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Unassociated Document

     

    EXHIBIT
      10.1

    

    PURCHASE
      AND SALE AGREEMENT

    

    by
      and between

    

    TARH
      E&P HOLDINGS, L.P.

    

    AS
      SELLER 

    

    AND

    

    FOOTHILLS
      TEXAS, INC.

    

    AS
      BUYER

    

    DATED
      

    

    JUNE
      21, 2006

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    TABLE
      OF CONTENTS

    

    
      	
              ARTICLE
                1. - DEFINITIONS

            	
              4

            
	
              ARTICLE
                2. - PURCHASE AND SALE

            	
              5

            
	
              ARTICLE
                3. - PURCHASE PRICE AND PAYMENT

            	
              7

            
	
              ARTICLE
                4. - REPRESENTATIONS OF SELLER

            	
              10

            
	
              ARTICLE
                5. - REPRESENTATIONS OF BUYER

            	
              13

            
	
              ARTICLE
                6. - ACCESS TO INFORMATION AND INSPECTIONS

            	
              14

            
	
              ARTICLE
                7. - DISCLAIMER OF WARRANTIES

            	
              14

            
	
              ARTICLE
                8. - TITLE MATTERS

            	
              16

            
	
              ARTICLE
                9. - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

            	
              20

            
	
              ARTICLE
                10. - ENVIRONMENTAL MATTERS AND OTHER ADJUSTMENTS

            	
              21

            
	
              ARTICLE
                11. - GENERAL COVENANTS OF SELLER

            	
              24

            
	
              ARTICLE
                12. - COVENANTS OF BUYER

            	
              25

            
	
              ARTICLE
                13. - CLOSING CONDITIONS

            	
              26

            
	
              ARTICLE
                14. - CLOSING

            	
              27

            
	
              ARTICLE
                15. - ADDITIONAL CLOSING OBLIGATIONS

            	
              28

            
	
              ARTICLE
                16. - CASUALTY LOSS AND CONDEMNATION

            	
              30

            
	
              ARTICLE
                17. - DEFAULT AND REMEDIES

            	
              30

            
	
              ARTICLE
                18. - ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION

            	
              31

            
	
              ARTICLE
                19. - ARBITRATION

            	
              33

            
	
              ARTICLE
                20. - MISCELLANEOUS

            	
              34

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBITS

    

    

    
      	 	 
	
              Description
                of Leases, Lands and Interests Being Conveyed

            	
              Exhibit
                “A”

            
	 	 
	
              Description
                of Wells and Equipment Being Conveyed

            	
              Exhibit
                “A-1”

            
	 	 
	
              Assignment
                and Bill of Sale

            	
              Exhibit
                “B”

            
	 	 
	
              Certificate
                of Non-Foreign Status

            	
              Exhibit
                “C”

            
	 	 
	
              Supplemental
                Agreement

            	
              Exhibit
                “D”

            
	 	 
	
              Registration
                Rights Agreement

            	
              Exhibit
                “E”

            
	 	 

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    SCHEDULES

    
 

    
      	
              Excluded
                Assets

            	
              Schedule
                2.2

            
	 	 
	
              Allocated
                Value

            	
              Schedule
                3.1

            
	 	 
	
              Litigation

            	
              Schedule
                4.8

            
	 	 
	
              Consents
                / Preferential Rights

            	
              Schedule
                4.9

            

    

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    PURCHASE
      AND SALE AGREEMENT

    

    

    This
      Purchase and Sale Agreement (“Agreement”) dated as of June 21, 2006 is between
      TARH E&P Holdings, L.P., whose address is 98 San Jacinto Blvd, Suite 800,
      Austin, Texas 78701 (“Seller”) and Foothills Texas, Inc. whose address is 4540
      California Ave., Suite 550, Bakersfield, California 93309 (“Buyer”). Either
      Seller or Buyer, as the case may be, are hereinafter referred to as “Party” or
      collectively as “Parties.”

    

    In
      consideration of the mutual covenants and agreements contained herein, the
      benefits to be derived by each Party hereunder, and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      Parties agree as follows:

    

    ARTICLE
      1. - DEFINITIONS

    

    1.1. “Agreement”
      shall
      mean this Purchase and Sale Agreement between Seller and Buyer.

    

    1.2. “Property
      or Properties”
      shall
      mean the assets and properties (except to the extent constituting Excluded
      Assets) described in Article
      2.1.

    

    1.3. “Closing
      Date”
      shall be
      as defined in Article
      14.1.

    

    1.4. “Effective
      Time”
      shall
      mean the time described in Article
      2.1.

    

    
      
        1.5.
          “Excluded
          Assets”
          shall
          mean the items described in Article
          2.2.

      

    

    

    1.6. “Hydrocarbons”
      shall
      mean crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas
      liquids, drip liquids and other liquid or gaseous hydrocarbons (including
      CO2),
      and
      shall also refer to all other minerals of every kind and character which may
      be
      covered by or included in the Properties.

    

    1.7. “Inventory
      Hydrocarbons”
      shall
      mean all merchantable oil and condensate (for oil and liquids in storage tanks,
      being only that oil or liquids physically above the top of the inlet connection
      into such tanks) produced from or attributable to the Leases prior to the
      Effective Time which have not been sold by Seller and are in storage at the
      Effective Time.

    

    1.8. “Leases”
      shall
      mean, except for the Excluded Assets, the oil, gas and mineral leases and the
      leasehold estates created thereby and mineral interests in the lands, as
      described on Exhibit
      “A”
      attached
      hereto.

    

    
      
        1.9.
          “Performance
          Deposit”
          shall be
          as defined in Article
          3.2.

      

    

    

    
      
        1.10.
          “Purchase
          Price”
          shall be
          as defined in Article
          3.1.

      

    

    

    1.11. “Well”
      or “Wells” shall
      mean all wellbores, both abandoned and unabandoned, including oil wells, gas
      wells, injection wells, disposal wells and water wells whether described on
      Exhibit
      “A-1”
      or not.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    ARTICLE
      2. - PURCHASE AND SALE

    

    2.1. The
      Properties.
      Subject
      to the terms and conditions of this Agreement, Seller agrees to sell and convey
      to Buyer, and Buyer agrees to purchase from Seller, but effective as of 7:00
      a.m. Central Time, July 1, 2006,
      (the “Effective Time”) all of Seller’s right, title, and interest in and to the
      following (the “Properties”):

    

    (a) The
      oil,
      gas and mineral
      leases described on Exhibit
      “A”
      attached
      hereto
      and the
      leasehold estates created thereby and mineral interests in the lands described
      in Exhibit
      “A”
      attached
      hereto (the “Leases”), and the lands covered thereby (the “Land”), together with
      corresponding interests in and to all the property and rights incident thereto,
      including all rights in any pooled or unitized acreage by virtue of the Land
      being a part thereof, all production from the pool or unit allocated to any
      such
      Land, and all interests in any Wells within the pool or unit associated with
      the
      Land;

    

    (b) Each
      Well
      located on the Leases and Land described on Exhibit
      “A-1”;

    

    (c) All
      of
      Seller’s rights in “Equipment” described on Exhibit
      “A-1”
      and
      wherever located on the Land used and useful in the operation, maintenance
      and
      production of the Wells located on or associated with the Leases (except for
      any
      Excluded Assets); 

    

    (d) To
      the
      extent transferable by Seller without material restriction under applicable
      law
      or third-party agreements (without the payment of any funds or consideration)
      and subject to the terms of Article
      18,
      below,
      all contracts and contractual rights, obligations, and interests, including
      all
      farmout and farmin agreements, operating agreements, production sales and
      purchase contracts, asset purchase contracts with related indemnity provisions,
      saltwater disposal agreements, gas gathering or transportation agreements,
      surface leases, division and transfer orders, governmental licenses, permits
      and
      approvals, and other contracts or agreements covering or affecting any or all
      of
      the interests described or referred to in this Article
      2.1.(d)
      (the
“Contracts”);

    

    (e) All
      Hydrocarbons, including Inventory Hydrocarbons produced from, attributable
      to or
      located on the Leases and or in the Gathering System and associated Servitudes
      as of the Effective Time attributable to Seller’s interest in the Properties;

    

    (f) All
      of
      the following described real and personal property:

    

    (i) The
      rights, interests and estates created under those certain servitudes, easements,
      rights-of-way, privileges, franchises, prescriptions, licenses, leases, permits
      and/or other rights described in Exhibit
      “A”,
      attached hereto and made a part hereof, together with any amendments, renewals,
      extensions, supplements, modifications or other agreements related thereto,
      and
      further together with any other servitudes, easements, rights-of-way,
      privileges, prescriptions, franchises, licenses, permits and/or other rights
      (whether presently existing or hereafter created and whether now owned or
      hereafter acquired by operation of law or otherwise) used, held for use in
      connection with, or in any way related to the “Gathering System” (as herein
      defined), and/or pipelines transporting gas or natural gas liquids to, from
      or
      between Gathering Systems (the rights, interests and estates described in this
      Article
      2.1.(f)(i)
      are
      herein collectively called the “Servitudes”);

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (ii) All
      pipes, valves, gauges, meters and other measuring equipment, regulators,
      extractors, tubing, pipelines, fuel lines, facilities, improvements, fittings,
      materials and other improvements, fixtures and/or personal property (whether
      now
      owned or hereafter acquired by operation of law or otherwise) located on or
      under the Servitudes, and/or in or otherwise related to the Lands (the
      properties, rights and interests described in this Article
      2.1.(f)(ii)
      are
      herein collectively called the “Gathering Systems”);

     

    (iii) All
      of
      Seller’s right, title and interest (whether now owned or hereafter acquired by
      operation of law or otherwise) in and to all improvements, fixtures, and other
      real and/or personal property (including, without limitation, all equipment,
      boats, tanks, pipelines, flow lines, gathering lines, compressors, dehydration
      units, separators, meters, metering stations, buildings, fittings, pipe, pipe
      connector, valves, regulators, drips, storage facilities, absorbers,
      dehydrators, and power, telephone and telegraph lines) located on or under,
      or
      which in any way relate to, the Servitudes and/or the Gathering
      Systems;

    

    (g) The
      Records as defined in Article
      15.4
      hereof.

    

    All
      of
      the above real and personal properties, rights, titles and interests described
      in subparagraphs (a) through (g) above, subject to the limitations and terms
      expressly set forth herein and in the Exhibit
      “A”
      attached
      hereto, but excluding the Excluded Assets, are hereinafter collectively called
      the “Properties” or, individually, a “Property”.

    

    2.2. Excluded
      Assets. Seller
      specifically excludes from this transaction all reservations and exceptions
      listed in Exhibit
      “A”
      and the
      following:

    

    (a) All
      vehicles and other transportation equipment, furniture, office supplies

    and
      equipment, telephones and radio or other telecommunications systems, tools,
      store stock, spare parts, and equipment, and any other assets not specifically
      used or required in connection with the operation of the
      Properties;

    

    (b) computer
      equipment, telecommunications equipment, vehicles, tools, pulling machines,
      and
      other equipment and material temporarily located on the Property;

    

    (c) items
      excluded from the Records provided to Buyer before the execution date;

    

    (d) personal
      property, fixtures, equipment and facilities located on the Lands, but currently
      in use exclusively in connection with the ownership or operation of other
      property not included in the Properties;

    

    (e) (i)
      all
      trade credits, accounts receivable, notes receivable and other receivables
      attributable to Seller’s interest in the Properties with respect to any period
      of time prior to the Effective Time; (ii) all deposits, cash, checks in process
      of collection, cash equivalents and funds attributable to Seller’s interest in
      the Properties with respect to any period of time prior to the Effective Time;
      and (iii) all proceeds, benefits, income or revenues accruing (and any security
      of other deposits made) with respect to the Properties prior to the Effective
      Time;

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (f) all
      corporate, financial, and tax records of Seller other than the Records;

    

    (g) all
      claims and causes of action of Seller arising from acts, omissions or events,
      or
      damage to or destruction of, the Properties occurring prior to the Effective
      Time;

    

    (h) except
      as
      otherwise provided in Article
      16,
      all
      rights, titles, claims and interests of Seller relating to the Properties prior
      to the Effective Time (i) under any policy or agreement of insurance or
      indemnity; (ii) under any bond; or (iii) to any insurance or condemnation
      proceeds or awards;

    

    (i) all
      Hydrocarbons produced from or attributable to the Properties with respect to
      all
      periods prior to the Effective Time, together with all proceeds from or of
      such
      Hydrocarbons, except the Inventory Hydrocarbons;

    

    (j) claims
      of
      Seller for refund of or loss carry forwards with respect to production, windfall
      profit, severance, ad valorem or any other taxes attributable to any period
      prior to the Effective Time, or income or franchise taxes;

    

    (k) all
      amounts due or payable to Seller as adjustments or refunds under any contracts
      or agreements (including take-or-pay claims) affecting the Properties,
      respecting periods prior to the Effective Time except to the extent such amounts
      are subject to make-up rights out of future production after the Effective
      Time;

    

    (l) all
      amounts due or payable to Seller as adjustments to insurance premiums related
      to
      the Properties with respect to any period prior to the Effective
      Time;

    

    (m) all
      proceeds, benefits, income or revenues accruing (and any security or other
      deposits made) with respect to the Properties, and all accounts receivable
      attributable to the Properties, prior to the Effective Time; 

    

    (n) all
      of
      Seller’s intellectual property, including, but not limited to,
      proprietary

    computer
      software, patents, trade secrets, copyrights, names, marks and
      logos;

    

    (o) all
      hedge
      obligations and hedge contracts; and

    

    (p) any
      item
      listed on Schedule
      2.2.

    

    ARTICLE
      3. - PURCHASE PRICE AND PAYMENT

    

    3.1. Purchase
      Price.
      Subject
      to adjustment as set forth below, the Purchase Price for the Properties shall
      be
      Fifty-One Million Seven Hundred Sixty-Five Thousand Eight Hundred Seventy
      Dollars ($51,765,870), as allocated among the Properties and provided in
Schedule
      3.1,
      and to
      be paid at Closing as follows:

    

    $47,265,870
      in U.S. dollars

    $
      4,500,000 in unregistered shares of Common Stock (“Restricted Stock”) of
      Foothills Resources, Inc. (“Resources”)

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    For
      purposes of this Agreement, the shares of Restricted Stock shall be valued
      based
      upon the per share average closing price of Resources common stock as reported
      on the National Association of Securities Dealers Over the Counter Bulletin
      Board for the twenty (20) trading days prior to the date of the public
      announcement of the transaction contemplated by this Agreement.

    

    3.2. Performance
      Deposit.
      Immediately
      upon the execution hereof, Buyer shall tender to Seller, by bank wire transfer,
      per the instructions of Seller, a Performance Deposit equal to five percent
      (5%)
      of the Purchase Price. Such Performance Deposit may be increased to ten percent
      (10%) of the Purchase Price, as provided in Article
      14.1
      herein,
      and the term “Performance Deposit” as used in this Agreement shall refer to the
      amount actually tendered to Seller by Buyer pursuant to this Article
      3.2
      and
      pursuant to Article
      14.1.

    

    
      
        3.3.
          Final
          Settlement/Purchase Price Adjustments.

      

    

    

    Within
      ninety (90) days after Closing, Seller shall provide to Buyer, for Buyer’s
      concurrence, an accounting (the “Final Settlement Statement”) of the actual
      amounts of Seller’s and Buyer’s Credits for the adjustment set out in this
Article
      3.3.
      Within
      thirty (30) days after receipt of such statement from Seller, Buyer shall
      deliver to Seller a written report containing all changes with explanations
      therefor that Buyer proposes be made to such statement, it being agreed that
      Buyer’s failure to deliver such report to Seller within such time period shall
      constitute acceptance by Buyer of Seller’s statement (unless failure is a result
      of Seller’s failure to provide information, data, etc). Except for the changes
      raised by Buyer in its written report, no additional changes to the statement
      provided by Seller shall be considered by the Parties. If Buyer has timely
      delivered such written report, the Parties shall then undertake to agree on
      the
      items in dispute and the adjusted Purchase Price no later than thirty (30)
      days
      after the receipt by Seller of Buyer’s statement of proposed changes. The
      Parties shall attempt to resolve any disagreements on a best efforts basis.
      In
      the event such disagreements cannot be resolved, the matter shall be submitted
      to arbitration by either Party pursuant to the provisions of Article
      19
      hereof.
      Following the determination of the adjusted Purchase Price pursuant to this
      Article
      3.3,
      Seller
      or Buyer, as the case may be, shall make payment required within five (5)
      business days after such final determination. Buyer will prepare any information
      reasonably requested by Seller in order for Seller to prepare such statement
      or
      verify Buyer’s written report. 

    

    The
      Purchase Price shall be adjusted as follows:

    

    (a) The
      Purchase Price shall be adjusted upward by the following (“Seller’s
      Credits”):

    

    (1) the
      value
      of (i) all Inventory Hydrocarbons, such value to be based upon the prevailing
      market value for crude oil in effect as of the Effective Time adjusted for
      grade
      and gravity, less taxes and transportation fees deducted by the purchaser of
      such oil, such oil to be measured at the Effective Time by the operators of
      the
      Properties. and (ii) the value of all of Seller’s unsold inventory of gas plant
      products, if any, attributable to the Leases at the Effective Time valued in
      the
      same manner as if such products had been sold under the contract then in
      existence between Seller and the purchaser of such products or, if there is
      no
      such contract, valued in the same manner as if said products had been sold
      at
      the posted price for said products;

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (2) the
      amount of all production expenses, operating expenses, overhead paid by Seller
      on the Properties (IT BEING THE INTENT HEREOF THAT on Seller
      operated Properties, Seller shall charge such charges as are reasonable and
      customary in the industry where such Properties are located), and capital
      expenditures (including, without limitation, royalties, overriding royalties,
      rentals and other charges, ad valorem, property, production, excise, severance,
      and other similar taxes and assessments) attributable to the operation of the
      Properties after the Effective Time; 

    

    (3) an
      amount
      equal to the sum of any upward adjustments provided elsewhere for in this
      Agreement; and

    

    (4) any
      other
      amount agreed upon by Seller and Buyer in writing prior to Closing.

    

    (b) The
      Purchase Price shall be adjusted downward by the following (“Buyer’s
      Credits”):

    

    (1) the
      total
      sales value of all Hydrocarbons sold by the Seller after the Effective Time,
      all
      of which are attributable to the Properties, and any other monies collected
      by
      the Seller with respect to the ownership or operation of the Properties after
      the Effective Time, expressly provided that Seller will not be required to
      pay
      any interest on monies collected on behalf of Buyer.

    

    (2) The
      amount of any ad valorem, property, production, severance and similar taxes
      and
      assessments on the Assets measured by production that occurs before the
      Effective Time which shall be the obligation of Seller. For clarity, 2006 taxes
      based on production occurring in 2005 shall be solely Seller’s obligation. The
      parties shall, based on the production that occurred in 2006 and the most
      recently available renditions, estimate the 2006 taxes and such amount shall
      be
      withheld from the Purchase Price payable to Seller at Closing. Any such
      estimate, once agreed upon, shall be final; 

    

    (3) an
      amount
      equal to the sum of any downward adjustments provided elsewhere in this
      Agreement; and 

    

    (4) any
      other
      amount agreed upon by Seller and Buyer in writing prior to Closing.

    

    (c) Seller
      shall prepare and deliver to Buyer, at least five (5) business days prior to
      Closing, Seller’s estimate of the adjusted Purchase Price to be paid at Closing,
      together with a preliminary statement setting forth Seller’s estimate of the
      amount of each adjustment to the Purchase Price to be made pursuant to this
      Article
      3.3.
      

    

    (d) Buyer
      and
      Seller agree that any adjustments to the Purchase Price under this Article
      3.3
      shall be made to the stock portion of the Purchase Price, and no adjustments
      shall be made to the cash portion of the Purchase Price.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    ARTICLE
      4. - REPRESENTATIONS OF SELLER

    

    4.1. Existence.
      Seller
      is a limited partnership, validly existing and in good standing under the laws
      of the state of its formation and is duly qualified to do business in the state
      in which the Properties are located. 

    

    4.2. Authorization.
      Seller
      has all authority necessary to enter into this Agreement and to perform all
      its
      obligations hereunder. This Agreement has been duly executed and delivered
      on
      its behalf, and at the Closing all documents and instruments required hereunder
      will have been duly executed and delivered. This Agreement, and all such
      documents and instruments shall constitute legal, valid, and binding obligations
      enforceable in accordance with their respective terms, except to the extent
      enforceability may be affected by bankruptcy, reorganization, insolvency, or
      similar laws affecting creditors’ rights generally.

    

    4.3. Power.
      Subject
      to preferential purchase rights and restrictions on assignment of the type
      typically found in the oil and gas industry, and to rights to consent described
      on Schedule
      4.9,
      and
      subject to, required notices to, and filings with or actions by governmental
      entities, Seller’s execution, delivery, and performance of this Agreement and
      the transactions contemplated hereby will not: (i) violate or conflict with
      any
      provision of its Articles of Organization, or other governing documents; (ii)
      result in the breach of any term or condition of, or constitute a default or
      cause the acceleration of any obligation under any agreement or instrument
      to
      which it is a party or by which it is bound; or (iii) violate or conflict with
      any applicable judgment, decree, order, permit, law, rule or
      regulation.

    

    4.4. Brokers.
      Seller
      has incurred no liability, contingent or otherwise, for broker’s or finder’s
      fees in respect of this transaction, for which Buyer shall have any
      responsibility whatsoever.

    

    4.5. 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 (i.e.,
      Seller
      is not a nonresident alien, foreign corporation, foreign partnership, foreign
      trust, or foreign estate as those terms are defined in the Code and any
      regulation promulgated thereunder).

    

    4.6. Conflicts.
      Seller’s
      execution, delivery, and performance of this Agreement does not and will not
      conflict with or violate any agreement governing Seller’s business or affairs,
      or any agreements or instruments to which Seller may be a party or by which
      Seller or any of Seller’s properties are bound, or any law, administrative
      regulation or rule or court order, judgment, or decree applicable to Seller
      or
      to the Properties.

    

    4.7. Bankruptcy.
      There
      are no bankruptcy, reorganization, or receivership proceedings pending, being
      contemplated by, or threatened against Seller.

    

    4.8. Litigation.
      Except
      as set forth on Schedule
      4.8,
      there
      is neither any claim, dispute, suit, action, investigation or other proceeding
      pending before any court or governmental agency against Seller or any of the
      Properties, nor to Seller’s knowledge, threatened against Seller or the
      Properties, which might diminish the value of or impede the operation of the
      Properties, or which challenges or pertains to the execution and delivery of
      this Agreement or the consummation of the transactions contemplated
      hereby.

     

    
      
        
        

      

      
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    4.9. Preferential
      Rights.
      Except
      as identified on Schedule
      4.9,
      which
      to the best of Seller’s knowledge, is accurate and complete, for the respective
      Leases or Wells, there are no preferential rights of purchase or consents to
      assign in favor of third parties with respect to any of the Properties and
      no
      consents to transfers thereof are required.

    

    4.10. Seller’s
      Title.
      Seller
      has Marketable Title to the Properties and Seller warrants Marketable Title
      to
      the Properties by, through, and under Seller, but not otherwise. Any discrepancy
      in the Seller’s Marketable Title of the interests stated on Exhibit
      “A”
      shall
      only be adjusted pursuant to the provisions of Article
      8.3.

    

    4.11. Knowledge.
      The
      phrase “to Seller’s knowledge,” or other similar language which qualifies a
      statement as to the knowledge of Seller, will mean that within the actual
      present knowledge of a Responsible Officer after due inquiry of appropriate
      managerial level personnel, such Responsible Officer has received no verbal
      information from an employee of Seller or any written information indicating
      that the specific statement so qualified is not accurate. Responsible Officer
      is
      defined as the President, Chief Operating Officer, and General Counsel of
      Seller. Buyer and Seller expressly agree that in no event will any
      representation or other statement qualified, to Seller’s knowledge, give rise to
      any implication or presumption that a specific inquiry or any inquiry has been
      made by any Responsible Officer to confirm or negate the matter being
      represented other than as provided herein; and Buyer acknowledges that any
      such
      representation will be based solely on the actual present knowledge of the
      Responsible Officer(s) as described herein above.

    

    4.12. Investment
      Representations.
      

    

    (a) Seller
      has been advised by Buyer that and acknowledges that the Restricted Stock to
      be
      acquired by Seller pursuant to this Agreement will not be registered under
      the
      U.S. Securities Act of 1933, as amended (the “Securities Act”) and the issuance
      to Seller of such stock is being made on the basis of an exemption afforded
      under the Securities Act and Buyer’s reliance on such statutory exemption is
      based in part on the representations made herein by Seller.

    

    (b) Seller
      is
      either an “accredited investor”, as defined in Rule 501 of Regulation D
      promulgated under the Securities Act (“Reg. D”) or has been advised by a
“purchaser representative” (as defined in Reg. D) in connection with Resources’
issuance of shares of Restricted Stock to be received by Seller pursuant to
      this
      Agreement. Seller, or if it is not an accredited investor, as advised by its
      purchaser representative, has such knowledge and experience in financial and
      business matters that it is capable of evaluating the merits and risks of an
      investment in the Restricted Stock, and is able to bear the economic risk of
      such investment.

    

    (c) Seller
      or
      if it is not an accredited investor, its purchaser representative, is familiar
      with the condition, financial or otherwise, of Resources and its affairs as
      it
      has deemed necessary to evaluate the merits and risks of becoming a stockholder
      of Resources and acknowledges that Resources has offered to make available
      and
      has, when requested, made available, such additional information that would
      be
      provided in a registration statement under the Securities Act and granted access
      to such reasonable additional information necessary to verify the accuracy
      of
      all information furnished.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (d) Seller,
      as advised by legal counsel as deemed necessary, (i) is familiar with the nature
      of the limitations imposed by the Securities Act, and the rules and regulations
      promulgated thereunder, on the transfer of the Restricted Stock, (ii)
      understands that the Restricted Stock must be held indefinitely unless a
      disposition thereof is registered under the Securities Act, or in the opinion
      of
      counsel to Seller (reasonably acceptable to Resources) in form and substance
      satisfactory to Resources’ counsel (a signed copy of which opinion shall have
      been delivered to Resources prior to the disposition of any shares of Restricted
      Stock), is exempt from registration under the Securities Act, including a
      disposition in accordance with all the requirements and limitations of Rule
      144
      promulgated under the Securities Act, and complies with other applicable federal
      and state securities laws;

    

    (e) Seller
      will acquire the Restricted Stock for its own account, for investment and not
      with a view to the distribution or resale thereof within the meaning of the
      Securities Act, nor with any present intention of selling or distributing the
      same; provided, that Seller may distribute the Restricted Stock to its partners
      in accordance with the Registration Rights Agreement. 

    

    (f) Seller
      is
      a resident of the state of Texas.

    

    (g) Seller
      will not transfer any shares of Restricted Stock except in compliance with
      the
      terms and provisions of this Article
      4.12,
      in
      accordance with the provisions of the Registration Rights Agreement, or as
      is
      otherwise permitted by law.

    

    (h) Seller
      agrees that each certificate to be received by it representing shares of
      Restricted Stock will bear the following legends:

    

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
      AND
      HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED.
      THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
      REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY OTHER APPLICABLE
      SECURITIES LAWS.

    

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
      A
      REGISTRATION RIGHTS AGREEMENT AMONG FOOTHILLS RESOURCES, INC. AND SELLER. A
      COPY
      OF SUCH AGREEMENT CAN BE OBTAINED FROM FOOTHILLS RESOURCES, INC. AT ITS
      EXECUTIVE OFFICES.”

    

    (i) In
      addition to marking the certificates with the above legends, Seller agrees
      that
      Resources is authorized to notify its transfer agent of the status of the shares
      of Restricted Stock and to take such action, including stop transfer
      instructions, as Resources in its reasonable determination may deem necessary
      or
      proper to prevent the violation of the Securities Act or other securities laws
      and to assure compliance with the terms of this Agreement; provided, however,
      that Resources shall not make any such authorization or take such action with
      respect to shares of Restricted Stock issued to Seller which is materially
      inconsistent with the manner it is treating restricted stock of other Persons.
      

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    ARTICLE
      5. - REPRESENTATIONS OF BUYER

    

    5.1. Existence.
      Buyer
      is
      a corporation duly organized, validly existing, and in good standing under
      the
      laws of the state of its formation, and, as of the Closing Date, will be duly
      qualified to do business in the state(s) in which the Properties are
      located.

    

    5.2. Authorization.
      Buyer
      has all authority necessary to enter into this Agreement and to perform all
      its
      obligations hereunder. This Agreement has been duly executed and delivered
      on
      its behalf, and at the Closing all documents and instruments required hereunder
      will have been duly executed and delivered. This Agreement, and all such
      documents and instruments shall constitute legal, valid, and binding obligations
      enforceable in accordance with their respective terms, except to the extent
      enforceability may be affected by bankruptcy, reorganization, insolvency, or
      similar laws affecting creditors’ rights generally.

    

    5.3. Power.
      Subject
      to rights to consents by, required notices to, and filings with or actions
      by
      other governmental entities, Buyer’s execution, delivery, and performance of
      this Agreement and the transactions contemplated hereby will not: (i) violate
      or
      conflict with any provision of its documents of formation or other governing
      documents; (ii) result in the breach of any term or condition of, or constitute
      a default or cause the acceleration of any obligation under any agreement or
      instrument to which it is a party or by which it is bound; or (iii) violate
      or
      conflict with any applicable judgment, decree, order, permit, law, rule or
      regulation.

    

    5.4. Brokers.
      Buyer
      has incurred no liability, contingent or otherwise, for broker’s or finder’s
      fees in respect of this transaction, for which Seller shall have any
      responsibility whatsoever.

    

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

    

    5.6. Experienced
      And Knowledgeable Investor.
      Buyer
      is
      an experienced and knowledgeable investor and operator in the oil and gas
      business. Except for such representation of Seller set forth herein, prior
      to
      entering into this Agreement, Buyer was advised by and has relied solely on
      its
      own expertise and legal, tax, reservoir engineering, and other professional
      counsel concerning this Agreement, the Properties and the value
      thereof.

    

    5.7. Further
      Distribution.
      Buyer
      (i)
      is acquiring the Properties for its own account and without a view to the
      distribution thereof within the meaning of the Securities Act of 1933, as
      amended; (ii) has such knowledge and experience in business, financial, and
      oil
      and gas matters that it is capable of evaluating the merits and risks of
      entering into and of carrying out its obligations in connection with the
      acquisition of the properties in the manner contemplated herein; (iii) has
      received to date all information concerning the Properties and such other
      information relating to this Agreement which it requested; and (iv) is able
      to
      bear the economic risk of its investment in the Properties for an indefinite
      period of time. Further, Buyer acknowledges that Seller is relying upon the
      representations contained in the foregoing sentence and that absent such
      representations that the proposed sale to Buyer would not be entered into and
      this Agreement would not be executed and delivered by Seller.

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    5.8. Litigation.
      There is
      neither any claim, dispute, suit, action, investigation or other proceeding
      pending before any court or governmental agency, nor to Buyer’s knowledge,
      threatened, against Buyer which challenges or pertains to the execution and
      delivery of this Agreement or the consummation of the transactions contemplated
      hereby.

    

    ARTICLE
      6. - ACCESS TO INFORMATION AND INSPECTIONS

    

    6.1. Title
      Files.
      Promptly
      after the execution of this Agreement and until the Closing Date, Seller shall
      permit Buyer and its representatives at reasonable times during normal business
      hours to examine, in Seller’s offices at their actual location, all abstracts of
      title, title opinions, title files, ownership maps, lease files, assignments,
      division orders, payout statements and agreements pertaining to the Properties
      as requested by Buyer, insofar as the same may now be in existence and in the
      possession, custody or control of Seller. Seller makes no warranty of any kind
      as to the information so supplied, and Buyer agrees that any conclusions drawn
      therefrom are the result of its own independent review and
      judgment.

    

    6.2. Other
      Files.
      Promptly
      after the execution of this Agreement and until the Closing Date, Seller shall
      permit Buyer and its representatives at reasonable times during normal business
      hours to examine, in Seller’s offices at their actual location, all production,
      well, regulatory, engineering, seismic, geological, geophysical and geochemical
      information, accounting information and other information, files, books,
      records, and data pertaining to the Properties as requested by Buyer, insofar
      as
      the same may be in existence and in the possession, custody or control of
      Seller, excepting: (i) economic evaluations; (ii) reserve reports covering
      properties other than the Properties that are subject to this Agreement; (iii)
      any such information that is subject to attorney/client, work product or other
      legal privilege; and (iv) any such information, the disclosure of which is
      restricted or prohibited by third party agreement(s). No warranty of any kind
      is
      made by Seller as to the information so supplied, and Buyer agrees that any
      conclusions drawn therefrom are the result of its own independent review and
      judgment.

    

    6.3. Buyer’s
      Confidentiality Obligations.
      All
      information furnished or disclosed to Buyer pursuant hereto is subject to that
      certain Confidentiality Agreement by and between Seller and Buyer.

    

    6.4. Inspections.
      Promptly
      after the execution of this Agreement and until Closing, Seller, subject to
      any
      necessary third-party operator approval, shall permit Buyer and its
      representatives at reasonable times and at their sole risk, cost and expense,
      to
      conduct reasonable inspections of the Properties, subject to Article
      10
      hereof.

    

    ARTICLE
      7. - DISCLAIMER OF WARRANTIES

    

    7.1. Information
      Provided.
      All
      of
      the information, statistics, summaries, electronic transmissions and facsimiles
      furnished by or behalf of Seller herewith or hereunder are furnished or will
      be
      furnished for Buyer’s use at Buyer’s sole risk. All such information has been
      compiled or prepared by Seller based upon its files and records and such
      information is believed to be correct, but SELLER MAKES NO REPRESENTATION,
      EXPRESS OR IMPLIED, AS TO THE ACCURACY, CORRECTNESS, COMPLETENESS, OR THE
      ADEQUACY OF SAME AND DOES NOT WARRANT OR GUARANTEE SUCH INFORMATION IN ANY
      WAY.
      SELLER HAS MADE NO STATEMENTS OR REPRESENTATIONS CONCERNING THE CONDITION OF
      THE
      PROPERTIES, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
      GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY, QUANTITY OR
      RECOVERABILITY OF ANY HYDROCARBON RESERVES, ANY PRODUCT PRICING ASSUMPTIONS,
      THE
      ABILITY TO SELL OR MARKET ANY HYDROCARBONS AFTER CLOSING, OR THE PRESENT OR
      FUTURE VALUE OF THE ANTICIPATED INCOME, OR PROFITS, IF ANY, TO BE DERIVED FROM
      THE PROPERTIES. BUYER IS RESPONSIBLE FOR MAKING SUCH INDEPENDENT INVESTIGATION
      AND EVALUATION OF THE PROPERTIES AS BUYER SHALL DEEM APPROPRIATE, REALIZING
      THAT
      SELLER DOES NOT ASSUME AND SHALL HAVE NO LIABILITY TO BUYER OR ANY OTHER PARTY
      FOR ANY RELIANCE WHICH MAY BE PLACED ON THE INFORMATION, STATISTICS, SUMMARIES,
      ELECTRONIC TRANSMISSIONS OR FACSIMILES FURNISHED TO BUYER. SPECIFICALLY, BUT
      WITHOUT LIMITING THE GENERALITY OF THE FOREGOING: THE DESCRIPTION OF LEASES
      INCLUDED IN THE PROPERTIES, THE ACREAGE PURPORTED TO BE CONVERED THEREBY, DEPTH
      LIMITATIONS (IF ANY), ROYALTY AND OTHER BURDENS AFFECTING SAME, AND QUANTUM
      OF
      INTEREST HAVE BEEN DERIVED STRICTLY FROM SELLER’S RECORDS AND SELLER HAS NOT
      UNDERTAKEN ANY EXAMINATION OF TITLE TO VERIFY SAME. SELLER WARRANTS TITLE ONLY
      TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT AND IN THE CONVEYANCES
      DELIVERED PURSUANT HERETO; AND BUYER SHOULD THEREFORE UNDERTAKE SUCH TITLE
      EXAMINATION AS IT DEEMS APPROPRIATE PRIOR TO THE "NOTIFICATION DEADLINE" (AS
      DEFINED IN ARTICLE
      8.2)
      AND THE
      END OF THE “EXAMINATION PERIOD” (AS DEFINED IN ARTICLE
      10.1).

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    7.2. Regulatory
      Status.
      OTHER
      THAN REPRESENTATIONS AND WARRANTIES EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER
      MAKES NO WARRANTY OR REPRESENTATION WHATSOEVER AS TO THE REGULATORY STATUS
      OF
      THE PROPERTIES, AND BUYER SHOULD SATISFY ITSELF AS TO SUCH MATTERS PRIOR TO
      THE
      END OF THE “EXAMINATION PERIOD” (AS DEFINED IN ARTICLE
      10.1).

    

    7.3. No
      Warranties.
      EXCEPT
      AS TO THE SPECIAL WARRANTY OF TITLE CONTAINED IN THE ASSIGNMENT, CONVEYANCE
      OF
      THE PROPERTIES WILL BE MADE WITHOUT WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED
      IN FACT OR IN LAW, AS TO TITLE, MERCHANTABILITY, DURABILITY, USE, OPERATION,
      FITNESS FOR ANY PARTICULAR PURPOSE, CONDITION, SAFETY OF THE PROPERTIES,
      COMPLIANCE WITH REGULATORY AND ENVIRONMENTAL REQUIREMENTS OR
      OTHERWISE.

    

    7.4. Buyer
      Inspection.
      BUYER
      HEREBY AGREES THAT IT WILL INSPECT THE PROPERTIES, WELLS, PERSONAL PROPERTY,
      AND
      EQUIPMENT ASSIGNED AND CONVEYED HEREIN AND THAT IT WILL ACCEPT THE SAME “AS IS,
      WHERE IS” AND “WITH ALL FAULTS”.

    

    7.5. Prior
      Operations.
      Some oil
      field production equipment may contain asbestos or naturally occurring
      radioactive material (hereinafter referred to as “NORM”). In this regard, Buyer
      expressly understands that NORM may affix or attach itself to the inside of
      wells, materials and equipment as scale, or in other forms, and that said wells,
      materials and equipment located on the Properties or included therein may
      contain NORM and that NORM-containing material may be buried or otherwise
      disposed of on the Properties. Buyer also expressly understands that special
      procedures may be required for the remediation, removal, transportation and
      disposal of asbestos and NORM from the Properties where it may be found, and
      Buyer, after Closing, assumes all responsibility and liability for or in
      connection with assessment, remediation, removal, transportation, and disposal
      of any asbestos and NORM and associated activities in accordance with all rules,
      regulations and requirements of governmental agencies. 

     

    
      
        
        

      

      
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    ARTICLE
      8. - TITLE MATTERS

    

    8.1. Definitions.
      For
      purposes hereof, the terms set forth below shall have the meanings assigned
      thereto.

    

    (a) “Allocated
      Value”
      shall
      mean the dollar amount allocated to each producing Property as set forth on
      Schedule
      3.1.

    

    (b) “Marketable
      Title”
      means,
      such title held by Seller that (a) entitles Seller and will entitle Buyer,
      after
      Closing, to own and receive and retain, without suspension, reduction or
      termination, payment of revenues for not less than the net revenue interest
      shown on Exhibit
      “A”
      of all
      oil and gas produced, saved and marketed from or attributable to the Well(s)
      or
      unit indicated through the plugging, abandonment and salvage of such Wells;
      (b)
      obligates Seller, and will obligate Buyer after Closing as of the Effective
      Time, to bear the costs and expenses relating to the maintenance, development
      and operation of such Well(s) or unit(s) through the plugging, abandonment
      and
      salvage of such Well(s) in an amount not greater than the working interest
      of
      Seller set forth in Exhibit
      “A”
      (unless
      Seller’s net revenue interest therein is proportionately increased); and (c) the
      Properties are free and clear of any liens, burdens or encumbrances of any
      kind
      or character.

    

    (c) “Title
      Defect”
      shall
      mean any matter which causes Seller to not have Marketable Title to any of
      the
      Properties as of the Closing Date. Title Defect does not include (a) a lien
      or
      encumbrance in the form of a judgment secured by a supersedeas bond or other
      security approved by the court issuing the order (only to the extent Seller
      assumes liability, provides alternative collateral and indemnifies Buyer
      therefor); or (b) Permitted Encumbrances.

    

    (d) “Title
      Defect Property”
      shall
      mean any Lease or portion thereof burdened by a Title Defect.

    

    (e) “Permitted
      Encumbrances”
      shall
      mean any of the following matters:

    

    (i) Materialman’s,
      mechanic’s, repairman’s, employee’s, contractor’s, operator’s, tax, and other
      similar liens or charges arising in the ordinary course of business for
      obligations that are not delinquent and that will be paid and discharged in
      the
      ordinary course of business or, if delinquent, that are being contested in
      good
      faith by appropriate action (to the extent contested, Seller agrees to retain
      liability);

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (ii) any
      liens
      or security interests created by law or reserved with respect to the Properties
      for royalty, bonus, rental, other payment obligations under the Leases or
      created to secure compliance with the terms of the Leases;

    

    (iii) to
      the
      extent any of the following do not materially diminish the value of, or impair
      the conduct of operations on, any of the Properties and do not impair Seller’s
      right to receive revenues attributable thereto: any valid, subsisting and
      applicable laws, rules and orders of governmental authority;

    

    (iv) to
      the
      extent any of the following do not materially diminish the value of, or impair
      the conduct of operations on, any of the Properties and do not impair Seller’s
      right to receive the revenues attributable thereto: (a) easements,
      rights-of-way, servitudes, permits, surface leases and other rights in respect
      of surface operations, pipelines, grazing, hunting, fishing, logging, canals,
      ditches, reservoirs or the like, and (b) easements for streets, alleys,
      highways, pipelines, telephone lines, power lines, railways and other similar
      rights-of-way, on, over or in respect to property owned or leased by Seller
      or
      over which Seller owns rights-of-way, easements, permits or
      licenses;

    

    (v) all
      lessors’ royalties, overriding royalties, net profits interest, carried
      interest, production payments, reversionary interests and other burdens on
      or
      deductions from the proceeds of production if the net cumulative effect of
      such
      burdens or deductions does not reduce the net revenue interest of Seller in
      any
      Well affected thereby as reflected in Exhibit
      “A”
      or
      impair the right to receive revenues attributable thereto;

    

    (vi) to
      the
      extent the same do not operate to reduce the net revenue interest, nor increase
      the expense interest (unless Seller’s net revenue interest therein is
      proportionately increased), of Seller as reflected in Exhibit
      “A”,
      nor
      impair the right of Seller to receive the revenues attributable thereto:
      unitization and pooling designations, declarations, orders and agreements;
      operating agreements; agreements of development; area of mutual interest
      agreements; gas balancing or deferred production agreements; processing
      agreements; plant agreements; pipeline, gathering and transportation agreements;
      injection, repressuring and recycling agreements; carbon dioxide purchase or
      sale agreements; salt water or other disposal agreements; seismic or geophysical
      permits or agreements; and any and all other agreements which are ordinary
      and
      customary in the oil, gas, sulphur and other mineral exploration, development
      or
      extraction business, or in the business of processing of gas and gas condensate
      production for the extraction of products therefrom;

    

    (vii) conventional
      rights of assignment normally actuated by an intent to abandon or release a
      Lease and requiring notice to the holder of such rights;

    

    (viii) division
      orders and Hydrocarbon sales contracts and contracts for purchase, exchange,
      refining or processing of Hydrocarbons terminable without penalty upon no more
      than sixty (60) days notice to the purchaser;

    

    (ix) calls
      on
      or preferential rights to purchase production at prices not less than current
      market prices, held by parties other than Seller or its affiliates;

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (x) preferential
      rights to purchase and required third party consents to assignments and similar
      agreements with respect to which waivers or consents are obtained from the
      appropriate parties, or the appropriate time period for asserting the rights
      has
      expired without an exercise of the rights prior to the Closing
      Date;

    

    (xi) all
      rights to consent by, required notices to, filings with, or other actions by
      governmental entities and tribal authorities in connection with the sale or
      conveyance of oil and gas leases or interests if they are customarily obtained
      subsequent to the sale or conveyance;

    

    (xii)
      defects or irregularities of title arising out of events or transactions which
      have been barred by limitations;

    

    (xiii) all
      other
      defects, and irregularities of title affecting the Properties, which
      individually or in the aggregate:

    

    (a) are
      not
      such as to interfere with the operation, value or use of the Properties (or
      portion thereof) affected thereby; or 

    

    (b) does
      not
      presently delay the receipt or prevent Seller from receiving its share of the
      proceeds of production from any of the units or Wells to which the Leases
      relate; or 

    

    (c) does
      not
      presently reduce the interest of Seller with respect to all oil and gas produced
      from any unit or Well to which the Leases relate below the “net revenue
      interest” or “NRI” set forth in Exhibit
      “A”
      for such
      unit or Well; or

    

    (d) does
      not
      presently increase Seller’s portion of the costs and expenses relating to the
      operations on and the maintenance and development of the lands and depths
      included in any unit or Well to which the Leases relate above the “working
      interest” or “WI” set forth in Exhibit
      “A”
      for such
      unit or Well.

    

    (xiv) any
      encumbrance or other matter (whether or not constituting a Title Defect) waived
      in writing by Buyer or deemed to be waived in writing by Buyer under
Article
      8.2.

    .

    8.2. Notice
      of Title Defect.
      Buyer
      shall notify Seller in writing (“Defect Notice”), as soon as reasonably
      practicable after Buyer has knowledge thereof, and in any event on or before
      5:00 p.m., Central Time, five (5) days prior to the Closing Date (the
“Notification Deadline”), of any matter that would constitute a Title Defect
      with respect to Seller’s title to any or all of the Properties, in each case
      together with an explanation of (a) the nature of such Title Defect, (b) the
      Properties (or portions thereof) affected thereby, and (c) Buyer’s proposed
      Defect Value (as hereinafter defined) for such Title Defect. Any matter that
      would otherwise constitute a Title Defect but which is not specifically raised
      in writing (with the explanation as contemplated in the immediately preceding
      sentence) by Buyer prior to the Notification Deadline shall conclusively be
      deemed waived by Buyer. As used herein, the term “Defect Value” shall mean with
      respect to each Title Defect, the reduction in the Allocated Value of the
      affected Properties as a result of such Title Defect as determined in
Article
      8.5.
      Buyer
      must notify Seller in writing promptly if Buyer determines that Seller’s NRI or
      WI for Properties is greater than that shown on Exhibit
      “A”.

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    8.3. Remedies
      for Title Defects.

    

    (a) Buyer
      may
      request an adjustment to the Purchase Price at any time on or before the fifth
      day before the Closing Date, if the adjustment is based on a Title Defect.
      Seller may request an upward adjustment to the Purchase Price at any time before
      the fifth day before the Closing Date, if Seller’s net revenue interest for the
      Property is greater than that shown on Exhibit
      “A”.
      A
      notice requesting an adjustment must be timely and in writing and include
      appropriate documentation to substantiate the adjustment, or the claimant will
      be deemed to have waived its claim to adjust the Purchase Price for the matter
      stated in the notice.

    

    (b) If
      either
      Party gives notice under the previous section, the Parties will meet and use
      their best efforts to agree on the validity of the claim and, if applicable,
      the
      amount of the adjustment, using the following criteria:

    

    (1) If
      the
      claim is based on Seller’s owning a different net revenue interest than that
      shown on Exhibit
      “A”,
      then
      the adjustment will be the absolute value of the number determined by the
      following formula:

    

    Adjustment
      = A x (1-[B/C])

     

    
      	 	A =	Allocated Value for the affected
              Interest

      	 	 	 

      	 	B = 	Correct net revenue interest for the affected
              interest 

      	 	 	 

      	 	
              C
                =

            	
              Net
                revenue interest for the affected interest as shown on Exhibit
                “A”

            

    

    

    (2) If
      the
      claim is based on an obligation or burden that is liquidated, the adjustment
      will be the sum necessary to remove the obligation or burden from the affected
      Property.

    

    (3) If
      the
      claim is based on an obligation or burden that is not liquidated, but can be
      estimated with reasonable certainty, the adjustment will be the sum necessary
      to
      compensate Buyer on the Closing Date for the adverse economic effect on the
      affected Property.

    

    (c) If
      the
      amount of the adjustment for each Title Defect cannot be determined based on
      the
      above criteria, and if the Parties cannot otherwise agree on the amount of
      an
      adjustment or the Parties are unable to agree upon whether a Title Defect
      exists, subject to the provisions of Article
      8.3.(d)
      below,
      Seller may, at its sole option and upon written notice to Buyer,
      either:

    

    (1) remove
      the affected Property from this Agreement and adjust the Purchase Price by
      the
      Allocated Value for that Property; or 

    

    
      
        
        

      

      
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    (2) agree
      to
      indemnify and hold Buyer harmless from any claim resulting from such Title
      Defect; or

    

    (3) elect
      to
      resolve the dispute under the arbitration provisions in this
      Agreement.

    

    (d)
      Except for the exclusion of a Property, as provided in Article
      8.3.(c),
      no
      adjustment to the Purchase Price for Title Defects shall be made unless and
      until the aggregate value of all Title Defects (herein called the “Aggregate
      Title Defect Value”) exceeds a threshold of Two Hundred Fifty Thousand Dollars
      ($250,000.00) and once the threshold is exceeded, the value of all Title Defects
      shall be considered in applying this Article
      8.
      Title
      Defects with an agreed individual value of less than Fifteen Thousand Dollars
      ($15,000.00) shall be considered “Minimal Title Defects” and shall not be
      included in the calculation of the Aggregate Title Defect Value. For purposes
      of
      this section, the cost to cure a Title Defect and the Allocated Value of any
      Property excluded under Article
      8.3.(c)
      above
      shall not be considered in determining the value of Aggregate Title Defect
      Value.

    

    (e) Seller
      may, at its sole option, notify Buyer before the Closing Date that it elects
      to
      cure some or all of the Title Defects. No price adjustment will be made at
      Closing for the Title Defects that Seller elects to cure. If any Title Defect
      is
      not cured within ninety (90) days after Closing, an adjustment to the Purchase
      Price will be calculated under the criteria set forth in this section. Seller
      will refund the net amount to Buyer.

    

    8.4. Seller’s
      & Buyer’s Right To Terminate. Either
      Party shall have the option to terminate this Agreement if the Aggregate Title
      Defect Value exceeds five percent (5%) of the Purchase Price. In the event
      either Party elects to terminate this Agreement, then Seller shall return the
      Performance Deposit to Buyer. In either case, this Agreement shall be deemed
      to
      be of no further force or effect except for the items specifically set forth
      in
Article
      17.3.

    

    8.5. Allocated
      Value.
      As
      used
      in this Agreement, the term “Allocated Value” shall mean, with respect to any
      Property the amount set forth on Schedule
      3.1
      for each
      such Property, which Exhibit is attached to and made a part of this Agreement.
      The Allocated Value for each Property has been reviewed and agreed to by the
      Parties and represents the Parties’ good faith allocation of the value of the
      Properties. 

     

    ARTICLE
      9. - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

    

    9.1. Actions
      and Consents.

    

    (a) Seller
      and Buyer agree that each shall use all reasonable efforts to take or cause
      to
      be taken all such action as may be necessary to consummate and make effective
      the transaction provided in this Agreement and to assure that it will not be
      under any material corporate, legal, or contractual restriction that could
      prohibit or delay the timely consummation of such transaction.

    

    (b) Seller
      represents that to the best of Seller’s knowledge, Exhibit A and Schedule
      4.9
      are
      accurate and complete; however, certain preferential purchase rights or rights
      of approval or consent may exist with respect to the Properties under the
      agreements and Leases shown on Exhibit
      “A,”
      whether
      or not they are correctly listed on Schedule
      4.9.
      Seller
      shall use reasonable efforts to timely notify all holders of (i) preferential
      rights, (ii) rights of consent to the assignment, or (iii) rights of approval
      to
      the assignment of the Properties, and of such terms and conditions of this
      Agreement to which the holders of such rights are entitled. Seller shall
      promptly notify Buyer if any preferential rights are exercised, any consents
      or
      approvals denied, or if the requisite period has elapsed without said rights
      having been exercised or consents or approvals having been received. If prior
      to
      Closing, any such preferential rights are timely and properly exercised, or
      Seller is unable to obtain a consent or approval prior to Closing and the
      failure to secure such consent or approval in advance of Closing would
      materially and adversely affect the Property or Properties subject thereto,
      the
      interest or part thereof so affected shall, if Buyer so elects, be excluded
      from
      the sale and purchase contemplated hereby and the Purchase Price shall be
      reduced by the Allocated Value of such interest or part thereof as provided
      in
Schedule
      3.1
      If any
      additional third party preferential rights are discovered after Closing, or
      if a
      third party preferential rights holder alleges improper notice, then Buyer
      agrees to cooperate with Seller in giving effect to any such valid third party
      preferential purchase rights. In the event any such valid third party
      preferential purchase rights are validly exercised after Closing, Buyer’s sole
      remedy against Seller shall be the return by Seller to Buyer of that portion
      of
      the Purchase Price allocated under Schedule
      3.1
      to the
      portion of the Properties on which such rights are exercised and lost by Buyer
      to such third person, plus any expenses incurred by Buyer in connection with
      such Properties and re-conveyance thereof.

    

    
      
        
        

      

      
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    (c) In
      the
      event one or more Properties or any interest therein is excluded pursuant to
      Article
      9.1.(b)
      because
      the same is subject to preferential purchase rights, consents or approvals,
      Closing with respect to all other Properties will proceed as provided in this
      Agreement, but the Purchase Price delivered to Seller at Closing will be reduced
      by the Allocated Value of the excluded Properties or interest. In the event
      that
      within ninety (90) days after Closing any such preferential purchase right
      is
      waived or consent or approval is obtained or the time for election to purchase
      or to deliver a consent or approval passes (such that under the governing
      documents, Seller may sell the affected Property or interest to Buyer), then
      Closing will proceed promptly on the same terms set forth herein with respect
      to
      such Property or interest. If such waivers, consents or approvals are not
      received by Seller within the applicable ninety (90) day period, Seller shall
      retain such Properties or interests and the Parties shall have no further
      obligation with respect thereto.

    

    ARTICLE
      10. - ENVIRONMENTAL MATTERS AND OTHER ADJUSTMENTS

    

    10.1. Phase
      I Environmental Assessment.
      Buyer
      shall have the right to conduct an environmental assessment of the Properties
      during the period beginning on the date of execution of this Agreement and
      ending ten (10) days prior to the Closing Date (the “Examination Period”). The
      confidentiality obligations of the confidentiality agreement previously signed
      by Buyer
      shall be
      applicable to all information acquired by Buyer in the course of its
      environmental assessment. During normal business hours and after providing
      Seller reasonable prior notice of any such activities, Buyer and its
      representatives shall be permitted to enter upon the Properties and all
      buildings and improvements thereon, inspect the same, review files and generally
      conduct such tests, examinations, and investigations as are consistent with
      the
      American Society for Testing and Materials standard Phase I environmental audit.
      Seller will have the right to (i) witness such investigation and (ii) promptly
      receive a copy of all results, analyses and reviews. In the event Seller has
      conducted a recent Phase I Environmental Assessment Study, the Seller shall
      notify Buyer and make the report available to the Buyer during the Examination
      Period.

    

    
      
        
        

      

      
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    10.2. Phase
      II Environmental Assessment.
      If as a
      result of its Phase I audit, Buyer and its representatives reasonably believe
      that a material environmental condition exists that warrants a Phase II
      investigation and Buyer desires to conduct such investigation with respect
      to
      each such circumstance, Buyer agrees to give Seller prompt written notice of
      each specific environmental condition including the basis of its belief and
      estimated cost of remediation. During a period of seventy-two (72) hours
      following receipt of such notice, Seller in its sole discretion shall have
      the
      right to authorize Buyer to proceed with the Phase II investigation or to
      decline to authorize such additional investigation. In the event Seller elects
      to authorize the Phase II investigation, the Examination Period and the
      Environmental Notice Deadline (as defined below), with respect to the specific
      Property or Properties subject to the Phase II investigation, shall be extended
      for a period of two (2) weeks. The Parties shall negotiate in good faith as
      to
      whether a Phase II investigation is warranted. If the Parties can not agree,
      then at Seller’s sole option, Seller can decline to authorize the Phase II
      investigation and no such investigation shall be permitted and the affected
      Property or Properties shall be excluded from the sale and purchase contemplated
      hereby. In such event, the Purchase Price shall be reduced by the Allocated
      Value of such excluded Property or Properties. Buyer shall furnish Seller copies
      of all environmental reports prepared by Buyer or on Buyer's behalf. The final
      draft of all such reports shall cover and include only those Properties which
      have not been excluded pursuant to this Article
      10.2;
      provided, however, that nothing contained herein shall be construed to prohibit
      the disclosure of any matter required to be reported or disclosed by applicable
      Environmental Laws (as defined below).

    

    10.3. Environmental
      Defect Notice.
      Buyer
      will notify Seller on
      or
      before five (5) days before Closing, at 5:00 p.m., Central Time (the
“Environmental Notice Deadline”) of (i) the existence of any environmental
      condition on the real property comprising any Property that Buyer reasonably
      believes constitutes a violation of Environmental Laws as in effect on the
      date
      hereof or reduces or interferes with the operation, value or use of such
      Property (“Environmental Defect”), and (ii) the estimated cost to remediate or
      cure such condition on each individual Property, determined utilizing the most
      cost effective and appropriate method of cure or remediation available under
      the
      circumstances. With respect to any Environmental Defect:

    

    (a) Seller
      shall have the right, but not the obligation, to undertake such remedial action
      as may be required by Environmental Law as currently applied to cure by such
      Environmental Defect by sending written notice of its binding commitment to
      effectuate such cure and the details and timing of such curative action, and
      if
      such commitment is reasonably satisfactory to Buyer, the Purchase Price would
      not be reduced on account of such Environmental Defect; provided that Seller
      remains responsible for such remedial action until such time as Seller has
      cured
      such Environmental Defect in accordance with Environmental Laws as currently
      applied or until such time as Buyer is reasonably satisfied with Seller’s
      actions;

    

    (b) Buyer
      and
      Seller may also, upon mutual agreement of the Parties set the cost to cure
      the
      Environmental Defect and the Purchase Price shall be reduced by such agreed
      costs. In such case, the Buyer shall continue to own such Property and be
      responsible for any cure;

    

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (c) Buyer
      and
      Seller may, upon mutual agreement of the Parties as to the terms and conditions
      of any indemnity, elect that Seller indemnify Buyer against all liability,
      loss,
      cost and expense (including, without limitation, for remediation costs when
      and
      if such cure is actually undertaken) resulting from such Environmental Defect,
      and in such event the Purchase Price will not be reduced on account of such
      Environmental Defect; and

    

    (d) If
      Buyer
      and Seller cannot reach mutual agreement as contemplated in Article
      10.3.(a), (b) or (c)
      above on
      whether a Environmental Defect exists within ten (10) days following the notice
      of an Environmental Defect as to any Property, Seller may, at its sole option
      and upon written notice to Buyer:

    

    (1) remove
      the affected Property from this Agreement and adjust the Purchase Price by
      the
      Allocated Value for that Property; or 

    

    (2) elect
      to
      resolve the dispute under the arbitration provisions in this
      Agreement.

    

    10.4 Seller’s
      & Buyer’s Right To Terminate. Either
      Party shall have the option to terminate this Agreement if the Aggregate
      Environmental Defect Value exceeds five percent (5%) of the Purchase Price.
      In
      the event either party elects to terminate this Agreement, then Seller shall
      return the Performance Deposit to Buyer. In either case, this Agreement shall
      be
      deemed to be of no further force or effect except for the items specifically
      set
      forth in Article
      17.3.
      

    

    10.5. Limitations.
      Except
      for the exclusion of a Property, as provided in Article
      10.3.(d),
      no
      adjustment to the Purchase Price for Environmental Defects shall be made unless
      and until the aggregate value of all Environmental Defects (herein called the
      “Aggregate Environmental Defect Value”) exceeds a threshold of Two Hundred Fifty
      Thousand Dollars ($250,000.00) and once the threshold is exceeded, the value
      of
      all Environmental Defects shall be considered in applying this Article
      10
      except
      the Minimal Environmental Defects. Environmental Defects with an agreed
      individual value of less than Fifteen Thousand Dollars ($15,000.00) shall be
      considered “Minimal Environmental Defects” and shall not be included in the
      calculation of the Aggregate Environmental Defect Value. For purposes of this
      section, the cost to cure an Environmental Defect determined under Article
      10.3.(a) or (b)
      above
      and the Allocated Value of any Property excluded under Article
      10.3.(d)
      above
      shall not be
      considered in determining the value of an Environmental Defect.

    

    10.6. Environmental
      Laws.
      As used
      herein, the term “Environmental Laws” shall mean any and all laws, statutes,
      regulations, rules, orders, ordinances, permits, or determinations of any
      governmental authority pertaining to health or conservation or protection of
      the
      environment, wildlife, or natural resources in effect in any and all
      jurisdictions in which the Property is located otherwise having jurisdiction
      over the matter, including, without limitation, the Clean Air Act, as amended,
      the Federal Water Pollution Control Act, as amended, the Safe Drinking Water
      Act, as amended, the Comprehensive Environmental Response, Compensation and
      Liability Act (“CERCLA”), as amended, the Superfund Amendments and
      Reauthorization Act of 1986 (“SARA”), as amended, the Resource Conservation and
      Recovery Act (“RCRA”), as amended, the Hazardous and Solid Waste Amendments Acts
      of 1984, as amended, the Toxic Substances Control Act, as amended, and the
      Occupational Safety and Health Act (“OSHA”), as amended. The terms “hazardous
      substance,” “release,” and “threatened release” shall have the meanings
      specified in CERCLA; provided, however, that to the extent the laws of the
      state
      in which the Property is located are applicable and have established a meaning
      for “hazardous substance,” “release,” “threatened release,” “solid waste,”
“hazardous waste,” and “disposal” that is broader than that specified in CERCLA
      or RCRA and SARA or OSHA, such broader meaning shall apply with respect to
      the
      matters covered by such laws.

    

    
      
        
        

      

      
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    ARTICLE
      11. - GENERAL COVENANTS OF SELLER 

    

    11.1. Access
      to Records.

    

    During
      the Examination Period (as defined in Article
      10.1),
      Seller
      shall grant Buyer access to the Records as defined in Article
      15.4
      and all
      accounting and tax files relating to the Properties during Seller's normal
      business hours upon reasonable prior notification, subject to the
      confidentiality agreement previously signed by Buyer. The Records and all
      accounting and tax files relating to the Properties shall be made available
      at
      their present location together with suitable office facilities for review
      purposes.

    

    11.2. Covenants
      of Seller Pending Closing.

    

    (a) From
      and
      after the Effective Date of this Agreement and until the Closing and subject
      to
Article
      11.3
      and the
      constraints of applicable operating and other agreements, Seller shall operate,
      manage, and administer the Properties in a good and workmanlike manner
      consistent with its past practices and shall carry on its business with respect
      to the Properties in substantially the same manner as before execution of this
      Agreement, including but not limited to, the maintenance of industry standard
      insurance coverage. Seller shall have no responsibility for and shall incur
      no
      liability for any Losses of any nature suffered or incurred by Buyer arising
      out
      of or in connection with the rendering of such unless such Losses result from
      the gross negligence or willful misconduct of the Seller. On Seller operated
      Properties, Seller shall charge Buyer, from and after the Effective Date of
      this
      Agreement, such charges as are reasonable and customary in the industry where
      such Properties are located. Seller shall also retain any third-party
      administrative and/or operating overhead charges paid with respect to the
      Properties during such period. Seller shall use all reasonable efforts to
      preserve in full force and effect all Leases, operating agreements, easements,
      rights-of-way, permits, licenses, and agreements which relate to the Properties
      in which Seller owns an interest, and shall perform all obligations of Seller
      in
      or under all such agreements relating to the Properties; provided, however,
      that
      in no event shall Seller incur any liability for the breach of its obligations
      under this Article
      11.2.(a)
      in
      excess of the Allocated Value of the Property or Properties subject to or
      affected by such breach. Seller shall, except for emergency action taken in
      the
      face of serious risk of life, property, or the environment (i) submit to Buyer,
      for prior written approval, all requests for operating or capital expenditures
      and all proposed contracts and agreements relating to the Properties which
      involve individual commitments of more than Fifty Thousand Dollars ($50,000.00);
      (ii) consult with, inform, and advise Buyer regarding all material matters
      concerning the operation, management, and administration of the Properties;
      (iii) obtain Buyer's written approval prior to voting under any operating,
      unit,
      joint venture, partnership or similar agreement; and (iv) not approve or elect
      to go non-consent as to any proposed well or plug and abandon or agree to plug
      and abandon any well without Buyer's prior written approval; (v) shall not
      transfer, sell, hypothecate, encumber, or otherwise dispose of any of the
      Properties, other than the sale of production in the ordinary course of business
      or as required in connection with the exercise by third parties of preferential
      rights to purchase any of the Properties; (vi) shall not abandon any wells
      or
      surrender any Leases (other than as required by law or governmental order or
      regulation or in connection with an emergency); (vii) shall not enter into
      any
      production sale, processing, or treating agreements affecting the Properties
      unless it is terminable on no more than thirty (30) days notice. On any matter
      requiring Buyer's approval under this Article
      11.2.(a),
      Buyer
      shall respond within fifteen (15) days to Seller's request for approval and
      failure of Buyer to respond to Seller's request for approval within such time
      shall release Seller from the obligation to obtain Buyer's approval before
      proceeding on such matter.

    

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (b) Seller
      shall promptly notify Buyer of any suit, lessor demand action, or other
      proceeding before any court, arbitrator, or governmental agency and any cause
      of
      action which relates to the Properties or which might result in impairment
      of
      loss of Seller's interest in any portion of the Properties or which might hinder
      or impede the operation of the Properties.

    

    11.3. Limitations
      on Seller's Covenants Pending Closing.

    

    To
      the
      extent Seller is not the operator of any of the Properties, the obligations
      of
      Seller in Article
      11.2
      concerning operations or activities which normally or pursuant to existing
      contracts are carried out or performed by the operator, shall be construed
      to
      require only that Seller use all reasonable efforts (without being obligated
      to
      incur any expense or institute any cause of action) to cause the operator of
      such Properties to take such actions or render such performance within the
      constraints of the applicable operating agreements and other applicable
      agreements.

    

    ARTICLE
      12. - COVENANTS OF BUYER

    

    12.1. Return
      of Data.

    

    Buyer
      agrees that if this Agreement is terminated for any reason whatsoever, Buyer
      shall, at Seller's request, promptly return to Seller all information and data
      furnished by or on behalf of Seller to Buyer, its officers, employees, and
      representatives in connection with this Agreement or Buyer's investigation
      of
      the Properties, and Buyer shall deliver to Seller or destroy all copies,
      extracts, or excerpts of such information and data and all documents generated
      by Buyer that contain any portion of such information or data.

    

    12.2. Indemnity
      Regarding Access.

    

    Buyer
      agrees to protect, indemnify, defend, and hold harmless Seller Group from and
      against any and all Losses, as defined in Article
      18.1,
      in
      connection with personal injuries, including death, property damage or damage
      to
      natural resources arising out of or relating to the access of Buyer, its
      officers, employees, and representatives to the Properties and any information
      relating thereto as permitted under this Agreement, REGARDLESS OF WHETHER SUCH
      INJURIES, DEATH, OR DAMAGES ARE CAUSED IN WHOLE OR PART BY THE SOLE, PARTIAL,
      CONCURRENT, OR OTHER NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF SELLER
      GROUP, EXCEPT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER
      GROUP.

    

    
      
        
        

      

      
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    ARTICLE
      13. - CLOSING CONDITIONS

    

    13.1. Seller's
      Closing Conditions.

    

    The
      obligations of Seller under this Agreement are subject, at the option of Seller,
      to the satisfaction, at or prior to the Closing, of the following
      conditions:

    

    (a) all
      representations and warranties of Buyer contained in this Agreement shall be
      true in all material respects at and as of the Closing as if such
      representations and warranties were made at and as of the Closing, and Buyer
      shall have performed and satisfied all agreements required by this Agreement
      to
      be performed and satisfied by Buyer at or prior to the Closing;

    

    (b) The
      execution, delivery, and performance of this Agreement and the transactions
      contemplated thereby have been duly and validly authorized by all necessary
      action, corporate, partnership or otherwise, on the part of Buyer;

    

    (c) all
      necessary consents of and filings with any state or federal governmental
      authority or agency relating to the consummation of the transactions
      contemplated by this Agreement shall have been obtained, accomplished or waived,
      except to the extent that such consents and filings are normally obtained,
      accomplished or waived after Closing;

    

    (d) as
      of the
      Closing Date, no suit, action or other proceeding (excluding any such matter
      initiated by Seller) shall be pending or threatened before any court or
      governmental agency seeking to restrain Seller or prohibit the Closing or
      seeking damages against Seller as a result of the consummation of this
      Agreement;

     

    (e) the
      Closing of the Purchase and Sale Agreement of even date herewith by and between
      Seller and Buyer relating to the Cleveland Field and Saratoga Field
      Properties.

    

    13.2. Buyer's
      Closing Conditions.

    

    The
      obligations of Buyer under this Agreement are subject, at the option of Buyer,
      to the satisfaction, at or prior to the Closing, of the following
      conditions:

    

    (a) all
      representations and warranties of Seller contained in this Agreement shall
      be
      true in all material respects at and as of the Closing as if such
      representations and warranties were made at and as of the Closing, and Seller
      shall have performed and satisfied all agreements required by this Agreement
      to
      be performed and satisfied by Seller at or prior to the Closing;

    

    (b) The
      execution, delivery, and performance of this Agreement and the transactions
      contemplated thereby have been duly and validly authorized by all necessary
      action, corporate, partnership or otherwise, on the part of the
      Seller;

    

    
      
        
        

      

      
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    (c) all
      necessary consents of and filings with any state or federal governmental
      authority or agency relating to the consummation of the transactions
      contemplated by this Agreement shall have been obtained, accomplished or waived,
      except to the extent that such consents and filings are normally obtained,
      accomplished or waived after Closing;

    

    (d) as
      of the
      Closing Date, no suit, action or other proceeding (excluding any such matter
      initiated by Buyer) shall be pending or threatened before any court or
      governmental agency seeking to restrain Buyer or prohibit the Closing or seeking
      damages against Buyer as a result of the consummation of this
      Agreement;

    

    (e)
       the
      Closing of the Purchase and Sale Agreement of even date herewith by and between
      Seller and Buyer relating to the Cleveland Field and Saratoga Field
      Properties.

    

    ARTICLE
      14. - CLOSING

    

    14.1. Closing.

    

    The
      Closing of this transaction (the "Closing") shall be held at the offices of
      Seller on August 15, 2006 or at such earlier date or place as the Parties may
      agree in writing (herein called "Closing Date"). Time is of the essence and
      the
      Closing Date shall not be extended unless by written agreement of the Parties;
      provided, however, that Buyer may extend the Closing Date to August 31, 2006
      by
      written notice to Seller on or before August 15, 2006 and the concurrent payment
      to Seller, by bank wire transfer per the instructions of Seller, of an amount
      sufficient to increase the Performance Deposit to ten percent (10%) of the
      Purchase Price. On or before five (5) business days prior to Closing, Buyer
      and
      Seller shall use their best efforts to provide each other copies of all closing
      documents.

    

    14.2. Seller's
      Closing Obligations.

    

    At
      Closing, except to the extent comprising the Excluded Assets, Seller shall
      deliver to Buyer the following:

    

    (a) The
      Assignment, Bill of Sale and Conveyance substantially in the form attached
      hereto as Exhibit
      “B”
      and such
      other documents as may be reasonably necessary to convey all of Seller's
      interest in the Properties to Buyer in accordance with the provisions
      hereof;

    

    (b) A
      non-foreign affidavit executed by Seller in the form attached as Exhibit
      “C”;

    

    (c) Appropriate
      regulatory forms appointing Buyer as Operator for those Properties which Seller
      operates;

    

    (d) Copies
      of
      all third-party waivers, consents, approvals, permits and actions obtained;
      

    

    (e) Letter-in-lieu
      of transfer orders in form acceptable to Seller and Buyer; and

    

    
      
        
        

      

      
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    (f) The
      Registration Rights Agreement executed by Seller in the form attached as
Exhibit
      “E”.

    

    14.3. Buyer's
      Closing Obligations.

    

    At
      Closing, Buyer shall deliver to Seller the following:

    

    (a) By
      wire
      transfer in immediately available funds to an account designated by Seller,
      the
      cash portion of the Purchase Price (less the Performance Deposit);

    

    (b) A
      certificate representing shares of Restricted Stock of Resources, as provided
      in
Article
      3.1;
      and

    

    (c) The
      Registration Rights Agreement executed by Resources in the form attached as
      Exhibit
      “E”.

    

    14.4. Joint
      Closing Obligations.

    

    Both
      Parties at Closing shall execute the Supplemental Agreement attached hereto
      as
Exhibit
      “D”,
      and a
      Settlement Statement evidencing the amount actually wire transferred and all
      adjustments to the Purchase Price taken into account at Closing. All events
      of
      Closing shall each be deemed to have occurred simultaneously with the other,
      regardless of when actually occurring and each shall be a condition precedent
      to
      the other.

    

    ARTICLE
      15. - ADDITIONAL CLOSING OBLIGATIONS

    

    15.1. Suspended
      Funds.

    

    Within
      ninety (90) days after Closing, Seller shall provide to Buyer a listing showing
      all proceeds from production attributable to the Properties that are currently
      held in suspense and shall transfer to Buyer all suspended proceeds. After
      such
      transfer, and to the extent of such transferred funds, Buyer shall be
      responsible for proper distribution of all the suspended proceeds to the parties
      lawfully entitled to them, and hereby agrees to indemnify, defend, and hold
      harmless Seller from and against any and all Losses arising out of or relating
      to Buyer's retention or distribution of such legally suspended proceeds. Seller
      shall retain liability as to the suspended accounts prior to the Effective
      Time
      to the extent such suspended proceeds are not transferred to Buyer.

    

    15.2. Receipts
      and Credits.

    

    Subject
      to the terms hereof and except to the extent same have already been taken into
      account as an adjustment to the Purchase Price, all monies, proceeds, receipts,
      credits, and income accruing to the Properties (a) for the period subsequent
      to
      the Effective Time, shall be the sole property and entitlement of Buyer, and,
      to
      the extent received by Seller, Seller shall fully disclose, account for, and
      transmit same to Buyer promptly, and (b) for the period prior to the Effective
      Time, shall be the sole property and entitlement of Seller and, to the extent
      received by Buyer, Buyer shall fully disclose, account for, and transmit same
      to
      Seller promptly.

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    15.3. Signs.

    

    Seller
      shall have the option to remove Seller's name and signs from the operated
      Properties or to require Buyer to do so. Buyer hereby grants Seller a right
      of
      access to remove Seller's signs and name from all wells and facilities on the
      Properties or to confirm that Buyer has done so. If there are any remaining
      Seller signs and name on the Properties within thirty (30) days of Closing,
      Buyer shall promptly, but no later than required by applicable rules and
      regulations or forty-five (45) days thereafter, whichever is earlier, remove
      any
      remaining signs and references to Seller and shall erect or install all signs
      complying with any applicable governmental rules and regulations, including
      but
      not limited to, those showing Buyer as operator of the Properties.

    

    15.4. Records.

    

    All
      files, permits, records, documentation, and data of Seller relating to (or
      evidencing) Seller's ownership or rights, in or operation of the Properties
      or
      other rights and interests described herein, including, but not limited to,
      seismic or other geological information and data, lease files, land files,
      well
      files, contract files, production sales agreements files, division order files,
      title opinions and abstracts, governmental filings, production reports,
      production logs, core sample reports, and land maps, as such data is assembled
      and maintained in the normal course of business, collectively, the "Records",
      excluding any such data that is proprietary, privileged, or that Seller is
      prohibited from conveying (which data shall be identified in writing by
      description and the reason for withholding such information by notice delivered
      at the time the Records are delivered) will be, as soon as is reasonably
      possible after, but not later than fifteen (15) days after Closing, delivered
      to
      Buyer at Seller's offices. Seller will be entitled to retain a copy of the
      Records. Buyer agrees to use reasonable efforts to maintain the Records for
      five
      (5) years after Closing. Buyer shall provide Seller and its representatives
      reasonable access to and the right to copy the Records (at Seller's sole
      expense), but the access to the Records shall be limited to the Seller’s need to
      defend itself in legal proceedings or in State or Federal Tax issues. If Buyer
      decides to destroy any Records prior to the expiration of the five (5) years,
      it
      will so notify Seller and Seller shall have the right to instead obtain such
      files at its sole expense. To the extent not obtained or satisfied as of
      Closing, Seller agrees to continue to use all reasonable efforts, but without
      any obligation to incur any cost or expense in connection therewith, and to
      cooperate with Buyer's efforts to obtain for Buyer access to files, records
      and
      data relating to the Property in the possession of third parties.

    

    15.5. Letters-in-Lieu.

    

    Seller
      shall prepare, execute and deliver, upon Closing, letters-in-lieu of transfer
      orders, directing that all proceeds of production from the Properties, which
      have heretofore been paid to Seller, shall be paid to the account of Buyer
      effective as of and after the date of Closing.

    

    15.6. Bonds.

    

    Buyer
      shall, within thirty (30) days after Closing, obtain and furnish evidence
      satisfactory to Seller that Buyer has: (i) replaced that certain Exxon
      Performance Bond (Bond No. RLB0001473); in a form acceptable to Exxon); and
      ii)
      obtained any requisite plugging bonds and other assurances required by
      governmental authorities having jurisdiction, including, where applicable,
      qualification to assume operatorship. The Exxon Performance Bond, in the amount
      of Eight Hundred Seventy-Five Thousand Dollars ($875,000), is required by Exxon
      to guarantee Buyer’s obligations under this Agreement specifically regarding the
      plugging and abandoning, and reabandoning as necessary, all wells (abandoned
      and
      unabandoned), removal of all equipment and facilities, the closure of pits
      and
      the restoration of the surface associated with those certain Leases once owned
      or controlled by Exxon in the Goose Creek Field. 

    

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    15.7. Certain
      Post Closing Actions.

    

    Effective
      upon Closing, Seller shall (i) resign as operator of any of the Properties,
      which Seller is the Operator of; (ii) provide Buyer well transfer permits;
      and
      (iii) use its best efforts to have Buyer elected as Operator of the Properties
      that Seller operated.

    

    15.8. Registration
      Rights.

    

    Pursuant
      to the terms and conditions of the Registration Rights Agreement attached hereto
      as Exhibit
      “E”,
      the
      Seller will be granted one demand registration and piggyback registration
      rights, as more fully set out therein.

    

    ARTICLE
      16. - CASUALTY LOSS AND CONDEMNATION

    

    If,
      prior
      to the Closing, all or any portion of the Properties is destroyed by fire or
      other casualty or if any portion of the Properties shall be taken by
      condemnation or under the right of eminent domain (all of which are herein
      called "Casualty Loss" and limited to property damage or taking only), Buyer
      and
      Seller must agree prior to Closing either (i) to delete that portion of the
      Properties which is subject to the Casualty Loss from the Properties, and the
      Purchase Price shall be reduced by the Allocated Value as set out in
Schedule
      3.1,
      or (ii)
      for Buyer to proceed with the purchase of such Properties, notwithstanding
      any
      such destruction or taking (without reduction of the Purchase Price) in which
      case Seller shall pay, at the Closing, to Buyer all sums paid to Seller by
      third
      parties by reason of the destruction or taking of such Properties and shall
      assign, transfer and set over unto Buyer all insurance proceeds received by
      Seller as well as all of the right, title and interest of Seller in and to
      any
      claims, causes of action, unpaid proceeds or other payments from third parties
      arising out of such destruction or taking; provided, however, if the value
      of
      that portion of the Properties affected by the Casualty Loss, not to exceed
      that
      Allocated Value in Schedule
      3.1,
      exceeds
      five percent (5%) of the Purchase Price, Buyer and Seller shall each have the
      right to terminate this Agreement upon written notification to the other, the
      transaction shall not close, the Buyer’s Performance Deposit shall be refunded,
      and thereafter neither Buyer nor Seller shall have any liability or further
      obligations to the other hereunder. Prior to Closing, Seller shall not
      voluntarily compromise, settle or adjust any amounts payable by reason of any
      Casualty Loss without first obtaining the written consent of Buyer.

    

    ARTICLE
      17. - DEFAULT AND REMEDIES

    

    17.1. Seller's
      Remedies.

    

    Upon
      failure of Buyer to comply herewith by the Closing Date, as it may be extended
      in accordance herewith, Seller, at its sole option, may retain the Performance
      Deposit as a liquidated damage and not as a penalty, and terminate this
      Agreement, as Seller's sole and exclusive remedies for such default, all other
      remedies (except as expressly retained in Article17.3)
      being
      expressly waived by Seller. Notwithstanding any provision hereof to the
      contrary, Seller may retain the Performance Deposit as a liquidated damage
      only
      in the event the transaction contemplated by this Agreement is terminated due
      solely to the breach hereof by Buyer in the absence of any material breach
      hereof by Seller. 

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    17.2. Buyer's
      Remedies.

    

    Upon
      failure of Seller to comply herewith by the Closing Date, as it may be extended
      in accordance herewith, Buyer, at its sole option, may (i) enforce specific
      performance, or (ii) terminate this Agreement, as Buyer's sole and exclusive
      remedies for such default, all other remedies (except as expressly retained
      in
Article
      17.3)
      being
      expressly waived by Buyer. In the event Buyer elects to terminate this Agreement
      as set forth above, Seller shall immediately return the Performance Deposit
      to
      Buyer.

    

    17.3. Other
      Remedies.

    

    Notwithstanding
      the foregoing, termination of this Agreement shall not release Buyer from it's
      obligations under Article
      6.3
      (and the
      confidentiality agreements referenced therein) and such other portions of this
      Agreement as are necessary to the enforcement and construction of Article
      6.3.
      

    

    17.4. Effect
      of Termination.

    

    In
      the
      event of termination of this Agreement under this Article
      17,
      the
      transaction shall not close and neither Buyer nor Seller shall have any further
      obligations, remedies, liabilities, rights or duties to the other hereunder,
      except as expressly provided herein.

    

    ARTICLE
      18. - ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION

    18.1. Definitions.
      As used
      in this Agreement:

    

    (a) "Losses"
      means any liabilities, losses, claims, demands, causes of action, costs and
      expenses (including, but not limited to, court costs and reasonable attorneys'
      fees and other costs and expenses incident to proceedings or investigations
      respecting, or the prosecution or defense of a claim) of every kind and
      character.

    

    (b) “Environmental
      Claims” shall mean all liabilities, obligations, expenses, (including, without
      limitation, all attorneys’ fees), fines, penalties, costs, claims, suits or
      damages (including natural resource damages) of any nature, including personal
      injury, diminution in property value, illness, disease, or wrongful death,
      associated with the Properties, whether arising before or after the Effective
      Time, and attributable or resulting from: (i) pollution or contamination of
      soil, surface water, groundwater or air, on the Properties and any other
      contamination of or adverse effect upon the environment, (ii) underground
      injection activities and waste disposal, (iii) clean-up responses, remedial,
      control or compliance costs, including the required cleanup or remediation
      of
      spills, pits, ponds or lagoons, including any subsurface or surface pollution
      caused by such spills, pits, ponds, or lagoons, (iv) noncompliance with
      applicable land use, permitting, surface disturbance, licensing or notification
      requirements, and (v) violation of any Environmental Law and/or any federal,
      state or local environmental land use law.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    (c) "Seller
      Group" means Seller and its officers, directors, contractors, agents and
      employees.

    

    (d) "Buyer
      Group" means Buyer and its officers, directors, contractors, agents and
      employees.

    

    18.2. Assumptions
      of Contracts.

    

    The
      sale
      of the Properties is and will be made subject to the Leases and Contracts to
      which the Properties are presently subject. Buyer shall assume and be
      responsible for all obligations relating to performance of the Leases and
      Contracts, whether or not recorded, as of and after the Effective Time. Seller
      shall be responsible during the time of its ownership for all obligations
      relating to performance of the Leases and Contracts, whether or not recorded,
      prior to the Effective Time.

    

    
      	 	
              18.3.

            	
              Imbalances.
                There
                are no gas imbalances.

            

    

    

    18.4. Buyer's
      General Indemnity.

    

    Buyer
      shall, on the date of Closing, agree (and upon the delivery to Buyer of the
      Assignment shall be deemed to have agreed) (a) to assume, and to timely pay
      and
      perform, all duties, obligations and liabilities relating to the ownership
      and
      operation of the Properties, as accrued or which otherwise arose after the
      Effective Time, and (b) to indemnify and hold the Seller Group harmless from
      and
      against any and all Losses arising out of or otherwise relating to (i) the
      breach by Buyer of any representation, warranty or covenant herein set forth,
      or
      (ii) the ownership and/or operation of the Properties, regardless whether the
      same accrued or otherwise arose before or after the Effective Time.

    

    18.5. Buyer's
      Environmental Indemnity.

    

    Buyer
      hereby agrees to release, indemnify, defend and hold harmless the Seller Group
      from and against all Losses (including but not limited to any civil fines,
      penalties, expenses, and costs of clean-up or remediation) brought by any and
      all persons, including, but not limited to, Buyer's and Seller's employees,
      agents, or representatives and also any private citizens, persons, or
      organizations and any agency, branch, or representative of federal, state,
      tribal, or local government, on account of any Environmental Claims. It is
      expressly understood and agreed that the terms of this Article
      18.5
      shall
      control over any conflicting or contradicting terms or provisions contained
      in
      this Agreement, except as to the indemnities, if any, provided under
Article
      10.3.(c).
      Notwithstanding anything to the contrary contained herein, the indemnity in
      this
Article
      18.5
      shall
      not apply to any Property excluded under any provision hereof; provided,
      however, such indemnities shall apply for the limited period of time, if any,
      Buyer has undertaken the operation of a Property and, in which case, Buyer's
      indemnity shall be applicable only to Losses arising solely from Buyer's
      operations during such limited period of operation.

    

    18.6. Buyer's
      Plugging Liability.

    

    Buyer
      shall properly plug and abandon at Buyer's expense all Wells herein assigned
      and
      shall restore the surface at Buyer's expense and in accordance with the
      applicable Lease provisions, Exxon Performance Bond, surface use agreements
      and
      state and federal rules and regulations pertaining to the plugging and
      abandoning of such wells and the restoration of such surface. Buyer shall
      indemnify, defend, and hold Seller Group harmless from and against all Losses
      as
      a result of Buyer's failure to comply with the provisions of this
      section.

    

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    18.7. Indemnification
      Procedures.

    

    In
      the
      event that any claim for which a Party providing indemnification (the
      "Indemnifying Party") would be liable to the other Party (the "Indemnified
      Party") is asserted against or sought to be collected by any third person,
      the
      Indemnified Party shall promptly notify the Indemnifying Party of such claim,
      specifying the nature of such claim and the amount of the estimated amount
      thereof to the extent then feasible (which estimate shall not be conclusive
      of
      the final amount of such claim) (the "Indemnity Claim Notice"). The Indemnifying
      Party shall have thirty (30) days from its receipt of the Indemnity Claim Notice
      (the "Indemnity Notice Period") to notify the Indemnified Party (i) whether
      or
      not it disputes its liability to the Indemnified Party hereunder with respect
      to
      such claim, and (ii) if it does not dispute such liability, whether or not
      it
      desires, at its sole cost and expense, to defend the Indemnified Party against
      such claim; provided however, that the Indemnified Party is hereby authorized
      prior to and during the Indemnity Notice Period to file any motion, answer
      or
      other pleading, submission or document which it shall deem necessary or
      appropriate to protect its interests. In the event that the Indemnifying Party
      notifies the Indemnified Party within the Indemnity Notice Period that it does
      not dispute such liability and desires to defend against such claim, then the
      Indemnifying Party shall have the right to defend such claim by appropriate
      proceedings, which proceedings shall be promptly settled or prosecuted to a
      final conclusion, in such a manner as to avoid any risk of the Indemnified
      Party
      becoming subject to liability. If the Indemnified Party desires to participate
      in, but not control, any such defense or settlement, it may do so at its own
      cost and expense. If the Indemnifying Party elects not to defend against such
      claim for which it is liable, whether by not giving timely notice as provided
      above or otherwise, the Indemnified Party shall have the right but not the
      obligation to defend against such claim, and the amount of any resulting Losses
      (including, without limitation, court costs and attorneys' fees) incurred by
      the
      Indemnified Party in connection with such defense, shall be conclusively deemed
      to be the liability of the Indemnifying Party hereunder.

    

    18.8. Assignment
      of Indemnity.

    

    Neither
      Party’s indemnifications, covenants, representations and warranties are
      assignable and all such obligations will terminate as to any Property upon
      the
      sale of such Property by Buyer to a third party, or as to any Party upon any
      sale, merger or other change in ownership or control. This Article
      18.8
      shall
      not apply to a sale or transfer by a Party to any entity which is affiliated
      with that Party.

    

    ARTICLE
      19. - ARBITRATION

    

    
      
        19.1.
          Selection
          of Arbitrators. 

      

    

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    Any
      controversy or failure to agree between the Parties hereto arising under this
      Agreement and not resolved by agreement shall be determined by a board of
      arbitration upon notice of submission given by either Party to the other, which
      notice shall name a qualified, impartial, and independent arbitrator; provided,
      however, the following matters shall not be subject to arbitration: (a) any
      matter that requires the agreement of the Parties under the terms of this
      Agreement, and the right of either Party to apply to a court of competent
      jurisdiction for a temporary restraining order, a preliminary injunction, or
      other equitable relief to preserve the status quo or prevent irreparable harm,.
      Within ten (10) days after the receipt of a notice requiring arbitration, the
      other Party shall name a qualified, impartial and independent arbitrator, or
      failing to do so, the Party giving notice shall name the second. Within
      twenty-five (25) days after sending the original notice of submission the two
      (2) arbitrators so appointed shall name the third qualified, independent
      arbitrator, or failing to do so, the third arbitrator may be appointed by the
      Senior Judge (in service) of the United States District Court serving Houston,
      Texas.

    

    19.2. Determination.

    

    The
      arbitrators selected to act hereunder shall be qualified by a minimum of twenty
      (20) years experience in the oil and gas industry to pass on the particular
      question in dispute. The arbitrators shall promptly hear and determine (after
      due notice of hearing and giving the Parties a reasonable opportunity to be
      heard) the questions submitted, and shall render their decision within sixty
      (60) days after appointment of the third arbitrator. If within said period
      a
      decision is not rendered by the board, or majority thereof, new arbitrators
      may
      be named and shall act hereunder at the election of either Buyer and Seller
      in
      like manner as if none has been previously named. The arbitrators shall settle
      all disputes in accordance with the Federal Arbitration Act and the Commercial
      Arbitration Rules of the American Arbitration Association, to the extent that
      such rules do not conflict with the terms of such Act or the terms of this
      Agreement. Any arbitration hearing shall be held in Houston, Harris County,
      Texas.

    

    19.3. Decision
      Binding.

     

      The
      decision of the arbitrators, or the majority thereof, made in writing shall
      be
      final, binding and non-appealable upon the Parties hereto as to the questions
      submitted, and Buyer and Seller will abide by and comply with such decision
      and,
      if necessary, may be enforced in any court of competent jurisdiction. The law
      governing all such disputes shall be the laws of the State of Texas,
      including, without limitation, the Uniform Commercial Code as in effect in
      the
      State of Texas,
      as the
      same may be amended from time to time, but without regard to conflicts of laws
      principles. The fees and expenses of the arbitrator shall be shared one-half
      by
      Seller and one-half by Buyer, except that each Party shall bear the compensation
      and expenses of its own counsel, witnesses, and employees. Any payment to be
      made as the result of any dispute resolved by arbitration hereunder shall be
      accomplished pursuant to the Final Settlement Statement, with the final payments
      due thereunder being deferred until the arbitrator has rendered its decisions
      on
      all matters to be resolved by arbitration hereunder. 

     

    ARTICLE
      20. - MISCELLANEOUS

    

    20.1. Amendment.

     

    The
      Agreement may not be amended except by an instrument in writing signed by the
      Party to be charged with such amendment and delivered by such Party to the
      Party
      claiming the benefit of such amendment.

    

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    20.2. Gender.

    

    References
      made in this Agreement, including use of a pronoun, shall be deemed to include
      where applicable, masculine, feminine, singular or plural, individuals,
      partnerships, or corporations. As used in this Agreement, "person" shall mean
      any natural person, corporation, partnership, trust, estate, or other
      entity.

    

    20.3. Entire
      Agreement.

    

    This
      Agreement and the Supplemental Agreement attached hereto as Exhibit
      “D”,
      incorporated herein by reference, constitute the entire understanding among
      the
      Parties with respect to the subject matter hereof, superseding all negotiations,
      prior discussions, and prior agreements and understandings relating to such
      subject matter.

    

    20.4. Survival.

    

    Except
      for the indemnification obligations contained herein the survival of which
      is
      set forth in Article
      18,
      all of
      Seller’s representations and warranties contained in this Agreement shall not
      survive the Closing.

    

    20.5. Severability.

    

    If
      a
      court of competent jurisdiction determines that any clause or provision of
      this
      Agreement is void, illegal, or unenforceable, the other clauses and provisions
      of the Agreement shall remain in full force and effect and the clauses and
      provisions which are determined to be void, illegal, or unenforceable shall
      be
      limited so that they shall remain in effect to the extent permissible by
      law.

    

    20.6. Public
      Announcements.

    

    The
      Parties hereto agree that prior to Closing, prior to making any public
      announcement or statement with respect to the transaction contemplated by this
      Agreement, the Party desiring to make such public announcement or statement
      shall consult with the other Party hereto and exercise its best efforts to
      (i)
      agree upon the text of a joint public announcement or statement to be made
      by
      both of such Parties; or (ii) obtain written approval of the other Party hereto
      to the text of a public announcement or statement to be made solely by Seller
      or
      Buyer, as the case may be. Nothing contained in this paragraph shall be
      construed to require either Party to obtain approval of the other Party hereto
      to disclose information with respect to the transaction contemplated by this
      Agreement to any state or federal governmental authority or agency to the extent
      (i) required by applicable law or by any applicable rules, regulations or orders
      of any governmental authority or agency having jurisdiction; or (ii) necessary
      to comply with disclosure requirements of the New York Stock Exchange or other
      recognized exchange or over the counter, and applicable securities
      laws.

    

    20.7. Filing
      and Recording of Assignments, etc.

    

    Buyer
      shall be solely responsible for all filings and recording of assignments and
      other documents related to the Properties and for all fees connected therewith,
      and upon request Buyer shall advise Seller of the pertinent recording data.
      Seller shall not be responsible for any loss to Buyer because of Buyer's failure
      to file or record documents correctly or promptly. Buyer shall promptly file
      all
      appropriate forms, declarations or bonds with federal and state agencies
      relative to its assumption of operations and Seller shall cooperate with Buyer
      in connection with such filings.

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    20.8. Further
      Assurances and Records.

     

    (a) After
      the
      Closing each of the Parties will execute, acknowledge and deliver to the other
      such further instruments, and take such other action, as may be reasonably
      requested in order to more effectively assure to said Party all of the
      respective properties, rights, titles, interests, estates, and privileges
      intended to be assigned, delivered or inuring to the benefit of such Party
      in
      consummation of the transactions contemplated hereby.

    

    (b) Buyer
      shall comply with all current and subsequently amended applicable laws,
      ordinances, rules, and regulations applicable to the Properties and shall
      promptly obtain and maintain all permits required by governmental authorities
      in
      connection with the Properties.

    

    20.9. Notices.

    

    Except
      as
      otherwise expressly provided herein, all communications required or permitted
      under this Agreement shall be in writing and any communication or delivery
      hereunder shall be deemed to have been duly given and received when actually
      delivered to the address of the Parties to be notified as set forth below and
      addressed as follows:

    

    If
      to
      Seller, as follows:

     

    TARH
      E&P Holdings, LP

    98
      San
      Jacinto Blvd., Suite 800

    Austin,
      Texas 78701

    Attention:
      David E. Honeycutt, President

    Phone:
      (512) 480-8700

    Fax:
       (512)
      480-8732

    

    If
      to
      Buyer, as follows:

    

    Foothills
      Texas, Inc.

    4540
      California Ave., Suite 550

    Bakersfield,
      California 93309

    Attention:
      Dennis B. Tower, Chief Executive Officer

    Phone:
      (661) 716-1320

    Fax:
       (661)
      716-1340

    

    Provided,
      however, that any notice required or permitted under this Agreement will be
      effective if given verbally within the time provided, so long as such verbal
      notice is followed by written notice thereof in the manner provided herein
      within twenty-four (24) hours following the end of such time period. Any Party
      may, by written notice so delivered to the other, change the address to which
      delivery shall thereafter be made.

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    20.10. No
      Guarantee of Operations.

    

    Buyer
      understands that operation of all or part of the Properties may be subject
      to
      operating agreements or other contracts governing the election or appointment
      of
      an Operator. Seller does not warrant or represent that Buyer will become
      Operator of any of the Properties, but Seller does agree to use its best efforts
      and to assist Buyer in being elected as Operator.

    

    20.11. Incidental
      Expenses.

    

    Buyer
      shall bear and pay (i) all state or local government sales, transfer, gross
      proceeds, or similar taxes incident to or caused by the transfer of the
      Properties to Buyer, (ii) all documentary, transfer and other state and local
      government taxes incident to the transfer of the Properties to Buyer; and (iii)
      all filing, recording or registration fees for any assignment or conveyance
      delivered hereunder. Each Party shall bear its own respective expenses incurred
      in connection with the negotiation and Closing of this transaction, including
      its own consultants' fees, attorneys' fees, accountants' fees, and other similar
      costs and expenses.

    

    20.12. Antitrust
      Laws.

    

    If
      the
      Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") is
      applicable to this transaction, then each Party shall have the responsibility
      for filing with the Federal Trade Commission and the Department of Justice
      their
      respective notifications and reports and any supplemental information which
      may
      be reasonably requested in connection with the HSR Act, which reports and
      notifications and supplemental information will comply in all material respects
      with the requirements of the HSR Act.

    

    20.13. Waiver.

    

    Any
      of
      the terms, provisions, covenants, representations, warranties or conditions
      hereof may be waived only by a written instrument executed by the Party waiving
      compliance. Except as otherwise expressly provided in this Agreement, the
      failure of any Party at any time or times to require performance of and
      provision hereof shall in no manner affect such Party's right to enforce the
      same. No waiver by any Party or any condition, or of the breach of any term,
      provision, covenant, representation or warranty contained in this Agreement,
      whether by conduct or otherwise, in any one or more instances, shall be deemed
      to be or construed as a further or continuing waiver of any such condition
      or
      breach or a waiver of any other condition or of the breach of any other term,
      provision, covenant, representation or warranty.

    

    20.14. Binding
      Effect: Assignment.

    

    All
      the
      terms, provisions, covenants, obligations indemnities, representations,
      warranties and conditions of this Agreement shall be enforceable by the Parties
      hereto and their respective successors and assigns. The rights of each Party
      under this Agreement are personal to that Party and may not be assigned or
      transferred to any other Party, firm, corporation or other entity, without
      the
      prior, express and written consent of the other Party and such consent may
      be
      withheld for any reason, including convenience. Any attempt to assign this
      Agreement over the objection or without the express written consent of the
      other
      Party shall be absolutely void. Seller may condition its consent to assign
      this
      Agreement on Buyer providing Seller with an appropriate guarantee of its
      assignee's performance. Subject to the provisions of Article
      18.8
      hereof,
      in the event Buyer sells or assigns all or a portion of the Properties, this
      Agreement shall remain in effect between Buyer and Seller as to all the
      Properties regardless of such assignment.

    

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    20.15. Taxes.

     

    (a) In
      the
      event the Parties agree that Section 1060 of the Internal Revenue Code of 1986,
      as amended, requires the filing of IRS Form 8594, the Parties will confer and
      cooperate in the preparation and filing of their respective forms to reflect
      a
      consistent reporting of the agreed upon allocation.

    

    (b) Seller
      shall be responsible for and shall pay all taxes attributable to or arising
      from
      the ownership or operation of the Properties prior to the Effective Time. Buyer
      shall be responsible for and shall pay all taxes attributable to or arising
      from
      the ownership or operation of the Properties after the Effective Time. Any
      Party
      which pays such taxes for the other Party shall be entitled to prompt
      reimbursement upon evidence of such payment. Each Party shall be responsible
      for
      its own federal income taxes, if any, as may result from this
      transaction.

    

    (c) If
      this
      transaction is determined to result in state sales or transfer taxes, Buyer
      shall be solely responsible for any and all such taxes due on the Properties
      acquired by Buyer by virtue of this transaction. If Buyer is assessed such
      taxes, Buyer shall promptly remit same to the taxing authority. If Seller is
      assessed such taxes, Buyer shall reimburse Seller for any such taxes paid by
      Seller to the taxing authority.

    

    20.16. Audits.

    

    It
      is
      expressly understood and agreed that Seller retains its right to receive its
      proportionate share of the proceeds from any audits relating to activities
      prior
      to the Effective Time.

    

    20.17. Governing
      Law.

    

    THIS
      AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
      LAWS
      OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
      OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.

    

    20.18. Time
      is of Essence. Time
      is
      of the essence with respect to performance of this Agreement.

    

    20.19. Exhibits
      and Schedules.

    

    All
      Exhibits and Schedules attached to this Agreement, and the terms of those
      Exhibits and Schedules which are referred to in this Agreement, are made a
      part
      hereof and incorporated herein by reference. 

    

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    20.20. Counterparts.

    

    This
      Agreement may be executed in any number of counterparts, and each and every
      counterpart shall be deemed for all purposes to be one (1)
      agreement.

    

    20.21.
      Section
      1031 Exchange.
      

    

    Buyer
      agrees that Seller shall have the right at any time prior to Closing to assign
      all or a portion of its rights under this Agreement to a Qualified Intermediary
      (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
      Regulations) in order to accomplish the transaction in a manner that will
      comply, either in whole or in part, with the requirements of a like-kind
      exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
      amended. If Seller assigns its rights under this Agreement for this purpose,
      Buyer agrees to consent to Seller’s assignment of such rights and pay the
      Purchase Price into a qualified escrow or qualified trust account at Closing,
      as
      directed in writing. Seller and Buyer agree that Seller’s assignment of its
      rights under this Agreement, in whole or in part, to a Qualified Intermediary,
      shall not release either party from any of their respective liabilities and
      obligations to each other under this Agreement, and Buyer shall not be obligated
      to pay any additional costs or incur any additional obligations in the
      acquisition of the Properties.

    

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
      above written but effective the Effective Time.

    

    

    SELLER:

     

    TARH
      E&P Holdings, LP

    

     

    

    

    By:
      /s/
      Troy Gieselman__________

    Troy
      Gieselman

    Secretary

    

    

     

    

    BUYER:

     

    Foothills
      Texas, Inc.

     

     

    

    By:_/s/
      Dennis B. Tower__________

    Dennis
      B.
      Tower

    Chief
      Executive Officer

     

     

    
      
        
        

      

      40Unassociated Document

    

    PURCHASE
      AND SALE AGREEMENT

    

    by
      and between

    

    TARH
      E&P HOLDINGS, L.P.

    

    AS
      SELLER 

    

    AND

    

    FOOTHILLS
      TEXAS, INC.

    

    AS
      BUYER

    

    DATED
      

    

    JUNE
      21, 2006

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    TABLE
      OF CONTENTS

    

    
      	
              ARTICLE
                1. - DEFINITIONS

            	
              4

            
	
              ARTICLE
                2. - PURCHASE AND SALE

            	
              5

            
	
              ARTICLE
                3. - PURCHASE PRICE AND PAYMENT

            	
              7

            
	
              ARTICLE
                4. - REPRESENTATIONS OF SELLER

            	
              9

            
	
              ARTICLE
                5. - REPRESENTATIONS OF BUYER

            	
              11

            
	
              ARTICLE
                6. - ACCESS TO INFORMATION AND INSPECTIONS

            	
              12

            
	
              ARTICLE
                7. - DISCLAIMER OF WARRANTIES

            	
              13

            
	
              ARTICLE
                8. - TITLE MATTERS

            	
              14

            
	
              ARTICLE
                9. - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

            	
              19

            
	
              ARTICLE
                10. - ENVIRONMENTAL MATTERS AND OTHER ADJUSTMENTS

            	
              20

            
	
              ARTICLE
                11. - GENERAL COVENANTS OF SELLER

            	
              22

            
	
              ARTICLE
                12. - COVENANTS OF BUYER

            	
              23

            
	
              ARTICLE
                13. - CLOSING CONDITIONS

            	
              24

            
	
              ARTICLE
                14. - CLOSING

            	
              25

            
	
              ARTICLE
                15. - ADDITIONAL CLOSING OBLIGATIONS

            	
              26

            
	
              ARTICLE
                16. - CASUALTY LOSS AND CONDEMNATION

            	
              28

            
	
              ARTICLE
                17. - DEFAULT AND REMEDIES

            	
              28

            
	
              ARTICLE
                18. - ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION

            	
              29

            
	
              ARTICLE
                19. - ARBITRATION

            	
              31

            
	
              ARTICLE
                20. - MISCELLANEOUS

            	
              32

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBITS

    

    

    
      	
              Description
                of Leases, Lands and Interests Being Conveyed

            	
              Exhibit
                “A”

            
	 	 
	
              Description
                of Wells and Equipment Being Conveyed

            	
              Exhibit
                “A-1”

            
	 	 
	
              Assignment
                and Bill of Sale

            	
              Exhibit
                “B”

            
	 	 
	
              Certificate
                of Non-Foreign Status

            	
              Exhibit
                “C”

            
	 	 
	
              Supplemental
                Agreement

            	
              Exhibit
                “D”

            
	 	 

    

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    SCHEDULES

    

    

    

    
      	
              Excluded
                Assets

            	
              Schedule
                2.2

            
	 	 
	
              Allocated
                Value

            	
              Schedule
                3.1

            
	 	 
	
              Litigation

            	
              Schedule
                4.8

            
	 	 
	
              Consents
                / Preferential Rights

            	
              Schedule
                4.9

            

    

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    PURCHASE
      AND SALE AGREEMENT

    

    

    This
      Purchase and Sale Agreement (“Agreement”) dated as of June 21, 2006 is between
      TARH E&P Holdings, L.P., whose address is 98 San Jacinto Blvd, Suite 800,
      Austin, Texas 78701 (“Seller”) and Foothills Texas, Inc. whose address is 4540
      California Ave., Suite 550, Bakersfield, California 93309 (“Buyer”). Either
      Seller or Buyer, as the case may be, are hereinafter referred to as “Party” or
      collectively as “Parties.”

    

    In
      consideration of the mutual covenants and agreements contained herein, the
      benefits to be derived by each Party hereunder, and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      Parties agree as follows:

    

    ARTICLE
      1. - DEFINITIONS

    

    1.1. “Agreement”
      shall
      mean this Purchase and Sale Agreement between Seller and Buyer.

    

    1.2. “Property
      or Properties”
      shall
      mean the assets and properties (except to the extent constituting Excluded
      Assets) described in Article
      2.1.

    

    1.3. “Closing
      Date”
      shall be
      as defined in Article
      14.1.

    

    1.4. “Effective
      Time”
      shall
      mean the time described in Article
      2.1.

    

    
      
        1.5.
          “Excluded
          Assets”
          shall
          mean the items described in Article
          2.2.

      

    

    

    1.6. “Hydrocarbons”
      shall
      mean crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas
      liquids, drip liquids and other liquid or gaseous hydrocarbons (including
      CO2),
      and
      shall also refer to all other minerals of every kind and character which may
      be
      covered by or included in the Properties.

    

    1.7. “Inventory
      Hydrocarbons”
      shall
      mean all merchantable oil and condensate (for oil and liquids in storage tanks,
      being only that oil or liquids physically above the top of the inlet connection
      into such tanks) produced from or attributable to the Leases prior to the
      Effective Time which have not been sold by Seller and are in storage at the
      Effective Time.

    

    1.8. “Leases”
      shall
      mean, except for the Excluded Assets, the oil, gas and mineral leases and the
      leasehold estates created thereby and mineral interests in the lands, as
      described on Exhibit
      “A”
      attached
      hereto.

    

    
      
        1.9.
          “Performance
          Deposit”
          shall be
          as defined in Article
          3.2.

      

    

    

    
      
        1.10.
          “Purchase
          Price”
          shall be
          as defined in Article
          3.1.

      

    

    

    1.11. “Well”
      or “Wells” shall
      mean all wellbores, both abandoned and unabandoned, including oil wells, gas
      wells, injection wells, disposal wells and water wells whether described on
      Exhibit
      “A-1”
      or not.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    ARTICLE
      2. - PURCHASE AND SALE

    

    2.1. The
      Properties.
      Subject
      to the terms and conditions of this Agreement, Seller agrees to sell and convey
      to Buyer, and Buyer agrees to purchase from Seller, but effective as of 7:00
      a.m. Central Time, July 1, 2006,
      (the “Effective Time”) all of Seller’s right, title, and interest in and to the
      following (the “Properties”):

    

    (a) The
      oil,
      gas and mineral
      leases described on Exhibit
      “A”
      attached
      hereto
      and the
      leasehold estates created thereby and mineral interests in the lands described
      in Exhibit
      “A”
      attached
      hereto (the “Leases”), and the lands covered thereby (the “Land”), together with
      corresponding interests in and to all the property and rights incident thereto,
      including all rights in any pooled or unitized acreage by virtue of the Land
      being a part thereof, all production from the pool or unit allocated to any
      such
      Land, and all interests in any Wells within the pool or unit associated with
      the
      Land;

    

    (b) Each
      Well
      located on the Leases and Land described on Exhibit
      “A-1”;

    

    (c) All
      of
      Seller’s rights in “Equipment” described on Exhibit
      “A-1”
      and
      wherever located on the Land used and useful in the operation, maintenance
      and
      production of the Wells located on or associated with the Leases (except for
      any
      Excluded Assets); 

    

    (d) To
      the
      extent transferable by Seller without material restriction under applicable
      law
      or third-party agreements (without the payment of any funds or consideration)
      and subject to the terms of Article
      18,
      below,
      all contracts and contractual rights, obligations, and interests, including
      all
      farmout and farmin agreements, operating agreements, production sales and
      purchase contracts, asset purchase contracts with related indemnity provisions,
      saltwater disposal agreements, gas gathering or transportation agreements,
      surface leases, division and transfer orders, governmental licenses, permits
      and
      approvals, and other contracts or agreements covering or affecting any or all
      of
      the interests described or referred to in this Article
      2.1.(d)
      (the
“Contracts”);

    

    (e) All
      Hydrocarbons, including Inventory Hydrocarbons produced from, attributable
      to or
      located on the Leases and or in the Gathering System and associated Servitudes
      as of the Effective Time attributable to Seller’s interest in the Properties;

    

    (f) All
      of
      the following described real and personal property:

    

    (i) The
      rights, interests and estates created under those certain servitudes, easements,
      rights-of-way, privileges, franchises, prescriptions, licenses, leases, permits
      and/or other rights described in Exhibit
      “A”,
      attached hereto and made a part hereof, together with any amendments, renewals,
      extensions, supplements, modifications or other agreements related thereto,
      and
      further together with any other servitudes, easements, rights-of-way,
      privileges, prescriptions, franchises, licenses, permits and/or other rights
      (whether presently existing or hereafter created and whether now owned or
      hereafter acquired by operation of law or otherwise) used, held for use in
      connection with, or in any way related to the “Gathering System” (as herein
      defined), and/or pipelines transporting gas or natural gas liquids to, from
      or
      between Gathering Systems (the rights, interests and estates described in this
      Article
      2.1.(f)(i)
      are
      herein collectively called the “Servitudes”);

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (ii) All
      pipes, valves, gauges, meters and other measuring equipment, regulators,
      extractors, tubing, pipelines, fuel lines, facilities, improvements, fittings,
      materials and other improvements, fixtures and/or personal property (whether
      now
      owned or hereafter acquired by operation of law or otherwise) located on or
      under the Servitudes, and/or in or otherwise related to the Lands (the
      properties, rights and interests described in this Article
      2.1.(f)(ii)
      are
      herein collectively called the “Gathering Systems”);

     

    (iii) All
      of
      Seller’s right, title and interest (whether now owned or hereafter acquired by
      operation of law or otherwise) in and to all improvements, fixtures, and other
      real and/or personal property (including, without limitation, all equipment,
      boats, tanks, pipelines, flow lines, gathering lines, compressors, dehydration
      units, separators, meters, metering stations, buildings, fittings, pipe, pipe
      connector, valves, regulators, drips, storage facilities, absorbers,
      dehydrators, and power, telephone and telegraph lines) located on or under,
      or
      which in any way relate to, the Servitudes and/or the Gathering
      Systems;

    

    (g) The
      Records as defined in Article
      15.4
      hereof.

    

    All
      of
      the above real and personal properties, rights, titles and interests described
      in subparagraphs (a) through (g) above, subject to the limitations and terms
      expressly set forth herein and in the Exhibit
      “A”
      attached
      hereto, but excluding the Excluded Assets, are hereinafter collectively called
      the “Properties” or, individually, a “Property”.

    

    2.2. Excluded
      Assets. Seller
      specifically excludes from this transaction all reservations and exceptions
      listed in Exhibit
      “A”
      and the
      following:

    

    (a) All
      vehicles and other transportation equipment, furniture, office supplies

    and
      equipment, telephones and radio or other telecommunications systems, tools,
      store stock, spare parts, and equipment, and any other assets not specifically
      used or required in connection with the operation of the
      Properties;

    

    (b) computer
      equipment, telecommunications equipment, vehicles, tools, pulling machines,
      and
      other equipment and material temporarily located on the Property;

    

    (c) items
      excluded from the Records provided to Buyer before the execution date;

    

    (d) personal
      property, fixtures, equipment and facilities located on the Lands, but currently
      in use exclusively in connection with the ownership or operation of other
      property not included in the Properties;

    

    (e) (i)
      all
      trade credits, accounts receivable, notes receivable and other receivables
      attributable to Seller’s interest in the Properties with respect to any period
      of time prior to the Effective Time; (ii) all deposits, cash, checks in process
      of collection, cash equivalents and funds attributable to Seller’s interest in
      the Properties with respect to any period of time prior to the Effective Time;
      and (iii) all proceeds, benefits, income or revenues accruing (and any security
      of other deposits made) with respect to the Properties prior to the Effective
      Time;

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (f) all
      corporate, financial, and tax records of Seller other than the Records;

    

    (g) all
      claims and causes of action of Seller arising from acts, omissions or events,
      or
      damage to or destruction of, the Properties occurring prior to the Effective
      Time;

    

    (h) except
      as
      otherwise provided in Article
      16,
      all
      rights, titles, claims and interests of Seller relating to the Properties prior
      to the Effective Time (i) under any policy or agreement of insurance or
      indemnity; (ii) under any bond; or (iii) to any insurance or condemnation
      proceeds or awards;

    

    (i) all
      Hydrocarbons produced from or attributable to the Properties with respect to
      all
      periods prior to the Effective Time, together with all proceeds from or of
      such
      Hydrocarbons, except the Inventory Hydrocarbons;

    

    (j) claims
      of
      Seller for refund of or loss carry forwards with respect to production, windfall
      profit, severance, ad valorem or any other taxes attributable to any period
      prior to the Effective Time, or income or franchise taxes;

    

    (k) all
      amounts due or payable to Seller as adjustments or refunds under any contracts
      or agreements (including take-or-pay claims) affecting the Properties,
      respecting periods prior to the Effective Time except to the extent such amounts
      are subject to make-up rights out of future production after the Effective
      Time;

    

    (l) all
      amounts due or payable to Seller as adjustments to insurance premiums related
      to
      the Properties with respect to any period prior to the Effective
      Time;

    

    (m) all
      proceeds, benefits, income or revenues accruing (and any security or other
      deposits made) with respect to the Properties, and all accounts receivable
      attributable to the Properties, prior to the Effective Time; 

    

    (n) all
      of
      Seller’s intellectual property, including, but not limited to,
      proprietary

    computer
      software, patents, trade secrets, copyrights, names, marks and
      logos;

    

    (o) all
      hedge
      obligations and hedge contracts; and

    

    (p) any
      item
      listed on Schedule
      2.2.

    

    ARTICLE
      3. - PURCHASE PRICE AND PAYMENT

    

    3.1. Purchase
      Price.
      Subject
      to adjustment as set forth below, the Purchase Price for the Properties shall
      be
      Ten Million Two Hundred Fourteen Thousand One Hundred Thirty Dollars
      ($10,214,130), as allocated among the Properties and provided in Schedule
      3.1,
      and to
      be paid at Closing in U.S. dollars.

    

    3.2. Performance
      Deposit.
      Immediately
      upon the execution hereof, Buyer shall tender to Seller, by bank wire transfer,
      per the instructions of Seller, a Performance Deposit equal to five percent
      (5%)
      of the Purchase Price. Such Performance Deposit may be increased to ten percent
      (10%) of the Purchase Price, as provided in Article
      14.1
      herein,
      and the term “Performance Deposit” as used in this Agreement shall refer to the
      amount actually tendered to Seller by Buyer pursuant to this Article
      3.2
      and
      pursuant to Article
      14.1.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
      
        3.3.
          Final
          Settlement/Purchase Price Adjustments.

      

    

    

    Within
      ninety (90) days after Closing, Seller shall provide to Buyer, for Buyer’s
      concurrence, an accounting (the “Final Settlement Statement”) of the actual
      amounts of Seller’s and Buyer’s Credits for the adjustment set out in this
Article
      3.3.
      Within
      thirty (30) days after receipt of such statement from Seller, Buyer shall
      deliver to Seller a written report containing all changes with explanations
      therefor that Buyer proposes be made to such statement, it being agreed that
      Buyer’s failure to deliver such report to Seller within such time period shall
      constitute acceptance by Buyer of Seller’s statement (unless failure is a result
      of Seller’s failure to provide information, data, etc). Except for the changes
      raised by Buyer in its written report, no additional changes to the statement
      provided by Seller shall be considered by the Parties. If Buyer has timely
      delivered such written report, the Parties shall then undertake to agree on
      the
      items in dispute and the adjusted Purchase Price no later than thirty (30)
      days
      after the receipt by Seller of Buyer’s statement of proposed changes. The
      Parties shall attempt to resolve any disagreements on a best efforts basis.
      In
      the event such disagreements cannot be resolved, the matter shall be submitted
      to arbitration by either Party pursuant to the provisions of Article
      19
      hereof.
      Following the determination of the adjusted Purchase Price pursuant to this
      Article
      3.3,
      Seller
      or Buyer, as the case may be, shall make payment required within five (5)
      business days after such final determination. Buyer will prepare any information
      reasonably requested by Seller in order for Seller to prepare such statement
      or
      verify Buyer’s written report. 

    

    The
      Purchase Price shall be adjusted as follows:

    

    (a) The
      Purchase Price shall be adjusted upward by the following (“Seller’s
      Credits”):

    

    (1) the
      value
      of (i) all Inventory Hydrocarbons, such value to be based upon the prevailing
      market value for crude oil in effect as of the Effective Time adjusted for
      grade
      and gravity, less taxes and transportation fees deducted by the purchaser of
      such oil, such oil to be measured at the Effective Time by the operators of
      the
      Properties. and (ii) the value of all of Seller’s unsold inventory of gas plant
      products, if any, attributable to the Leases at the Effective Time valued in
      the
      same manner as if such products had been sold under the contract then in
      existence between Seller and the purchaser of such products or, if there is
      no
      such contract, valued in the same manner as if said products had been sold
      at
      the posted price for said products;

    

    (2) the
      amount of all production expenses, operating expenses, overhead paid by Seller
      on the Properties (IT BEING THE INTENT HEREOF THAT on Seller
      operated Properties, Seller shall charge such charges as are reasonable and
      customary in the industry where such Properties are located), and capital
      expenditures (including, without limitation, royalties, overriding royalties,
      rentals and other charges, ad valorem, property, production, excise, severance,
      and other similar taxes and assessments) attributable to the operation of the
      Properties after the Effective Time; 

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (3) an
      amount
      equal to the sum of any upward adjustments provided elsewhere for in this
      Agreement; and

    

    (4) any
      other
      amount agreed upon by Seller and Buyer in writing prior to Closing.

    

    (b) The
      Purchase Price shall be adjusted downward by the following (“Buyer’s
      Credits”):

    

    (1) the
      total
      sales value of all Hydrocarbons sold by the Seller after the Effective Time,
      all
      of which are attributable to the Properties, and any other monies collected
      by
      the Seller with respect to the ownership or operation of the Properties after
      the Effective Time, expressly provided that Seller will not be required to
      pay
      any interest on monies collected on behalf of Buyer.

    

    (2) The
      amount of any ad valorem, property, production, severance and similar taxes
      and
      assessments on the Assets measured by production that occurs before the
      Effective Time which shall be the obligation of Seller. For clarity, 2006 taxes
      based on production occurring in 2005 shall be solely Seller’s obligation. The
      parties shall, based on the production that occurred in 2006 and the most
      recently available renditions, estimate the 2006 taxes and such amount shall
      be
      withheld from the Purchase Price payable to Seller at Closing. Any such
      estimate, once agreed upon, shall be final; 

    

    (3) an
      amount
      equal to the sum of any downward adjustments provided elsewhere in this
      Agreement; and 

    

    (4) any
      other
      amount agreed upon by Seller and Buyer in writing prior to Closing.

    

    (c) Seller
      shall prepare and deliver to Buyer, at least five (5) business days prior to
      Closing, Seller’s estimate of the adjusted Purchase Price to be paid at Closing,
      together with a preliminary statement setting forth Seller’s estimate of the
      amount of each adjustment to the Purchase Price to be made pursuant to this
      Article
      3.3.
      

    

    ARTICLE
      4. - REPRESENTATIONS OF SELLER

    

    4.1. Existence.
      Seller
      is a limited partnership, validly existing and in good standing under the laws
      of the state of its formation and is duly qualified to do business in the state
      in which the Properties are located. 

    

    4.2. Authorization.
      Seller
      has all authority necessary to enter into this Agreement and to perform all
      its
      obligations hereunder. This Agreement has been duly executed and delivered
      on
      its behalf, and at the Closing all documents and instruments required hereunder
      will have been duly executed and delivered. This Agreement, and all such
      documents and instruments shall constitute legal, valid, and binding obligations
      enforceable in accordance with their respective terms, except to the extent
      enforceability may be affected by bankruptcy, reorganization, insolvency, or
      similar laws affecting creditors’ rights generally.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    4.3. Power.
      Subject
      to preferential purchase rights and restrictions on assignment of the type
      typically found in the oil and gas industry, and to rights to consent described
      on Schedule
      4.9,
      and
      subject to, required notices to, and filings with or actions by governmental
      entities, Seller’s execution, delivery, and performance of this Agreement and
      the transactions contemplated hereby will not: (i) violate or conflict with
      any
      provision of its Articles of Organization, or other governing documents; (ii)
      result in the breach of any term or condition of, or constitute a default or
      cause the acceleration of any obligation under any agreement or instrument
      to
      which it is a party or by which it is bound; or (iii) violate or conflict with
      any applicable judgment, decree, order, permit, law, rule or
      regulation.

    

    4.4. Brokers.
      Seller
      has incurred no liability, contingent or otherwise, for broker’s or finder’s
      fees in respect of this transaction, for which Buyer shall have any
      responsibility whatsoever.

    

    4.5. 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 (i.e.,
      Seller
      is not a nonresident alien, foreign corporation, foreign partnership, foreign
      trust, or foreign estate as those terms are defined in the Code and any
      regulation promulgated thereunder).

    

    4.6. Conflicts.
      Seller’s
      execution, delivery, and performance of this Agreement does not and will not
      conflict with or violate any agreement governing Seller’s business or affairs,
      or any agreements or instruments to which Seller may be a party or by which
      Seller or any of Seller’s properties are bound, or any law, administrative
      regulation or rule or court order, judgment, or decree applicable to Seller
      or
      to the Properties.

    

    4.7. Bankruptcy.
      There
      are no bankruptcy, reorganization, or receivership proceedings pending, being
      contemplated by, or threatened against Seller.

    

    4.8. Litigation.
      Except
      as set forth on Schedule
      4.8,
      there
      is neither any claim, dispute, suit, action, investigation or other proceeding
      pending before any court or governmental agency against Seller or any of the
      Properties, nor to Seller’s knowledge, threatened against Seller or the
      Properties, which might diminish the value of or impede the operation of the
      Properties, or which challenges or pertains to the execution and delivery of
      this Agreement or the consummation of the transactions contemplated
      hereby.

     

    4.9. Preferential
      Rights.
      Except
      as identified on Schedule
      4.9,
      which
      to the best of Seller’s knowledge, is accurate and complete, for the respective
      Leases or Wells, there are no preferential rights of purchase or consents to
      assign in favor of third parties with respect to any of the Properties and
      no
      consents to transfers thereof are required.

    

    4.10. Seller’s
      Title.
      Seller
      has Marketable Title to the Properties and Seller warrants Marketable Title
      to
      the Properties by, through, and under Seller, but not otherwise. Any discrepancy
      in the Seller’s Marketable Title of the interests stated on Exhibit
      “A”
      shall
      only be adjusted pursuant to the provisions of Article
      8.3.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    4.11. Knowledge.
      The
      phrase “to Seller’s knowledge,” or other similar language which qualifies a
      statement as to the knowledge of Seller, will mean that within the actual
      present knowledge of a Responsible Officer after due inquiry of appropriate
      managerial level personnel, such Responsible Officer has received no verbal
      information from an employee of Seller or any written information indicating
      that the specific statement so qualified is not accurate. Responsible Officer
      is
      defined as the President, Chief Operating Officer, and General Counsel of
      Seller. Buyer and Seller expressly agree that in no event will any
      representation or other statement qualified, to Seller’s knowledge, give rise to
      any implication or presumption that a specific inquiry or any inquiry has been
      made by any Responsible Officer to confirm or negate the matter being
      represented other than as provided herein; and Buyer acknowledges that any
      such
      representation will be based solely on the actual present knowledge of the
      Responsible Officer(s) as described herein above.

    

    ARTICLE
      5. - REPRESENTATIONS OF BUYER

    

    5.1. Existence.
      Buyer
      is
      a corporation duly organized, validly existing, and in good standing under
      the
      laws of the state of its formation, and, as of the Closing Date, will be duly
      qualified to do business in the state(s) in which the Properties are
      located.

    

    5.2. Authorization.
      Buyer
      has all authority necessary to enter into this Agreement and to perform all
      its
      obligations hereunder. This Agreement has been duly executed and delivered
      on
      its behalf, and at the Closing all documents and instruments required hereunder
      will have been duly executed and delivered. This Agreement, and all such
      documents and instruments shall constitute legal, valid, and binding obligations
      enforceable in accordance with their respective terms, except to the extent
      enforceability may be affected by bankruptcy, reorganization, insolvency, or
      similar laws affecting creditors’ rights generally.

    

    5.3. Power.
      Subject
      to rights to consents by, required notices to, and filings with or actions
      by
      other governmental entities, Buyer’s execution, delivery, and performance of
      this Agreement and the transactions contemplated hereby will not: (i) violate
      or
      conflict with any provision of its documents of formation or other governing
      documents; (ii) result in the breach of any term or condition of, or constitute
      a default or cause the acceleration of any obligation under any agreement or
      instrument to which it is a party or by which it is bound; or (iii) violate
      or
      conflict with any applicable judgment, decree, order, permit, law, rule or
      regulation.

    

    5.4. Brokers.
      Buyer
      has incurred no liability, contingent or otherwise, for broker’s or finder’s
      fees in respect of this transaction, for which Seller shall have any
      responsibility whatsoever.

    

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

    

    5.6. Experienced
      And Knowledgeable Investor.
      Buyer
      is
      an experienced and knowledgeable investor and operator in the oil and gas
      business. Except for such representation of Seller set forth herein, prior
      to
      entering into this Agreement, Buyer was advised by and has relied solely on
      its
      own expertise and legal, tax, reservoir engineering, and other professional
      counsel concerning this Agreement, the Properties and the value
      thereof.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    5.7. Further
      Distribution.
      Buyer
      (i)
      is acquiring the Properties for its own account and without a view to the
      distribution thereof within the meaning of the Securities Act of 1933, as
      amended; (ii) has such knowledge and experience in business, financial, and
      oil
      and gas matters that it is capable of evaluating the merits and risks of
      entering into and of carrying out its obligations in connection with the
      acquisition of the properties in the manner contemplated herein; (iii) has
      received to date all information concerning the Properties and such other
      information relating to this Agreement which it requested; and (iv) is able
      to
      bear the economic risk of its investment in the Properties for an indefinite
      period of time. Further, Buyer acknowledges that Seller is relying upon the
      representations contained in the foregoing sentence and that absent such
      representations that the proposed sale to Buyer would not be entered into and
      this Agreement would not be executed and delivered by Seller.

    

    5.8. Litigation.
      There is
      neither any claim, dispute, suit, action, investigation or other proceeding
      pending before any court or governmental agency, nor to Buyer’s knowledge,
      threatened, against Buyer which challenges or pertains to the execution and
      delivery of this Agreement or the consummation of the transactions contemplated
      hereby.

    

    ARTICLE
      6. - ACCESS TO INFORMATION AND INSPECTIONS

    

    6.1. Title
      Files.
      Promptly
      after the execution of this Agreement and until the Closing Date, Seller shall
      permit Buyer and its representatives at reasonable times during normal business
      hours to examine, in Seller’s offices at their actual location, all abstracts of
      title, title opinions, title files, ownership maps, lease files, assignments,
      division orders, payout statements and agreements pertaining to the Properties
      as requested by Buyer, insofar as the same may now be in existence and in the
      possession, custody or control of Seller. Seller makes no warranty of any kind
      as to the information so supplied, and Buyer agrees that any conclusions drawn
      therefrom are the result of its own independent review and
      judgment.

    

    6.2. Other
      Files.
      Promptly
      after the execution of this Agreement and until the Closing Date, Seller shall
      permit Buyer and its representatives at reasonable times during normal business
      hours to examine, in Seller’s offices at their actual location, all production,
      well, regulatory, engineering, seismic, geological, geophysical and geochemical
      information, accounting information and other information, files, books,
      records, and data pertaining to the Properties as requested by Buyer, insofar
      as
      the same may be in existence and in the possession, custody or control of
      Seller, excepting: (i) economic evaluations; (ii) reserve reports covering
      properties other than the Properties that are subject to this Agreement; (iii)
      any such information that is subject to attorney/client, work product or other
      legal privilege; and (iv) any such information, the disclosure of which is
      restricted or prohibited by third party agreement(s). No warranty of any kind
      is
      made by Seller as to the information so supplied, and Buyer agrees that any
      conclusions drawn therefrom are the result of its own independent review and
      judgment.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    6.3. Buyer’s
      Confidentiality Obligations.
      All
      information furnished or disclosed to Buyer pursuant hereto is subject to that
      certain Confidentiality Agreement by and between Seller and Buyer.

    

    6.4. Inspections.
      Promptly
      after the execution of this Agreement and until Closing, Seller, subject to
      any
      necessary third-party operator approval, shall permit Buyer and its
      representatives at reasonable times and at their sole risk, cost and expense,
      to
      conduct reasonable inspections of the Properties, subject to Article
      10
      hereof.

    

    ARTICLE
      7. - DISCLAIMER OF WARRANTIES

    

      7.1. Information
      Provided.
      All
      of
      the information, statistics, summaries, electronic transmissions and facsimiles
      furnished by or behalf of Seller herewith or hereunder are furnished or will
      be
      furnished for Buyer’s use at Buyer’s sole risk. All such information has been
      compiled or prepared by Seller based upon its files and records and such
      information is believed to be correct, but SELLER MAKES NO REPRESENTATION,
      EXPRESS OR IMPLIED, AS TO THE ACCURACY, CORRECTNESS, COMPLETENESS, OR THE
      ADEQUACY OF SAME AND DOES NOT WARRANT OR GUARANTEE SUCH INFORMATION IN ANY
      WAY.
      SELLER HAS MADE NO STATEMENTS OR REPRESENTATIONS CONCERNING THE CONDITION OF
      THE
      PROPERTIES, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
      GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY, QUANTITY OR
      RECOVERABILITY OF ANY HYDROCARBON RESERVES, ANY PRODUCT PRICING ASSUMPTIONS,
      THE
      ABILITY TO SELL OR MARKET ANY HYDROCARBONS AFTER CLOSING, OR THE PRESENT OR
      FUTURE VALUE OF THE ANTICIPATED INCOME, OR PROFITS, IF ANY, TO BE DERIVED FROM
      THE PROPERTIES. BUYER IS RESPONSIBLE FOR MAKING SUCH INDEPENDENT INVESTIGATION
      AND EVALUATION OF THE PROPERTIES AS BUYER SHALL DEEM APPROPRIATE, REALIZING
      THAT
      SELLER DOES NOT ASSUME AND SHALL HAVE NO LIABILITY TO BUYER OR ANY OTHER PARTY
      FOR ANY RELIANCE WHICH MAY BE PLACED ON THE INFORMATION, STATISTICS, SUMMARIES,
      ELECTRONIC TRANSMISSIONS OR FACSIMILES FURNISHED TO BUYER. SPECIFICALLY, BUT
      WITHOUT LIMITING THE GENERALITY OF THE FOREGOING: THE DESCRIPTION OF LEASES
      INCLUDED IN THE PROPERTIES, THE ACREAGE PURPORTED TO BE CONVERED THEREBY, DEPTH
      LIMITATIONS (IF ANY), ROYALTY AND OTHER BURDENS AFFECTING SAME, AND QUANTUM
      OF
      INTEREST HAVE BEEN DERIVED STRICTLY FROM SELLER’S RECORDS AND SELLER HAS NOT
      UNDERTAKEN ANY EXAMINATION OF TITLE TO VERIFY SAME. SELLER WARRANTS TITLE ONLY
      TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT AND IN THE CONVEYANCES
      DELIVERED PURSUANT HERETO; AND BUYER SHOULD THEREFORE UNDERTAKE SUCH TITLE
      EXAMINATION AS IT DEEMS APPROPRIATE PRIOR TO THE "NOTIFICATION DEADLINE" (AS
      DEFINED IN ARTICLE
      8.2)
      AND THE
      END OF THE “EXAMINATION PERIOD” (AS DEFINED IN ARTICLE
      10.1).

    

    7.2. Regulatory
      Status.
      OTHER
      THAN REPRESENTATIONS AND WARRANTIES EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER
      MAKES NO WARRANTY OR REPRESENTATION WHATSOEVER AS TO THE REGULATORY STATUS
      OF
      THE PROPERTIES, AND BUYER SHOULD SATISFY ITSELF AS TO SUCH MATTERS PRIOR TO
      THE
      END OF THE “EXAMINATION PERIOD” (AS DEFINED IN ARTICLE
      10.1).

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    7.3. No
      Warranties.
      EXCEPT
      AS TO THE SPECIAL WARRANTY OF TITLE CONTAINED IN THE ASSIGNMENT, CONVEYANCE
      OF
      THE PROPERTIES WILL BE MADE WITHOUT WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED
      IN FACT OR IN LAW, AS TO TITLE, MERCHANTABILITY, DURABILITY, USE, OPERATION,
      FITNESS FOR ANY PARTICULAR PURPOSE, CONDITION, SAFETY OF THE PROPERTIES,
      COMPLIANCE WITH REGULATORY AND ENVIRONMENTAL REQUIREMENTS OR
      OTHERWISE.

    

    7.4. Buyer
      Inspection.
      BUYER
      HEREBY AGREES THAT IT WILL INSPECT THE PROPERTIES, WELLS, PERSONAL PROPERTY,
      AND
      EQUIPMENT ASSIGNED AND CONVEYED HEREIN AND THAT IT WILL ACCEPT THE SAME “AS IS,
      WHERE IS” AND “WITH ALL FAULTS”.

    

    7.5. Prior
      Operations.
      Some oil
      field production equipment may contain asbestos or naturally occurring
      radioactive material (hereinafter referred to as “NORM”). In this regard, Buyer
      expressly understands that NORM may affix or attach itself to the inside of
      wells, materials and equipment as scale, or in other forms, and that said wells,
      materials and equipment located on the Properties or included therein may
      contain NORM and that NORM-containing material may be buried or otherwise
      disposed of on the Properties. Buyer also expressly understands that special
      procedures may be required for the remediation, removal, transportation and
      disposal of asbestos and NORM from the Properties where it may be found, and
      Buyer, after Closing, assumes all responsibility and liability for or in
      connection with assessment, remediation, removal, transportation, and disposal
      of any asbestos and NORM and associated activities in accordance with all rules,
      regulations and requirements of governmental agencies. 

     

    ARTICLE
      8. - TITLE MATTERS

    

    8.1. Definitions.
      For
      purposes hereof, the terms set forth below shall have the meanings assigned
      thereto.

    

    (a) “Allocated
      Value”
      shall
      mean the dollar amount allocated to each producing Property as set forth on
      Schedule
      3.1.

    

    (b) “Marketable
      Title”
      means,
      such title held by Seller that (a) entitles Seller and will entitle Buyer,
      after
      Closing, to own and receive and retain, without suspension, reduction or
      termination, payment of revenues for not less than the net revenue interest
      shown on Exhibit
      “A”
      of all
      oil and gas produced, saved and marketed from or attributable to the Well(s)
      or
      unit indicated through the plugging, abandonment and salvage of such Wells;
      (b)
      obligates Seller, and will obligate Buyer after Closing as of the Effective
      Time, to bear the costs and expenses relating to the maintenance, development
      and operation of such Well(s) or unit(s) through the plugging, abandonment
      and
      salvage of such Well(s) in an amount not greater than the working interest
      of
      Seller set forth in Exhibit
      “A”
      (unless
      Seller’s net revenue interest therein is proportionately increased); and (c) the
      Properties are free and clear of any liens, burdens or encumbrances of any
      kind
      or character.

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (c) “Title
      Defect”
      shall
      mean any matter which causes Seller to not have Marketable Title to any of
      the
      Properties as of the Closing Date. Title Defect does not include (a) a lien
      or
      encumbrance in the form of a judgment secured by a supersedeas bond or other
      security approved by the court issuing the order (only to the extent Seller
      assumes liability, provides alternative collateral and indemnifies Buyer
      therefor); or (b) Permitted Encumbrances.

    

    (d) “Title
      Defect Property”
      shall
      mean any Lease or portion thereof burdened by a Title Defect.

    

    (e) “Permitted
      Encumbrances”
      shall
      mean any of the following matters:

    

    (i) Materialman’s,
      mechanic’s, repairman’s, employee’s, contractor’s, operator’s, tax, and other
      similar liens or charges arising in the ordinary course of business for
      obligations that are not delinquent and that will be paid and discharged in
      the
      ordinary course of business or, if delinquent, that are being contested in
      good
      faith by appropriate action (to the extent contested, Seller agrees to retain
      liability);

    

    (ii) any
      liens
      or security interests created by law or reserved with respect to the Properties
      for royalty, bonus, rental, other payment obligations under the Leases or
      created to secure compliance with the terms of the Leases;

    

    (iii) to
      the
      extent any of the following do not materially diminish the value of, or impair
      the conduct of operations on, any of the Properties and do not impair Seller’s
      right to receive revenues attributable thereto: any valid, subsisting and
      applicable laws, rules and orders of governmental authority;

    

    (iv) to
      the
      extent any of the following do not materially diminish the value of, or impair
      the conduct of operations on, any of the Properties and do not impair Seller’s
      right to receive the revenues attributable thereto: (a) easements,
      rights-of-way, servitudes, permits, surface leases and other rights in respect
      of surface operations, pipelines, grazing, hunting, fishing, logging, canals,
      ditches, reservoirs or the like, and (b) easements for streets, alleys,
      highways, pipelines, telephone lines, power lines, railways and other similar
      rights-of-way, on, over or in respect to property owned or leased by Seller
      or
      over which Seller owns rights-of-way, easements, permits or
      licenses;

    

    (v) all
      lessors’ royalties, overriding royalties, net profits interest, carried
      interest, production payments, reversionary interests and other burdens on
      or
      deductions from the proceeds of production if the net cumulative effect of
      such
      burdens or deductions does not reduce the net revenue interest of Seller in
      any
      Well affected thereby as reflected in Exhibit
      “A”
      or
      impair the right to receive revenues attributable thereto;

    

    (vi) to
      the
      extent the same do not operate to reduce the net revenue interest, nor increase
      the expense interest (unless Seller’s net revenue interest therein is
      proportionately increased), of Seller as reflected in Exhibit
      “A”,
      nor
      impair the right of Seller to receive the revenues attributable thereto:
      unitization and pooling designations, declarations, orders and agreements;
      operating agreements; agreements of development; area of mutual interest
      agreements; gas balancing or deferred production agreements; processing
      agreements; plant agreements; pipeline, gathering and transportation agreements;
      injection, repressuring and recycling agreements; carbon dioxide purchase or
      sale agreements; salt water or other disposal agreements; seismic or geophysical
      permits or agreements; and any and all other agreements which are ordinary
      and
      customary in the oil, gas, sulphur and other mineral exploration, development
      or
      extraction business, or in the business of processing of gas and gas condensate
      production for the extraction of products therefrom;

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (vii) conventional
      rights of assignment normally actuated by an intent to abandon or release a
      Lease and requiring notice to the holder of such rights;

    

    (viii) division
      orders and Hydrocarbon sales contracts and contracts for purchase, exchange,
      refining or processing of Hydrocarbons terminable without penalty upon no more
      than sixty (60) days notice to the purchaser;

    

    (ix) calls
      on
      or preferential rights to purchase production at prices not less than current
      market prices, held by parties other than Seller or its affiliates;

    

    (x) preferential
      rights to purchase and required third party consents to assignments and similar
      agreements with respect to which waivers or consents are obtained from the
      appropriate parties, or the appropriate time period for asserting the rights
      has
      expired without an exercise of the rights prior to the Closing
      Date;

    

    (xi) all
      rights to consent by, required notices to, filings with, or other actions by
      governmental entities and tribal authorities in connection with the sale or
      conveyance of oil and gas leases or interests if they are customarily obtained
      subsequent to the sale or conveyance;

    

    (xii)
      defects or irregularities of title arising out of events or transactions which
      have been barred by limitations;

    

    (xiii) all
      other
      defects, and irregularities of title affecting the Properties, which
      individually or in the aggregate:

    

    (a) are
      not
      such as to interfere with the operation, value or use of the Properties (or
      portion thereof) affected thereby; or 

    

    (b) does
      not
      presently delay the receipt or prevent Seller from receiving its share of the
      proceeds of production from any of the units or Wells to which the Leases
      relate; or 

    

    (c) does
      not
      presently reduce the interest of Seller with respect to all oil and gas produced
      from any unit or Well to which the Leases relate below the “net revenue
      interest” or “NRI” set forth in Exhibit
      “A”
      for such
      unit or Well; or

    

    (d) does
      not
      presently increase Seller’s portion of the costs and expenses relating to the
      operations on and the maintenance and development of the lands and depths
      included in any unit or Well to which the Leases relate above the “working
      interest” or “WI” set forth in Exhibit
      “A”
      for such
      unit or Well.

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (xiv) any
      encumbrance or other matter (whether or not constituting a Title Defect) waived
      in writing by Buyer or deemed to be waived in writing by Buyer under
Article
      8.2.

    .

    8.2. Notice
      of Title Defect.
      Buyer
      shall notify Seller in writing (“Defect Notice”), as soon as reasonably
      practicable after Buyer has knowledge thereof, and in any event on or before
      5:00 p.m., Central Time, five (5) days prior to the Closing Date (the
“Notification Deadline”), of any matter that would constitute a Title Defect
      with respect to Seller’s title to any or all of the Properties, in each case
      together with an explanation of (a) the nature of such Title Defect, (b) the
      Properties (or portions thereof) affected thereby, and (c) Buyer’s proposed
      Defect Value (as hereinafter defined) for such Title Defect. Any matter that
      would otherwise constitute a Title Defect but which is not specifically raised
      in writing (with the explanation as contemplated in the immediately preceding
      sentence) by Buyer prior to the Notification Deadline shall conclusively be
      deemed waived by Buyer. As used herein, the term “Defect Value” shall mean with
      respect to each Title Defect, the reduction in the Allocated Value of the
      affected Properties as a result of such Title Defect as determined in
Article
      8.5.
      Buyer
      must notify Seller in writing promptly if Buyer determines that Seller’s NRI or
      WI for Properties is greater than that shown on Exhibit
      “A”.

    

    8.3. Remedies
      for Title Defects.

    

    (a) Buyer
      may
      request an adjustment to the Purchase Price at any time on or before the fifth
      day before the Closing Date, if the adjustment is based on a Title Defect.
      Seller may request an upward adjustment to the Purchase Price at any time before
      the fifth day before the Closing Date, if Seller’s net revenue interest for the
      Property is greater than that shown on Exhibit
      “A”.
      A
      notice requesting an adjustment must be timely and in writing and include
      appropriate documentation to substantiate the adjustment, or the claimant will
      be deemed to have waived its claim to adjust the Purchase Price for the matter
      stated in the notice.

    

    (b) If
      either
      Party gives notice under the previous section, the Parties will meet and use
      their best efforts to agree on the validity of the claim and, if applicable,
      the
      amount of the adjustment, using the following criteria:

    

    (1) If
      the
      claim is based on Seller’s owning a different net revenue interest than that
      shown on Exhibit
      “A”,
      then
      the adjustment will be the absolute value of the number determined by the
      following formula:

    

    Adjustment
      = A x (1-[B/C])

    

    
      	 	 	 

      	 	A = 	Allocated Value for the affected
              Interest

      	 	 	 

      	 	B =  	Correct net revenue interest for the affected
              interest 

      	 	 	 

      	 	
              C
                =

            	
              Net
                revenue interest for the affected interest as shown on Exhibit
                “A”

            

    

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (2) If
      the
      claim is based on an obligation or burden that is liquidated, the adjustment
      will be the sum necessary to remove the obligation or burden from the affected
      Property.

    

    (3) If
      the
      claim is based on an obligation or burden that is not liquidated, but can be
      estimated with reasonable certainty, the adjustment will be the sum necessary
      to
      compensate Buyer on the Closing Date for the adverse economic effect on the
      affected Property.

    

    (c) If
      the
      amount of the adjustment for each Title Defect cannot be determined based on
      the
      above criteria, and if the Parties cannot otherwise agree on the amount of
      an
      adjustment or the Parties are unable to agree upon whether a Title Defect
      exists, subject to the provisions of Article
      8.3.(d)
      below,
      Seller may, at its sole option and upon written notice to Buyer,
      either:

    

    (1) remove
      the affected Property from this Agreement and adjust the Purchase Price by
      the
      Allocated Value for that Property; or 

    

    (2) agree
      to
      indemnify and hold Buyer harmless from any claim resulting from such Title
      Defect; or

    

    (3) elect
      to
      resolve the dispute under the arbitration provisions in this
      Agreement.

    

    (d)
      Except for the exclusion of a Property, as provided in Article
      8.3.(c),
      no
      adjustment to the Purchase Price for Title Defects shall be made unless and
      until the aggregate value of all Title Defects (herein called the “Aggregate
      Title Defect Value”) exceeds a threshold of Two Hundred Fifty Thousand Dollars
      ($250,000.00) and once the threshold is exceeded, the value of all Title Defects
      shall be considered in applying this Article
      8.
      Title
      Defects with an agreed individual value of less than Fifteen Thousand Dollars
      ($15,000.00) shall be considered “Minimal Title Defects” and shall not be
      included in the calculation of the Aggregate Title Defect Value. For purposes
      of
      this section, the cost to cure a Title Defect and the Allocated Value of any
      Property excluded under Article
      8.3.(c)
      above
      shall not be considered in determining the value of Aggregate Title Defect
      Value.

    

    (e) Seller
      may, at its sole option, notify Buyer before the Closing Date that it elects
      to
      cure some or all of the Title Defects. No price adjustment will be made at
      Closing for the Title Defects that Seller elects to cure. If any Title Defect
      is
      not cured within ninety (90) days after Closing, an adjustment to the Purchase
      Price will be calculated under the criteria set forth in this section. Seller
      will refund the net amount to Buyer.

    

    8.4. Seller’s
      & Buyer’s Right To Terminate. Either
      Party shall have the option to terminate this Agreement if the Aggregate Title
      Defect Value exceeds five percent (5%) of the Purchase Price. In the event
      either Party elects to terminate this Agreement, then Seller shall return the
      Performance Deposit to Buyer. In either case, this Agreement shall be deemed
      to
      be of no further force or effect except for the items specifically set forth
      in
Article
      17.3.

    

    
      
        
        

      

      
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    8.5. Allocated
      Value.
      As
      used
      in this Agreement, the term “Allocated Value” shall mean, with respect to any
      Property the amount set forth on Schedule
      3.1
      for each
      such Property, which Exhibit is attached to and made a part of this Agreement.
      The Allocated Value for each Property has been reviewed and agreed to by the
      Parties and represents the Parties’ good faith allocation of the value of the
      Properties. 

     

    ARTICLE
      9. - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

    

    9.1. Actions
      and Consents.

    

    (a) Seller
      and Buyer agree that each shall use all reasonable efforts to take or cause
      to
      be taken all such action as may be necessary to consummate and make effective
      the transaction provided in this Agreement and to assure that it will not be
      under any material corporate, legal, or contractual restriction that could
      prohibit or delay the timely consummation of such transaction.

    

    (b) Seller
      represents that to the best of Seller’s knowledge, Exhibit A and Schedule
      4.9
      are
      accurate and complete; however, certain preferential purchase rights or rights
      of approval or consent may exist with respect to the Properties under the
      agreements and Leases shown on Exhibit
      “A,”
      whether
      or not they are correctly listed on Schedule
      4.9.
      Seller
      shall use reasonable efforts to timely notify all holders of (i) preferential
      rights, (ii) rights of consent to the assignment, or (iii) rights of approval
      to
      the assignment of the Properties, and of such terms and conditions of this
      Agreement to which the holders of such rights are entitled. Seller shall
      promptly notify Buyer if any preferential rights are exercised, any consents
      or
      approvals denied, or if the requisite period has elapsed without said rights
      having been exercised or consents or approvals having been received. If prior
      to
      Closing, any such preferential rights are timely and properly exercised, or
      Seller is unable to obtain a consent or approval prior to Closing and the
      failure to secure such consent or approval in advance of Closing would
      materially and adversely affect the Property or Properties subject thereto,
      the
      interest or part thereof so affected shall, if Buyer so elects, be excluded
      from
      the sale and purchase contemplated hereby and the Purchase Price shall be
      reduced by the Allocated Value of such interest or part thereof as provided
      in
Schedule
      3.1
      If any
      additional third party preferential rights are discovered after Closing, or
      if a
      third party preferential rights holder alleges improper notice, then Buyer
      agrees to cooperate with Seller in giving effect to any such valid third party
      preferential purchase rights. In the event any such valid third party
      preferential purchase rights are validly exercised after Closing, Buyer’s sole
      remedy against Seller shall be the return by Seller to Buyer of that portion
      of
      the Purchase Price allocated under Schedule
      3.1
      to the
      portion of the Properties on which such rights are exercised and lost by Buyer
      to such third person, plus any expenses incurred by Buyer in connection with
      such Properties and re-conveyance thereof.

    

    (c) In
      the
      event one or more Properties or any interest therein is excluded pursuant to
      Article
      9.1.(b)
      because
      the same is subject to preferential purchase rights, consents or approvals,
      Closing with respect to all other Properties will proceed as provided in this
      Agreement, but the Purchase Price delivered to Seller at Closing will be reduced
      by the Allocated Value of the excluded Properties or interest. In the event
      that
      within ninety (90) days after Closing any such preferential purchase right
      is
      waived or consent or approval is obtained or the time for election to purchase
      or to deliver a consent or approval passes (such that under the governing
      documents, Seller may sell the affected Property or interest to Buyer), then
      Closing will proceed promptly on the same terms set forth herein with respect
      to
      such Property or interest. If such waivers, consents or approvals are not
      received by Seller within the applicable ninety (90) day period, Seller shall
      retain such Properties or interests and the Parties shall have no further
      obligation with respect thereto.

    

    
      
        
        

      

      
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    ARTICLE
      10. - ENVIRONMENTAL MATTERS AND OTHER ADJUSTMENTS

    

    10.1. Phase
      I Environmental Assessment.
      Buyer
      shall have the right to conduct an environmental assessment of the Properties
      during the period beginning on the date of execution of this Agreement and
      ending ten (10) days prior to the Closing Date (the “Examination Period”). The
      confidentiality obligations of the confidentiality agreement previously signed
      by Buyer
      shall be
      applicable to all information acquired by Buyer in the course of its
      environmental assessment. During normal business hours and after providing
      Seller reasonable prior notice of any such activities, Buyer and its
      representatives shall be permitted to enter upon the Properties and all
      buildings and improvements thereon, inspect the same, review files and generally
      conduct such tests, examinations, and investigations as are consistent with
      the
      American Society for Testing and Materials standard Phase I environmental audit.
      Seller will have the right to (i) witness such investigation and (ii) promptly
      receive a copy of all results, analyses and reviews. In the event Seller has
      conducted a recent Phase I Environmental Assessment Study, the Seller shall
      notify Buyer and make the report available to the Buyer during the Examination
      Period.

    

    10.2. Phase
      II Environmental Assessment.
      If as a
      result of its Phase I audit, Buyer and its representatives reasonably believe
      that a material environmental condition exists that warrants a Phase II
      investigation and Buyer desires to conduct such investigation with respect
      to
      each such circumstance, Buyer agrees to give Seller prompt written notice of
      each specific environmental condition including the basis of its belief and
      estimated cost of remediation. During a period of seventy-two (72) hours
      following receipt of such notice, Seller in its sole discretion shall have
      the
      right to authorize Buyer to proceed with the Phase II investigation or to
      decline to authorize such additional investigation. In the event Seller elects
      to authorize the Phase II investigation, the Examination Period and the
      Environmental Notice Deadline (as defined below), with respect to the specific
      Property or Properties subject to the Phase II investigation, shall be extended
      for a period of two (2) weeks. The Parties shall negotiate in good faith as
      to
      whether a Phase II investigation is warranted. If the Parties can not agree,
      then at Seller’s sole option, Seller can decline to authorize the Phase II
      investigation and no such investigation shall be permitted and the affected
      Property or Properties shall be excluded from the sale and purchase contemplated
      hereby. In such event, the Purchase Price shall be reduced by the Allocated
      Value of such excluded Property or Properties. Buyer shall furnish Seller copies
      of all environmental reports prepared by Buyer or on Buyer's behalf. The final
      draft of all such reports shall cover and include only those Properties which
      have not been excluded pursuant to this Article
      10.2;
      provided, however, that nothing contained herein shall be construed to prohibit
      the disclosure of any matter required to be reported or disclosed by applicable
      Environmental Laws (as defined below).

    

    10.3. Environmental
      Defect Notice.
      Buyer
      will notify Seller on
      or
      before five (5) days before Closing, at 5:00 p.m., Central Time (the
“Environmental Notice Deadline”) of (i) the existence of any environmental
      condition on the real property comprising any Property that Buyer reasonably
      believes constitutes a violation of Environmental Laws as in effect on the
      date
      hereof or reduces or interferes with the operation, value or use of such
      Property (“Environmental Defect”), and (ii) the estimated cost to remediate or
      cure such condition on each individual Property, determined utilizing the most
      cost effective and appropriate method of cure or remediation available under
      the
      circumstances. With respect to any Environmental Defect:

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (a) Seller
      shall have the right, but not the obligation, to undertake such remedial action
      as may be required by Environmental Law as currently applied to cure by such
      Environmental Defect by sending written notice of its binding commitment to
      effectuate such cure and the details and timing of such curative action, and
      if
      such commitment is reasonably satisfactory to Buyer, the Purchase Price would
      not be reduced on account of such Environmental Defect; provided that Seller
      remains responsible for such remedial action until such time as Seller has
      cured
      such Environmental Defect in accordance with Environmental Laws as currently
      applied or until such time as Buyer is reasonably satisfied with Seller’s
      actions;

    

    (b) Buyer
      and
      Seller may also, upon mutual agreement of the Parties set the cost to cure
      the
      Environmental Defect and the Purchase Price shall be reduced by such agreed
      costs. In such case, the Buyer shall continue to own such Property and be
      responsible for any cure;

    

    (c) Buyer
      and
      Seller may, upon mutual agreement of the Parties as to the terms and conditions
      of any indemnity, elect that Seller indemnify Buyer against all liability,
      loss,
      cost and expense (including, without limitation, for remediation costs when
      and
      if such cure is actually undertaken) resulting from such Environmental Defect,
      and in such event the Purchase Price will not be reduced on account of such
      Environmental Defect; and

    

    (d) If
      Buyer
      and Seller cannot reach mutual agreement as contemplated in Article
      10.3.(a), (b) or (c)
      above on
      whether a Environmental Defect exists within ten (10) days following the notice
      of an Environmental Defect as to any Property, Seller may, at its sole option
      and upon written notice to Buyer:

    

    (1) remove
      the affected Property from this Agreement and adjust the Purchase Price by
      the
      Allocated Value for that Property; or 

    

    (2) elect
      to
      resolve the dispute under the arbitration provisions in this
      Agreement.

    

    10.4 Seller’s
      & Buyer’s Right To Terminate. Either
      Party shall have the option to terminate this Agreement if the Aggregate
      Environmental Defect Value exceeds five percent (5%) of the Purchase Price.
      In
      the event either party elects to terminate this Agreement, then Seller shall
      return the Performance Deposit to Buyer. In either case, this Agreement shall
      be
      deemed to be of no further force or effect except for the items specifically
      set
      forth in Article
      17.3.
      

    

    10.5. Limitations.
      Except
      for the exclusion of a Property, as provided in Article
      10.3.(d),
      no
      adjustment to the Purchase Price for Environmental Defects shall be made unless
      and until the aggregate value of all Environmental Defects (herein called the
      “Aggregate Environmental Defect Value”) exceeds a threshold of Two Hundred Fifty
      Thousand Dollars ($250,000.00) and once the threshold is exceeded, the value
      of
      all Environmental Defects shall be considered in applying this Article
      10
      except
      the Minimal Environmental Defects. Environmental Defects with an agreed
      individual value of less than Fifteen Thousand Dollars ($15,000.00) shall be
      considered “Minimal Environmental Defects” and shall not be included in the
      calculation of the Aggregate Environmental Defect Value. For purposes of this
      section, the cost to cure an Environmental Defect determined under Article
      10.3.(a) or (b)
      above
      and the Allocated Value of any Property excluded under Article
      10.3.(d)
      above
      shall not be
      considered in determining the value of an Environmental Defect.

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    10.6. Environmental
      Laws.
      As used
      herein, the term “Environmental Laws” shall mean any and all laws, statutes,
      regulations, rules, orders, ordinances, permits, or determinations of any
      governmental authority pertaining to health or conservation or protection of
      the
      environment, wildlife, or natural resources in effect in any and all
      jurisdictions in which the Property is located otherwise having jurisdiction
      over the matter, including, without limitation, the Clean Air Act, as amended,
      the Federal Water Pollution Control Act, as amended, the Safe Drinking Water
      Act, as amended, the Comprehensive Environmental Response, Compensation and
      Liability Act (“CERCLA”), as amended, the Superfund Amendments and
      Reauthorization Act of 1986 (“SARA”), as amended, the Resource Conservation and
      Recovery Act (“RCRA”), as amended, the Hazardous and Solid Waste Amendments Acts
      of 1984, as amended, the Toxic Substances Control Act, as amended, and the
      Occupational Safety and Health Act (“OSHA”), as amended. The terms “hazardous
      substance,” “release,” and “threatened release” shall have the meanings
      specified in CERCLA; provided, however, that to the extent the laws of the
      state
      in which the Property is located are applicable and have established a meaning
      for “hazardous substance,” “release,” “threatened release,” “solid waste,”
“hazardous waste,” and “disposal” that is broader than that specified in CERCLA
      or RCRA and SARA or OSHA, such broader meaning shall apply with respect to
      the
      matters covered by such laws.

    

    ARTICLE
      11. - GENERAL COVENANTS OF SELLER 

    

    11.1. Access
      to Records.

    

    During
      the Examination Period (as defined in Article
      10.1),
      Seller
      shall grant Buyer access to the Records as defined in Article
      15.4
      and all
      accounting and tax files relating to the Properties during Seller's normal
      business hours upon reasonable prior notification, subject to the
      confidentiality agreement previously signed by Buyer. The Records and all
      accounting and tax files relating to the Properties shall be made available
      at
      their present location together with suitable office facilities for review
      purposes.

    

    11.2. Covenants
      of Seller Pending Closing.

    

    (a) From
      and
      after the Effective Date of this Agreement and until the Closing and subject
      to
Article
      11.3
      and the
      constraints of applicable operating and other agreements, Seller shall operate,
      manage, and administer the Properties in a good and workmanlike manner
      consistent with its past practices and shall carry on its business with respect
      to the Properties in substantially the same manner as before execution of this
      Agreement, including but not limited to, the maintenance of industry standard
      insurance coverage. Seller shall have no responsibility for and shall incur
      no
      liability for any Losses of any nature suffered or incurred by Buyer arising
      out
      of or in connection with the rendering of such unless such Losses result from
      the gross negligence or willful misconduct of the Seller. On Seller operated
      Properties, Seller shall charge Buyer, from and after the Effective Date of
      this
      Agreement, such charges as are reasonable and customary in the industry where
      such Properties are located. Seller shall also retain any third-party
      administrative and/or operating overhead charges paid with respect to the
      Properties during such period. Seller shall use all reasonable efforts to
      preserve in full force and effect all Leases, operating agreements, easements,
      rights-of-way, permits, licenses, and agreements which relate to the Properties
      in which Seller owns an interest, and shall perform all obligations of Seller
      in
      or under all such agreements relating to the Properties; provided, however,
      that
      in no event shall Seller incur any liability for the breach of its obligations
      under this Article
      11.2.(a)
      in
      excess of the Allocated Value of the Property or Properties subject to or
      affected by such breach. Seller shall, except for emergency action taken in
      the
      face of serious risk of life, property, or the environment (i) submit to Buyer,
      for prior written approval, all requests for operating or capital expenditures
      and all proposed contracts and agreements relating to the Properties which
      involve individual commitments of more than Fifty Thousand Dollars ($50,000.00);
      (ii) consult with, inform, and advise Buyer regarding all material matters
      concerning the operation, management, and administration of the Properties;
      (iii) obtain Buyer's written approval prior to voting under any operating,
      unit,
      joint venture, partnership or similar agreement; and (iv) not approve or elect
      to go non-consent as to any proposed well or plug and abandon or agree to plug
      and abandon any well without Buyer's prior written approval; (v) shall not
      transfer, sell, hypothecate, encumber, or otherwise dispose of any of the
      Properties, other than the sale of production in the ordinary course of business
      or as required in connection with the exercise by third parties of preferential
      rights to purchase any of the Properties; (vi) shall not abandon any wells
      or
      surrender any Leases (other than as required by law or governmental order or
      regulation or in connection with an emergency); (vii) shall not enter into
      any
      production sale, processing, or treating agreements affecting the Properties
      unless it is terminable on no more than thirty (30) days notice. On any matter
      requiring Buyer's approval under this Article
      11.2.(a),
      Buyer
      shall respond within fifteen (15) days to Seller's request for approval and
      failure of Buyer to respond to Seller's request for approval within such time
      shall release Seller from the obligation to obtain Buyer's approval before
      proceeding on such matter.

    

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (b) Seller
      shall promptly notify Buyer of any suit, lessor demand action, or other
      proceeding before any court, arbitrator, or governmental agency and any cause
      of
      action which relates to the Properties or which might result in impairment
      of
      loss of Seller's interest in any portion of the Properties or which might hinder
      or impede the operation of the Properties.

    

    11.3. Limitations
      on Seller's Covenants Pending Closing.

    

    To
      the
      extent Seller is not the operator of any of the Properties, the obligations
      of
      Seller in Article
      11.2
      concerning operations or activities which normally or pursuant to existing
      contracts are carried out or performed by the operator, shall be construed
      to
      require only that Seller use all reasonable efforts (without being obligated
      to
      incur any expense or institute any cause of action) to cause the operator of
      such Properties to take such actions or render such performance within the
      constraints of the applicable operating agreements and other applicable
      agreements.

    

    ARTICLE
      12. - COVENANTS OF BUYER

    

    12.1. Return
      of Data.

    

    Buyer
      agrees that if this Agreement is terminated for any reason whatsoever, Buyer
      shall, at Seller's request, promptly return to Seller all information and data
      furnished by or on behalf of Seller to Buyer, its officers, employees, and
      representatives in connection with this Agreement or Buyer's investigation
      of
      the Properties, and Buyer shall deliver to Seller or destroy all copies,
      extracts, or excerpts of such information and data and all documents generated
      by Buyer that contain any portion of such information or data.

    

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    12.2. Indemnity
      Regarding Access.

    

    Buyer
      agrees to protect, indemnify, defend, and hold harmless Seller Group from and
      against any and all Losses, as defined in Article
      18.1,
      in
      connection with personal injuries, including death, property damage or damage
      to
      natural resources arising out of or relating to the access of Buyer, its
      officers, employees, and representatives to the Properties and any information
      relating thereto as permitted under this Agreement, REGARDLESS OF WHETHER SUCH
      INJURIES, DEATH, OR DAMAGES ARE CAUSED IN WHOLE OR PART BY THE SOLE, PARTIAL,
      CONCURRENT, OR OTHER NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF SELLER
      GROUP, EXCEPT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER
      GROUP.

    

    ARTICLE
      13. - CLOSING CONDITIONS

    

    13.1. Seller's
      Closing Conditions.

    

    The
      obligations of Seller under this Agreement are subject, at the option of Seller,
      to the satisfaction, at or prior to the Closing, of the following
      conditions:

    

    (a) all
      representations and warranties of Buyer contained in this Agreement shall be
      true in all material respects at and as of the Closing as if such
      representations and warranties were made at and as of the Closing, and Buyer
      shall have performed and satisfied all agreements required by this Agreement
      to
      be performed and satisfied by Buyer at or prior to the Closing;

    

    (b) The
      execution, delivery, and performance of this Agreement and the transactions
      contemplated thereby have been duly and validly authorized by all necessary
      action, corporate, partnership or otherwise, on the part of Buyer;

    

    (c) all
      necessary consents of and filings with any state or federal governmental
      authority or agency relating to the consummation of the transactions
      contemplated by this Agreement shall have been obtained, accomplished or waived,
      except to the extent that such consents and filings are normally obtained,
      accomplished or waived after Closing;

    

    (d) as
      of the
      Closing Date, no suit, action or other proceeding (excluding any such matter
      initiated by Seller) shall be pending or threatened before any court or
      governmental agency seeking to restrain Seller or prohibit the Closing or
      seeking damages against Seller as a result of the consummation of this
      Agreement;

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (e) the
      Closing of the Purchase and Sale Agreement of even date herewith by and between
      Seller and Buyer relating to the Goose Creek Field and East Goose Creek Field
      Properties.

    

    13.2. Buyer's
      Closing Conditions.

    

    The
      obligations of Buyer under this Agreement are subject, at the option of Buyer,
      to the satisfaction, at or prior to the Closing, of the following
      conditions:

    

    (a) all
      representations and warranties of Seller contained in this Agreement shall
      be
      true in all material respects at and as of the Closing as if such
      representations and warranties were made at and as of the Closing, and Seller
      shall have performed and satisfied all agreements required by this Agreement
      to
      be performed and satisfied by Seller at or prior to the Closing;

    

    (b) The
      execution, delivery, and performance of this Agreement and the transactions
      contemplated thereby have been duly and validly authorized by all necessary
      action, corporate, partnership or otherwise, on the part of the
      Seller;

    

    (c) all
      necessary consents of and filings with any state or federal governmental
      authority or agency relating to the consummation of the transactions
      contemplated by this Agreement shall have been obtained, accomplished or waived,
      except to the extent that such consents and filings are normally obtained,
      accomplished or waived after Closing;

    

    (d) as
      of the
      Closing Date, no suit, action or other proceeding (excluding any such matter
      initiated by Buyer) shall be pending or threatened before any court or
      governmental agency seeking to restrain Buyer or prohibit the Closing or seeking
      damages against Buyer as a result of the consummation of this
      Agreement;

    

    (e)
       the
      Closing of the Purchase and Sale Agreement of even date herewith by and between
      Seller and Buyer relating to the Goose Creek Field and East Goose Creek Field
      Properties.

    

    ARTICLE
      14. - CLOSING

    

    14.1. Closing.

    

    The
      Closing of this transaction (the "Closing") shall be held at the offices of
      Seller on August 15, 2006 or at such earlier date or place as the Parties may
      agree in writing (herein called "Closing Date"). Time is of the essence and
      the
      Closing Date shall not be extended unless by written agreement of the Parties;
      provided, however, that Buyer may extend the Closing Date to August 31, 2006
      by
      written notice to Seller on or before August 15, 2006 and the concurrent payment
      to Seller, by bank wire transfer per the instructions of Seller, of an amount
      sufficient to increase the Performance Deposit to ten percent (10%) of the
      Purchase Price. On or before five (5) business days prior to Closing, Buyer
      and
      Seller shall use their best efforts to provide each other copies of all closing
      documents.

    

    
      
        
        

      

      
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    14.2. Seller's
      Closing Obligations.

    

    At
      Closing, except to the extent comprising the Excluded Assets, Seller shall
      deliver to Buyer the following:

    

    (a) The
      Assignment, Bill of Sale and Conveyance substantially in the form attached
      hereto as Exhibit
      “B”
      and such
      other documents as may be reasonably necessary to convey all of Seller's
      interest in the Properties to Buyer in accordance with the provisions
      hereof;

    

    (b) A
      non-foreign affidavit executed by Seller in the form attached as Exhibit
      “C”;

    

    (c) Appropriate
      regulatory forms appointing Buyer as Operator for those Properties which Seller
      operates;

    

    (d) Copies
      of
      all third-party waivers, consents, approvals, permits and actions obtained;
      and

    

    (e) Letter-in-lieu
      of transfer orders in form acceptable to Seller and Buyer.

    

    14.3. Buyer's
      Closing Obligations.

    

    At
      Closing, Buyer shall deliver to Seller by wire transfer in immediately available
      funds to an account designated by Seller, the Purchase Price (less the
      Performance Deposit).

    

    14.4. Joint
      Closing Obligations.

    

    Both
      Parties at Closing shall execute the Supplemental Agreement attached hereto
      as
Exhibit
      “D”,
      and a
      Settlement Statement evidencing the amount actually wire transferred and all
      adjustments to the Purchase Price taken into account at Closing. All events
      of
      Closing shall each be deemed to have occurred simultaneously with the other,
      regardless of when actually occurring and each shall be a condition precedent
      to
      the other.

    

    ARTICLE
      15. - ADDITIONAL CLOSING OBLIGATIONS

    

    15.1. Suspended
      Funds.

    

    Within
      ninety (90) days after Closing, Seller shall provide to Buyer a listing showing
      all proceeds from production attributable to the Properties that are currently
      held in suspense and shall transfer to Buyer all suspended proceeds. After
      such
      transfer, and to the extent of such transferred funds, Buyer shall be
      responsible for proper distribution of all the suspended proceeds to the parties
      lawfully entitled to them, and hereby agrees to indemnify, defend, and hold
      harmless Seller from and against any and all Losses arising out of or relating
      to Buyer's retention or distribution of such legally suspended proceeds. Seller
      shall retain liability as to the suspended accounts prior to the Effective
      Time
      to the extent such suspended proceeds are not transferred to Buyer.

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    15.2. Receipts
      and Credits.

    

    Subject
      to the terms hereof and except to the extent same have already been taken into
      account as an adjustment to the Purchase Price, all monies, proceeds, receipts,
      credits, and income accruing to the Properties (a) for the period subsequent
      to
      the Effective Time, shall be the sole property and entitlement of Buyer, and,
      to
      the extent received by Seller, Seller shall fully disclose, account for, and
      transmit same to Buyer promptly, and (b) for the period prior to the Effective
      Time, shall be the sole property and entitlement of Seller and, to the extent
      received by Buyer, Buyer shall fully disclose, account for, and transmit same
      to
      Seller promptly.

    

    15.3. Signs.

    

    Seller
      shall have the option to remove Seller's name and signs from the operated
      Properties or to require Buyer to do so. Buyer hereby grants Seller a right
      of
      access to remove Seller's signs and name from all wells and facilities on the
      Properties or to confirm that Buyer has done so. If there are any remaining
      Seller signs and name on the Properties within thirty (30) days of Closing,
      Buyer shall promptly, but no later than required by applicable rules and
      regulations or forty-five (45) days thereafter, whichever is earlier, remove
      any
      remaining signs and references to Seller and shall erect or install all signs
      complying with any applicable governmental rules and regulations, including
      but
      not limited to, those showing Buyer as operator of the Properties.

    

    15.4. Records.

    

    All
      files, permits, records, documentation, and data of Seller relating to (or
      evidencing) Seller's ownership or rights, in or operation of the Properties
      or
      other rights and interests described herein, including, but not limited to,
      seismic or other geological information and data, lease files, land files,
      well
      files, contract files, production sales agreements files, division order files,
      title opinions and abstracts, governmental filings, production reports,
      production logs, core sample reports, and land maps, as such data is assembled
      and maintained in the normal course of business, collectively, the "Records",
      excluding any such data that is proprietary, privileged, or that Seller is
      prohibited from conveying (which data shall be identified in writing by
      description and the reason for withholding such information by notice delivered
      at the time the Records are delivered) will be, as soon as is reasonably
      possible after, but not later than fifteen (15) days after Closing, delivered
      to
      Buyer at Seller's offices. Seller will be entitled to retain a copy of the
      Records. Buyer agrees to use reasonable efforts to maintain the Records for
      five
      (5) years after Closing. Buyer shall provide Seller and its representatives
      reasonable access to and the right to copy the Records (at Seller's sole
      expense), but the access to the Records shall be limited to the Seller’s need to
      defend itself in legal proceedings or in State or Federal Tax issues. If Buyer
      decides to destroy any Records prior to the expiration of the five (5) years,
      it
      will so notify Seller and Seller shall have the right to instead obtain such
      files at its sole expense. To the extent not obtained or satisfied as of
      Closing, Seller agrees to continue to use all reasonable efforts, but without
      any obligation to incur any cost or expense in connection therewith, and to
      cooperate with Buyer's efforts to obtain for Buyer access to files, records
      and
      data relating to the Property in the possession of third parties.

    

    15.5. Letters-in-Lieu.

    

    Seller
      shall prepare, execute and deliver, upon Closing, letters-in-lieu of transfer
      orders, directing that all proceeds of production from the Properties, which
      have heretofore been paid to Seller, shall be paid to the account of Buyer
      effective as of and after the date of Closing.

    

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    15.6. Not
      Used.

    

    15.7. Certain
      Post Closing Actions.

    

    Effective
      upon Closing, Seller shall (i) resign as operator of any of the Properties,
      which Seller is the Operator of; (ii) provide Buyer well transfer permits;
      and
      (iii) use its best efforts to have Buyer elected as Operator of the Properties
      that Seller operated.

    

    ARTICLE
      16. - CASUALTY LOSS AND CONDEMNATION

    

    If,
      prior
      to the Closing, all or any portion of the Properties is destroyed by fire or
      other casualty or if any portion of the Properties shall be taken by
      condemnation or under the right of eminent domain (all of which are herein
      called "Casualty Loss" and limited to property damage or taking only), Buyer
      and
      Seller must agree prior to Closing either (i) to delete that portion of the
      Properties which is subject to the Casualty Loss from the Properties, and the
      Purchase Price shall be reduced by the Allocated Value as set out in
Schedule
      3.1,
      or (ii)
      for Buyer to proceed with the purchase of such Properties, notwithstanding
      any
      such destruction or taking (without reduction of the Purchase Price) in which
      case Seller shall pay, at the Closing, to Buyer all sums paid to Seller by
      third
      parties by reason of the destruction or taking of such Properties and shall
      assign, transfer and set over unto Buyer all insurance proceeds received by
      Seller as well as all of the right, title and interest of Seller in and to
      any
      claims, causes of action, unpaid proceeds or other payments from third parties
      arising out of such destruction or taking; provided, however, if the value
      of
      that portion of the Properties affected by the Casualty Loss, not to exceed
      that
      Allocated Value in Schedule
      3.1,
      exceeds
      five percent (5%) of the Purchase Price, Buyer and Seller shall each have the
      right to terminate this Agreement upon written notification to the other, the
      transaction shall not close, the Buyer’s Performance Deposit shall be refunded,
      and thereafter neither Buyer nor Seller shall have any liability or further
      obligations to the other hereunder. Prior to Closing, Seller shall not
      voluntarily compromise, settle or adjust any amounts payable by reason of any
      Casualty Loss without first obtaining the written consent of Buyer.

    

    ARTICLE
      17. - DEFAULT AND REMEDIES

    

    17.1. Seller's
      Remedies.

    

    Upon
      failure of Buyer to comply herewith by the Closing Date, as it may be extended
      in accordance herewith, Seller, at its sole option, may retain the Performance
      Deposit as a liquidated damage and not as a penalty, and terminate this
      Agreement, as Seller's sole and exclusive remedies for such default, all other
      remedies (except as expressly retained in Article17.3)
      being
      expressly waived by Seller. Notwithstanding any provision hereof to the
      contrary, Seller may retain the Performance Deposit as a liquidated damage
      only
      in the event the transaction contemplated by this Agreement is terminated due
      solely to the breach hereof by Buyer in the absence of any material breach
      hereof by Seller. 

    

    17.2. Buyer's
      Remedies.

    

    Upon
      failure of Seller to comply herewith by the Closing Date, as it may be extended
      in accordance herewith, Buyer, at its sole option, may (i) enforce specific
      performance, or (ii) terminate this Agreement, as Buyer's sole and exclusive
      remedies for such default, all other remedies (except as expressly retained
      in
Article
      17.3)
      being
      expressly waived by Buyer. In the event Buyer elects to terminate this Agreement
      as set forth above, Seller shall immediately return the Performance Deposit
      to
      Buyer.

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    17.3. Other
      Remedies.

    

    Notwithstanding
      the foregoing, termination of this Agreement shall not release Buyer from it's
      obligations under Article
      6.3
      (and the
      confidentiality agreements referenced therein) and such other portions of this
      Agreement as are necessary to the enforcement and construction of Article
      6.3.
      

    

    17.4. Effect
      of Termination.

    

    In
      the
      event of termination of this Agreement under this Article
      17,
      the
      transaction shall not close and neither Buyer nor Seller shall have any further
      obligations, remedies, liabilities, rights or duties to the other hereunder,
      except as expressly provided herein.

    

    ARTICLE
      18. - ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION

    18.1. Definitions.
      As used
      in this Agreement:

    

    (a) "Losses"
      means any liabilities, losses, claims, demands, causes of action, costs and
      expenses (including, but not limited to, court costs and reasonable attorneys'
      fees and other costs and expenses incident to proceedings or investigations
      respecting, or the prosecution or defense of a claim) of every kind and
      character.

    

    (b) “Environmental
      Claims” shall mean all liabilities, obligations, expenses, (including, without
      limitation, all attorneys’ fees), fines, penalties, costs, claims, suits or
      damages (including natural resource damages) of any nature, including personal
      injury, diminution in property value, illness, disease, or wrongful death,
      associated with the Properties, whether arising before or after the Effective
      Time, and attributable or resulting from: (i) pollution or contamination of
      soil, surface water, groundwater or air, on the Properties and any other
      contamination of or adverse effect upon the environment, (ii) underground
      injection activities and waste disposal, (iii) clean-up responses, remedial,
      control or compliance costs, including the required cleanup or remediation
      of
      spills, pits, ponds or lagoons, including any subsurface or surface pollution
      caused by such spills, pits, ponds, or lagoons, (iv) noncompliance with
      applicable land use, permitting, surface disturbance, licensing or notification
      requirements, and (v) violation of any Environmental Law and/or any federal,
      state or local environmental land use law.

     

    (c) "Seller
      Group" means Seller and its officers, directors, contractors, agents and
      employees.

    

    (d) "Buyer
      Group" means Buyer and its officers, directors, contractors, agents and
      employees.

    

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    18.2. Assumptions
      of Contracts.

    

    The
      sale
      of the Properties is and will be made subject to the Leases and Contracts to
      which the Properties are presently subject. Buyer shall assume and be
      responsible for all obligations relating to performance of the Leases and
      Contracts, whether or not recorded, as of and after the Effective Time. Seller
      shall be responsible during the time of its ownership for all obligations
      relating to performance of the Leases and Contracts, whether or not recorded,
      prior to the Effective Time.

    

    
      
        18.3.
          Imbalances.
          There
          are
          no gas imbalances.

      

    

    

    18.4. Buyer's
      General Indemnity.

    

    Buyer
      shall, on the date of Closing, agree (and upon the delivery to Buyer of the
      Assignment shall be deemed to have agreed) (a) to assume, and to timely pay
      and
      perform, all duties, obligations and liabilities relating to the ownership
      and
      operation of the Properties, as accrued or which otherwise arose after the
      Effective Time, and (b) to indemnify and hold the Seller Group harmless from
      and
      against any and all Losses arising out of or otherwise relating to (i) the
      breach by Buyer of any representation, warranty or covenant herein set forth,
      or
      (ii) the ownership and/or operation of the Properties, regardless whether the
      same accrued or otherwise arose before or after the Effective Time.

    

    18.5. Buyer's
      Environmental Indemnity.

    

    Buyer
      hereby agrees to release, indemnify, defend and hold harmless the Seller Group
      from and against all Losses (including but not limited to any civil fines,
      penalties, expenses, and costs of clean-up or remediation) brought by any and
      all persons, including, but not limited to, Buyer's and Seller's employees,
      agents, or representatives and also any private citizens, persons, or
      organizations and any agency, branch, or representative of federal, state,
      tribal, or local government, on account of any Environmental Claims. It is
      expressly understood and agreed that the terms of this Article
      18.5
      shall
      control over any conflicting or contradicting terms or provisions contained
      in
      this Agreement, except as to the indemnities, if any, provided under
Article
      10.3.(c).
      Notwithstanding anything to the contrary contained herein, the indemnity in
      this
Article
      18.5
      shall
      not apply to any Property excluded under any provision hereof; provided,
      however, such indemnities shall apply for the limited period of time, if any,
      Buyer has undertaken the operation of a Property and, in which case, Buyer's
      indemnity shall be applicable only to Losses arising solely from Buyer's
      operations during such limited period of operation.

    

    18.6. Buyer's
      Plugging Liability.

    

    Buyer
      shall properly plug and abandon at Buyer's expense all Wells herein assigned
      and
      shall restore the surface at Buyer's expense and in accordance with the
      applicable Lease provisions, surface use agreements and state and federal rules
      and regulations pertaining to the plugging and abandoning of such wells and
      the
      restoration of such surface. Buyer shall indemnify, defend, and hold Seller
      Group harmless from and against all Losses as a result of Buyer's failure to
      comply with the provisions of this section.

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    18.7. Indemnification
      Procedures.

    

    In
      the
      event that any claim for which a Party providing indemnification (the
      "Indemnifying Party") would be liable to the other Party (the "Indemnified
      Party") is asserted against or sought to be collected by any third person,
      the
      Indemnified Party shall promptly notify the Indemnifying Party of such claim,
      specifying the nature of such claim and the amount of the estimated amount
      thereof to the extent then feasible (which estimate shall not be conclusive
      of
      the final amount of such claim) (the "Indemnity Claim Notice"). The Indemnifying
      Party shall have thirty (30) days from its receipt of the Indemnity Claim Notice
      (the "Indemnity Notice Period") to notify the Indemnified Party (i) whether
      or
      not it disputes its liability to the Indemnified Party hereunder with respect
      to
      such claim, and (ii) if it does not dispute such liability, whether or not
      it
      desires, at its sole cost and expense, to defend the Indemnified Party against
      such claim; provided however, that the Indemnified Party is hereby authorized
      prior to and during the Indemnity Notice Period to file any motion, answer
      or
      other pleading, submission or document which it shall deem necessary or
      appropriate to protect its interests. In the event that the Indemnifying Party
      notifies the Indemnified Party within the Indemnity Notice Period that it does
      not dispute such liability and desires to defend against such claim, then the
      Indemnifying Party shall have the right to defend such claim by appropriate
      proceedings, which proceedings shall be promptly settled or prosecuted to a
      final conclusion, in such a manner as to avoid any risk of the Indemnified
      Party
      becoming subject to liability. If the Indemnified Party desires to participate
      in, but not control, any such defense or settlement, it may do so at its own
      cost and expense. If the Indemnifying Party elects not to defend against such
      claim for which it is liable, whether by not giving timely notice as provided
      above or otherwise, the Indemnified Party shall have the right but not the
      obligation to defend against such claim, and the amount of any resulting Losses
      (including, without limitation, court costs and attorneys' fees) incurred by
      the
      Indemnified Party in connection with such defense, shall be conclusively deemed
      to be the liability of the Indemnifying Party hereunder.

    

    18.8. Assignment
      of Indemnity.

    

    Neither
      Party’s indemnifications, covenants, representations and warranties are
      assignable and all such obligations will terminate as to any Property upon
      the
      sale of such Property by Buyer to a third party, or as to any Party upon any
      sale, merger or other change in ownership or control. This Article
      18.8
      shall
      not apply to a sale or transfer by a Party to any entity which is affiliated
      with that Party.

    

    ARTICLE
      19. - ARBITRATION

    

    
      
        19.1.
          Selection
          of Arbitrators. 

      

    

    

    Any
      controversy or failure to agree between the Parties hereto arising under this
      Agreement and not resolved by agreement shall be determined by a board of
      arbitration upon notice of submission given by either Party to the other, which
      notice shall name a qualified, impartial, and independent arbitrator; provided,
      however, the following matters shall not be subject to arbitration: (a) any
      matter that requires the agreement of the Parties under the terms of this
      Agreement, and the right of either Party to apply to a court of competent
      jurisdiction for a temporary restraining order, a preliminary injunction, or
      other equitable relief to preserve the status quo or prevent irreparable harm,.
      Within ten (10) days after the receipt of a notice requiring arbitration, the
      other Party shall name a qualified, impartial and independent arbitrator, or
      failing to do so, the Party giving notice shall name the second. Within
      twenty-five (25) days after sending the original notice of submission the two
      (2) arbitrators so appointed shall name the third qualified, independent
      arbitrator, or failing to do so, the third arbitrator may be appointed by the
      Senior Judge (in service) of the United States District Court serving Houston,
      Texas.

    

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    19.2. Determination.

    

    The
      arbitrators selected to act hereunder shall be qualified by a minimum of twenty
      (20) years experience in the oil and gas industry to pass on the particular
      question in dispute. The arbitrators shall promptly hear and determine (after
      due notice of hearing and giving the Parties a reasonable opportunity to be
      heard) the questions submitted, and shall render their decision within sixty
      (60) days after appointment of the third arbitrator. If within said period
      a
      decision is not rendered by the board, or majority thereof, new arbitrators
      may
      be named and shall act hereunder at the election of either Buyer and Seller
      in
      like manner as if none has been previously named. The arbitrators shall settle
      all disputes in accordance with the Federal Arbitration Act and the Commercial
      Arbitration Rules of the American Arbitration Association, to the extent that
      such rules do not conflict with the terms of such Act or the terms of this
      Agreement. Any arbitration hearing shall be held in Houston, Harris County,
      Texas.

    

    19.3. Decision
      Binding.

     

      The
      decision of the arbitrators, or the majority thereof, made in writing shall
      be
      final, binding and non-appealable upon the Parties hereto as to the questions
      submitted, and Buyer and Seller will abide by and comply with such decision
      and,
      if necessary, may be enforced in any court of competent jurisdiction. The law
      governing all such disputes shall be the laws of the State of Texas,
      including, without limitation, the Uniform Commercial Code as in effect in
      the
      State of Texas,
      as the
      same may be amended from time to time, but without regard to conflicts of laws
      principles. The fees and expenses of the arbitrator shall be shared one-half
      by
      Seller and one-half by Buyer, except that each Party shall bear the compensation
      and expenses of its own counsel, witnesses, and employees. Any payment to be
      made as the result of any dispute resolved by arbitration hereunder shall be
      accomplished pursuant to the Final Settlement Statement, with the final payments
      due thereunder being deferred until the arbitrator has rendered its decisions
      on
      all matters to be resolved by arbitration hereunder. 

     

    ARTICLE
      20. - MISCELLANEOUS

    

    20.1. Amendment.

     

    The
      Agreement may not be amended except by an instrument in writing signed by the
      Party to be charged with such amendment and delivered by such Party to the
      Party
      claiming the benefit of such amendment.

    

    20.2. Gender.

    

    References
      made in this Agreement, including use of a pronoun, shall be deemed to include
      where applicable, masculine, feminine, singular or plural, individuals,
      partnerships, or corporations. As used in this Agreement, "person" shall mean
      any natural person, corporation, partnership, trust, estate, or other
      entity.

    

    20.3. Entire
      Agreement.

    

    This
      Agreement and the Supplemental Agreement attached hereto as Exhibit
      “D”,
      incorporated herein by reference, constitute the entire understanding among
      the
      Parties with respect to the subject matter hereof, superseding all negotiations,
      prior discussions, and prior agreements and understandings relating to such
      subject matter.

    

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    20.4. Survival.

    

    Except
      for the indemnification obligations contained herein the survival of which
      is
      set forth in Article
      18,
      all of
      Seller’s representations and warranties contained in this Agreement shall not
      survive the Closing.

    

    20.5. Severability.

    

    If
      a
      court of competent jurisdiction determines that any clause or provision of
      this
      Agreement is void, illegal, or unenforceable, the other clauses and provisions
      of the Agreement shall remain in full force and effect and the clauses and
      provisions which are determined to be void, illegal, or unenforceable shall
      be
      limited so that they shall remain in effect to the extent permissible by
      law.

    

    20.6. Public
      Announcements.

    

    The
      Parties hereto agree that prior to Closing, prior to making any public
      announcement or statement with respect to the transaction contemplated by this
      Agreement, the Party desiring to make such public announcement or statement
      shall consult with the other Party hereto and exercise its best efforts to
      (i)
      agree upon the text of a joint public announcement or statement to be made by
      both of such Parties; or (ii) obtain written approval of the other Party hereto
      to the text of a public announcement or statement to be made solely by Seller
      or
      Buyer, as the case may be. Nothing contained in this paragraph shall be
      construed to require either Party to obtain approval of the other Party hereto
      to disclose information with respect to the transaction contemplated by this
      Agreement to any state or federal governmental authority or agency to the extent
      (i) required by applicable law or by any applicable rules, regulations or orders
      of any governmental authority or agency having jurisdiction; or (ii) necessary
      to comply with disclosure requirements of the New York Stock Exchange or other
      recognized exchange or over the counter, and applicable securities
      laws.

    

    20.7. Filing
      and Recording of Assignments, etc.

    

    Buyer
      shall be solely responsible for all filings and recording of assignments and
      other documents related to the Properties and for all fees connected therewith,
      and upon request Buyer shall advise Seller of the pertinent recording data.
      Seller shall not be responsible for any loss to Buyer because of Buyer's failure
      to file or record documents correctly or promptly. Buyer shall promptly file
      all
      appropriate forms, declarations or bonds with federal and state agencies
      relative to its assumption of operations and Seller shall cooperate with Buyer
      in connection with such filings.

    

    20.8. Further
      Assurances and Records.

     

    (a) After
      the
      Closing each of the Parties will execute, acknowledge and deliver to the other
      such further instruments, and take such other action, as may be reasonably
      requested in order to more effectively assure to said Party all of the
      respective properties, rights, titles, interests, estates, and privileges
      intended to be assigned, delivered or inuring to the benefit of such Party
      in
      consummation of the transactions contemplated hereby.

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (b) Buyer
      shall comply with all current and subsequently amended applicable laws,
      ordinances, rules, and regulations applicable to the Properties and shall
      promptly obtain and maintain all permits required by governmental authorities
      in
      connection with the Properties.

    

    20.9. Notices.

    

    Except
      as
      otherwise expressly provided herein, all communications required or permitted
      under this Agreement shall be in writing and any communication or delivery
      hereunder shall be deemed to have been duly given and received when actually
      delivered to the address of the Parties to be notified as set forth below and
      addressed as follows:

    

    If
      to
      Seller, as follows:

     

    TARH
      E&P Holdings, LP

    98
      San
      Jacinto Blvd., Suite 800

    Austin,
      Texas 78701

    Attention:
      David E. Honeycutt, President

    Phone:
      (512) 480-8700

    Fax:
       (512)
      480-8732

    

    If
      to
      Buyer, as follows:

    

    Foothills
      Texas, Inc.

    4540
      California Ave., Suite 550

    Bakersfield,
      California 93309

    Attention:
      Dennis B. Tower, Chief Executive Officer

    Phone:
      (661) 716-1320

    Fax:
       (661)
      716-1340

    

    Provided,
      however, that any notice required or permitted under this Agreement will be
      effective if given verbally within the time provided, so long as such verbal
      notice is followed by written notice thereof in the manner provided herein
      within twenty-four (24) hours following the end of such time period. Any Party
      may, by written notice so delivered to the other, change the address to which
      delivery shall thereafter be made.

    

    20.10. No
      Guarantee of Operations.

    

    Buyer
      understands that operation of all or part of the Properties may be subject
      to
      operating agreements or other contracts governing the election or appointment
      of
      an Operator. Seller does not warrant or represent that Buyer will become
      Operator of any of the Properties, but Seller does agree to use its best efforts
      and to assist Buyer in being elected as Operator.

    

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    20.11. Incidental
      Expenses.

    

    Buyer
      shall bear and pay (i) all state or local government sales, transfer, gross
      proceeds, or similar taxes incident to or caused by the transfer of the
      Properties to Buyer, (ii) all documentary, transfer and other state and local
      government taxes incident to the transfer of the Properties to Buyer; and (iii)
      all filing, recording or registration fees for any assignment or conveyance
      delivered hereunder. Each Party shall bear its own respective expenses incurred
      in connection with the negotiation and Closing of this transaction, including
      its own consultants' fees, attorneys' fees, accountants' fees, and other similar
      costs and expenses.

    

    20.12. Antitrust
      Laws.

    

    If
      the
      Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") is
      applicable to this transaction, then each Party shall have the responsibility
      for filing with the Federal Trade Commission and the Department of Justice
      their
      respective notifications and reports and any supplemental information which
      may
      be reasonably requested in connection with the HSR Act, which reports and
      notifications and supplemental information will comply in all material respects
      with the requirements of the HSR Act.

    

    20.13. Waiver.

    

    Any
      of
      the terms, provisions, covenants, representations, warranties or conditions
      hereof may be waived only by a written instrument executed by the Party waiving
      compliance. Except as otherwise expressly provided in this Agreement, the
      failure of any Party at any time or times to require performance of and
      provision hereof shall in no manner affect such Party's right to enforce the
      same. No waiver by any Party or any condition, or of the breach of any term,
      provision, covenant, representation or warranty contained in this Agreement,
      whether by conduct or otherwise, in any one or more instances, shall be deemed
      to be or construed as a further or continuing waiver of any such condition
      or
      breach or a waiver of any other condition or of the breach of any other term,
      provision, covenant, representation or warranty.

    

    20.14. Binding
      Effect: Assignment.

    

    All
      the
      terms, provisions, covenants, obligations indemnities, representations,
      warranties and conditions of this Agreement shall be enforceable by the Parties
      hereto and their respective successors and assigns. The rights of each Party
      under this Agreement are personal to that Party and may not be assigned or
      transferred to any other Party, firm, corporation or other entity, without
      the
      prior, express and written consent of the other Party and such consent may
      be
      withheld for any reason, including convenience. Any attempt to assign this
      Agreement over the objection or without the express written consent of the
      other
      Party shall be absolutely void. Seller may condition its consent to assign
      this
      Agreement on Buyer providing Seller with an appropriate guarantee of its
      assignee's performance. Subject to the provisions of Article
      18.8
      hereof,
      in the event Buyer sells or assigns all or a portion of the Properties, this
      Agreement shall remain in effect between Buyer and Seller as to all the
      Properties regardless of such assignment.

    

    20.15. Taxes.

     

    (a) In
      the
      event the Parties agree that Section 1060 of the Internal Revenue Code of 1986,
      as amended, requires the filing of IRS Form 8594, the Parties will confer and
      cooperate in the preparation and filing of their respective forms to reflect
      a
      consistent reporting of the agreed upon allocation.

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    (b) Seller
      shall be responsible for and shall pay all taxes attributable to or arising
      from
      the ownership or operation of the Properties prior to the Effective Time. Buyer
      shall be responsible for and shall pay all taxes attributable to or arising
      from
      the ownership or operation of the Properties after the Effective Time. Any
      Party
      which pays such taxes for the other Party shall be entitled to prompt
      reimbursement upon evidence of such payment. Each Party shall be responsible
      for
      its own federal income taxes, if any, as may result from this
      transaction.

    

    (c) If
      this
      transaction is determined to result in state sales or transfer taxes, Buyer
      shall be solely responsible for any and all such taxes due on the Properties
      acquired by Buyer by virtue of this transaction. If Buyer is assessed such
      taxes, Buyer shall promptly remit same to the taxing authority. If Seller is
      assessed such taxes, Buyer shall reimburse Seller for any such taxes paid by
      Seller to the taxing authority.

    

    20.16. Audits.

    

    It
      is
      expressly understood and agreed that Seller retains its right to receive its
      proportionate share of the proceeds from any audits relating to activities
      prior
      to the Effective Time.

    

    20.17. Governing
      Law.

    

    THIS
      AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
      LAWS
      OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
      OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.

    

    20.18. Time
      is of Essence. Time
      is
      of the essence with respect to performance of this Agreement.

    

    20.19. Exhibits
      and Schedules.

    

    All
      Exhibits and Schedules attached to this Agreement, and the terms of those
      Exhibits and Schedules which are referred to in this Agreement, are made a
      part
      hereof and incorporated herein by reference. 

    

    20.20. Counterparts.

    

    This
      Agreement may be executed in any number of counterparts, and each and every
      counterpart shall be deemed for all purposes to be one (1)
      agreement.

    

    20.21.
      Section
      1031 Exchange.
      

    

    Buyer
      agrees that Seller shall have the right at any time prior to Closing to assign
      all or a portion of its rights under this Agreement to a Qualified Intermediary
      (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
      Regulations) in order to accomplish the transaction in a manner that will
      comply, either in whole or in part, with the requirements of a like-kind
      exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
      amended. If Seller assigns its rights under this Agreement for this purpose,
      Buyer agrees to consent to Seller’s assignment of such rights and pay the
      Purchase Price into a qualified escrow or qualified trust account at Closing,
      as
      directed in writing. Seller and Buyer agree that Seller’s assignment of its
      rights under this Agreement, in whole or in part, to a Qualified Intermediary,
      shall not release either party from any of their respective liabilities and
      obligations to each other under this Agreement, and Buyer shall not be obligated
      to pay any additional costs or incur any additional obligations in the
      acquisition of the Properties.

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
      above written but effective the Effective Time.

    

    

    SELLER:

     

    TARH
      E&P Holdings, LP

    

     

    

    

    By:_/s/
      Troy Gieselman_______

    Troy
      Gieselman

    Secretary

    

    

    

     

    

    BUYER:

     

    Foothills
      Texas, Inc.

     

     

    

    By:_/s/
      Dennis B. Tower______

    Dennis
      B.
      Tower

    Chief
      Executive Officer

     

     

    
      
        
        

      

      37

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