Document:

exv10w2

Exhibit 10.2

JOINT DEVELOPMENT AGREEMENT

dated May 17, 2010

by and among

PETROQUEST ENERGY, L.L.C.

and

WSGP GAS PRODUCING, LLC

and

NEXTERA ENERGY GAS PRODUCING, LLC

COAL, HASKELL, HUGHES, LATIMER AND PITTSBURG COUNTIES, OKLAHOMA

 

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	 	 
	1.1 Defined Terms
	 	 	2	 
	 
	 	 	 	 
	ARTICLE II SELECTED PUDS
	 	 	 	 
	2.1 Selected PUDs
	 	 	9	 
	2.2 Assignment
	 	 	9	 
	 
	 	 	 	 
	ARTICLE III REMAINING ASSETS
	 	 	 	 
	3.1 Purchase Price
	 	 	10	 
	3.2 Remaining Assets Assignment Further Conditioned
	 	 	11	 
	 
	 	 	 	 
	ARTICLE IV DRILLING PROGRAM
	 	 	 	 
	4.1 Drilling Program 
	 	 	11	 
	4.2 Operated by Others (“OBO”) Drilling Activity
	 	 	11	 
	4.3 WSGP’s Carry
	 	 	12	 
	4.4 Participation Elections
	 	 	14	 
	4.5 Non-Consent Elections
	 	 	14	 
	4.6 Interests Earned in Each Well by Drilling
	 	 	16	 
	4.7 Applicability of WSGP’s Carry
	 	 	16	 
	 
	 	 	 	 
	ARTICLE V ASSIGNMENTS TO WSGP
	 	 	 	 
	5.1 Program Well Assignments
	 	 	17	 
	5.2 Early Termination 
	 	 	17	 
	 
	 	 	 	 
	ARTICLE VI REPRESENTATIONS AND WARRANTIES
	 	 	 	 
	6.1 Representations and Warranties of PetroQuest
	 	 	17	 
	6.2 Representations and Warranties of WSGP
	 	 	21	 
	 
	 	 	 	 
	ARTICLE VII PRE-CLOSING COVENANTS
	 	 	 	 
	7.1 Conduct of Business
	 	 	23	 
	7.2 Notifications
	 	 	24	 
	7.3 Access
	 	 	24	 
	 
	 	 	 	 
	ARTICLE VIII CONDITIONS TO CLOSING
	 	 	 	 
	8.1 Representations
	 	 	24	 
	8.2 Performance
	 	 	24	 
	8.3 No Legal Proceedings
	 	 	24	 
	8.4 Consent and Waivers
	 	 	25	 
	8.5 Closing Deliverables
	 	 	25	 
	8.6 No Material Event
	 	 	25	 
	 
	 	 	 	 
	ARTICLE IX CLOSING
	 	 	 	 
	9.1 Closing Date
	 	 	25	 
	9.2 Closing Obligations
	 	 	25	 

 

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	 	 	Page	 
	 
	 	 	 	 
	ARTICLE X POST CLOSING COVENANTS
	 	 	 	 
	10.1 Restrictions on Transfer
	 	 	26	 
	10.2 Permitted Transfers
	 	 	27	 
	10.3 Burdens Created by PetroQuest
	 	 	27	 
	10.4 Additional Gathering System
	 	 	28	 
	10.5 Cooperation
	 	 	28	 
	10.6 Existing Gas Purchase Contracts.
	 	 	28	 
	10.7 Assumption
	 	 	30	 
	 
	 	 	 	 
	ARTICLE XI AMI
	 	 	 	 
	11.1 Area of Mutual Interest
	 	 	30	 
	11.2 Lease Acquisition Procedures
	 	 	31	 
	11.3 Administrative Overhead
	 	 	31	 
	 
	 	 	 	 
	ARTICLE XII OPERATIONS
	 	 	 	 
	12.1 Operating Agreement
	 	 	31	 
	12.2 Overhead
	 	 	31	 
	12.3 Third Party Working Interest Owners
	 	 	32	 
	12.4 Commingling of Production
	 	 	32	 
	12.5 Amendment of Exhibit “A” to Operating Agreement
	 	 	32	 
	12.6 Gas Marketing Agreement
	 	 	32	 
	 
	 	 	 	 
	ARTICLE XIII FORCE MAJEURE
	 	 	 	 
	13.1 Force Majeure
	 	 	33	 
	 
	 	 	 	 
	ARTICLE XIV EARLY TERMINATION
	 	 	 	 
	14.1 Pre-Closing Early Termination.
	 	 	33	 
	14.2 Post-Closing Early Termination
	 	 	34	 
	14.3 Status of Assignments to WSGP Upon Early Termination
	 	 	35	 
	14.4 Intervention Termination
	 	 	35	 
	 
	 	 	 	 
	ARTICLE XV FAILURE TO PAY DRILLING COSTS; FAILURE TO PERFORM
	 	 	 	 
	15.1 Failure By WSGP
	 	 	35	 
	15.2 Good Faith Dispute
	 	 	35	 
	15.3 Assignment of Relinquished Interest
	 	 	36	 
	15.4 Failure to Perform
	 	 	36	 
	 
	 	 	 	 
	ARTICLE XVI TAX PARTNERSHIP
	 	 	 	 
	 
	 	 	 	 
	ARTICLE XVII INDEMNIFICATION
	 	 	 	 
	17.1 WSGP’s Indemnification
	 	 	36	 
	17.2 PetroQuest’s Indemnification
	 	 	37	 
	17.3 Negligence, Notice of Claim, Assumption or Defense and Settlement of Claim
	 	 	37	 

 

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	 	 	Page	 
	 
	 	 	 	 
	ARTICLE XVIII GENERAL TERMS AND PROVISIONS
	 	 	 	 
	18.1 Further Assurances
	 	 	38	 
	18.2 Confidentiality Agreement
	 	 	38	 
	18.3 Time of the Essence
	 	 	39	 
	18.4 Binding Effect
	 	 	39	 
	18.5 Notices
	 	 	39	 
	18.6 Legal Representation; Costs and Attorney’s Fees
	 	 	40	 
	18.7 No Special Relationship or Special Duty
	 	 	40	 
	18.8 Counterparts
	 	 	40	 
	18.9 Entire Agreement; Waiver
	 	 	41	 
	18.10 Governing Law
	 	 	41	 
	18.11 Waiver of Jury Trial
	 	 	41	 
	18.12 Waiver of Consequential Damages
	 	 	41	 
	18.13 No Partnership
	 	 	41	 
	18.14 Survival of Representations and Warranties
	 	 	41	 
	18.15 No Third Party Beneficiaries
	 	 	42	 
	18.16 Disputes
	 	 	42	 
	18.17 Term of Agreement
	 	 	42	 
	18.18 Construction of Agreement
	 	 	42	 
	18.19 Publicity
	 	 	43	 
	18.20 Binding and Non-Binding Terms
	 	 	43	 
	18.21 NEGP Guaranty
	 	 	43	 
	18.22 Specific Performance
	 	 	44	 

 

iii 

 

Exhibits and Schedules to Agreement

	 	 	 
	Schedule 1

	 	Current Unrecorded Commitments
	 
	 	 
	Schedule 6.1.15

	 	Fee Interests
	 
	 	 
	Schedule 10.4

	 	Existing Gas Gathering Agreements
	 
	 	 
	Exhibit “A”

	 	Transaction Assets
	 
	 	 
	Exhibit “B”

	 	Area of Mutual Interest
	 
	 	 
	Exhibit “C”

	 	Selected PUDs
	 
	 	 
	Exhibit “D”

	 	Form of PUD Assignment
	 
	 	 
	Exhibit “E”

	 	Drilling Program
	 
	 	 
	Exhibit “F”

	 	Form of Program Well Assignment
	 
	 	 
	Exhibit “G”

	 	Form of Operating Agreement
	 
	 	 
	Exhibit “H”

	 	Memorandum of Agreement
	 
	 	 
	Exhibit “I”

	 	Arbitration Provisions

 

iv 

 

JOINT DEVELOPMENT AGREEMENT

This Joint Development Agreement (the “Agreement”) is made and entered into this 17th day of
May 2010, by and between PETROQUEST ENERGY, L.L.C. (“PetroQuest”), a Louisiana limited liability
company, whose address is 400 E. Kaliste Saloom Rd, Suite 6000, Lafayette, LA 70508, WSGP GAS
PRODUCING, LLC (“WSGP”), a Delaware limited liability company, whose address is 1000 Louisiana,
Suite 5550, Houston, TX 77002, and NextEra Energy Gas Producing, LLC (“NEGP”), a Delaware limited
liability company whose address is 1000 Louisiana, Suite 5550, Houston, TX 77002, for the limited
purpose of securing the payment obligations of WSGP hereunder. PetroQuest and WSGP are each a
“Party” and collectively the “Parties”.

RECITALS:

WHEREAS, PetroQuest owns certain oil, gas or mineral leases and interests covering certain
lands in Coal, Haskell, Hughes, Latimer and Pittsburg Counties, Oklahoma as described on the
attached Exhibit “A”, in each case limited to those depths below the base of the Hartshorne
Sand (as defined herein) (collectively the “Transaction Assets”), all located within the area
described on the attached Exhibit “B” (the “AMI” as more fully discussed herein);

WHEREAS, PetroQuest has entered into multiple transactions resulting in unrecorded obligations
which reduce PetroQuest’s working interest in and to certain of the Transaction Assets prior to any
assignments to WSGP hereunder in a cumulative amount of no more than 1.625% of PetroQuest’s
interest in and to the Transaction Assets, as detailed on Schedule 1 (the “Current
Unrecorded Commitments”), and each reference herein to PetroQuest’s interest in and to all or any
subset of the Transaction Assets shall be net of the reduction effected by the Current Unrecorded
Commitments;

WHEREAS, PetroQuest has identified the Selected PUDs (as defined herein) within the AMI;

WHEREAS, WSGP desires to purchase from PetroQuest, and PetroQuest desires to sell to WSGP,
subject to the terms, conditions and limitations set forth herein, an undivided fifty percent (50%)
of PetroQuest’s interest in and to the Selected PUDs;

WHEREAS, PetroQuest desires to grant to WSGP, and WSGP desires to receive, the right to earn
fifty percent (50%) of PetroQuest’s interest in and to the Transaction Assets other than the
Selected PUDs (collectively the “Remaining Assets”) on and subject to the terms and conditions
specified herein;

WHEREAS, the Parties have entered into that certain Interim Leasing Agreement pending Woodford
Joint Venture Agreement, dated March 8, 2010 with respect to the joint acquisition of oil, gas and
mineral leases or other mineral interests within Pittsburg, Haskell, Hughes, Atoka, Latimer and
Coal Counties, Oklahoma prior to the execution of this Agreement (the “Interim Leasing Agreement”);
and

 

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WHEREAS, the Parties desire to set forth the terms, conditions, covenants, rights and
obligations of the Parties with respect to the joint exploration and development of the Remaining
Assets and Selected PUDs and each Party’s participation in the Drilling Program (as defined
herein).

NOW THEREFORE, for and in consideration of the premises, the mutual covenants set forth
herein, the benefits to be derived by each party from this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged the
Parties hereby enter into this Agreement.

ARTICLE I

DEFINITIONS

1.1 Defined Terms. As used in this Agreement, each of the following initially
capitalized words and terms shall have the meaning ascribed to it herein:

1.1.1 “25% Level” is defined in Section 4.5.6.

1.1.2 “6 Month Tranche” is defined in Section 4.3.2.

1.1.3 “12 Well Minimum Content” is defined in Section 4.3.2.

1.1.4 “Acquired Interest” is defined in Section 11.1.

1.1.5 “Administrative Fee” is defined in Section 11.3.

1.1.6 “AFE” means authority for expenditure.

1.1.7 “Affiliate” means with respect to a specified Person, any Person
that directly or indirectly controls, is controlled by, or is under common control
with, the specified Person. As used in this definition, the term “control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.

1.1.8 “Agreement” is defined in the preamble.

1.1.9 “AMI” is defined in the recitals.

1.1.10 “AMI Well” is defined in Section 14.2.1.

1.1.11 “Applicable Law” means all laws, statutes, treaties, rules,
codes, ordinances, regulations, permits, official guidelines, certificates, orders,
licenses, leases and permits of any Governmental Authority, and judgments, decrees,
injunctions, writs, orders or like action of any court, arbitrator or other judicial
tribunal of competent jurisdiction and all requirements of law.

 

2

 

1.1.12 “Arbitration Provisions” means the provisions described in
Exhibit “I”.

1.1.13 “Average Production” is defined in Section 3.1.3.

1.1.14 “Binding Provisions” is defined in Section 18.20.

1.1.15 “Business Day” means each day other than Saturday, Sunday, and
any day on which nationally chartered banks in Houston, Texas are not required to be
open for the conduct of retail banking business.

1.1.16 “Carried Amount” is defined in Section 4.3.

1.1.17 “Closing” is defined in Section 9.1.

1.1.18 “Closing Date” means the date on which the Closing occurs.

1.1.19 “Confidentiality Agreement” means that certain Confidentiality
Agreement dated November 23, 2009, by and between the Parties.

1.1.20 “Counterparty Group” is defined in Section 18.2.1.

1.1.21 “Current Unrecorded Commitments” is defined in the Recitals.

1.1.22 “Deemed Non-Consent” is defined in Section 4.5.1.

1.1.23 “Deferred RA Purchase Price” is defined in Section
3.1.2.

1.1.24 “Development Well” is defined in Section 4.3.

1.1.25 “Drilling Program” is defined in Section 4.1.

1.1.26 “Drilling Unit” means the applicable drilling and spacing unit
prescribed by the Oklahoma Corporation Commission or other Governmental Authority
having jurisdiction over the applicable well.

1.1.27 “Early Termination” is defined in Section 14.2.

1.1.28 “Effective Time” means the date upon which WSGP executes the
first AFE submitted by PetroQuest pursuant to the Drilling Program.

 

3

 

1.1.29 “Environmental Matters” means any condition in, on, or under
any of the Transaction Assets that is in violation of or subject to liability under
the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
§ 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean
Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances Control Act,
15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001 et seq.; and
the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j, in each case as the
same have been amended to the date hereof, and all similar laws, rules or
regulations as of the date hereof of any Governmental Authority having jurisdiction
over the property in question addressing pollution or protection of the environment
or biological or cultural resources and all regulations implementing the foregoing.

1.1.30 “Exchange Act” is defined in Section 18.2.1.

1.1.31 “Execution Date” means the date of execution of this Agreement
as first set forth in the preamble.

1.1.32 “Existing Gas Purchase Contracts” is defined in Section
10.6.

1.1.33 “Existing Wells” means any oil or gas well located on any of
the Transaction Assets drilled (or in the process of drilling) prior to the
Execution Date, whether such well be producing or non-producing, shut-in or
abandoned.

1.1.34 “Final Performance Report” is defined in Section 3.1.3.

1.1.35 “Final Qualifying Wells” is defined in Section 3.1.4.

1.1.36 “Force Majeure” means any event which wholly or partly prevents
or delays the performance of any obligation arising under this Agreement, but only
if and to the extent (i) such event is not within the reasonable control, directly
or indirectly, of the Party affected, (ii) such event, despite the exercise of
reasonable diligence, cannot be prevented, avoided or overcome by such Party, (iii)
the Party affected has taken all reasonable precautions and measures in order to
avoid the effect of such event on such Party’s ability to perform its obligations
under this Agreement and to mitigate the consequences thereof, and (iv) such event
is not the direct or indirect result of a Party’s negligence or the failure of such
Party to perform any of its obligations under this Agreement or to comply with
Applicable Law. A Force Majeure Event may include any of the following: acts of God
(excluding adverse weather conditions other than tornadoes, flooding, tropical
storms or hurricanes), riots, strikes, wars (declared or undeclared), insurrection,
rebellions, terrorist acts, civil disturbances, dispositions or orders of
Governmental Authority, unavailability of labor, services, equipment, rigs, supplies
or fuel, third party operated gathering system unavailability or capacity restraint,
or any act or cause (other than financial distress or inability to pay debts when
due) that is not within the control of a party hereto, but “Force Majeure” shall not
include general or regional changes in economic conditions including fluctuations in
the prices at which oil, gas or other
minerals can be sold, processed, transported, or handled, or fluctuations in
the costs and expenses of drilling, obtaining field services or supplies, labor,
materials, or equipment; and equipment, rigs and supplies. For purposes of this
Agreement, “Force Majeure” also shall include an Intervention.

 

4

 

1.1.37 “Force Majeure Notice” is defined in Section 13.1.

1.1.38 “Fundamental Representations” is defined in Section
18.14.

1.1.39 “Governmental Authority” means any federal, tribal, state,
local, municipal, or other governments; any governmental, regulatory or
administrative agency, commission, body or other authority exercising or entitled to
exercise any administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power; and any court or governmental tribunal exercising, having
or claiming jurisdiction over this Transaction, the Parties, or any of the
Transaction Assets.

1.1.40 “Hartshorne Sand” means the geological strata generally
referred to as the Hartshorne Sand, as encountered between 3,660 and 3,740 feet
measured depth in the log of the Marbet #11 well (API#35121222510000), situated in
Section 2, 6N R14E Pittsburg County, Oklahoma.

1.1.41 “Indemnified Party” is defined in Section 17.3.

1.1.42 “Indemnifying Party” is defined in Section 17.3.

1.1.43 “Infill Well” is defined in Section 4.6.

1.1.44 “Interim Leasing Agreement” is defined in the recitals.

1.1.45 “Intervention” means an action, restriction, regulation,
prohibition or other intervention by a Governmental Authority (including changes to
Applicable Law) which would prohibit: (i) the drilling of all oil or gas wells
within the AMI, or (ii) all hydraulic fracturing of oil or gas wells within the AMI.

1.1.46 “Intervention Termination” is defined in Section 14.4.

1.1.47 “Joint Expenditures” is defined in Section 11.3.

1.1.48 “Laclede” is defined in Section 10.6.1.1.

1.1.49 “Lease Maintenance” is defined in Section 11.2.

1.1.50 “Leases” is defined in Section 6.1.14.

1.1.51 “Lender” or “Lenders” means any and all Persons or
successors in interest thereof lending money or extending credit (whether directly
to a Party or to an Affiliate of a Party) as follows: (i) for the financing or
refinancing of the Drilling Program or the Transaction Assets; (ii) for working
capital or other ordinary business requirements related to the Drilling Program or
the Transaction Assets; or (iii) for any credit support, credit enhancement or
interest rate protection in connection with the Drilling Program or Transaction
Assets.

 

5

 

1.1.52 “Letter Agreements” means those agreements providing NEGP (or
an appropriate affiliated entity) with certain rights to participate with PetroQuest
in drilling programs related to the Marcellus Shale and the Eagle Ford Shale.

1.1.53 “Losses” is defined in Section 17.1.

1.1.54 “Material Adverse Effect” is defined in Section 6.1.9.

1.1.55 “Material Event” means (a) with respect to PetroQuest (and for
the purposes of this definition, PetroQuest shall include its parent), that
PetroQuest, and (b) with respect to WSGP (for the purposes of this definition, WSGP
shall include its parent), that WSGP: (i) is dissolved (other than pursuant to
internal reorganization the ordinary course of business which does not result in a
change in control of such entity); (ii) becomes insolvent or is unable to pay its
debts or fails to pay or admits in writing its inability generally to pay its debts
as they become due; (iii) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (iv) institutes or has instituted against
it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting creditors’
rights, or a petition is presented for its winding-up or liquidation, and, in the
case of any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the
entry of an order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or restrained in each case
within sixty (60) days of the institution or presentation thereof; (v) has a
resolution passed for its winding up, official management pursuant to an applicable
statutory remedy or liquidation (other than pursuant to an internal reorganization
in the ordinary course of business which does not result in a change in control of
such entity); (vi) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or other similar
official for it or for all or a substantial portion of its leases; (vii) has a
secured party take possession of all or a substantial portion of its leases or has a
distress, execution, attachment, sequestration or other legal process levied,
enforced or sued on or against all or a substantial portion of its Leases and such
secured party maintains possession, or any such process is not dismissed,
discharged, stayed or restrained, in each case within sixty (60) days thereafter; or
(viii) causes or is subject to any event with respect to which, under the Applicable
Laws of any jurisdiction, has an analogous effect to any of the events specified in
clauses (i) through (vii).

 

6

 

1.1.56 “Memorandum of Agreement” is defined in Section 9.2.1.

1.1.57 “Minimum Commitment” is defined in Section 4.3.2.

1.1.58 “Non-Binding Provisions” is defined in Section 18.20.

1.1.59 “Non-transferring Party” is defined in Section 10.1.

1.1.60 “OBO” is defined in Section 4.2.

1.1.61 “Operating Agreement” or “JOA” means any operating
agreement for which PetroQuest shall serve as initial operator to be entered into by
the Parties pursuant to Section 12.1, in substantially the form attached
hereto as Exhibit “G”.

1.1.62 “Outside Date” is defined in Section 18.20.

1.1.63 “Parties” and “Party” are defined in the preamble.

1.1.64 “Performance Payment” is defined in Section 3.1.3.

1.1.65 “Performance Report” is defined in Section 3.1.3.

1.1.66 “Performance Standards” is defined in Section 3.1.3.

1.1.67 “Person” means an individual, partnership, limited partnership,
limited liability company, trust, estate, corporation, custodian, trustee, executor,
administrator, nominee, or other entity in its own or a representative capacity.

1.1.68 “PetroQuest” is defined in the preamble.

1.1.69 “PetroQuest Indemnitees” is defined in Section 17.1.

1.1.70 “PetroQuest Production” is defined in Section 10.6.1.1.

1.1.71 “PetroQuest’s Knowledge” means the actual knowledge of the
current officers and directors of PetroQuest after reasonable inquiry within
PetroQuest with respect to the matter in question.

1.1.72 “Phase 1” is defined in Section 4.3.1.

1.1.73 “Phase 1 Commitment” is defined in Section 4.3.1.

1.1.74 “Phase 2” is defined in Section 4.3.1.

1.1.75 “Phase 2 Notice” is defined in Section 4.3.1.

1.1.76 “Program Well” is defined in Section 4.3.

 

7

 

1.1.77 “Program Well Assignment” is defined in Section 5.1.

1.1.78 “Prospective Transferee” is defined in Section 10.1.

1.1.79 “PUD Assignment” is defined in Section 2.2.

1.1.80 “PUD Purchase Price” is defined in Section 2.1.

1.1.81 “PUD Wells” is defined in Section 4.3.

1.1.82 “Qualifying Well” means a well drilled by PetroQuest pursuant
to this Agreement (whether or not WSGP participated in such well) within the AMI
after Closing for which a minimum of 180 days of production data is available.

1.1.83 “Quarterly Meeting” is defined in Section 4.1.

1.1.84 “Remaining Assets” is defined in the recitals.

1.1.85 “Remaining Assets Purchase Price” is defined in Section
3.1.

1.1.86 “Representatives” means, individually and collectively, a
Party’s directors, officers, employees, auditors, counsel, Lenders and other
advisors or consultants, and Affiliates and such Affiliates’ directors, officers,
employees, auditors, counsel, Lenders and other advisors or consultants.

1.1.87 “Required Well” means a well which is required to be drilled by
the terms of any lease or other agreement affecting the lands upon which such well
is to be drilled in order to earn acreage or depths from a third party or to prevent
the termination or relinquishment of all or any portion of a lease. A prospective
well shall be deemed a Required Well at that point in time when less than six (6)
months remain in which to commence such well in order to earn or prevent termination
or relinquishment of the applicable portion of the lease, or the contractual right
to earn the same.

1.1.88 “Selected PUDs” means those certain prospective well locations
within the AMI identified on the attached Exhibits “C-1” and “C-2”,
and the 640 acre Drilling Unit or governmental section (as illustrated on
Exhibit “C-2”) upon which each such prospective well location is situated.

1.1.89 “Spud Date” means the date upon which actual drilling
operations commence for a given well drilled hereunder.

1.1.90 “Third-Party JOA” is defined in Section 12.3.

1.1.91 “Tranche Election” is defined in Section 4.3.3.

 

8

 

1.1.92 “Transaction” means collectively, the transactions contemplated
by this Agreement, including the purchase and sale of the Selected PUDs, the conduct
of the Drilling Program and the activities associated therewith pursuant to the
terms of this Agreement.

1.1.93 “Transaction Assets” is defined in the recitals.

1.1.94 “Transfer” is defined in Section 10.1.

1.1.95 “Transferring Party” is defined in Section 10.1.

1.1.96 “Vendor Penalties” means the actual and documented monetary
costs, penalties, fees, surcharges or fines owed by PetroQuest to third-party
service providers or vendors pursuant to contracts entered into by PetroQuest after
the Effective Time (with the approval of WSGP, not to be unreasonably withheld,
conditioned or delayed, but in any event WSGP shall communicate to PetroQuest its
approval or disapproval within no more than two (2) Business Days of the proposal to
enter into such contract) arising solely due to a non-consent election or elections
made by WSGP pursuant to Section 4.5, provided, however, that the Parties
shall have identified such contracts as qualifying for the Vendor Penalty prior to
the execution of such contracts.

1.1.97 “Wire Account” is defined in Section 9.2.2.

1.1.98 “WSGP” is defined in the preamble.

1.1.99 “WSGP Indemnitees” is defined in Section 17.2.

1.1.100 “WSGP’s Carry” is defined in Section 4.3.

1.1.101 “WSGP’s Knowledge” means the actual knowledge of the current
officers and directors of WSGP after reasonable inquiry within WSGP with respect to
the matter in question.

ARTICLE II

SELECTED PUDS

2.1 Selected PUDs. On the Closing Date, WSGP shall pay to PetroQuest, via wire transfer in
immediately available funds, the amount of Thirty-Five Million Dollars ($35,000,000), (the “PUD
Purchase Price”) for the purchase of an undivided fifty percent (50%) of PetroQuest’s right, title
and interest in and to the Selected PUDs. PetroQuest shall retain all Existing Wells (and all
production therefrom) on the acreage attributable to each such Selected PUD, and each Selected PUD
so purchased shall be understood to be limited only to such depths as such Selected PUD covers
below the base of the Hartshorne Sand.

2.2 Assignment. Upon receipt of the PUD Purchase Price, PetroQuest shall deliver to WSGP a
fully executed, recordable assignment (one for each applicable county), in the form attached hereto
as Exhibit “D” (the “PUD Assignment”), conveying the interest described in Section
2.1 in and to the Selected PUDs. The Parties understand and agree that no PUD Assignment shall include
any interest in and to any Existing Well. The delivery by PetroQuest of the PUD Assignment will
transfer to WSGP an undivided fifty percent (50%) of PetroQuest’s right, title and interest in and
to the oil and gas leasehold or mineral interest and associated net revenue interest comprising
each Selected PUD.

 

9

 

ARTICLE III

REMAINING ASSETS

3.1 Purchase Price. In consideration for the right to participate in the Drilling Program
and as partial consideration for the purchase of fifty percent (50%) of PetroQuest’s right, title
and interest in and to the Remaining Assets, WSGP shall pay to PetroQuest a total of Fifty-Three
Million Dollars ($53,000,000) (as described herein, the “Remaining Assets Purchase Price”), by wire
transfer in immediately available funds subject to the conditions of and in the installments
described in the following:

3.1.1 On the Closing Date, WSGP shall pay PetroQuest Twenty Five Million
Dollars ($25,000,000) by wire transfer in immediately available funds;

3.1.2 On November 30, 2011, WSGP shall pay PetroQuest Fourteen Million Dollars
($14,000,000) by wire transfer in immediately available funds (the “Deferred RA
Purchase Price”);

3.1.3 On the later to occur of November 30, 2011 or the date on which eighteen
(18) wells drilled hereunder qualify as Qualifying Wells (provided, in either case,
no Force Majeure Notice has been delivered by either Party indicating an
Intervention has occurred prior to such date, in which event the obligations in this
Section 3.1.3 shall be tolled for the duration of such
Intervention) PetroQuest shall provide a report (the “Performance Report”) to WSGP
identifying each Qualifying Well and specifying the aggregate amount of production
for each such well. In the event the Performance Standards for such Qualifying
Wells have been achieved as evidenced by the Performance Report, WSGP shall pay
PetroQuest an additional Fourteen Million Dollars ($14,000,000) by wire transfer in
immediately available funds as a “Performance Payment” within five (5) Business Days
of receipt of the Performance Report. “Performance Standards” means the Average
Production for all Qualifying Wells is at least (i) 423,000 Mcf for the first one
hundred eighty (180) days of production and (ii) 57,000 Mcf for the last thirty (30)
days of such one hundred eighty (180) day period. “Average Production” means the
aggregate production for all of the Qualifying Wells for the relevant time period
divided by the number of Qualifying Wells. In the event the Average Production for
the Qualifying Wells included in the Performance Report does not meet the
Performance Standards, PetroQuest shall be deemed not to have earned the Performance
Payment, and the full amount of such Performance Payment shall be provisionally
added to the Carried Amount as set forth in Section 4.3. Any such deferred
Performance Payment amount added to the Carried Amount as set forth above shall
be subject to a “Final Performance Report” as set forth in Section 3.1.4.

 

10

 

3.1.4 If PetroQuest fails to earn the Performance Payment pursuant to
Section 3.1.3, on the later of (i) twelve (12) months from the commencement
of Phase 2 or (ii) date on which eighteen (18) wells drilled qualify as Qualifying
Wells, PetroQuest shall provide WSGP with a Final Performance Report identifying
each well drilled within Phase 2 that qualifies as a Qualifying Well as of the date
of the Final Performance Report (each a “Final Qualifying Well”), specifying the
amount of production for each such well. In the event the Final Performance Report
evidences that the Average Production for all such Final Qualifying Wells meets the
Performance Standards, the Carried Amount shall be increased by an amount equal to
the unpaid Performance Payment. In the event the Average Production from such Final
Qualifying Wells does not meet the Performance Standards, PetroQuest shall be deemed
not to have earned, and will not be entitled to, the Performance Payment.

3.2 Remaining Assets Assignment Further Conditioned. Notwithstanding the payment of the
Remaining Assets Purchase Price pursuant to Section 3.1, the Parties agree and understand
that WSGP’s participation in the Drilling Program and the payment of the applicable amount of
WSGP’s Carry, as and when paid by WSGP, are required consideration for WSGP to earn assignments of
interests in and to the Remaining Assets. Article IV sets forth the terms and conditions
by which WSGP can earn its fifty percent (50%) share of PetroQuest’s right, title and interest in
and to the Remaining Assets.

ARTICLE IV

DRILLING PROGRAM

4.1 Drilling Program. The Parties hereby agree, subject to Section 4.3 and
4.5 with respect to non-participation elections, to participate in the drilling and
completion of wells within the AMI in the locations described and on the timetable set forth in the
attached Exhibit “E”, as amended from time to time pursuant to the mutual agreement of the
Parties (the “Drilling Program”). Exhibit “E” attached hereto represents the current best
estimate and plan of development by the Parties as of the Execution Date, but shall be revised from
time to time as set forth herein. PetroQuest shall serve as initial Operator under each JOA and
shall execute its obligations as Operator consistent with the Drilling Program, this Agreement and
the JOA. The Parties agree to meet at least once per calendar quarter to update, modify and
supplement the Drilling Program, through mutual agreement, to efficiently and reasonably develop
the lands within the AMI (each such meeting a “Quarterly Meeting”).

4.2 Operated by Others (“OBO”) Drilling Activity. The Parties acknowledge and agree that
certain wells and leases within the AMI may be operated by third parties. The Drilling Program
shall take into account OBO drilling activity and provide estimates for the amount of capital
expenditures likely to be involved with participation in such OBO activities. Notwithstanding
anything to the contrary herein, if WSGP elects to participate in an OBO well, WSGP’s Carry
and the Carried Amount shall be applicable to OBO drilling activities with respect thereto. For
the sake of clarity, WSGP shall be entitled to non-consent to OBO operations pursuant to the terms
of the applicable Third Party JOA without regard to the limitations on non-consent elections set
forth in Sections 4.5, however, WSGP shall not be obligated to pay any WSGP Carry with
respect to OBO wells in which WSGP does not participate.

 

11

 

4.3 WSGP’s Carry. WSGP will carry PetroQuest (i.e., pay a share of the costs and expenses
attributable to PetroQuest’s interest therein) in the Drilling Program for a total amount not to
exceed One Hundred Forty-Six Million Six Hundred Thousand Dollars ($146,600,000) plus, if earned
pursuant to Section 3.1.4, the Performance Payment (collectively the “Carried Amount”) to
be applied as follows: (i) although the wells currently projected to be located on the Selected
PUDs (“PUD Wells”) are a part of, and are included within the Drilling Program, all PUD Wells shall
be drilled and completed on a heads-up, non-carried basis, and all costs and expenses attributable
to such PUD Wells shall be excluded from the calculation of the Carried Amount; (ii) with respect
to any development well drilled within a Selected PUD, other than the PUD Wells identified on
Exhibits “C-1” and “C-2” (each such development well a “Development Well”), WSGP
shall pay and be responsible for a 1.6:1 disproportionate share of all costs and expenses
attributable to the drilling and completion for such Development Well, and all costs and expenses
attributable to such Development Well shall be included in the calculation of the Carried Amount;
(iii) with respect to each well (other than a PUD Well) drilled pursuant to the Drilling Program
(each a “Program Well”), WSGP shall pay and be responsible for a 1.6:1 disproportionate share of
all costs and expenses attributable to the drilling and completion for such Program Well (as
described above, “WSGP’s Carry”). For purposes of this Agreement, and unless otherwise indicated,
Development Wells are deemed to be Program Wells. For example, if, prior to execution of this
Agreement, PetroQuest owned 100% of the leasehold working interest attributable to a proposed
Program Well, WSGP would be responsible for eighty percent (80%), and PetroQuest would be
responsible for twenty percent (20%), of the costs of drilling, completing and equipping such
Program Well. WSGP’s Carry shall neither be paid nor applicable to any incremental charges in any
individual PetroQuest operated well over the amount equal to 115% of the original AFE amount for
drilling, completing and equipping such well. PetroQuest and WSGP shall bear and pay any such
incremental charges on a proportionate 50%/50% non-promoted basis. This limitation on the
applicability of WSGP’s Carry shall only be applied on an individual well basis, shall not apply to
OBO wells, and shall in no way serve to diminish the then unpaid portion of the Carried Amount.
Notwithstanding anything to the contrary herein, any amounts characterized as “Carry” pursuant to
the Interim Leasing Agreement shall be credited against the Carried Amount at Closing and applied
toward the Phase 1 Commitment. The Drilling Program shall be carried out in two (2) separate
phases, each as described below:

4.3.1 Phase 1. The drilling schedule for the first phase of the
Drilling Program (“Phase 1”) shall be a program for which PetroQuest’s estimate
shall be delivered by PetroQuest to WSGP at Closing, and Phase 1 shall commence upon
the Effective Time. Phase 1 shall expire at such time as WSGP has paid Fifty-Four
Million Dollars ($54,000,000) of the Carried Amount (as calculated pursuant to
Section 4.7) in the course of WSGP’s participation in the Drilling Program
(the “Phase 1 Commitment”). At the point in time that PetroQuest estimates that
sixty (60) days remain before WSGP has funded its
Phase 1 Commitment, PetroQuest shall provide WSGP with a written proposal (the
“Phase 2 Notice”) to enter into the second phase of the Drilling Program (“Phase
2”);

 

12

 

4.3.2 Phase 2. Within fifteen (15) days of receipt of the Phase 2
Notice, WSGP shall provide PetroQuest written notice of its election to either
pursue Phase 2 or terminate this Agreement. Failure to respond within such period
shall be deemed an election to terminate this Agreement pursuant to Section
14.2.2. If WSGP elects to pursue Phase 2, upon the full funding of WSGP’s Phase
1 Commitment, Phase 2 shall commence. Phase 2 shall be divided into six (6) month
periods of time, the first of which commencing upon WSGP’s agreement to enter into
Phase 2 (each such six (6) period a “6 Month Tranche”). PetroQuest shall submit to
WSGP in writing subsequent to each Quarterly Meeting a subset of wells identified in
the Drilling Program (as modified from time to time) to be drilled within the
applicable 6 Month Tranche. At a minimum, the wells proposed by PetroQuest within
any 6 Month Tranche shall include six (6) Program Wells and six (6) PUD Wells
(collectively the “12 Well Minimum Content”). PetroQuest may propose wells in
addition to the 12 Well Minimum Content in any given 6 Month Tranche, subject to the
further provisions of this Section 4.3.2. WSGP shall have a minimum
commitment to participate in at least nine (9) wells proposed by PetroQuest within a
6 Month Tranche (either Program Wells or PUD Wells) with at least six (6) of such
wells being subject to the WSGP Carry (the “Minimum Commitment”). WSGP shall have
the right to non-consent any wells proposed within a 6 Month Tranche above the
Minimum Commitment, subject to Section 4.3.3 and the non-consent provisions
set forth in Section 4.5, provided, however, that WSGP shall not be
obligated to pay the WSGP Carry on any well beyond the Minimum Commitment in which
WSGP elects to non-consent. Notwithstanding anything to the contrary in this
Section 4.3.2, or in Section 4.3.4, in the event the Parties
mutually agree to pursue fewer than twelve (12) wells in any given 6 Month Tranche,
the 12 Well Minimum Content, and WSGP’s Minimum Commitment shall apply, on a
proportionately reduced basis, to the number of wells agreed to be pursued in such 6
Month Tranche.

4.3.3 Tranche Election. WSGP shall advise PetroQuest in writing at
least thirty (30) days prior to the commencement of succeeding 6 Month Tranche
whether or not it elects to pursue the next 6 Month Tranche (each a “Tranche
Election”). WSGP’s election described in Section 4.3.2 with respect to the
Phase 2 Notice shall be deemed for all purposes herein a Tranche Election with
respect to the first 6 Month Tranche in Phase 2. If WSGP elects to pursue such 6
Month Tranche, then all of the terms and conditions of Section 4.3.2 shall
apply to the Parties with respect to wells proposed for such 6 Month Tranche. A
failure to timely affirmatively elect to pursue an upcoming 6 Month Tranche shall
suspend WSGP’s rights to further participation in this Agreement until the
completion of such 6 Month Tranche. If within such 6 Month Tranche, (i) PetroQuest
fails to drill and complete (or plug and abandon, if a dry hole) at least twelve
(12) wells from the Drilling Program, then WSGP’s right to participate
shall no longer be suspended, and WSGP shall be entitled to a Tranche Election
with respect to the next succeeding 6 Month Tranche; or (ii) PetroQuest drills and
completes (or plugs and abandons, if a dry hole) at least twelve (12) wells from the
Drilling Program, then this Agreement shall terminate pursuant to the applicable
provisions of Section 14.2. In the event of such a termination, this
Agreement shall be deemed to have terminated upon the date on which the final well
in which WSGP elected to participate in the previous 6 Month Tranche has been
completed (or plugged and abandoned, if a dry hole).

 

13

 

4.3.4 Depletion of PUD Inventory. At that point in time when all PUD
Wells have been drilled (or non-consented by WSGP) and there remains only Program
Wells to be drilled hereunder, the 12 Well Minimum Content for any 6 Month Tranche
thereafter shall be comprised of twelve (12) Program Wells. At such time, the
Minimum Commitment shall be deemed to consist of nine (9) Program Wells in which
WSGP must participate and at least twelve (12) Program Wells for which PetroQuest
will receive the benefit of the WSGP Carry, until such time as the Carried Amount
has been paid in full.

4.4 Participation Elections. Pursuant to the Drilling Program, and during each phase
thereof, PetroQuest shall send WSGP an AFE for each well to be drilled hereunder detailing (i) the
proposed location of the well along with the geological and geophysical justification for such
location; (ii) the estimated drilling and completion costs for such well specifying WSGP’s share of
such costs (either on a carried or heads-up basis, as applicable); (iii) the proposed Spud Date for
such well; and (iv) customary title information and any other information reasonably material to
WSGP’s decision whether or not to participate therein. WSGP shall have thirty (30) days from
receipt of each AFE to elect, in writing to PetroQuest, to participate or not participate in the
applicable well. For each Program Well or PUD Well in which WSGP elects to participate, PetroQuest
shall send WSGP a cash call notice for WSGP’s proportionate share of the AFE cost for such well no
earlier than fifteen (15) days prior to the estimated Spud Date for such well. WSGP shall pay the
cash called amount for such well to PetroQuest within five (5) Business Days of receipt of the cash
call notice, and shall thereafter be responsible, subject to Section 4.3, for its share of
all costs and expenses for drilling, completing, equipping and producing such well (or plugging and
abandoning, if a dry hole).

4.5 Non-Consent Elections.

4.5.1 For any well which is a Required Well, an election not to participate,
or a failure to timely respond to such AFE, or a subsequent failure to pay WSGP’s
share of such AFE costs (each of the foregoing a “Deemed Non-Consent”) shall result
in forfeiture of all of WSGP’s right, title and interest in and to all lands that
would be earned or preserved by such Required Well. In such event, the Required
Well and the acreage earned or preserved thereby shall be excluded from the AMI,
excluded from the Contract Area of the applicable JOA, and shall no longer be
subject to the terms and conditions of this Agreement.

4.5.2 For any well which is a PUD Well, an election not to participate or a
Deemed Non-Consent shall result in forfeiture of all of WSGP’s right, title and
interest in and to the wellbore of such PUD Well.

 

14

 

4.5.3 For each Program Well (other than Required Wells) which is the initial
well on an applicable Drilling Unit, an election not to participate or Deemed
Non-Consent shall result in WSGP forfeiting any right to earn an interest in and to
the Drilling Unit for such Program Well. In such event, such Program Well and its
Drilling Unit shall be excluded from the AMI, excluded from the Contract Area of the
applicable JOA, and shall no longer be subject to the terms and conditions of this
Agreement.

4.5.4 Any subsequent wells on a given Drilling Unit in which WSGP has
participated (including any Development Wells) shall be subject to the non-consent
penalties prescribed in the applicable JOA.

4.5.5 Notwithstanding anything in this Section 4.5 to the contrary,
any forfeiture by WSGP due to non-consent or Deemed Non-Consent shall only apply so
long as the applicable well is commenced in good faith and drilled with due
diligence within ninety (90) days of such non-consent or Deemed Non-Consent; with
the effect being that if such well is not commenced within the ninety (90) day
period, WSGP’s election to participate right shall be revived.

4.5.6 Subject to the terms and conditions set forth in Section 4.5,
WSGP’s right to non-consent to operations under the Drilling Program during Phase 1
shall not extend beyond that point in time where WSGP’s non-consented operations
account for greater than twenty five percent (25%) of WSGP’s working interest share
(unpromoted) of the total capital expenditures associated with Phase 1 of the
Drilling Program (the “25% Level”). WSGP shall not be obligated to pay the WSGP
Carry on any well operation below the 25% Level. If WSGP further desires not to
participate in additional well proposals in Phase 1 beyond the 25% Level as AFE’d by
PetroQuest, then WSGP shall have the right to submit to PetroQuest, in writing, an
alternate well proposal(s) within fifteen (15) days of receipt of the originally
proposed well AFE. In the event PetroQuest agrees with such alternate well
proposal(s) (such agreement not unreasonably withheld, conditioned or delayed), then
such alternate well proposal shall be deemed in all respects a substitute for the
original well for which it was proposed. In the event PetroQuest does not agree
with such alternate well proposal(s) and timely spuds the original well as
non-consented by WSGP, then WSGP shall be obligated to pay PetroQuest the portion of
the Carried Amount attributable to such original well as if WSGP had originally
elected to participate therein, to the extent such well exceeds the 25% Level. The
foregoing limitation shall not apply to OBO well proposals included in Phase 1.

4.5.7 Subject to the terms and conditions in Sections 4.3.2,
4.3.3, 4.3.4 and the other provisions of Section 4.5, WSGP’s
right to non-consent to operations in any well beyond the Minimum Commitment
attributable to a particular 6 Month Tranche in Phase 2 shall only result in WSGP being subject
to the forfeiture and payment provisions set forth in Sections 4.5.1,
4.5.2, 4.5.3 and 4.5.4, as applicable.

 

15

 

4.5.8 Subject to the terms and conditions in Section 4.3.4, at the
time the Minimum Commitment in any 6 Month Tranche is comprised of only Program
Wells, WSGP’s election to non-consent operations in each well (up to a maximum of
three (3) Program Wells) above the minimum nine (9) wells in which WSGP must
participate in a given 6 Month Tranche shall result in WSGP paying PetroQuest an
amount equal to the carried portion of the costs of such well.

4.5.9 The Parties agree that in the event non-consent elections made by WSGP
pursuant to its rights granted in this Section 4.5 result in PetroQuest (as
Operator) being subject to Vendor Penalties, then WSGP shall remit to PetroQuest a
cash payment in the amount of such Vendor Penalties within fifteen (15) days of
receipt of an invoice documenting any such Vendor Penalties.

4.6 Interests Earned in Each Well by Drilling. For each Program Well (other than a
Development Well or a subsequent well on a Drilling Unit previously assigned to WSGP (each such
subsequent well an “Infill Well”) in which WSGP participates that is drilled and completed as a dry
hole or a producer in the Drilling Program, WSGP will earn, effective as of the Spud Date for such
Program Well, an undivided fifty percent (50%) of PetroQuest’s working interest and associated net
revenue interest as of the Spud Date in and to the Program Well and the Drilling Unit for such
well, the production and revenue attributable to such well, and all related equipment and other
property associated therewith, and PetroQuest will retain fifty percent (50%) of its working
interest and associated net revenue interest as of the Spud Date in each such well and its Drilling
Unit, the production and revenue attributable to such well, and all related equipment and other
property associated therewith. PetroQuest shall deliver to WSGP an assignment of the interests
WSGP has earned in each such Program Well in accordance with Section 5.1. Each assignment
earned by WSGP shall be made subject to this Agreement.

4.7 Applicability of WSGP’s Carry. Subject to Section 4.3, and WSGP’s non-consent
elections, WSGP’s Carry shall apply to any and all costs and expenses, including overhead under the
JOA, attributable to the drilling, completion, sidetracking, deepening, reworking, recompletion or
repair of any Program Well, including the construction of gathering, treating and processing
facilities exclusively servicing production from such Program Well until such time as the carried
portion of all such costs and expenses actually paid by WSGP equals the Carried Amount. WSGP’s
Carry shall not apply to any leasehold or mineral interest acquisitions within the AMI pursuant to
Article XI, nor any costs to acquire seismic data in and to any portion of the AMI, all
such costs and expenses being on a heads-up, non-carried 50%/50% basis, subject to Section
11.3 with respect to administrative overhead, and further subject to each Party’s election to
participate or not participate in any such
acquisition. PetroQuest shall furnish statements to WSGP, in form and substance reasonably
acceptable to WSGP, on or before the 20th day following the end of each calendar quarter
(March 31, June 30, September 30 and December 31) detailing the amount paid and applied against the
Carried Amount by WSGP from the prior quarter, the aggregate amount paid and applied against the
Carried Amount by WSGP as of the end of such prior quarter and the amount remaining to be paid
toward the Carried Amount. PetroQuest shall send written notice to WSGP within thirty (30) days of
the date that WSGP has paid the entire Carried Amount. From and after the date on which such
Carried Amount has been paid, all costs and expenses attributable or related to existing Program
Wells, and any subsequent Program Wells shall be on a heads-up, non-carried 50%/50% basis.

 

16

 

ARTICLE V

ASSIGNMENTS TO WSGP

5.1 Program Well Assignments. No later than five (5) Business Days following the Spud Date
for each Program Well (other than a Development Well or a subsequent well upon a Drilling Unit
previously assigned to WSGP) in which WSGP participates, subject to PetroQuest’s receipt of WSGP’s
share of costs for such Program Well, PetroQuest shall prepare, execute and deliver to WSGP an
assignment, in the form attached hereto as Exhibit “F” of an undivided 50% of PetroQuest’s
right, title and interest in and to such Program Well and the Drilling Unit attributable thereto,
with a like interest in and to the production and revenue attributable to such well, and all
related equipment and other property associated therewith (a “Program Well Assignment”).

5.2 Early Termination. Upon Early Termination, PetroQuest shall prepare and deliver to
WSGP the assignments required to be delivered pursuant to Section 14.3, subject to the
terms of Article XIV.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties of PetroQuest. As of the Closing Date, PetroQuest
represents and warrants to WSGP as follows:

6.1.1 PetroQuest is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Louisiana and is duly
licensed and qualified to do business as a limited liability company and is in good
standing in all jurisdictions in which such qualification is required under
Applicable Law;

6.1.2 PetroQuest has all requisite power and authority to carry on its
businesses as presently conducted;

6.1.3 PetroQuest has all requisite power and authority to enter into this
Agreement and the other agreements contemplated hereby and to perform
PetroQuest’s obligations contemplated hereunder and thereunder, and the
consummation of the Transaction and the other agreements contemplated hereby will
not violate or be in conflict with any provisions of PetroQuest’s organizational
documents or other governing documents, or any material agreement or instrument to
which it is a party or by which it is bound, or any judgment, decree, order,
statute, rule or regulation applicable to PetroQuest;

6.1.4 the execution, delivery and performance of this Agreement and the
consummation of the Transaction have been duly and validly authorized by all
requisite action on the part of PetroQuest, and this Agreement and the other
agreements contemplated hereby will constitute the valid, legal and binding
obligation of PetroQuest, enforceable in accordance with their respective terms,
subject to applicable bankruptcy and other similar laws of general application with
respect to creditors;

 

17

 

6.1.5 there are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by, or to the knowledge of PetroQuest, threatened
against PetroQuest; and PetroQuest is able to pay its debts as such debts become
due, and it has sufficient capital to carry on its respective present businesses and
transactions and all businesses and transactions in which it is about to engage.
PetroQuest (i) is not bankrupt or insolvent, (ii) has not made an assignment for the
benefit of its creditors which not be remedied by the release to be delivered by
PetroQuest at Closing, (iii) has not had a trustee or receiver appointed, (iv) has
not had any bankruptcy, reorganization or insolvency proceedings instituted by or
against it, or (v) shall not be rendered insolvent by its execution, delivery or
performance of this Agreement;

6.1.6 there is no written claim for breach of contract, tort or violation of
Applicable Law or investigation of which PetroQuest has received written notice, or
any suit, action or litigation, by any Person, and no legal, administrative, or
arbitration proceedings, (in each case) pending, or to PetroQuest’s Knowledge,
threatened in writing against PetroQuest, or to which PetroQuest is a party, that
would have a Material Adverse Effect upon the ability of PetroQuest to consummate
the transactions contemplated by this Agreement;

6.1.7 the materials furnished to WSGP, contained in PetroQuest’s virtual data
room, the responses to due diligence inquiries and all other documents, agreements
and Schedules furnished or made available to WSGP prior to the date of this
Agreement, by or on behalf of PetroQuest, were collected, prepared and provided, as
the case may be, in good faith and, to PetroQuest’s Knowledge, the documents
provided or made available to WSGP or its representatives (i) were authentic and
complete copies of such documents, inclusive of all amendments and modifications, to
the extent that PetroQuest possessed complete copies thereof and to the extent
PetroQuest was legally authorized to provide complete copies giving effect to any
applicable contractual restraints on disclosure or legal privilege, (ii) did not
contain any untrue or incorrect statement of material fact, or omit to state any
fact necessary to make
the information therein not misleading, provided that many of such materials
are based upon and contain projections, estimates and subjective interpretations,
the accuracy and completeness of which are expressly disclaimed in Section
6.1.18, and (iii) other than the Current Unrecorded Commitments as described on
the attached Schedule 1, and the Transaction Assets described on the
attached Exhibit “A”, PetroQuest is unaware of any undisclosed, unrecorded
agreement that burdens the interests to be acquired by WSGP under this Agreement;

 

18

 

6.1.8 PetroQuest has incurred no liability, contingent or otherwise, for
brokers’ or finders’ fees relating to the transaction contemplated by this Agreement
for which WSGP shall have any responsibility whatsoever;

6.1.9 To PetroQuest’s Knowledge, PetroQuest has all governmental licenses,
authorizations, consents and approvals required for the ownership of the Transaction
Assets, and PetroQuest has complied with all applicable rules, regulations, and
ordinances of any governmental authority having jurisdiction over the Transaction
Assets and as to which noncompliance would have a Material Adverse Effect on any of
the Transaction Assets. For purposes of this Agreement, “Material Adverse Effect”
means the cumulative effect of facts, actions, or events relating to the Transaction
Assets which, taken as a whole, would deprive WSGP of the right to receive the
benefit of the bargain contemplated by this Agreement as to any Transaction Asset;

6.1.10 PetroQuest is not obligated by virtue of any prepayment made under any
production sales contract or any other contract containing a “take-or-pay” clause or
under any production payment, forward sale, deferred production, or similar
arrangement to deliver oil, gas or other minerals produced from or allocated to any
of the Transaction Assets at some future time without receiving full payment
therefor at the time of delivery;

6.1.11 To PetroQuest’s Knowledge, there are no Imbalances between PetroQuest
and any third party with respect to the Transaction Assets. The term “Imbalance”
means any imbalance at the wellhead or pipeline between the amount of natural gas or
other hydrocarbons produced from a well to which PetroQuest was entitled and the
amount of production which PetroQuest was actually allocated for sale purposes,
together with any appurtenant rights and obligations concerning future in-kind or
cash balancing at the wellhead, or pipeline, as the case may be;

6.1.12 Except as reflected in Section 10.6 and on Schedule
10.4, there are no commodity swap, hedging or similar agreements which provide
for physical delivery or financial sales of hydrocarbons during future periods
following the Execution Date for which WSGP shall have any obligations following the
Closing;

6.1.13 to PetroQuest’s Knowledge: (i) all permits, licenses, approvals and
consents from appropriate Governmental Authorities necessary to conduct the
operation of the Transaction Assets in compliance with all Applicable Laws have been
obtained; and the operator of the Transaction Assets is in compliance with all such
permits, licenses, approvals and consents; (ii) neither PetroQuest nor any third
party operator of any of the Transaction Assets has received any notices of
violation or orders for remediation for any Environmental Matter with respect to the
Transaction Assets that have not been remediated or otherwise brought into
compliance;

 

19

 

6.1.14 with respect to the Transaction Assets and to PetroQuest’s Knowledge,
except as would not be reasonably expected to have a Material Adverse Effect: (i)
each of the oil and gas leases subject to the terms of this Agreement (the “Leases”)
is in full force and effect; (ii) PetroQuest has not, by its act or omission, caused
the breach or default, nor has there occurred any event, fact, or circumstance that,
with the lapse of time or the giving of notice, or both, would constitute such a
breach or default by PetroQuest with respect to any of its obligations under any
Lease; (iii) no lessor under any Lease has given or threatened to give notice to
PetroQuest of any action to terminate, cancel, rescind, repudiate, or procure a
judicial reformation of any Lease or any provisions thereof; and (iv ) except as set
forth on Schedule 6.1.15, PetroQuest does not own any real property in fee
that affect the Transaction Assets;

6.1.15 with respect to the contracts which affect the Transaction Assets, to
PetroQuest’s Knowledge, and except as would not reasonably be expected to have a
Material Adverse Effect: (i) all such contracts are in full force and effect and
are the valid and legally binding obligations of the parties thereto and are
enforceable in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights generally, and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in equity
or at law); (ii) PetroQuest is not in breach or default, nor has there occurred any
event, fact or circumstance that, with the lapse of time or giving of notice or
both, would constitute such a breach or default by PetroQuest with respect to any of
its material obligations under any contract; (iii) no other party to any contract
has given or threatened to give notice to PetroQuest of any action to terminate,
cancel, rescind, or procure a judicial reformation of any contract or any provision
thereof; and (iv) to the extent affecting the Selected PUDS, the contracts do not
contain any obligations to drill additional wells or to engage in other development
operations, except for obligations arising under provisions of operating agreements
that allow the parties thereto to elect whether or not they will participate in such
operations and except for obligations under the terms of the Leases which require
drilling or development operations to maintain a lease in force beyond its primary
term;

6.1.16 EXCEPT WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES SET FORTH
HEREIN AND THE SPECIAL OR LIMITED BY, THROUGH AND UNDER WARRANTY OF TITLE TO BE CONTAINED
IN THE PUD ASSIGNMENT AND THE OTHER ASSIGNMENTS TO BE DELIVERED PURSUANT HERETO,
PETROQUEST MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT
TO TITLE TO ANY OF THE TRANSACTION ASSETS, AND ANY AND ALL SUCH REPRESENTATIONS AND
WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.

 

20

 

6.1.17 EXCEPT WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES SET FORTH
HEREIN, PETROQUEST MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO THE ENVIRONMENTAL CONDITION OF THE TRANSACTION ASSETS, AND ANY AND ALL
SUCH REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.

6.1.18 EXCEPT WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES SET FORTH
HEREIN, PETROQUEST MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO (I) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR GEOPHYSICAL
DATA OR INTERPRETATION RELATING TO THE TRANSACTION ASSETS, (II) THE QUANTITY,
QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE TRANSACTION ASSETS,
(III) ANY ESTIMATES OF THE VALUE OF THE TRANSACTION ASSETS OR FUTURE REVENUES
GENERATED BY THE TRANSACTION ASSETS (IV) THE MAINTENANCE, REPAIR, CONDITION,
QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF ANY OF THE TRANSACTION ASSETS, OR
(V) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO OR
COMMUNICATED TO WSGP OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTION OR ANY
DISCUSSION OR PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE
TRANSACTION ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT
EXCEPT AS SET FORTH IN THIS ARTICLE VI, WSGP SHALL BE DEEMED TO BE OBTAINING THE
TRANSACTION ASSETS, AS AND WHEN PURCHASED OR EARNED PURSUANT TO THE TERMS HEREOF, IN
THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL
FAULTS AND THAT WSGP HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS WSGP
DEEMS APPROPRIATE.

6.2 Representations and Warranties of WSGP. As of the Closing Date, WSGP represents and
warrants to PetroQuest as follows:

6.2.1 WSGP is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly licensed and
qualified to do business as a limited liability company and is in good standing in
all jurisdictions in which such qualification is required under Applicable Law;

 

21

 

6.2.2 WSGP has all requisite power and authority to carry on its businesses as
presently conducted and is duly qualified with all appropriate Governmental
Authorities to own the interests to be purchased or earned pursuant to this
Agreement in the State of Oklahoma;

6.2.3 WSGP has all requisite power and authority to enter into this Agreement
and the other agreements contemplated hereby and to perform WSGP’s obligations
contemplated hereunder and thereunder, and the consummation of the Transaction and
the other agreements contemplated hereby will not violate or be in conflict with any
provisions of WSGP’s organizational documents or other governing documents, or any
material agreement or instrument to which it is a party or by which it is bound, or
any judgment, decree, order, statute, rule or regulation applicable to WSGP;

6.2.4 the execution, delivery and performance of this Agreement and the
consummation of the Transaction have been duly and validly authorized by all
requisite action on the part of WSGP, and this Agreement and the other agreements
contemplated hereby will constitute the valid, legal and binding obligation of WSGP,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy and other similar laws of general application with respect to creditors;

6.2.5 there are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by, or to NGEP’s Knowledge, threatened against WSGP; and
WSGP is able to pay its debts as such debts become due, and it has sufficient
capital to carry on its respective present businesses and transactions and all
businesses and transactions in which it is about to engage. WSGP (i) is not
bankrupt or insolvent, (ii) has not made an assignment for the benefit of its
creditors, (iii) has not had a trustee or receiver appointed, (iv) has not had any
bankruptcy, reorganization or insolvency proceedings instituted by or against it, or
(v) shall not be rendered insolvent by its execution, delivery or performance of
this Agreement;

6.2.6 there is no written claim for breach of contract, tort or violation of
Applicable Law or investigation of which WSGP has received written
notice, or any suit, action or litigation, by any Person, and no legal,
administrative, or arbitration proceedings, (in each case) pending, or to WSGP’s
Knowledge, threatened in writing against WSGP, or to which WSGP is a party, that
would have a Material Adverse Effect upon the ability of WSGP to consummate the
transactions contemplated by this Agreement; and,

6.2.7 WSGP (directly or through its Affiliates and advisors) is an informed
and sophisticated purchaser, and has engaged expert advisors, experienced in the
evaluation of transactions such as that contemplated hereunder. WSGP (directly or
through its Affiliates) has undertaken such investigation as it has deemed necessary
to enable it to make an informed and intelligent decision with respect to the
execution, delivery and performance of this Agreement.

 

22

 

ARTICLE VII

PRE-CLOSING COVENANTS

7.1 Conduct of Business. PetroQuest agrees that from and after the date hereof until the
Closing Date, PetroQuest will:

7.1.1 give written notice to WSGP as soon as is practicable (but within five
(5) Business Days) of any written notice received or given by PetroQuest or any of
PetroQuest’s Affiliates with respect to (i) any alleged material breach of any
Lease, (ii) any action to alter, terminate, rescind or procure a judicial
reformation of any Lease or (iii) notice in writing of any new claim for damages or
any new investigation, suit, action or litigation with respect to the Transaction
Assets;

7.1.2 not transfer, sell, mortgage, pledge, encumber or dispose of any portion
of the Transaction Assets except in the ordinary course of business and as would not
have a Material Adverse Effect;

7.1.3 not grant or create any preferential right to purchase, right of first
opportunity or other transfer restriction or requirement with respect to the
Drilling Program or the Transaction Assets;

7.1.4 not, directly or indirectly, or through an owner, employee,
representative, its Affiliates or by or through the use of any other conduit, offer
to participate in the Drilling Program with, or sell, pledge or transfer the
Transactions Assets to, a third party, or request, solicit or otherwise encourage
inquiries, proposals or offers from anyone but WSGP or its Affiliates.

7.1.5 maintain insurance coverage with respect to any operations conducted
upon the Transaction Assets in the amounts and types PetroQuest currently has in
force;

7.1.6 use commercially reasonable efforts to maintain in full force and effect
all rights with respect to the Drilling Program and the Transaction Assets.

 

23

 

7.2 Notifications. If either PetroQuest or WSGP obtains actual knowledge that the other
Party apparently has breached a representation, warranty, covenant or other agreement under this
Agreement, that Party shall promptly inform the other Party of such potential breach so that it may
attempt to remedy or cure such breach prior to Closing. Notwithstanding the foregoing, this
Section shall not apply to breach of the Parties’ obligations at Closing and shall not operate to
delay Closing. If any of PetroQuest’s or WSGP’s representations or warranties is untrue, or
PetroQuest’s or WSGP’s covenants or agreements have not been performed or observed, but such breach
or failure is cured to the reasonable satisfaction of the other Party by Closing (or, if Closing
does not occur, by the earlier termination of this Agreement pursuant to Section 14.1),
then such breach or failure shall be deemed not to have occurred for all purposes of this
Agreement. Due to the fact that certain of PetroQuest’s representations and warranties hereunder
may be rendered untrue due to circumstances occurring after the Execution Date, PetroQuest shall
promptly notify WSGP of any occurrences prior to Closing that would render any of its
representations or warranties in Sections 6.1.6 through 6.1.15 untrue, and update
any applicable Schedules to account for any such occurrences. No such changes or occurrences, to
the extent disclosed by PetroQuest pursuant to this Section 7.2 shall be deemed to give
rise to a breach of the applicable representations or warranties for which damages or equitable
remedies may be sought, provided, however, WSGP shall have the right, but not the obligation, to
terminate this Agreement, such termination being WSGP’s sole and exclusive remedy.

7.3 Access. From and after the date hereof and up to and including the Closing (or earlier
termination of this Agreement pursuant to Section 14.1), PetroQuest shall afford to WSGP
and its Representatives full access, during normal business hours, to all records and other
documents in PetroQuest’s possession relating to the Drilling Program or the Transaction Assets
subject however to any applicable contractual restraints on disclosure or any applicable legal
privilege. PetroQuest shall also make available to WSGP and WSGP’s Representatives, upon
reasonable notice during normal business hours, PetroQuest’s personnel knowledgeable with respect
to the Drilling Program or the Transaction Assets. WSGP shall coordinate its access rights and
physical inspections of the Transaction Assets with PetroQuest to reasonably minimize any
inconvenience to or interruption of the conduct of business by PetroQuest.

ARTICLE VIII

CONDITIONS TO CLOSING

The obligations of PetroQuest and WSGP to consummate the transactions provided for herein are
subject, at the option of PetroQuest or WSGP (as appropriate), to the fulfillment on or prior to
the Closing Date of each of the following conditions:

8.1 Representations. The representations and warranties of PetroQuest or WSGP (as appropriate) set forth in
Section 6.1 and Section 6.2 shall be true and correct in all material respects as
of the Closing Date as though made on and as of the Closing Date.

8.2 Performance. PetroQuest or WSGP (as appropriate) shall have performed or complied with
all obligations, agreements, and covenants contained in this Agreement as to which performance or
compliance by PetroQuest or WSGP (as appropriate) is required prior to or at the Closing.

8.3 No Legal Proceedings. No suit, action, or other proceeding instituted by a third party
shall be pending before any Governmental Authority or arbitrator seeking to restrain, prohibit,
enjoin, or declare illegal, or seeking substantial damages in connection with, the transactions
contemplated by this Agreement. No order, award or judgment shall have been issued by any
Governmental Authority or arbitrator to restrain, prohibit, enjoin, or declare illegal, or awarding
substantial damages in connection with, the transactions contemplated by this Agreement.

 

24

 

8.4 Consent and Waivers. All consents and approvals required from Governmental Authorities
for the consummation of the transactions contemplated by this Agreement shall have been granted.
The board approvals described in Section 18.20 shall have been granted and each Party shall
have affirmatively notified the other of such approval.

8.5 Closing Deliverables. PetroQuest or WSGP (as appropriate) shall have delivered (or be
ready, willing and able to deliver at Closing) to the appropriate Party the documents and other
items required to be delivered pursuant to Section 9.2.

8.6 No Material Event. No Material Event with respect to PetroQuest or its Affiliates or
WSGP or its Affiliates (as appropriate) shall have occurred and be continuing and no material
default by PetroQuest or WSGP (as appropriate) under this Agreement shall have occurred and be
continuing.

ARTICLE IX

CLOSING

9.1 Closing Date. The closing of the Transaction (the “Closing”) shall occur on May 24,
2010, or on such other date as WSGP and PetroQuest may agree upon in writing.

9.2 Closing Obligations. At the Closing, the following documents shall be delivered and the following events shall occur,
the execution of each document and the occurrence of each event being a condition precedent to the
others and each being deemed to have occurred simultaneously with the others:

9.2.1 Memorandum of Agreement. At the Closing, each of the Parties
shall execute, acknowledge and deliver multiple counterparts of a Memorandum of
Agreement (the “Memorandum of Agreement”) in the form attached hereto as Exhibit
“H” describing the Transaction Assets, giving public notice of the existence of
this Agreement between PetroQuest and WSGP with respect to the Transaction Assets
and that PetroQuest holds record title in and to certain interests therein for the
sole benefit of WSGP subject to the terms of this Agreement. Promptly, but in any
event no later than three (3) Business Days following execution of the Memorandum of
Agreement, PetroQuest shall record counterparts of such agreement in the appropriate
real property, oil and gas, or other official public records of each county in which
Transaction Assets are located.

9.2.2 Payment of PUD Purchase Price. WSGP will pay PetroQuest the
Thirty-Five Million Dollar ($35,000,000) PUD Purchase Price by wire transfer in
immediately available funds, to the following account (the “Wire Account”):

	 	 	 	 	 
	 

	 	Bank:
	 	JPMorgan Chase, NA
	 
	 	 	 	 
	 

	 	Account Name:
	 	PetroQuest Energy LLC Operating Account
	 
	 	 	 	 
	 

	 	Account Number:
	 	644369134 

 

25

 

9.2.3 Installment Payment of Remaining Assets Purchase Price. WSGP
will additionally pay PetroQuest Twenty Five Million Dollars ($25,000,000) by wire
transfer in immediately available funds, to the Wire Account pursuant to Section
3.1.1.

9.2.4 PUD Assignment. PetroQuest shall execute, notarize and deliver
the PUD Assignment required pursuant to Section 2.2 hereof.

9.2.5 Phase 1 Drilling Program. PetroQuest shall deliver its
estimated drilling schedule for Phase 1 of the Drilling Program to WSGP.

9.2.6 Mortgage Release. PetroQuest shall deliver to WSGP executed
releases of the mortgages burdening PetroQuest’s interests in and to the Selected
PUDs.

9.2.7 Letter Agreements. The Letter Agreements shall have been
executed and delivered in a form satisfactory to each Party.

9.2.8 Board Approvals. PetroQuest shall deliver to WSGP an executed
certificate from the secretary of PetroQuest Energy, Inc. certifying that
the Board of Directors of PetroQuest has approved the Transaction as
contemplated by this Agreement. WSGP shall deliver to PetroQuest an executed
certificate from the secretary of FPL Group, Inc. certifying that the Board of
Directors of FPL Group, Inc. has approved the Transaction as contemplated by this
Agreement.

ARTICLE X

POST CLOSING COVENANTS

10.1 Restrictions on Transfer. The identity, capabilities and creditworthiness of
each Party to this Agreement are of critical importance to the other Party. Therefore, a Party
(the “Transferring Party”) may only effect an assignment, transfer, grant, mortgage, pledge,
hypothecation or other conveyance (collectively a “Transfer”) of (i) any portion of its interest in
and to any of the jointly owned interests of the Parties within the AMI, or (ii) any of its rights
or obligations under this Agreement to a third party (the “Prospective Transferee”) without the
prior written consent of the other Party (the “Non-transferring Party”) if:

10.1.1 In the Transfer from the Transferring Party to the Prospective
Transferee, the Transferring Party remains wholly responsible to the
Non-transferring Party for all of the obligations of the Transferring Party under
this Agreement;

 

26

 

10.1.2 The Transfer involves: (i) primarily the grant of a mortgage or
security interest in all or substantially all of the Party’s oil and gas assets to
such Party’s Lender to secure its corporate credit; (ii) is a an assignment of this
Agreement or any rights acquired or held hereunder by either Party to any Lender as
collateral security for obligations under the financing documents entered into with
such Lender; or (iii) with respect to a Transfer by WSGP pursuant to the foregoing,
is an assignment by the Lenders to a third party after the Lenders have exercised
their foreclosure rights with respect to this Agreement or the interests acquired by
WSGP hereunder. If such Transfer is as described in (ii) above, the
Non-transferring Party shall, upon request by the Transferring Party and at the
Transferring Party’s sole expense, cooperate reasonably to execute or arrange for
the delivery of those normal, reasonable and customary certificates, consents and
opinions (all in forms reasonably acceptable to the Non-transferring Party and
including assumptions, caveats and exclusions typical for such documents or
necessary for the accuracy or delivery thereof) as may be necessary to assist the
Transferring Party in consummating the applicable financing;

10.1.3 The Transfer involves only the sale of undivided interests in and to
wellbores (including ancillary rights in and to equipment, easements and the
production and revenue attributable thereto) owned in record title by the
Transferring Party at the time of the Transfer;

10.1.4 The Transfer is a mortgage, pledge, security interest, dedication or
other encumbrance which is associated with any operating agreement, gas sales
agreement or other agreement executed in the ordinary course of exploration,
development and production which is not otherwise restricted by this Agreement;

10.1.5 The Prospective Transferee is an Affiliate of the Transferring Party
and such Prospective Transferee expressly assumes in a writing reasonably
satisfactory to the Non-transferring Party all (or, in the case of a partial
transfer, its proportionate share) of the Transferring Party’s obligations under
this Agreement.

Otherwise, during the term of this Agreement, neither Party shall effect a Transfer without first
obtaining the written consent of the Non-transferring Party, which consent may not be unreasonably
withheld, conditioned or delayed. Any Transfer in violation of this provision or Section
10.2 below shall be null and void ab initio.

10.2 Permitted Transfers. Any permitted Transfer by either Party to this Agreement,
or any of their successors and assigns, shall be made expressly subject to this Agreement.
Notwithstanding the provisions of Section 4.6 of this Agreement, prior to any permitted
Transfer by PetroQuest which is in recordable form, PetroQuest shall prepare, execute and deliver
to WSGP an assignment of all interests earned by WSGP under this Agreement for which WSGP has not
received an assignment.

10.3 Burdens Created by PetroQuest. Without the prior written consent of WSGP, PetroQuest
shall not enter into any agreements, commitments, contracts or other contractual obligations that
would burden, encumber or otherwise affect any interest in the Transaction Assets earned or that
may be earned by WSGP pursuant to this Agreement.

 

27

 

10.4 Additional Gathering System. The PUD Assignment and each Program Well Assignment
shall include an assignment to WSGP of an undivided fifty percent (50%) interest in and to those
rights, if any, of PetroQuest as of the effective time of each such assignment under the oil, gas
and mineral leases comprising the applicable assigned leasehold interest to use the surface and
subsurface of the lands covered thereby to construct a gathering system, subject to (i) the
Existing Gas Gathering Agreements as set forth in Schedule 10.4, and (ii) all the terms and
conditions contained in each conveyed lease that may apply to or restrict the construction of such
gathering system(s). Subject to such limitations, either Party may propose the construction of a
gathering system and related equipment on the jointly owned acreage within the AMI by giving the
other Party written notice specifying the proposed location and estimated cost of such gathering
system, together with such other information as reasonably necessary for a Party to make its
election. The Party receiving the notice shall have thirty (30) days after receipt of the notice
within which to notify the Party wishing to construct the gathering system and related equipment
whether it elects to participate
in the cost thereof. In the event PetroQuest elects to participate, PetroQuest shall install
and operate the system. If WSGP and PetroQuest both elect to participate in the construction of
the proposed gathering system and related equipment, their respective ownership interests therein
shall be fifty percent (50%) each, with each Party being responsible only for its proportionate,
non-carried share of the costs and expenses of design, construction, installation and operation of
such system. Failure to respond within the above described thirty (30) day period shall be deemed
an election not to participate in the construction of the proposed gathering system. The proposing
Party may proceed with the construction of the proposed gathering system at its own cost and
expense following the above described thirty (30) day period if the non-proposing Party has elected
or been deemed to have elected not to participate therein, and, in such event, the proposing Party
shall own one hundred percent (100%) of the ownership interest in such gathering system.

10.5 Cooperation. From and after Closing, WSGP shall support and cooperate with PetroQuest
and execute, upon request, all required filings, applications and permits required by any
Governmental Authority or other instruments reasonably necessary for the formation of or otherwise
related to any voluntary or involuntary units initiated by PetroQuest with respect to any of the
Transaction Assets or other jointly owned acreage, including supporting PetroQuest as Operator in
any application in which PetroQuest seeks operatorship.

10.6 Existing Gas Purchase Contracts. PetroQuest has previously entered into the following
gas contracts (hereinafter collectively referred to as the “Existing Gas Purchase Contracts”):

	 	a.	 	Base Contract for Sale and Purchase of Natural Gas with Laclede
Energy Resources, Inc. as of September 20, 2007 — Transaction Confirmation
dated September 20, 2007.

	 	b.	 	Base Contract for Sale and Purchase of Natural Gas with Laclede
Energy Resources, Inc. as of September 20, 2007 — Transaction Confirmation
dated September 30, 2008.

	 	c.	 	Clarification of Transaction Confirmation effective November 1,
2008.

 

28

 

Some or all of the gas produced from the Selected PUDs and the Remaining Assets is currently
required to be delivered under the Existing Gas Purchase Contracts. WSGP and PetroQuest agree work
together to minimize the amount of Gas that WSGP will be required to deliver under the Existing Gas
Purchase Contracts such that WSGP will be able to market as much of its own gas as possible without
breaching the Existing Gas Purchase Contracts. In furtherance of this agreement, the Parties agree
as follows:

10.6.1 Upon the execution of this Agreement, WSGP and PetroQuest shall work
together to develop nomination procedures under the Existing Gas Purchase Contracts
to reflect the Parties’ intent that the amount of gas that WSGP will be required to
deliver under such contracts will be minimized. In general, the nomination
procedures should provide for the following result:

	 	10.6.1.1	 	If PetroQuest’s portion of gas volumes produced by
the jointly owned acreage within the AMI (the
“PetroQuest Production”) is equal to or greater than the
MaxDQ (as such term is defined in the applicable
Existing Gas Purchase Contract), then PetroQuest would
nominate the MaxDQ to the purchaser (“Laclede”) and the
remainder to a mutually agreed upon counterparty(ies).
For the avoidance of doubt, the PetroQuest Production
shall consist not only of gas produced on acreage
dedicated under the Existing Gas Purchase Contracts, but
gas produced from wells drilled in the future on acreage
not dedicated under the Existing Gas Purchase Contracts,
but limited to gas produced from the Woodford formation.
PetroQuest Production shall not include gas produced
from any formation or common source of supply other than
the Woodford, nor shall it include, existing Woodford
production from wells (whether or not operated by
PetroQuest) existing as of the date of this Agreement,
but situated on acreage not dedicated under the Existing
Gas Purchase Contracts. In the event that the portion
of the PetroQuest Production produced on acreage
dedicated under the Existing Gas Purchase Contracts is
less than the MaxDQ, but the remaining PetroQuest
Production equals or exceeds the MaxDQ, then PetroQuest
shall financially allocate such production, as
necessary, in order to the fulfill its obligations under
the Existing Gas Purchase Contracts.

 

29

 

	 	10.6.1.2	 	If the PetroQuest Production is less than the
MaxDQ, PetroQuest would nominate all of its gas to
Laclede such volumes of WSGP’s gas from acreage
dedicated under the Existing Gas Purchase Contracts as
is needed to satisfy the Max DQ (i.e.,; up to WSGP’s
total production); the remainder of WSGP’s production,
if any, being nominated to a mutually agreed upon
counterparty(ies).

	 	10.6.1.3	 	The Parties recognize that gas production volumes
will vary on a day to day basis and the nomination
procedures will need to address such production
variances.

10.7 Assumption. With respect to any interests conveyed to WSGP pursuant to this
Agreement, WSGP shall be responsible for and hereby expressly assumes its proportionate share of
plugging and abandonment liability and, subject to the indemnities provided in Article
XVII, all Environmental Matters arising with respect to the interests assigned to WSGP by
PetroQuest pursuant to this Agreement.

ARTICLE XI

AMI

11.1 Area of Mutual Interest. An AMI is hereby established as to those lands described on
Exhibit “B” for a term of eight (8) years from the Closing Date. In the event either
Party, or its Affiliate(s), acquires, either directly or indirectly, from a third party an interest
in minerals, royalties, oil and gas leasehold or an option to acquire such interest, or contractual
rights to earn such interest (hereinafter referred to as an “Acquired Interest”), including any
renewals, extensions or replacement leases for any of the leases included in the Transaction Assets
or previous Acquired Interests, which is obtained or earned by purchase, deed, assignment, option,
extension, renewal, farmin, acreage contribution or other agreement covering lands situated in
whole or in part within the AMI, the acquiring Party shall promptly notify the non-acquiring Party
of such Acquired Interest and shall attach a copy of the instrument evidencing same, together with
all title materials in its possession and an itemized statement of the acquisition costs
attributable to each such Acquired Interest. Such acquisition costs shall exclude any overhead,
financing or other internal costs incurred by the acquiring party. The non-acquiring Party shall
have the option to participate for its proportionate share of the Acquired Interest, by notifying
the acquiring Party of its election in writing within thirty (30) days of receipt of the election
notice. The acquiring Party shall deliver an assignment of the non-acquiring Party’s proportionate
share of the Acquired Interest in recordable form, in substantially the same form as the PUD
Assignment, to the non-acquiring Party which has elected to participate in the acquisition of such
an Acquired Interest upon receipt of such non-acquiring Party’s proportionate working interest
share of the acquisition costs for such Acquired Interest.

11.1.1 In the event the non-acquiring Party elects not to participate in the
Acquired Interest, the Acquired Interest shall not be subject to this Agreement, and
the land covered thereby shall be excluded from the AMI and excluded from the
Contract Area of the JOA.

 

30

 

11.1.2 Regardless of which Party acquires or elects to participate in the
acquisition of any Acquired Interest, the Parties understand and agree that all such
Acquired Interests shall be burdened by the landowner’s royalty and any other lease
burdens of record as of the date of acquisition. The acquiring Party shall not
grant any overriding royalties, production payments or otherwise create any
additional lease burdens or encumbrances upon the Acquired Interest prior to
assignment to the other Party.

11.2 Lease Acquisition Procedures. Until the entire Carried Amount has been paid by WSGP
pursuant to Section 4.3, PetroQuest shall be the only party to this Agreement or the
Operating Agreement authorized to acquire any oil, gas or mineral lease(s) or any interest(s) in
any oil, gas or mineral estate(s) within the AMI, and PetroQuest shall be responsible, pursuant to
the Operating Agreement for the payment of delay rentals, shut-in well payments, minimum royalties and
such other lease costs as may become due and payable (collectively “Lease Maintenance”).

11.3 Administrative Overhead. From and after the Closing Date, PetroQuest shall provide
statements to WSGP on or before the fifteenth (15th) day of the month following each
calendar quarter detailing the total amount of all joint expenditures made by the Parties in the
prior calendar quarter attributable to new leasehold acquisitions and any acquisitions of seismic
data within the AMI (“Joint Expenditures”). Within fifteen (15) days of receipt of the foregoing
statement, WSGP shall pay to PetroQuest, by wire transfer in immediately available funds to the
Wire Account an administrative fee equal to eight percent (8%) of the WSGP’s working interest share
of the Joint Expenditures detailed in such statement (the “Administrative Fee”). The
Administrative Fee is in addition to any COPAS overhead charges provided for in the Operating
Agreement.

ARTICLE XII

OPERATIONS

12.1 Operating Agreement. Any Operating Agreement to be entered into by the Parties
hereunder for which PetroQuest shall serve as initial Operator shall be in substantially the form
attached hereto as Exhibit “G”, the terms and conditions of which are incorporated by
reference herein and effective as among the Parties. The Contract Area for each Operating
Agreement shall be the applicable Drilling Unit within the AMI. The Parties shall execute a
separate Operating Agreement for each Drilling Unit prior to the Spud Date for any Program Well
(which is an initial well) drilled hereunder. All drilling, completion and other well operations
contemplated by this Agreement shall be carried out pursuant to, and subject to the terms and
conditions of the Operating Agreement. In the event of a conflict between the terms and conditions
of this Agreement and the terms and conditions set forth in the Operating Agreement, this Agreement
shall control.

12.2 Overhead. Operating overhead for PetroQuest operated wells will be as set forth on
Exhibit “C” to the Operating Agreement. All overhead shall be subject to COPAS escalation.

 

31

 

12.3 Third Party Working Interest Owners. Unless the Parties otherwise agree, if a third
party working interest owner in any new well that is proposed to be drilled under the Agreement
elects not to participate in such well, PetroQuest and WSGP will proportionately share such
non-consenting working interest based upon each Party’s working interest in such well. If there is
a separate operating agreement in effect between any third party working interest owner(s) and
PetroQuest as of the Closing Date with respect to any of the Transaction Assets (a “Third-Party
JOA”), then the Parties will exercise reasonable diligence in consultation with one another to
attempt to cause any such third party to agree to join in the form of Operating Agreement attached
hereto as Exhibit “G” with respect to the leases and lands covered by the Third-Party JOA.
If, however, the third party fails to join in such Operating Agreement, then the Third-Party JOA
shall govern as between PetroQuest or
WSGP, on the one hand, and each such third party thereto, on the other hand; provided, however,
that as between WSGP and PetroQuest, the Operating Agreement shall govern to the extent possible
after PetroQuest and WSGP have complied with the terms of the Third-Party JOA as relates to the
third party. PetroQuest shall promptly provide WSGP with any proposals, notices or other
information received from any third party pursuant to any applicable Third-Party JOA to provide
WSGP as much time is as practicable in which to make any elections or notify PetroQuest of any
decisions relating to such third party proposals, notices or other information.

12.4 Commingling of Production. All or any portion of production from or attributable to
the jointly owned acreage of the Parties within the AMI may be commingled in common tank batteries.
If there is an objection to commingling of production from a particular well that is not resolved
by mutual agreement of the Parties, the objecting Party shall, at its sole cost and expense, set
its own tank battery and metering equipment for such well.

12.5 Amendment of Exhibit “A” to Operating Agreement. If the interest in any well or lease
within the Contract Area of any Operating Agreement hereunder shall, as the result of a Party
electing not to participate for any portion or all of such Party’s interest in any well, be
different from the interest reflected in the then-existing Exhibit “A” to the Operating Agreement,
the Parties, upon and contemporaneously with the assignment of interest by the non-participating
Party to the participating Party, shall prepare and execute an additional and separate Exhibit “A”
for such well(s) or lease(s) that shall reflect the correct interest of the Parties therein, and as
to that well and the applicable proration unit or lease, the Operating Agreement shall apply
separately to the same extent as if a separate Operating Agreement had been entered into.

12.6 Gas Marketing Agreement. Subject to the Parties’ obligations under the Existing Gas
Purchase Contracts, the Parties shall work together to enter into an agreement(s) pursuant to which
the Parties shall market their respective shares of production from the jointly owned acreage of
the Parties within the AMI to a mutually agreeable counterparty.

 

32

 

ARTICLE XIII

FORCE MAJEURE

13.1 Force Majeure. If, as a result of a Force Majeure, the Party claiming the Force
Majeure is rendered wholly or partly unable to perform its obligations under this Agreement, such
non-performing Party shall be excused from only that portion of its performance that is prevented
by such Force Majeure event to the extent so prevented; provided that: (i) within seventy-two (72)
hours of commencement of an event of Force Majeure, the non performing Party shall provide the
other Party with oral notice of the event of Force Majeure and within two (2) weeks of such oral
notice the non performing Party shall provide the other Party with Notice (a “Force Majeure
Notice”) in the form of a letter describing in detail the particulars of the occurrence giving rise
to the Force Majeure claim; (ii) suspension of performance due to a claim of Force Majeure must be of no
greater scope and of no longer duration than is required by the Force Majeure event; and (iii) the
Party claiming Force Majeure diligently pursues to eliminate or mitigate the effects of the Force
Majeure condition. If at any time during the period of Force Majeure the non-performing Party
fails to undertake or ceases undertaking its efforts to remedy its inability to perform, then the
non-performing Party shall no longer be excused from its performance by reason of Force Majeure.
Notwithstanding anything in this Agreement to the contrary, no payment obligation arising under
this Agreement shall be excused or tolled by any event of Force Majeure, except to the extent that
such payment obligation is directly related to an event impacted by Force Majeure.

ARTICLE XIV

EARLY TERMINATION 

14.1 Pre-Closing Early Termination.

14.1.1 Termination Events. This Agreement may be terminated at any
time after execution (i) by WSGP at any time after May 21, 2010, if a condition to
WSGP’s obligation to close (as set forth in Article VIII) remains unwaived
and unsatisfied (for reason other than nonperformance or breach by WSGP), (ii) by
PetroQuest at any time after May 21, 2010, if a condition to PetroQuest’s obligation
to close (as set forth in Article VIII) remains unwaived and unsatisfied
(for reason other than nonperformance or breach by PetroQuest), or (iii) upon the
mutual written agreement of WSGP and PetroQuest.

14.1.2 Procedure and Effect of Termination. Any termination of this
Agreement pursuant to this Section 14.1 shall be effected by written notice
from the terminating Party to the other Party. If this Agreement is terminated
pursuant to this Section 14.1, all further obligations of the Parties will
terminate without any liability on the part of either Party or its respective
Affiliates and neither Party shall have any claim whatsoever against the other, any
of its Affiliates, or any of their respective Representatives arising out of or
relating to this Agreement or the Transaction contemplated hereby (whether sounding
in contract, tort, or otherwise), except for any breach or threatened breach of the
Confidentiality Agreement.

 

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14.2 Post-Closing Early Termination. This Agreement may be terminated prior to completion
of the Drilling Program (a) by the mutual agreement of the Parties, (b) by WSGP at any time upon
sixty (60) days prior notice or upon a termination pursuant to Section 4.3.2, or (c) by
PetroQuest in the event WSGP (i) fails to remit any installment of the Remaining Assets Purchase
Price within thirty (30) days of the due date, or (ii) has not paid the full Carried Amount in the
course of drilling and completion operations pursuant to the Drilling Program within eight (8)
years from the Closing Date, other than as a result of a PetroQuest Material Event, PetroQuest’s
nonperformance or Force Majeure (“Early Termination”), at which point WSGP and PetroQuest shall
have the following rights and obligations:

14.2.1 If Early Termination occurs prior to completion of Phase 1 of the
Drilling Program, then WSGP shall pay to PetroQuest (i) all unpaid portions of the
Remaining Assets Purchase Price including the Performance Payment, regardless of
actual performance of the Qualifying Wells, (ii) the unfunded balance of the Phase 1
Commitment, and (iii) any Vendor Penalties as described and set forth in Section
4.5.3. In such event, WSGP shall be entitled to retain the Selected PUDS and
receive an assignment of fifty percent 50% of PetroQuest’s right, title and interest
in and to the wellbore only for those wells in which WSGP participated pursuant to
the Drilling Program and for which WSGP has not received a previous assignment.
With respect to any Program Well Assignments received by WSGP prior to Early
Termination, WSGP shall relinquish and reassign to PetroQuest any interest in and to
any leasehold interests previously assigned to WSGP in respect of any Program Wells
in which WSGP participated, retaining only a wellbore interest in and to any such
Program Wells. WSGP shall have no further rights to earn any additional assignments
of Remaining Assets. Notwithstanding anything to the contrary herein, it being
expressly understood that this provision shall survive the termination of this
Agreement indefinitely, WSGP shall be entitled to participate in (subject to the
provisions of the applicable JOA) and remain obligated to pay its disproportionate
share, as described in Section 4.3, of the costs and expenses of (X)
Development Wells, (Y) any wells commenced after the date of Early Termination upon
acreage acquired pursuant to Section 11.1 (each such well an “AMI Well”).
In the event of Early Termination, WSGP would remain obligated to pay any applicable
Vendor Penalties as described and set forth in Section 4.5.7.

14.2.2 If Early Termination occurs after completion of Phase 1 of the Drilling
Program, then WSGP shall be entitled to retain the Selected PUDS; receive an
assignment of fifty percent 50% of PetroQuest’s right, title and interest in and to
the wellbores only for those wells in which WSGP participated and for which WSGP has
not received a previous assignment; and receive an assignment of twenty-five percent
(25%) of PetroQuest’s right, title and interest in and to the leasehold or mineral
interests within the Drilling Unit for each Program Well (other than a Development
Well or Infill Well) drilled hereunder and in which WSGP participated. With respect
to any Program Well Assignments received by WSGP prior to the Early Termination,
WSGP shall relinquish and reassign to PetroQuest fifty percent (50%) of WSGP’s
right, title and interest in and to any leasehold or mineral interests attributable
to the Drilling Unit for the applicable Program Wells. WSGP shall have no further
rights to earn additional assignments of Remaining Assets. Notwithstanding anything
to the contrary herein, it being expressly understood that this provision shall
survive the termination of this Agreement indefinitely, WSGP shall be entitled to
participate in Development Wells, Infill Wells and AMI Wells (subject to the
provisions of the applicable JOA) and, if WSGP so elects to participate, it shall
remain obligated to pay (i) its disproportionate 1.6:1 share of the costs and
expenses of the drilling, completing and equipping of Development Wells, Infill
Wells and AMI Wells; (ii) to PetroQuest, pursuant to an invoice from PetroQuest, the
amount of any Carried Amount attributable to the number of undrilled wells
associated with a Minimum
Commitment in the applicable 6 Month Tranche remaining at the time of such
Early Termination, and (iii) any Vendor Penalties as described and set forth in
Section 4.5.7.

 

34

 

14.3 Status of Assignments to WSGP Upon Early Termination. Within thirty (30) days of the
occurrence of Early Termination, and subject to WSGP’s obligations to pay any amounts or relinquish
any interests pursuant to Section 14.2.1 or 14.2.2, as applicable, PetroQuest shall
prepare and deliver to WSGP an executed, recordable assignment of the interests described in
Section 14.2.1 or 14.2.2, as applicable. If PetroQuest fails to deliver or
authorize the delivery to WSGP of assignments to which WSGP is entitled, as and when due under this
Agreement, then WSGP shall have the right, but shall not be obligated, to pursue a declaratory
judgment and injunctive relief pursuant to the Arbitration Provisions requiring PetroQuest to
specifically perform such obligation under the Agreement, time being of the essence in the
performance of all such obligations in addition to reimbursement of all reasonable costs incurred,
including legal fees and costs of court.

14.4 Intervention Termination. In the event, despite both Parties efforts to eliminate or
mitigate the effects of an Intervention, such Intervention has existed for a period of twenty-four
(24) months following the issuance of a Force Majeure Notice for such Intervention, then either
Party may terminate this Agreement, such termination effective after thirty (30) days’ prior
written notice to the other Party (such termination an “Intervention Termination”). From and after
the date of such Intervention Termination, neither Party shall have any further obligations or
liability to the other under this Agreement, including any obligation to assign or relinquish any
rights or interests of any kind hereunder or any payment obligations set forth herein, except as
may be provided in any applicable JOA. For the avoidance of doubt, to the extent not earned prior
to PetroQuest’s receipt of the Force Majeure Notice from WSGP related to an Intervention,
PetroQuest shall not be entitled to the Performance Payment.

ARTICLE XV

FAILURE TO PAY DRILLING COSTS; FAILURE TO PERFORM

15.1 Failure By WSGP. Failure of WSGP to pay its proportionate share of drilling or other
operating costs of any well which has been spudded, and in which PetroQuest and WSGP have both
elected to participate, within the time periods specified herein or in the applicable JOA shall be
deemed a material breach of this Agreement, subject, however, to the provisions of Section
15.2. Upon any such breach, PetroQuest shall deliver written notice to WSGP of such breach.
Failure to cure such breach within sixty (60) days after receipt of notice from PetroQuest, will
result in the ipso facto relinquishment and assignment to PetroQuest of all rights of WSGP in such
well and the Drilling Unit attributable to the well.

15.2 Good Faith Dispute. If WSGP disputes in good faith its obligation to pay any amount
allegedly owed by it with respect to its proportionate share of drilling costs, completion,
equipping or any other costs arising out of or related to any well drilled hereunder, it shall
timely pay any amount of such
costs that it does not dispute, and provided that WSGP’s notifies the PetroQuest in writing at or
prior to the time such payment is allegedly due of the amount in dispute, setting out reasonably
full particulars regarding the basis on which the obligation to make payment is disputed, then so
long as WSGP continues in good faith and by the exercise of appropriate negotiations or proceedings
to resolve such dispute, the provisions of Section 15.1, to the extent of the amount
subject to good faith dispute, shall not apply.

 

35

 

15.3 Assignment of Relinquished Interest. If WSGP has relinquished its interest in any
well to PetroQuest pursuant to Section 15.1 hereof, WSGP shall execute and deliver, upon
the request of PetroQuest, a recordable assignment of such relinquished interest in such form as
PetroQuest may reasonably request.

15.4 Failure to Perform. A Material Event or a failure by a Party to perform any material
covenant or obligation set forth in this Agreement shall be deemed a material breach of this
Agreement if such breach is not remedied within thirty (30) days after the breaching Party’s
receipt of written notice from the non-breaching Party detailing the particulars of the alleged
breach; provided, that if such breach is not reasonably capable of being remedied within such
thirty (30) day cure period, the breaching Party shall have such additional time (not exceeding an
additional thirty (30) days) as is reasonably necessary to remedy such breach, provided that the
breaching Party advises the non-breaching Party of its plan to remedy the alleged breach and
promptly commences and diligently pursues such remedy. If such breach is not cured within the
period set forth above, the non-breaching Party shall have the right, but not the obligation,
subject to Section 18.12 and Section 18.13 to pursue through arbitration as
described in Exhibit “I” any rights and remedies available to it pursuant to Applicable Law
and consistent with the terms of this Agreement.

ARTICLE XVI

TAX PARTNERSHIP 

At the appropriate time as determined by the Parties, PetroQuest and NEGP shall execute a tax
partnership agreement in a form mutually agreed to by the Parties.

ARTICLE XVII

INDEMNIFICATION 

17.1 WSGP’s Indemnification. Provided that the Closing occurs and subject to the
provisions of Section 18.12 (Waiver of Consequential Damages) and Section 17.3,
WSGP shall pay any losses or damages incurred by PetroQuest and shall release, defend, indemnify
and hold harmless PetroQuest, its partners, and their respective officers, directors, employees,
agents, representatives, members, shareholders, affiliates, subsidiaries, successors and assigns
(collectively, the “Petroquest Indemnitees”) from and against any and all claims, damages,
liabilities, losses, causes of actions, costs and expenses (including involving theories of
negligence or strict liability and including court costs and attorneys’ fees) (“Losses”) as a
result of, arising out of, or related to: (i) WSGP’s breach of its representations or warranties
set forth in Section 6.2, or (ii) WSGP’s breach of any covenants or
agreements contained herein related to, arising from, or connected to the performance by the
indemnifying party of its obligations hereunder.

 

36

 

17.2 PetroQuest’s Indemnification. Provided that the Closing occurs and subject to the
provisions of Section 18.12 (Waiver of Consequential Damages) and Section 17.3,
PetroQuest shall pay any losses or damages incurred by WSGP and shall release, defend, indemnify
and hold harmless WSGP, its partners, and their respective officers, directors, employees, agents,
representatives, members, shareholders, affiliates and subsidiaries (collectively, the “WSGP
Indemnitees”) from and against any and all Losses arising out of: (i) PetroQuest’s breach of its
representations or warranties set forth in Section 6.1; (ii) PetroQuest’s breach of any
covenants or agreements contained herein; (iii) the Existing Wells or the Unrecorded Commitments
(other than any reduction in net revenue interest resulting from such Unrecorded Commitment and
disclosed on Schedule 1). In addition to the foregoing, and subject to the occurrence of
Closing and the provisions of Section 18.12 and Section 17.3, PetroQuest shall pay
any losses or damages incurred by WSGP and shall release, defend, indemnify and hold harmless the
WSGP Indemnitees from and against any and all Losses arising out of Environmental Matters affecting
the Transaction Assets attributable to the actions or omissions of PetroQuest or any of its
Affiliates prior to the Effective Time.

17.3 Negligence, Notice of Claim, Assumption or Defense and Settlement of Claim. The
indemnification provisions of this Article XVII shall apply notwithstanding the active or
passive negligence of the indemnified Party, but the indemnifying Party’s liability to the
indemnified Party shall be reduced proportionately to the extent that an act or omission of the
indemnified Party may have contributed to the loss, injury or property damage. Further, no
indemnified Party shall be indemnified hereunder for its loss, liability, injury and damage
resulting from its sole negligence or its gross negligence, fraud or willful misconduct. Promptly
upon the discovery thereof, PetroQuest or WSGP, as may be the case, shall give written notice to
the other of any claim with respect to which the party giving notice asserts it is entitled to
indemnity or payment pursuant to this Section 17.3. The Party giving notice of a claim
shall be referred to as the “Indemnified Party,” and the Party receiving notice of a claim shall be
referred to as the “Indemnifying Party.” In the event that the Indemnified Party gives notice of a
claim to the Indemnifying Party, such notice shall set forth the facts known to the Indemnified
Party pertaining to the claim and shall specify the manner in which the Indemnified Party proposes
to respond to the claimant. Within ten (10) days of receipt of such notice, the Indemnifying Party
shall state in writing whether the Indemnifying Party shall assume responsibility for and conduct
the negotiation, defense or settlement of the claim, and if so, the specific manner in which the
Indemnifying Party proposes to proceed. In the event that the Indemnifying Party assumes control of
the claim, the Indemnified Party shall at all times have the right to participate, at its sole cost
and expense, in any resolution thereof. As a condition precedent to indemnification under this
Section 17.3, up to the amount of indemnification, the Indemnified Party shall assign to
the Indemnifying Party, and the Indemnifying Party shall become subrogated to all rights, claims
and causes of action of the Indemnified Party against third persons arising out of or pertaining to
the matters for which the Indemnifying Party provided indemnification. The indemnification
obligations of the Parties shall apply only to claims for which written notice shall have been
given to the Indemnifying Party on or before one (1) year from the date of
Closing, except for claims arising out of breach of any of the Fundamental Representations, which
obligation shall survive indefinitely.

 

37

 

ARTICLE XVIII

GENERAL TERMS AND PROVISIONS

18.1 Further Assurances. Each of the Parties will execute, acknowledge and deliver such
further instruments, and take such other actions, as may be reasonably necessary in order to more
effectively carry out or implement the Transaction.

18.2 Confidentiality Agreement. PetroQuest and WSGP agree that the Confidentiality
Agreement dated November 23, 2009, shall terminate, effective as of the Closing Date.

18.2.1 Each Party hereby agrees that, without the prior written consent of the
other Party, during the period from the Closing Date until December 31, 2011,
neither the Party nor any of its Affiliates, acting alone or as a part of a group,
will (i) acquire or offer or agree to acquire, directly or indirectly, by purchase
or otherwise, ownership (including beneficial ownership as defined in Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of (a) any
securities (or direct or indirect rights or options to acquire any securities) of
the other Party or its parents, subsidiaries or Affiliates (collectively, the
“Counterparty Group”), or (b) any material portion of the assets or properties of
the Counterparty Group; (ii) make or participate in, directly or indirectly, any
solicitation of proxies to vote, or to seek to influence or control, in any manner
whatsoever, the voting of any securities of the Counterparty Group; (iii) make any
public announcement with respect to, or solicit or submit a proposal or offer for,
directly or indirectly, any merger, business combination, recapitalization,
reorganization, asset purchase or other similar extraordinary transaction involving
the Counterparty Group or any of its securities, assets or properties; (iv) form,
join or in any way participate, directly or indirectly, in a “group” as defined in
Section 13d-3 of the Exchange Act in connection with any of the foregoing; (v)
otherwise seek to influence or control, in any manner whatsoever, alone or in
concert with others, the management, board of directors or policies of the
Counterparty Group; (vi) disclose, directly or indirectly, any intention, plan or
arrangement inconsistent with any of the foregoing; (vii) advise, assist or
encourage, directly or indirectly, any other person in connection with any of the
foregoing; (viii) take any action that could reasonably be expected to require the
Counterparty Group to make a public announcement regarding the possibility of any of
the events described in this paragraph; or (ix) request the Counterparty Group,
directly or indirectly, to amend or waive any provision of this paragraph.

18.2.2 Each Party acknowledges and agrees that it is aware (and that its
Affiliates and its and their respective employees, directors, managers, agents and
representatives are aware or, upon providing any material, non-public
information disclosed under or pursuant to this Agreement to such Person, will be
advised by such Party) that reports, materials, documentation and data being
furnished under this Agreement may contain material, non-public information
regarding the Counterparty Group and that the United States securities laws prohibit
any persons who have such material, non-public information from purchasing or
selling securities of the Counterparty Group on the basis of such information or
from communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities on the basis of such information.

 

38

 

18.3 Time of the Essence. Time is of the essence in the Parties performance of their
respective obligations pursuant to this Agreement and the other agreements entered into pursuant
hereto.

18.4 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit
of each Party hereto and its successors and permitted assigns.

18.5 Notices. All consents, notices, requests, demands, instructions, reports, and other
communications required or permitted to be given hereunder shall be in writing and shall be
(a) delivered personally; (b) mailed by U.S. registered mail, or U.S. certified mail, return
receipt requested, postage prepaid; (c) delivered by Federal Express or other reputable overnight
courier service; or (d) delivered by facsimile transmission confirmed by written transmittal report
to:

	 	 	 	 	 
	 

	 	(i)
	 	If to PetroQuest:
	 
	 	 	 	 
	 

	 	 	 	PetroQuest Energy, L.L.C.
	 

	 	 	 	Attention:
	 

	 	 	 	400 E. Kaliste Saloom Rd, Suite 6000 
	 

	 	 	 	Lafayette, LA 70508 
	 

	 	 	 	Facsimile No. 337.234.4699 
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Porter & Hedges, L.L.P.
	 

	 	 	 	Attention: Robert Thomas
	 

	 	 	 	1000 Main St. 36th Floor
	 

	 	 	 	Houston, Texas 77002 
	 

	 	 	 	Facsimile No. 713.226.6236 

 

39

 

	 	 	 	 	 
	 

	 	(ii)
	 	If to WSGP:
	 
	 	 	 	 
	 

	 	 	 	WSGP Gas Producing, LLC
	 

	 	 	 	Attention: Larry A. Wall, Jr.
	 

	 	 	 	1000 Louisiana, Suite 5550 
	 

	 	 	 	Houston, Texas 77002 
	 

	 	 	 	Facsimile No.
	 
	 	 	 	 
	 

	 	 	 	If to NEGP:
	 
	 	 	 	 
	 

	 	 	 	NextEra Energy Gas Producing, LLC
	 

	 	 	 	Attention: Larry A. Wall, Jr.
	 

	 	 	 	1000 Louisiana, Suite 5550 
	 

	 	 	 	Houston, Texas 77002 
	 

	 	 	 	Facsimile No.
	 
	 	 	 	 
	 

	 	With a copy to:
	 	NextEra Energy Resources, LLC
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	700 Universe Boulevard
	 

	 	 	 	Juno Beach, Florida 33408 
	 

	 	 	 	Facsimile No.

or to such other place as PetroQuest or WSGP may designate by written notice to the other. All
notices, requests or consents shall be deemed given on the date of receipt at the appropriate
address, except in the case of facsimile transmissions received after the normal close of business,
which shall be deemed given on the next business day.

18.6 Legal Representation; Costs and Attorney’s Fees. Each Party hereto represents that it
was represented by counsel in connection with the negotiation, preparation, and execution of this
Agreement and understands its terms and provisions. Each Party hereto shall be solely and
individually responsible for its attorney’s fees and other costs and expenses in connection with
the negotiation and execution of this Agreement.

18.7 No Special Relationship or Special Duty. Neither Party hereto has any relationship of
trust and confidence, confidential relationship, or other special relationship with the other Party
hereto, and neither party hereto owes any fiduciary duties or duties of utmost good faith or fair
dealing to the other Party pursuant to this Agreement. The duties owed by each Party to the other
shall be solely the contractual duties expressly set forth in this Agreement and the other
agreements executed pursuant hereto.

18.8 Counterparts. This Agreement may be executed in multiple counterparts and each Party
may sign different counterparts, but all counterparts together shall constitute one and the same
agreement.

 

40

 

18.9 Entire Agreement; Waiver. This Agreement embodies the entire agreement between the
Parties hereto and any supplement, amendment, or other modification hereto must be in writing and
signed by all of the parties. The headings herein are for convenience only and shall have no
significance in the interpretation hereof. The failure of any Party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right at a later time to
enforce same. No waiver by any Party hereto of any provision contained in this Agreement, in any
one or more instances, shall be deemed to be or construed as a further or continuing waiver of any
such provision or waiver of any other provision.

18.10 Governing Law. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of Oklahoma.

18.11 Waiver of Jury Trial. SUBJECT TO THE DISPUTE RESOLUTION PROCEDURE SET FORTH IN
SECTION 18.16, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
EACH OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES
ENTERING INTO THIS AGREEMENT.

18.12 Waiver of Consequential Damages. NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT TO
THE CONTRARY, EXCEPT AS PROVIDED WITH RESPECT TO ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES INCURRED
WITH RESPECT TO THIRD PARTY CLAIMS THAT ARE PART OF A LOSS WHICH MAY BE INDEMNIFIED UNDER
SECTION 17.1 OR SECTION 17.2, IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES, OR ITS
REPRESENTATIVES, BE LIABLE HEREUNDER AT ANY TIME FOR PUNITIVE, CONSEQUENTIAL, SPECIAL, OR INDIRECT
LOSS OR DAMAGE OF ANY OTHER PARTY OR ANY OF SUCH PARTY’S AFFILIATES, INCLUDING LOSS OF PROFIT, LOSS
OF REVENUE OR ANY OTHER SPECIAL OR INCIDENTAL DAMAGES, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, AND EACH PARTY HEREBY EXPRESSLY RELEASES THE OTHER
PARTY, ITS AFFILIATES, AND ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND REPRESENTATIVES
THEREFROM.

18.13 No Partnership. The Parties hereto do not intend to create, and this Agreement shall
not be construed to create, a partnership, mining partnership, joint venture, association, trust,
or other entity or relationship
that makes one party liable for the acts or omissions of any other party hereto, except that solely
for federal income tax purposes the Parties intend to create a tax partnership as provided in
Article XVI.

18.14 Survival of Representations and Warranties. Other than those representations and
warranties provided in Sections 6.1.1, 6.1.2, 6.1.3, 6.1.4,
6.1.5, 6.2.1, 6.2.2, 6.2.3, 6.2.4, 6.2.5 and
6.2.7 (collectively the “Fundamental Representations”), all representations, warranties,
and covenants contained herein shall survive the execution of this Agreement for a period ending
one (1) year from the Closing. The Fundamental Representations shall survive indefinitely.

 

41

 

18.15 No Third Party Beneficiaries. This Agreement is intended for the exclusive benefit
of the Parties hereto and their respective successors and permitted assigns, and nothing contained
in this Agreement shall be construed as creating any rights or benefits in or to any third party.

18.16 Disputes. All disputes, claims and matters in question arising out of or in
connection with this Agreement or the relationship between the parties created by this Agreement
shall be resolved by binding arbitration pursuant to the Arbitration Provisions.

18.17 Term of Agreement. This Agreement shall terminate upon the completion or Early
Termination of the Drilling Program and delivery of all assignments to which WSGP is entitled
pursuant to the terms of this Agreement; provided, however, any Operating Agreement with respect to
any jointly owned leasehold within the AMI shall remain in force and effect pursuant to its terms.

18.18 Construction of Agreement. In construing this Agreement:

(a) no consideration shall be given to the captions of the articles, sections,
subsections, or clauses, which are inserted for convenience in locating the provisions of
this Agreement and not as an aid in its construction;

(b) no consideration shall be given to the fact or presumption that one Party had a
greater or lesser hand in drafting this Agreement;

(c) examples shall not be construed to limit, expressly or by implication, the matter
they illustrate;

(d) the word “includes” and its derivatives means “includes, but is not limited to,”
and corresponding derivative expressions;

(e) a defined term has its defined meaning throughout this Agreement, and each exhibit,
attachment, and schedule to this Agreement, regardless of whether it appears before or after
the place where it is defined;

(f) the plural shall be deemed to include the singular, and vice versa;

(g) all references to articles, sections, paragraphs, clauses, or exhibits refer to
articles, sections, paragraphs and clauses of this Agreement, and to exhibits attached to
this Agreement, unless expressly provided otherwise;

(h) each exhibit to this Agreement is a part of this Agreement, but if there is any
conflict or inconsistency between the main body of this Agreement and any exhibit, the
provisions of the main body of this Agreement shall prevail;

(i) the words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of
similar import refer to this Agreement as a whole and not to any particular subdivision,
unless expressly so limited; and

(j) the word “or” is not exclusive.

 

42

 

18.19 Publicity. The Parties shall consult each other before issuing any press release or
other public announcement regarding the execution or closing of this Agreement, and shall not issue
any such press release or other public announcement of such events without the consent of the other
Party (which consent shall not be unreasonably withheld) unless required by law, as advised by
counsel, or by obligations pursuant to any listing agreement with any national securities exchange.

18.20 Binding and Non-Binding Terms. The terms of Sections 18.2, 18.3, 18.5, 18.6,
18.7, 18.8, 18.9, 18.10, 18.11, 18.12., 18.13, 18.15, 18.16, 18.18, 18.19 and 18.20 of
this Agreement (the “Binding Provisions”) are binding upon and enforceable by the Parties. All
other provisions of this Agreement other than the Binding Provisions (collectively, the
“Non-Binding Provisions”) evidence a non-binding expression of the current intent of the Parties
with respect to the Transaction. The Non-Binding Provisions of this Agreement shall become binding
upon and enforceable by the Parties (and this Section 18.20 shall terminate and become void
and have no effect) upon the approval on or before 11:59 p.m. Central Prevailing Time on May 21,
2010 (the “Outside Date”), by each of (i) the Board of Directors of PetroQuest Energy, Inc., and
(ii) the Board of Directors of FPL Group, Inc., of the Transaction; provided, however, if such
approval has not been granted on or before the Outside Date, this Agreement shall automatically
terminate and become void and have no effect, without any liability on the part of either Party or
its respective Affiliates or Representatives, except for the Binding Provisions, which shall
survive such termination. Neither Party shall have any claim whatsoever against the other, any of
its Affiliates, or any of their respective Representatives arising out of or relating to this
Agreement or the Transaction contemplated hereby (whether sounding in contract, tort, or
otherwise), except for any breach or threatened breach of the Binding Provisions or the
Confidentiality Agreement. Nothing in this Agreement, no past or future action, course of conduct
or failure to act relating to the Transaction may be relied upon by either Party as the basis for a
contract by estoppel or otherwise, and
WSGP expressly agrees, on behalf of itself and its Affiliates, that the execution by WSGP or any of
its Affiliates of any commodities hedging transaction has not, is not, and will not be made, in
reliance upon the consummation of the Transaction contemplated hereby.

18.21 NEGP Guaranty. NEGP, hereby unconditionally, absolutely, and irrevocably guarantees,
as a primary obligor and not merely as a surety, the due and punctual payment of all monies when
due from WSGP hereunder, in each case strictly in accordance with the terms hereof. In furtherance
of the foregoing and not in limitation of any other right that PetroQuest may have at law or in
equity against NEGP by virtue hereof, NEGP agrees that upon failure of WSGP to pay any obligations
when and as the same shall become due, NEGP will, without any demand or notice whatsoever,
forthwith pay or cause to be paid to PetroQuest in cash in immediately available funds, an amount
equal to the unpaid amount of such obligations. In the event NEGP and/or WSGP transfers
substantially all of its assets to another entity and (i) such entity fails to assume all of the
obligations of NEGP as set forth in this Section 18.21 and/or the obligations of WSGP under this
Agreement, as applicable, and (ii) such entity’s creditworthiness is materially weaker than that of
NEGP and/or WSGP, as applicable, immediately prior to such transfer, then NEGP shall provide to
PetroQuest alternative credit support the substance of which shall be substantially similar to that
which existed prior to the transfer.

 

43

 

18.22 Specific Performance. The Parties acknowledge and agree that a material failure to
perform under this Agreement will be an actual, immediate and irreparable harm and injury and that
the Parties would not have any adequate remedy at law in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or were otherwise
materially breached. Accordingly, it is agreed that the Parties shall be entitled to an injunction
or injunctions to prevent breaches or threatened breaches of this Agreement and to specifically
enforce the terms and provisions of this Agreement (including Sections 7.2 and
15.4) and any other agreement or instrument executed in connection herewith. The Parties
further agree that they shall not object to, or take any position inconsistent with respect to,
whether in a court of law, arbitration or otherwise, the appropriateness of specific performance as
a remedy for a breach of this Agreement or any such other agreement or instrument and ach Party
waives any requirement for the securing or posting of any bond in connection with any such remedy.
The Parties further agree that by seeking the remedies provided for in this Section 18.22 a
Party shall not in any respect waive its right to seek any other form of relief that may be
available to a party under this Agreement, including monetary damages.

[Balance of Page Intentionally Left Blank]

 

44

 

IN WITNESS WHEREOF, each party hereto has executed this Agreement as of the date first written
above.

	 	 	 	 	 
	PETROQUEST ENERGY, L.L.C.

	 	WSGP GAS PRODUCING, LLC	 	 
	 
	 	 	 	 
	By:
/s/ Mark K. Stover

	 	By: /s/ Larry Wall	 	 
	 

Mark K. Stover

	 	 

Larry Wall

	 	 
	Executive Vice President —

Exploration and Development

	 	President
	 	 
	 
	 	 	 	 
	 

	 	NEXTERA ENERGY GAS PRODUCING, LLC,

for the limited purposes set forth herein	 	 
	 
	 	 	 	 
	 

	 	By: /s/ Larry Wall	 	 
	 

	 	 

Larry Wall

	 	 
	 

	 	President
	 	 

 

S-1exv10w1

Exhibit 10.1

CORNERSTONE THERAPEUTICS INC.

Nonstatutory Stock Option Agreement for a Non-Employee Director

Granted Under 2004 Stock Incentive Plan

1. Grant of Option.

     This agreement evidences the grant by Cornerstone Therapeutics Inc., a Delaware corporation
(the “Company”), on                      , 2010 (the “Grant Date”) to [                    ], a
non-employee director of the Company (the “Participant”), of an option to purchase, in whole or in
part, on the terms provided herein and in the Company’s 2004 Stock Incentive Plan (the “Plan”), a
total of [                    ] shares (the “Shares”) of common stock, $0.001 par value per
share, of the Company (“Common Stock”) at $[                    ] per Share. Unless earlier
terminated, this option shall expire at 5:00 p.m., Eastern time, on [                    ] (the “Final Exercise
Date”).

     It is intended that the option evidenced by this agreement shall not be an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the
term “Participant”, as used in this option, shall be deemed to include any person who acquires the
right to exercise this option validly under its terms.

2. Vesting Schedule.

     This option will become exercisable (“vest”) as to 2.78% of the original number of Shares at
the end of each successive one-month period following the Grant Date until the third anniversary of
the Grant Date.

     The right of exercise shall be cumulative so that to the extent the option is not exercised in
any period to the maximum extent permissible it shall continue to be exercisable, in whole or in
part, with respect to all Shares for which it is vested until the earlier of the Final Exercise
Date or the termination of this option under Section 3 hereof or the Plan.

3. Exercise of Option.

     (a) Form of Exercise. Each election to exercise this option shall either be (i) in
writing, signed by the Participant, and received by the Company at its principal office,
accompanied by this agreement, or (ii) by such other means as may be communicated in writing or
electronically by the Company to the Participant from time to time. No Common Stock shall be
delivered pursuant to any exercise until the Company has received payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of shares covered hereby,
provided that no partial exercise of this option may be for any fractional share or for fewer than
ten whole shares.

     (b) Continuous Relationship with the Company Required. Except as otherwise provided
in this Section 3, this option may not be exercised unless the Participant, at the time he or she
exercises this option, is, and has been at all times since the Grant Date, a director of the
Company or any other entity the directors of which are eligible to receive option grants under the
Plan (an “Eligible Participant”).

     (c) Termination of Relationship with the Company. If the Participant ceases to be an
Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the
right to exercise this option shall terminate nine months after such cessation (but in no event
after the Final Exercise Date), provided that this option shall be exercisable only
to the extent that the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date,
violates the non-competition or confidentiality provisions of any employment contract,
confidentiality and nondisclosure agreement or other agreement between the Participant and the
Company, the right to exercise this option shall terminate immediately upon written notice to the
Participant from the Company describing such violation.

1 of 5

 

     (d) Exercise Period Upon Death or Disability. If the Participant dies or becomes
disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date
while he or she is an Eligible Participant and the Company has not terminated such relationship for
“cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of
one year following the date of death or disability of the Participant, by the Participant (or in
the case of death by an authorized transferee), provided that this option shall be
exercisable only to the extent that this option was exercisable by the Participant on the date of
his or her death or disability, and further provided that this option shall not be exercisable
after the Final Exercise Date.

     (e) Discharge for Cause. If the Participant, prior to the Final Exercise Date, is
discharged by the Company for “cause” (as defined below), the right to exercise this option shall
terminate immediately upon the effective date of such discharge. “Cause” shall mean willful
misconduct by the Participant or willful failure by the Participant to perform his or her
responsibilities to the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar
agreement between the Participant and the Company), as determined by the Company, which
determination shall be conclusive. The Participant shall be considered to have been discharged for
“Cause” if the Company determines, within 30 days after the Participant’s resignation, that
discharge for cause was warranted.

4. Withholding.

     No Shares will be issued pursuant to the exercise of this option unless and until the
Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any
federal, state or local withholding taxes required by law to be withheld in respect of this option.

5. Nontransferability of Option.

     This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the
Participant, either voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the lifetime of the Participant, this option shall be exercisable only by
the Participant.

6. Provisions of the Plan.

     This option is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this option.

     IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal
by its duly authorized officer. This option shall take effect as a sealed instrument.

	 	 	 	 	 	 	 	 	 

	 	 	 	 	CORNERSTONE THERAPEUTICS INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Dated:                     

	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Name: 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	Title:	 	 	 
	 

	 	 	 	 	 	 

	 	 

2 of 5

 

PARTICIPANT’S ACCEPTANCE

     The undersigned hereby accepts the foregoing option and agrees to the terms and conditions
thereof. The undersigned hereby acknowledges receipt of a copy of (i) the Company’s 2004 Stock
Incentive Plan and (ii) the Company’s Prospectus for the 2004 Stock Incentive Plan in connection
with the Company’s Registration Statement on Form S-8.

	 	 	 	 	 	 	 

	 	 	PARTICIPANT:	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	 	 	 

3 of 5

 

NOTICE OF STOCK OPTION EXERCISE

Date:                      , 200[_]1                              

Cornerstone Therapeutics Inc.

1255 Crescent Green Drive

Suite 250

Cary, NC 27518

Attention: Treasurer

Dear Sir or Madam:

     I am the holder of a Nonstatutory  Stock Option granted to me under the Cornerstone
Therapeutics Inc., a Delaware corporation (the “Company”), 2004 Stock Incentive Plan on
                    
2 for the purchase of                      3 shares of Common Stock of the
Company at a purchase price of $                     4 per share.

     I
hereby exercise my option to purchase                      5 shares of Common Stock (the
“Shares”), for which I have enclosed                      6 in the amount of                      7.
Please register my stock certificate as follows:

	 	 	 	 	 	 	 

	 

	 	Name(s):
	 	 	8	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Tax I.D. #:
	 	 	9	 
	 

	 	 	 	 	 	 

 

			
	1	 	Enter the date of exercise.
	 
	2	 	Enter the date of grant.
	 
	3	 	Enter the total number of shares of Common
Stock for which the option was granted.
	 
	4	 	Enter the option exercise price per share of
Common Stock.
	 
	5	 	Enter the number of shares of Common Stock to
be purchased upon exercise of all or part of the option.
	 
	6	 	Enter “cash”, “personal check” or if permitted
by the option or Plan, “stock certificates No. XXXX and XXXX”.
	 
	7	 	Enter the dollar amount (price per share of
Common Stock times the number of shares of Common Stock to be purchased), or
the number of shares tendered. Fair market value of shares tendered, together
with cash or check, must cover the purchase price of the shares issued upon
exercise.
	 
	8	 	Enter name(s) to appear on stock certificate:
(a) your name only; (b) your name and an other name (e.g., John Doe and Jane
Doe, Joint Tenants With Right of Survivorship); or (c) in the case of a
Nonstatutory option only, a Child’s name, with you as custodian (i.e., Jane
Doe, Custodian for Tommy Doe). Note: There may be income and/or gift tax
consequences of registering shares in a Child’s name.

4 of 5

 

Please use the following delivery method for my stock certificate:

          ___
Mail directly to the address listed above

          ___
Send directly to my brokerage account

Complete the following if requesting delivery to brokerage account:

	 	 	 	 	 	 	 

	 
	 	Broker Name:	 	 	 
	 
	 	DTC Participant #:	 	 	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Account Number:	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Broker Contact Name:	 	 	 
	 
	 	Phone:	 	 	 	 
	 
	 	e-mail address:	 	 	 	 

Very truly yours,

                                                  
            
                  

(Signature)

Name:                                                                       

 

			
	9 	 	 Social Security Number of Holder(s). 

 5 of 5

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