter
collectively referred to as “Contracts”) but excluding any contracts,
agreements and instruments to the extent transfer is restricted by third-party
agreement or applicable law and the necessary consents to transfer are not
obtained pursuant to Section 7.7 and provided that “Contracts” shall not
include the instruments constituting the Leases;

 

(e)          All
right, title and interest of Seller in or to all easements, permits, licenses,
servitudes, rights-of-way, surface leases and other surface rights (“Surface
Contracts”) appurtenant to, and used or held for use primarily in connection
with the Properties, excluding any permits and other appurtenances to the
extent transfer is restricted by third-party agreement or applicable law and
the necessary consents to transfer are not obtained pursuant to Section 7.7;

 

(f)            All
right, title and interest of Seller in all equipment, machinery, fixtures and
other tangible personal property and improvements located on the Properties or
used or held for use primarily in connection with the operation of the
Properties including without limitation any wells, tanks, boilers, buildings,
fixtures, injection facilities, saltwater disposal facilities, compression facilities,
pumping units and engines, flow lines, pipelines, gathering systems, gas and
oil treating facilities, machinery, power lines, telephone and telegraph lines,
roads, and other appurtenances, improvements and facilities, but excluding
(i) vehicles, (ii) equipment, machinery, fixtures and other tangible
personal property and improvements located at or used in connection with any of
Seller’s field offices which are included in the Excluded Assets,
(iii) all computers and related peripheral equipment and (iv) communications
equipment (subject to such exclusions, the “Equipment”);

 

(g)         All
right, title, and interest of Seller in and to all Hydrocarbons produced from
or attributable to the Properties from and after the Effective Time and all
oil, gas, condensate and imbalances with co-owners and with pipelines;

 

(h)         To
the extent transferable, all seismic geologic or geophysical information and
data to the extent it relates to any of the interests which are described in Exhibit 1.2(h)
and the surrounding area; and

 

6

 

(i)             All
right, title, and interest of Seller in and to all lease files; land files;
well files; gas and oil sales contract files; gas processing files; division
order files; abstracts; title opinions; land surveys; non-confidential logs;
maps; engineering data and reports; reserve studies, but excluding (i) any
books, records, data, files, maps and accounting records to the extent
disclosure or transfer is restricted by third-party agreement or applicable law
and the necessary consents to transfer are not obtained pursuant to Section 7.7,
(ii) computer software, (iii) work product of Seller’s legal counsel
(other than title opinions), (iv) records relating to the negotiation and
consummation of the sale of the Assets and corporate, financial, income and
franchise tax and legal records of Seller that relate to Seller’s business
generally (whether or not relating to the Assets) (subject to such exclusions,
the “Records”); provided, however, that Seller may retain the originals of
such files and other records as Seller has determined may be required for
litigation, Tax, accounting, and auditing purposes and provide Purchaser with
copies thereof, excluding, however, the Excluded Assets (as defined in Section 1.3);
and

 

(j)             Notwithstanding
(i) any representations of Seller contained herein concerning the quantum
of Seller’s ownership in interest in the Properties and (ii) the legal
descriptions associated with each Property, it is the intention of Seller and Purchaser
that this instrument covers all of the interest of Seller in the Properties and
all other property interests of Seller of a similar nature which are situated
in Andrews, Borden, Carson, Crane, Dawson, Gaines, Glasscock, Gray, Hutchinson,
Loving, Martin, Midland, Pecos, Potter, Reagan, Reeves, Upton, Ward and Wharton
Counties, Texas and Eddy County, New Mexico.

 

Section 1.3                                   Excluded
Assets.

 

Notwithstanding the
foregoing, the Assets shall not include the following listed items which are
excepted, reserved and excluded from the purchase and sale contemplated hereby
(collectively, the “Excluded Assets”):

 

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

 

(b)         The
equipment, machinery, licenses, fixtures and other tangible personal property
described in Sections 1.2(f)(i),
(ii), (iii) and (iv);

 

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

 

(d)         All
rights relating to the existing claims and causes of action except those
described in part (b) of Exhibit 5.7 hereto;

 

(e)          Seller’s
area-wide bonds, permits and licenses or other permits, licenses or authorizations
used in the conduct of Seller’s business generally;

 

7

 

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

 

(g)         Any
and all seismic, geologic or geophysical information and data that are
(i) covered by an obligation of confidentiality (provided however, Seller
shall use its commercially reasonable efforts to obtain authority to disclose
and transfer the information and data) or (ii) covered by a prohibition
against transfer (provided, however, Seller shall use its commercially
reasonable efforts to obtain authority to transfer the information and data);

 

(h)         Any
and all previous offers and economic analyses associated with the purchase,
sale or exchange of the Properties, internal reserve data, confidentiality
internal communications, personnel information, tax information, information
covered by a non-disclosure obligation, information covered by a prohibition
against transfer and information covered by a legal privilege; and

 

(i)             All
items listed in Exhibit 1.3(i).

 

Section 1.4                                   Effective
Time; Proration of Costs and Revenues.

 

(a)          Possession
of the Assets shall be transferred from Seller to Purchaser at the Closing, but
the effective time of the transfer of the Assets shall be December 1, 2002
at 7:00 a.m., local time at the location of the Properties (the “Effective
Time”).

 

(b)         Purchaser
shall be entitled to all production from or attributable to the Properties at
and after the Effective Time (and all products and proceeds attributable
thereto), and to all other income, proceeds, receipts and credits earned with
respect to the Assets at or after the Effective Time, and shall be responsible
for (and entitled to any refunds with respect to) all Property Costs (defined
below) incurred at and after the Effective Time.

 

Seller shall be entitled
to all production from or attributable to the Properties prior to the Effective
Time (and all products and proceeds attributable thereto), and to all other
income, proceeds, receipts and credits earned with respect to the Assets prior
to the Effective Time, and shall be responsible for (and entitled to any
refunds with respect to) all Property Costs incurred prior to the Effective
Time.

 

As used in this
Agreement, “earned” and “incurred” shall be interpreted in accordance with
generally accepted accounting principles and Council of Petroleum Accountants
Society (COPAS) standards. “Property Costs” means all operating expenses
(including without limitation costs of insurance and ad valorem, property,
severance, production and similar Taxes based upon or measured by the ownership
or operation of the Assets or the production of Hydrocarbons therefrom, but
excluding any other Taxes) and capital expenditures incurred in the ownership
and operation of the Assets in the ordinary course of business and, where
applicable, in accordance with the relevant operating or unit agreement, if
any, and third party overhead and other costs charged to the Assets under the
relevant operating agreement or unit agreement, if any, but excluding, without
limitation liabilities, losses, costs, and expenses attributable to

 

8

 

(i) claims,
investigations, administrative proceedings or litigation directly or indirectly
arising out of or resulting from actual or claimed personal injury or death,
property damage or violation of any Law, (ii) obligations to plug wells,
dismantle facilities, close pits and restore the surface around such wells,
facilities and pits, (iii) obligations to remediate any contamination of
groundwater, surface water, soil or Equipment under applicable Environmental
Laws, (iv) obligations to furnish make-up gas according to the terms of
applicable gas sales, gathering or transportation contracts, (v) gas
balancing obligations and (vi) obligations to pay working interests,
royalties, overriding royalties or other interests held in suspense, all of
which are addressed in Section 11.3. 
For purposes of allocating production (and accounts receivable with
respect thereto), under this Section 1.4, (i) liquid Hydrocarbons shall be
deemed to be “from or attributable to” the Properties when they pass through
the pipeline connecting into the storage facilities into which they are run and
(ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to”
the Properties when they pass through the delivery point sales meters on the
pipelines through which they are transported. Seller shall utilize reasonable
interpolative procedures to arrive at an allocation of production when exact
meter readings or gauging and strapping data is not available. Seller shall
provide to Purchaser, no later than three (3) Business Days prior to Closing,
all data necessary to support any estimated allocation, for purposes of
establishing the adjustment to the Purchase Price pursuant to Section 2.2
hereof that will be used to determine the Closing Payment (as defined in Section 9.4(a)).  Taxes, right-of-way fees, insurance premiums
and other Property Costs that are paid periodically shall be prorated based on
the number of days in the applicable period falling before and the number of
days in the applicable period falling at or after the Effective Time, except
that production, severance and similar Taxes shall be prorated based on the
number of units actually produced, purchased or sold or proceeds of sale, as
applicable, before, and at or after, the Effective Time. In each case,
Purchaser shall be responsible for the portion allocated to the period at and
after the Effective Time and Seller shall be responsible for the portion
allocated to the period before the Effective Time.

 

Section 1.5                                   Delivery,
Copying and Maintenance of Records.

 

(a)          Seller
shall deliver the Records to Purchaser within ten (10) days following Closing.
Seller may retain original Records as set forth in Section 1.2(i) or
copies of any Records.

 

(b)         Purchaser,
for a period of seven (7) years following Closing, will (i) retain the
Records, (ii) provide Seller, its officers, employees and representatives
with access to the Records during normal business hours for review and copying
at Seller’s expense and (iii) provide Seller, its officers, employees and
representatives with access, during normal business hours, to materials
received or produced after Closing relating to any claim for indemnification
made under Section 11.3
of this Agreement (excluding, however, attorney work product and attorney-client
communications with respect to any such claim being brought by Purchaser and
information subject to an applicable confidentiality restriction in favor of
third parties) for review and copying at Seller’s expense.

 

9

 

ARTICLE 2
PURCHASE PRICE

 

Section 2.1                                   Purchase
Price.

 

The purchase price for
the Assets (the “Purchase Price”) shall be U.S. $25,000,000.00 adjusted as
provided in Section 2.2.

 

Section 2.2                                   Adjustments
to Purchase Price.

 

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

 

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

 

(b)         Reduced
in accordance with Section 3.5,
by an amount equal to the Allocated Value of those Properties (i) with respect
to which preferential purchase rights have been exercised prior to Closing,
(ii) that cannot be transferred at Closing due to unwaived requirements for
consent to the assignments contemplated hereby or (iii) for which there
has been a complete failure of title;

 

(c)          Reduced
(i) as a result of Title Defects for which the Title Defect Amount has been
determined prior to Closing by the Title Defect Amount and (ii) increased as a
result of Title Benefits for which the Title Benefit Amount has been determined
prior to Closing by the Title Benefit Amount;

 

(d)         Reduced
by any amount agreed upon by Purchaser and Seller pursuant to Section 4.3(a)
regarding certain environmental matters, and the Allocated Value of any
Property retained by Purchaser pursuant to Section 4.3(b); and

 

(e)          Increased
by the amount of all Property Costs and other costs attributable to the
ownership and operation of the Assets which are paid by Seller and incurred at
or after the Effective Time, except any Property Costs and other such costs already
deducted in the determination of proceeds in Section 2.2(a).

 

The adjustment described
in Section 2.2(a)
shall serve to satisfy, up to the amount of the adjustment, Purchaser’s
entitlement under Section 1.4
to Hydrocarbon production from or attributable to the Properties during the
Adjustment Period, and to the value of other income, proceeds, receipts and
credits earned with respect to the Assets during the Adjustment Period, and
Purchaser shall not have any separate rights to receive any production or
income, proceeds,

 

10

 

receipts and credits with
respect to which an adjustment has been made. Similarly, the adjustment
described in Section 2.2(e)
shall serve to satisfy, up to the amount of the adjustment, Purchaser’s
obligation under Section 1.4
to pay Property Costs and other costs attributable to the ownership and
operation of the Assets which are incurred during the Adjustment Period, and
Purchaser shall not be separately obligated to pay for any Property Costs or
other such costs with respect to which an adjustment has been made.

 

In the event Purchaser
fails to close this transaction on or before August 28, 2003, and such
delay is the fault of Purchaser, the Purchase Price less the Deposit provided
for in Section 2.4,
adjusted as set forth in (a) through (e), shall be increased by simple interest
thereon from the Effective Time to the Closing Date, computed at the rate of
eight percent (8%) per annum (the “Agreed Interest Rate”).

 

Section 2.3                                   Allocation
of Purchase Price.

 

Within ten (10) Business
Days after execution of this Agreement, Purchaser will deliver to Seller a
draft allocation of the unadjusted Purchase Price among each of the Assets,
which has been made in compliance with the principles of Section 1060 of
the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury
regulations thereunder. Within five (5) Business Days after Seller has received
Purchaser’s draft allocation, Seller and Purchaser will attempt to agree on the
final allocation of the unadjusted Purchase Price among each of the Assets; provided,
however, that in no event shall any such allocation of value be
deemed final until Seller and Purchaser have approved the same in writing. Once
approved by all parties, such allocation of value shall be attached to this
Agreement as Exhibit 2.3.  The “Allocated Value” for any Asset equals
the portion of the unadjusted Purchase Price allocated to such Asset on Exhibit 2.3,
increased or decreased as described in this Section.  Any adjustments to the Purchase Price other than the adjustments
provided for in Sections 2.2(b)
and 2.2(c) shall be
applied on a pro rata basis to the amounts set forth on Exhibit 2.3 for all Assets.  After all such adjustments are made, any
adjustments to the Purchase Price pursuant to Sections 2.2(b) and 2.2(c) shall be applied to the amounts set
forth in Exhibit 2.3
for the particular affected Assets. After Seller and Purchaser have agreed on
the Allocated Values for the Assets, Seller will be deemed to have accepted
such Allocated Values for purposes of this Agreement and the transactions
contemplated hereby, but otherwise makes no representation or warranty as to
the accuracy of such values. Seller and Purchaser agree (i) that the Allocated
Values shall be used by Seller and Purchaser as the basis for reporting asset
values and other items for purposes of all federal, state, and local Tax
returns, including without limitation, Internal Revenue Service Form 8594 and
(ii) that neither they nor their Affiliates will take positions
inconsistent with the Allocated Values in notices to government authorities, in
audit or other proceedings with respect to Taxes, in notices to preferential
purchaser right holders, or in other documents or notices relating to the
transactions contemplated by this Agreement.

 

Section 2.4                                   Deposit.

 

Concurrently with the
execution and delivery of this Agreement, Purchaser shall pay to Seller an
earnest money deposit in an amount of $1,000,000 (the “Deposit”). The Deposit
shall be applied against the Purchase Price if the Closing occurs or shall be
otherwise distributed in accordance with the terms of this Agreement.

 

11

 

ARTICLE 3

TITLE MATTERS

 

Section 3.1                                   Seller’s
Title.

 

(a)          Seller
represents and warrants to Purchaser that Seller’s title to the Leases, Wells
and Units shown on Exhibit 1.2(b)
and Exhibit 1.2(c) as of
the Effective Time is (and as of the Closing Date shall be) Defensible Title as
defined in Section 3.2.

 

(b)         The
conveyance to be delivered by Seller to Purchaser shall be substantially in the
form of Exhibit 3.1(b)
hereto (the “Conveyance”) and contain a special warranty of title by, through
and under Seller to the Leases shown on Exhibit 1.2(a), subject to the Permitted
Encumbrances (defined below), but shall otherwise be without warranty of title,
express, implied or statutory, except that such conveyances shall transfer to
Purchaser all rights or actions on title warranties given or made by Seller’s
predecessors (other than Affiliates of Seller), to the extent Seller may
legally transfer such rights.

 

(c)          Purchaser
shall not be entitled to protection under Seller’s special warranty of title in
the Conveyance against any Title Defect reported by Purchaser to Seller under
this Article 3. All
reported Title Defects are expressly excluded from protection under Seller’s
special warranty of title in the Conveyance.

 

Section 3.2                                   Definition
of Defensible Title.

 

As used in this
Agreement, the term “Defensible Title” means that title of Seller which,
subject to Permitted Encumbrances:

 

(a)          Entitles
Seller to receive a share of the Hydrocarbons produced, saved and marketed from
any Unit or Well after satisfaction of all royalties, overriding royalties,
nonparticipating royalties, net profits interests or other similar burdens on
or measured by production of Hydrocarbons (a “Net Revenue Interest”) of not
less than the “Net Revenue Interest” share shown in Exhibit 1.2(b) and Exhibit 1.2(c) for such Unit or Well,
except decreases in connection with those operations in which Seller may after
the Effective Time be a non-consenting co-owner, decreases resulting from the
establishment or amendment after the Effective Time of pools or units, and
decreases required to allow other working interest owners to make up past
underproduction or pipelines to make up past under deliveries and except as
stated in such Exhibit 1.2(b)
and Exhibit 1.2(c);

 

(b)         Obligates
Seller to bear a percentage of the costs and expenses for the maintenance and
development of, and operations relating to, (i) any Unit or Well not
greater than the “Working Interest” shown in Exhibit 1.2(b) and Exhibit 1.2(c) without increase except as
stated in Exhibit 1.2(b)
and Exhibit 1.2(c) and
except increases resulting from contribution requirements with respect to
defaulting co-owners under applicable operating agreements and increases that
are accompanied by at least a proportionate increase in Seller’s Net Revenue
Interest; and

 

(c)          Is
free and clear of liens, encumbrances, obligations, security interests,
irregularities, pledges, or other defects.

 

12

 

As used in this
Agreement, the term “Title Defect” means any lien, charge, encumbrance,
obligation (including contract obligation), defect, or other matter (including,
without limitation, a discrepancy in Net Revenue Interest or Working Interest)
that causes a breach of Seller’s representation and warranty in Section 3.1(a).  As used in this Agreement, the term “Title
Benefit” shall mean any right, circumstance or condition that operates to
increase the Net Revenue Interest of Seller in any Property above that shown on
Exhibit 1.2(b)
and Exhibit 1.2(c),
without causing a greater than proportionate increase in Seller’s Working
Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c).

 

Section 3.3                                   Definition
of Permitted Encumbrances.

 

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

 

(a)          Royalties
and any overriding royalties, reversionary interests and other burdens to the
extent that they do not, individually or in the aggregate, reduce Seller’s Net
Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller’s
Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding
increase in the Net Revenue Interest;

 

(b)         All
Leases, unit agreements, pooling agreements, operating agreements, production
sales contracts, division orders and other Contracts applicable to the Assets,
to the extent that they do not, individually or in the aggregate, reduce
Seller’s Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller’s
Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding
increase in the Net Revenue Interest;

 

(c)          Subject
to compliance with Section 7.7,
preferential rights to purchase the Assets;

 

(d)         Third-party
consent requirements and similar restrictions with respect to which waivers or
consents are obtained by Seller from the appropriate parties prior to the
Closing Date or the appropriate time period for asserting the right has expired
or which need not be satisfied prior to a transfer;

 

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

 

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

 

(g)         All
rights to consent, by required notices to, filings with, or other actions by
Governmental Bodies in connection with the sale or conveyance of oil and gas
leases or interests therein if they are not required prior to the sale or
conveyance;

 

(h)         Rights
of reassignment arising upon final intention to abandon or release the Assets,
or any of them;

 

13

 

(i)             Easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations to the extent that they do not, individually or in the
aggregate, reduce Seller’s Net Revenue Interest below that shown in Exhibit 1.2(b)
and Exhibit 1.2(c)
or increase Seller’s Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding
increase in Net Revenue Interest;

 

(j)             Calls
on production under existing Contracts;

 

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

 

(l)             Any
encumbrance on or affecting the Assets which is expressly assumed, bonded or
paid by Purchaser at or prior to Closing or which is discharged by Seller at or
prior to Closing;

 

(m)       Any
matters shown on Exhibit 1.2(a),
Exhibit 1.2(b) and Exhibit 1.2(c);
and

 

(n)         Any
other liens, charges, encumbrances, defects or irregularities which do not,
individually or in the aggregate, materially detract from the value of or
materially interfere with the use or ownership of the Assets subject thereto or
affected thereby (as currently used or owned), which would be accepted by a
reasonably prudent Purchaser engaged in the business of owning and operating
oil and gas Assets, and which do not reduce Seller’s Net Revenue Interest below
that shown in Exhibit 1.2(b)
and Exhibit 1.2(c),
or increase Seller’s Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding
increase in Net Revenue Interest.

 

Section 3.4                                   Notice
of Title Defects.

 

(a)          To
assert a claim arising out of a breach of Section 3.1(a), Purchaser must deliver claim
notices to Seller (each a “Title Defect Notice”) on or before ten (10) business
days prior to the Closing Date (the “Title Claim Date”), except as otherwise
provided under Sections 3.5
or 3.6.  Each Title Defect Notice shall be in writing
and shall include (i) a description of the alleged Title Defect(s),
(ii) the Units or Wells affected by the Title Defect (each a “Title Defect
Property”), (iii) the Allocated Values of each Title Defect Property,
(iv) supporting documents reasonably necessary for Seller (as well as any
title attorney or examiner hired by Seller) to verify the existence of the
alleged Title Defect(s) and (v) the amount by which Purchaser reasonably believes
the Allocated Values of each Title Defect Property are reduced by the alleged
Title Defect(s) and the computations and information upon which Purchaser’s
belief is based. Purchaser shall be deemed to have waived all breaches of Section 3.1(a)
of which Seller has not been given notice on or before the Title Claim Date.

 

(b)         Seller
shall have the right, but not the obligation, to deliver to Purchaser on or
before the Title Claim Date with respect to each Title Benefit a notice (a
“Title Benefit Notice”) including (i) a description of the Title Benefit,
(ii) the Units or Wells affected, (iii) the Allocated Values of the
Units or Wells subject to such Title Benefit and (iv) the

 

14

 

amount by which
the Seller reasonably believes the Allocated Value of those Units or Wells is
increased by the Title Benefit, and the computations and information upon which
Seller’s belief is based. Seller shall be deemed to have waived all Title
Benefits of which it has not given notice on or before the Title Claim Date.

 

(c)          Seller
shall have the right, but not the obligation, to attempt, at its sole cost, to
cure or remove at any time prior to Closing (the “Cure Period”) any Title
Defects of which it has been advised by Purchaser.

 

(d)         Remedies
for Title Defects.

 

In the event that any
Title Defect is not waived by Purchaser or cured on or before Closing, Seller
shall, at its sole election, elect to:

 

(i)                                     reduce
the Purchase Price by an amount agreed upon (“Title Defect Amount”) pursuant to
Section 3.4(g)
or 3.4(i) by Purchaser
and Seller as being the value of such Title Defect, taking into consideration
the Allocated Value of the Property subject to such Title Defect, the portion
of the Property subject to such Title Defect and the legal effect of such Title
Defect on the Property affected thereby; provided, however, that if such Title
Defect is the result of a discovery by Purchaser that Seller owned, as of the
Effective Time, a Net Revenue Interest in a Property that is less than the Net
Revenue Interest set forth on Exhibit 1.2(b) and Exhibit 1.2(c), then Purchaser and
Seller agree that the proportion of reduction to the Purchase Price shall be
equal to the product of the Allocated Value of such Property and the percentage
reduction in such Net Revenue Interest as a result of such Title Defect;

 

(ii)                                  enter
into an agreement with Purchaser whereby Seller will as soon as reasonably
practicable after Closing, at the sole cost and expense of Seller, perform or
cause to be performed such operations as may be necessary to cure such Title
Defects to Purchaser’s reasonable satisfaction;

 

(iii)                               retain the Property that
is subject to such Title Defect, in which event the Purchase Price shall be
reduced by an amount equal to the Allocated Value of such Property; or

 

(iv)                              if
applicable, terminate this Agreement pursuant to Article 10.

 

In the event that Seller elects to proceed under Section 3.4(d)(i)
and Purchaser and Seller have failed to agree by Closing on the proportionate
reduction of the Allocated Value of the affected Property (which agreement
Purchaser and Seller shall use good faith efforts to reach), Seller shall then
elect to proceed with respect to such Title Defect under any of Sections 3.4(d)(ii),
3.4(d)(iii) or 3.4(d)(iv) or to arbitrate the matter pursuant to Section 3.4(i).

 

(e)          With
respect to each Unit or Well affected by Title Benefits reported under Section 3.4(b),
the Purchase Price shall be increased by an amount (the “Title Benefit Amount”)
equal to the increase in the Allocated Value for such Unit or Well caused by

 

15

 

such Title Benefits, as determined pursuant to Section 3.4(h).  The Closing Payment shall be increased by
such Title Benefit Amount.

 

(f)            Section 3.4(d)
shall, to the fullest extent permitted by applicable law, be the exclusive
right and remedy of Purchaser with respect to Seller’s breach of its warranty
and representation in Section 3.1(a).

 

(g)         The
Title Defect Amount resulting from a Title Defect shall be determined as
follows:

 

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

 

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

 

(iii)                               if the Title Defect
represents a discrepancy between (A) the Net Revenue Interest for any
Title Defect Property and (B) the Net Revenue Interest or percentage
stated on Exhibit 1.2(b)
and Exhibit 1.2(c),
then the Title Defect Amount shall be the product of the Allocated Value of
such Title Defect Property multiplied by a fraction, the numerator of which is
the Net Revenue Interest or percentage ownership decrease and the denominator
of which is the Net Revenue Interest or percentage ownership stated on Exhibit 1.2(b)
and Exhibit 1.2(c);

 

(iv)                              if
the Title Defect represents an obligation, encumbrance, burden or charge upon
or other defect in title to the Title Defect Property of a type not described
in subsections
(i), (ii) or (iii) above, the Title Defect Amount shall
be determined by taking into account the Allocated Value of the Title Defect
Property, the portion of the Title Defect Property affected by the Title
Defect, the legal effect of the Title Defect, the potential economic effect of
the Title Defect over the life of the Title Defect Property, the values placed
upon the Title Defect by Purchaser and Seller and such other factors as are necessary
to make a proper evaluation; and

 

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

 

(h)         The
Title Benefit Amount for any Title Benefit shall be the product of the
Allocated Value of the affected Unit or Well multiplied by a fraction, the
numerator of which is the Net Revenue Interest increase and the denominator of
which is the Net Revenue Interest stated on Exhibit 1.2(b) and Exhibit 1.2(c).

 

(i)             Seller
and Purchaser shall attempt to agree on all Title Defect Amounts and Title
Benefit Amounts prior to Closing. If Seller and Purchaser are unable to agree
by

 

16

 

that date and in the event Seller has not elected to proceed under Section 3.4(d)(ii), (iii) or
(iv), the Title Defect Amounts and Title Benefit Amounts in
dispute shall be exclusively and finally resolved by arbitration pursuant to
this Section 3.4(i).  There shall be a single arbitrator, who
shall be a title attorney with at least 10 years experience in oil and gas
titles in the State of Texas as selected by mutual agreement of Purchaser and
Seller within 15 days after the end of the Cure Period or, absent such
agreement of Purchaser and Seller, selected by the Houston office of the
American Arbitration Association (the “Title Arbitrator”). The arbitration
proceeding shall be held in Houston, Texas and shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
to the extent such rules do not conflict with the terms of this Section.  The Title Arbitrator’s determination shall
be made within 20 days after submission of the matters in dispute and shall be
final and binding upon both parties, without right of appeal. In making his
determination, the Title Arbitrator shall be bound by the rules set forth in Sections 3.4(g)
and 3.4(h)
and may consider such other matters as in the opinion of the Title Arbitrator
are necessary or helpful to make a proper determination. Additionally, the
Title Arbitrator may consult with and engage disinterested third parties to
advise the arbitrator, including without limitation petroleum engineers. The
Title Arbitrator shall act as an expert for the limited purpose of determining
the specific disputed Title Defect Amounts and Title Benefit Amounts submitted
by either party and may not award damages, interest or penalties to either
party with respect to any matter. Seller and Purchaser shall each bear its own
legal fees and other costs of presenting its case. Each party shall bear
one-half of the costs and expenses of the Title Arbitrator.

 

(j)             Notwithstanding
anything to the contrary, there shall be no adjustments to the Purchase Price
or other remedies provided by Seller for Title Defects unless (i) each
individual Title Defect exceeds $20,000 and (ii) the aggregate
amount of all uncured Title Defects exceeds a deductible in an amount equal to
4% of the Purchase Price, after which point Purchaser shall be entitled to
adjustments to the Purchase Price or other remedies only with respect to Title
Defects in excess of such deductible.

 

Section 3.5                                   Consents
to Assignment and Preferential Rights to Purchase.

 

(a)          Seller
shall exercise reasonable commercial efforts to obtain all such permissions,
approvals and consents by governmental authorities and others which are
reasonably obtainable by Closing and are required to vest Defensible Title to
the Assets in Purchaser or as may be otherwise reasonably requested by
Purchaser.

 

(b)         If
any preferential rights to purchase any Assets are exercised prior to Closing,
those Assets transferred to a third party as a result of the exercise of such
preferential rights shall be treated as if those Assets were subject to a Title
Defect that resulted in the complete loss of title to such Assets, and the
Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value for such
Assets. Seller shall convey such Assets to the party exercising the
preferential right to purchase, and Seller shall retain the consideration paid
by the third party for such Assets.  In
the event Seller retains the Property and conveys the Property to a party
exercising a preferential right to purchase

 

17

 

pursuant to Section 3.5(b),
the Purchase Price for such retained Property shall not be included in
calculating the sum of Total Title Defects in Section 10.1(b).

 

(c)          In
the event a Title Defect results in the complete loss of title to any Asset,
the Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value
for such Asset, and Seller shall not convey such Asset to Purchaser.

 

Section 3.6                                   Casualty
or Condemnation Loss.

 

Subject to the provisions
of Sections 8.1(f)
and 8.2(f) hereof, if,
after the date of this Agreement but prior to the Closing Date, any portion of
the Assets is destroyed by fire or other casualty or is taken in condemnation
or under right of eminent domain, and the loss as a result of such individual
casualty or taking exceeds four percent (4%) of the Purchase Price, Purchaser
shall nevertheless be required to close and Seller shall elect by written
notice to Purchaser prior to Closing either (i) to cause the Assets
affected by any casualty or taking to be repaired or restored to at least its
condition prior to such casualty, at Seller’s sole cost, as promptly as
reasonably practicable (which work may extend after the Closing Date) or (ii) to
treat such casualty or taking as a Title Defect with respect to the affected
Property or Assets under Section 3.4. 
In each case, Seller shall retain all rights to insurance and other
claims against third parties with respect to the casualty or taking except to
the extent the parties otherwise agree in writing.

 

If, after the date of
this Agreement but prior to the Closing Date, any portion of the Assets is
destroyed by fire or other casualty or is taken in condemnation or under right
of eminent domain, and the loss as a result of such individual casualty or
taking is four percent (4%) or less of the Purchase Price, Purchaser shall
nevertheless be required to close and Seller shall, at Closing, pay to
Purchaser all sums paid to Seller by third parties by reason of such casualty
or taking and shall assign, transfer and set over to Purchaser or subrogate
Purchaser to all of Seller’s right, title and interest (if any) in insurance
claims, unpaid awards, and other rights against third parties (other than
Affiliates of Seller and their directors, officers, employees and agents)
arising out of the casualty or taking.

 

Section 3.7                                   Limitations
on Applicability.

 

The representation and
warranty in Section 3.1(a)
shall terminate as of the Title Claim Date and shall have no further force and
effect thereafter, provided there shall be no termination of Purchaser’s or
Seller’s rights under Section 3.4 with respect to any bona fide Title
Defect properly reported in a Title Defect Notice or bona fide Title Benefit
Claim properly reported in a Title Benefit Notice on or before the Title Claim
Date.  Thereafter, Purchaser’s sole and
exclusive rights and remedies with regard to title to the Assets shall be as
set forth in, and arise under, the respective Conveyances transferring the
Assets from Seller to Purchaser.

 

18

 

ARTICLE 4

INSPECTION OF PREMISES

 

Section 4.1                                   Assessment.

 

Upon execution of this
Agreement, Purchaser shall be provided access during regular business hours to
the Seller-operated Properties and Seller shall use its commercially reasonable
efforts to obtain permission for Purchaser to gain access to third-party
operated Properties, for the purpose of inspecting the environmental and
physical condition of the same.  Such
inspection shall be conducted in accordance with the terms of the
Confidentiality Agreement (the “Assessment”).

 

Purchaser may, at its
option, cause a phase one environmental assessment of all or any portion of the
Properties to be conducted by a reputable environmental consulting or
engineering firm approved in advance in writing by Seller. The Assessment shall
be conducted at the sole risk, cost and expense of Purchaser, and Purchaser
shall Indemnify Seller from and against any and all losses arising from the
Assessment as provided in Section 7.7 and Section 11.3(b).

 

Section 4.2                                   Notice
of Alleged Adverse Conditions.

 

As soon as reasonably
practical (and on an ongoing basis), but in no event later than ten (10)
Business Days prior to Closing, Purchaser shall notify Seller of any Properties
which are subject to Alleged Adverse Conditions.  Purchaser’s notice of Alleged Adverse Conditions shall include a
complete description of each individual condition to which Purchaser takes
exception (including any and all supporting documentation associated therewith)
and the cost which Purchaser in good faith attributes to remediating the
same.  In evaluating the existence or
magnitude of an Alleged Adverse Condition, due consideration shall be given to
the length of time the Alleged Adverse Condition has been in existence and
whether such fact, circumstance or condition is of the type expected to be
encountered in the area involved, and whether the Alleged Adverse Condition is
customarily acceptable to reasonable persons engaged in the ownership and
operation of oil and gas properties. 
Purchaser and Seller shall meet from time to time as necessary in an
attempt to mutually agree on a proposed resolution with respect to the Alleged
Adverse Conditions raised by Purchaser. 
The value allocated to each Property as set forth on Exhibit 2.3 and
the costs to cure such adverse conditions shall be used by the parties to
determine the amount of any adjustment, if any, due to the existence of an
Alleged Adverse Condition.

 

Section 4.3                                   Remedies
for Alleged Adverse Conditions.

 

If Seller confirms to its
reasonable satisfaction that any matter described in a notice delivered
pursuant to Section 4.2
constitutes an Alleged Adverse Condition, then Seller shall, at its sole
election, elect to:

 

(a)          reduce
the Purchase Price by an amount agreed upon in writing by Purchaser and Seller
as being a reasonable estimate of the cost of curing such Alleged Adverse
Condition;

 

19

 

(b)         retain
the Property that is subject to such Alleged Adverse Condition, in which event
the Purchase Price shall be reduced by an amount equal to the Allocated Value
of such Property;

 

(c)          perform
or cause to be performed prior to Closing at the sole expense of Seller, such
operations as may be necessary to cure such Alleged Adverse Condition to
Purchaser’s reasonable satisfaction;

 

(d)         enter
into an agreement with Purchaser whereby Seller will as soon as reasonably
practicable after Closing, at the sole cost and expense of Seller, perform or
cause to be performed such operations as may be necessary to cure such Alleged
Adverse Condition or;

 

(e)          if
applicable, terminate this Agreement pursuant to Article 10.

 

In the event that Seller
elects to proceed under Section 4.3(a) and Purchaser and Seller have failed
to agree by Closing on the reduction to the Purchase Price (which agreement
Seller and Purchaser shall use good faith efforts to reach), then, in such
event, the dispute shall be submitted to arbitration using the procedure
outlined above in Section 3.4(i)
modified to address arbitration of issues involving such Alleged Adverse
Condition.

 

Section 4.4                                   Alleged
Adverse Conditions Thresholds.

 

Notwithstanding anything
contained in this Agreement to the contrary, Purchaser shall not be entitled to
raise any Alleged Adverse Condition unless (i) such Alleged Adverse
Condition requires the expenditure of remediation or cure costs exceeding
$20,000 net to Seller’s interests and (ii) the aggregate cost associated
with curing or remediating all Alleged Adverse Conditions exceeds 4% of the
Purchase Price (it being acknowledged and agreed that Purchaser shall be solely
responsible for any and all Alleged Adverse Conditions up to 4% of the Purchase
Price).

 

Section 4.5                                   Waiver.

 

All adverse conditions
(including without limitation Alleged Adverse Conditions) not raised by
Purchaser within the applicable time period provided in Article 4.2 shall be waived by Purchaser
for all purposes, and Purchaser (on behalf of itself, and each of the other
Purchaser Indemnitees) irrevocably releases, discharges and waives any and all
claims associated with the same.  This
provisions shall not diminish or affect in any way the parties’ rights and
obligations under any indemnities provided for in this Agreement.

 

Section 4.6                                   Indemnity
Regarding Access.

 

PURCHASER, ON BEHALF OF
ITSELF AND THE PURCHASER INDEMNITEES, AGREES TO INDEMNIFY SELLER INDEMNITEES,
THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS’ DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES FROM AND AGAINST ANY AND ALL
LIABILITIES ARISING FROM OR RELATED TO PURCHASER’S ACCESS TO THE

 

20

 

PROPERTIES
PURSUANT TO SECTION 4.1
AND/OR PURCHASER’S ACCESS TO THE RECORDS.

 

WITHOUT LIMITING THE
FOREGOING, PURCHASER’S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS
OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS’ DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS AND REPRESENTATIVES SHALL INCLUDE INDEMNIFICATION AGAINST
LIABILITIES ARISING FROM OR RELATED TO PERSONAL INJURIES, DEATH, OR PROPERTY
DAMAGE, CLAIMS MADE BY LANDOWNERS WHO OWN LAND ADJACENT TO THE PROPERTIES
ARISING FROM OR IN CONNECTION WITH ACTIVITIES, TESTS, ASSESSMENTS OR OTHER
OPERATIONS CONDUCTED BY PURCHASER OR PURCHASER’S REPRESENTATIVES RELATED TO
THIS AGREEMENT.

 

PURCHASER’S
INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE
ASSETS, AND ALL SUCH PERSONS’ DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES SHALL BE PURSUANT TO AND IN ACCORDANCE WITH THE INDEMNIFICATION
PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL INCLUDE, WITHOUT
LIMITATION, INDEMNIFICATION AGAINST LIABILITIES AND LITIGATION EXPENSES.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
SELLER

 

Section 5.1                                   Disclaimers.

 

(a)          Except
as and to the extent expressly set forth in Articles 3 and 5  of this Agreement or in the
certificate of Seller to be delivered pursuant to Section 9.2(d) or in the Conveyance
instruments to be delivered by Seller to Purchaser hereunder, (i) SELLER
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND
(ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY
REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY
OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS,
CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION,
INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER
BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR
OF SELLER OR ANY OF ITS AFFILIATES).

 

(b)         EXCEPT
AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE 3 OR THIS ARTICLE 5, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO (i) TITLE TO ANY OF THE ASSETS,
(ii) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR
SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSETS, (iii) THE
QUANTITY,

 

21

 

QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES, (iv) ANY
ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE
ASSETS, (v) THE PRODUCTION OF PETROLEUM SUBSTANCES FROM THE ASSETS, (vi) THE
MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY
OF THE ASSETS, (vii) THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY THIRD PARTIES,
(viii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE
AVAILABLE OR COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR ITS OR THEIR
EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR
PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT IT
BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT PURCHASER
SHALL BE DEEMED TO BE OBTAINING EQUIPMENT IN ITS PRESENT STATUS, CONDITION AND
STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND THAT PURCHASER HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE, OR
(ix) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT.

 

(c)          Any
representation “to the knowledge of Seller” or “to Seller’s knowledge” is
limited to matters within the actual knowledge of the officers or management
(including those with titles of “Manager”, “Vice President” and “President”) of
Seller. “Actual knowledge” for purposes of this Agreement means information
actually personally known or information which should have been ascertained had
a reasonable inquiry or investigation been undertaken. The standard of
reasonableness is that which would be exercised by a reasonably prudent person
who has been advised that the person is expected to make representations and
warranties with respect to conditions and information relating to properties
which are to be conveyed.

 

(d)         Subject
to the foregoing provisions of this Section 5.1, and the other terms and conditions of
this Agreement, Seller represents and warrants to Purchaser the matters set out
in Sections 5.2
through 5.16.

 

Section 5.2                                   Existence
and Qualification.

 

Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business as a foreign corporation
where the Assets are located, except where the failure to so qualify would not
have a Material Adverse Effect.

 

22

 

Section 5.3                                   Power.

 

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

 

Section 5.4                                   Authorization
and Enforceability.

 

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

 

Section 5.5                                   No
Conflicts.

 

The execution, delivery
and performance of this Agreement by Seller, and the transactions contemplated
by this Agreement will not (i) violate any provision of the certificate of
incorporation or bylaws of Seller, (ii) result in default (with due notice
or lapse of time or both) or the creation of any lien or encumbrance or give
rise to any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license
or agreement to which Seller is a party or which affect the Assets,
(iii) violate any judgment, order, ruling, or decree applicable to Seller
as a party in interest, (iv) violate any Laws applicable to Seller or any
of the Assets, except for (a) rights to consent by, required notices to,
and filings with or other actions by Governmental Bodies where the same are not
required prior to the assignment of oil and gas interests, require any filing
with, notification of or consent, approval or authorization of any Governmental
Body except any matters described in clauses (ii), (iii) or (iv) or above
which would not have a Material Adverse Effect.

 

Section 5.6                                   Liability
for Brokers’ Fees.

 

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

 

Section 5.7                                   Litigation.

 

Except as set forth in Exhibit 5.7,
(a) no investigation, proceeding, action, suit, or other legal proceeding
of any kind or nature before any Governmental Body or arbitrator (including any
take-or-pay claims) is pending or, to Seller’s knowledge, threatened with
respect to the

 

23

 

Assets, or Seller
(with respect to any of the Assets), or either of them, or with respect to the
ownership, operation, development, maintenance, or use of any thereof, and
(b) no notice in writing from any Governmental Body or any other Person
has been received by Seller claiming any violation of or noncompliance with any
Law with respect to the Assets (including any such Law concerning the conservation
of natural resources).

 

Section 5.8                                   Taxes
and Assessments.

 

With respect to all Taxes
related to the Assets, Seller warrants and represents (a) all reports,
returns, statements (including estimated reports, returns or statements), and
other similar filings (the “Tax Returns”) relating to the Assets required to be
filed on or before the Closing Date by Seller with respect to any Taxes have
been or will be timely filed with the appropriate Governmental Body in all
jurisdictions in which such Tax Returns are required to be filed; and
(b) such Tax Returns are true and correct in all material respects, and
all Taxes reported on such Tax Returns have been paid.

 

With respect to all Taxes
related to the Assets, Seller further warrants and represents (a) there are
not currently in effect any extension or waiver of any statute of limitations
of any jurisdiction regarding the assessment or collection of any Tax;
(b) there are no administrative proceedings or lawsuits pending against
the Assets or Seller by any taxing authority; and (c) there are no Tax
liens on any of the Assets except for liens for Taxes not yet due.

 

Section 5.9                                   Outstanding
Capital Commitments.

 

As of the Effective Time,
there were no outstanding AFEs or other commitments to make capital expenditures
which are binding on the Assets which Seller reasonably anticipates will
require expenditures by the owners of the One Hundred Percent (100%) of the
Assets in excess of $25,000.00, except as reflected in Exhibit 5.9.

 

Section 5.10                            Compliance
with Laws.

 

To the knowledge of
Seller, the Assets operated by Seller have been and are currently in
substantial compliance with the provisions and requirements of all Laws of all
Governmental Bodies having jurisdiction with respect to the Assets, or the
ownership, operation, development, maintenance, or use of any thereof.

 

Section 5.11                            Operating
Costs.

 

To the knowledge of
Seller, it has paid its share of all costs (including without limitation
Property Costs) payable by it under the Leases and Contracts, except normal
expenses incurred in operating the Properties within the previous sixty (60)
days or as to which Seller has not yet been billed and those being contested in
good faith. Seller is not in default under any Contract except such defaults as
would not, individually or the aggregate, have a Material Adverse Effect.

 

24

 

Section 5.12                            Condemnation.

 

To Seller’s knowledge,
there is no actual or threatened taking (whether permanent, temporary, whole or
partial) of any part of the Properties by reason of condemnation or the threat
of condemnation.

 

Section 5.13                            Bankruptcy.

 

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

 

Section 5.14                            PUHCA/NGA.

 

Seller is not a “holding
company,” or a “subsidiary company” of a “holding company,” or an “affiliate”
of a “holding company,” or an “affiliate” of a “subsidiary” of a “holding
company,” or a “public-utility company” within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

 

Section 5.15                            Investment
Company.

 

Seller is not (a) an
investment company or a company controlled by an investment company within the
meaning of the Investment Company Act of 1940, as amended or (b) subject in any
respect to the provisions of said act.

 

Section 5.16                            Non-foreign
Person.

 

Seller is not a “foreign
Person” within the meaning of the Internal Revenue Code of 1986, as amended,
(the “Code”), Section 1445 and 7701.

 

ARTICLE 6

REPRESENTATIONS AND WARRANTIES
OF PURCHASER

 

Purchaser represents and
warrants to Seller the following:

 

Section 6.1                                   Existence
and Qualification.

 

Purchaser is a limited
partnership organized, validly existing and in good standing under the laws of
the state of its organization, and Purchaser is duly qualified to do business
as a foreign limited partnership in every jurisdiction in which it is required
to qualify in order to conduct its business except where the failure to so qualify
would not have a Material Adverse Effect on Purchaser or its properties.  Purchaser is duly qualified to do business
as a limited partnership in the respective jurisdictions where the Assets are
located.

 

Section 6.2                                   Power.

 

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

 

25

 

Section 6.3                                   Authorization
and Enforceability.

 

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

 

Section 6.4                                   No
Conflicts.

 

The execution, delivery
and performance of this Agreement by Purchaser, and the transactions
contemplated by this Agreement will not (i) violate any provision of the
articles of limited partnership of Purchaser, (ii) result in a material default
(with due notice or lapse of time or both) or the creation of any lien or
encumbrance or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license or agreement to which Purchaser is a party,
(iii) violate any judgment, order, ruling, or regulation applicable to
Purchaser as a party in interest, or (iv) violate any law, rule or decree
applicable to Purchaser or any of its assets, or (v) require any filing with,
notification of or consent, approval or authorization of any Governmental Body
or authority, except any matters described in clauses (ii), (iii), (iv) or (v)
above which would not have a Material Adverse Effect on Purchaser.

 

Section 6.5                                   Liability
for Brokers’ Fees.

 

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

 

Section 6.6                                   Litigation.

 

As of the date of the
execution of this Agreement, there are no actions, suits or proceedings
pending, or to Purchaser’s knowledge, threatened in writing before any
Governmental Body against Purchaser or any subsidiary of Purchaser which are
reasonably likely to impair materially Purchaser’s ability to perform its
obligations under this Agreement.

 

Section 6.7                                   Financing.

 

Purchaser has sufficient
cash, available lines of credit or other sources of immediately available funds
in United States dollars to enable it to pay the Closing Payment to Seller at
the Closing.  At the request of Seller
or its Advisor, Purchaser will furnish information and documentation confirming
its source of funds.

 

26

 

Section 6.8                                   Limitation.

 

Except for the
representations and warranties expressly made by Seller in Articles 3 and 5  of this Agreement, or in any certificate
furnished or to be furnished to Purchaser pursuant to this Agreement, Purchaser
acknowledges that (i) there are no representations or warranties, express or
implied, as to the Assets or prospects thereof, and (ii) Purchaser has not
relied upon any oral or written information provided by Seller.

 

ARTICLE 7

COVENANTS OF THE PARTIES

 

Section 7.1                                   Disclaimer.

 

PURCHASER ACKNOWLEDGES
THAT EXCEPT TO THE EXTENT CONTAINED IN AN EXPRESS REPRESENTATION IN ARTICLES 3 AND 5  OF THIS AGREEMENT, THE
CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE CONVEYANCES,
SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN, AND
SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, AS TO THE ACCURACY OR
COMPLETENESS OF INFORMATION OBTAINED BY PURCHASER UNDER THIS SECTION, OR AS TO
SELLER’S TITLE TO THE ASSETS, AND IN ENTERING INTO AND PERFORMING THIS
AGREEMENT, PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT
INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS, THEIR VALUE AND
SELLER’S TITLE THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY
SET FORTH IN ARTICLES 3
AND 5 OF THIS AGREEMENT,
THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE CONVEYANCES.

 

Section 7.2                                   Government
Reviews.

 

Seller and Purchaser
shall in a timely manner (a) make all required filings, if any, with and
prepare applications to and conduct negotiations with, each governmental agency
as to which such filings, applications or negotiations are necessary or
appropriate in the consummation of the transactions contemplated hereby and (b)
provide such information as each may reasonably request to make such filings,
prepare such applications and conduct such negotiations.  Each party shall cooperate with and use all
reasonable efforts to assist the other with respect to such filings,
applications and negotiations.

 

Section 7.3                                   Notification
of Breaches.

 

Until the Closing,

 

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

 

27

 

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

 

If any of Purchaser’s or
Seller’s representations or warranties is untrue or shall become untrue in any
material respect between the date of execution of this Agreement and the
Closing Date, or if any of Purchaser’s or Seller’s covenants or agreements to
be performed or observed prior to or on the Closing Date shall not have been so
performed or observed in any material respect, but if such breach of
representation, warranty, covenant or agreement shall (if curable) be cured by
the Closing (or, if the Closing does not occur, by the date set forth in Section 10.1),
then such breach shall be considered not to have occurred for all purposes of this
Agreement.

 

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

 

On the Closing Date,
Seller shall execute and deliver to Purchaser:

 

(a)          letters
in lieu of division and transfer orders relating to the Assets in the form set
forth on Exhibit 7.4;

 

(b)         assignments
necessary to convey to Purchaser all federal or state leases, if any, in the
form as prescribed by the applicable governmental body and otherwise acceptable
to Purchaser and Seller; and

 

(c)          forms
prescribed by the applicable governmental body to transfer status of operator
from Seller to Purchaser with respect to Seller Operated Assets that are wholly
owned by Seller.

 

Section 7.5                                   Public
Announcements.

 

Until the Closing,
neither party shall make any press release or other public announcement regarding
the existence of this Agreement, the contents hereof or the transactions
contemplated hereby without the prior written consent of the other; provided,
however, the foregoing shall not restrict disclosures by Purchaser
or Seller which are required by applicable securities or other laws or
regulations or the applicable rules of any stock exchange having jurisdiction
over the disclosing party or its Affiliates; and provided, further, that
Purchaser may disclose the existence and contents of this Agreement and the
transactions contemplated hereby to the Standard & Poor’s and Moody’s
rating agencies (provided that such agencies are obligated to keep such
information confidential).  The parties
agree that no press release or other public announcement regarding this
Agreement or the transactions contemplated hereby will be issued until after
the Closing Date of this Agreement, except as allowed by the first proviso of
this sentence.

 

Section 7.6                                   Subsequent
Operations.

 

Seller makes no
representations or warranties to Purchaser as to the transferability or
assignability of operatorship of the Properties.  Purchaser acknowledges that the rights and

 

28

 

obligations
associated with operatorship of the Properties are governed by the applicable
agreement(s) and that operatorship of the Properties will be decided in
accordance with the terms of the agreement(s).

 

Section 7.7                                   Consents.

 

Seller shall promptly
prepare and send notices to the holders of preferential rights or any required
consents to assignment of any Assets requesting such consents and preferential
rights.  None of the Assets are subject
to such preferential rights or required consents to assignment except those Assets
listed in Exhibit 7.7.  Purchaser shall cooperate with Seller in
seeking to obtain such consents and preferential rights.  In the event that Seller is unable to obtain
such consents and preferential rights that are required to vest Defensible
Title to the Assets, Purchaser may elect to treat the unsatisfied consent and
preferential right requirement as a Title Defect and the procedures set forth
in Section 3.5(a)  shall
apply.

 

Section 7.8                                   Tax
Matters.

 

Subject to the provisions
of Section 12.3,
Seller shall be responsible for all Taxes (other than ad valorem, property,
severance, production and similar Taxes based upon or measured by the ownership
or operation of the Assets or the production of Hydrocarbons therefrom, which
are addressed in Section 1.4)
attributable to any period of time prior to Effective Time, including without
limitation income Taxes arising as a result of the gain recognized on the
transfer of the Assets, and Purchaser shall be responsible for all such Taxes
attributable to any period of time at and after the Effective Time.  Regardless of which party is responsible,
Seller shall handle payment to the appropriate Governmental Body of all Taxes
with respect to the Assets which are required to be paid prior to Closing (and
shall file all Tax Returns with respect to such Taxes).  If requested by Purchaser, Seller will
assist Purchaser with preparation of all ad valorem and property Tax Returns
due on or before December 31, 2002 (including any extensions requested).
Seller shall deliver to Purchaser within (30) days of filing copies of all Tax
Returns filed by Seller after the Closing Date relating to the Assets and any
supporting documentation provided by Seller to taxing authorities.

 

Section 7.9                                   Further
Assurances.

 

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

 

ARTICLE 8

CONDITIONS TO CLOSING

 

Section 8.1                                   Conditions
of Seller to Closing.

 

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

 

29

 

(a)          Representations.  The representations and warranties of
Purchaser set forth in Article 6 shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date;

 

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

 

(c)          Pending
Litigation.  No suit, action or
other proceeding by a third party (including any Governmental Body) seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement shall be pending;

 

(d)         Deliveries.  Purchaser shall have delivered to Seller
duly executed counterparts of the Conveyances and the other documents and
certificates to be delivered by Purchaser under Section 9.3;

 

(e)          Purchase
Price Reductions.  The sum of
(i) all Title Defect Amounts for Title Defects determined under Section 3.4(g)
prior to Closing, less the sum of all Title Benefit Amounts for Title Benefits
determined under Section 3.4(h)
prior to the Closing, (ii) price reductions for Alleged Adverse Conditions
and (iii) the aggregate losses from casualties to the Assets and takings
of Assets under right of eminent domain, shall be less than or equal to four
percent (4%) of the unadjusted Purchase Price;

 

(f)            Payment.  Purchaser shall have paid the Closing
Payment;

 

(g)         Natural
Gas Price Condition.  The Average
Prospective Gas Price shall not exceed the Average Baseline Gas Price.

 

The “Average Baseline Gas Price” shall be defined as
the arithmetic average of each calendar month’s NYMEX Henry Hub gas price as of
the close of trading on February 26, 2003, for the April, 2003 through
February, 2006 trading months, as shown on Exhibit 8.1(g).  When the June, 2003 contract is the Prompt Month, the Average
Baseline Gas Price shall be $4.70/MMBTU. 
When the July, 2003 contract is the Prompt Month, the Average Baseline
Gas Price shall be $4.66/MMBTU.

 

The “Average Prospective Gas Price” shall be defined
as the arithmetic average of each calendar month’s NYMEX Henry Hub gas price as
of the close of trading on the Closing Date (“Pricing Date”).  If the Pricing Date occurs when the June,
2003 contract is the Prompt Month, the Average Prospective Gas Price shall be
computed using the June, 2003 through February, 2006 trading months.  If the Pricing Date occurs when the July,
2003 contract is the Prompt Month, the Average Prospective Gas Price shall be
computed using the July, 2003 through February, 2006 trading months.

 

30

 

Section 8.2                                   Conditions
of Purchaser to Closing.

 

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

 

(a)          Representations.  The representations and warranties of Seller
set forth in Article 5  shall
be true and correct as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date (other than representations and
warranties that refer to a specified date which need only be true and correct
on and as of such specified date), except for such breaches, if any, as would
not have a Material Adverse Effect;

 

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

 

(c)          Pending
Litigation.  No suit, action or
other proceeding by a third party (including any Governmental Body) seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement shall be pending;

 

(d)         Deliveries.  Seller shall have delivered to Purchaser
duly executed counterparts of the Conveyances and the other documents and
certificates to be delivered by Seller under Section 9.2;

 

(e)          Purchase
Price Reductions.  The sum of
(i) all Title Defect Amounts for Title Defects determined under Section 3.4(g)
prior to the Closing, less the sum of all Title Benefit Amounts for Title
Benefits determined under Section 3.4(h) prior to Closing (ii) price
reductions for Alleged Adverse Conditions and (iii) the aggregate losses
from casualties to the Assets and taking of Assets under right of eminent
domain, shall be less than or equal to four percent (4%) of the unadjusted
Purchase Price;

 

(f)            Natural
Gas Price Condition.  The Average
Prospective Gas Price shall not exceed the Average Baseline Gas Price.

 

The “Average Baseline Gas Price” shall be defined as
the arithmetic average of each calendar month’s NYMEX Henry Hub gas price as of
the close of trading on February 26, 2003, for the April, 2003 through
February, 2006 trading months, as shown on Exhibit 8.2(f).  When the June, 2003 contract is the Prompt
Month, the Average Baseline Gas Price shall be $4.70/MMBTU.  When the July, 2003 contract is the Prompt
Month, the Average Baseline Gas Price shall be $4.66/MMBTU.

 

The “Average Prospective Gas Price” shall be defined
as the arithmetic average of each calendar month’s NYMEX Henry Hub gas price as
of the close of trading on the Closing Date (“Pricing Date”).  If the Pricing Date occurs when the June,
2003 contract is the Prompt Month, the Average Prospective Gas Price shall be
computed using the June, 2003 through February, 2006 trading months.  If the

 

31

 

Pricing Date
occurs when the July, 2003 contract is the Prompt Month, the Average
Prospective Gas Price shall be computed using the July, 2003 through February,
2006 trading months.

 

ARTICLE 9

CLOSING

 

Section 9.1                                   Time
and Place of Closing.

 

(a)          Consummation
of the purchase and sale transaction as contemplated by this Agreement (the
“Closing”), shall, unless otherwise agreed to in writing by Purchaser and
Seller, take place at the offices of Seller’s counsel Porter & Hedges,
L.L.P. located at 700 Louisiana Street, Suite 3500, Houston,
Texas  77002, at 10:00 a.m., local time,
on or before August 28, 2003 or if all conditions in Article 8 to be satisfied prior to
Closing have not yet been satisfied or waived, as soon thereafter as such
conditions have been satisfied or waived, subject to the rights of the parties
under Article 10.

 

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

 

(c)          In
the event the Average Prospective Gas Price exceeds the Average Baseline Gas
Price on the Closing Date, Seller shall give Purchaser written notice of such
event.  Such notice shall include an
amount when paid by Purchaser to Seller as an increased Purchase Price which
would equal Seller’s additional costs to unwind the financial hedges and
repurchase the existing Volumetric Production Payment burdening the
Leases.  The additional repurchase costs
and hedge unwind costs shall be calculated by Seller based upon the incremental
difference between the actual costs versus the costs that would have been
payable based on the Average Baseline Gas Prices.  For a period of three (3) Business Days after receipt of the
notice, Purchaser will have the option to either (i) pay the revised
Purchase Price and close the transaction or (ii) terminate this Agreement
with no further liability to either Party except that Seller shall
(i) return the Deposit to Purchaser and (ii) pay to Purchaser its
actual due diligence costs, not to exceed TEN THOUSAND DOLLARS ($10,000.00).

 

Section 9.2                                   Obligations
of Seller at Closing.

 

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

 

(a)          Conveyances
of the Assets, in sufficient number of originals to allow recording in all
appropriate jurisdictions and offices, duly executed by Seller;

 

(b)         assignments,
on appropriate forms, of state and of federal leases, if any, comprising
portions of the Assets, duly executed by Seller;

 

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

 

32

 

(d)         a
certificate in the form set forth on Exhibit 9.2(d) duly executed by an
authorized corporate officer of Seller, dated as of Closing, certifying on
behalf of Seller that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled.

 

Section 9.3                                   Obligations
of Purchaser at Closing.

 

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

 

(a)          a
wire transfer of the Closing Payment in immediately available U.S. dollars;

 

(b)         Conveyances
of the Assets, duly executed by Purchaser,

 

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

 

(d)         a
certificate in the form set forth on Exhibit 9.3(d) by an authorized
corporate officer of Purchaser dated as of Closing, certifying on behalf of
Purchaser that the conditions set forth in Sections 8.1(a) and 8.1(b) have been fulfilled.

 

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

 

(a)          Not
later than five (5) Business Days prior to the Closing Date, Seller shall
prepare and deliver to Purchaser, based upon the best information available to
Seller, a preliminary settlement statement estimating the Adjusted Purchase
Price after giving effect to all Purchase Price adjustments set forth in Section 2.2 and
the Deposit. The estimate delivered in accordance with this Section 9.4(a)
shall constitute the dollar amount to be paid by Purchaser to Seller at the
Closing (the “Closing Payment”).

 

(b)         As
soon as reasonably practicable after the Closing but not later than ninety (90)
days following the Closing Date, Seller shall prepare and deliver to Purchaser
a statement setting forth the final calculation of the Adjusted Purchase Price
and showing the calculation of each adjustment, based, to the extent possible
on actual credits, charges, receipts and other items before and after the
Effective Time and taking into account all Title Defect and Title Benefit
adjustments under Section 3.4.  Seller shall at Purchaser’s request supply
reasonable documentation available to support any credit, charge, receipt or
other item. As soon as reasonably practicable but not later than the 30th day
following receipt of Seller’s statement hereunder, Purchaser shall deliver to
Seller a written report containing any changes that Purchaser proposes be made
to such Statement.  The parties shall
undertake to agree on the final statement of the Adjusted Purchase Price no
later than one hundred fifty (150) days after the Closing Date.  In the event that the parties cannot reach
agreement within such period of time, either party may refer the remaining matters
in dispute to Ernst and Young, or such other nationally-recognized independent
accounting firm as may be accepted by Purchaser and Seller, for review and
final determination. The accounting firm shall conduct the arbitration
proceedings in Houston, Texas in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, to the extent such rules do not
conflict with the terms of this Section. 
The accounting firm’s determination shall be made within 30 days

 

33

 

after submission of the matters in dispute and shall be final and
binding on both parties, without right of appeal. In determining the proper
amount of any adjustment to the Purchase Price, the accounting firm shall not increase
the Purchase Price more than the increase proposed by Seller nor decrease the
Purchase Price more than the decrease proposed by Purchaser, as
applicable.  The accounting firm shall
act as an expert for the limited purpose of determining the specific disputed
matters submitted by either party and may not award damages or penalties to
either party with respect to any matter. 
Seller and Purchaser shall each bear its own legal fees and other costs
of presenting its case. Each party shall bear one-half of the costs and
expenses of the accounting firm.  Within
10 days after the date on which the parties or the accounting firm, as
applicable, finally determines the disputed matters, (x) Purchaser shall pay to
Seller the amount by which the Adjusted Purchase Price exceeds the Closing
Payment or (y) Seller shall pay to Purchaser the amount by which the Closing
Payment exceeds the Adjusted Purchase Price, as applicable.

 

(c)          All
payments made or to be made hereunder to Seller shall be by electronic transfer
of immediately available funds in U.S. dollars to the account of:

 

Odessa Exploration
Incorporated 

Account No. 1014304237

 

at PNC Bank,
Pittsburgh Bank, 

ABA No. 043000096

 

All payments made or to
be made hereunder to Purchaser shall be by electronic transfer of immediately
available funds to a bank and account specified by Purchaser in writing to
Seller.

 

ARTICLE 10

TERMINATION

 

Section 10.1                            Termination.

 

This Agreement may be
terminated as follows:

 

(a)          by
the mutual prior written consent of Seller and Purchaser prior to Closing;

 

(b)         by
either party if the sum of total Title Defects, the Alleged Adverse Conditions
and assets destroyed or taken described in Section 8.2 uncured at Closing exceeds
four percent (4%) of the unadjusted Purchase Price, but only in the event that
(i) such Title Defects, Alleged Adverse Conditions or assets destroyed or
taken were presented to Seller pursuant to the provisions of this Agreement and
(ii) Seller has confirmed, to Seller’s reasonable satisfaction, that such
Title Defects, Alleged Adverse Conditions or assets destroyed or taken do, in
fact, constitute Title Defects, Alleged Adverse Conditions or assets destroyed
or taken;

 

(c)          by
Purchaser in the events that (i) Closing has not occurred on the Closing Date;
(ii) Purchaser is not otherwise in default under the provisions of this
Agreement; and (iii) the Conditions of Purchaser to Closing in Section 8.2 have
not been satisfied;

 

34

 

(d)         pursuant
to Section 9.1;

 

(e)          by
Seller in the events that (i) Closing has not occurred on the Closing Date;
(ii) Seller is not otherwise in default under the provisions of this Agreement;
and (iii) the Conditions of Seller to Closing in Section 8.1 have not been satisfied;

 

(f)            by
Seller pursuant to Section 3.4(d)(iv);
and

 

(g)         by
Seller pursuant to Section 4.3(e).

 

Section 10.2                            Effect
of Termination.

 

If this Agreement is
terminated pursuant to Section 10.1, this Agreement shall become void and
of no further force or effect (except for the provisions of Sections 5.6, 6.5, 7.7  and
12.4 and the
Confidentiality Agreement which shall continue in full force and effect) and
Seller shall be free immediately to enjoy all rights of ownership of the Assets
and to sell, transfer, encumber or otherwise dispose of the Assets to any party
without any restriction under this Agreement. Notwithstanding anything to the
contrary in this Agreement, the termination of this Agreement under Section 10.1
shall not relieve any party from liability (including liability for
consequential damages) for any willful or negligent failure to perform or
observe in any material respect any of its agreements or covenants contained
herein which are to be performed or observed at or prior to Closing.  In the event this Agreement terminates under
Section 10.1
because a party has willfully or negligently failed to perform or observe in
any material respect any of its agreements or covenants contained herein which
are to be performed at or prior to Closing, then the other party shall be entitled
to all remedies available at law or in equity and shall be entitled to recover
court costs and attorneys’ fees in addition to any other relief to which such
party may be entitled.

 

Section 10.3                            Distribution
of Deposit Upon Termination.

 

(a)          If
Seller terminates this Agreement pursuant to Section 10.1(e), then Seller may retain
the Deposit as liquidated damages, free of any claims by Purchaser or any other
person with respect thereto. It is expressly stipulated by the parties that the
actual amount of damages resulting from such a termination would be difficult
if not impossible to determine accurately because of the unique nature of this
Agreement, the unique nature of the Assets, the uncertainties of applicable
commodity markets and differences of opinion with respect to such matters, and
that the liquidated damages provided for herein are a reasonable estimate by
the parties of such damages.

 

(b)         If
this Agreement is terminated for any reason other than the reasons set forth in
Section 10.1(e),
then Seller shall deliver the Deposit to Purchaser, free of any claims by
Seller or any other person with respect thereto.

 

35

 

ARTICLE 11

POST -CLOSING OBLIGATIONS; INDEMNIFICATION;

LIMITATIONS; DISCLAIMERS AND WAIVERS

 

Section 11.1                            Receipts.

 

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

 

Section 11.2                            Expenses.

 

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

 

Section 11.3                            Assumption
and Indemnification.

 

(a)          On
the Closing Date, Purchaser shall assume, fulfill, perform, pay and discharge
all of the obligations and liabilities of Seller, known or unknown, with
respect to the Assets, regardless of whether such obligations or liabilities
arose prior to or after the Effective Time. All of said obligations and
liabilities are referred to as the “Assumed Seller Obligations.”  The Assumed Seller Obligations shall
include, without limitation, obligations to furnish makeup gas according to the
terms of applicable gas sales, obligations pertaining to all Contracts, gas
balancing obligations, obligations to pay working interests, royalties,
overriding royalties and other interests held in suspense,

 

36

 

obligations to plug wells, obligations to restore and clean up
Properties, obligations to dismantle structures, and obligations to restore
and/or remediate the Assets in accordance with applicable agreements, Environmental
Laws and Laws. Purchaser, however, does not assume any obligations or
liabilities of Seller to the extent that they are attributable to or arise out
of the:

 

(i)                                     Excluded
Assets; or

 

(ii)                                  actions,
suits or proceedings, if any, set forth on Exhibit 5.7, or

 

(iii)                               claims for wrongful
death and/or personal injury related to the Properties which claims arose
before the Effective Time; or

 

(iv)                              continuing
responsibility of the Seller under Section 11.2 or matters for which Seller is
required to Indemnify Purchaser under this Article 11.

 

(b)         PURCHASER
SHALL INDEMNIFY, COVENANT NOT TO SUE, SAVE, RELEASE, DEFEND, DISCHARGE AND HOLD
SELLER INDEMNITEES HARMLESS (COLLECTIVELY, “INDEMNIFY”) FROM AND AGAINST
LIABILITIES, CLAIMS, CAUSES OF ACTION, LOSSES, DAMAGES, JUDGMENTS, NOTICES,
ORDERS AND RULINGS (COLLECTIVELY, “LIABILITIES”) INCURRED OR SUFFERED BY SELLER
INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT FROM:

 

(i)                                     THE
ASSUMED SELLER OBLIGATIONS;

 

(ii)                                  THE
OWNERSHIP, USE OR OPERATION OF THE ASSETS AT AND AFTER THE EFFECTIVE TIME;

 

(iii)                               PURCHASER’S OBLIGATIONS
UNDER THIS AGREEMENT;

 

(iv)                              THE
BREACH OF ANY OF PURCHASER’S COVENANTS OR PURCHASER’S AGREEMENTS CONTAINED IN
THIS AGREEMENT;

 

(v)                                 THE
BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY PURCHASER CONTAINED IN ARTICLE 6 OF
THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY PURCHASER AT CLOSING PURSUANT
TO SECTION 9.3(d);

 

(vi)                              ANY
ALLEGED OR ACTUAL VIOLATION OF ENVIRONMENTAL LAWS, FAILURE TO RESTORE OR
REMEDIATE ANY OF THE ASSETS, IMPROPER RESTORATION OR REMEDIATION OF THE ASSETS
AND ALL LIABILITIES RELATED TO ANY ENVIRONMENTAL LAWS ATTRIBUTABLE TO PERIODS
OF TIME AT AND AFTER THE EFFECTIVE TIME;

 

(vii)                           ANY NON-ENVIRONMENTAL CLAIMS
RELATING TO THE OWNERSHIP OR OPERATION OF THE PROPERTIES AND

 

37

 

ATTRIBUTABLE TO
PERIODS OF TIME AT AND AFTER THE EFFECTIVE TIME AND THOSE RELATING TO THE
OWNERSHIP OR OPERATION OF THE PROPERTIES PRIOR TO THE EFFECTIVE TIME FOR WHICH
SELLER’S INDEMNITY OBLIGATION HAS CEASED, TERMINATED, OR DID NOT EXIST;

 

(viii)                        ACCESS TO THE ASSETS PURSUANT
TO SECTION 4.6 AND SECTION 7.1; AND

 

(ix)                                THE
LITIGATION EXPENSES (DEFINED BELOW).

 

THE INDEMNIFICATION OBLIGATIONS OF PURCHASER IN THIS
PARAGRAPH SHALL BE REFERRED TO HEREIN AS “PURCHASER’S INDEMNIFICATION
OBLIGATIONS.”

 

PURCHASER SHALL INDEMNIFY SELLER AGAINST LIABILITIES
FOR MATTERS COVERED BY PURCHASER’S INDEMNIFICATION OBLIGATIONS ARISING OUT AND
RESULTING FROM:

 

1.                                       THE
NEGLIGENCE OF SELLER, WHETHER THE NEGLIGENCE IS ORDINARY, GROSS, ACTIVE,
PASSIVE, JOINT, CONCURRENT OR SOLE; AND

 

2.                                       THE
STRICT LIABILITY OF SELLER.

 

PURCHASER SHALL INDEMNIFY SELLER FROM AND AGAINST ALL
ATTORNEY FEES, COSTS OF COURT, EXPENSES FOR HIRING INVESTIGATORS AND
INVESTIGATING, DEFENDING LITIGATION, PROSECUTING LITIGATION, HIRING EXPERT
WITNESSES, COSTS OF SETTLEMENT AND ANY AND ALL COSTS AND EXPENSES PERTAINING TO
ANY LITIGATION (COLLECTIVELY, THE “LITIGATION EXPENSES”) ARISING FROM, BASED
UPON, RELATED TO OR IN ANY WAY CONNECTED WITH THE MATTERS SET OUT ABOVE IN
11.3(b).

 

IT IS UNDERSTOOD AND AGREED THAT PURCHASER’S
OBLIGATION TO INDEMNIFY SELLER FROM AND AGAINST THE LITIGATION EXPENSES IS
(i) SEPARATE AND APART FROM PURCHASER’S OBLIGATION TO INDEMNIFY SELLER
FROM DAMAGES AND (ii) IS NOT DEPENDENT UPON PURCHASER’S SUBSTANTIVE
OBLIGATION TO INDEMNIFY SELLER FROM AND AGAINST DAMAGES. PURCHASER’S OBLIGATION
TO INDEMNIFY SELLER FROM AND AGAINST THE LITIGATION EXPENSES SHALL APPLY
IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY OBLIGATION COMPLIES IN ALL
RESPECTS WITH THE EXPRESS NEGLIGENCE RULE.

 

PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT
THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST, AND
THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE
INDEMNITEE’S NEGLIGENCE.

 

38

 

PURCHASER AND SELLER BOTH
AGREE AND STIPULATE THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.

 

(c)          SELLER
SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST AND FROM ALL LIABILITIES INCURRED
OR SUFFERED BY PURCHASER INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR
RESULT FROM:

 

(i)                                     THE
OBLIGATIONS AND LIABILITIES DESCRIBED IN SECTIONS 11.3(a)(i), 11.3(a)(ii) AND 11.3(a)(iii);

 

(ii)                                  SELLER’S
OBLIGATIONS UNDER THIS AGREEMENT;

 

(iii)                               THE BREACH OF ANY OF
SELLER’S COVENANTS OR SELLER’S AGREEMENTS CONTAINED IN SECTIONS 7.1, 7.2, 7.3, 7.4, 7.5 AND 7.6 OF THIS
AGREEMENT;

 

(iv)                              THE
BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY SELLER CONTAINED IN ARTICLE 5  OF
THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY SELLER AT CLOSING PURSUANT TO
SECTION 9.2(d);

 

(v)                                 ANY
ALLEGED OR ACTUAL VIOLATION OF ENVIRONMENTAL LAWS, FAILURE TO RESTORE OR
REMEDIATE ANY OF THE ASSETS, IMPROPER RESTORATION OR REMEDIATION OF THE ASSETS
AND ALL LIABILITIES RELATED TO ANY ENVIRONMENTAL LAWS ATTRIBUTABLE TO PERIODS
OF TIME AT AND BEFORE THE EFFECTIVE TIME;

 

(vi)                              ANY
NON-ENVIRONMENTAL CLAIMS RELATING TO THE OWNERSHIP OR OPERATION OF THE
PROPERTIES AND ATTRIBUTABLE TO PERIODS OF TIME PRIOR TO THE EFFECTIVE TIME; AND

 

(vii)                           LITIGATION EXPENSES.

 

THE INDEMNIFICATION OBLIGATIONS OF SELLER IN THIS
PARAGRAPH SHALL BE REFERRED TO HEREIN AS “SELLER’S INDEMNIFICATION
OBLIGATIONS.”

 

SELLER SHALL INDEMNIFY PURCHASER AGAINST LIABILITIES
FOR MATTERS COVERED BY SELLER’S INDEMNIFICATION OBLIGATIONS ARISING OUT OF AND
RESULTING FROM:

 

1.                                       THE
NEGLIGENCE OF PURCHASER, WHETHER THE NEGLIGENCE IS ORDINARY, GROSS, ACTIVE,
PASSIVE, JOINT, CONCURRENT OR SOLE; AND

 

2.                                       THE
STRICT LIABILITY OF PURCHASER.

 

 

39

 

SELLER SHALL INDEMNIFY PURCHASER FROM AND AGAINST THE
LITIGATION EXPENSES ARISING FROM, BASED UPON, RELATED TO OR IN ANY WAY
CONNECTED WITH THE MATTERS SET OUT ABOVE IN 11.3(C). IT IS UNDERSTOOD AND
AGREED THAT SELLER’S OBLIGATION TO INDEMNIFY PURCHASER FROM AND AGAINST THE
LITIGATION EXPENSES IS (I) SEPARATE AND APART FROM SELLER’S OBLIGATION TO
INDEMNIFY PURCHASER FROM DAMAGES AND (II) IS NOT DEPENDENT UPON SELLER’S
SUBSTANTIVE OBLIGATION TO INDEMNIFY PURCHASER FROM AND AGAINST DAMAGES.
SELLER’S OBLIGATION TO INDEMNIFY PURCHASER FROM AND AGAINST THE LITIGATION
EXPENSES SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS NEGLIGENCE RULE.

 

SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT
THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST AND
THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE
INDEMNITEE’S NEGLIGENCE.

 

SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT
THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.

 

(d)         Notwithstanding
anything to the contrary contained in this Agreement, this Section 11.3 contains the parties’
exclusive remedies against each other with respect to breaches of the
representations, warranties, covenants and agreements of the parties and the
affirmations of such representations, warranties, covenants and agreements
contained in the certificate delivered by each party at Closing pursuant to Sections 9.2(d)
or 9.3(d), as
applicable.

 

Notwithstanding anything to the contrary contained
herein, none of Purchaser, Seller or any of their respective Affiliates shall
be entitled to either punitive or consequential damages as a remedy in
connection with a breach of any provision of this Agreement and/or the
transactions contemplated hereby, and each of Purchaser and Seller, for itself
and on behalf of its Affiliates, hereby expressly waives any right to punitive
or consequential damages in connection with a breach of any provision of this
Agreement and/or the transactions contemplated hereby.

 

(e)          Claims
for Property Costs shall be exclusively handled pursuant to the Purchase Price
adjustments in Section 2.2,
and pursuant to Section 11.2,
and shall not be subject to indemnification under this Section 11.3.

 

(f)            For
purposes of this Article 11,
“Damages” shall mean the amount of any and all liability, loss, cost,
diminution in value, expense, claim, demand, notice of violation, investigation
by any Governmental Body, cause of action, administrative proceeding, payment,
charge, obligation, fine, penalty, deficiency, award or judgment incurred or
suffered by any Indemnified Party arising out of or resulting from the
indemnified matter, including reasonable fees and expenses of attorneys,
consultants, accountants or other agents and experts reasonably incident to
matters indemnified against, and the costs of

 

40

 

investigation and/or monitoring of such matters, and the costs of
enforcement of the indemnity; provided, however, that Purchaser and Seller
shall not be entitled to indemnification under this Section 11.3 for and “Damages” shall not
include (i) loss of profits or other consequential damages suffered by the
party claiming indemnification, or any punitive damages and (ii) any liability,
loss, cost, expense, claim, award or judgment to the extent resulting from or
increased by the actions or omissions of any Indemnified Party after the
Effective Time.

 

(g)         The
indemnity of each party provided in this Section 11.3 shall be for the benefit of and extend
to each party’s present and former Affiliates, successors and permitted
assigns, and its and their directors, officers, employees, agents and
representatives.

 

Section 11.4                            Indemnification
Actions.

 

All claims for
indemnification under Section 11.3 shall be asserted and resolved as
follows:

 

(a)          For
purposes of this Article 11,
the term “Indemnifying Party” when used in connection with particular Damages
shall mean the party or parties having an obligation to indemnify another party
or parties with respect to such Damages pursuant to this Article 11, and the term “Indemnified
Party” when used in connection with particular Damages shall mean the party or
parties having the right to be indemnified with respect to such Damages by
another party or parties pursuant to this Article 11.

 

(b)         To
make claim for indemnification under Section 11.3, an Indemnified Party shall notify the
Indemnifying Party of its claim under this Section 11.4, including the specific details of and
specific basis under this Agreement for its claim (the “Claim Notice”). In the
event that the claim for indemnification is based upon an inaccuracy or breach
of a representation, warranty, covenant or agreement, the Claim Notice shall
specify the representation, warranty, covenant or agreement which was
inaccurate or breached.

 

Section 11.5                            Survival.

 

In the event of Closing:

 

(a)          The
representations and warranties of the parties in Articles 5 and 6 terminate upon Closing. The covenants and
agreements of the parties in Sections 4.6, 7.1 and 7.2 shall survive the Closing
for a period of two (2) years. The representation and warranty of Seller in Section 3.1(a)
shall terminate on the Title Claim Date. 
The remainder of the representations, warranties, covenants and
agreements provided for in this Agreement shall terminate upon Closing except
as may otherwise be expressly provided herein.

 

(b)         The
indemnities in Sections 11.3(b)(iii)
and 11.3(b)(iv) shall
terminate as of the termination date of each respective representation,
warranty, covenant or agreement that is subject to indemnification, except in
each case as to matters for which a Claim Notice has been delivered to the
Indemnifying Party on or before such termination date.

 

41

 

Purchaser’s indemnities in Sections 11.3(b)(i), 11.3(b)(ii),  11.3(b)(v) 13(b)(vi), 11.3(b)(vii)
and 11.3(b)(viii) shall continue without time limit.

 

(c)          The
indemnities in Sections 11.3(c)(iii)
and 11.3(c)(iv) shall
terminate as of the termination date of each respective representation,
warranty, covenant or agreement that is subject to indemnification, except in
each case as to matters for which a specific written claim for indemnity has
been delivered to the Indemnifying Party on or before such termination date. Seller’s
indemnities in Sections 11.3(c)(i)
shall continue without time limit. 
Seller’s indemnities in Sections 11.3(c)(ii) and Sections 11.3(c)(v) and 11.3(c)(vi)
shall terminate as to all Liabilities for which Purchaser shall not have
delivered the Claim Notice within 180 days after the Effective Date (it
being acknowledged and agreed that Purchaser shall be responsible for any and
all such Liabilities not raised in a Claim Notice within such 180 day
period.

 

(d)         The
Confidentiality Agreement shall survive Closing.

 

Section 11.6                            Limitation
of Liability.

 

Notwithstanding anything
contained in this Agreement to the contrary, Seller shall have no obligation
under this Agreement or otherwise to protect, indemnify, defend and hold
harmless Purchaser Indemnities from and against (i) any Liabilities
arising under this Agreement (including without limitation the indemnity
obligations in Section 11.3(c)
above) up to 4% of the Purchase Price (it being acknowledged and
agreed that Purchaser shall be solely responsible for any and all Liabilities
arising under this Agreement (including without limitation the indemnity
obligations in Section 11.3(c)
above) up to 4% of the Purchase Price) or (ii) Liabilities
arising under this Agreement (including without limitation the indemnity
obligations in Section 11.3(c)
above) in the aggregate greater than 50% of the Purchase Price,
it being acknowledged and agreed that Purchaser shall be held responsible for
Liabilities arising under this Agreement (including without limitation the indemnity
obligations in Section 11.3(c)
above) in the aggregate greater than 50% of the Purchase Price).

 

Section 11.7                            Independent
Investigation.

 

Purchaser represents and
acknowledges that it is knowledgeable of the oil and gas business and of the
usual and customary practices of producers such as Seller and that it has had
access to the Assets, the officers and employees of Seller, and the books,
records and files of Seller relating to the Assets and in making the decision
to enter into this Agreement and consummate the transactions contemplated
hereby, Purchaser has relied solely on the basis of its own independent due
diligence investigation of the Assets. Accordingly, Purchaser acknowledges that
Seller has not made, and Seller hereby expressly disclaims and negates any
representation or warranty (other than those express representations and
warranties made in Article 5), express,
implied, at common law, by statute or otherwise, relating to the Assets.

 

Section 11.8                            Disclaimer
Regarding Information.

 

Seller hereby expressly
negates and disclaims, and Purchaser hereby waives and acknowledges that Seller
has not made, any representation or warranty, express or implied, relating to
(a) the accuracy, completeness or materiality of any information, data or other

 

42

 

materials (written
or oral) now, heretofore, or hereafter furnished to Purchaser by or on behalf
of Seller or (b) production rates, recompletion opportunities, decline rates,
geological or geophysical data or interpretations, the quality, quantity,
recoverability or cost of recovery of any Hydrocarbon reserves, any product
pricing assumptions, or the ability to sell or market any Hydrocarbons after
Closing.

 

Section 11.9                            Waiver
of Trade Practices Acts.

 

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

 

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

 

ARTICLE 12

MISCELLANEOUS

 

Section 12.1                            Counterparts.

 

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

 

Section 12.2                            Notice.

 

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

 

43

 

If to Seller:

 

Odessa Exploration Incorporated

6 Desta Drive, Suite 4400

Midland, TX  79705

Attention:   W. Bruce Lowe

Telephone:                               (915)
571-7161

Telecopy:                                      (915)
571-7126

 

If to Purchaser:

 

Stallion Panhandle 2001, L.P.

411 West Richey Road

Houston, TX 77090

Attention: George P. SanFilippo

Telephone:                               (281)
872-1982

Telecopy:                                      (281)
873-8597

 

With a copy to:

 

David M. Fortney

David M. Fortney & Associates

2623 Durban Drive

Houston, TX 77043

Telephone:                               (713)
460-4119

Telecopy:                                      (713)
460-4275

 

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

 

Section 12.3                            Sales
or Use Tax Recording Fees and Similar Taxes and Fees.

 

Purchaser shall pay any
sales, use, excise, real property transfer or gain, gross receipts, goods and
services, registration, capital, documentary, stamp or transfer Taxes,
recording fees and similar Taxes and fees incurred and imposed upon, or with
respect to, the property transfers or other transactions contemplated hereby.

 

Section 12.4                            Expenses.

 

Except as provided in Section 12.3,
all expenses incurred by Seller in connection with or related to the
authorization, preparation or execution of this Agreement, the Conveyances
delivered hereunder and the Exhibits hereto, and all other matters related to
the Closing, including without limitation, all fees and expenses of counsel,
accountants and financial advisers employed by Seller, shall be borne solely
and entirely by Seller, and all such expenses incurred by Purchaser shall be
borne solely and entirely by Purchaser.

 

44

 

Section 12.5                            Change
of Name.

 

As promptly as
practicable, but in any case within thirty (30) days after the Closing Date,
Purchaser shall eliminate Seller’s name and any variants thereof from the
Assets acquired pursuant to this Agreement and, except with respect to such
grace period for eliminating existing usage, shall have no right to use any
logos, trademarks or trade names belonging to Seller or any of its Affiliates.

 

Section 12.6                            Replacement
of Bonds. Letters of Credit and Guarantees.

 

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

 

Section 12.7                            Governing
Law.

 

This Agreement and the
legal relations between the parties shall be governed by and construed in
accordance with the laws of the State of Texas without regard to principles of
conflicts of laws otherwise applicable to such determinations.

 

Section 12.8                            Captions.

 

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

 

Section 12.9                            Waivers.

 

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

 

Section 12.10                     Assignment.

 

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

 

45

 

Section 12.11                     Entire
Agreement.

 

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

 

Section 12.12                     Amendment.

 

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

 

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

 

Section 12.13                     No
Third-Party Beneficiaries.

 

Nothing in this Agreement
shall entitle any Person other than Purchaser and Seller to any claims, cause
of action, remedy or right of any kind, except the rights expressly provided to
the Persons described in Section 11.3(g).

 

Section 12.14                     References.

 

In this Agreement:

 

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

 

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

 

(c)          Reference
to any Article or Section means an Article or Section of this
Agreement;

 

(d)         Reference
to any Exhibit means an Exhibit that is incorporated into and made a part of
this Agreement;

 

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

 

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

 

46

 

Section 12.15                     Construction.

 

Each of Seller and
Purchaser have had substantial input into the drafting and preparation of this
Agreement and has had the opportunity to exercise business discretion in
relation to the negotiation of the details of the transaction contemplated
hereby.  This Agreement is the result of
arm’s-length negotiations from equal bargaining positions and shall not be
construed against either party.

 

[Signature Page
Begins on Next Page]

 

47

 

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

 

	
  SELLER:

  	
  PURCHASER:

  
	
   

  	
   

  
	
  ODESSA
  EXPLORATION INCORPORATED

  	
  STALLION
  PANHANDLE 2001, L.P., a

  
	
   

  	
  Texas limited
  partnership acting by and

  through Stallion Energy Inc., a Texas

  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ W. Bruce
  Lowe

  	
   

  	
  By:

  	
  /s/ George P.
  SanFilippo

  	
   

  
	
  W. Bruce Lowe, President

  	
  George P. SanFilippo, President

  
						

 

48Exhibit 10.1

 

TERMINATION AGREEMENT AND GENERAL RELEASE

 

THIS
TERMINATION AGREEMENT AND GENERAL RELEASE (the “Agreement”) is executed
on this 26th day of August, 2003 by and between INVESTools, Inc., a
Delaware corporation (the “Company”) and Scott Elder (“Employee”).

 

WHEREAS, the
Company and Employee have entered into that certain Amended and Restated
Employment Agreement effective as of August 30, 2002 (the “Employment
Agreement”); and

 

WHEREAS,
Employee and the Company mutually desire to terminate their relationship on an
amicable basis; and

 

WHEREAS, to
accommodate this request, the Company and Employee now desire to terminate the
Employment Agreement in order that each of them can be released and forever
discharged from further performance thereunder.

 

NOW,
THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.                                       Termination
of Employment Agreement.  Except as
otherwise provided herein, the Company and Employee each hereby agree that the
Employment Agreement shall be terminated as of the date hereof and neither
shall thereafter have any liabilities, rights, duties or obligations to the
other party under or in connection with the Employment Agreement, including
with respect to any provisions of such Employment Agreement which purport to
survive such termination.  In connection
therewith, the Company and Employee hereby waive any rights to prior
notification of termination of the Employment Agreement as set forth in the
Employment Agreement or otherwise.  The
parties acknowledge and agree that, as of the date hereof, the Employment
Agreement shall be null and void and of no further force or effect.

 

2.                                       Resignation
of Offices.  Employee hereby resigns
from all positions he may hold as an officer, director or manager of the
Company and any subsidiaries of the Company.

 

3.                                       Severance
Benefits.

 

a.                                       Employee
has been offered and agrees to accept from the Company severance pay equal to
the total gross amount of $270,850, of which (i) $50,000 (representing the
quarterly bonus payments referenced in the Employment Agreement) and (ii)
$2,100 (representing unpaid club membership payments referenced in the
Employment Agreement) shall be payable on the date hereof, and the remaining
$218,750 less withholdings, representing 10.5 months salary, shall be paid in
accordance with the Company’s regular payroll schedule beginning August 1,
2003.  Employee understands and agrees
that this severance pay is not otherwise due Employee.

 

 

b.                                      Employee
will be given COBRA notification regarding insurance benefits provided to
employees of the Company.  The Company
will be responsible for the COBRA continuation coverage premium until June 15,
2004.

 

c.                                       From
September 1, 2003 until June 15, 2004, the Company shall pay Employee  $300 per month for social or country club
membership dues.

 

d.                                      All
stock options granted to Employee by the Company shall lapse on the date
hereof; provided, however, that
the Company shall pay to Employee, in immediately available funds, an amount
equal to the difference between (i) the exercise price of the stock options
granted to Employee by the Company which have vested and are in-the-money as of
the date hereof and (ii) the closing bid price per share of the Company’s
common stock on the date hereof, multiplied by the number of shares of such
vested stock options.

 

e.                                       From
the date hereof until June 15, 2004 (the “Severance Period”), Employee
shall have access to the InvestorToolbox website without payment.

 

f.                                         The
Company hereby agrees to sell for $1.00, and Employee hereby agrees to purchase
for $1.00, certain of the furniture and equipment, including certain video
backdrops and sets, of the Company pursuant to a Bill of Sale mutually
satisfactory to the parties thereto.

 

4.                                       Right
of First Refusal.  From the date
hereof until the earlier of (i) June 15, 2004 or (ii) a Change of Control (as
defined below), if Employee desires to sell more than 10,000 shares of Company
common stock in any one month, Employee shall irrevocably offer (in a written
instrument delivered to the Company) to sell such shares of his Company common
stock registered in Employee’s name to the Company for the price and on the
terms specified on Exhibit A attached hereto.  The Company shall accept such offer within 24 hours of the actual
receipt of such offer and consummate such transaction within 3 business days
after acceptance of such offer.  If the
Company does not so elect to purchase all, or any portion, of such shares of
stock, the right to purchase such stock pursuant to such offer shall terminate
and Employee may sell such shares in the open market.  Any sale pursuant to this Section 4 shall take place at
the principal corporate office of the Company. 
At the closing of such sale, Employee shall assign and deliver the
certificates representing such stock (duly endorsed for transfer and free of
any liens or encumbrances whatsoever) to the Company, and the Company shall
deliver to Employee in certified funds the full consideration therefor as
specified hereunder.  Any stock transfer
or similar taxes involved in such sale shall be paid by Employee, and Employee
shall provide the Company with such evidence of the Employee’s authority to
sell hereunder and such tax lien waivers and similar instruments as the Company
may reasonably request.  Notwithstanding
anything to the contrary herein, the Company’s right of first refusal set forth
in this Section 4 shall not apply to gifts or charitable donations of Employee’s
shares of Company common stock.  During
the period set forth in this Section 4, Employee agrees to provide
notice to the Company of a sale by Employee of 10,000 shares or less of Company
common stock within three business days of such sale.

 

For the
purposes of this Section 4, “Change of Control” means the
happening of any of the following events:

 

2

 

(i)                                     The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”),
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more of either (A) the then outstanding
shares of common stock of the Company or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors; provided, however, that the following
acquisitions shall not constitute a Change of Control under this subsection
(i): (x) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (y) any
acquisition by the Company, or (z) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or

 

(ii)                                  Individuals who, as of the effective date
hereof, constitute the Board of Directors (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the effective
date hereof whose election, or nomination for election by the Company’s
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or

 

(iii)                               Approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company or the sale or
other disposition of all or substantially all of the assets of the Company.

 

5.                                       Release
by Employee.  In consideration for
the Company’s payment of the severance pay and the Company’s payments of the
COBRA continuation coverage premium on behalf of Employee, Employee voluntarily
and knowingly waives, releases, and discharges the Company, its parent,
predecessors, successors, subsidiaries, affiliates, employees, officers,
directors, owners, agents and assigns from all claims, liabilities, demands,
and causes of action, known or unknown, fixed or contingent, which Employee may
have or claim to have against any of them as a result of Employee’s employment
and/or termination from employment and/or as a result of any other matter
arising through the date of Employee’s signature on this Agreement.  Employee agrees not to file a lawsuit to
assert any such claims or to seek damages through an administrative claim for
any such claims.  This waiver, release and discharge includes,
but is not limited to: (1) claims arising under federal, state, or local laws
regarding employment or prohibiting employment discrimination such as, without
limitation, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the
Age Discrimination in Employment Act, the Older Workers’ Benefit Protection
Act, the National Labor Relations Act, Section 1981 of the Civil Rights Act of
1866, the Americans with Disabilities Act, the Fair Labor Standards Act, the
Family and Medical Leave Act, Utah Antidiscrimination Act; (2) claims for
breach of contract, including the 

 

3

 

Employment
Agreement; (3) claims for personal injury, harm, or other damages (whether
intentional or unintentional including, without limitation, negligence,
defamation, misrepresentation, fraud, intentional infliction of emotional
distress, assault, battery, invasion of privacy, and other such claims); (4)
claims growing out of any legal restrictions on the Company’s right to
terminate its employees; (5) claims for wages or any other compensation; or (6)
claims for benefits including, without limitation, those arising under the
Employee Retirement Income Security Act.

 

6.                                       Release
by the Company.  In consideration for Employee’s promises
herein, the Company, its parent, predecessors, successors, subsidiaries,
affiliates, employees, officers, directors, owners, agents and assigns voluntarily and knowingly waive, release,
and discharge the Employee, its agents, representatives, heirs, and assigns
from all claims, liabilities, demands, and causes of action, known or unknown,
fixed or contingent, which the Company may have or claim to have against
Employee as a result of the Company’s employment of Employee and/or as a result
of any other matter arising through the date of the Company’s signature on this
Agreement.  The Company agrees not to
file a lawsuit or an administrative claim to assert any such released
claims.  This waiver, release and
discharge includes, but is not limited to: (1) claims arising under federal,
state, or local laws regarding employment or termination of employment, (2)
claims for breach of contract, and (3) claims for personal injury, harm, or
other damages (whether intentional or unintentional including, without
limitation, negligence, defamation, misrepresentation, fraud, tortious
interference with contracts or business relationships, intentional infliction
of emotional distress, assault, battery, invasion of privacy, and other such
claims).  Notwithstanding anything to
the contrary in this Section 6, this Section 6 shall not apply to any claims, liabilities, demands, and causes of
action, known or unknown, fixed or contingent, which the Company may
have or claim to have against Employee as a result of Employee’s breach of his
obligations under this Agreement.

 

7.                                       Confidential
Information.

 

a.                                       Employee
acknowledges that the Company’s business is highly competitive and that the
Company’s books, records and documents, technical information concerning its
products, equipment, services and processes, procurement procedures and pricing
techniques and the names of and other information (e.g., credit and financial
data) concerning the Company’s customers and business associates all comprise
confidential business information and trade secrets of the Company
(collectively, “Confidential Information”) which are valuable,
special, and unique assets of the Company which the Company uses in its
business to obtain a competitive advantage over the Company’s competitors which
do not know or use this information. Employee further acknowledges that he has
had access to such Confidential Information and that protection of the
Confidential Information against unauthorized disclosure and use is of critical
importance to the Company in maintaining its competitive position. Accordingly,
Employee hereby agrees that in further consideration for the severance pay
disclosed above, he will not, at any time, make any unauthorized disclosure of
any Confidential Information or make any use thereof, except for the benefit
of, and on behalf of, the Company. For the purposes of this Section 7,
the term “Company” shall also include affiliates of the Company.

 

4

 

b.                                      Employee
acknowledges that, as a result of his employment by the Company, he has had
access to, or knowledge of, confidential business information or trade secrets
of third parties, such as customers, suppliers, partners, joint venturers, and
the like, of the Company. Employee agrees to preserve and protect the
confidentiality of such third-party confidential information and trade secrets
to the same extent, and on the same basis, as the Confidential Information.

 

c.                                       All
written materials, records and other documents that were made by, or came into
the possession of, Employee during the period of his employment by the Company
which contain or disclose the Confidential Information are and remain the
property of the Company.  Employee
agrees that he will immediately return to the Company the same, and all copies,
derivatives and extracts thereof.

 

None of the
foregoing in this Section 7 shall prohibit Employee’s continued
participation in those activities specifically described on Exhibit B
attached hereto; provided, however, that Employee shall not target directly the
customer list of the Company or make use of the Company’s business trade
secrets.  The Company’s business trade
secrets shall not include the Company’s processes and systems, logistics
planning and scheduling, sales processes, lead generation activities,
fulfillment processes and vendors.

 

8.                                       Inventions and Discoveries.  Employee hereby assigns to the Company all
of his interest in any and ideas, conceptions, inventions, improvements, and
discoveries, whether patentable or not, which were conceived or made by
Employee, solely or jointly with another, during the period of his employment
by the Company and which are related to the business or activities of the
Company.  Employee acknowledges that all
such ideas, conceptions, inventions improvements and discoveries are the sole
property of the Company and that Employee has no rights in the same.  Employee agrees that, whenever requested to
do so by the Company, he shall assist in the preparation of any document that
the Company shall deem necessary and shall execute any and all applications,
assignments or other instruments that the Company shall deem necessary, in its
sole discretion, to apply for and obtain protection, including patent protection,
for such ideas, conceptions, inventions, improvements and discoveries in all
countries of the world.

 

9.                                       Copyrights.  Employee acknowledges that any original work
of authorship (each, a “Work”) fixed in any tangible medium of
expression which was the subject matter of copyright (e.g., written presentations,
computer programs, videotapes, drawings, maps, models, manuals or brochures)
relating to the Company’s business, products, or services, whether a Work was
created solely by Employee or jointly with others, the Company shall be deemed
the author of a Work if the Work was prepared by Employee in the scope of his
employment; or, if the Work was not prepared by Employee within the scope of
his employment but was specially ordered by the Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation or as an instructional
text, then the Work shall be considered to be a work made for hire and the Company
shall be deemed the author of the Work. 
In the event a Work was not prepared by Employee within the scope of his
employment or was not a Work specially ordered and deemed to be a work made for
hire, then Employee hereby assigns to the Company all of Employee’s worldwide
right, title and interest in and to such Work and all rights of copyright
therein.

 

5

 

Employee acknowledges that all
Work is the property of the Company and Employee has no rights in the same.  Employee agrees to assist the Company and
its nominee, at any time, in the protection of the Company’s worldwide right,
title and interest in and to the Work and all rights of copyright therein,
including but not limited to, the execution of all formal assignment documents
requested by the Company or its nominee and the execution of all lawful oaths
and applications for registration of copyright in the United States and foreign
countries.

 

10.                                 Confidentiality.  Employee understands and agrees not to discuss
any of the terms of this Agreement with any person or entity except for
Employee’s spouse, attorney, tax advisor, and government tax authorities or
except as required by law. 
Notwithstanding anything set forth in this Agreement to the contrary or any
other agreement to which Employee or the Company is bound, Employee and the
Company are expressly authorized to disclose the “tax treatment” and “tax
structure” (as those terms are defined in Treasury Regulations Sections
1.6011-4(c)(8) and (9), respectively) of the transactions contemplated by this
Agreement; provided, however,
that the foregoing authorization shall apply only to the extent necessary such
that the transactions contemplated by this Agreement will not constitute a
“confidential transaction” within the meaning of Treasury Regulations Sections
1.6011-4(b)(3).

 

11.                                 Non-Competition.

 

During the
Severance Period, Employee will not directly or indirectly, for himself or for
others, in any state of the United States, or in any foreign country where the
Company or any of its affiliates is then conducting any business:

 

a.                                       engage
in any business that is directly competitive with activities conducted by the
Company (or any of the Company’s subsidiaries or divisions), which activities
conducted by the Company (or any of the Company’s subsidiaries or divisions)
represent in the aggregate greater than 25% of the Company’s proforma
consolidated revenues in 2001;

 

b.                                      render
advice or services to, or otherwise assist, any other person or entity who is
engaged, directly or indirectly, in any business that is directly competitive
with activities conducted by the Company (or any of the Company’s subsidiaries
or divisions), which activities conducted by the Company (or any of the
Company’s subsidiaries or divisions) represent in the aggregate greater than
25% of the Company’s proforma consolidated revenues in 2001; or

 

c.                                       transact any business in any manner
pertaining to suppliers or customers of the Company or any affiliate which, in
any manner, would have, or is likely to have, an adverse effect upon the
Company or any affiliate.

 

None of the
foregoing in this Section 11 shall prohibit Employee’s continued
participation in those activities specifically described on Exhibit B
attached hereto.

 

12.                                 Non-Solicitation
and Non-Disparagement.  Employee
agrees that in further consideration for the severance pay described above,
during the Severance Period, Employee shall not, on his own behalf or on behalf
of any other person, partnership, entity, association, or corporation, hire or
seek to hire any non-clerical or non-secretarial employee of the Company or in
any other manner attempt directly or indirectly to influence, induce, or
encourage any non-clerical 

 

6

 

or non-secretarial employee of
the Company to leave the employment of the Company, nor shall he use or
disclose to any person, partnership, entity, association, or corporation any
information concerning the names, addresses or personal telephone numbers of
any employees of the Company.  Employee
further agrees that he will not, at any time, disparage the Company or
interfere with the Company’s operations, products, employees, officers or
directors.  For the purposes of this Section
12, the term “Company” shall also include affiliates of the Company.

 

13.                                 Use
of Name and Image.  After the
Severance Period, the Company agrees that it shall not use in any manner
whatsoever Employee’s name or image in any of its marketing, sales, educational
or instructional materials, or in any other manner to benefit the Company.   After the Severance Period, Employee agrees
that he shall not use in any manner whatsoever the Company’s name or image
(except to the extent reflected in biographical information) in any of his
marketing, sales, educational or instructional materials, or in any other
manner to benefit Employee.

 

14.                                 Remedies
and Notice of Legal Action.

 

a.                                       Employee
and Company acknowledge that damages are an inadequate remedy of law for the
breach of certain terms hereof and, accordingly, Company and Employee are
hereby granted and shall have the right of injunction (any requirements for
posting of bonds for injunction being hereby expressly waived) and such other
and further relief, both in law and in equity, that Company or Employee may be
entitled to receive under the laws of the State of Utah, in the event Employee
or Company breaches or threatens to breach any of the covenants or agreements
contained herein.

 

b.                                      Employee
and Company agree that prior to instituting any legal action to enforce or
obtain relief for the breach of this Agreement, each of them will provide to
the other party notice of any breach of this Agreement.  So long as following receipt of any such
notice the breaching party immediately ceases any ongoing breach of this
Agreement and immediately commences its efforts to cure any past breach, the
aggrieved party shall refrain from instituting legal action to enforce or
obtain relief for the breach of this Agreement until the expiration of a
reasonable cure period (as determined in good faith by the aggrieved party but
in no event in excess of 10 days) within which the breaching party may attempt
to cure any breach.

 

15.                                 Indemnification.

 

a.                                       The
Company shall indemnify and hold harmless the Employee in respect of acts or
omissions occurring prior to the date hereof to the extent provided under the
Company’s restated certificate of incorporation and bylaws in effect on the
date hereof, including the prompt payment of expenses incurred by Employee.  The Company shall provide officers’ and
directors’ liability insurance in respect of acts or omissions occurring prior
to the date hereof covering Employee on terms and with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof.

 

b.                                      Any
indemnification under Section 15(a) (unless ordered by a court) shall be
made by the Company only as authorized in the specific case upon a
determination that 

 

7

 

indemnification of Employee is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Article VIII of the Company’s restated certificate of
incorporation.  Such determination shall
be made by independent legal counsel as directed by the Board of Directors in a
written opinion.

 

16.                                 Acknowledgement.

 

Employee
acknowledges the following:  that this
Agreement is written in a manner calculated to be understood by Employee and
that Employee in fact understands the terms, conditions and effect of this
Agreement; this Agreement refers to rights or claims arising under the Age
Discrimination in Employment Act and Older Workers Benefit Protection Act;
Employee does not waive rights or claims that may arise after the date this
Agreement is executed; Employee waives rights or claims only in exchange for
consideration in addition to anything of value to which Employee is already
entitled; Employee is advised in writing to consult with an attorney prior to
executing the Agreement;  Employee has
twenty-one (21) days in which to consider this Agreement before accepting it,
but need not take that long if the Employee does not wish; this Agreement
allows a period of at least seven (7) days following execution of the Agreement
in which Employee may revoke the Agreement by giving the Company written notice
and returning any and all payments made by the Company to Employee pursuant to
this Agreement; and Employee fully understands all of the terms of this waiver
agreement and knowingly and voluntarily enters into this Agreement.

 

Employee
understands this Agreement is not and shall not be deemed or construed to be an
admission by the Company of any wrongdoing of any kind or of any breach of any
contract, obligation, policy, or procedure of any kind or nature.

 

17.                                 Entire
Agreement and Modification. 
Employee has carefully read and fully understands all of the terms of
this Agreement.  Employee agrees that
this Agreement sets forth the entire agreement between the Company and
Employee.  Employee acknowledges that
Employee has not relied upon any representations or statements, written or
oral, not set forth in this Agreement. 
This Agreement cannot be modified except in writing and signed by both
parties.

 

18.                                 Severability. 
If a court of competent jurisdiction determines that any provision of
this Agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.

 

19.                                 Applicable Law, Jurisdiction and Venue.  This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the State of Utah. Any suit
by the Company to enforce any right hereunder or to obtain a declaration of any
right or obligation hereunder may, at the sole option of the Company, be
brought (i) in any court of competent jurisdiction in the State of Utah or
(ii) in any court of competent jurisdiction where jurisdiction may be had
over Employee. Employee hereby expressly consents to the jurisdiction of the
foregoing courts for such purposes and to the appointment of the Secretary of
State for the State of Utah as his agent for service of process.

 

8

 

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

 

21.                                 Withholding of
Taxes.  The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law or governmental regulation or ruling.

 

22.                                 Headings. 
The paragraph headings have been inserted for purposes of convenience
and shall not be used for interpretive purposes.

 

23.                                 Affiliate. 
As used in this Agreement, “affiliate” shall mean any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company.

 

24.                                 Assignment. 
This Agreement, and the rights and obligations of the parties hereunder,
are personal and neither this Agreement, nor any right, benefit or obligation
of either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or otherwise,
without the prior written consent of the other party except that vested rights
to payment shall be subject to devise, and shall descend in accordance with applicable
laws of inheritance.

 

9

 

AGREED AND
ACCEPTED on this 26th day of August, 2003.

 

 

	
   

  	
   /s/ Scott Elder

  	
   

  
	
   

  	
  Scott Elder

  

 

 

AGREED AND
ACCEPTED on this 26th day of August, 2003.

 

	
   

  	
  INVESTools,
  Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lee K.
  Barba

  	
   

  
	
   

  	
  Name:

  	
   Lee K.
  Barba

  	
   

  
	
   

  	
  Title:

  	
   Chief
  Executive Officer

  	
   

  
						

 

10

 

EXHIBIT A

 

Shares of Company common stock
sold by Employee to the Company in accordance with the terms of the Termination
Agreement and General Release shall be sold for a purchase price to be
determined as follows:

 

a.                                       In
the event of a sale of 10,001 to 99,999 shares of Company common stock, the
price per share shall be the closing sale price of Company common stock as
reported by the OTC Bulletin Board on the date such offer is made.

 

b.                                      In
the event of a sale of 100,000 or more shares of Company common stock, the
price per share shall be $.03 below the closing sale price of Company common
stock as reported by the OTC Bulletin Board on the date such offer is made.

 

11

 

EXHIBIT B

 

Auctionadvisor will be a seminar, workshop,
and self-directed learning education provider whose purpose will be to teach
people how to make money by participating in and/or operating online auctions,
either part time or full time, with the end goal of the customer turning the
skills learned in the education process into a part time or full time business.

 

Auctionadvisor will not, directly or
indirectly, provide seminars, workshops or self directed learning for stock
market investor education or stock market investment education.

 

Auctionadvisor will not maintain hot links on
its website to INVESTools’ website or the websites of INVESTools’ investment
partners.

 

12

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