Document:

EX-10.1

Exhibit 10.1

RELOCATION AGREEMENT

THIS RELOCATION AGREEMENT (“Agreement”) dated June 20, 2007, is by and between Hawthorn
Bancshares, Inc., a Missouri corporation (“Hawthorn”) and James H. Taylor, Jr. and Laura A. Taylor,
both in their capacities as individuals and as trustees of the Taylor, Jr. Trust dated October 18,
1998 (collectively the “Owner”).

RECITALS:

A. James H. Taylor, Jr. is currently employed by Hawthorn and Hawthorn desires to relocate him
to Kansas City.

B. Owner accordingly desires to sell his primary residence, which is the real property legally
described on Exhibit A attached hereto and made a part hereof and all of Owner’s rights, titles,
appurtenant interests, covenants, licenses, privileges and benefits thereunto belonging and any
improvements, personal property and fixtures located thereon (collectively, the “Property”).

C. Hawthorn desires assist Owner in such sale and make a relocation advance to Owner that will
cover Owner’s equity in the Property and certain other expenses associated with the sale of the
Property.

D. The purpose of this Agreement is to set forth the terms under which such advance is to be
made and to set forth certain other agreements between Owner and Hawthorn.

AGREEMENTS:

In consideration of the foregoing recitals, the mutual covenants set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties mutually agree as follows:

1. Payment. Following satisfaction of the conditions in Section 5, Hawthorn will advance to
Owner $199,350.13 (the “Relocation Payment”).

2. Sale of Property; Assignment of Proceeds; Effect of Sale.

(a) Owner assigns to Hawthorn the right to sell the Property on Owner’s behalf. Owner agrees
that Hawthorn may, and Hawthorn agrees that it will, perform all such acts on Owner’s behalf as may
be necessary or appropriate (in Hawthorn’s sole discretion) to sell and convey the Property to such
person or entity as Hawthorn may in its sole discretion elect, including without limitation
negotiating the sale price of the Property with a prospective purchaser, engaging a real estate
broker and/or listing agent and otherwise marketing and selling the Property. Hawthorn will
consult with Owner and the real estate agent on a good faith basis regarding the sale of the
Property, but all final decisions concerning the sale of the property shall be made by Hawthorn in
its sole discretion.

(b) Owner assigns to Hawthorn the sole and exclusive right to all proceeds from the sale of
the Property after payment of the existing mortgage loans encumbering the Property. Hawthorn
agrees to collect and pay those proceeds in the following order:

(i) first, to pay all closing costs and fees due in connection with the sale of the
Property;

(ii) second, to Citimortgage (the “Existing Lender”) in an amount sufficient to repay
the current outstanding indebtedness owed by Owner with respect to the Property (the
“Mortgage”); and

(iii) third, to Hawthorn for its own account.

(c) If Hawthorn sells the Property for a price greater than $385,000, then Hawthorn shall make
an additional payment to Owner in an amount equal to the difference between the price at which the
Property was sold and $385,000.

3. Additional Agreements.

(a) During the period between the date on which Hawthorn pays the Relocation Payment to Owner
(the “Relocation Payment Date”) and the date of closing on the sale of the Property (the “Interim
Period”) Hawthorn will continue to make the regular monthly payments currently owed by Owner to the
Existing Lender on the Mortgage and is otherwise responsible for payment of utilities, repairs and
general upkeep on the Property. Hawthorn agrees that it will use its best efforts to ensure that
the Property will be secured in a manner consistent with the way the Owners have secured it in the
past.

(b) Owner shall promptly furnish to Hawthorn true and complete copies of any official notice
or claim by any governmental authority pertaining to the Property and of any mechanics lien claim
or other lien or encroachment affecting the Property. In addition, Owner shall promptly notify
Hawthorn of any fire or other casualty or any notice of taking or eminent domain action or
proceeding affecting the Property.

(c) Owner shall permit Hawthorn (or its representative), at all reasonable times, to inspect
the physical condition of all or any part of the Property.

(d) Owner agrees to maintain its current insurance on the Property until the closing of the
sale of the Property by Hawthorn and add Hawthorn as an additional insured. At Hawthorn’s request,
Owner will deliver to Hawthorn certified copies of such insurance policy or policies. After the
Property is sold, Hawthorn will reimburse Owner for any amount of homeowner’s insurance allocable
to Hawthorn during the Interim Period.

(e) Owner will not sell, convey, lease, mortgage, hypothecate, cause or suffer the imposition
of a lien upon, or otherwise encumber the Property other than as set forth in this Agreement.

(f) If, during the Interim Period, (i) a receiver, trustee, custodian, or officer is appointed
for Owner, (ii) a request or petition for liquidation, reorganization, arrangement, adjudication as
a bankrupt, or other relief under the bankruptcy, insolvency, or similar laws of the United States
of America, any state or territory thereof, or any foreign jurisdiction now or hereafter in effect
is filed against Owner; (iii) any other type of insolvency proceeding (under the Federal Bankruptcy
Code or otherwise) or any formal or informal proceeding for settlement of claims against Owner is
instituted against Owner, or (iv) any judgment or judgments is filed against Owner, Owner shall
indemnify, defend and hold Hawthorn harmless from and against any and all losses, damages,
penalties, fines, costs and expenses (including without limitation, reasonable attorney’s fees and
disbursements) incurred by Hawthorn as a result thereof. Without limiting any other right of
Hawthorn, Hawthorn may, at its sole election, setoff against such losses, damages, penalties,
fines, costs and expenses incurred by it any and all monies then or thereafter owed to Owner by
Hawthorn in any capacity.

4. Representations and Warranties. Owner hereby represents and warrants to Hawthorn both
now and, if applicable, on the date of the closing of the sale of the Property that:

(a) Owner is not in violation in any material respect of any laws, ordinances, requirements,
regulations or orders;

(b) Owner is not in breach or violation of any agreement or instrument, or any judgment,
order, writ, or injunction of any court or governmental instrumentality;

(c) Owner is not a party to any pending lawsuit or administrative proceeding;

(d) Owner is not delinquent in the payment of any tax, assessment or governmental charge owed
in respect of the Property;

(e) The Mortgage is current and the outstanding balance on the Mortgage is $192,649.87;

(f) no notice has been served on Owner for assessments for public improvements against the
Property that remain unpaid and that no notice or order by any governmental authority has been
served on Owner that requires the performance of any work or the making of any repairs or
alterations in or on the Property or in the streets or other improvements that bound the Property;
and

(g) except for the defects disclosed in any disclosure schedule provided by Owner with respect
to the Property (the “Owner’s Disclosure Schedule”), to the best of Owner’s knowledge, the Property
is in good working order and condition and the dwelling and any other buildings constituting a part
of the Property are free from water seepage or leaks, physical or structural defects and
infestation by termites or other wood-destroying insects.

5. Conditions. Before Hawthorn pays Owner the Relocation Payment, Owner must execute and/or
deliver to Hawthorn each of the following:

(a) The form of general warranty deed of conveyance with respect to the Property attached to
this Agreement as Exhibit B (the “Deed”), with the name of the grantee and the purchase price left
blank.

(b) The form of irrevocable power of attorney attached to this Agreement as Exhibit C
(collectively, the “Power of Attorney”) authorizing Hawthorn or its designee to perform all such
acts on Owner’s behalf as may be necessary or appropriate to transfer and convey all or any part of
the Property to Hawthorn or such other person or entity as Hawthorn may in its sole discretion
elect, including without limitation, inserting the name of the grantee and the purchase price in
the Deed and to collect and pay the proceeds of any transfer or conveyance as dictated in this
Agreement.

(c) The form of Owner’s Affidavit attached to this Agreement as Exhibit D (the “Owner’s
Affidavit”).

(d) Access to the Property, including keys to all structures on the Property, sufficient to
allow Hawthorn to adequately market and sell the Property. Owner shall assist Hawthorn in keeping
the Property broom-clean with all refuse removed.

(e) The Owner’s Disclosure Schedule.

(f) A copy of all appraisals conducted with respect to the Property.

(g) Such other documents and instruments as may now or hereafter be required by Hawthorn
(which, together with this Agreement, the Deed, the Power of Attorney and the Owner’s Affidavit,
are referred to as the “Relocation Payment Documents”)

6. Indemnification. Owner agrees to indemnify, defend and hold Hawthorn harmless, from and
against any and all losses, judgments, actions, claims, demands, damages, penalties, fines, costs
and expenses (including, without limitation, reasonable attorney’s fees and disbursements) of every
kind based upon, arising out of or otherwise in respect of any breach of this Agreement or any
other Relocation Payment Document by Owner.

7. Default. Time is of the essence in this Agreement. The occurrence of one or more of the
following shall constitute a default by Owner: (a) any failure of Owner to perform or observe any
covenant or agreement of Owner in accordance with the terms and provisions of this Agreement or any
other Relocation Payment Document if such failure continues for more than ten (10) days after
receipt by Owner of written notice thereof; (b) any representation or warranty contained in this
Agreement is not true as of the time made; (c) the filing of any lien or claim of lien against the
Property, or the existence of a security interest in any person other than Hawthorn in the
Property, not contested in good faith; (d) Owner’s failure to comply with any requirement of any
governmental authority having jurisdiction within ten (10) days after receiving written notice of
such requirement; or (e) Owner shall become insolvent, file for bankruptcy, have an involuntary
bankruptcy petition filed against it which is not dismissed within sixty (60) days, have a receiver
appointed for it or substantially all of its assets or make an assignment for the benefit of
creditors.

8. Rights of Hawthorn. In the event of any default by Owner, Hawthorn shall have the right,
in addition to all other rights or remedies available to Hawthorn at law or in equity, to seek
specific performance of this Agreement by Owner.

9. Notices. All notices required herein may be given to the respective parties by mailing
the same by United States certified or registered mail, postage prepaid, return receipt requested,
or by personal delivery to the respective parties’ addresses as Owner or Hawthorn may from time to
time designate by written notice to the other as herein required.

10. General Provisions. The terms and provisions of the other Relocation Payment Documents
are incorporated herein by reference. The captions of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and shall not affect the meaning or interpretation
of this Agreement. Whenever the singular or plural number or masculine, feminine or neuter gender
is used herein, it shall equally include the other, and every mention of the Hawthorn or the Owner
shall include the heirs, legal representatives, successors and assigns of the party so designated.
If more than one party is designated as “Owner” herein, each such party shall be jointly and
severally liable for the performance and observance of all agreements and conditions of Owner. If
any provision of this Agreement shall be prohibited or invalid under any applicable law, such
provision shall be ineffective to that extent without invalidating the remainder of such provision
or the remaining provisions of this Agreement. This Agreement and the other Relocation Payment
Documents constitute the final agreements of the parties with respect to the matters dealt with
therein, and neither this Agreement nor the other Relocation Payment Documents shall be modified,
amended or superseded except by a writing signed by the party to be bound thereby. This Agreement
is for the sole protection and benefit of Hawthorn and Owner, and no person shall be deemed to have
a right or benefit of any kind hereunder as a third party beneficiary with respect to this
Agreement. This Agreement shall be construed and enforced according to and governed by the laws of
the state of Missouri. This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute one and the same
agreement.

11. No Liability. Owner shall not be liable for any injury that may occur on the Property
to any third party to the extent such liability is not covered by the property insurance on the
Property. Any costs of defense incurred by Owner not covered by insurance shall be paid by
Hawthorn.

[signatures on following page]

1

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed in their
respective names on the day and year first hereinabove written.

	 
	HAWTHORN BANCSHARES, INC.

By: /s/ David T. Turner

	 

	David T. Turner, President

/s/ James H. Taylor, Jr.

	 

	James H. Taylor, Jr., as an individual and as trustee of the Taylor, Jr. Trust

dated October 18, 1998

/s/ Laura A. Taylor

	 

	Laura A. Taylor, as an individual and as trustee of the Taylor, Jr. Trust dated

October 18, 1998

2

Exhibit A

Description of Property

Lot 72 of Wynfield Estates, according to the plat thereof recorded in Plat Book 279
Pages 70 thru 72 of the St. Louis County Records. Together with all improvements
thereon known as and numbered 6729 Wynfield Terrace Drive, St. Louis, Missouri 63129

3

Exhibit B

Warranty Deed

4

Exhibit C

Power of Attorney

5

Exhibit D

Owner’s Affidavit

6Exhibit 10.1

    EXHIBIT
      10.1

    

    PURCHASE
      AND SALE AGREEMENT

    

    

    This
      Purchase and Sale Agreement (“Agreement”)
      is made
      and entered into this 19th
      day of
      June, 2007, by and between Plymouth Resource Group II, Inc., a Louisiana
      corporation, (“Seller”),
      and
      Affiliated Holdings, Inc., a Texas corporation (“Purchaser”)
      (sometimes herein Seller and Purchaser are collectively called the “Parties”
      and,
      individually, called a “Party”).

    

    RECITALS

    

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

    

    NOW,
      THEREFORE, for and in consideration of the premises and of the mutual covenants
      and agreements contained herein, Seller and Purchaser hereby agree as
      follows:

    

    

    ARTICLE
      1

    PURCHASE
      AND SALE

    

    1.1 Purchase
      and Sale of Assets.
      On
      the
      Closing Date, but effective as of 7 a.m. Central Standard Time on the
      1st
      day of
      June, 2007 (the Effective
      Time”),
      subject to the terms and conditions of this Agreement, Seller agrees to sell
      and
      convey to Purchaser, and Purchaser agrees to purchase and pay for, the following
      assets:

    

    (a) (1)
      100%
      of the oil, gas and mineral lease described on Exhibit
      A-1
      as the
“North
      American Land Company Lease”;
      and
      (2) an undivided 50% expense-bearing interest and 50% of a 75% net revenue
      interest in and to the oil, gas and mineral leases and other mineral rights
      and
      interests described in Exhibit
      A-l,
      together with all of Seller’s rights in respect of any pooled, communitized or
      unitized acreage of which any such interest described in this Section 1.1(a)(1)
      and (2) is a part (collectively, the “Leasehold
      Interests”);

    

    

    (b) All
      of
      Seller’s right, title, and interest in and to all of the immovable, movable and
      mixed property of Seller, or in which Seller owns an interest, that is
      attributable or allocable to the Leasehold Interests and used or held for use
      in
      connection with the exploration, development, operation or maintenance of any
      of
      the Leasehold Interests or the production, treatment, measurement, storage,
      gathering, transportation or marketing of oil, gas or other hydrocarbons
      attributable to the Leasehold Interests (or the interests of others therein),
      including, without limitation: (i) all wells, platforms, equipment and
      facilities that, as of the Effective Time were used or held for use in
      connection with the exploration, development, operation or maintenance of any
      Leasehold Interests or the production, treatment, measurement, storage,
      gathering, transportation or marketing of oil, gas or other hydrocarbons
      attributable to the Leasehold Interests, including, without limitation, the
      wells described in Exhibit
      A-2,
      any
      other wells (including saltwater disposal wells), well equipment, casing, tanks,
      gas separation and field processing units, portable and permanent well test
      equipment, buildings, tubing, pumps, motors, fixtures, machinery, materials,
      supplies, inventory, telephone and communication equipment, computing equipment
      and other equipment, pipelines, gathering systems, power lines, telephone and
      telegraph lines, roads, vehicles, gas processing plants and other property
      used
      in the operation thereof: (ii) all oil and gas and other hydrocarbon volumes
      produced on or after the Effective Time; and (iii) all other rights, privileges,
      benefits, powers, tenements, hereditaments and appurtenances conferred upon
      Seller or the owner and holder of the Leasehold Interests, including, without
      limitation, all rights, privileges, benefits and powers of Seller with respect
      to the use and occupation of the surface of, and subsurface depths under, the
      land covered by each Leasehold Interest, which may be necessary, convenient
      or
      incidental to the possession and enjoyment of such Leasehold Interest (SAVE
      AND
      EXCEPT Seller’s undivided interest in the Empire No. 5/5-D well, as such
      reserved interest is more fully described in Section 9.15 of this Agreement)
      (collectively, the “Related
      Property”);

    

    (c) All
      of
      Seller’s right, title, and interest in and to all original files, records, data,
      information and documentation of Seller (or if originals are not available,
      copies of such items) pertaining to or evidencing Seller’s use, ownership or
      operation of any of the assets, or the maintenance or operation thereof, or
      to
      any units in which any of the Leasehold Interests may be included or to the
      producing, treating, measuring, processing, storing, gathering, transporting
      or
      marketing of oil and gas attributable to the Leasehold Interests or such units
      and water, brine or other minerals and products produced in association
      therewith, including, without limitation, lease files, land files, well files,
      production sales agreement files, division order files, title opinions and
      abstracts, legal records (excluding any records or information the disclosure
      of
      which would result in the waiver of an attorney-client privilege), tax records,
      financial and accounting records, governmental, tribal and regulatory filings
      and permits, environmental records, and, except to the extent the transfer
      thereof may not be made without violating applicable contractual restrictions,
      geological and geophysical data, seismic records, production reports, maps,
      and
      computer software (collectively, the “Records”);
      and

    

    (e) All
      rights of Seller in and to those instruments and agreements listed on
Exhibits
      A-l and B
      hereto,
      the other instruments and agreements under which Seller’s interests in the
      Leasehold Interests arise, and all other agreements and contractual rights,
      easements, rights-of-way, servitudes, and other rights, privileges, and benefits
      to the extent relating to any asset described in clauses (a) through (d) above,
      including, without limitation, all rights of Seller in, to and under or derived
      from all production sales contracts, operating agreements, pooling, unitization
      or communitization agreements, purchase, exchange or processing agreements,
      production handling agreements, surface leases, easements or rights-of-way,
      farmout or farmin agreements, dry hole or bottom hole contribution agreements,
      seismic agreements, permits, licenses, options, orders and all other contracts,
      agreements and instruments relating to the exploration for, or the development,
      production, storage, gathering, treatment, transportation, processing, or sale
      or disposal of oil, gas, other hydrocarbons, other minerals, water, brine or
      other substances from any Leasehold Interest or any units of which they are
      a
      part (collectively, the “Rights”).

    

    The
      Leasehold Interests, the Related Property, the Records, and the Rights are
      herein collectively called the “Assets.”

    

    

    ARTICLE
      2

    PURCHASE
      PRICE

    

    2.1 Purchase
      Price; Method of Payment.

    

    (a) The
      purchase price for the Assets shall be EIGHT HUNDRED THOUSAND AND NO/100
      DOLLARS ($800,000) (the “Purchase
      Price”),
      to
      which amount shall be applied a deposit that has been paid by Purchaser to
      Seller, the receipt of such deposit and full acquittance therefor are hereby
      acknowledged by Seller, in the amount of SEVEN THOUSAND FIVE HUNDRED AND NO/100
      DOLLARS ($7,500), with the balance of the Purchase Price in the amount of SEVEN
      HUNDRED NINETY TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($792,500) to be
      paid in cash at Closing. 

    

    

    

    (b) All
      amounts required under this Article 2 to be paid by any Party hereto to another
      Party hereto shall be made by wire transfer of immediately available funds
      to an
      account designated by the payee thereof, which designation shall be made not
      later than two Business Days prior to the date such payment is due.

    

    2.2 Allocation
      of Purchase Price.
      Seller
      and Purchaser agree to the following allocation of the Purchase Price among
      the
      Assets sold hereunder for federal and state income tax purposes
      only:

    

    Interests
      relating to leasehold other than tangible

    equipment
      and facilities and other assets (Leasehold) $784,650

    

    Interests
      relating to tangible equipment

    and
      facilities (Tangibles)     $
      15,350

    

    Interests
      relating to all other assets    $
      0

    

    Total
      Purchase Price     $800,000

    

    The
      Parties agree not to take a federal or state income tax reporting position
      inconsistent with such allocation.

     

    
      
         

         

         

      

      
         

        
          

        

      

      
         

      

    

    

    ARTICLE
      3

    TITLE
      MATTERS

    

    3.1 Access
      to Assets and Seller’s Employees.
      Prior
      to the Closing Date, Seller shall grant Purchaser such access to the Assets
      (including all Records) and the employees of Seller as is necessary to permit
      Purchaser to conduct a thorough due diligence investigation of the Assets and
      the operation thereof. The Records shall be made available at their present
      location. Such access to the Assets shall include, without limitation, the
      right
      to conduct a Phase I Environmental Assessment and any additional environmental
      assessments which Purchaser subsequently deems necessary on the basis of
      environmental liabilities identified in such Phase I Environmental
      Assessment.

    

    3.2 Definition
      of Marketable Title.
      As used
      herein, the term “Marketable
      Title” shall
      mean, in the case of the Leasehold Interests listed on Exhibit
      A-1,
      such
      right, title and interest that, except for Permitted Encumbrances:

    

    (a) entitles
      Seller to receive, from its record title ownership in such Leasehold Interests,
      not less than the interest set forth in Exhibit
      A-2
      as the
“Net Revenue Interest” or “NRI” with respect to all of the oil, gas, and
      hydrocarbon minerals produced, saved and marketed from each unit or well, as
      the
      case may be, identified on Exhibit
      A-2,
      without
      reduction, suspension or termination throughout the productive life of such
      Leasehold Interests, except as expressly noted on Exhibit
      A-2;

    

    (b) obligates
      Seller to bear no more than the percentage set forth in Exhibit
      A-2
      as the
“Working Interest” or “WI” with respect to all of the costs and expenses
      relating to the operations on and the maintenance and development of each unit
      or well, as the case may be, identified on Exhibit
      A-2,
      without
      increase throughout the productive life of such Leasehold Interests, except
      as
      expressly noted on Exhibit
      A-2;
      and

    

    (c) is
      free
      and clear of all liens, mortgages, pledges, claims, charges, options, calls
      on
      production, preferential purchase rights, requirements for consent to assignment
      which would apply to the transactions contemplated hereby and other encumbrances
      and title defects.

    

    3.3 Definition
      of Permitted Encumbrances.
      As
      used
      herein, the term “Permitted
      Encumbrances” shall
      mean:

    

    (a) lessors’
      royalties, overriding royalties, reversionary interests and similar burdens
      (including calls on production or the right of a lessor to take production
      in
      kind) affecting a Leasehold Interest if the net cumulative effect of such
      burdens does not operate to reduce the interest of Seller with respect to all
      oil and gas produced from any units or wells below the “Net Revenue Interest” or
“NRI” set forth in Exhibit
      A-2
      for such
      units or wells;

    

    (b) division
      orders and sales contracts terminable without penalty upon no more than 30
      days’
notice to the purchaser of production;

    

    (c) preferential
      rights to purchase and required consents to assignments and similar agreements
      with respect to which waivers or consents are obtained from the appropriate
      parties or the appropriate time period for asserting the rights has expired
      without an exercise of such rights;

    

    (d) materialman’s,
      mechanic’s, repairman’s, employee’s, contractor’s, operator’s, tax, and other
      similar liens or charges arising in the ordinary course of business for
      obligations that are not yet due; and

    

    (e) easements,
      rights-of-way, servitudes, permits, surface leases and other rights of third
      parties in respect of surface operations, to the extent same do not have a
      material adverse affect on any of the Assets and/or the use and enjoyment
      thereof.

    

    

    ARTICLE
      4

    REPRESENTATIONS
      AND WARRANTIES OF SELLER

    

    For
      the
      purpose of this Agreement, “Knowledge”
means
      the actual current awareness by Terrence T. O’Donnell (as to Seller’s knowledge)
      of the fact in question at the time in question, and

    shall
      not
      include any imputed, implied or constructive knowledge and awareness. Knowledge
      shall be deemed to exist only if there is documentary evidence that the
      foregoing definition has been satisfied beyond a reasonable doubt.

    

    Seller
      represents and warrants to Purchaser that:

    

    4.1 Existence.
      Seller
      is
      a corporation duly organized, validly existing and in good standing under the
      laws of the State of Louisiana and is duly qualified to carry on its business
      in
      the State of Louisiana.

    

    4.2 Power.
      Seller
      has the corporate power and authority to enter into this Agreement and perform
      this Agreement and the transactions contemplated hereby. The execution, delivery
      and performance of this Agreement by Seller, and the consummation of the
      transactions contemplated hereby, will not: (a) violate or conflict with
      any provision of the articles of incorporation, other organizational documents,
      or bylaws of Seller; (b) violate or conflict with any material agreement or
      instrument to which Seller is a party or by which Seller or any of the Leasehold
      Interests are bound; (c) violate or conflict with any judgment, order, ruling,
      or decree applicable to Seller as a party in interest; (d) violate or conflict
      with any law, rule or regulation applicable to Seller; or (e) result in the
      creation or imposition of any lien, charge or other encumbrance upon the
      Assets.

    

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

    

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

    

    4.5 Foreign
      Person.
      Seller
      is
      not a “foreign person” within the meaning of the Internal Revenue Code of 1986,
      as amended, (hereinafter called the “Code”),
      Section
      1445 and 7701 (i.e., Seller is not a nonresident alien, foreign corporation,
      foreign partnership, foreign trust or foreign estate as those terms are defined
      in the Code and any regulations promulgated thereunder).

    

    4.6 Litigation.
      To
      the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.6:

    

    (a) there
      is
      no suit, action, investigation, or other proceeding pending or threatened
      against Seller or otherwise involving the Assets (except for suits, actions,
      investigations or proceeding relating to the oil and gas industry generally
      to
      which Seller is not a named party), that could reasonably be expected to
      adversely affect any of the Assets, including, without limitation, Seller’s
      title thereto, the value thereof, operations thereon, or the marketing of
      production therefrom;

    

    (b) there
      is
      no suit, action, investigation, or other proceeding pending or threatened
      against Seller that could reasonably be expected to adversely affect the ability
      of Seller to perform its obligations under this Agreement or that could
      reasonably be expected to prevent, delay or hinder the consummation of the
      transactions contemplated hereby; and

    

    (c) Seller
      has not received any notice that it has been charged with any violation of,
      or
      threatened with a charge of a violation of, any Legal Requirement (as defined
      below), which violation might reasonably be expected to adversely affect any
      of
      the Assets, and to the knowledge of Seller, no third party has been charged
      with
      any violation of any Legal Requirement which violation might reasonably be
      expected to adversely affect the Assets.

    

    As
      used
      in this Agreement, “Legal
      Requirement” shall
      mean any law, statute, ordinance, decree, requirement, order, judgment, rule
      or
      regulation of, including the terms of any license, permit or authorization
      issued by, any federal, state, local or tribal authority, agency, or regulatory
      authority with jurisdiction over the Assets or the Parties.

    

    4.7 Basic
      Documents.
      To the
      best of Seller’s Knowledge, the documents and instruments creating or giving
      rise to the Leasehold Interests and all agreements, contracts, easements,
      rights-of-way and other surface use rights, and all governmental and tribal
      licenses, permits, approvals and other authorizations necessary to own, maintain
      and operate the Assets in compliance with applicable laws and in the manner
      in
      which they have historically been owned, maintained and operated (all such
      documents and instruments being herein referred to as the “Basic
      Documents”), are
      in
      full force and effect and no breach or default exists thereunder. Except as
      set
      forth on Exhibit
      4.7,
      the
      Basic Documents: (a) do not subject all or any portion of the Assets to any
      tax
      partnership or to any obligation requiring a partnership income tax return
      to be
      filed under the application of Subchapter K of Chapter 1 of Subtitle A of the
      Code, or any similar state statute, and Seller has complied with all conditions
      necessary to maintain a valid election to be excluded from said Subchapter
      K:
      and (b) if assumed by Purchaser at Closing, would not subject Purchaser to
      any
      area of mutual interest, non-competition or similar provision restricting
      Purchaser from independently conducting operations in any geographic area.
      Except as set forth in Exhibit
      4.7,
      neither
      Seller nor, to the best of Seller’s knowledge, any other party to the Basic
      Documents: (i) is in breach or default, or with the lapse of time or the giving
      of notice, or both, would be in breach or default, with respect to any of its
      obligations thereunder; or (ii) has given or threatened to give notice of any
      default under, has made or threatened inquiry into any possible default under,
      or begun or threatened action to alter, terminate, rescind or procure a judicial
      reformation of, any Basic Document or any provision thereof. There are no
      amounts claimed to be due to Seller in respect of the Assets that are being
      held
      in suspense because of a dispute as to title to such Assets or for any other
      reason, and Seller is currently being paid its Net Revenue Interest specified
      on
Exhibit
      A-2
      for each
      unit or well listed thereon without indemnity or guarantee other than those
      customarily found in division orders and other similar agreements and
      documents.

    

    4.8 Compliance
      with Laws.
      To
      the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.8,
      all
      operations (including, without limitation, the exploration and development
      of
      all leases, the drilling, completion and production of all wells thereon, and
      the marketing of all production therefrom) relating to the Leasehold Interests
      have been conducted in compliance with, and all items of tangible personal
      property and fixtures constituting part of the Assets conform with, all Legal
      Requirements, including, but not limited to the following (herein called
“Environmental
      Laws”):
      any
      and all laws, statutes, ordinances, rules, regulations, orders or determinations
      of any tribal authority or other governmental authority pertaining to health
      or
      the environment, including, without limitation, the Clean Air Act, as amended,
      the Comprehensive Environmental, Response, Compensation, and Liability Act
      of
      1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as
      amended, the Occupational Safety and Health Act of 1970, as amended, the
      Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe
      Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
      the Hazardous & Solid Waste Amendments Act of 1984, as amended, the
      Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
      Materials Transportation Act, as amended, any state laws pertaining to the
      handling of oil and gas exploration or production wasted or the use, maintenance
      and closure of pits and impoundments, and other environmental conservation
      or
      protection laws. For purposes of this Agreement, the terms “hazardous substance”
and “release” (or “threatened release”) have the meanings specified in CERCLA,
      and the terms “solid waste” and “disposal” (or “disposed”) have the meanings
      specified in RCRA; provided, however, that: (i) to the extent the laws of the
      jurisdiction wherein the Assets are located establish a meaning for “hazardous
      substance,” “release,” “solid waste” or “disposal” that is broader than that
      specified in either CERCLA or RCRA, such broader meaning shall apply; and (ii)
      the terms “hazardous substance” and “solid waste” shall include all oil and gas
      exploration and production wastes that may present an endangerment to public
      health or welfare or the environment, even if such wastes are specifically
      exempt from classification as hazardous substances or solid wastes pursuant
      to
      CERCLA or RCRA or the state analogues to those statutes. For purposes of this
      Agreement, the term “governmental
      authority”
      includes
      the United States, the state, county, parish, city, tribal and political
      subdivisions in which the Assets are located or which exercises jurisdiction
      over any of the Assets, and any agency, department, commission, board, bureau
      or
      instrumentality, or any of them, that exercises jurisdiction over any of the
      Assets. The Parties acknowledge that the representations and warranties
      contained in this Section 4.8 are subject to and limited by the provisions
      of
      Section 9.1.1
      of
      this Agreement.

    

    4.9 Governmental
      Licenses.
      To the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.9,
      Seller
      has obtained all governmental and tribal permits, licenses and other
      authorizations required by any governmental authority to own and operate the
      Assets; all such authorizations are in full force and effect; and no violations
      exist thereunder. No proceeding is pending or threatened relating to the
      challenging, revocation or limitation of any such license or
      authorization.

    

    4.10 Lease
      Obligations.
      To the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.10:
      (a)
      with respect to the oil, gas and other mineral leases included on Exhibit
      A-1,
      there
      are no royalty provisions (other than those allowing a lessor the right to
      take
      in kind and other than royalties due to governmental entities) requiring the
      payment of royalty on any basis other than proceeds actually received by the
      lessee; (b) there are no Leasehold Interests which are subject to a fixed term
      of duration; and (c) there are no unfulfilled drilling obligations affecting
      the
      Leasehold Interests, other than provisions requiring optional drilling as a
      condition of maintaining or earning all or a portion of a lease, and all
      royalties, rentals and other payments due in respect of the Leasehold Interests
      have been timely paid and all other conditions necessary to keep such properties
      and interests in full force and effect during their primary term, and thereafter
      if commercial production has been established thereon or on lands unitized
      or
      pooled therewith, have been fully performed.

    

    4.11 Obligations
      Relating to Operations.
      With
      respect to operations relating to the Assets, except as set forth on
Exhibit
      4.11:
      (a)
      there are no gas production, processing, sales, transportation or other
      imbalances as of the Effective Time between Seller and any third party; (b)
      there are no material non-consent operations with respect to any Leasehold
      Interest which have resulted or will result in a temporary or permanent increase
      or decrease in Seller’s interest in such Leasehold Interest from that set forth
      on Exhibit
      A-2
      for the
      applicable unit or well; (c) there are no binding commitments with respect
      to
      the Assets that will result in Purchaser incurring after the Closing Date
      capital expenditures with respect to any one unit or well in excess of $5,000,
      or $25,000 with respect to the Assets in the aggregate.

    

    4.12 Operations
      Since the Effective Time.
      Except
      as set forth in Exhibit
      4.12,
      since
      the Effective Time:

    

    (a) Seller
      has caused the Assets to be developed, maintained and operated in a good and
      prudent manner and in substantially the same manner as the Assets were
      developed, maintained and operated prior to the Effective Time;

    

    (b) Seller
      has not sold, assigned, transferred, farmed out, conveyed or otherwise disposed
      of any of the Assets, except for the sale of hydrocarbons in the ordinary course
      of business;

    

    (c) Seller
      has not, to the extent related to the Assets, made any major change in the
      character of its business or operations or otherwise conducted its business
      and
      operations other than in accordance with standard industry
      practices;

    

    (d) Seller
      has not permitted any leases or material rights with respect to the Assets
      to
      expire, or waived any material rights with respect to the Assets;

    

    (e) Seller
      has not entered into any agreement or made any commitment (other than this
      Agreement) to take any of the actions referred to in clauses (a) through (d)
      above; and

    

    (f) there
      have been no fires, blow-outs or other casualties (above or below the surface
      of
      the ground) which affected any of the Assets.

    

    4.13 Marketing
      of Production; Suspended Funds.
      (a)
      Except as set forth in Exhibit 4.13:

    

    (i)
      Seller has not received, as of the Effective Time, any advance, “take-or-pay,”
or other similar payments under production sales contracts that entitle the
      purchasers to “make-up” or otherwise receive deliveries of hydrocarbons at any
      time after the Effective Time without paying at such time the full market price
      therefor, nor has Seller received any payments with respect to, or in lieu
      of or
      in satisfaction for any take-or-pay obligations of purchasers of Seller’s
      hydrocarbons deliverable under any contracts covering any of the Leasehold
      Interests on or after the Effective Time;

    

    (ii)
      Seller has not received prior to the Effective Time payments for production
      which are currently subject to refund;

    

    (iii)
      none of the Leasehold Interests are subject to any: (A) dedication under
      production sales contracts with terms in excess of 31 days; (B) production
      gathering agreements not terminable without cause on 30 days advance written
      notice; or (C) calls on, or preferential rights to purchase, hydrocarbons
      produced therefrom.

    

     

    (b) Exhibit
      4.13
      sets
      forth a list of all funds held in suspense by Seller on the date hereof that
      are
      attributable to the Leasehold Interests, a description of the source of such
      funds and the reason they are being held in suspense, the agreement or
      agreements under which such funds are being held and the name or names of the
      parties claiming such funds or to whom such funds are owed.

    

    4.14 Taxes.
      Except
      as set forth in Exhibit
      4.14,
      all ad
      valorem, property, production, severance, sales, use, and similar taxes and
      assessments based on or measured by the ownership of the Assets or the
      production of hydrocarbons or the receipt of proceeds therefrom that have become
      due and payable with respect to the Assets (collectively, “Taxes”)
      have
      been, or will be, paid timely and all tax and information returns to tax
      authorities required to be filed with respect to the Assets have been, or will
      be, filed timely. Seller shall be responsible for paying all Taxes prorated
      through May 31, 2007, based upon all assessments up to and including calendar
      year 2007, regardless of when: (i) the 2007 assessment is issued; and (ii)
      Taxes
      for 2007 are paid. Exhibit
      4.14
      identifies all audits or examinations pending or presently being conducted
      by
      any taxing jurisdiction or regulatory authority and a summary of the likely
      outcomes of any such audit or examination. Seller
      and Purchaser shall cooperate fully, as and to the extent reasonably requested,
      in connection with the filing of any tax returns relating to Taxes and any
      audit, litigation or other proceeding with respect to such tax
      returns.

    

    4.15 Preferential
      Rights and Restrictions on Assignment.
      To the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.15,
      none of
      the Leasehold Interests are subject to any preferential rights to purchase
      or
      restrictions on assignment, including, but not limited to, contractual or
      statutory requirements for consents from third parties, including, but not
      limited to, any governmental authority, to any assignment.

    

    4.16 Improvements,
      Personalty, Equipment and Fixtures.
      Except
      as set forth in Exhibit
      4.16,
      all
      wells, platforms, fixtures, facilities, improvements, pipelines, personal
      property and equipment constituting a part of the Assets: (a) are in a good
      and
      operable state of repair so as to be adequate for normal operations in
      accordance with standard industry practice in the areas in which they are
      operated; (b) are adequate together with all related Assets to comply with
      the
      requirements of all applicable contracts, including sales contracts; and (c)
      meet and comply with all applicable Legal Requirements.

    

    4.17 Wells.
      To the
      best of Seller’s Knowledge, all of the wells in which Seller has an interest by
      virtue of its ownership of the Leasehold Interests have been drilled and
      completed within the boundaries of such Leasehold Interests or within the limits
      otherwise permitted by contract, pooling or unit agreement, and by law; and,
      except as set forth on Exhibit
      4.17,
      no such
      well is subject to penalties on allowables because of any over production or
      any
      other violation of applicable Legal Requirements that would prevent such well
      from being entitled to its full legal and regular allowable from and after
      the
      Effective Time as prescribed by any governmental authority. Exhibit
      4.17
      also
      sets forth the current production and allowable for each unit or well comprising
      a part of the Assets.

    

    4.18 Environmental
      Matters.
      To the
      best of Seller’s Knowledge, except as set forth in Exhibit
      4.18:

    

    (a) the
      Assets do not violate any order or requirement of any governmental authority
      or
      any Environmental Laws, nor are there any agreements or contracts covering
      any
      of the Assets or conditions existing on or resulting from the operations of
      the
      Assets that may give rise to any on-site or off-site surface restoration or
      remedial obligations under any Environmental Laws or any such agreements or
      contracts;

    

    (b) without
      limitation of clause (a) above, the Assets are not in violation of or subject
      to
      any existing, pending or threatened action, suit, investigation, inquiry or
      proceeding by or before any court, any applicable tribal authority or any other
      governmental authority;

    

    (c) during
      the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
      of Seller), all notices, permits, licenses or similar authorizations, if any,
      required to be obtained or filed in connection with the Assets, including,
      without limitation, those relating to the past or present treatment, storage,
      disposal or release of a hazardous substance or solid waste into the
      environment, have been duly obtained or filed, and Seller is in compliance
      with
      the terms and conditions of all such notices, permits, licenses and similar
      authorizations;

    

    (d) during
      the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
      of Seller), and since the effective date of the relevant requirements of RCRA,
      all hazardous substances or solid waste generated at or as a result of the
      Assets has been transported, treated and disposed of only by carriers
      maintaining valid authorizations under RCRA and any other Environmental Laws
      and
      only at treatment, storage and disposal facilities maintaining valid
      authorizations under RCRA and any other Environmental Law; and

    

    (e) during
      the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
      of Seller), no hazardous substance or solid waste has been disposed of or
      otherwise released (including, without limitation, discharges or releases into
      pits) and there has been no threatened release of any hazardous substances
      or
      solid waste on, to or as a result of the Assets (including the land covered
      by
      the Assets or on which any of the Assets are situated) except in compliance
      with
      Environmental Laws, and there are no storage tanks or other containers on or
      under any of the Assets from which hazardous substances, petroleum products
      or
      other contaminants may be released into the surrounding
      environment.

    

    The
      Parties acknowledge that the representations and warranties contained in this
      Section 4.18 are subject to and limited by the provisions of Section 9.1.1
      of
      this Agreement.

    

    

    ARTICLE
      5

    REPRESENTATIONS
      AND WARRANTIES OF PURCHASER

    

    Purchaser
      represents and warrants to Seller that:

    

    5.1 Existence.
      Purchaser is a corporation duly organized, validly existing, and in good
      standing under the laws of the State of Texas, and is duly qualified to carry
      on
      its business in the jurisdiction where the Assets are located.

    

    5.2 Power.
      Purchaser has the corporate power and authority to enter into and perform this
      Agreement and the transactions contemplated hereby. The execution, delivery
      and
      performance of this Agreement by Purchaser, and the consummation of the
      transactions contemplated hereby, will not violate or conflict with: (a) any
      provision of the articles of incorporation, other organizational documents,
      or
      bylaws of Purchaser; (b) any material agreement or instrument to which Purchaser
      is a party or by which Purchaser is bound; (c) any judgment, order, ruling,
      or
      decree applicable to Purchaser as a party in interest; or (d) any law, rule,
      or
      regulation applicable to Purchaser.

    

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

    

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

    

    5.5 Due
      Diligence.
      Purchaser represents that it: (i) it has had and pursuant to this Agreement
      will
      have prior to Closing access to the Assets and the employees of Seller; (ii)
      in
      making the decision to enter into this Agreement and consummate the transactions
      contemplated hereby, Buyer has relied solely on the basis of its own independent
      investigation of the Assets; (iii) except for the indemnity obligation of Seller
      contained in Section 9.1.1 of this Agreement, it is relying solely on its own
      examination and inspection of the Assets for title, environmental and all other
      purposes.

    

    5.6 State
      Leases.
      Purchaser is
      registered with the Department of Natural Resources, Office of Mineral Resources
      of the State of Louisiana (the “State
      Mineral Board”)
      and is
      properly qualified to own leases of the State of Louisiana and to obtain
      approval by the State Mineral Board of transfer of State Lease 13994 pursuant
      to
      the Conveyance.

    

    

    ARTICLE
      6

    SELLER’S
      CONDITIONS OF CLOSING

    

    Seller’s
      obligation to consummate the transactions provided for herein is subject to
      the
      satisfaction or waiver on or before the Closing Date of the following
      conditions:

    

    6.1 Representations
      and Warranties.
      The
      representations and warranties of Purchaser contained in Article
      5
      shall be
      true and correct in all material respects on the date of Closing as though
      made
      on and as of that date.

    

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

    

    6.3 Officer’s
      Certificate.
      Purchaser shall have delivered to Seller a certificate of a corporate officer,
      dated the date of Closing, certifying on behalf of Purchaser that the conditions
      set forth in Sections
      6.1
      and
      6.2
      have
      been fulfilled.

    

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

    

    

    ARTICLE
      7

     PURCHASER’S
      CONDITIONS OF CLOSING

    

    Purchaser’s
      obligation to consummate the transactions provided for herein is subject to
      me
      satisfaction or waiver on or before the Closing Date of the following
      conditions:

    

    7.1 Representations
      and Warranties.
      The
      representations and warranties of Seller contained in Article
      4
      shall be
      true and correct in all material respects on the date of Closing as though
      made
      on and as of that date.

    

    7.2 Performance.
      Seller
      shall have performed in all material respects the obligations, covenants and
      agreements required hereunder to be performed by it at or prior to the
      Closing.

    

    7.3 Officer’s
      Certificate.
      Seller
      shall have delivered to Purchaser a certificate of a corporate officer, dated
      the date of Closing, certifying on behalf of Seller that the conditions set
      forth in Sections
      7.1 and 7.2
      have
      been fulfilled.

    

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

    

    7.5 Operatorship.
      Purchaser shall be satisfied in its sole discretion that it will succeed to
      or
      will become operator of all units and wells comprising a part of the Assets
      that
      were being operated by Seller at the Effective Time.

    

    7.6 No
      Material Adverse Change.
      Since
      the date of this Agreement, there shall have been no material adverse change
      in
      the value of the Assets and no event shall have occurred that has had, or is
      reasonably likely to have, a material adverse effect on the ability of Purchaser
      to own and operate the Assets, and enjoy the benefits associated therewith,
      in
      the same fashion as Seller has prior to the date hereof.

     

    7.7 Satisfaction
      With Due Diligence.
      Purchaser shall be satisfied in its sole discretion with the results of its
      due
      diligence investigation of the Assets, including, but not limited to: (a) the
      operational and environmental condition of the Assets; and (b) title to the
      Assets.

     

    7.8 Conveyance
      by Seller.
      Pursuant to the terms of this Agreement, at Closing, Seller shall sell, assign,
      transfer, and convey the Assets pursuant to the Conveyance, as such term is
      hereinafter defined, to Purchaser.

    

    

    ARTICLE
      8

    CLOSING

    

    8.1 Time
      and Place of Closing.
      Subject
      to the conditions stated in this Agreement and unless the Parties agree
      otherwise, the consummation of the transactions contemplated hereby (the
“Closing”)
      shall
      occur no later than 10:00 a.m. on June 19, 2007; provided, however, that if
      all
      of the conditions to Closing set forth in Articles
      6 and 7
      have not
      been satisfied or waived by such date or any extended date for Closing, the
      Party whose obligation to close is subject to the conditions that have not
      been
      satisfied or waived shall have the right to extend the date of Closing for
      successive periods of up to five Business Days each until such conditions shall
      have been satisfied or waived or until this Agreement shall have been terminated
      pursuant to Section
      10.1.
      The
      date Closing actually occurs is herein called the “Closing
      Date.”
      The
      Closing shall be held at Purchaser’s offices located at 5075 Westheimer, Suite
      975, Houston, Texas, or at such other location as may be mutually agreed upon
      by
      Seller and Purchaser.

    

    8.2 Closing
      Obligations.
      At the
      Closing, the following events shall occur:

    

    (a) Seller
      and Purchaser shall execute, acknowledge and deliver to each other the
      Assignment, Bill of Sale, and Conveyance in the form of Exhibit
      8.2(a)
      conveying the Assets to Purchaser (the “Conveyance”).
      In the
      Conveyance contemplated hereby, Seller shall bind itself and its respective
      successors and assigns to warrant title to the Assets unto Purchaser, its
      successors and assigns, against every person whomsoever lawfully claiming or
      to
      claim the same or any part thereof by, through and under Seller, but not
      otherwise, and with full substitution and subrogation of Purchaser in and to
      all
      warranties of title heretofore made by Seller’s predecessors in title in respect
      of the Assets. Further, in the Conveyance, any movable or tangible property
      situated on and comprising a portion of the Assets shall be sold on an
“AS
      IS, WHERE IS”
      basis
      without any warranty, either express or implied, as to title, value, quality,
      condition or fitness for any purpose and with all defects.

    

    (b) Seller
      and Purchaser shall execute, acknowledge and deliver to each other letters
      in
      lieu of transfer orders directing all parties paying for production to make
      payment to Purchaser of proceeds attributable to production from the Leasehold
      Interests after the Effective Time (to the extent such proceeds have not
      previously been disbursed to Seller);

    

    (c) Purchaser
      shall make the payment described in Section
      2.3;

    

    (d) Seller
      and Purchaser shall exchange the certificates described in Sections
      6.3 and 7.3;

    

    (e) Seller
      shall execute such other instruments and take such other action as may be
      necessary to carry out its obligations under this Agreement; and

    

    (f) Purchaser
      shall execute such other instruments and take such other action as may be
      necessary to carry out its obligations under this Agreement.

    

    

    ARTICLE
      9

    ADDITIONAL
      AGREEMENTS

    

    9.1 Receipts
      and Credits.
      Subject
      to the terms hereof, all monies, proceeds, receipts, credits and income
      attributable to the Assets: (a) for all periods of time subsequent to the
      Effective Time (but only if Closing occurs) shall be the sole property and
      entitlement of Purchaser, and, to the extent received by Seller, Seller shall
      fully disclose, account for and transmit same to Purchaser promptly: and (b)
      for
      all periods of time prior to the Effective Time, shall be the sole property
      and
      entitlement of Seller and, to the extent received by Purchaser, Purchaser shall
      fully disclose, account for and transmit same to Seller promptly. Subject to
      the
      terms hereof, all costs, expenses, disbursements, obligations and liabilities
      attributable to the Assets: (i) for periods of time prior to the Effective
      Time,
      regardless of when due or payable, shall be the sole obligation of Seller and
      Seller shall promptly pay, or if inadvertently paid by Purchaser and not
      contested by Seller, promptly reimburse Purchaser for and hold Purchaser
      harmless from and against same; and (ii) for periods of time subsequent to
      the
      Effective Time (but only if Closing occurs), regardless of when due or payable,
      shall be the sole obligation of Purchaser and Purchaser shall promptly pay,
      or
      if inadvertently paid by Seller and not contested by Purchaser, promptly
      reimburse Seller for and hold Seller harmless from and against same.

    

    9.1.1 Allocation
      of Liability.
      If a
      governmental authority issues a citation or compliance order to Seller or
      Purchaser or commences any action concerning the environmental condition of
      Assets prior to September 29, 2007 at 11:59 p.m. Central Standard Time (the
      “Response
      Date”),
      Seller shall be liable for all claims, liabilities, losses, costs and expenses
      of remedying the violations or failures to comply but only to a maximum
      obligation of $50,000. If, prior to the Response Date, no citations or
      compliance orders are issued or if Seller has expended the equivalent of $50,000
      remedying any violations or failures to comply, in such event and, in all
      instances subsequent to the Response Date, Purchaser shall be solely responsible
      for all claims, liabilities, losses, costs and expenses related to the
      environmental condition of the Assets. Except as provided in this Section 9.1.1
      and Section 12.12 of this Agreement and in the Conveyance, from and after the
      Response Date, Seller shall have no further liabilities for the
      Assets.

    

    9.2 Cross
      Indemnity.
      If the
      Closing occurs, Seller and Purchaser agree as follows:

    

    (a) Subject
      to the terms of Article
      11,
      which
      shall control with respect to the tax matters covered thereby, Purchaser agrees
      to indemnify, defend and hold harmless Seller and its directors, officers,
      employees, agents and representatives (the “Seller
      Group”)
      from
      and against any and all claims, liabilities, losses, costs and expenses
      (including, without limitation, court costs and reasonable attorneys’ fees, but
      excluding any amounts reimbursed from third party insurance) (collectively,
      “Losses”)
      that
      are attributable to: (i) a breach by Purchaser of its representations,
      warranties, covenants and agreements hereunder; (ii) the ownership or operation
      of the Assets after the Closing Date; or (iii) all claims, liabilities, losses,
      costs and expenses related to the
      environmental condition of the Assets from and after the Response
      Date.

    

    (b) Subject
      to the terms of Article
      11,
      which
      shall control with respect to the tax matters covered thereby, Seller agrees
      to
      indemnify, defend and hold harmless Purchaser and its directors, officers,
      employees, agents and representatives from and against any and all Losses that
      are attributable to: (i) a breach by Seller of its representations, warranties,
      covenants and agreements hereunder; (ii) the ownership or operation of the
      Assets prior to the Closing Date; or (iii) all claims, liabilities, losses,
      costs and expenses related to the
      environmental condition of the Assets prior to the Response Date. 

    

    (c) The
      indemnity, defense and hold harmless obligations set forth in Sections
      9.2(a) and (b)
      above:
      (i) shall not limit or otherwise affect the scope of any indemnities given
      by
      Purchaser to Seller, or Seller to Purchaser, pursuant to the terms of this
      Agreement; (ii) shall not apply to either Party’s costs and expenses with
      respect to the negotiation and consummation of this Agreement and the
      transactions contemplated hereby; and (iii) are independent of and in addition
      to the rights and remedies that the Parties may have at law or in equity or
      otherwise for any default. 

    

    (d) In
      the
      event a Party receives written notice of the commencement of any action or
      proceeding, the assertion of any claim by a third party or the imposition of
      any
      penalty or assessment for which indemnity may be sought pursuant to this
      Agreement, and such Party intends to seek indemnity from the other Party
      pursuant to this Agreement, within reasonable time after notice (or such earlier
      time as might be required to avoid prejudicing the indemnifying Party's
      position) after receipt of such notice, such Party (the “Indemnified
      Party”)
      shall
      provide the other Party (the “Indemnifying
      Party”)
      with
      written notice of such action, proceeding, claim, penalty or assessment with
      respect to which such indemnity has been invoked, together with a copy of such
      claim, process or other legal pleading, and the Indemnified Party will fully
      cooperate with the Indemnifying Party in connection therewith. In the event
      that
      the Indemnifying Party, by the thirtieth day after receipt of notice of any
      such
      claim (or, if earlier, by the tenth day preceding the day on which an answer
      or
      other pleading must be served in order to prevent judgment by default in favor
      of the person asserting such claim), does not elect to defend against such
      claim, the Indemnified Party will (upon further notice to the Indemnifying
      Party) have the right to undertake the defense, compromise or settlement of
      such
      claim on behalf of and for the account and risk of the Indemnifying Party and
      at
      the Indemnifying Party’s expense, subject to the right of the Indemnifying Party
      to assume the defense of such claims at any time prior to settlement, compromise
      or final determination thereof. If the Indemnifying Party chooses to assume
      the
      entire defense of such claim or action (with counsel selected by it which is
      reasonably satisfactory to the Indemnified Party or person), the Indemnifying
      Party shall bear the entire cost of defending such claim or action. The
      Indemnifying Party shall not have the right to settle any such claim or action
      without the written consent of the Indemnified Party, which consent shall not
      be
      unreasonably withheld. In the event of the assumption of the defense by the
      Indemnifying Party, the Indemnifying Party shall not be liable for any further
      legal or other expenses subsequently incurred by the Indemnified Party or person
      in connection with such defense unless otherwise agreed in writing by the
      Parties or as herein provided; provided, however, the Indemnified Party shall
      have the right to participate in such defense, at its own cost. During any
      period when the Indemnifying Party is contesting any claim in good faith on
      behalf of the Indemnified Party, the Indemnified Party shall not pay, compromise
      or settle such claim without the Indemnifying Party's consent (which shall
      not
      be unreasonably withheld or delayed); provided, that the Indemnified Party
      may
      nonetheless pay, compromise or settle the claim without consent during such
      period, in which event it shall, automatically and without any further action
      on
      its part, waive any right (whether or not pursuant to this Agreement) to
      indemnity in respect of all liabilities relating to the claim. Failure of a
      Party to give prompt notice of a claim for indemnification hereunder shall
      not
      affect such Party’s right to indemnification hereunder except to the extent that
      the Indemnifying Party shall have been materially prejudiced as a result of
      such
      failure.

    

    9.3 Plugging
      and Abandonment Matters.
      If
      Closing occurs, Purchaser agrees as follows:

    

    (a) as
      security for the plugging and abandonment obligations all wells described on
      Exhibit
      A-2,
      to
      deliver a certificate of deposit to Seller at Closing in the amount of EIGHTY
      THOUSAND AND NO/100 DOLLARS ($80,000) made payable to Purchaser (the
“Certificate
      of Deposit”);

    

    (b) in
      replacement of the security identified in subpart (a) of this Section for the
      plugging and abandonment obligations all wells described on Exhibit
      A-2,
      to
      deliver a letter of credit satisfactory to Seller (the “Letter
      of Credit”);
      and

    

    (c)
      to
      assume responsibility for plugging and abandonment of all wells described as
      “Wells
      to be Conveyed”
on
      Exhibit
      A-2
      and to
      indemnify, defend, and hold harmless the Seller Group from and against any
      Losses attributable thereto.

    

    If
      the
      Letter of Credit is not provided to Seller within four (4) months of the Closing
      Date, Purchaser will endorse the Certificate of Deposit payable to Seller and
      Seller shall be entitled to the proceeds of the Certificate of
      Deposit.

    

    Seller
      shall retain ownership and liability for all wells described as “Wells
      Not Conveyed”
and
      “Equipment
      Not Conveyed”
on
      Exhibit A-2.

    

    9.4 Further
      Assurances.
      After
      Closing, Seller and Purchaser agree to take such further actions and to execute,
      acknowledge and deliver such additional documents and instruments as may be
      necessary or useful in carrying out the purposes of this Agreement or of any
      document delivered pursuant hereto.

    

    9.5 Records.
      As soon
      as possible following Closing, but in any event prior to the 30th day following
      Closing, Seller shall make all Records available for delivery to Purchaser
      at
      Seller’s offices in Houston, Texas. Prior to the expiration of such thirty (30)
      day period, Seller shall give Purchaser full and complete access to such
      Records, except to the extent same have been sent off-site by Seller for
      copying.

    

    9.6 Cooperation
      Regarding Operatorship.
      Prior
      to and following Closing, Seller agrees to use its best efforts to assist and
      cooperate with Purchaser in connection with its efforts to secure operatorship
      of the wells and units constituting a part of the Assets. 

    

    9.7 Empire
      No. 5 Well.
      If
      Closing occurs, Seller and Purchaser agree that, upon receipt by Seller (from
      the proceeds of production from sales of hydrocarbon production from the Empire
      No. 5 well) of reimbursement for all costs and expenses actually incurred by
      Seller as a result of any and all recompletion attempts conducted on the Empire
      No. 5 well (such reimbursement out of production is sometimes herein called
      the
“Empire
      No. 5 Recoupment”),
      Seller shall assign to Purchaser a 50% expense-bearing interest and 50% of
      a 75%
      net revenue interest in the Empire No. 5 well pursuant to an instrument
      substantially in the form of Exhibit
      8.2(a).
      In such
      instrument, Seller shall bind itself and its respective successors and assigns
      to warrant title to such undivided interests in the Empire No. 5 Well unto
      Purchaser, its successors and assigns, against every person whomsoever lawfully
      claiming or to claim the same or any part thereof by, through and under Seller,
      but not otherwise, and with full substitution and subrogation of Purchaser
      in
      and to all warranties of title heretofore made by Seller’s predecessors in title
      in respect thereof. On or before the fifteenth (15th)
      day of
      each January, April, July, and October until the Empire No. 5 Recoupment has
      occurred, Seller agrees to provide Purchaser with statements in form and
      substance and with appropriate supporting documentation acceptable to Purchaser
      reporting: (i) the proceeds from sales of hydrocarbon production from the Empire
      No. 5 well received by Seller; and (ii) all costs and expenses actually incurred
      by Seller as a result of any and all recompletion attempts conducted on Empire
      No. 5 well. Furthermore, Purchaser agrees that Seller may dispose of all
      produced water from the Empire No. 5 well into the salt water disposal system
      to
      be established and operated by Purchaser on the lands on which the Assets are
      situated provided that: (i) any such disposal of produced water from the Empire
      No. 5 well does not limit the ability of Purchaser to dispose of its produced
      water from any of the Assets; and (ii) Seller reimburses Purchaser for any
      extraordinary repairs that may be required on its salt water disposal system
      in
      proportion to the produced water of Seller from the Empire No. 5 well disposed
      of by means of such system. 

    

    9.8 Certain
      Costs.
      If
      Closing occurs, in connection with the N.E. Welsh prospect, the N. Welsh
      Prospect, and the N.W. Welsh prospects more particularly described on Exhibit
      A-1, Seller and Purchaser agree that, on the Closing Date, upon delivery to
      Purchaser by Seller of appropriate supporting documentation acceptable to
      Purchaser concerning all costs and expenses actually incurred by Seller in
      connection with: (i) acquiring leases; (ii) actual invoices paid to brokers;
      (iii) costs of acquiring rights-of-way; and (iii) actual payments to unrelated
      third parties for crop damages, Purchaser shall reimburse Seller for such costs
      and expenses in the aggregate amount not to exceed SEVENTY FIVE THOUSAND AND
      NO/100 DOLLARS ($75,000). 

    

    9.9 N.E.
      Welsh Prospect.
      Seller
      shall own a 25% working interest in all Assets associated with the N.E. Welsh
      prospect but shall not be responsible for any costs until such time as the
      initial well is put on production. Purchaser shall pay 100% of all costs
      associated with recompleting the initial well in the N.E. Welsh prospect and
      putting such well on production. After the initial well is put on production,
      Seller shall be responsible for its 25% working interest share of all subsequent
      costs associated with the N.E. Welsh prospect. 

    

    9.10 N.
      Welsh Prospect.
      Seller
      shall own a 25% working interest in all Assets associated with the N. Welsh
      prospect but shall not be responsible for any costs until such time as the
      initial well reaches casing point or is plugged and abandoned. Purchaser shall
      pay 100% of all costs associated with logging or plugging and abandonment of
      the
      initial well in the N. Welsh prospect. After the initial well is logged, Seller
      shall be responsible for its 25% working interest share of all subsequent costs
      associated with the N. Welsh prospect.

    

    9.11 N.W.
      Welsh Prospect.
      If
      drilled, Seller shall own a 25% working interest in all Assets associated with
      the N.W. Welsh prospect but shall not be responsible for any costs until such
      time as the initial well reaches casing point or is plugged and abandoned.
      Purchaser shall pay 100% of all costs associated with logging or plugging and
      abandonment of the initial well in the N.W. Welsh prospect. After the initial
      well is logged, Seller shall be responsible for its 25% working interest share
      of all subsequent costs associated with the N.W. Welsh prospect. 

    

    9.12 Letter
      Agreement with William Fruge.
      Purchaser acknowledges that the Oil, Gas and Mineral Lease dated February 28,
      2006, by William Fruge, as lessor, to Seller, as lessee, is assigned pursuant
      to
      this Agreement by Seller subject to the terms of that certain letter agreement
      dated April 1, 2006, a copy of which is attached as Exhibit 9.12.

    

    9.13 Disclaimer
      of Certain Warranties.
      Except
      as to the limited warranty of title described in Section 8.2(a) and set forth
      in
      the Conveyance, the Assets shall be sold without warranty of title, either
      express or implied, as to description, title, condition, quality, fitness for
      purpose, merchantability or completeness or otherwise, and with full
      substitution and subrogation in and to all rights and actions of warranty which
      Seller has or may have against all preceding owners and vendors. Further, any
      movable or tangible property situated on and comprising a portion of the Assets
      is sold on an “AS
      IS, WHERE IS”
      basis
      without any warranty, either express or implied, as to title, value, quality,
      condition or fitness for any purpose and with all defects. 

    

    9.14 Arbitration.
      The
      Parties will attempt in good faith to resolve any controversy or dispute arising
      out of or relating to this Agreement and all existing contracts between the
      parties promptly by negotiations between themselves. The negotiation process
      may
      be started by the giving of written notice by any Party to the other Party
      in
      accordance with the terms of the notice provision of this Agreement, and the
      Parties agree to negotiate in good faith, and select an independent mediator
      to
      facilitate the negotiations and conduct up to eight consecutive hours of
      mediated negotiations in Houston, Texas within thirty (30) days after the notice
      is first sent. If, within ten (10) days after the initial notice, the Parties
      are not able to agree upon a mediator, the Parties shall immediately proceed
      to
      arbitration. Fees and expenses of the mediator shall be borne equally by the
      Parties.

     

    No
      litigation or other proceeding may ever be instituted at any time in any court
      for any purpose, except as may be set forth in Section 9.14(f)
      hereof.

     

    (a)
      If a
      controversy or dispute is not resolved after completion of the negotiation
      process described above, then, upon notice by any Party to the other Party
      (an
“Arbitration
      Notice”)
      and to
      the American Arbitration Association (the “AAA”),
      the
      controversy or dispute arising under or relating to this Agreement and all
      existing contracts between the Parties shall be submitted to an arbitration
      panel for binding arbitration in Houston, Texas, in accordance with the AAA’s
      Commercial Arbitration Rules (the “Rules”).
      The
      Parties agree that they will faithfully observe this Agreement and the Rules
      and
      that they will abide by and perform any award rendered by the arbitration panel.
      The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
      Section 1-16. The award or judgment of the arbitration panel shall be final
      and
      binding on all Parties and judgment upon the award or judgment of the
      arbitration panel may be entered and enforced by any court having jurisdiction.
      If any Party becomes the subject of a bankruptcy, receivership or other similar
      proceeding under the laws of the United States of America, any state or
      commonwealth or any other nation or political subdivision thereof, then, to
      the
      extent permitted or not prohibited by applicable law, any factual or substantive
      legal issues arising in or during the pendency of any such proceeding shall
      be
      subject to all of the foregoing mandatory mediation and arbitration provisions
      and shall be resolved in accordance therewith. The agreements contained herein
      have been given for valuable consideration, are coupled with an interest and
      are
      not intended to be executory contracts. The fees and expenses of the arbitration
      panel will be shared by all Parties engaged in the dispute or controversy on
      a
      basis determined to be fair and equitable by the arbitrators, taking into
      account the relative fault of each Party, the relative credibility and merit
      of
      all claims and defenses made by each Party and the cooperation, speed and
      efficiency of each Party in conducting the arbitration proceeding and complying
      with the Rules and with orders and requests of the arbitrators.

     

    (b)
      Promptly after the Arbitration Notice is given, each Party will select an
      arbitrator and the arbitrators so selected will in turn select an independent
      and impartial third arbitrator. If the arbitrators selected by the Parties
      are
      unable to agree on a third arbitrator, then one of the Parties shall notify
      the
      AAA and the AAA shall select the third arbitrator. Such third arbitrator
      selected in such manner shall not be entitled to compensation in excess of
      compensation paid to either of the other two arbitrators. The decision of the
      AAA with respect to the selection of the third arbitrator will be final and
      binding in such case. Such three arbitrators will constitute the arbitration
      panel. 

     

    (c)
      Within 10 days after the selection of the arbitration panel, the Parties and
      their counsel will appear before the arbitration panel at a place and time
      in
      Houston, Texas, as may be designated by the arbitration panel for the purpose
      of
      each Party making a one hour or less presentation and summary of the case.
      Thereafter, the arbitration panel will set dates and times for additional
      hearings until the proceeding is concluded. The desire and goal of the Parties
      is, and the arbitration panel will be advised that its goal should be, to
      conduct and conclude the arbitration proceeding as expeditiously as possible.
      

     

    (d)
      Any
      arbitral award may be enforced in a District Court of the State of Texas sitting
      in Houston, Texas or in the United States District for the Southern District
      of
      Texas, Houston Division, and, by execution and delivery of this Agreement,
      the
      Parties hereby accept for themselves and in respect of their property, generally
      and unconditionally, the nonexclusive jurisdiction of the aforesaid courts
      for
      said purpose and the Parties hereby irrevocably waive to the fullest extent
      permitted by law any objection, including, without limitation, any objection
      to
      the laying of venue or any objection based on the grounds of forum non
      conveniens, which they may now or hereafter have to the bringing of any such
      action or proceeding in such respective jurisdictions.

     

    (e)
      The
      arbitration panel will have no authority to award punitive or other damages
      not
      measured by the prevailing Party’s actual damages and may not, in any event,
      make any ruling, finding, or award that does not conform to the terms and
      conditions of this Agreement. This
      limitation of damages shall apply to any arbitration no matter when the
      proceeding is initiated and shall survive the termination of this Agreement
      without limit.

     

    (f)
      The
      provisions of this Section 9.14 relating to arbitration of disputes shall not
      apply to litigation that is instituted for the sole purpose of either: (i)
      compelling a Party to submit to arbitration in accordance with the provisions
      of
      this Section 9.14; or (ii) obtaining enforcement of any award or judgment of
      the
      arbitrator(s) issued pursuant to this Section 9.14.

    

    9.15 Empire
      No. 5/5-D Well.
      The
      Parties acknowledge that the Empire No. 5/5-D Well, Serial Nos. 217298 and
      217558, (the “Empire
      No. 5/5-D Well”)
      and
      all wells, equipment, and facilities associated with the Empire No. 5/5-D Well
      have been retained by Seller and excluded from this transaction. If Seller
      institutes a hearing before the Commissioner of Conservation of the State of
      Louisiana and is authorized to produce hydrocarbons from the Empire No. 5/5-D
      Well, Affiliated agrees to and shall assign to Seller all of its right, title
      and interest in the Leasehold Interests as are necessary for Seller to own
      100%
      of the working interest attributable to the Empire No. 5/5-D Well and be
      entitled to receive 100% of the working interest production from the Empire
      No.
      5/5-D Well. If a unit is formed for the Empire No. 5/5-D Well, the acreage
      surrounding the wellbore to be assigned by Purchaser to Seller shall be limited
      to a maximum of thirteen (13) acres within the unit and nearest to the
      wellbore.

    

    

    ARTICLE
      10

    TERMINATION

    

    10.1 Right
      of Termination.
      This
      Agreement and the transactions contemplated hereby may be
      terminated:

    

    (a) At
      any
      time at or prior to Closing by mutual consent of Seller and Purchaser;
      or

    

    (b) At
      any
      time at or after June 30, 2007, by Seller or Purchaser, by the delivery of
      written notice to the other Party, if the Closing shall not have occurred by
      such date;

    

    provided,
      however no such Party may exercise any right of termination pursuant to this
      Section
      10.1
      if the
      event giving rise to such termination right shall be due to the willful failure
      of such Party to perform or observe in any material respect any of the covenants
      or agreements set forth herein to be performed or observed by such
      Party.

    

    10.2 Effect
      of Termination.
      If this
      Agreement is terminated pursuant to Section
      10.1,
      this
      Agreement shall become void and of no further force or effect (except for the
      provisions of Sections
      4.4, 5.4, 9.14, 10.3, 12.1 through 12.13,
      which
      shall survive such termination and continue in full force and effect); provided,
      however, that, if either Party is in default of its obligations under this
      Agreement at the time this Agreement is so terminated, such defaulting Party
      shall continue to be liable to the other Party for damages (but in no event
      for
      specific performance) in respect of such default and such liability shall not
      be
      affected by such termination.

    

    10.3 Return
      of Data.
      Purchaser agrees that if this Agreement is terminated for any reason whatsoever,
      Purchaser shall use its good faith efforts to identify and promptly return
      to
      Seller all information furnished by or on behalf of Seller to Purchaser, its
      officers, employees, and representatives in connection with this Agreement
      or
      Purchaser’s investigation of the Assets, together with all copies, extracts or
      excerpts of such information.

    

    

    ARTICLE
      11

    TAXES

    

    11.1 Apportionment
      of Ad Valorem and Property Taxes.
      All ad
      valorem taxes, real property taxes, personal property taxes and similar
      obligations (“Property
      Taxes”)
      attributable to the Assets shall be apportioned as of the Effective Time between
      Seller and Purchaser; provided, however, that any such taxes which are
      calculated based on the value or amount of production during a given period
      shall be apportioned to the period during which such production occurred,
      regardless of the date on which such taxes are assessed and/or payable. The
      owner of record on the assessment date shall file or cause to be filed all
      required reports and returns incident to the Property Taxes and shall pay or
      cause to be paid to the taxing authorities all Property Taxes relating to the
      tax periods during which the Effective Time occurs.

    

    11.2 Transfer
      Taxes.
      Purchaser shall be liable for all Transfer Taxes (as defined below) required
      to
      be paid in connection with the sale of the Assets pursuant to this Agreement.
      If
      the transfer of the Assets pursuant to this Agreement is exempt from applicable
      Transfer Taxes, Purchaser shall, at Closing, provide Seller with proof thereof.
      As used herein, the term “Transfer
      Taxes” means
      any
      sales, use and excise taxes.

    

    11.3 Other
      Taxes.
      All
      taxes (other than franchise and income taxes and taxes covered by Sections
      11.1 and 11.2)
      attributable to the Assets that are imposed on or with respect to the production
      of oil, natural gas or other hydrocarbons or minerals or the receipt of proceeds
      therefrom (including but not limited to severance, production, and excise taxes)
      shall be apportioned between the parties based upon the respective shares of
      production taken by the parties. All such taxes that have accrued with respect
      to the period prior to the Closing Date have been or will be properly paid
      by or
      on behalf of Seller and Seller shall be responsible for filing or causing to
      be
      filed all statements, returns, and documents incident thereto. Purchaser shall
      be responsible for paying or withholding or causing to be paid or withheld
      all
      such taxes which have accrued after the Closing Date and for filing all
      statements, returns, and documents incident thereto.

    

    11.4 Cooperation.
      Each
      Party to this Agreement shall provide the other Party with reasonable access
      to
      all relevant documents, data and other information (other than that which is
      subject to an attorney-client privilege) which may be required by the other
      Party for the purpose of preparing tax returns, filing refund claims and
      responding to any audit by any taxing jurisdiction. Each Party to this Agreement
      shall cooperate with all reasonable requests of the other Party made in
      connection with contesting the imposition of taxes. Notwithstanding anything
      to
      the contrary in this Agreement, neither Party to this Agreement shall be
      required at any time to disclose to the other Party any tax return or other
      confidential tax information. Except where disclosure is required by applicable
      law or judicial order, any information obtained by a Party pursuant to this
      Section
      11.4
      shall be
      kept confidential by such Party, except to the extent disclosure is required
      in
      connection with the filing of any tax returns or claims for refund or in
      connection with the conduct of an audit, or other proceedings in response to
      an
      audit, by a taxing jurisdiction.

    

    11.5 Indemnification
      for Tax.

    

     (a) Subject
      to the provisions of Section
      11.5(b),
      Seller
      shall indemnify Purchaser from all liabilities for foreign, federal, state,
      local and Indian Tribal taxes in respect of the ownership or operation of the
      Assets prior to the Effective Time, together with penalties and interest thereon
      (provided such penalties and interest do not result from the negligence, late
      filing, fraud or acts of misfeasance or malfeasance of Purchaser). Seller shall
      be entitled to all refunds or rebates of taxes paid in respect of the ownership
      or operation of the Assets prior to the Effective Time. Subject to the
      provisions of Section
      11.5(b),
      Purchaser shall indemnify Seller from all liabilities which are assessed for
      foreign, federal, state, local and Indian Tribal taxes, together with penalties
      and interest thereon (provided such penalties and interest do not result from
      the negligence, late filing, fraud or acts of misfeasance or malfeasance of
      Seller), to the extent such liabilities relate to the ownership or operation
      of
      the Assets from and after the Effective Time; provided, however, that such
      indemnity shall not apply to: (i) income taxes arising out of the ownership
      of
      the Assets between the Effective Time and the Closing Date; (ii) Property Taxes
      apportioned to Seller pursuant to Section
      11.1;
      and
      (iii) other taxes imposed on or after the Effective Time.

    

    (b) In
      order
      for Seller or Purchaser (“Claimant”) to
      make a
      claim against the other (“Indemnitor”) under
      this Article
      11,
      Claimant shall give prompt notice to Indemnitor of any liability for which
      Claimant would claim indemnification under this Article
      11,
      which
      notice shall include the circumstances surrounding such liability. Indemnitor
      shall then have the right but not the obligation, to contest such liability
      at
      its sole cost and expense by giving written notice to Claimant of such election
      within 30 days after Indemnitor receives Claimant’s notice. Should Indemnitor
      fail to notify Claimant within such 30-day period, Indemnitor shall be deemed
      to
      have elected not to contest such liability. Should Indemnitor elect (or be
      deemed to have elected) not to contest such liability, Indemnitor shall pay
      the
      full amount due under Section
      11.5(a)
      in
      respect of such liability to Claimant in cash within 30 days after Indemnitor
      elects (or is deemed to have elected) not to contest such liability. Except
      as
      specifically provided in this Section
      11.5
      with
      respect to certain tax issues which must be combined or joined with other tax
      issues, if Indemnitor elects to contest any such liability, Claimant shall
      give
      Indemnitor full authority to defend, adjust, compromise or settle such liability
      and any action, suit, or proceeding in which Indemnitor contests such liability,
      in the name of Claimant or otherwise as Indemnitor shall elect. In any
      administrative or legal proceeding, Indemnitor shall employ counsel selected
      by
      it and reasonably acceptable to Claimant. With respect to tax issues incident
      to
      any such liability that must be combined or joined with one or more other tax
      issues which Claimant desires to contest, Claimant and Indemnitor shall
      cooperate fully, and control of any administrative legal proceeding shall rest
      with the Party having the greater ultimate liability (including liability under
      Section
      11.5(a))
      for the
      taxes in dispute. The Party in control may not adjust, compromise or settle
      taxes which are contested by or on behalf of the other Party without the consent
      of the other Party. With respect to any liability contested by Indemnitor under
      the terms of this Section
      11.5(b),
      Indemnitor shall pay the full amount due under Section
      11.5(a)
      in
      respect of such liability to Claimant in cash within 30 days after the liability
      is finally determined either by settlement or pursuant to the final unappealable
      judgment of a court of competent jurisdiction.

    

    

    ARTICLE
      12

    MISCELLANEOUS

    

    12.1 Governing
      Law.
      THIS
      AGREEMENT AND ALL INSTRUMENTS EXECUTED IN ACCORDANCE WITH IT SHALL BE GOVERNED
      BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA,
      WITHOUT REGARD TO CONFLICT OF LAW RULES THAT WOULD DIRECT APPLICATION OF THE
      LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE EXTENT THAT IT IS MANDATORY THAT
      THE
      LAW OF SOME OTHER JURISDICTION, WHEREIN THE ASSETS ARE LOCATED, SHALL
      APPLY.
      The laws
      of the state wherein the Leasehold Interests are located shall control as to
      all
      matters pertaining to title and to the evaluation of encumbrances placed upon
      such Leasehold Interests pursuant to Section
      3.3
      herein.

    

    12.2 Entire
      Agreement.
      This
      Agreement, including all Exhibits attached hereto and made a part hereof
      constitute the entire agreement between the Parties with respect to the subject
      matter hereof and thereof and supersede all prior agreements, understandings,
      negotiations and discussions, whether oral or written, of the Parties with
      respect to same (including, without limitation, the Binding Letter of Intent
      executed by the Parties and dated April 3, 2007). No supplement, amendment,
      alteration, modification, waiver or termination of this Agreement shall be
      binding unless executed in writing by the parties hereto.

    

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

    

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

    

    12.5 Assignment.
      This
      Agreement shall be binding upon and inure to the benefit of the parties hereto
      and their respective successors and assigns.

    

    12.6 Notices.
      Any
      notice provided or permitted to be given under this Agreement shall be in
      writing, and may be served by personal delivery or by depositing same in the
      mail, addressed to the Party to be notified, postage prepaid, and registered
      or
      certified with a return receipt requested. Notice deposited in the mail in
      the
      manner hereinabove described shall be deemed to have been given and received
      on
      the date of the delivery as shown on the return receipt. Notice served in any
      other manner shall be deemed to have been given and received only if and when
      actually received by the addressee (except that notice given by telecopier
      shall
      be deemed given and received upon receipt only if received during normal
      business hours and if received other than during normal business hours shall
      be
      deemed received as of the opening of business on the next Business Day). For
      purposes of notice, the addresses of the Parties shall be as
      follows:

     

    For
      Seller

    

    Plymouth
      Resource Group II, Inc.

    390
      Laura
      Drive South

    Mandeville,
      Louisiana 77448

    Attn:
      Terrence T. O’Donnell, President

    Telecopy
      No.: 985/871-5199

    

    For
      Purchaser

    

    Affiliated
      Holdings, Inc.

    5075
      Westheimer, Suite 975

    Houston,
      Texas 77056

    Attn:
      Kevan Casey, President

    Telecopy
      No.: 713/402-6799

    

    Each
      Party shall have the right, upon giving 10 days’ prior notice to the other in
      the manner hereinabove provided, to change its address for purposes of
      notice.

    

    12.7 Expenses;
      Joint and Several Liability.
      Except
      as otherwise provided herein, each Party shall be solely responsible for all
      of
      its expenses incurred in connection with this Agreement and the transactions
      contemplated hereby (including, without limitation, fees and expenses of its
      own
      counsel and consultants).

    

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

    

    12.9 Publicity.
      With
      regard to all publicity and other releases issued at or prior to the Closing
      concerning this Agreement and the transactions contemplated hereby, neither
      Party shall issue any publicity or other release without the prior written
      consent of the other Party, except as required by applicable law or the
      applicable rules or regulations of any governmental body or stock
      exchange.

    

    12.10 No
      Third-Party Beneficiary.
      Except
      as expressly provided herein, this Agreement is not intended to create, nor
      shall it be construed to create, any rights in any third party under doctrines
      concerning third-party beneficiaries. 

    

    12.11 Limitation
      of Damages.
      Notwithstanding any other provision of this Agreement (or any other agreement
      related hereto) to the contrary, in no event shall either Party be liable to
      the
      other or entitled to recover incidental, consequential, special, indirect,
      multiple, statutory, exemplary or punitive damages.

    

    12.12 Survival.
      The
      warranties, covenants and obligations of the Parties under this Agreement shall
      survive the Closing. The representations of the Parties made in this Agreement
      shall survive the Closing except that: (i) those certain representations of
      Seller set forth and contained in Sections 4.7, 4.10 (except to the extent
      covered by the warranty of title in Sections 8.2(a)), 4.11 and 4.13 shall
      terminate at Closing, and those certain representations of Seller set forth
      and
      contained in Sections 4.6(c), 4.9, 4.12, 4.14, 4.15, 4.16, and 4.17 shall
      survive Closing but thereafter terminate at the expiration of four (4) years
      after Closing; and (ii) those
      certain representations and warranties of Seller contained in Sections 4.8
      and
      4.18 terminate on the Response Date. The limitation of damages contained in
      Section 9.14 and in Section 12.11 shall survive Closing or termination of this
      Agreement and shall not expire.

    

    12.13 Counterparts;
      Exhibits.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. All Exhibits attached hereto are hereby made a part of this
      Agreement and incorporated herein by this reference.

    

    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
      year
      first set forth above.

    

    SELLER:

    

    Plymouth
      Resource Group II, Inc.

    

    By: 
      /s/  Terrence T. O'Donnell

    Terrence
      T. O’Donnell,

    President

    

    

    

    

    PURCHASER:

    

    Affiliated
      Holdings, Inc.

    

    By: 
      /s/  Kevan Casey

    Kevan
      Casey,

    President

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