Document:

exv10w5

Exhibit 10.5

Execution Copy

AMENDED AND RESTATED

ADMINISTRATIVE SERVICES AGREEMENT

AMONG

ENCORE ENERGY PARTNERS GP LLC,

ENCORE ENERGY PARTNERS LP,

ENCORE ENERGY PARTNERS OPERATING LLC,

ENCORE OPERATING, L.P.

AND

ENCORE ACQUISITION COMPANY

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 

	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.1
	 	Definitions	 	 	1	 
	Section 1.2
	 	Construction	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE II RETENTION OF ENCORE OPERATING; SCOPE OF SERVICES	 	 	5	 
	 
	 	 	 	 	 	 
	Section 2.1
	 	Retention of Encore Operating	 	 	5	 
	Section 2.2
	 	Scope of Services	 	 	5	 
	Section 2.3
	 	Exclusion of Services	 	 	5	 
	Section 2.4
	 	Performance of Services by Affiliates and Third Parties	 	 	5	 
	Section 2.5
	 	Intellectual Property	 	 	5	 
	Section 2.6
	 	Appointment of Independent Accounting Firm and Independent Petroleum Engineer	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE III BOOKS, RECORDS AND REPORTING	 	 	6	 
	 
	 	 	 	 	 	 
	Section 3.1
	 	Books and Records	 	 	6	 
	Section 3.2
	 	Audits	 	 	6	 
	Section 3.3
	 	Reports	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE IV PAYMENT AMOUNT	 	 	6	 
	 
	 	 	 	 	 	 
	Section 4.1
	 	Payment Amount	 	 	6	 
	Section 4.2
	 	Payment of Payment Amount	 	 	7	 
	Section 4.3
	 	Disputed Charges	 	 	7	 
	Section 4.4
	 	Set Off	 	 	8	 
	Section 4.5
	 	Encore Operating’s Employees	 	 	8	 
	Section 4.6
	 	Approval of Expenses	 	 	8	 
	Section 4.7
	 	Tax Reimbursement	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE V FORCE MAJEURE	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE VI ASSIGNMENTS AND SUBCONTRACTS	 	 	9	 
	 
	 	 	 	 	 	 
	Section 6.1
	 	Assignments	 	 	9	 
	Section 6.2
	 	Other Requirements	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE VII TERMINATION	 	 	10	 
	 
	 	 	 	 	 	 
	Section 7.1
	 	Termination by the Partnership on behalf of the Partnership Group	 	 	10	 
	Section 7.2
	 	Termination by Encore Operating	 	 	10	 
	Section 7.3
	 	Effect of Termination	 	 	11	 
	 
	 	 	 	 	 	 
	ARTICLE VIII CONFIDENTIAL INFORMATION	 	 	11	 
	 
	 	 	 	 	 	 
	Section 8.1
	 	Nondisclosure	 	 	11	 
	Section 8.2
	 	Permitted Disclosure	 	 	11	 

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	ARTICLE IX LIMITATION OF LIABILITY; INDEMNIFICATION	 	 	11	 
	 
	 	 	 	 	 	 
	Section 9.1
	 	Limitation of Encore Operating’s Liability	 	 	11	 
	Section 9.2
	 	Partnership’s Indemnity	 	 	12	 
	Section 9.3
	 	Limitation of Damages	 	 	12	 
	Section 9.4
	 	Affiliate; Third Parties	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE X DISPUTE RESOLUTION	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE XI GENERAL PROVISIONS	 	 	13	 
	 
	 	 	 	 	 	 
	Section 11.1
	 	Notices	 	 	13	 
	Section 11.2
	 	Further Action	 	 	13	 
	Section 11.3
	 	Binding Effect	 	 	13	 
	Section 11.4
	 	Integration	 	 	14	 
	Section 11.5
	 	Creditors	 	 	14	 
	Section 11.6
	 	Waiver	 	 	14	 
	Section 11.7
	 	Counterparts	 	 	14	 
	Section 11.8
	 	Applicable Law	 	 	14	 
	Section 11.9
	 	Invalidity of Provisions	 	 	14	 
	Section 11.10
	 	Amendment or Restatement	 	 	14	 
	Section 11.11
	 	Directly or Indirectly	 	 	14	 
	Section 11.12
	 	Power of Attorney	 	 	14	 

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AMENDED AND RESTATED

ADMINISTRATIVE SERVICES AGREEMENT

     THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT is entered into on September 17,
2007, and effective as of March 7, 2007 (the “Effective Date”), among Encore Energy Partners GP
LLC, a Delaware limited liability company (the “General Partner”), Encore Energy Partners LP, a
Delaware limited partnership (the “Partnership”), Encore Energy Partners Operating LLC, a Delaware
limited liability company (the “Operating Company”), Encore Operating, L.P., a Texas limited
partnership (“Encore Operating”), and Encore Acquisition Company, a Delaware corporation (“EAC” and
collectively with the General Partner, the Partnership, the Operating Company and Encore Operating,
the “Parties” and each, a “Party”), and amends and restates in its entirety the Administrative
Services Agreement dated as of March 7, 2007.

RECITALS

     A. The Partnership is the owner, directly or indirectly, of interests in the Business (as
hereinafter defined);

     B. The Partnership Group (as hereinafter defined) requires certain services to operate the
Business and to fulfill other general and administrative functions relating to the Business; and

     C. The Partnership Group desires that Encore Operating provide such services, and Encore
Operating is willing to undertake such engagement, subject to the terms and conditions of this
Agreement;

     NOW, THEREFORE, the General Partner, the Partnership, the Operating Company and
Encore Operating agree as follows:

ARTICLE
I

DEFINITIONS

     Section 1.1 Definitions. The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

     “Administrative Fee” is defined in Section 4.1.

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

     “Agreement” means this Amended and Restated Administrative Services Agreement, as it may be
amended, supplemented or restated from time to time.

 

 

     “Bankrupt” with respect to any Person means such Person shall generally be unable to pay its
debts as such debts become due, or shall so admit in writing or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against such Person seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of any such proceeding instituted against
it (but not instituted by it), shall remain undismissed or unstayed for a period of 30 days; or
such Person shall take any action to authorize any of the actions set forth above.

     “BOE” means one barrel of oil equivalent, calculated by converting natural gas to oil
equivalent barrels at a ratio of six thousand cubic feet of natural gas to one stock tank barrel,
or 42 U.S. gallons liquid volume, of oil.

     “Business” means the business of the Partnership Group.

     “Confidential Information” means non-public information about the disclosing Party’s or any of
its Affiliates’ business or activities that is proprietary and confidential, which shall include,
without limitation, all business, financial, technical and other information, including software
(source and object code) and programming code, of a Party or its Affiliates marked or designated
“confidential” or “proprietary” or by its nature or the circumstances surrounding its disclosure it
should reasonably be regarded as confidential. Confidential Information includes not only written
or other tangible information, but also information transferred orally, visually, electronically or
by any other means. Confidential Information does not include information that (i) is in or enters
the public domain without breach of this Agreement, or (ii) the receiving Party lawfully receives
from a third party without restriction on disclosure and to the receiving Party’s knowledge without
breach of a nondisclosure obligation.

     “COPAS” means the Council of Petroleum Accountants
Societies.

     “Damages” is defined in Section 9.1.

     “Default Rate” means an interest rate (which shall in no event be higher than the rate
permitted by applicable law) equal to the prime interest rate of the Operating Company’s principal
lender.

     “EAC” is defined in the introductory paragraph.

     “Effective Date” is defined in the introductory paragraph.

     “Encore Group” means EAC and is Affiliates (other than any member of the Partnership
Group).

     “Encore Operating” is defined in the introductory paragraph.

     “Encore Operating Party” is defined in Section 9.1.

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     “Environmental Law” means current local, county, state, federal, and/or foreign law (including
common law), statute, code, ordinance, rule, order, judgment, decree, regulation or other legal
obligation relating to the protection of health, safety or the environment or natural resources,
including, without limitation, the Comprehensive Environmental Response Compensation and Liability
Act (42 U.S.C. section 9601 et seq.), as amended, the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), as amended, the Federal Water Pollution Control Act (33 U.S.C.
section 1251 et seq.), as amended, the Clean Air Act (42 U.S.C. section 7401 et seq.), as amended,
the Toxic Substances Control Act (15 U.S.C. section 2601 et seq.), as amended, the Occupational
Safety and Health Act (29 U.S.C. section 651 et seq.), as amended, the Safe Drinking Water Act (42
U.S.C. section 300(f) et seq.), as amended, analogous state, tribal or local laws, and any similar,
implementing or successor law, and any amendment, rule, regulation, or directive issued thereunder,
including any determination by, or interpretation of any of the foregoing by any Governmental
Authority that has the force of law.

     “Force Majeure” means any cause beyond the reasonable control of a Party, including the
following causes (unless they are within such Party’s reasonable control): acts of God, strikes,
lockouts, acts of the public enemy, wars or warlike action (whether actual or impending), arrests
and other restraints of government (civil or military), blockades, embargoes, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, sabotage, tornadoes, named tropical storms
and hurricanes, floods, civil disturbances, terrorism, mechanical breakdown of machinery or
equipment, explosions, confiscation or seizure by any government or other public authority and any
order of any court of competent jurisdiction, regulatory agency or governmental body having
jurisdiction.

     “G&A Services” means those general and administrative services necessary or useful for the
conduct of the business of the Partnership Group, including, but not limited to, accounting,
corporate development, finance, land, marketing, legal and engineering.

     “General Partner” is defined in the introductory paragraph.

     “Governmental Approval” means any material consent, authorization, certificate, permit,
right-of-way grant or approval of any Governmental Authority that is necessary for the
construction, ownership and operation of the Business in accordance with applicable Laws.

     “Governmental Authority” means any court or tribunal in any jurisdiction or any federal,
state, tribal, municipal or local government or other governmental body, agency, authority,
department, commission, board, bureau, instrumentality, arbitrator or arbitral body or any
quasi-governmental or private body lawfully exercising any regulatory or taxing authority.

     “Laws” means any applicable statute, Environmental Law, common law, rule, regulation, judgment,
order, ordinance, writ, injunction or decree issued or promulgated by any Governmental Authority.

     “Operating Company” is defined in the introductory
paragraph.

     “Parties” is defined in the introductory
paragraph.

     “Partnership” is defined in the introductory paragraph.

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     “Partnership Agreement” means the Second Amended and Restated Agreement of Limited Partnership
of the Partnership, as may be amended or restated from time to time.

     “Partnership Group” means the General Partner, the Partnership, the Operating Company and all
of their respective Subsidiaries.

     “Partnership Group Party” is defined in Section
9.1.

     “Payment Amount” is defined in Section
4.1.

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

     “Services” is defined in Section 2.2.

     “Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of
the voting power of shares entitled (without regard to the occurrence of any contingency) to vote
in the election of directors or other governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such
Person or a combination thereof, (b) a partnership (whether general or limited) in which such
Person or a Subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the partnership as a single class) is
owned, directly or indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a
combination thereof, directly or indirectly, at the date of determination, has (i) at least a
majority ownership interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.

     Other terms defined herein have the meanings so
given them.

     Section 1.2 Construction.

     Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include
the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and
verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to
Articles and Sections of this Agreement; (c) references to Exhibits refer to the Exhibits attached
to this Agreement, each of which is made a part hereof for all purposes; (d) the terms “include”,
“includes”, “including” and words of like import shall be deemed to be followed by the words
“without limitation”; (e) the terms “hereof,” “herein” and “hereunder” refer to this Agreement as a
whole and not to any particular provision of this Agreement; and (f) references to money refer to
legal currency of the United States of America. The table of contents and headings contained in
this Agreement are for reference purposes only, and shall not affect in any way the meaning or
interpretation of this Agreement.

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ARTICLE
II

RETENTION OF ENCORE OPERATING; SCOPE OF SERVICES

     Section 2.1 Retention of Encore Operating. The Partnership hereby engages Encore Operating to
perform the Services, as directed by the General Partner, and to provide all personnel and any
facilities, goods and equipment not otherwise provided by the Partnership Group necessary to
perform the Services. Encore Operating hereby accepts such engagement and agrees to perform the
Services requested by the General Partner and to provide any personnel, facilities, goods and
equipment not otherwise provided by the Partnership Group, and to provide all employees as may be
reasonable and necessary to perform the Services.

     Section 2.2 Scope of Services. The “Services” shall consist of such services the General
Partner determines may be reasonable and necessary to operate the Business, including, without
limitation, any G&A Services and those services described on Schedule I hereto. Encore Operating
hereby covenants and agrees that the Services will be performed in accordance with (i) applicable
material Governmental Approvals and Laws and (ii) industry standards.

     Section 2.3 Exclusion of Services. The General Partner may temporarily or permanently exclude
any particular service from the scope of the Services upon 90 days’ notice to Encore Operating.

     Section 2.4 Performance of Services by Affiliates and Third Parties. The Parties hereby agree
that in discharging its obligations hereunder, Encore Operating may engage any of its Affiliates or
any qualified third party to perform the Services (or any part of the Services) on its behalf and
that the performance of the Services (or any part of the Services) by any such Affiliate or third
party shall be treated as if Encore Operating performed such Services itself. Notwithstanding the
foregoing, nothing contained herein shall relieve Encore Operating of its obligations hereunder.

     Section 2.5 Intellectual Property.

     (a) Any (i) inventions, whether patentable or not, developed or invented, or (ii)
copyrightable material (and the intangible rights of copyright therein) developed, by Encore
Operating, its Affiliates or its or their employees in connection with the performance of the
Services shall be the property of Encore Operating; provided, however, that the Partnership Group
shall be granted an irrevocable, royalty-free, non-exclusive and non-transferable right and
license to use such inventions or material; and further provided, however, that the Partnership
Group shall only be granted such a right and license to the extent such grant does not conflict
with, or result in a breach, default, or violation of a right or license to use such inventions
or material granted to Encore Operating by any Person other than an Affiliate of Encore
Operating. Notwithstanding the foregoing, Encore Operating will use all commercially reasonable
efforts to grant such right and license to the Partnership Group.

     (b) The General Partner, the Partnership and the Operating Company hereby grant to Encore
Operating and its Affiliates an irrevocable, royalty-free, non-exclusive

5

 

and non-transferable right and license to use, during the term of this Agreement, any
intellectual property provided by the Partnership Group to Encore Operating or its Affiliates,
but only to the extent such use is necessary for the performance of the Services. Encore
Operating agrees that it and its Affiliates will utilize such intellectual property solely in
connection with the performance of the Services.

     Section 2.6 Appointment of Independent Accounting Firm and Independent Petroleum Engineer.
Notwithstanding anything to the contrary in this Agreement, the Parties hereby acknowledge and
agree that the General Partner shall have the exclusive authority to appoint an independent
registered public accounting firm to audit the financial statements of the Partnership and an
independent petroleum engineer to provide reports to the Partnership relating to estimates of
proved reserves for Securities and Exchange Commission and other reporting purposes.

ARTICLE
III

BOOKS, RECORDS AND REPORTING

     Section 3.1 Books and Records. Encore Operating shall maintain accurate books and records
regarding the performance of the Services and its calculation of the Payment Amount, and shall
maintain such books and records for the period required by applicable accounting practices or Law.

     Section 3.2 Audits. The Partnership shall have the right, upon reasonable notice, and at all
reasonable times during usual business hours, to audit, examine and make copies of the books and
records referred to in Section 3.1. Such right may be exercised through any agent or employee of
the Partnership Group designated in writing by it or by an independent public accountant, engineer,
attorney or other agent so designated. The Partnership shall bear all costs and expenses incurred
in any inspection, examination or audit. Encore Operating shall review and respond in a timely
manner to any claims or inquiries made by the Partnership regarding matters revealed by any such
inspection, examination or audit.

     Section 3.3 Reports. Encore Operating shall prepare and deliver to the Partnership any reports
provided for in this Agreement and such other reports as the Partnership may reasonably request
from time to time regarding the performance of the Services.

ARTICLE
IV

PAYMENT AMOUNT

     Section 4.1 Payment Amount.

     (a) The Partnership shall on a quarterly basis (i) pay Encore Operating a fixed fee of $1.75
per BOE of the Partnership Group’s total net oil and gas production for the then completed
quarter (the “Administrative Fee”) and (ii) reimburse Encore Operating for all third-party
expenses that Encore Operating incurs on behalf of the Partnership Group (collectively with the
Administrative Fee, the “Payment Amount”). In addition to the Payment Amount, Encore Operating
shall be entitled to retain any COPAS overhead charges associated with drilling and operating
wells that would otherwise be paid by third

6

 

parties to the operator of a well. For the avoidance of doubt, the Partnership will pay all
expenses that are directly chargeable to wells under their respective joint operating agreements.

     (b) The Administrative Fee shall increase in the following circumstances:

     (i) Beginning on the first day of April in each year beginning with April 1, 2008, the
Administrative Fee shall increase by an amount equal to the product of the then-current
Administrative Fee multiplied by COPAS Wage Index Adjustment for the current year.

     (ii) If the Partnership or any other member of the Partnership Group acquires additional
assets, then Encore Operating may propose a revised Administrative Fee that covers the
provision of Services for such additional assets. If the General Partner, on behalf of the
Partnership Group and with the concurrence of the conflicts committee of the board of directors
of the General Partner, agrees to such revised Administrative Fee, Encore Operating shall
provide Services for the additional assets pursuant to the terms set forth herein.

     (iii) If the Partnership and Encore Operating otherwise agree to increase the
Administrative Fee; provided, however, that any such increase shall be approved by the board of
directors of the General Partner with the concurrence of the conflicts committee of such board.

     Section 4.2 Payment of Payment Amount. Encore Operating shall invoice the Partnership within
25 days after the close of each quarter for the estimated Payment Amount, plus or minus any
adjustment necessary to correct prior estimated billings to actual billings. Subject to Section
4.3, all invoices shall be due and payable, in immediately available funds, within thirty days
after receipt of each invoice. Upon the request of the Partnership, Encore Operating shall furnish
a reasonable detail of the Services provided and charges assessed during any quarter.

     Section 4.3 Disputed Charges. THE PARTNERSHIP MAY, WITHIN 120 DAYS AFTER RECEIPT OF A CHARGE
FROM ENCORE OPERATING, TAKE WRITTEN EXCEPTION TO SUCH CHARGE, ON THE GROUND THAT THE SAME WAS NOT A
CORRECT CALCULATION OF THE ADMINISTRATIVE FEE AND/OR A REASONABLE COST INCURRED BY ENCORE OPERATING
OR ITS AFFILIATES IN CONNECTION WITH THE SERVICES. THE PARTNERSHIP SHALL NEVERTHELESS PAY ENCORE
OPERATING IN FULL WHEN DUE THE FULL PAYMENT AMOUNT OWED TO ENCORE OPERATING. SUCH PAYMENT SHALL NOT
BE DEEMED A WAIVER OF THE RIGHT OF THE PARTNERSHIP TO RECOUP ANY CONTESTED PORTION OF ANY AMOUNT SO
PAID.
HOWEVER, IF THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS TAKEN, OR ANY PART THEREOF, IS
ULTIMATELY DETERMINED NOT TO BE A CORRECT CALCULATION OF THE ADMINISTRATIVE FEE AND/OR A REASONABLE
COST INCURRED BY ENCORE OPERATING OR ITS AFFILIATES IN CONNECTION WITH ITS PROVIDING THE SERVICES
HEREUNDER, SUCH AMOUNT OR PORTION THEREOF (AS THE CASE MAY BE) SHALL BE REFUNDED BY ENCORE

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OPERATING TO THE PARTNERSHIP TOGETHER WITH INTEREST THEREON AT THE DEFAULT RATE DURING THE PERIOD
FROM THE DATE OF PAYMENT BY THE PARTNERSHIP TO THE DATE OF REFUND BY ENCORE OPERATING.

     Section 4.4 Set Off. In the event that Encore Operating owes the Partnership a sum certain in
an uncontested amount under any other agreement, then any such amounts may be aggregated and the
Partnership and Encore Operating may discharge their obligations by netting those amounts against
any amounts owed by the Partnership to Encore Operating under this Agreement. If the Partnership or
Encore Operating owes the other party a greater aggregate amount, that Party may pay to the other
Party the difference between the amounts owed.

     Section 4.5 Encore Operating’s Employees. The obligations under Sections 4.1 and 4.2, to the
extent they relate to Services provided by employees of Encore Operating or its Affiliates, shall
be limited to payment to Encore Operating for expenses in connection with its or its Affiliates’
employees engaged in the provision of Services hereunder, and the Partnership shall not be
obligated to pay to Encore Operating’s or its Affiliates’ employees directly any compensation,
salaries, wages, bonuses, benefits, social security taxes, workers’ compensation insurance,
retirement and insurance benefits, training and other such expenses; provided, however, that the
Partnership may, at its option, compensate such employees under one or more equity-based incentive
compensation plans for the provision of Services hereunder; and provided further, however, that if
Encore Operating fails to pay any employee, with the exception of employee claims for amounts owed
that Encore Operating disputes in good faith, within 30 days of the date such employee’s payment is
due:

     (a) The Partnership may (i) pay such employee directly, (ii) employ such employee
directly, (iii) notify Encore Operating and begin to pay all employees providing service to the
Partnership directly, or (iv) notify Encore Operating that this Agreement is terminated and employ
all employees directly; and

     (b) Encore Operating shall reimburse the Partnership, as the case
may be, the amount the Partnership paid to Encore Operating for employee services that Encore
Operating did not pay to any such employee.

     Section 4.6 Approval of Expenses. Encore Operating acknowledges that all charges for Services
assessed by Encore Operating and included in the Payment Amount must be approved by the persons
authorized to approve such Payment Amount pursuant to the Partnership’s governance and
delegation-of-authority process. Additionally, Encore Operating acknowledges that the Audit
Committee of the Board of Directors of the General Partner, or if there is no Audit Committee, the
entire Board of Directors of the General Partner, may at any time review the Payment Amounts and
the levels of Services and, as a result, may direct the Partnership to decrease the level of
Services or to dispute a prior invoice pursuant to Section 4.3. In addition to the information
Encore Operating is obligated to provide pursuant to Section 4.2, Encore Operating shall provide
such other information as reasonably necessary to determine the veracity or appropriateness of any
Payment Amount hereunder.

     Section 4.7 Tax Reimbursement. The Partnership shall reimburse EAC for any additional state
income, franchise or similar tax paid by EAC resulting from EAC’s inclusion of

8

 

one or more members of the Partnership Group with EAC in a combined state income, franchise or
similar tax report. With respect to any such combined state income, franchise or other tax report,
the amount of the Partnership’s reimbursement to EAC shall be equal to the tax that those
Partnership Group members included with EAC on such tax report would have paid had such Partnership
Group members not been included on such report. Any reimbursement payment required under this
provision will be due within 45 days after EAC makes the tax payment giving rise to such
reimbursement.

ARTICLE
V

FORCE MAJEURE

     A Party’s obligation under this Agreement shall be excused when and to the extent its
performance of that obligation is prevented due to Force Majeure; provided, however, that a Party
shall not be excused by Force Majeure from any obligation to pay money. The Party that is prevented
from performing its obligation by reason of Force Majeure shall promptly notify the other Parties
of that fact and shall exercise due diligence to end its inability to perform as promptly as
practicable. Notwithstanding the foregoing, a Party is not required to settle any strike, lockout
or other labor dispute in which it may be involved; provided, however, that, in the event of a
strike, lockout or other labor dispute affecting Encore Operating, Encore Operating shall use
reasonable efforts to continue to perform all obligations hereunder by utilizing its management
personnel and that of its Affiliates.

ARTICLE
VI

ASSIGNMENTS AND SUBCONTRACTS

     Section 6.1 Assignments.

     (a) Without the prior consent of Encore Operating, none of the Partnership or the other
members or the Partnership Group may sell, assign, transfer or convey any of its rights, or
delegate any of its obligations, under this Agreement to any Person.

     (b) Without the prior consent of the Partnership, Encore Operating may not sell, assign,
transfer or convey any of its rights, or delegate any of its obligations, under this Agreement to
any Person, other than the delegation of performance of Services to an Affiliate of Encore
Operating or a qualified third party as permitted by Section 2.4 and the sale, assignment,
transfer or conveyance of its rights hereunder to any such Affiliate.

     Section 6.2 Other Requirements. Subject to the other provisions hereof:

     (a) All materials and workmanship used or provided in performing the Services shall be in
accordance with applicable specifications and standards.

     (b) Encore Operating shall exercise reasonable diligence to obtain the most favorable terms or
warranties available from vendors, suppliers and other third parties, and where appropriate, Encore
Operating shall assign such warranties to the Partnership.

9

 

     (c) In rendering the Services, Encore Operating shall not discriminate against any employee or
applicant for employment because of race, creed, color, religion, sex, national origin, age or
handicap, and shall comply with all applicable provisions of Executive Order 11246 of September 24,
1965, and any successor order thereto. Subject to the above, Encore Operating shall, to the extent
practicable, engage employees who reside in or whose businesses are located in the local area or
state where the Services are performed.

     (d) Encore Operating agrees to exercise reasonable diligence to ensure that, during the term
of this Agreement, it shall not employ unauthorized aliens as defined in the Immigration Reform and
Control Act of 1986, or any successor law.

ARTICLE
VII

TERMINATION

     Section 7.1 Termination by the Partnership on behalf of the Partnership Group.

     (a) Upon the occurrence of any of the following events, the Partnership, on behalf of the
Partnership Group, may terminate this Agreement by giving written notice of such termination to
Encore Operating:

     (i) EAC and its Affiliates cease to maintain a direct or indirect
controlling interest in the General Partner or Encore Operating; or

     (ii) Encore Operating’s
failure to pay any employee within thirty (30) days of the date such employee’s payment is due,
subject to the limitations described in Section 4.5.

Any termination under this Section 7.1(a) shall become effective immediately upon delivery of the
notice first described in this Section 7.1(a), or such later time (not to exceed the first
anniversary of the delivery of such notice) as may be specified by the Partnership.

     (b) In addition to its rights under Section 7.1(a), the Partnership may terminate this
Agreement at any time by giving notice of such termination to Encore Operating. Any termination
under this Section 7.1(b) shall become effective 90 days after delivery of such notice, or such
later time (not to exceed the first anniversary of the delivery of such notice) as may be
specified by the Partnership.

     (c) In the event that Encore Operating becomes Bankrupt or dissolves and commences
liquidation or winding-up, this Agreement shall automatically terminate without notice to Encore
Operating.

     Section 7.2 Termination by Encore Operating.

     (a) Encore Operating may terminate this Agreement by giving written notice of such
termination to the Partnership in the event that EAC and its Affiliates cease to

10

 

maintain a direct or indirect controlling interest in the General Partner or Encore Operating.

Any termination under this Section 7.2(a) shall become effective immediately upon delivery of the
notice first described in this Section 7.2(a).

     (b) In addition to its rights under Section 7.2(a), Encore Operating may terminate this
Agreement at any time by giving notice of such termination to the Partnership. Any termination
under this Section 7.2(b) shall become effective 90 days after delivery of such notice, or such
later time (not to exceed the first anniversary of the delivery of such notice) as may be
specified by Encore Operating.

     Section 7.3 Effect of Termination. If this Agreement is terminated in accordance with Section
7.1 or 7.2, all rights and obligations under this Agreement shall cease except for (a) obligations
that expressly survive termination of this Agreement; (b) liabilities and obligations that have
accrued prior to such termination, including the obligation to pay any amounts that have become due
and payable prior to such termination, and (c) the obligation to pay any portion of the Payment
Amount that has accrued prior to such termination, even if such portion has not become due and
payable at that time.

ARTICLE
VIII

CONFIDENTIAL INFORMATION

     Section 8.1 Nondisclosure. Each of Encore Operating and the Partnership Group agrees that (i)
it will not disclose to any third party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement, and (ii) it will take all reasonable
measures to maintain the confidentiality of all Confidential Information of the other Party in its
possession or control, which will in no event be less than the measures it uses to maintain the
confidentiality of its own information of similar type and importance.

     Section 8.2 Permitted Disclosure. Notwithstanding the foregoing, each Party may disclose
Confidential Information (i) to the extent required by a court of competent jurisdiction or other
governmental authority or otherwise as required by law, including without limitation disclosure
obligations imposed under the federal securities laws, provided that such Party has given the other
Party prior notice of such requirement when legally permissible to permit the other Party to take
such legal action to prevent the disclosure as it deems reasonable, appropriate or necessary, or
(ii) to its consultants, legal counsel, Affiliates, accountants, banks and other financing sources
and their advisors.

ARTICLE
IX

LIMITATION OF LIABILITY; INDEMNIFICATION

     Section 9.1 Limitation of Encore Operating’s Liability. Neither Encore Operating nor any of
its controlling persons, directors, officers, employees, agents and permitted assigns (each, an
“Encore Operating Party”) shall have any liability to the Partnership Group for any losses, damages
(including, but not limited to, special, indirect, punitive and/or consequential damages),

11

 

claims, injury, liability, cost or expense (“Damages”) arising out of this Agreement, whether such
Damages arise on account of the furnishing of Services hereunder, the failure to furnish Services
hereunder, or otherwise, and whether or not such Damages were caused by the negligence of the
Encore Operating Party, including the Encore Operating Party’s sole negligence; provided, however,
that the foregoing limitation shall not apply to Damages caused by the Encore Operating Party’s
gross negligence or willful, intentional misconduct.

     Section 9.2 Partnership’s Indemnity. The Partnership agrees to indemnify, defend and hold
harmless each Encore Operating Party from and against any and all Damages arising out of this
Agreement, whether such Damages arise on account of the furnishing of Services hereunder, the
failure to furnish Services hereunder, or otherwise, and whether or not such Damages were caused by
the negligence of any Encore Operating Party, including the Encore Operating Party’s sole
negligence; provided, however, that the foregoing limitation shall not apply to Damages caused by
the Encore Operating Party’s gross negligence or willful, intentional misconduct.

     Section 9.3 Limitation of Damages. If the Partnership Group suffers Damages arising out of
this Agreement, which Damages were caused by the gross negligence or willful, intentional
misconduct of Encore Operating, Encore Operating’s sole liability to the Partnership Group shall be
to properly perform the Services in question at no additional cost to the Partnership Group and to
pay the Partnership Group for any and all direct damages suffered by the Partnership Group.
Notwithstanding anything to the contrary contained herein or at Law and in equity, in no event
shall Encore Operating be liable for punitive, special, indirect, incidental or consequential
damages (including, without limitation, damages for loss of business profits, business interruption
or any other loss) arising from or relating to any claim made under this Agreement or regarding the
provision of or the failure to provide Services, even if Encore Operating had been advised or was
aware of the possibility of such damages.

     Section 9.4 Affiliate; Third Parties. If Encore Operating uses the personnel of its Affiliates
or third parties to provide Services, Encore Operating shall be responsible for the acts and
omissions of such personnel and third parties to the extent provided in this Agreement, and no
Affiliate of Encore Operating or third party shall have any liability to the Partnership Group on
account of any Damages suffered by the Partnership Group arising out of this Agreement, whether or
not such Damages were caused by their negligence and/or gross negligence, including their sole
negligence and/or sole gross negligence, or their willful, intentional misconduct.

ARTICLE
X

DISPUTE RESOLUTION

     If the Parties are unable to resolve any dispute regarding the validity or terms of this
Agreement or its termination, service or performance issues, there is a material breach of this
Agreement that has not been corrected within thirty (30) days of receipt of notice of such breach
or any other dispute between the parties related to this Agreement, either party hereto may refer
the matter to an arbitrator selected in accordance with the rules of JAMS in Tarrant County, Texas
as the exclusive remedy for any such dispute, and in lieu of any court action, which is hereby
waived. The only exception shall be a claim by either Party for injunctive relief pending
arbitration.

12

 

ARTICLE
XI

GENERAL PROVISIONS

     Section 11.1 Notices. All notices or other communications required or permitted under, or
otherwise in connection with, this Agreement must be in writing and must be given by (1) depositing
same in the mail, addressed to the Person to be notified, postpaid and registered or certified with
return receipt requested, (2) transmitting by national overnight courier, (3) delivery in person or
(4) facsimile to such Party. Notice given by mail, national overnight courier or personal delivery
shall be effective upon actual receipt. Notice given by facsimile shall be effective upon
confirmation of a successful transmission. All notices to be sent to a Party pursuant to this
Agreement shall be sent to or made at the address, in each case as follows:

if to the General Partner or the Partnership:

Encore Energy Partners GP LLC

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

if to the Operating Company:

Encore Energy Partners Operating LLC

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

if to Encore Operating:

EAP Operating, Inc., its general partner

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

     Section 11.2 Further Action. The Parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or appropriate to achieve
the purposes of this Agreement.

     Section 11.3 Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their heirs, executors, administrators, successors, legal representatives
and permitted assigns.

13

 

     Section 11.4 Integration. This Agreement constitutes the entire Agreement among the Parties
hereto pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.

     Section 11.5 Creditors. None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.

     Section 11.6 Waiver. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy
consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant,
duty, agreement or condition.

     Section 11.7 Counterparts. This Agreement may be executed in counterparts, all of which
together shall constitute an agreement binding on all the Parties hereto, notwithstanding that all
such Parties are not signatories to the original or the same counterpart. Each Party shall become
bound by this Agreement immediately upon affixing its signature hereto.

     Section 11.8 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of
the State of Texas, without regard to the principles of conflicts of law.

     Section 11.9 Invalidity of Provisions. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

     Section 11.10 Amendment or Restatement. This Agreement may be amended or restated only by a
written instrument executed by each of the Parties; provided, however, that after the completion of
the Partnership’s initial public offering of common units representing limited partner interests,
the Partnership may not, without the prior approval of the conflicts committee of the board of
directors of the General Partner or, if there is no such committee, the independent members of such
board of directors, agree to any amendment or modification of this Agreement that the General
Partner determines will adversely affect the holders of such common units. The Parties hereto agree
that, for purposes of this Section 11.10, any material change in the nature, quantity or duration
of the Services to be provided under this Agreement shall constitute a modification of this
Agreement.

     Section 11.11 Directly or Indirectly. Where any provision of this Agreement refers to action
to be taken by any Party, or which such Party is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Party, including actions
taken by or on behalf of any Affiliate of such Party.

     Section 11.12 Power of Attorney. EAC hereby appoints Encore Operating to act on its behalf
under this Agreement.

14

 

     IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the
Effective Date.

	 	 	 	 	 
	 	ENCORE ENERGY PARTNERS GP LLC

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer and Treasurer 	 
	 
	 	ENCORE ENERGY PARTNERS LP

 	 
	 	By:  	Encore Energy Partners GP LLC, its General Partner
 	 
	 	 	 
	 	By:  	                                     /s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer and Treasurer 	 
	 
	 	ENCORE ENERGY PARTNERS OPERATING LLC

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Vice President, Chief Financial Officer, Treasurer and Secretary 	 
	 
	 	ENCORE OPERATING, L.P.

By: EAP Operating, Inc., its General Partner

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer and Treasurer 	 
	 
	 	ENCORE ACQUISITION COMPANY

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer and Treasurer 	 

15

 

	 	 	 	 	 

SCHEDULE I

SERVICES PROVIDED BY ENCORE OPERATING

TO THE PARTNERSHIP GROUP

	1.	 	Accounting
	 
	2.	 	Information Technology
	 
	3.	 	Real Property
	 
	4.	 	Legal
	 
	5.	 	Securities and Exchange Commission Reporting
	 
	6.	 	Operations/Reservoir Engineering/Geology/Geophysics
	 
	7.	 	Administrative Services
	 
	8.	 	Financial Services
	 
	9.	 	Insurance Services
	 
	10.	 	Risk Management
	 
	11.	 	Corporate Development
	 
	12.	 	Commercial and Marketing
	 
	13.	 	Treasury
	 
	14.	 	Tax
	 
	15.	 	Audit
	 
	16.	 	Sarbanes-Oxley Compliance
	 
	17.	 	Investor Relations

I-1exv10w6

Exhibit 10.6

PURCHASE AND SALE AGREEMENT

by and between

ENCORE OPERATING, L.P.

(SELLER)

and

QUANTUM RESOURCES MANAGEMENT, LLC

(BUYER)

Dated March 31, 2010

Effective May 1, 2010

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE 1 DEFINITIONS
	 	 	1	 
	1.1 “Accounting Dispute”
	 	 	1	 
	1.2 “Accounting Dispute Notice”
	 	 	1	 
	1.3 “Accounting Referee”
	 	 	1	 
	1.4 “Affiliate”
	 	 	1	 
	1.5 “Aggregate Defect Basket”
	 	 	1	 
	1.6 “Agreement”
	 	 	1	 
	1.7 “Allocated Value”
	 	 	1	 
	1.8 “Assets”
	 	 	1	 
	1.9 “Assumed Obligations”
	 	 	2	 
	1.10 “Audit Firm”
	 	 	2	 
	1.11 “Business Day”
	 	 	2	 
	1.12 “Buyer’s Credits”
	 	 	2	 
	1.13 “Buyer Indemnitees”
	 	 	2	 
	1.14 “Casualty Loss
	 	 	2	 
	1.15 “Claim Notice”
	 	 	2	 
	1.16 “Claims”
	 	 	2	 
	1.17 “Closing”
	 	 	3	 
	1.18 “Closing Date”
	 	 	3	 
	1.19 “Closing Deferred Property”
	 	 	3	 
	1.20 “Confidentiality Agreement”
	 	 	3	 
	1.21 “Conveyances”
	 	 	3	 
	1.22 “Cure Period”
	 	 	3	 
	1.23 “Defect Value”
	 	 	3	 
	1.24 “Defensible Title”
	 	 	3	 
	1.25 “De Minimis Claim”
	 	 	3	 
	1.26 “Effective Date” or “Effective Time”
	 	 	3	 
	1.27 “Environmental Defect”
	 	 	3	 
	1.28 “Environmental Defect Notice Date”
	 	 	4	 
	1.29 “Environmental Law”
	 	 	4	 
	1.30 “Environmental Obligations”
	 	 	4	 
	1.31 “Excluded Assets”
	 	 	4	 
	1.32 “Expiration Date”
	 	 	6	 
	1.33 “Final Settlement,” “Final Settlement Date” and “Final Settlement Statement”
	 	 	6	 
	1.34 “Financial Statements”
	 	 	6	 
	1.35 “Governmental Entity”
	 	 	6	 
	1.36 “Hydrocarbons”
	 	 	6	 
	1.37 “Indemnified Party”
	 	 	6	 
	1.38 “Indemnifying Party”
	 	 	6	 
	1.39 “Indemnity Deductible”
	 	 	6	 
	1.40 “Inventory Hydrocarbons”
	 	 	6	 
	1.41 “Knowledge”
	 	 	6	 
	1.42 “Laws” or “Law”
	 	 	6	 
	1.43 “Leases”
	 	 	6	 

- i -

 

	 	 	 	 	 
	1.44 “Liability”
	 	 	7	 
	1.45 “NORM”
	 	 	7	 
	1.46 “Performance Deposit”
	 	 	7	 
	1.47 “Permitted Encumbrances”
	 	 	7	 
	1.48 “Person”
	 	 	7	 
	1.49 “Plugging and Abandonment Obligations”
	 	 	7	 
	1.50 “Preferential Purchase Rights”
	 	 	8	 
	1.51 “Purchase Price”
	 	 	8	 
	1.52 “Purchase Price Allocation Schedule”
	 	 	8	 
	1.53 “Real Property, Personal Property and Incidental Rights”
	 	 	8	 
	1.54 “Records”
	 	 	9	 
	1.55 “Regulated Substances”
	 	 	9	 
	1.56 “Request Date”
	 	 	9	 
	1.57 “Retained Obligations”
	 	 	9	 
	1.58 “Seller Indemnitees”
	 	 	10	 
	1.59 “Seller’s Credits”
	 	 	10	 
	1.60 “Survival Period”
	 	 	10	 
	1.61 “Termination Date”
	 	 	10	 
	1.62 “Third Party Claim”
	 	 	10	 
	1.63 “Third Party Interests”
	 	 	10	 
	1.64 “Title Defect”
	 	 	10	 
	1.65 “Title Defect Notice Date”
	 	 	10	 
	1.66 “Title Defect Property”
	 	 	10	 
	1.67 “Value Arbitrator
	 	 	10	 
	1.68 “Transfer Requirement”
	 	 	10	 
	1.69 “Waiver Notice Date”
	 	 	10	 
	1.70 “Well” or “Wells”
	 	 	10	 
	ARTICLE 2 - AGREEMENT TO PURCHASE AND SELL
	 	 	10	 
	ARTICLE 3 - PURCHASE PRICE AND PAYMENT
	 	 	11	 
	3.1 Purchase Price.
	 	 	11	 
	3.2 Performance Deposit.
	 	 	11	 
	3.3 Purchase Price Adjustments
	 	 	11	 
	3.4 Allocation of Purchase Price.
	 	 	14	 
	ARTICLE 4 . — SELLER’S REPRESENTATIONS AND WARRANTIES
	 	 	14	 
	ARTICLE 5 . — BUYER’S REPRESENTATIONS AND WARRANTIES
	 	 	17	 
	ARTICLE 6 . — ACCESS TO INFORMATION AND INSPECTIONS
	 	 	19	 
	6.1 Title Files
	 	 	19	 
	6.2 Other Files
	 	 	19	 
	6.3 Copies
	 	 	19	 
	6.4 Confidentiality Agreement
	 	 	20	 
	6.5 Inspections
	 	 	20	 
	6.6 No Warranty or Representation on Seller’s Information
	 	 	20	 
	6.7 Inspection Indemnity
	 	 	20	 
	6.8 Amendments to Exhibits
	 	 	21	 
	ARTICLE 7 .
– ENVIRONMENTAL MATTERS AND ADJUSTMENTS
	 	 	21	 
	7.1 Environmental Defects Notice
	 	 	21	 

- ii -

 

	 	 	 	 	 
	7.2 Waiver of Environmental Defects
	 	 	22	 
	7.3 Remedies for Environmental Defects
	 	 	22	 
	7.4 Aggregate Defect Basket
	 	 	22	 
	7.5 Purchase Price Adjustment for Environmental Defect
	 	 	22	 
	ARTICLE 8 . — TITLE DEFECTS AND ADJUSTMENTS
	 	 	22	 
	8.1 Seller’s Title
	 	 	22	 
	8.2 Notice of Title Defects
	 	 	26	 
	8.3 Title Defect Adjustment
	 	 	27	 
	8.4 Environmental Defect and Title Defect Values
	 	 	28	 
	8.5 Government Approvals Respecting Assets
	 	 	30	 
	ARTICLE 9 . — OPTION TO TERMINATE
	 	 	31	 
	9.1 Option to Terminate for Defects
	 	 	31	 
	9.2 Option to Terminate for Defects and Other Matters
	 	 	31	 
	9.3 Dispute as to Defect Values
	 	 	31	 
	ARTICLE 10 . — PREFERENTIAL PURCHASE RIGHTS AND CONSENTS OF THIRD PARTIES
	 	 	32	 
	10.1 Actions and Consents
	 	 	32	 
	ARTICLE 11 . — COVENANTS
	 	 	33	 
	11.1 Covenants of Seller Pending Closing
	 	 	33	 
	11.2 Limitations on Seller’s Covenants Pending Closing
	 	 	34	 
	11.3 Employees
	 	 	34	 
	11.4 Notification of Breaches
	 	 	34	 
	11.5 Financial Information
	 	 	35	 
	ARTICLE 12 . — CLOSING CONDITIONS
	 	 	35	 
	12.1 Seller’s Closing Conditions
	 	 	35	 
	12.2 Buyer’s Closing Conditions
	 	 	36	 
	ARTICLE 13 . — CLOSING
	 	 	37	 
	13.1 Closing
	 	 	37	 
	13.2 Seller’s Closing Obligations
	 	 	37	 
	13.3 Buyer’s Closing Obligations
	 	 	38	 
	13.4 Joint Closing Obligations
	 	 	38	 
	ARTICLE 14 - LIMITATIONS ON WARRANTIES AND REMEDIES/DTPA- WAIVER
	 	 	38	 
	14.1 Limitations on Warranties and Remedies
	 	 	38	 
	14.2 Waiver of Trade Practices Acts
	 	 	39	 
	ARTICLE 15 . — CASUALTY LOSS AND CONDEMNATION
	 	 	41	 
	ARTICLE 16 . — TERMINATION
	 	 	41	 
	16.1 Termination.
	 	 	41	 
	16.2 Effect of Termination
	 	 	41	 
	16.3 Distribution of Deposit Upon Termination
	 	 	42	 
	16.4 Other Remedies
	 	 	42	 
	16.5 Limitations on Damages
	 	 	42	 
	ARTICLE 17 . — ASSUMPTION AND INDEMNITY
	 	 	42	 
	17.1 Assumed Obligations
	 	 	42	 
	17.2 Buyer’s Indemnity
	 	 	43	 
	17.3 Seller’s Indemnity
	 	 	43	 
	17.4 Stipulation Regarding Express Negligence And Fault
	 	 	44	 

- iii -

 

	 	 	 	 	 
	17.5 Broker or Finder’s Fee
	 	 	44	 
	17.6 Litigation
	 	 	44	 
	17.7 Indemnification Procedures
	 	 	44	 
	17.8 Liability Limitation
	 	 	46	 
	ARTICLE 18 . — GAS IMBALANCES
	 	 	46	 
	ARTICLE 19 . — TRANSITION
	 	 	47	 
	19.1 Turnover of Operatorship
	 	 	47	 
	19.2 Interim Operations
	 	 	47	 
	19.3 No Liability
	 	 	48	 
	19.4 Seller Compensation
	 	 	48	 
	19.5 Post-Closing Transition
	 	 	48	 
	ARTICLE 20 . — MISCELLANEOUS
	 	 	48	 
	20.1 Receivables and other Excluded Funds
	 	 	48	 
	20.2 Public Announcements
	 	 	49	 
	20.3 Filing and Recording of Assignments, etc.
	 	 	49	 
	20.4 Further Assurances and Records
	 	 	49	 
	20.5 Notices
	 	 	50	 
	20.6 Incidental Expenses
	 	 	51	 
	20.7 Waiver
	 	 	51	 
	20.8 Binding Effect; Assignment
	 	 	52	 
	20.9 Taxes
	 	 	52	 
	20.10 Audits
	 	 	53	 
	20.11 Like-Kind Exchanges
	 	 	53	 
	20.12 Governing Law
	 	 	54	 
	20.13 Entire Agreement
	 	 	54	 
	20.14 Severability
	 	 	54	 
	20.15 Exhibits and Schedules
	 	 	54	 
	20.16 Suspended Funds
	 	 	54	 
	20.17 Survival
	 	 	55	 
	20.18 Subsequent Adjustments
	 	 	55	 
	20.19 Counterparts
	 	 	55	 
	20.20 Subrogation
	 	 	56	 
	20.21 Government Reviews
	 	 	56	 
	20.22 Change of Name
	 	 	56	 
	20.23 Replacement of Bonds, Letters of Credit and Guarantees
	 	 	56	 
	20.24 No Third-Party Beneficiaries
	 	 	56	 

- iv -

 

	 	 	 
	EXHIBITS
	 	 
	 
	 	 
	Exhibit “A”

	 	Leases
	Exhibit “B”

	 	Wells
	Exhibit “B-1”

	 	Future Wells
	Exhibit “C”

	 	Right-of Ways, Easements and Surface Estates
	Exhibit “C-1”

	 	Minerals and Royalties
	Exhibit “D”

	 	Contracts and Other Agreements
	Exhibit “E”

	 	Excluded Assets
	Exhibit “F”

	 	Allocated Values
	Exhibit “G”

	 	Conveyance, Assignment and Bill of Sale
	Exhibit “H”

	 	Litigation
	Exhibit “I”

	 	Payouts Balances
	Exhibit “J”

	 	Gas and Oil Imbalances
	Exhibit “K”

	 	Consents to Assign, Preferential Rights to Purchase and Burdens
	Exhibit “L”

	 	[Reserved]
	Exhibit “M”

	 	Non-Foreign Affidavit
	Exhibit “N”

	 	Assignments Due Seller
	Exhibit “O”

	 	Assignments Owed By Seller
	Exhibit “P”

	 	Mortgages, Liens and Encumbrances
	Exhibit “Q”

	 	Post-Closing Transition, Accounting and Reporting Agreement
	 
	 	 
	SCHEDULES
	 	 
	 
	 	 
	Schedule 4(j)

	 	Noncompliance/Notices
	Schedule 4(k)

	 	Permits/Defaults
	Schedule 4(q)

	 	AFEs
	Schedule 4(s)

	 	P&A Notices
	Schedule 4(t)

	 	Tax Disputes
	Schedule 4(u)

	 	Seller’s Bonds and Letters of Credit
	Schedule 4(w)

	 	Unassigned Interests

- v -

 

PURCHASE AND SALE AGREEMENT

     This Purchase and Sale Agreement (“Agreement”), dated as of March 31, 2010, is by and
between Encore Operating, L.P., a Delaware limited partnership (“Seller”), and Quantum
Resources Management, LLC, a Delaware limited liability company (“Buyer”). Seller and
Buyer are sometimes referred to herein individually as a “Party” or collectively as
“Parties.”

R E C I T A L S

     WHEREAS, Seller owns certain oil and gas leasehold interests and related assets more fully
described on the exhibits hereto; and

     WHEREAS, Seller desires to sell and Buyer desires to acquire these interests and related
assets on the terms and conditions hereinafter provided;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth,
Seller and Buyer hereby agree as follows:

ARTICLE 1

DEFINITIONS

     1.1 “Accounting Dispute” shall be as defined in Section 3.3(c).

     1.2 “Accounting Dispute Notice” shall be as defined in Section 3.3(c).

     1.3 “Accounting Referee” shall be as defined in Section 3.3(c)

     1.4 “Affiliate” shall mean with respect to any Person, a Person that directly or indirectly controls, is
controlled by or is under common control with such Person, with control in such context (including,
with its correlative meaning, “controlled by” and “under common control with”) meaning the
possession, directly or indirectly, of the power to direct or cause the direction of management or
policies of a Person, whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise.

     1.5 “Aggregate Defect Baskets” shall be as defined in Section 7.4.

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

     1.7 “Allocated Value” shall be as defined in Section 3.4 and as set forth on Exhibit “F.”

     1.8 “Assets” shall mean the following described assets and properties (except to the extent constituting
Excluded Assets):

     (a) the Leases;

Schedule 4(w) -

Page 1

 

 

     (b) the Real Property, Personal Property and Incidental Rights; and

     (c) the Inventory Hydrocarbons.

     1.9 “Assumed Obligations” shall mean with respect to the Assets:

     (a) the Plugging and Abandonment Obligations;

     (b) all Environmental Obligations, whether related to, attributable to, or arising from events
occurring before or after the Effective Date, except those specifically included in the definition
of “Retained Obligations” and as provided in Seller’s Indemnity set forth in Section 17.3;

     (c) subject to Article 18, all obligations with respect to gas production, sales or,
processing imbalances with third Persons;

     (d) except as otherwise provided in this Agreement, all other Liabilities, Claims, duties, and
obligations that arise out of the ownership, operation or use of the Assets after the Effective
Time, including, but not limited to, the payment of all operating expenses and capital expenditures
relating to the Assets, all Liabilities, duties, and obligations, express or implied, imposed upon
Seller under the provisions of the Leases (including, without limitation, the payment of royalties)
and any and all assignments, subleases, farmout agreements, participation agreements, joint venture
agreements, assignments of overriding royalty, joint operating agreements, easements,
rights-of-way, and all other contracts, agreements and instruments affecting the Leases, or the
premises covered thereby, whether recorded or unrecorded, whether listed or not on Exhibit
“D,” and under all applicable Laws; and

     (e) responsibility and Liability for the litigation and threatened litigation listed on
Exhibit “H,” and the Claims thereunder, solely to the extent (in each case) Buyer is to be
responsible therefor as provided in Section 17.6.

     1.10 “Audit Firm” shall be as defined in Section 11.5 (b).

     1.11 “Business Day” shall mean any day that is not Saturday or Sunday or any other day on which commercial banks
are required or authorized by Law to be closed in the City of Dallas, Texas.

     1.12 “Buyer’s Credits” shall be as defined in Section 3.3(a)(ii).

     1.13 “Buyer Indemnitees” shall be as defined in Section 17.3.

     1.14 “Casualty Loss shall be as defined in Article 15.

     1.15 “Claim Notice” shall be defined in Section 17.7(b).

     1.16 “Claims” shall mean all claims, demands, losses, damages, punitive damages, costs, expenses, causes of
action and judgments of any kind or character including, without

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limitation, any interest, penalty,
attorneys’ fees and other costs and expenses incurred in connection therewith or the defense
thereof.

     
1.17 “Closing” shall be as defined in Section 13.1.

     
1.18 “Closing Date” shall be as defined in Section 13.1.

     
1.19 “Closing Deferred Property” shall be as defined in Section 8.3(b).

     
1.20 “Confidentiality Agreement” shall be as defined in Section 6.4.

     
1.21 “Conveyances” shall be as defined in Section 8.1(b).

     
1.22 “Cure Period” shall be as defined in Section 8.3(a).

     
1.23 “Defect Value” shall be as defined in Section 8.4.

     
1.24 “Defensible Title” shall be as defined in Section 8.1(e).

     
1.25 “De Minimis Claim” shall be as defined in Section 17.8(a).

     
1.26 “Effective Date” or “Effective Time” shall mean 7:00 a.m., Central Standard Time, on May 1, 2010.

     
1.27 “Environmental Defect” shall mean:

     (a) a condition or activity with respect to an Asset that is in violation, or reasonably
likely to violate, any Environmental Law, or any surface or mineral lease obligation, or other
condition which create Environmental Obligations, whether an express or implied obligation,
relating to natural resources, conservation, the environment, or the emission, release, storage,
treatment, disposal, transportation, handling or management of industrial or solid waste, hazardous
waste, hazardous or toxic substances, chemicals or pollutants, petroleum, including crude oil,
natural gas, natural gas liquids, or liquefied natural gas, and any wastes associated with the
exploration and production of oil and gas (“Regulated Substances”); or

     (b) the presence of Regulated Substances in the soil, groundwater, or surface water in, on, at
or under an Asset in any manner or quantity which is required to be remediated by Environmental Law
or by any applicable action or guidance levels or other standards published by any Governmental
Entity with jurisdiction over the Assets, or by a surface or mineral lease obligation, whether an
express or implied obligation.

     Notwithstanding the foregoing, the Parties agree and acknowledge that (i) Buyer will be
provided an opportunity to examine the Assets for potential naturally occurring
radioactive materials (“NORM”), and any potential obligations with respect to NORM,
and (ii) that the presence of NORM on any of the Assets may not be raised by Buyer as the subject
of an Environmental Defect.

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     1.28 “Environmental Defect Notice Date” shall be as defined in Section 7.1.

     1.29 “Environmental Law” shall mean any and all federal, state or local Laws entered, issued or made by any
Governmental Entity pertaining to pollution, protection of human health or the environment,
including the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §
9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et.
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances
Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking
Water Act, 42 U.S.C. §§ 300f through 300j; and all similar Laws entered, issued or made by any
Governmental Entity having jurisdiction over the Assets or the operation thereof, and all
amendments to such Laws.

     1.30 “Environmental Obligations” shall mean all Liabilities, obligations, expenses (including, without limitation, all
attorneys’ fees), fines, penalties, Claims (including natural resource Claims) of any nature,
associated with the Assets, and attributable to or resulting from:

     (a) pollution or contamination of soil, surface water, groundwater or air, on, in, by, from or
under the Assets or lands in the vicinity thereof, and any other contamination of or adverse effect
upon the environment;

     (b) underground injection activities and waste disposal;

     (c) clean-up responses, remedial, control or compliance costs, including the required cleanup
or remediation of spills, pits, lakes, ponds, or lagoons, including any subsurface or surface
pollution caused by such spills, pits, lakes, ponds, or lagoons;

     (d) noncompliance with applicable land use, permitting, surface disturbance(s), licensing or
notification requirements, including those in a surface or mineral lease, whether an express or
implied obligation;

     (e) violation of any federal, state or local Environmental Law or land use Law, or surface or
mineral lease obligation, whether an express or implied obligation;

     (f) any other violation which could qualify as an Environmental Defect (without being limited
to Assets); and

     (g) any and all indemnity obligations of Seller with respect to the above, along with any and
all Claims against Seller for indemnity with respect to the above, under, pursuant to or arising
from any acquisition, purchase and sale or other agreement.

     1.31 “Excluded Assets” shall mean the following:

     (a) all corporate, financial, and tax records of Seller, and those records subject to
attorney/client privilege; however, Buyer shall be entitled to receive copies of any tax records

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which directly relate to any Assumed Obligations, or which are necessary for Buyer’s ownership,
administration, or operation of the Assets;

     (b) (i) all trade credits, accounts receivable, notes receivable and other receivables
attributable to the Assets with respect to any period of time prior to the Effective Time; (ii) all
deposits, cash, checks in process of collection, cash equivalents and funds attributable to the
Assets with respect to any period of time prior to the Effective Time; and (iii) all proceeds,
income or revenues accruing with respect to the Assets prior to the Effective Time;

     (c) all Claims of Seller arising from acts, omissions or events, or damage to or destruction
of the Asset(s), occurring prior to the Effective Time; provided, however, Seller shall transfer to
Buyer all Claims of Seller against prior owners of the Assets or third Persons associated with or
relating to Environmental Obligations that are not Retained Obligations;

     (d) except as otherwise provided in Article 15, all rights, titles, Claims and
interests of Seller relating to the Assets prior to the Effective Time (i) under any policy or
agreement of insurance or indemnity, subject to Buyer’s rights of subrogation under Section
20.20 below; (ii) under any bond; or (iii) to any insurance or condemnation proceeds or awards;

     (e) all Hydrocarbons produced from or attributable to the Assets with respect to all periods
prior to the Effective Time, together with all proceeds from or of such Hydrocarbons, except the
Inventory Hydrocarbons and the unsold inventory of gas plant products, if any, attributable to the
Assets as of the Effective Time;

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

     (g) all amounts due or payable to Seller as adjustments or refunds under any contracts or
agreements (including take-or-pay Claims) affecting the Assets with respect to any period prior to
the Effective Time;

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

     (i) all proceeds, income or revenues accruing (and any security or other deposits made) with
respect to the Assets, and all accounts receivable attributable to the Assets that are attributable
to the period prior to the Effective Time;

     (j) all of Seller’s intellectual property, including, but not limited to, proprietary computer
software, patents, trade secrets, copyrights, names, marks and logos; and

     (k) all 2-D and 3-D seismic, geochemical and geophysical information and data (including
seismic data licensed from third parties, including reprocessed data, unless the Buyer is willing
to pay all third Person transfer fees) and, to the extent not expressly included in Section
1.53(e), interpretive data, technical evaluations, technical outputs, reserve estimates and
economic estimates; provided, however, Seller shall grant to Buyer a license,

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in a mutually
agreeable form with regard to any proprietary geophysical data which Seller owns and which covers
the Assets, containing the following provisions among others (i) royalty free, (ii) perpetual, and
(iii) assignable by Buyer to one or more assignees provided such assignees contemporaneously
acquire all or a portion of the Assets and any such assignees of Buyer shall not have the right to
further assign said license; and

     (l) all of those certain Excluded Assets identified in Exhibit “E.”

     1.32 “Expiration Date” shall be as defined in Section 20.17(a).

     1.33 “Final Settlement,” “Final Settlement Date” and “Final Settlement Statement” shall be as defined in Section 3.3(c).

     1.34 “Financial Statements” {intentionally deleted}.

     1.35 “Governmental Entity” means any federal, state, municipal, domestic or foreign court, tribunal, administrative
agency, department, commission, board, bureau or other governmental authority or instrumentality.

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

     1.37 “Indemnified Party” shall be as defined in Section 17.7(a).

     1.38 “Indemnifying Party” shall be as defined in Section 17.7(a).

     1.39 “Indemnity Deductible” shall be as defined in Section 17.8(a).

     1.40 “Inventory Hydrocarbons” shall mean all merchantable oil and condensate produced from or attributable to the Leases
prior to the Effective Time which have not been sold by Seller and are in storage at the Effective
Time.

     1.41 “Knowledge” means the actual knowledge of a Person, and if the Person is a corporation or limited
liability company, the actual knowledge of the corporation’s or limited liability company’s
officers or Land Manager-Business Development, and if the Person is a limited partnership, the
actual knowledge of the officers or Land Manager-Business Development of the general partner of the
limited partnership.

     1.42 “Laws” or “Law” shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits,
franchises, licenses, certificates, writs, injunctions, or decrees of
the United States, any state or commonwealth, any municipality, any foreign country, any
territory or possession, or any Governmental Entity.

     1.43 “Leases” shall mean, all rights, titles, claims and interests owned by Seller in and to the oil, gas
and/or mineral leases, or the lands covered by said leases, or in lands pooled or unitized with
such leases set forth on Exhibit “A,” or which Seller is entitled to

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receive by reason of
any participation, joint venture, farmin, farmout, joint operating agreement, unitization
agreement, or other agreement, in and to the oil, gas and/or mineral leases set forth on
Exhibit “A,” including all leasehold estates, royalty interests, overriding royalty
interests, net revenue interests, executory interests, net profit interests, working interests,
reversionary interests, mineral interests, and any other interests of Seller in said oil, gas
and/or mineral leases, or lands covered by said leases, it being the intent hereof that the leases,
properties and interests and the legal descriptions and depth limitations set forth on Exhibit
“A” or in instruments described in Exhibit “A,” includes all of Seller’s right, title
and interest in said oil, gas and/or mineral leases, other than the Excluded Assets, including but
not limited to those described on Exhibit “A” or in instruments described in Exhibit
“A” even though such interests may be incorrectly described in Exhibit “A” or omitted
from Exhibit “A.”

     1.44 “Liability” means any liability (whether asserted or unasserted, whether liquidated or unliquidated,
whether known or unknown, and whether due or to become due).

     1.45 “NORM” shall be as defined in the definition of the “Environmental Defect.”

     1.46 “Performance Deposit” shall be as defined in Section 3.2.

     1.47 “Permitted Encumbrances” shall be as defined in Section 8.1(h).

     1.48 “Person” shall mean any individual, firm, partnership, corporation, limited liability company, joint
venture, trust, unincorporated organization or other entity or organization.

     1.49 “Plugging and Abandonment Obligations” shall mean the responsibility and Liability, including but not limited to Claims for damages
and/or other relief, for the following plugging and abandonment obligations related to the Assets,
regardless of whether they are attributable to the ownership or operation of the Assets before or
after the Effective Time:

     (a) the necessary and proper plugging, replugging and abandonment of all Wells, whether
plugged and abandoned before or after the Effective Time;

     (b) the necessary and proper removal, abandonment, and disposal of all platforms, structures,
pipelines, equipment, abandoned property and junk located on or comprising part of the Assets;

     (c) to the extent required by the applicable authorized Governmental Entity and the owners of
the property affected, the necessary and proper capping and burying of all associated flow lines
located on or comprising part of the Assets;

     (d) the necessary and proper restoration of the Assets and/or the property covered by the
Assets or upon which the Assets are located, both surface, surface water, groundwater, waterbottom
and subsurface, to such condition as may be required by applicable Laws or contract;

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     (e) any necessary clean-up or disposal of Assets contaminated by NORM as may be required by
applicable Laws or contract;

     (f) all plugging, abandonment and obligations arising from contractual requirements and
demands made by authorized Governmental Entity or Persons claiming an interest in the Assets and/or
the property covered by the Assets or upon which the Assets are located; and

     (g) any and all indemnity obligations of Seller with respect to any of the above, along with
any and all Claims against Seller for indemnity with respect to any of the above, under, pursuant
to or arising from any acquisition, purchase and sale or other agreement.

     1.50 “Preferential Purchase Rights” shall mean preferential rights, preemptive rights or contracts, rights of first refusal or
other commitments or understandings of a similar nature to which Seller is a party or to which the
Assets are subject.

     1.51 “Purchase Price” shall be as defined in Section 3.1.

     1.52 “Purchase Price Allocation Schedule” shall be as defined in Section 20.9(a).

     1.53 “Real Property, Personal Property and Incidental Rights” shall mean all rights, titles, claims and interests of Seller in and to or derived from the
following insofar as the same do not constitute Excluded Assets and are attributable to,
appurtenant to, incidental to, or used for the ownership or operation of the Leases or other
Assets:

     (a) all mineral interests and royalty interests described on Exhibit “C-1” or in
instruments described on Exhibit “C-1”;

     (b) all easements, rights-of-way, surface leases, permits, licenses, surface estate interests
or other interests relating to the use of the surface or subsurface of lands, including but not
limited to those described on Exhibit “C,” or in instruments described on Exhibit
“C”;

     (c) all Wells, along with all equipment and other personal property, inventory, spare parts,
tools, fixtures, pipelines, dehydration facilities, platforms, tank batteries, appurtenances, and
improvements situated upon the Assets or lands pooled or unitized therewith as of or after the
Effective Time or used or held for use in connection with the ownership, development or operation
of the Assets or the production, treatment, storage, compression, processing or transportation of
Hydrocarbons from or in the Wells or the Leases or lands pooled or unitized therewith;

     (d) all original contracts, agreements, and instruments to the extent attributable to and
affecting the Assets in existence as of or after the Effective Time, including all Hydrocarbon
sales, purchase, gathering, transportation, treating, marketing, exchange,
processing, disposal and fractionating contracts, all unit agreements, orders and decisions of
Governmental Entities establishing units, participation agreements, exchange agreements, joint
operating agreements, enhanced recovery and injection agreements, farmout agreements and farmin
agreements, options, drilling agreements, exploration agreements, assignments of operating rights,
working interests, subleases and rights above or below certain footage

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depths or geological
formations, to the extent same are attributable to the Assets, including but not limited to those
described on Exhibit “D”, but excluding any contracts, agreements, and/or instruments to
the extent transfer is restricted by third-party agreement or applicable law and the necessary
consents to transfer are not obtained pursuant to Article 10 and provided that the
contracts, agreements and/or instruments shall not include the instruments constituting the Leases;

     (e) all original lease files, land files, well files, production records, division order files
(including paysheets and supporting files), abstracts, title opinions, and contract files, insofar
as the same are directly related to the Assets, including, without limitation, all geological,
information and data, to the extent that such data is not subject to any third Person restrictions,
but excluding Seller’s proprietary interpretations of same, except as expressly excluded in
Section 1.31(k).

     1.54 “Records” shall be as defined in Section 11.5(b).

     1.55 “Regulated Substances” shall be as defined in the definition of “Environmental Defect.”

     1.56 “Request Date” shall be defined in Section 3.3(c).

     1.57 “Retained Obligations” shall mean:

     (a) any Environmental Obligations related to the Excluded Assets;

     (b) Claims for personal injury or wrongful death and property damage (excluding any
Environmental Obligations, except as otherwise provided in Seller’s Indemnity as set forth in
Section 17.3, or Plugging and Abandonment Obligations) occurring prior to the Effective
Time;

     (c) responsibility to any Governmental Entity or any Person for any offsite transportation,
treatment, storage or disposal by Seller, prior to the Effective Time, of Regulated Substances
produced from the Assets, and stored or disposed of, on, in or below any property which does not
form a part of the Assets, for which and to the extent that remediation is required by any
Environmental Law or any applicable lease or other agreement; for purposes of this subpart “(c),”
“offsite transportation, treatment, storage or disposal” shall not include the seepage, leakage or
other migration of Regulated Substances from the property forming part of the Assets to other
lands;

     (d) responsibility and Liability for the litigation and threatened litigation listed on
Exhibit “H,” and the Claims thereunder, to the extent (in each case) Seller is to be
responsible therefor as provided in Section 17.6;

     (e) except as otherwise provided in this Agreement (including all Assumed Obligations of
Buyer), all other Liabilities, Claims, duties, and obligations that arise out of the ownership,
operation or use of the Assets prior to the Effective Time, including, but not limited to, the
payment of all operating expenses and capital expenditures relating to the Assets, all Liabilities,
duties, and obligations, express or implied, imposed upon Seller under

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the provisions of the Leases
(including, without limitation, the payment of royalties) and under all applicable Laws; and

     (f) any Liabilities or Claims relating or attributable to the Excluded Assets.

     1.58 “Seller Indemnitees” shall be as defined in Section 17.2.

     1.59 “Seller’s Credits” shall be as defined in Section 3.3(a)(i).

     1.60 “Survival Period” shall be as defined in Section 20.17(a).

     1.61 “Termination Date” shall be as defined in Section 19.2.

     1.62 “Third Party Claim” shall be as defined in Section 17.7(b).

     1.63 “Third Party Interests” shall be as defined in Section 10.1(c).

     1.64 “Title Defect” shall be as defined in Section 8.1(f).

     1.65 “Title Defect Notice Date” shall be as defined in Section 8.2.

     1.66 “Title Defect Property” shall be as defined in Section 8.1(g).

     1.67 “Value Arbitrator” shall be as defined in Section 8.3(b).

     1.68 “Transfer Requirement” means any consent, approval, authorization or permit of, or filing with or notification to,
any Person which is required to be obtained, made or complied with for or in connection with any
sale, assignment or transfer of any Asset or any interest therein, other than any consent of,
notice to, filing with, or other action by Governmental Entity in connection with the sale or
conveyance of oil and/or gas leases, surface leases, contracts, agreements or other instruments, if
they are not required prior to the assignment or they are customarily obtained subsequent to the
sale or conveyance (including consents from federal and state agencies).

     1.69 “Waiver Notice Date” shall be as defined in Section 8.3(b).

     1.70 “Well” or “Wells” shall refer to all wells located on the Assets, or lands pooled or unitized therewith,
including but not limited to (i) those wells identified on Exhibit “B” attached hereto,
whether or not such wells are producing, active or inactive, plugged and abandoned, temporarily
abandoned, shutin, injection wells, disposal wells, water supply wells or otherwise, and (ii) the
future wells identified on Exhibit “B-1.”

ARTICLE 2 — AGREEMENT TO PURCHASE AND SELL

     Subject to the terms and conditions of this Agreement, Seller agrees to sell and convey to
Buyer and Buyer agrees to purchase and pay for the Assets and to assume the Assumed Obligations.

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ARTICLE 3 — PURCHASE PRICE AND PAYMENT

     3.1 Purchase Price.

     Subject to adjustment as provided in Section 3.3 set forth below, the purchase price
for the Assets (the “Purchase Price”) shall be Nine Hundred Million and No/100 Dollars
($900,000,000.00), which shall be allocated among the Assets as provided in Section 3.4.

     3.2 Performance Deposit.

     Concurrent with the execution of this Agreement, Buyer shall tender to Seller, by wire
transfer of immediately available funds, as a performance deposit, the sum of Forty Five Million
and No/100 Dollars ($45,000,000.00) (the “Performance Deposit”). The Performance Deposit
shall be deposited in an interest bearing account and the Performance Deposit and all accrued
interest shall be applied against the Purchase Price if Closing shall occur or otherwise
distributed in accordance with the terms of this Agreement. If the Performance Deposit is not
received by Seller by the close of business on the first Business Day after the execution of this
Agreement, this Agreement shall be null and void, and the Parties shall have no further obligation
to each other hereunder.

     3.3 Purchase Price Adjustments

     (a) The Purchase Price shall be adjusted as follows:

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

     (A) the value of (i) all Inventory Hydrocarbons, such value to be based upon the
existing contract price for crude oil or natural gas, as applicable, in effect as of the
Effective Time, less severance taxes, transportation fees and other fees deducted by the
purchaser of such oil or gas, such oil and gas to be measured at the Effective Time by the
operators of the Assets; and (ii) the value of all of Seller’s unsold inventory of gas
plant products, if any, attributable to the Assets at the Effective Time valued in the same
manner as if such products had been sold under the contract then in existence between
Seller and the purchaser of such products or, if there is no such contract, valued in the
same manner as if said products had been sold at the posted price in the field for said
products;

     (B) the amount of all production expenses, operating expenses and all other
expenditures (excluding the compensation paid to Seller under Section 11.1(d),
below) attributable to the ownership or operation of the Assets after the Effective Time
and paid by Seller prior to the Closing Date in accordance with Section 11.1;

     (C) the amount of all ad valorem, property, production, excise, severance and similar
taxes and assessments (but not including income taxes), which taxes and assessments accrue
to the Assets after the Effective Time, and are paid by Seller;

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

     (E) the amount of any Hydrocarbon underbalances as provided in Article 18; and

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

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

     (A) the total collected sales value of all Hydrocarbons sold by the Seller after the
Effective Time, all of which are attributable to the Assets, and any other monies collected
by the Seller with respect to the ownership of the Assets after the Effective Time, but
excepting interest income attributable thereto.

     (B) the amount of all unpaid ad valorem, property, production, excise, severance and
similar taxes and assessments (but not including income taxes), which taxes and assessments
accrue to the Assets prior to the Effective Time, which amount shall, where possible, be
computed based upon the tax rate and values applicable to the tax period in question;
otherwise, the amount of the adjustment under this paragraph shall be computed based upon
such taxes assessed against the applicable portion of the Assets for the immediately
preceding tax period just ended;

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

     (D) an amount equal to any Preferential Purchase Rights or Consents as provided in
Article 10;

     (E) an amount equal to the value of all Title Defects, as provided in Section
8.3.

     (F) an amount equal to the value of all Environmental Defects, as provided in
Section 7.3;

     (G) the Performance Deposit, plus accrued interest through the Closing Date;

     (H) the amount of any Hydrocarbon overbalances as provided in Article 18; and

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

     (b) Seller shall prepare and deliver to Buyer, at least five (5) business days prior to
Closing, Seller’s estimate of the adjusted Purchase Price to be paid at Closing, together

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with a
preliminary statement setting forth Seller’s estimate of the amount of each adjustment to the
Purchase Price to be made pursuant to Section 3.3(a). The Parties shall negotiate in good
faith and attempt to agree on such estimated adjustments prior to Closing. In the event any
estimated adjustment amounts are not agreed upon prior to Closing, the estimate of the adjusted
Purchase Price for purposes of Closing shall be calculated based on Seller’s and Buyer’s agreed
upon estimated adjustments and Seller’s good faith estimate of any disputed amounts (and any such
disputes shall be resolved by the Parties in connection with the resolution of the Final Settlement
Statement).

     (c) Within one hundred twenty (120) days after Closing (the “Final Settlement Date”),
Seller shall provide to Buyer, for Buyer’s concurrence, an accounting (the “Final Settlement
Statement”) of the actual amounts of Seller’s Credits and Buyer’s Credits for the adjustments set
out in Section 3.3(a). Buyer shall have the right for thirty (30) days after receipt of
the Final Settlement Statement to audit and take exceptions to such adjustments. The Parties shall
attempt in good faith to expeditiously resolve any disagreements on a best efforts basis. Those
credits agreed upon by Buyer and Seller shall be netted and the final settlement shall be paid as
directed hereinbelow, on final adjustment by the Party owing it (the “Final Settlement”).
If Buyer and Seller are unable to agree with respect to the Final Settlement Statement on or before
November 30, 2010, then, at the written request of either Seller or Buyer, each of Seller and Buyer
shall nominate and commit one of its senior officers to meet at a mutually agreed time and place
not later than ten (10) days after the date of receipt by Buyer or Seller, as applicable, of such
request (the “Request Date,”) to attempt to resolve same. If such senior officers have
been unable to resolve such Accounting Dispute within a period of thirty (30) days after the
Request Date, either Party shall have the right, by written notice (the “Accounting Dispute
Notice”) to the other Party to resolve the dispute (the “Accounting Dispute”) by the
submission thereof to a nationally recognized independent public accounting firm commonly
considered as one of the “Big 4” and reasonably accepted to Seller and Buyer, which firm shall
serve as sole arbitrator (the “Accounting Referee”). Within five (5) days of the selection
of the Accounting Referee, each of Buyer and Seller shall submit to the Accounting Referee in
writing its position with respect to the Accounting Dispute, specifying in reasonable detail the
basis for the Accounting Dispute. The scope of the Accounting Referee’s engagement shall be
limited to the resolution of the items described in the Accounting Dispute Notice given in
accordance with the foregoing. The Accounting Referee shall be instructed by the Parties to
resolve the Accounting Dispute as soon as reasonably practicable in light of the circumstances but
in no event in excess of thirty (30) days following the submission of the Parties’ positions
regarding the Accounting Dispute to the Accounting Referee. The decision and award of the
Accounting Referee shall be binding upon the Parties and final and nonappealable to the maximum
extent permitted by Law, and decision and award thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such court. Payment of any amount
determined to be payable by the Accounting Referee hereunder or by the Parties pursuant to the
agreed upon Final Settlement Statement shall be made in cash (via
bank wire transfer) within five (5) business days after such determination. The fees and
expenses of the Accounting Referee shall be borne and paid one-half by Seller and one-half by
Buyer.

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     3.4 Allocation of Purchase Price.

     To the extent possible, concurrent with the execution of this Agreement, Buyer shall allocate
the unadjusted Purchase Price among each of the Assets, in compliance with the principles of
Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and the
Treasury regulations thereunder. Such allocation of value upon the reasonable approval of the
Seller shall be attached to this Agreement as Exhibit “F” (the “Allocated Value”).
On or before five (5) Business Days after the execution of this Agreement Buyer shall provide to
Seller a revised Exhibit “F” with an Allocated Value for any remaining Assets which were not
addressed at the time of execution of this Agreement and such allocation of value shall upon the
reasonable approval of the Seller shall be included in Exhibit “F.” The Allocated Value
for any Asset equals the portion of the unadjusted Purchase Price allocated to such Asset on
Exhibit “F”, increased or reduced as described in this Article 3. Any adjustments
to the Purchase Price other than the adjustments provided for in Sections 3.3(a)(ii)(D),
3.3(a)(ii)(E), and 3.3(a)(ii)(F) shall be applied on a pro rata basis to the
amounts set forth on Exhibit “F” for all Assets. After all such adjustments are made, any
adjustments to the Purchase Price pursuant to Sections 3.3(a)(ii)(D),
3.3(a)(ii)(E), and 3.3(a)(ii)(F) shall be applied to the amounts set forth in
Exhibit “F” for the particular affected Assets. After Seller and Buyer have agreed on the
Allocated Values for the Assets, Seller will be deemed to have accepted such Allocated Values for
purposes of this Agreement and the transactions contemplated hereby, but otherwise makes no
representation or warranty as to the accuracy of such values. Seller and Buyer agree (i) that the
Allocated Values, as adjusted pursuant to the foregoing, shall be used by Seller and Buyer as the
basis for reporting asset values and other items for purposes of all federal, state, and local Tax
Returns, including without limitation Internal Revenue Service Form 8594 and (ii) that neither they
nor their Affiliates will take positions inconsistent with such Allocated Values in notices to
Governmental Bodies, in audit or other proceedings with respect to Taxes, in notices to
preferential purchase right holders, or in other documents or notices relating to the transactions
contemplated by this Agreement. Buyer and Seller further agree that, on or before the Final
Settlement Date (or the Closing Date, in the event of a Like-Kind Exchange Transaction), they will
mutually agree as to the further allocation of the Allocated Values included in Exhibit “F”
as to the relative portion of those values attributable to leasehold costs and depreciable
equipment. Seller’s allocation of values attributable to leasehold costs and depreciable equipment
will be controlling to the extent that Buyer and Seller are unable to agree on the allocation of
values attributable to leasehold costs and depreciable equipment.

ARTICLE 4. — SELLER’S REPRESENTATIONS AND WARRANTIES

     Seller represents and warrants to Buyer as of the date hereof, and the Closing Date that:

     (a) Seller is a limited partnership duly organized, validly existing, and in good standing
under the Laws of the State of Delaware, and is duly qualified to carry on its business in the
jurisdictions where the assets are located;

     (b) Seller has all requisite power and authority to carry on its business as presently
conducted, to enter into this Agreement and the other documents and agreements contemplated hereby,
and to perform its obligations under this Agreement and the other documents and agreements
contemplated hereby. The execution of this Agreement and the

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consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with, any provision of Seller’s
governing documents or any agreement or instrument to which it is a party or by which it or the
Assets are bound, except any provision contained in agreements customary in the oil and gas
industry relating to (1) the Preferential Purchase Rights; (2) required consents to transfer and
related provisions; (3) maintenance of uniform interest provisions; and (4) any other third-Person
approvals or consents contemplated herein, or any judgment, decree, order, statute, rule, or
regulation applicable to Seller or the Assets;

     (c) This Agreement, and all documents and instruments required hereunder to be executed and
delivered by Seller at Closing, constitute legal, valid and binding obligations of Seller in
accordance with their respective terms, subject to applicable bankruptcy and other similar Laws of
general application with respect to creditors;

     (d) There are no bankruptcy, reorganization or receivership proceedings pending, being
contemplated by, or to the Knowledge of Seller threatened against Seller;

     (e) The execution, delivery and performance of this Agreement, and the transaction
contemplated hereunder have been duly and validly authorized by all requisite authorizing action,
corporate, partnership or otherwise, on the part of Seller;

     (f) Neither Seller nor any affiliate of Seller has incurred any obligation or Liability,
contingent or otherwise, for brokers’ or finders’ fees in connection with this Agreement and the
transaction provided herein for which Buyer shall have any Liability or responsibility;

     (g) Other than as set forth in Exhibit “H,” there are no investigations, demands,
actions, suits, or administrative, legal or arbitration proceedings (including condemnation,
expropriation, or forfeiture proceedings) pending or, to the Knowledge of Seller, threatened
against Seller or any of its Affiliates, or any Asset: (i) seeking to prevent the consummation of
the transactions contemplated hereby, or (ii) which, individually or in the aggregate, would
adversely affect the Assets;

     (h) Exhibit “I” contains a complete and accurate list of the status of any “payout”
balance (net to the interest of Seller), as of the dates shown in Exhibit “I,” for each
Asset that is subject to a reversion or other adjustment at some level of cost recovery or payout;

     (i) The transfer of the Assets to Buyer will not violate at the Closing Date any covenants or
restrictions imposed on Seller by any bank or other financial institution in connection with a
mortgage or other instrument, and will not result in the creation or imposition of a lien on any
portion of the Assets, except as to those mortgages or instruments to be released at Closing as
provided in Section 13.2(g) herein;

     (j) Except as set forth on Schedule 4(j), those Assets operated by Seller or its
Affiliates, and, those Assets operated by third Persons to the Knowledge of Seller, are in material
compliance with all Laws (other than Environmental Laws) pertaining to the Assets, and none of
Seller or any of its Affiliates has received any written notice of any material non-compliance with
any such Law;

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     (k) Except as set forth on Schedule 4(k), with respect to those Assets operated by
Seller or its Affiliates, Seller has, and with respect to those Assets operated by a third Person
to the Knowledge of Seller, such third Person has, all governmental permits necessary for the
operation of such Assets, and Seller is not, and, to the Knowledge of Seller, such third Person is
not, in material default under any permit, license or agreement relating to the operation and
maintenance of the Assets;

     (l) Except as set forth on Exhibit “K” to the Knowledge of Seller, there are no
waivers, consents to assign, approvals or similar rights owned by third Persons and required in
connection with the conveyance of the Assets from Seller to Buyer;

     (m) Except as set forth on Exhibit “K,” to the Knowledge of Seller, there are no
Preferential Purchase Rights to which the Assets are subject;

     (n) No Hydrocarbons produced or to be produced from the Assets are subject to any Hydrocarbon
sales, purchase or exchange contracts other than those identified on Exhibit “D” and, no
third Person has any call upon, option to purchase, take-or-pay obligations, dedication rights or
similar rights with respect to the Hydrocarbons produced or to be produced from Assets, except as
described on Exhibit “D”;

     (o) Except as set forth on Exhibit “J,” there are no Hydrocarbon imbalances with
respect to the Assets;

     (p) All tax returns required to be filed with respect to the Assets have been duly and timely
filed, each such tax return is true, correct and complete in all material respects, and all taxes
owed with respect to the Assets (whether or not shown on a tax return) have been timely paid in
full. There are no liens for taxes on any of the Assets other than Permitted Encumbrances;

     (q) Schedule 4(q) sets forth all authorities for expenditures or other commitments to
incur capital expenditures outstanding during the time period prior to the date of execution of
this Agreement in excess of two hundred fifty thousand dollars ($250,000.00) net to Seller’s
interest, in connection with the ownership or operation of the Assets;

     (r) No swap, hedge, forward sale, or similar type transaction, exists that would require
delivery of Hydrocarbons produced from the Assets after the Effective Time or after
the Closing Date without being able to then or thereafter receive payment for such
Hydrocarbons;

     (s) Except as set forth in Schedule 4(s), there are no Wells that Seller has during
the time period from the Effective Time to the date of execution of this Agreement, received a
written order from any Governmental Entity requiring that such Well be plugged and abandoned;

     (t) Except as reflected on Schedule 4(t), there is no outstanding Claim concerning any
property taxes with respect to the Assets and no assessment, deficiency or adjustment has been
asserted or proposed with respect thereto, and Seller has not waived any statute of

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limitations
with respect to such taxes or agreed to any extension of time with respect to any such tax
assessment or deficiency;

     (u) Schedule 4(u) lists all bonds and letters of credit maintained by Seller or any of
its Affiliates with respect to the Assets that Buyer will be obligated to replace pursuant to
Section 20.23 hereof; and

     (v) Except as provided in Exhibit “P,” there are no mortgages, liens, or other similar
encumbrances of record affecting the Assets other than Permitted Encumbrances;

     (w) If any of the interests comprising the Assets were acquired by Seller under farmout,
exploration, development, participation and other agreements and Seller has not as of the Closing
Date received assignments to such interests (which are described in Schedule 4(w), then,
with respect to such Assets, Seller represents to Buyer (in addition to and not in lieu of other
representations provided in this Agreement) that except for consents which are subject to
Section 4(l) and interests which cannot be assigned due to provisions in applicable
agreements prohibiting assignments of interests which do not meet specified minimum interest
requirements, all conditions to earning assignments of record title or operating rights, as the
case may be, to such Assets have been fully satisfied by Seller. As requested by Buyer from time
to time, Seller agrees to notify each holder of interests in such Assets (which are the subject of
such notice) before Closing that Buyer has purchased the Assets and to direct each such interest
holder to make all such assignments of interest in the Assets to Seller. With respect to any such
assignments received by Seller after Closing, Seller agrees to promptly assign such interests to
Buyer pursuant to the provisions of this Agreement as if such assignments had been made at Closing.
All such property interests, whether assigned to Buyer by Seller or such third Person, shall be
Assets for all purposes of this Agreement.

     (x) Except as set forth in Exhibit “D,” there are no other material contracts or
agreements that obligate the Seller, on or after the Effective Time, to expend more than
$500,000.00 over the remaining term of any such contract or agreement.

ARTICLE 5. — BUYER’S REPRESENTATIONS AND WARRANTIES

     Buyer represents and warrants to Seller as of the date hereof, and the Closing Date that:

     (a) Buyer is a limited liability company duly organized, validly existing, and in good
standing under the Laws of the State of Delaware, and is, or will be as of the Closing Date, duly
qualified to carry on its business in those states where it is required to do so, including Texas;

     (b) Buyer has all requisite power and authority to carry on its business as presently
conducted, to enter into this Agreement and the other documents and agreements contemplated hereby,
and to perform its obligations under this Agreement and the other documents and agreements
contemplated hereby. The execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with, any provision of Buyer’s
articles of incorporation, partnership agreement(s), by-laws or governing documents or any
agreement or instrument to which it is a party or by

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which it is bound, or any judgment, decree,
order, statute, rule, or regulation applicable to Buyer;

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

     (d) This Agreement, and all documents and instruments required hereunder to be executed and
delivered by Buyer at Closing, constitute legal, valid and binding obligations of Buyer in
accordance with their respective terms, subject to applicable bankruptcy and other similar laws of
general application with respect to creditors;

     (e) There are no bankruptcy, reorganization or receivership proceedings pending, being
contemplated by, or to the Knowledge of Buyer threatened against Buyer;

     (f) Neither Buyer nor any affiliate of Buyer has incurred any obligation or Liability,
contingent or otherwise, for brokers’ or finders’ fees in connection with this Agreement and the
transaction provided herein for which Seller shall have any Liability or responsibility;

     (g) Buyer is an experienced and knowledgeable investor and operator in the oil and gas
business. Prior to entering into this Agreement, Buyer was advised by and has relied solely on
Seller’s express representations set forth herein and its own expertise and legal, tax, reservoir
engineering, accounting, and other professional counsel concerning this Agreement, the Assets and
the value thereof;

     (h) Buyer has, or by Closing will have, the financial resources to close the transaction
contemplated by this Agreement, whether by third Person financing or otherwise;

     (i) Buyer acknowledges the existence of the Claims and suits described in Exhibit “H”
and that these Claims and suits are Permitted Encumbrances as set forth in Section 8.1(e).
Buyer further acknowledges that Buyer has, or by Closing will have, legal counsel of its choice
fully review those Claims and suits identified on Exhibit “H”;

     (j) Buyer is acquiring the Assets for its own account for use in its trade or business, and
not with a view toward or for sale associated with any distribution thereof, nor
with any present intention of making a distribution thereof within the meaning of the
Securities Act of 1933, as amended, and applicable state securities Laws;

     (k) Buyer is experienced and knowledgeable in the oil and gas business and aware of the risks
of that business. Buyer represents and warrants that (i) as of the execution date of this
Agreement it has made all such independent investigation, verification, analysis and evaluation of
the Assets as it deems necessary or appropriate to enter into this Agreement, and (ii) it has made
all such reviews and inspections of the Assets as it has deemed necessary or appropriate to execute
and deliver this Agreement (iii) prior to Closing, it will make further independent investigations,
inspections and evaluations of the Assets as it deems necessary or appropriate to consummate the
transactions

- 18 -

 

contemplated hereby and (iv) that in making its decision to enter into this Agreement
and to consummate the transactions contemplated hereby, Buyer has relied solely upon its own
independent investigation, verification, analysis and evaluation; and

     (l) Buyer shall, at Closing, be qualified to own and assume operatorship of federal and state
oil, gas and mineral leases in all jurisdictions where the Assets to be transferred to it are
located, and the consummation of the transactions contemplated in this Agreement will not cause
Buyer to be disqualified as such an owner or operator. To the extent required by the applicable
state and federal government, Buyer shall, at Closing, maintain lease bonds, area-wide bonds or
any other surety bonds as may be required by, and in accordance with, such state or federal
regulations governing the ownership and operation of such leases.

ARTICLE 6. — ACCESS TO INFORMATION AND INSPECTIONS

     6.1 Title Files.

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

     6.2 Other Files.

     Promptly after the execution of this Agreement and until the Closing Date, Seller shall permit
Buyer and its representatives at reasonable times during normal business hours to examine, in
Seller’s offices at their actual location, all production, well, regulatory, engineering and
geological information, accounting information, environmental information, inspections and reports,
and other information, files, books, records, and data pertaining to the Assets as requested by
Buyer, insofar as the same may now be in existence and in the possession of Seller,
excepting economic evaluations and Seller’s proprietary interpretations
of same, reserve reports and any such information that is subject to confidentiality
agreements or to the attorney/client and work product privileges (provided Seller shall use its
reasonable efforts to obtain waivers of any confidentiality restrictions). The exception as to the
attorney/client and work product privilege shall not apply to litigation for which Seller will be
responsible for pursuant to Section 17.6 below. No warranty of any kind is made by Seller
as to the information so supplied, and Buyer agrees that any conclusions drawn therefrom are the
result of its own independent review and judgment.

     6.3 Copies.

     Buyer will be allowed to make select copies of certain of the files described in Article
6 at Buyer’s sole cost and expense; provided that, in the sole judgment of Seller, (i)

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such
copying is of a limited nature and, (ii) such copying does not unduly interfere with the conduct of
Seller’s operation or business.

     6.4 Confidentiality Agreement.

     All information made available to Buyer pursuant to Article 6 shall be maintained
confidential by Buyer until Closing. The Confidentiality Agreement executed by Seller and Buyer,
dated March 19, 2010 (the “Confidentiality Agreement”), shall remain in force and effect
until Closing, at which time it shall terminate, except as to any Closing Deferred Properties, any
Assets which were not otherwise transferred at Closing, or as such information may be related to
other properties not acquired by Buyer.

     6.5 Inspections.

     Promptly after the execution of this Agreement and until Closing, Seller, subject to any
necessary third-Person operator approval (which Seller shall use its reasonable efforts to obtain),
shall permit Buyer and its representatives at reasonable times and at their sole risk, cost and
expense, to conduct reasonable inspections of the Assets for all purposes, including any
Environmental Defects.

     6.6 No Warranty or Representation on Seller’s Information.

     EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE ACCURACY, COMPLETENESS, OR MATERIALITY OF THE INFORMATION, RECORDS,
AND DATA NOW, HERETOFORE, OR HEREAFTER MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS OR
THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, QUALITY OR QUANTITY
OF HYDROCARBON RESERVES, IF ANY, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS
BALANCING INFORMATION, ALLOWABLES OR OTHER REGULATORY MATTERS, POTENTIAL FOR PRODUCTION OF
HYDROCARBONS FROM THE ASSETS, OR ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY OTHER MATERIAL
FURNISHED TO BUYER BY SELLER. ANY AND ALL SUCH DATA, INFORMATION AND
MATERIAL FURNISHED BY SELLER IS PROVIDED AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR USE OF
SAME IS AT BUYER’S SOLE RISK.

     6.7 Inspection Indemnity. If Buyer exercises rights of access under this Article 6 or otherwise, or conducts
examinations or inspections under this Section or otherwise, then (a) such access, examination and
inspection shall be at Buyer’s sole risk, cost and expense and Buyer waives and releases all claims
against Seller (and its Affiliates and the respective directors, officers, employees, attorneys,
contractors, agents and successors and assigns) arising in any way therefrom or in any way
connected therewith or arising in connection with the conduct of its directors, officers,
employees, attorneys, contractors and agents in connection therewith and (b) Buyer shall indemnify,
defend and hold harmless the Seller from any and all claims, actions, causes of action liabilities,
damages, losses, costs or

- 20 -

 

expenses (including, without limitation, court costs and attorneys fees),
or liens or encumbrances for labor or materials, arising out of or in any way connected with such
matters. THE FOREGOING RELEASE AND INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH CLAIMS,
ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF (i)
NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SIMPLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE
NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF ANY INDEMNIFIED
PARTY, OR (ii) STRICT LIABILITY.

     6.8 Amendments to Exhibits.

     Seller and Buyer acknowledge that Buyer’s inspection of Seller’s records and files, or further
review by Seller, prior to Closing may indicate that some or all of the Exhibits attached to this
Agreement were not complete or entirely correct at the time of execution of this Agreement.
Accordingly, Seller and Buyer agree to revise and amend the Exhibits, as needed, so that they will
be complete and accurate at Closing and shall be given effect as if made on the Closing Date prior
to Closing, in the event Closing occurs. It is understood, however, that such revisions or
amendments shall not otherwise be taken into account in giving effect to (and shall not diminish or
affect) any representations, rights, options, conditions, covenants and obligations of the Parties
contained in this Agreement as originally executed unless otherwise mutually agreed by the Parties
in writing.

ARTICLE 7. — ENVIRONMENTAL MATTERS AND ADJUSTMENTS

     7.1 Environmental Defects Notice Upon execution of and pursuant to the terms of this Agreement, Buyer (and Buyer’s
environmental consultants) shall have the right, at reasonable times during normal business hours,
to conduct its investigation into the status of the physical and environmental condition of the
Assets and their compliance with applicable Environmental Laws. If, in the course of conducting
such investigation, Buyer discovers that any Asset is subject to a material Environmental Defect,
Buyer may raise such Environmental Defect in the manner set forth hereafter. For purposes hereof,
the term “material” shall mean that the Buyer’s good faith estimate, supported by documentation, of
the cost of remediating any single Environmental Defect exceeds seventy-five thousand dollars
($75,000.00), the Parties agreeing that such amount will be a per Environmental
Defect deductible rather than a threshold. No later than 5:00 p.m. Central Standard Time or five
(5) business days prior to the Closing Date (the “Environmental Defect Notice Date”), Buyer
shall notify Seller in writing specifying such Environmental Defects, if any, the Assets affected
thereby, and Buyer’s good faith estimate of the costs of remediating such defects, together with
supporting documentation. Seller may, but shall be under no obligation to, correct at its own cost
and expense such defects on or before the Closing Date, in which case there shall be no reduction
to the Purchase Price therefor. Prior to Closing, Buyer and Seller shall treat all information
regarding any environmental conditions as confidential, whether material or not, and shall not make
any contact with any Governmental Entity or third Person (other than Buyer’s representatives,
consultants and lenders) regarding same without the written consent of the other Party unless
required by Law.

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     7.2 Waiver of Environmental Defects. If Buyer fails to notify Seller prior to or on the Environmental Defect Notice Date of any
Environmental Defects, all such defects, whether known or unknown, will be deemed waived, except as
otherwise provided in Seller’s Indemnity as set forth in Section 17.3, (which waived
defects shall be deemed Permitted Encumbrances), the Parties shall proceed with Closing, Seller
shall be under no obligation to correct the defects, and Buyer shall assume the risks, Liability
and obligations associated with such defects.

     7.3 Remedies for Environmental Defects. In the event any Environmental Defect, for which notice has been timely given as provided
hereinabove, remains uncured as of Closing, Seller, at its sole option, shall, (i) agree prior to
Closing to cure or remediate, at Seller’s expense, such Environmental Defect as soon as reasonably
possible after Closing and without any reduction to the Purchase Price in a manner acceptable to
both Parties, or (ii) reduce the Purchase Price by the amount of the Defect Value as determined
pursuant to Section 8.4, subject to application of the seventy five-thousand dollars
($75,000.00) deductible described in Section 7.1 and the Aggregate Defect Basket described
in Section 7.4.

     7.4 Aggregate Defect Basket. The Parties agree that adjustments to the Purchase Price under Article 7 and Article
8 shall only occur to the extent that the aggregate Defect Value for the Environmental Defects
exceeds two percent (2%) of the Purchase Price, or the aggregate Defect Value for the Title Defects
exceeds one percent (1%) of the Purchase Price (the “Aggregate Defect Baskets”), after
taking the applicable materiality deductibles into account. For the avoidance of doubt and by way
of example only, if there is a single Environmental Defect of Twenty Million and No/100 dollars
($20,000,000.00) and a single Title Defect of Ten Million and No/100 dollars ($10,000,000.00), the
total adjustment would be Two Million Seven Hundred Thousand and No/100 dollars ($2,700,000.00)
[being $1,825,000.00 for the Environmental Defect, plus $875,000.00 for the Title Defect].

     7.5 Purchase Price Adjustment for Environmental Defect. In the event any adjustment to the Purchase Price is made due to an Environmental Defect raised
by Buyer, the Parties shall proceed with Closing, Seller shall be under no obligation to correct
the Environmental Defect, and the Environmental Defect shall become an Assumed Obligation of Buyer.

ARTICLE 8. — TITLE DEFECTS AND ADJUSTMENTS

     8.1 Seller’s Title.

     (a) Except for the special warranty of title referenced in Section 8.1(b) and without
limiting Buyer’s right to adjust the Purchase Price by operation of this Article 8, Seller
makes no warranty or representation, express, implied, statutory or otherwise, with respect to
Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees that Buyer’s sole
remedy for any defect of title, including any Title Defect, with respect to any of the Assets (i)
before Closing, shall be Buyer’s right to adjust the Purchase Price to the extent provided in this
Article 8 and (ii) after Closing, shall be pursuant to the special warranty of title
referenced in Section 8.1(b).

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     (b) The conveyance to be delivered by Seller to Buyer shall be substantially in the form of
Exhibit G hereto (the “Conveyance”). THE CONVEYANCE, SUBJECT TO THE PERMITTED
ENCUMBRANCES, SHALL BE MADE WITHOUT WARRANTY OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND WITHOUT RECOURSE, EVEN AS TO THE RETURN OF THE PURCHASE PRICE OR OTHER
CONSIDERATION, EXCEPT THAT, SUBJECT TO THE PERMITTED ENCUMBRANCES, SELLER SHALL WARRANT TITLE TO
THE ASSETS AGAINST ALL CLAIMS, LIENS, BURDENS AND ENCUMBRANCES ARISING BY, THROUGH OR UNDER SELLER,
BUT NOT OTHERWISE AND NOT WITH RESPECT TO ANY IMPAIRMENT OR FAILURE OF TITLE RELATED TO ANY LACK OF
PRODUCTION IN PAYING QUANTITIES. THE CONVEYANCES SHALL BE MADE WITH FULL SUBSTITUTION AND
SUBROGATION TO BUYER IN AND TO ALL COVENANTS AND WARRANTIES BY OTHERS HERETOFORE GIVEN OR MADE TO
SELLER WITH RESPECT TO THE ASSETS TO THE EXTENT SUCH MAY BE CONVEYED BY SELLER.

     (c) Buyer shall not be entitled to protection under Seller’s special warranty of title in the
Conveyance against any Title Defect reported under this Article 8 and/or any Title Defect
disclosed to or known by Buyer prior to the Title Claim Date.

     (d) Notwithstanding anything herein provided to the contrary, if a Title Defect under this
Article 8 results from any matter which could also result in the breach of any
representation or warranty of Seller set forth in Article 4, then Buyer shall only be
entitled to assert such matter (i) before Closing, as a Title Defect to the extent permitted by
this Article 8, or (ii) after Closing, as a breach of Seller’s special warranty of title
contained in the Conveyance to the extent permitted by this Section 8.1, and shall be
precluded from also asserting such matter as the basis of the breach of any such representation or
warranty or purposes hereof, the terms set forth below shall have the meanings assigned thereto.

     (e) “Defensible Title” subject to and except for the Permitted Encumbrances, shall mean:

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

          (ii) Such title held by Seller that obligates Seller to bear a percentage of the costs and
expenses for the maintenance and development of, and operations relating to,

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(i) any Unit or Well
identified in Exhibit “B” not greater than the “working interest” shown in Exhibit
“B” for such Unit or Well without increase throughout the productive life of such Unit or Well,
except as stated in Exhibit “B” and except increases resulting from contribution
requirements with respect to non-consenting co-owners under applicable operating agreements and
increases that are accompanied by at least a proportionate increase in Seller’s Net Revenue
Interest; and

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

          (iv) As to personal property included in the Assets, Seller’s ownership thereof is free and
clear of any liens, claims or encumbrances of any kind or character; and

          (v) As to all other Assets, Seller’s ownership interest (a) is free and clear of any liens,
claims or encumbrances of any kind or character; and (b) Seller is not in default under a material
provision of any other contract or agreement affecting such Assets..

     (f) “Title Defect” shall mean (i) any matter which causes Seller to have less than
Defensible Title to any of the Assets, or (ii) any matter that causes one or more of the following
statements to be untrue, except for Permitted Encumbrances:

          (i) Seller has not received written notice from any Governmental Entity or any other Person
(including employees) claiming any violation of any Law with respect to the Assets;

          (ii) Seller, or the Operator of an Asset, has complied in all material respects with the
provisions and requirements of all orders, regulations and rules issued or promulgated by
Governmental Entities having jurisdiction with respect to the Assets and has filed for and obtained
all governmental certificates, permits and other authorizations necessary for Seller’s current
operation of the Assets other than permits, consents and authorizations required for the sale and
transfer of the Assets to Buyer;

          (iii) Seller has not materially defaulted or materially violated any agreement to which Seller
is a party or any obligation to which Seller is bound affecting or pertaining to the Assets other
than as disclosed hereunder or on any exhibit attached hereto;

          (iv) The Leases and all material surface leases, easements and similar surface use agreements
attributable to or affecting the Assets are in full force and effect; and

          (v) All taxes, rentals, royalties, operating costs and expenses, and other costs and expenses
related to the Assets which are due from or are the responsibility of Seller have been paid.

     Notwithstanding the foregoing, imbalances with respect to oil or natural gas shall not be
deemed to be Title Defects and shall be governed by Article 18, hereof.

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

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

     (1) defects in the early chain of title consisting of failure to recite marital status
or the omission of succession or heirship proceedings;

     (2) defects or irregularities arising out of uncancelled mortgages, judgments or
liens, the inscriptions of which, on their face, have expired as a matter of Law prior to
the Effective Time, or prior unreleased oil and gas leases which, on their face, expired
more than ten (10) years prior to the Effective Time and have not been maintained in force
and effect by production or operations pursuant to the terms of such leases;

     (3) tax liens and operator’s liens for amounts not yet due and payable, or those that
are being contested in good faith by Seller in the ordinary course of business;

     (4) to the extent any of the following do not materially diminish the value of, or
impair the conduct of operations on, any of the Assets and do not decrease the net revenue
interest of Seller below that set forth on Exhibit “B” or increase the working
interest of Seller above that set forth on Exhibit “B”: (i) easements,
rights-of-way, permits, surface leases and other rights in respect of surface operations,
pipelines, grazing, hunting, fishing, logging, canals, ditches, lakes, reservoirs or the
like, (ii) easements for streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other similar rights-of-way, on, over or in respect of property owned
or leased by Seller or over which Seller owns rights of way, easements, permits or
licenses, and (iii) the terms and conditions of all leases, agreements, orders, instruments
and documents pertaining to the Assets;

     (5) all lessors’ royalties, overriding royalties, net profits interests, carried
interest, production payments, reversionary interests and other burdens on or deductions
from the proceeds of production if the net cumulative effect of such
burdens or deductions does not reduce the net revenue interest of Seller in any Assets
affected thereby to the extent that Seller will not be able to deliver to Buyer at the
Effective Time, a net revenue interest of at least that reflected on Exhibit “B” of
all Hydrocarbons produced, saved and marketed from or attributable to such Well, or impair
the right to receive revenues attributable thereto;

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

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

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     (8) defects or irregularities of title arising out of events or transactions
which have been barred by statutes of limitations or by adverse possession;

     (9) defects or irregularities in title which for a period of seven (7) years or more
has not delayed or prevented such Seller (or such Seller’s predecessor, if owned by Seller
less than seven (7) years) from receiving its Net Revenue Interest share of the proceeds of
production from any of the Assets;

     (10) the application of maintenance of uniform interest provisions contained with
joint operating or similar agreements;

     (11) any encumbrance or other matter having an adverse effect on the value of the
Assets of seventy-five thousand dollars ($75,000) or less, the Parties agreeing that such
amount will be a per Title Defect deductible rather than a threshold;

     (12) rights reserved to or vested in any Governmental Entity to control or regulate
any of the Assets in any manner, and all applicable Laws;

     (13) any encumbrance or other matter (whether or not constituting a Title Defect)
expressly waived in writing by Buyer or listed on Exhibit “P”;

     (14) the assignments earned, acquired or otherwise due to Seller by a third Person,
but not yet received and/or filed of record, as listed on Exhibit “K”;

     (15) the assignments earned, acquired or otherwise owed by Seller to a third Person,
but not yet delivered and/or filed of record, as listed on Exhibit “O,” to the
extent same do not reduce the net revenue interest of Seller in any Asset below that
reflected on Exhibit “F”; and

     (16) the litigation and threatened litigation, and any Claims thereunder, as listed on
Exhibit “H.”

     8.2 Notice of Title Defects.

     No later than 5:00 p.m. Central Standard Time five (5) business days prior to the Closing Date
(the “Title Defect Notice Date”), Buyer may provide Seller written notice of any Title
Defect along with a description of those matters which, in Buyer’s reasonable opinion, constitute
Title Defects and setting forth in detail Buyer’s calculation of the value for each Title Defect.
Seller may elect, at its sole cost and expense, but without obligation, to cure all or any portion
of such Title Defects prior to Closing, in a manner acceptable to both Parties, in which case no
reduction in the Purchase Price shall be made. Subject to Buyer’s remedies for a breach of
Seller’s obligations under Section 11.1, or a breach of the special warranty of title set
forth in the Conveyances, any defect or deficiency concerning Seller’s title to the Assets
(including but not limited to Title Defects) not asserted by Buyer on or prior to the Title Defect
Notice Date shall be deemed waived by Buyer (which waived defects shall be deemed Permitted
Encumbrances), the Parties shall proceed with Closing,
Seller shall be under no obligation to correct such defects, and Buyer shall assume the risks,
Liability and obligations associated with such defects.

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     8.3 Title Defect Adjustment.

     (a) In the event any Title Defect, for which notice has been timely given as provided
hereinabove, remains uncured as of Closing, Seller shall have the opportunity to cure, until the
Final Settlement Date (“Cure Period”), such Title Defect. In the alternative, (i) Seller
may elect to reduce the Purchase Price by an amount equal to the Defect Value as determined
pursuant to Section 8.4, subject to application of the seventy-five thousand dollars
($75,000.00) deductible and the Aggregate Defect Basket described in Section 7.4, or (ii)
Seller and Buyer can enter into a mutually agreeable indemnity for such Title Defect. Should Seller
elect either alternative “(i)” (price reduction) or Buyer and Seller elect “(ii)” (mutually
agreeable indemnity) in this Section 8.3(a), those Assets affected by the Title Defect
shall be transferred to Buyer at Closing.

     (b) If Seller elects to attempt to cure a Title Defect after Closing, Closing with respect to
the portion of the Assets affected by such Title Defect will be deferred (the “Closing Deferred
Property”). Closing with respect to all other Assets will proceed as provided in this
Agreement, but the Purchase Price delivered to Seller at such initial Closing shall be reduced by
the Allocated Value of the Assets for all Closing Deferred Properties. If Seller cures any Title
Defect within the Cure Period, then the Closing with respect to the Closing Deferred Property for
which such Title Defect has been cured will proceed and will be finalized within seven (7) days
following the end of the Cure Period. If Seller fails to cure any Title Defect prior to the
expiration of the Cure Period, Buyer shall have the right to elect by written notice to Seller,
which notice shall be delivered within seven (7) days after receipt by Buyer of Notice from Seller
of such failure to cure any such Title Defect, to waive all of the Title Defects applicable to any
Closing Deferred Property (which waived Title Defects shall be deemed Permitted Encumbrances) and
proceed to Closing on such Closing Deferred Property (“Waiver Notice Date”) . If Buyer
does not elect to waive an existing Title Defect, the Parties shall either (i) enter into a
mutually agreeable indemnity for such Title Defect, or (ii) negotiate a mutually agreeable value
for the Closing Deferred Property and proceed to Closing on such Closing Deferred Property. In the
event the Parties are unable to mutually agree to either “(i)” (mutually agreeable indemnity) or
“(ii)” (mutually agreeable value) within thirty (30) days after the Waiver Notice Date, then the
Parties shall refer the matter to arbitration and the value of the Closing Deferred Property shall
be exclusively and finally resolved pursuant to this Section 8.3(b). There shall be a
single arbitrator to determine the value of the Closing Deferred Property who shall be an
evaluation petroleum engineer with at least ten (10) years experience in oil and gas property
valuation in the regional area in which the Closing Deferred Property is located, which shall be
selected by mutual agreement of Buyer and Seller within fifteen (15) Business Days after the date
in which the matter has been referred to arbitration, and absent such agreement, by the Dallas
office of the American Arbitration Association (the “Value Arbitrator”). The Value
Arbitrator shall not have been employed by or performed services for either the Seller or Buyer for
a period five (5) years prior to the Closing Date. The arbitration proceeding shall be held in
Dallas, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, to the extent such rules do not conflict with the terms of this
Section.
The Value Arbitrator’s determination shall be made within fifteen (15) Business Days after
submission of the matters in dispute and shall be final and binding upon both parties, without
right of appeal. In making his determination as to the value of the Closing Deferred Property,

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the Value Arbitrator shall (i) be bound by the rules set forth in this Section 8.3(b), (ii)
utilize the guidelines as set forth in Section 8.4(a), (b), and (c), and (iii) utilize the
Allocated Value of the Closing Deferred Property. Additionally the Value Arbitrator may consider
such other matters as in the opinion of the Value Arbitrator are necessary or helpful to make a
proper determination with respect to the value of the Closing Deferred Property. Furthermore, the
Value Arbitrator may consult with and engage disinterested third parties to advise the arbitrator.
The Value Arbitrator shall act as an expert for the limited purpose of determining the value of the
Closing Deferred Property as submitted by either party and may not award damages, interest or
penalties to either party with respect to any matter and any such award shall not be in excess of
the Allocated Value for the Closing Deferred Property. Seller and Buyer shall each bear its own
legal fees and other costs of presenting its case. Each party shall bear one-half of the costs and
expenses of the Value Arbitrator, including any costs incurred by the Value Arbitrator that are
attributable to such third party consultation. Within ten (10) days after the Value Arbitrator
delivers written notice to Buyer and Seller of his award with respect to the specific Closing
Deferred Property, the Parties shall and proceed to Closing on such Closing Deferred Property
utilizing the value determined by the Value Arbitrator.

     (c) In the event any adjustment to the Purchase Price is made due to a Title Defect raised by
Buyer, the Parties shall proceed with Closing, Seller shall be under no obligation to correct such
defect, and such defect shall become an Assumed Obligation of Buyer.

     8.4 Environmental Defect and Title Defect Values.

     Upon timely delivery of notice of an Environmental Defect and/or a Title Defect, Buyer and
Seller shall in good faith use their reasonable efforts to agree on the validity and value of the
claim for the purpose of making any adjustment to the Purchase Price based on the provisions herein
(“Defect Value”). Notwithstanding anything to the contrary set forth herein, the Defect
Value for any Title Defect and any related adjustment to the Purchase Price shall in no event
exceed the Allocated Value of the affected Asset. In determining the Defect Value of an
Environmental Defect or a Title Defect, it is the intent of the Parties to include, to the extent
possible, only that portion of the Assets or other Assets, whether an undivided interest, separate
interest or otherwise, adversely affected by the defect. The following guidelines shall be
followed by the Parties in establishing the Defect Value of any Environmental Defect or Title
Defect for the purpose of adjusting the Purchase Price if the validity of the claim is agreed to by
the Parties and proper notice has been timely given, subject to (i) application of the appropriate
deductibles as set forth in this Agreement for Environmental Defects and Title Defects, and (ii)
application of the Aggregate Defect Basket requirement as set forth in Section 7.4 for
Environmental Defects and Title Defects:

     (a) If the Title Defect is based on a difference in net revenue interest or expense interest
from that shown on Exhibit “B” for the affected Assets, then the Purchase Price shall be
proportionately reduced.

     (b) If the Environmental Defect or Title Defect is liquidated in amount (for example, but not
limited to, a lien, encumbrance, charge or penalty), then the adjustment to

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the Purchase Price shall be the sum necessary to be paid to the obligee to remove the defect from the Asset.

     (c) If the Environmental Defect or Title Defect represents an obligation or burden upon the
affected Assets for which the economic detriment is not liquidated but can be estimated with
reasonable certainty as agreed to by the Parties, the adjustment to the Purchase Price shall be the
sum necessary to compensate Buyer at Closing for the adverse economic effect which the
Environmental Defect or Title Defect will have on the affected Assets, taking into account all
relevant factors, including, but not limited to, the following:

	 	(1)	 	the Allocated Value of the Assets affected by a Title Defect;
	 
	 	(2)	 	the economic assumptions the Buyer utilized in the
determination of the Allocated Value of the Asset, including prices,
forecasts, production, reserves, discount factors or other relevant
information; and
	 
	 	(3)	 	cost to remediate an Environmental Defect.

     (a) If the Defect Value cannot be determined using the above guidelines, and if the Parties
cannot otherwise agree on the amount of an adjustment to the Purchase Price, or if the validity of
the claim as to an Environmental Defect or Title Defect cannot be agreed upon, then the Closing
shall include the Asset(s) affected thereby. If the validity of the claim is in dispute, there
shall be no adjustment to the Purchase Price at Closing. If the Defect Value of the claim is in
dispute, the Purchase Price at Closing shall be adjusted by Seller’s good faith estimate of the
Defect Value. In either case the Buyer shall have the right exercisable within thirty (30) days
after the Closing Date to refer the disputed matter to arbitration and such disputed matter shall
be exclusively and finally resolved pursuant to this Section 8.4. There shall be a single
arbitrator, (i) for Title matters shall be a title attorney, in good standing, with at least ten
(10) years experience in oil and gas titles involving properties in the regional area in which the
Properties are located or (ii) for Environmental matters shall be an environmental attorney, in
good standing, with at least ten (10) years experience in environmental matters involving oil and
gas properties in the regional area in which the Properties are located, which shall be selected by
mutual agreement of Buyer and Seller within fifteen (15) Business Days after the end of the Cure
Period, and absent such agreement, by the Dallas office of the American Arbitration Association
(the “Defect Arbitrator”). The Defect Arbitrator shall not have been employed by or performed
services to either the Seller or Buyer for a period five (5) years prior to the Closing Date. The
arbitration proceeding shall be held in Dallas, Texas and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do
not conflict with the terms of this Section. The Defect Arbitrator’s determination shall be made
within fifteen (15) Business Days after submission of the matters in dispute and shall be final and
binding upon both parties, without right of appeal. In making his determination, the Title
Arbitrator shall be bound by the rules set forth in this Section 8.4 and may consider such
other matters as in the opinion of the Defect Arbitrator are
necessary or helpful to make a proper determination. Additionally, the Defect Arbitrator may
consult with and engage disinterested third parties to advise the arbitrator, including without

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limitation petroleum or environmental engineers. The Defect Arbitrator shall act as an expert for
the limited purpose of determining the specific disputed Environmental or Title Defect and
Environmental or Title Defect Value submitted by either party and may not award damages, interest
or penalties to either party with respect to any matter. Seller and Buyer shall each bear its own
legal fees and other costs of presenting its case. Each party shall bear one-half of the costs and
expenses of the Defect Arbitrator, including any costs incurred by the Defect Arbitrator that are
attributable to such third party consultation. Within ten (10) days after the Defect Arbitrator
delivers written notice to Buyer and Seller of his award with respect to the specific disputed
Environmental or Title Defect and Environmental or Title Defect Value, (i) Buyer shall pay to
Seller the amount, if any, so awarded by the Defect Arbitrator to Seller or (ii) Seller shall pay
to Buyer the amount, if any, so awarded by the Defect Arbitrator to Buyer.

     8.5 Government Approvals Respecting Assets.

     (a) Federal and State Approvals. Buyer, within thirty (30) days after Closing, shall file for
approval with the applicable government agencies all assignment documents and other state and
federal transfer documents required to effectuate the transfer of the Assets. Buyer further agrees
promptly after Closing to take all other actions reasonably required of it by federal or state
agencies having jurisdiction to obtain all requisite regulatory approvals with respect to this
transaction, and to use its reasonable commercial efforts to obtain the approval by such federal or
state agencies, as applicable, of Seller’s assignment documents requiring federal or state approval
in order for Buyer to be recognized by the federal or state agencies as the owner of the Assets.
Buyer shall provide Seller with the resignation and designation of operator instruments, and
approved copies of the assignment documents and other state and federal transfer documents, as soon
as they are available.

     (b) Title Pending Governmental Approvals. Until all of the governmental approvals provided
for in Section 8.5(a) have been obtained, the following shall occur with respect to the
affected portion of the Assets:

          (i) Seller shall continue to hold record title to the affected Leases and other affected
portion of the Assets as nominee for Buyer;

          (ii) Buyer shall be responsible for all assumed obligations with respect to the affected
Leases and other affected portion of the Assets as if Buyer was the record owner of such Leases and
other portion of the Assets as of the Effective Date; and

          (iii) Seller shall act as Buyer’s nominee but shall be authorized to act only upon and in
accordance with Buyer’s instructions, and Seller shall have no authority, responsibility or
discretion to perform any tasks or functions with respect to the affected Leases and other affected
portion of the Assets other than those which are purely administrative or ministerial in nature,
unless otherwise specifically requested and authorized by Buyer in writing.

     (c) Denial of Required Governmental Approvals. If the federal or state agency fails to do so
within twenty-four (24) months after the Closing, Seller may continue to hold

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record title to the affected Leases and other affected Assets as Buyer’s nominee or at Seller’s option it may terminate
this Agreement and all its obligations hereunder as to the affected Leases and other affected
portion of the Assets by giving sixty (60) days written notice to Buyer. Upon such termination:
(i) this Agreement shall be null and void and terminated as to the affected Leases and other
affected portion of the Assets, (ii) Buyer shall immediately reassign and return to Seller the
assignment documents and any and all other documents, materials and data previously delivered to
Buyer with respect to the affected Leases and other affected portion of the Assets, and (iii)
Seller shall pay to Buyer the Allocated Value of the affected Assets, without interest, less the
proceeds of Hydrocarbon production received by Buyer (which shall be retained by Buyer as its sole
property) net of all expenses, overhead, royalties, and costs of operations (including plugging and
abandonment expenses but excluding mortgage interest and any burdens, liens, or encumbrances
created by Buyer which must be released prior to this payment) attributable to the affected Leases
or other affected portion of the Assets from the Effective Date forward. In no event, however,
shall Seller ever be required to reimburse Buyer for any expenditures associated with workovers,
recompletions, sidetracks, or the drilling, completion or plugging and abandonment of wells drilled
or work performed by Seller.

ARTICLE 9. — OPTION TO TERMINATE

     9.1 Option to Terminate for Defects. If the aggregate of the Defect Values attributable to all
Environmental Defects and Title Defects determined pursuant to Articles 7 and 8 and the
provisions of Section 9.3 below, shall exceed twenty percent (20%) of the Purchase Price
after the application of the Aggregate Defect Basket set forth in Section 7.4, then either
Buyer or Seller may, at its sole option, terminate this Agreement without any further obligation by
giving written notice of termination to the other Party at any time prior to Closing. In the event
of such termination, Seller shall return the Performance Deposit to Buyer, together with all
accrued interest, within five (5) days of receipt of the notice of termination and neither Party
shall have any further obligation or Liability hereunder.

     9.2
Option to Terminate for Defects and Other Matters. If, prior to Closing the sum of (a)
the aggregate Defect Values attributable to all Environmental Defects and Title Defects determined
pursuant to Articles 7 and 8 and the provisions of Section 9.3 below, after
application of the Aggregate Defect Basket set forth in Section 7.4, (b) the Allocated
Values of all Assets excluded from the transactions contemplated hereby because of the exercise of
Preferential Purchase Rights or because the time period for exercising such Preferential Purchase
Rights has not expired, (c) the Allocated Values of all Third Party Interests, and (d) the
Allocated Values of all Assets affected by Casualty Losses excluded from the transactions
contemplated hereby exceeds thirty (30%) of the Purchase Price, then either Buyer or Seller may
terminate this Agreement without any further obligation by giving written notice of termination to
the other Party at any time prior to Closing. In the event of such termination, Seller shall
return the Performance Deposit to Buyer, together with all accrued interest, within five (5) days
of receipt of the notice of termination and neither Party shall have any further obligation or
Liability hereunder.

     9.3 Dispute as to Defect Values. In the event of a dispute between Seller and Buyer as to the
Defect Value for an Environmental Defect or Title Defect, the Parties shall

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negotiate in good faith as to estimates of such Defect Value for purposes of this Article 9 only. Should the
Parties be unable to agree on a Defect Value, the Seller’s good faith estimate of the Defect Value
shall be utilized for purposes of this Article 9 only.

ARTICLE 10. — PREFERENTIAL PURCHASE RIGHTS AND CONSENTS OF THIRD PARTIES

     10.1 Actions and Consents.

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

     (b) Seller shall notify all holders of (i) Preferential Purchase Rights relating to the
Assets, (ii) rights of consent to the assignment, or (iii) rights of approval to the assignment of
the Assets, and of such terms and conditions of this Agreement to which the holders of such rights
are entitled. Seller shall promptly notify Buyer if any Preferential Purchase Rights are
exercised, any consents or approvals denied, or if the requisite period has elapsed without said
rights having been exercised or consents or approvals having been received. If prior to Closing,
any such Preferential Purchase Rights are timely and properly exercised, the interest or part
thereof so affected shall be eliminated from the Assets and the Purchase Price reduced by the
portion of the Purchase Price allocated to such interest or part thereof as provided in Exhibit
“F.” The Parties agree that the Allocated Values for properties subject to Preferential
Purchase Rights shall be the sole responsibility of Buyer, and Buyer agrees to indemnify and hold
Seller harmless from all Liability and Claims related to the reasonableness of such values.

     (c) With respect to any portion of the Assets for which a Preferential Purchase Right has not
been asserted or waived prior to Closing or a consent or other approval to assign has not been
granted and for which the time for election to exercise such Preferential Purchase Right or to
grant such consent or approval has not expired (and Buyer is unwilling to assume the Liability
associated with the failure to obtain such consent or approval), Closing with respect to the
portion of the Assets subject to such outstanding obligations will be deferred (the “Third
Party Interests”). Subject to Section 9.2, Closing with respect to all other Assets
will proceed as provided in this Agreement, but the Purchase Price delivered to Seller at Closing
will be reduced by the Allocated Value of the Third Party Interests. In the event that within
ninety (90) days after Closing any such Preferential Purchase Right is waived or consent or
approval is obtained or the time for election to purchase or to deliver a consent or approval
passes (such that under the applicable documents, Seller may sell the affected Third Party Interest
to Buyer), then subject to the terms and conditions hereof (including Article 12) the
Closing with respect to the applicable portion of the Third Party Interests will proceed promptly.
If such waivers, consents or approvals as are necessary are not received by Seller within the
applicable ninety (90) day period, Seller shall retain such
Third Party Interests and the Parties shall have no further Liability or obligation to each
other with respect thereto.

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     (d) If any additional Preferential Purchase Rights are discovered after Closing, or if a
Preferential Purchase Rights holder alleges improper notice, then Buyer agrees to cooperate with
Seller in giving effect to any such valid Preferential Purchase Rights. In the event any such
valid Preferential Purchase Rights are validly exercised after Closing, Buyer’s sole remedy against
Seller shall be return by Seller to Buyer of that portion of the Purchase Price allocated under
Exhibit “F” to the portion of the Assets on which such rights are exercised and lost by
Buyer to such third Person

ARTICLE 11. — COVENANTS

     11.1 Covenants of Seller Pending Closing.

     (a) From and after the date of execution of this Agreement and until the Closing, and subject
to Section 11.2 and the constraints of applicable operating and other agreements, Seller
shall operate, manage, and administer the Assets as a reasonable and prudent operator and in a good
and workmanlike manner consistent with its past practices, and shall carry on its business with
respect to the Assets in substantially the same manner as before execution of this Agreement.
Prior to Closing, Seller shall use all reasonable efforts to preserve in full force and effect all
Leases, operating agreements, easements, rights-of-way, surface leases, permits, licenses, and
agreements which relate to the Assets, and shall perform all obligations of Seller in or under all
such agreements relating to the Assets; provided, however, Buyer’s sole remedy for Seller’s breach
of its obligations under this Section 11.1(a) shall be limited to the amount of that
portion of the Purchase Price allocated in Exhibit “F” to that portion of the Assets
affected by such breach. Seller shall, except for emergency action taken in the face of serious
risk to life, property, or the environment (1) submit to Buyer, for prior written approval, all
requests for operating or capital expenditures and all proposed contracts and agreements relating
to the Assets which involve individual commitments of more than one hundred fifty thousand dollars
($150,000.00) to the 8/8ths interest; (2) consult with, inform, and advise Buyer regarding all
material matters concerning the operation, management, and administration of the Assets; (3) obtain
Buyer’s written approval prior to voting under any operating, unit, joint venture, partnership or
similar agreement relating to the Assets; and (4) not approve or elect to go nonconsent as to any
proposed well located on the Assets or plug and abandon or agree to plug and abandon any Well
without Buyer’s prior written approval. On any matter requiring Buyer’s approval under this
Section 11.1(a), Buyer shall respond within five (5) Business Days to Seller’s request for
approval (unless Seller notifies Buyer that a shorter time to respond is required in which case the
Buyer shall respond in the required time), and failure of Buyer to respond to Seller’s request for
approval within such time shall release Seller from the obligation to obtain Buyer’s approval
before proceeding on such matter. With respect to emergency actions taken by Seller in the face of
serious risk to life, property, or the environment, without prior approval of Buyer pursuant to the
provisions above, Seller will advise Buyer of its actions as promptly as reasonably possible and
consult with Buyer as to any further related actions.

     (b) Seller shall promptly notify Buyer of any threatened or actual Claim before any
Governmental Entity and any Claim which relates to the Assets or which is reasonably expected to
result in impairment or loss of any material portion of the Assets or which might hinder or impede
the operation of the Assets in any material respect.

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     (c) In addition, without the prior written approval of Buyer, Seller agrees to (i) not sell,
lease, farmout, transfer, or otherwise dispose of, directly or indirectly, any Assets, except for
sales of Hydrocarbons in the ordinary course of business or as reflected on Exhibit “D,”
(ii) maintain all insurance with respect to the Assets currently in effect, (iii) remain in
material compliance with all Laws with respect to its ownership and operation of the Assets as a
reasonably prudent operator, (iv) not amend any material contract or enter into any contract
affecting the Assets that would be considered a material contract if in effect as of the date of
this Agreement, or (v) not waive or release any material Claim or right with respect to the Assets
or settle any Claim with respect to the Assets, except to the extent constituting a Retained
Obligation, or the litigation referred to in Section 17.6 below.

     (d) As compensation for its services as Operator for the period between the Effective Time and
the earlier of the Closing Date or May 30, 2010, Buyer shall pay to Seller an amount equal to
Buyer’s share of all overhead charges and operating costs plus fifteen percent (15%). Buyer will
be entitled to any overhead payments from other working interest owners attributable to the same
period. In the event that the Closing Date is extended beyond May 30, 2010 then the compensation
for Sellers services as Operator after May 30, 2010 shall be in accordance with the terms of the
Post-Closing Transition Services, Accounting and Reporting Agreement.

     (e) Seller shall cooperate with Buyer and shall execute such documents or instruments as may
be reasonably necessary to arrange for the timely transfer to Buyer or re-issuance in the name of
Buyer of all permits, licenses, registrations or other approvals required for Buyer’s post-Closing
ownership or operation of the Assets, including without limitation those required under or pursuant
to Environmental Laws.

     11.2 Limitations on Seller’s Covenants Pending Closing.

     To the extent Seller is not the operator of any of the Assets, the obligations of Seller in
Section 11.1 concerning operations or activities which normally or pursuant to existing
contracts are carried out or performed by the operator, shall be construed to require only that
Seller use all reasonable efforts (without being obligated to incur any expense or institute any
cause of action) to cause the operator of such Assets to take such actions or render such
performance as would a reasonable prudent operator and within the constraints of the applicable
operating agreements and other applicable agreements.

     11.3 Employees. Notwithstanding anything herein or in the Confidentiality Agreement to the
contrary, Buyer shall have no right to solicit or make offers of employment to any employees of
Seller or its Affiliates, without the express written consent of Seller.

     11.4 Notification of Breaches.

     Until the Closing,

     (a) Buyer shall notify Seller promptly after Buyer obtains actual knowledge that any
representation or warranty of Seller contained in this Agreement is untrue in any material respect
or will be untrue in any material respect as of the Closing Date or that any covenant

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or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or
observed in any material respect.

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

     (c) If any of Buyer’s or Seller’s representations or warranties is untrue or shall become
untrue in any material respect between the date of execution of this Agreement and the Closing
Date, or if any of Buyer’s or Seller’s covenants or agreements to be performed or observed prior to
or on the Closing Date shall not have been so performed or observed in any material respect, but if
such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the
Closing (or, if the Closing does not occur, by the date set forth in Section 16.1), then such
breach shall be considered not to have occurred for all purposes of this Agreement.

     11.5 Financial Information.

     (a) Prior to and for a period of three (3) years following Closing, at Buyer’s expense, Seller
shall use its reasonable best efforts to cause its accountants, counsel, agents and other third
parties to cooperate with Buyer and its representatives in connection with the preparation by Buyer
of financial information for Statements of Revenues and Direct Operating Expenses relating to the
Assets that are required to be included in any filing by Buyer or its Affiliates with the
Securities and Exchange Commission.

     (b) Prior to and for a period of three (3) years following Closing, Seller shall give Buyer
and its representatives reasonable access during normal business hours to the Assets, Records, and
other financial data necessary for the preparation of
Statements of Revenues and Direct Operating Expenses to be included in any filings by Buyer or
its Affiliates with the Securities and Exchange Commission. If requested, Seller shall not
unreasonably withhold and make its best efforts to execute and deliver to the external audit firm
that audits the financial information of Seller (the “Audit Firm”) such preparation letters in
form and substance customary for presentation provided to external audit firms by management as
pursuant to generally accepted auditing standards as may be reasonably requested by the Audit Firm.
As used in this Section 11.5(b), the term “Records” means all ledgers, books, records,
data, files, and accounting and financial records, in each case to the extent related primarily to
the Assets, or used or held for use primarily in connection with the maintenance or operation
thereof.

ARTICLE 12. — CLOSING CONDITIONS

     12.1 Seller’s Closing Conditions.

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

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

     (b) The execution, delivery, and performance of this Agreement and the transactions
contemplated thereby have been duly and validly authorized by all necessary action, corporate,
partnership or otherwise, on the part of Buyer, and Buyer shall have executed and delivered to
Seller an officer’s certificate of Buyer confirming the same;

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

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

     (e) Buyer shall have delivered (or be ready, willing and able to deliver) all agreements,
instruments and documents which are required by other terms of this Agreement to be executed or
delivered by Buyer to Seller prior to or in connection with the Closing.

     (f) Any waiting period applicable to the consummation of the transaction contemplated by this
Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise.)

     12.2 Buyer’s Closing Conditions.

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

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

     (b) The execution, delivery, and performance of this Agreement and the transactions
contemplated thereby have been duly and validly authorized by all necessary action, corporate,
partnership or otherwise, on the part of Seller, and Seller shall have executed and delivered to
Buyer an officer’s certificate of Seller confirming the same;

     (c) All necessary consents of and filings with any Governmental Entity relating to the
consummation of the transactions contemplated by this Agreement shall have been

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obtained, accomplished or waived, except to the extent that such consents and filings are normally obtained,
accomplished or waived after Closing;

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

     (e) Seller shall have delivered (or be ready, willing and able to deliver) all agreements,
instruments and documents which are required by other terms of this Agreement to be executed or
delivered by Seller to Buyer prior to or in connection with the Closing.

     (f) Any waiting period applicable to the consummation of the transaction contemplated by this
Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise.)

ARTICLE 13. — CLOSING

     13.1 Closing.

     Consummation of the purchase and sale transaction contemplated by this Agreement, (the
“Closing”) shall, unless otherwise agreed in writing by Seller and Buyer, be held at the
offices of Seller located at 5100 Tennyson Parkway, Suite 1200, Plano, Texas 75024, at 10:00 a.m.,
local time, on May 14, 2010. or at such earlier date or place as the Parties may agree in writing
(herein called “Closing Date”). Time is of the essence and the Closing Date shall not be
extended unless by written agreement of the Parties.

     13.2 Seller’s Closing Obligations.

     At Closing, Seller shall deliver to Buyer the following:

     (a) the Conveyance and such other documents as may be reasonably necessary to convey the
Assets to Buyer in accordance with the provisions hereof, executed by Seller;

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

     (c) appropriate regulatory forms appointing Buyer as the operator for those Assets which
Seller operates;

     (d) copies of all applicable waivers, consents, approvals, permits and actions relating to the
Assets obtained;

     (e) exclusive possession of the Assets;

     (f) letters-in-lieu of transfer orders relating to the Assets in form acceptable to Seller and
Buyer; and

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     (g) releases of all mortgages, liens and similar encumbrances burdening the Assets, including
those shown on Exhibit “D,” in form and substance reasonably satisfactory to Buyer; and

     (h) a certificate of the Secretary or an Assistant Secretary of the Seller, certifying (i)
that true and complete copies of the resolutions duly and validly adopted by the board of directors
of Seller’s general partner evidencing the authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby are attached thereto and are
in full force and effect and (ii) to the incumbency of the officers of the Seller executing this
Agreement and the instruments contemplated hereby.

     13.3 Buyer’s Closing Obligations.

     At Closing, Buyer shall deliver to Seller the following:

     (a) by wire transfer in immediately available funds to a bank account or accounts designated
by Seller, the Purchase Price as adjusted by Section 3.3;

     (b) Conveyances executed by Buyer, and

     (c) deliver a certificate of the Secretary or an Assistant Secretary of the Buyer, certifying
(i) that true and complete copies of the resolutions duly and validly adopted by the board of
directors of Buyer evidencing the authorization of the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby are attached thereto and are in full force
and effect and (ii) to the incumbency of the officers of the Buyer executing this Agreement and the
instruments contemplated hereby.

     13.4 Joint Closing Obligations.

     Both Parties at Closing shall execute the following:

     (a) a Closing Statement evidencing the amount actually wire transferred and all adjustments to
the Purchase Price taken into account at Closing: and

     (b) Post-Closing Transition, Accounting and Reporting Agreement.

     All events of Closing shall each be deemed to have occurred simultaneously with the other,
regardless of when actually occurring and each shall be a condition precedent to the other.

ARTICLE 14 — LIMITATIONS ON WARRANTIES
AND REMEDIES/DTPA- WAIVER

     14.1 Limitations on Warranties and Remedies.

     THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND IN THE
CONVEYANCE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND

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WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR
UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE ASSETS. THE ITEMS OF PERSONAL PROPERTY,
EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD
HEREUNDER “AS IS, WHERE IS, AND WITH ALL FAULTS” AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR CONDITION, ARE GIVEN BY OR ON BEHALF OF SELLER. IT IS UNDERSTOOD AND AGREED
THAT PRIOR TO CLOSING BUYER SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND SHALL HAVE
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, AND
THAT BUYER ACCEPTS SAME IN ITS “AS IS, WHERE IS AND WITH ALL FAULTS” CONDITION, SUBJECT TO BUYER’S
RIGHTS HEREUNDER. EXCEPT FOR THE LIMITED WARRANTY OF TITLE SET FORTH IN THE CONVEYANCE, BUYER
HEREBY WAIVES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, OR CONFORMITY TO
SAMPLES.

     BUYER ACKNOWLEDGES THAT THIS EXPRESS WAIVER IS A MATERIAL AND INTEGRAL PART OF THIS SALE AND
THE CONSIDERATION THEREOF; AND BUYER ACKNOWLEDGES THAT THIS WAIVER HAS BEEN
BROUGHT TO THE ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND
KNOWINGLY CONSENTED TO THIS WAIVER FOR THE ABOVE DESCRIBED PROPERTY.

     The above is subject to the other terms and conditions of this Agreement.

     14.2 Waiver of Trade Practices Acts.

     Texas

     (a) It is the intention of the parties that Buyer’s rights and remedies with respect to this
transaction and with respect to all acts or practices of Seller, past, present or future, in
connection with this transaction shall be governed by legal principles other than the Texas
Deceptive Trade Practices—Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.41 et seq. (the
“DTPA”). AS SUCH, BUYER HEREBY WAIVES THE APPLICABILITY OF THE DTPA TO THIS TRANSACTION
AND ANY AND ALL DUTIES, RIGHTS OR REMEDIES THAT MIGHT BE IMPOSED BY THE DTPA, WHETHER SUCH DUTIES,
RIGHTS AND REMEDIES ARE APPLIED DIRECTLY BY THE DTPA ITSELF OR INDIRECTLY IN CONNECTION WITH OTHER
STATUTES; PROVIDED, HOWEVER, BUYER DOES NOT WAIVE § 17.555 OF THE DTPA.

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AFTER CONSULTATION WITH AN
ATTORNEY OF ITS OWN SELECTION, BUYER VOLUNTARILY CONSENTS TO THIS WAIVER. BUYER ACKNOWLEDGES,
REPRESENTS AND WARRANTS THAT IT IS PURCHASING THE GOODS AND/OR SERVICES COVERED BY THIS AGREEMENT
FOR COMMERCIAL OR BUSINESS USE; THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION SUCH AS THIS; AND THAT IT
IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH SELLER.

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

     Multi-jurisdictional

     It is the intention of the parties that Buyer’s rights and remedies with respect to this
transaction and with respect to all acts or practices of Seller, past, present or future, in
connection with this transaction shall be governed by legal principles other than (i) the Kansas
Consumer Protection Act (Kan. Stat. Ann. § 50-623 et seq., the “KSCPA”), (ii) the New Mexico Unfair
Trade Practices Act (N.M. Stat. Ann § 57-12-1 et seq., the “NMUTPA”), and (iii) both the Oklahoma
Consumer Protection Act (Okla. Stat. Ann. tit. 15 § 753 et seq., the “OKCPA”) and the Oklahoma
Deceptive Trade Practices Act (Okla. Stat. Ann tit. 78 §§ 51-56, the “OKDTPA” and collectively with
the KSCPA, the NMUTPA, and the OKCPA, the “Acts”). As such, Buyer hereby waives the applicability
of the Acts to this
transaction and any and all duties, rights or remedies that might be imposed by the Acts,
whether such duties, rights and remedies are applied directly by the Acts themselves or indirectly
in connection with other statutes. Buyer acknowledges, represents and warrants that it is
purchasing the goods and/or services covered by this Agreement for commercial or business use and
not for personal, family, and household purposes; that it is not a sole proprietor or family
partnership; that it has assets of five million dollars ($5,000,000.00) or more according to its
most recent financial statement prepared in accordance with generally accepted accounting
principles; that it has knowledge and experience in financial and business matters that enable it
to evaluate the merits and risks of a transaction such as this; and that it is not in a
significantly disparate bargaining position with Seller.

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

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ARTICLE 15 . — CASUALTY LOSS AND CONDEMNATION

     If, prior to the Closing, all or any portion of the Assets are destroyed by fire or other
casualty or if any portion of the Assets shall be taken by condemnation or under the right of
eminent domain (all of which are herein called “Casualty Loss” and limited to property
damage or taking only), Buyer and Seller must agree prior to Closing either (i) to delete that
portion of the Assets which is subject to the Casualty Loss from the Assets, and the Purchase Price
shall be reduced by the value allocated to the deleted Asset as set out in Exhibit “F,” or
(ii) for Buyer to proceed with the purchase of such Assets, notwithstanding any such destruction or
taking (without reduction of the Purchase Price) in which case Seller shall pay, at the Closing, to
Buyer all sums paid to Seller by third Persons by reason of the destruction or taking of such
Assets and shall assign, transfer and set over unto Buyer all insurance proceeds received by Seller
as well as all of the right, title and interest of Seller in and to any Claims, unpaid proceeds or
other payments from third Persons arising out of such destruction or taking. If the Allocated
Value of that portion of the Assets affected by the Casualty Loss as shown on Exhibit “F”
exceeds twenty percent (20%) of the Purchase Price, Buyer and Seller shall each have the right to
terminate this Agreement upon written notification to the other, the transaction shall not close
and thereafter neither Buyer nor Seller shall have any Liability or further obligations to the
other hereunder. In the event of such termination, Seller shall return the Performance Deposit to
Buyer, together with all accrued interest. Prior to Closing, Seller shall not voluntarily
compromise, settle or adjust any amounts payable by reason of any Casualty Loss without first
obtaining the written consent of Buyer.

ARTICLE 16. — TERMINATION

     16.1 Termination.

     This Agreement may be terminated at any time prior to Closing: (i) by the mutual prior written
consent of Seller and Buyer; (ii) by the Buyer or Seller pursuant to Section 9.1
and 9.2 and Article 15; or (iii) by Seller or Buyer, if Closing has not
occurred on or before June 30, 2010.

     16.2 Effect of Termination.

     If this Agreement is terminated pursuant to Section 16.1, this Agreement shall become
void and of no further force or effect (except for the provisions of Sections 4(f), 5(f), 6.6,
6.7, 14.1, 14.2, 16.3, 20.2, 20.12, 20.13 and 20.24 of this Agreement all of which
shall continue in full force and effect) and Seller shall be free immediately to enjoy all rights
of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to
any party without any restriction under this Agreement. Notwithstanding anything to the contrary
in this Agreement, the termination of this Agreement under Section 16.1(iii) shall not
relieve any party from liability for any willful or negligent failure to perform or observe in any
material respect any of its agreements or covenants contained herein which are to be performed or
observed at or prior to Closing. In the event this Agreement terminates under Section
16.1(iii) because a party has willfully or negligently failed to perform or observe in any
material respect any of its agreements or covenants contained herein which are to be performed at
or prior to Closing, then the other party shall be entitled to all remedies

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available at law or in
equity and shall be entitled to recover court costs and attorneys’ fees in addition to any other
relief to which such party may be entitled.

     16.3 Distribution of Deposit Upon Termination.

     (a) If Seller has complied with the provisions of Section 12.2 and is ready willing
and able to close the transaction contemplated by this Agreement and elects to terminate this
Agreement (i) because Buyer has failed to comply with any provision of Section 12.1; or
(ii) Buyer has complied with all the provisions of Section 12.1, but fails or refuses to timely
close the transaction contemplated by this Agreement, then Seller may retain the Performance
Deposit (together with all accrued interest) as liquidated damages, free of any claims by Buyer or
any other Person with respect thereto. It is expressly stipulated by the parties that the actual
amount of damages resulting from such a termination would be difficult if not impossible to
determine accurately because of the unique nature of this Agreement, the unique nature of the
Assets, the uncertainties of applicable commodity markets and differences of opinion with respect
to such matters, and that the liquidated damages provided for herein are a reasonable estimate by
the parties of such damages.

     (b) If this Agreement is terminated for any reason other than the reasons set forth in
Section 16.3(a), then Seller shall deliver the Performance Deposit to Buyer (together with
all accrued interest), free of any claims by Seller or any other Person with respect thereto.

     16.4 Other Remedies.

     Notwithstanding the foregoing, termination of this Agreement shall not prejudice or impair
Buyer’s obligations under Section 6.4 (and the Confidentiality Agreement referenced
therein). The prevailing Party in any legal proceeding brought under or to enforce this Agreement
shall be additionally entitled to recover court costs and reasonable attorneys’ fees from the
non-prevailing Party.

     16.5 Limitations on Damages.

     Notwithstanding any other provision contained elsewhere in this Agreement to the contrary, the
Parties acknowledge that this Agreement does not authorize one Party to sue for or collect from the
other Party its own punitive damages, or its own consequential or indirect damages in connection
with this Agreement and the transactions contemplated hereby and each Party expressly waives for
itself and on behalf of its Affiliates, any and all Claims it may have against the other Party for
such damages in connection with this Agreement and the transactions contemplated hereby.

ARTICLE 17. — ASSUMPTION AND INDEMNITY

     17.1 Assumed Obligations.

     Upon and after Closing, Buyer shall own the Assets, together with all the rights, duties,
obligations, and Liabilities accruing to the Assets after Closing, including the Assumed
Obligations and Buyer’s indemnity obligations hereunder. Buyer agrees to assume and pay, perform,
fulfill and discharge such duties, obligations and Liabilities, all Assumed

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Obligations and Buyer’s
indemnity obligations. Seller agrees to retain and pay, perform, fulfill and discharge all
Retained Obligations, and Seller’s indemnity obligations.

     17.2 Buyer’s Indemnity.

     BUYER AGREES TO INDEMNIFY, DEFEND AND HOLD SELLER AND SELLER’S AFFILIATES AND EACH OF THEIR
SHAREHOLDERS, MEMBERS, EMPLOYEES, OFFICERS, DIRECTORS AND REPRESENTATIVES (“SELLER
INDEMNITEES”) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH RESPECT TO ALL LIABILITIES AND
OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND OBLIGATIONS CAUSED BY, RELATED TO,
ATTRIBUTABLE TO, OR ARISING OUT OF THE ASSUMED OBLIGATIONS OR BUYER’S MATERIAL BREACH OF ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 5. THE DEFENSE AND INDEMNITY
OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE SOLE OR PARTIAL OR COMPARATIVE
OR CONCURRENT OR OTHER FAULT, NEGLIGENCE OR STRICT, PRE-EXISTING OR OTHER LIABILITY ON THE PART OF
SELLER. ADDITIONALLY, THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY
REGARDLESS OF THE NATURE OF THE OBLIGATIONS OF SELLER, BE THEY IN TORT, CONTRACT, QUASI-CONTRACT,
STATUTORY, OR OTHERWISE.

     17.3 Seller’s Indemnity.

     SELLER AGREES TO INDEMNIFY, DEFEND AND HOLD BUYER AND BUYER’S AFFILIATES AND EACH OF THEIR
PARTNERS, SHAREHOLDERS, MEMBERS, EMPLOYEES, OFFICERS, DIRECTORS AND REPRESENTATIVES (“BUYER
INDEMNITEES”) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH RESPECT TO ALL LIABILITIES AND
OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND OBLIGATIONS CAUSED BY,
RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF (I) THE RETAINED OBLIGATIONS, (II) SELLER’S
MATERIAL BREACH OF ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 4, OR (III)
ENVIRONMENTAL OBLIGATIONS ATTRIBUTABLE TO THE ASSETS WHICH RELATE TO OR ARISE FROM EVENTS FIRST
OCCURING ONE (1) YEAR PRIOR TO THE EFFECTIVE DATE OR AFTER THE DATE IN WHICH SELLER ACQUIRED THE
ASSET WHICHEVER IS THE FIRST TO OCCUR; PROVIDED HOWEVER SELLERS INDEMNITY FOR SAID ENVIRONMENTAL
OBLIGATIONS SHALL NOT BE APPLICABLE TO ANY ENVIRONMENTAL OBLIGATION WHICH WAS ASSERTED AS AN
ENVIRONENTAL DEFECT BY THE BUYER, IS AN AMOUNT GREATER THAN THE ALLOCATED VALUE OF THE AFFECTED
ASSET, AND ANY SUCH CLAIM FOR INDEMNITY MUST BE ASSERTED BY BUYER WITHIN ONE YEAR FROM THE CLOSING
DATE OF THIS AGREEMENT. THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY
REGARDLESS OF THE SOLE OR PARTIAL OR COMPARATIVE OR CONCURRENT OR OTHER FAULT, NEGLIGENCE OR
STRICT, PRE-EXISTING OR OTHER LIABILITY ON THE

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PART OF BUYER. ADDITIONALLY, THE DEFENSE AND
INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE NATURE OF THE
OBLIGATIONS OF BUYER, BE THEY IN TORT, CONTRACT, QUASI-CONTRACT, STATUTORY, OR OTHERWISE.

     17.4 Stipulation Regarding Express Negligence And Fault.

     THE PARTIES HERETO BOTH AGREE AND STIPULATE THAT THEY HAVE ACTUAL KNOWLEDGE OF ALL INDEMNITY
PROVISIONS HEREIN, THAT THEY ARE FAMILIAR WITH THE EXPRESS NEGLIGENCE TEST, THAT THIS DEFENSE AND
INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST, THAT THE PARTIES CLEARLY
INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE’S NEGLIGENCE, FAULT AND OTHER LIABILITIES
AND OBLIGATIONS AS SET FORTH ABOVE TO THE OTHER PARTY, AND THAT THESE INDEMNIFICATION PROVISIONS
ARE CONSPICUOUS.

     17.5 Broker or Finder’s Fee.

     Each Party hereby agrees to indemnify and hold the other Party harmless from and against any
Claim for a brokerage or finder’s fee or commission in connection with this Agreement or the
transactions contemplated by this Agreement to the extent such Claim arises from or is attributable
to the actions of such indemnifying Party or its Affiliates, including, without limitation, any and
all losses, damages, attorneys’ fees, costs and expenses of any kind or character arising out of or
incurred in connection with any such Claim or defending against the same.

     17.6 Litigation.

     Seller shall retain responsibility and Liability for the litigation and threatened litigation
listed as items 1,2,3 and 4 on Exhibit “H,” and the Claims thereunder; provided that with
respect to the matters identified as items 5 and 6 on Exhibit “H,” Seller shall only retain the
responsibility and Liability for the Claims related to, or resulting from or attributable to the
period prior to the Closing Date. Buyer shall assume responsibility and Liability for the
litigation and threatened litigation listed as items 5 and 6 on Exhibit “H,” and the Claims
thereunder; but only to the extent attributable to operations on or after the Closing Date.

     17.7 Indemnification Procedures. All Claims for indemnification (an “Indemnity Claim”)
under this Agreement shall be asserted and resolved as follows:

     (a) For purposes of this Section 17.7, the term “Indemnifying Party” shall
mean the Party having an obligation to indemnify the other Party and its related parties pursuant
to this Article 17, and the term “Indemnified Party” shall mean the Party having
the right to be indemnified by the other Party pursuant to this Article 17.

     (b) To make an Indemnity Claim under this Article 17, an Indemnified Party shall
notify the Indemnifying Party in writing of its Indemnity Claim, including the basis under this
Agreement for its Indemnity Claim (the “Claim Notice”). In the event that the

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Indemnity
Claim is based upon a claim by a unaffiliated third Person against the Indemnified Party (a
“Third Party Claim”), the Indemnified Party shall provide its Claim Notice promptly after
the Indemnified Party has Knowledge of the Third Party Claim and shall enclose a copy of all papers
(if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified
Party to give notice of a Third Party Claim as provided in this Section 17.7(b) shall not
relieve the Indemnifying Party of its indemnification obligations under this Article 17
except to the extent (and then only to such extent) such failure results in insufficient time being
available to permit the Indemnifying Party to effectively defend against the Third Party Claim or
otherwise materially prejudices the Indemnifying Party’s ability to defend against the Third Party
Claim.

     (c) In the case an Indemnity Claim based upon a Third Party Claim, the Indemnifying Party
shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Party
whether it admits or denies its Liability to defend the Indemnified Party against such Third Party
Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized,
prior to and during such thirty (30) day period, to file any motion, answer or other pleading that
it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party
so long as such pleading is not prejudicial to the Indemnifying Party.

     (d) If the Indemnifying Party admits its Liability, it shall have the right and obligation to
diligently defend, at its sole cost and expense, the Third Party Claim. The Indemnifying Party
shall have full control of such defense and proceedings, including any compromise or settlement
thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in
contesting any Third Party Claim which the Indemnifying Party elects to contest. The Indemnified
Party may (at its sole costs and expense) participate in,
but not control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 17.7. An Indemnifying Party shall not, without
the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the
entry of any judgment with respect thereto which does not include an unconditional written release
of the Indemnified Party from all Liability in respect of such Third Party Claim or (ii) settle any
Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that
may materially and adversely affect the Indemnified Party (other than as a result of money damages
covered by the indemnity).

     (e) If, within the 30-day period after its receipt of the Claim Notice, the Indemnifying Party
does not admit its Liability or admits its Liability with respect to but fails to diligently
prosecute or settle, the Third Party Claim, then the Indemnified Party shall have the right to
defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with
counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to
admit its Liability and assume the defense of the Third Party Claim at any time prior to settlement
or final determination thereof. If the Indemnifying Party has not yet admitted its Liability for a
Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any
proposed settlement and the Indemnifying Party shall have the option for ten (10) days following
receipt of such notice to (i) admit in writing its Liability for the Third Party Claim and (ii) if
Liability is so admitted, reject, in its reasonable judgment, the proposed settlement.

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     17.8 Liability Limitation. Notwithstanding the foregoing provisions of this Article 17:

     (a) Seller shall have no Liability for indemnification for any Claims under Section
17.3 unless and until the cumulative total of such Claims exceeds in the aggregate an amount
equal to two percent (2%) of the Purchase Price (the “Indemnity Deductible”), at which time
all amounts of Liabilities (other than De Minimis Claims (as defined below)) in excess of the
Indemnity Deductible may be claimed and recovered as provided in this Agreement; provided, however,
that in the event that the aggregate Claims with respect to a single matter for which indemnity
otherwise is provided under Section 17.3 is less than $100,000 (a “De Minimis
Claim”) such Claims shall not be included in calculating the aggregate amount of Claims for
determining whether the Deductible has been satisfied and shall not be recoverable for any reason.

     (b) The aggregate Liability of Seller pursuant to this Article 17 shall be limited to
an amount equal to seven percent (7%) of the Purchase Price.

     (c) If an indemnified Party recovers from any third party (including insurers) all or any part
of any amount previously paid to it by an Indemnifying Party pursuant to Sections 17.2 or
17.3, as applicable, such indemnified Party will promptly pay over to the indemnifying Party
the amount so recovered (after deducting therefrom the full amount of the expenses incurred by it
in procuring such recovery), but not in excess of any amount previously so paid by the indemnifying
Party; and

     (d) Seller shall not be liable to indemnify Buyer for any Claim, and such Claim shall not be
applied towards the thresholds in Section 17.8(a), to the extent such Claims constitute a
Buyer Assumed Obligation.

     (e) WITHOUT LIMITING THE RIGHTS THAT ANY PARTY MAY HAVE FOR FRAUD UNDER COMMON LAW, BUYER AND
SELLER AGREE THAT, FROM AND AFTER THE CLOSING, THE SOLE AND EXCLUSIVE REMEDY OF ANY PARTY HERETO
WITH RESPECT TO ALL CLAIMS RELATED TO THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY CLAIMS
REGARDING THE ASSETS ARISING OUT OF ANY ACTUAL OR ALLEGED BREACH OF THIS AGREEMENT SHALL BE AS
PROVIDED IN THIS ARTICLE 17 SUBJECT TO LIMITATIONS IMPOSED THEREON CONTAINED IN THIS
ARTICLE 17 AND SECTION 17.8.

ARTICLE 18 . — GAS IMBALANCES

     Up to the Final Settlement Date, Seller and Buyer in good faith use their reasonable efforts
to update (to the Effective Time) the gas imbalance volume amounts listed on Exhibit “J.”
If, prior to the Final Settlement Date, either Party hereto notifies the other Party hereto that
the volumes set forth in Exhibit “J” are incorrect, then Buyer or Seller will pay the other
on the Final Settlement Date, as appropriate, an amount equal to $3.00 per net mmbtu variance from
the net imbalance shown on Exhibit “J.” Subject to such adjustment on the Final Settlement
Date, as of the Closing Buyer agrees to assume all Liability and obligation

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for gas production imbalances (whether over or under) attributable to the Assets (which
liability and obligation shall be deemed Assumed Obligations). Except as set forth in this
Article 18, in assuming this Liability at Closing, Buyer shall not be obligated to make any
additional payment over the Purchase Price to Seller, and Seller shall not be obligated to refund
any of said price to reimburse Buyer for any over-balances existing at the time of sale.

ARTICLE 19. — TRANSITION

     19.1 Turnover of Operatorship.

     Except as prohibited by Law or applicable contracts, Buyer shall, upon and after Closing,
assume operatorship of the Assets (or portions thereof) operated by Seller (or its designee) at
7:00 a.m. on the day after the Closing Date. Seller shall use reasonable efforts (which efforts
shall not require Seller to incur any monetary or non-monetary obligations) to assist and cooperate
with Buyer in connection with Buyer’s efforts to secure operatorship of all Assets (or portions
thereof) operated by Seller (or its designee). As promptly as practicable, Buyer shall file with
all pertinent Governmental Entities all pertinent change-of-operatorship forms and similar
applications and instruments. Notwithstanding the above, it is recognized that there is no
assurance or representation given by Seller that Buyer shall succeed Seller as operator of any
Wells and/or Leases in which other parties own interests.

     19.2 Interim Operations.

     Strictly as an accommodation to Buyer, if requested by Buyer, Seller agrees to operate the
Assets (limited to those for which either Buyer or Seller is the designated operator) after
Closing for the account of the Buyer for a period not to extend past the month following the
month in which Closing occurs, or such other month as may be mutually agreed to by Seller and
Buyer. The date when Seller ceases to assist in the operation of the Assets (which must be the
last day of a month, shall be referred to hereafter as the “Termination Date”. While acting
as operator on Buyer’s behalf, Seller shall make good faith efforts to operate the Assets in a
manner substantially similar as they were being operated prior to Closing and in material
compliance with all applicable Laws. Seller’s duties as operator for Buyer during this period
shall include preparing and submitting state production reports for the fields, other regulatory
reporting and production reporting, making gas nominations, and marketing (and applicable
production reporting for the subject period) of produced oil and gas consistent with past field
practices. In the case of an oil spill, blowout, explosion, fire, storm, hurricane or any other
emergency situation, Seller shall have the right to make any necessary decisions or expenditures it
deems appropriate in good faith as a prudent operator to operate the Assets (Seller shall notify
Buyer of any such actions as soon as practical), and in addition to any other expenditures
attributable to the period of time subsequent to the Effective Time, and Buyer shall reimburse
Seller for any such expenditures. In addition, from the date of Closing to the Termination Date,
at the request of Buyer, Seller shall endeavor to attempt to retain existing contract staff
familiar with the operation of the Assets (which endeavors shall not require Seller to incur any
monetary or non-monetary obligations). Additionally, Seller shall have no obligation to pay any
expenditures, including cash calls, in excess of revenues received by Seller (attributable to the
interest of Buyer) during the interim period.

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     19.3 No Liability.

     THE PARTIES HEREBY FURTHER AGREE THAT SELLER SHALL HAVE NO LIABILITY TO BUYER, OR ANY THIRD
PERSON OR GOVERNMENTAL ENTITY, AND BUYER SHALL RELEASE, DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS
FROM, ANY CLAIMS, ACTIONS, SUITS, PROCEEDINGS, LOSS, COSTS, EXPENSES, LIABILITY, PROPERTY OR
ENVIRONMENTAL DAMAGE, OR OTHER DAMAGES TO OR INCURRED BY BUYER, SELLER, ANY THIRD PERSON OR
GOVERNMENTAL ENTITY WHICH ARE ATTRIBUTABLE TO, CAUSED BY OR RELATED TO THE USE, OWNERSHIP,
OPERATORSHIP OR SELLER’S OPERATION OF THE ASSETS FROM THE CLOSING TO THE TERMINATION DATE OR
ACCOUNTING OR OTHER ACTIVITIES CONDUCTED BY SELLER AFTER CLOSING, AND WITH RESPECT TO THE REVENUE
SETTLEMENT FUNCTIONS AFTER CLOSING, REGARDLESS OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE
(ORDINARY, SOLE OR PARTIAL), STRICT LIABILITY, REGULATORY LIABILITY, STATUTORY LIABILITY, BREACH OF
CONTRACT, BREACH OF WARRANTY, OR OTHER FAULT OR RESPONSIBILITY OF SELLER OR ANY OTHER PERSON OR
PARTY, EXCEPT TO THE DEGREE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER.

     19.4 Seller Compensation.

     Seller shall not be obligated for any expenditures after the Closing Date and shall be
entitled to recover any charges and expenses incurred in the course of such operations or
accounting efforts. Buyer, as of the Closing Date, assumes responsibility for all costs and
expenses associated with ownership and operation of the Assets, including but not limited to
operations, maintenance, repairs, recompilations, reconditioning, modifications, capital
expenditures, abandonments and salvage. If Buyer requests Seller to operate any of the Assets
after Closing under Section 19.2, Buyer shall pay to Seller compensation for its services
as provided in the Post Closing Transaction Agreement.

     19.5 Post-Closing Transition.

     Seller and Buyer agree that the post-closing transition procedures with respect to the Assets
as set forth in this Article 19.5 shall be governed by the Post-Closing Transition
Agreement to be executed at Closing which is attached hereto as Exhibit “Q”.

ARTICLE 20. — MISCELLANEOUS

     20.1 Receivables and other Excluded Funds.

     Buyer shall be under no obligation to collect on behalf of Seller any receivables or other
funds included in the Excluded Assets and described in Section 1.29(b) of the definition of
Excluded Assets.

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     20.2 Public Announcements.

     The Parties hereto agree that prior to Closing, each Party may publicly disclose the principal
terms of this Agreement following its execution, provided that prior to making any public
announcement or statement with respect to the transaction(s) contemplated by this Agreement, the
Party desiring to make such public announcement or statement shall consult with the other Party
hereto and exercise its best efforts to (i) agree upon the text of a joint public announcement or
statement to be made by both Parties; or (ii) obtain written approval of the other Party hereto to
the text of a public announcement or statement to be made solely by Seller or Buyer, as the case
may be. Nothing contained in this paragraph shall be construed to require either Party to obtain
approval of the other Party hereto to disclose information with respect to the transaction
contemplated by this Agreement to any Governmental Entity to the extent (i) required by applicable
Law; or (ii) necessary to comply with disclosure requirements of the New York Stock Exchange or
other recognized exchange or over the counter, and applicable securities Laws.

     20.3 Filing and Recording of Assignments, etc.

     Buyer shall be solely responsible for all filings and the prompt recording of assignments and
other documents related to the transfer of the Assets as contemplated hereunder, and for all fees
connected therewith, including the fees charged by any regulatory authority in connection with the
change of operator, and Buyer shall furnish certified copies of all such filed and/or recorded
documents to Seller. Seller shall not be responsible for any loss to Buyer because of Buyer’s
failure to file or record documents correctly or promptly. Buyer shall promptly file all
appropriate forms, declarations or bonds with federal and state agencies relative to its assumption
of operations and Seller shall cooperate with Buyer in
connection with such filings. Buyer shall also comply with all notice provisions contained in
the Leases or otherwise applicable to the transfer of the Assets.

     20.4 Further Assurances and Records.

     (a) After the Closing, each of the Parties will execute, acknowledge and deliver to the other
such further instruments, and take such other action, as may be reasonably requested in order to
more effectively assure to said Party all of the respective properties, rights, titles, interests,
estates, and privileges intended to be assigned, delivered or inuring to the benefit of such Party
in consummation of the transactions contemplated hereby. Without limiting the foregoing, in the
event the Exhibits and Schedules incorrectly or insufficiently describe or reference a property or
an interest intended to be conveyed hereby as described in the definitions of “Leases”or
“Real Property, Personal Property and Incidental Rights,” Seller agrees to, within twenty
(20) days of Seller’s receipt of Buyer’s written request, together with supporting documentation
satisfactory to Seller, correct such Exhibit and/or execute an amended assignment or other
appropriate instruments necessary to transfer the property or interest intended to be conveyed
hereby to Buyer.

     (b) In the event that title to any of the Assets is incorrectly or unintentionally held by
Denbury Resources Inc., or any of its Affiliates, Denbury Resources Inc. or any of its Affiliates
shall take such further actions and execute, acknowledge and deliver all such

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further documents as
are reasonably requested by the other for carrying out the purposes of this Agreement and
consummation of the transactions contemplated hereby.

     (c) Buyer agrees to maintain the files and records of Seller that are acquired pursuant to
this Agreement for seven (7) years after Closing. Buyer shall provide Seller and its
representatives reasonable access to and the right to copy such files and records for the purposes
of (i) preparing and delivering any accounting provided for under this Agreement and adjusting,
prorating and settling the charges and credits provided for in this Agreement; (ii) complying with
any Law affecting the Assets prior to the Closing Date; (iii) preparing any audit of the books and
records of any third Persons relating to the Assets prior to the Closing Date, or responding to any
audit related to the Assets prepared by such third Persons; (iv) preparing tax returns; (v)
responding to or disputing any tax audit related to the Assets; or (vi) asserting, defending or
otherwise dealing with any Claim or dispute under this Agreement or as to the Assets.

     (d) To the extent not obtained or satisfied as of Closing, Seller agrees to continue to use
all reasonable efforts and to cooperate with Buyer’s efforts to obtain for Buyer (i) access to
files, records and data relating to the Assets in the possession of third parties; and (ii) access
to Wells operated by third Persons for purposes of inspecting same; provided, however that Seller
shall not have any obligation under this paragraph to incur any cost or expense in connection with
its actions hereunder.

     (e) The Assets identified in Section 1.53(d) and 1.53(e) of the definition of
“Real Property, Personal Property and Incidental Rights” shall be made available to Buyer
within ten (10) business days after the Closing Date at a location to be specified by Seller.
Any reproduction, transportation, postage, or delivery costs from Seller’s offices shall be at
Buyer’s sole cost, risk and expense

     (f) Buyer shall comply with all current and subsequently amended Laws applicable to the Assets
and shall promptly obtain and maintain all permits required by Governmental Entities in connection
with the Assets.

     (g) Seller shall use its all reasonable efforts to obtain the assignments described in
Exhibit “K” prior to Closing.

     20.5 Notices.

     Except as otherwise expressly provided herein, all communications required or permitted under
this Agreement shall be in writing and may be given by personal delivery, facsimile, email, US mail
(postage prepaid), or nationally recognized delivery service, and any communication hereunder shall
be deemed to have been duly given and received when actually delivered to if during normal business
hours (or upon the next business day, if not during normal business hours) the address of the
Parties to be notified as set forth below and addressed as follows:

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     If to Seller, as follows:

	 	 	 	 	 
	 	 	Encore Operating, L.P.
	 	 	5100 Tennyson Parkway
	 	 	Suite 1200
	 	 	Plano, Texas 75024
	 

	 	Attention:
	 	Ray Dubuisson
	 

	 	 	 	Vice President-Legal
	 

	 	Telephone:
	 	(972)-673-2044
	 

	 	Facsimile:
	 	(972)-673-2299
	 

	 	Email:
	 	ray.dubuisson@denbury.com

     If to Buyer, as follows:

	 	 	 	 	 
	 	 	Quantum Resources Management, LLC
	 

	 	Attention:
	 	Gregory Roden
	 

	 	 	 	General Counsel
	 	 	5 Houston Center
	 	 	1401 McKinney Street
	 	 	Suite 2700
	 	 	Houston, Texas 77010
	 

	 	Telephone:
	 	(713) 452-2230
	 

	 	Facsimile:
	 	(713) 452-2231
	 

	 	Email:
	 	groden@qracq.com

Any Party may, by written notice so delivered to the other, change the address to which delivery
shall thereafter be made.

     20.6 Incidental Expenses.

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

     20.7 Waiver.

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

- 51 -

 

to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other condition or of the
breach of any other term, provision, covenant, representation or warranty.

     20.8 Binding Effect; Assignment.

     Subject to the other provisions of this Section 20.8, all the terms, provisions,
covenants, obligations, indemnities, representations, warranties and conditions of this Agreement
shall inure to the benefit of, and be binding upon, and shall be enforceable by, the Parties hereto
and their respective successors and assigns. This Agreement may not be assigned or transferred by
Buyer or Seller to any other Person, without the prior, express and written consent of either
Party, and such consent may be withheld for any reason, including convenience. Notwithstanding the
foregoing, the Buyer may elect to have all or any portion of the Assets acquired hereunder
assigned, at Closing, directly to its designated Affiliate(s) provided that any such assignment
shall be made expressly subject to the terms and conditions of this Agreement and the terms and
conditions of this Agreement shall apply mutatis mutandis to any such assignee in such assignment.
Any attempt to assign this Agreement by Buyer or Seller over the objection or without the express
written consent of the other Party shall be absolutely void. In the event, after Closing, Buyer
sells, assigns or otherwise transfers all or a portion of the Assets, this Agreement shall remain
in effect between Buyer and Seller as to all the Assets regardless of such sale, assignment or
transfer (and Buyer shall not be thereby released, but shall remain obligated hereunder). Any
sale, assignment or other transfer of the Leases or other Assets shall also contain such other
language as is necessary to satisfy the terms and provisions of such Leases or the agreements
applicable to such Assets.

     20.9 Taxes.

     (a) Seller and Buyer recognize that an IRS Form 8594, Asset Acquisition Statement, will be
filed by Seller and Buyer, Seller and Buyer agree that the adjusted Purchase Price shall be
allocated among the Assets for tax purposes in accordance with an allocation schedule which shall
be prepared by Buyer and delivered to Seller within ten (10) days following the determination of
the adjusted Purchase Price (the “Purchase Price Allocation Schedule”) as set forth in
Section 3.4. The Purchase Price Allocation Schedule shall be revised to take into account
adjustments to the Purchase Price and any indemnification payments. Any dispute arising in
connection with the Purchase Price Allocation Schedule shall be resolved pursuant to procedures
comparable to the procedures applicable under Section 3.3(c). Seller and Buyer shall use
the Purchase Price Allocation Schedule in reporting this transaction to the applicable taxing
authorities, including IRS Form 8594 and any other information returns and supplements thereto
required to be filed under Section 1060 of the Internal Revenue Code of 1986 as amended and neither
Seller nor Buyer shall file any tax return or otherwise take any position for tax purposes that is
inconsistent with the Purchase Price Allocation Schedule.

     (b) Seller shall cause all items of income, gain, loss, deduction and credit with respect to
the Assets through the Effective Date to be reflected on the federal income tax return of Seller
(or if Seller is an entity disregarded as separate from its owner, on the federal

- 52 -

 

income tax return
of its owner). For tax purposes, all such items shall be allocated to the period up to and
including the Effective Date, and to the period after the Effective Date, by closing the books as
of end of the Effective Date.

     (c) Seller shall be responsible for all state, local and federal property, ad valorem, excise,
severance, and other similar taxes attributable to or arising from the ownership or operation of
the Assets prior to the Effective Time. Buyer shall be responsible for all property, severance and
other similar taxes attributable to or arising from the ownership or operation of the Assets on and
after the Effective Time. Any Party which pays such taxes for the other Party shall be entitled to
prompt reimbursement upon evidence of such payment. Each Party shall be responsible for its own
federal and state income taxes, if any, as may result from this transaction.

     (d) Seller acquired the Assets for use or consumption, and Seller has not been engaged, nor
held itself out as being engaged, in selling similar property on a repeated or continuing basis.
The Assets constitute an identifiable segment of the Seller’s business within the meaning of Texas
Comptroller’s Sales Tax Rule 34 Tex. Admin. Code § 3.316(d) and accordingly, it is Seller’s opinion
that the sale of the Assets (other than any motor vehicles) is exempt from Texas sales and use tax
as an occasional sale pursuant to Texas Tax Code 151.304(b)(2).

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

     20.10 Audits.

     It is expressly understood and agreed that Seller retains its right to receive its
proportionate share of the proceeds attributable to the Assets from any audits relating to
activities prior to the Effective Time, and Seller shall likewise pay its share of any costs
attributable to the Assets and attributable to the period prior to the Effective Time resulting
from any such audits.

     20.11 Like-Kind Exchanges.

     Each Party consents to the other Party’s assignment of its rights and obligations under this
Agreement to its Qualified Intermediary (as that term is defined in Section 1.1031(k)-l(g)(4)(v) of
the Treasury Regulations) and/or to its Qualified Exchange Accommodation Titleholder (as that term
is defined in Rev. Proc. 2007-37 issued effective September 15, 2000) in connection with
effectuation of a like-kind exchange, in whole or in part, as provided in Section 1031 of the Code
and the Treasury Regulations thereto, and if applicable, Rev. Proc. 2000-37, 2000-2 C.B. 308 (Sept.
18, 2000), as amended by Rev. Proc. 2004-51, 2004-33 I.R.B. 294 (Jul. 20, 2004) (a “Like-Kind
Exchange Transaction”).

However, Seller and Buyer acknowledge and agree that any assignment of this Agreement to a
Qualified Intermediary or Qualified Exchange Accommodation Titleholder does not release

- 53 -

 

either
Party from any of its respective Liabilities and obligations to the other Party under this
Agreement. If requested by the other Party, each Party agrees to cooperate with the other Party
(to the extent reasonable) to attempt to structure the transaction as a Like-Kind Exchange
Transaction. If a Like-Kind Exchange Transaction occurs, the Parties recognize that IRS Form 8824,
Like-Kind Exchanges, will be required to be filed, and each Party consents to the filing of such
Form and will fully cooperate, to the extent necessary, with the other Party in filing such Form.

     20.12 Governing Law.

     THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH
DETERMINATIONS. JURISDICTION AND VENUE WITH RESPECT TO ANY DISPUTES ARISING HEREUNDER SHALL BE
PROPER IN COLLIN COUNTY, TEXAS.

     20.13 Entire Agreement.

     This Agreement embodies the entire agreement between the Parties and replaces and supersedes
all prior agreements, arrangements and understandings related to the subject matter hereof, whether
written or oral. No other agreement, statement, or promise made by any Party, or to any employee,
officer or agent of any Party which is not contained in this Agreement shall be binding or valid.
This Agreement may be supplemented, altered, amended, modified or revoked by a writing only, signed
by the Parties hereto. The headings herein are for convenience only and shall have no significance
in the interpretation hereof. The Parties stipulate and agree that this Agreement shall be deemed
and considered for all
purposes, as prepared through the joint efforts of the Parties, and shall not be construed
against one Party or the other as a result of the preparation, submittal or other event of
negotiation, drafting or execution thereof.

     20.14 Severability.

     If any provision of this Agreement is found by a court of competent jurisdiction to be invalid
or unenforceable, that provision will be deemed modified to the extent necessary to make it valid
and enforceable, and if it cannot be so modified, it shall be deemed deleted and the remainder of
the Agreement shall continue and remain in full force and effect.

     20.15 Exhibits and Schedules.

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

     20.16 Suspended Funds.

     (a) Closing, Seller shall transfer to Buyer all funds, if any, held by Seller in suspense
owing to third Persons on account of the sale of Hydrocarbons from the Assets,

- 54 -

 

together with all
information in the possession of Seller identifying the funds. Buyer upon receipt of the funds
shall assume all responsibility for the payment thereof to third Persons entitled to the same.
Buyer shall indemnify and hold Seller harmless for Claims and Liabilities relating to or arising
out of Buyer’s payment, mis-payment or failure to make payments of any such funds. Seller shall
indemnify and hold Seller harmless for Claims and Liabilities related to wrongfully withheld
suspended funds attributable to the period of time prior to the Effective Time. Notwithstanding
anything the contrary set forth herein, the terms of this Section 20.16 shall survive the
Closing.

     20.17 Survival.

     (a) Representations and Warranties. All of the representations, and warranties of or by the
Parties to this Agreement, excluding the special warranty of title of Seller contained in
Section 8.1, will survive the Closing until one (1) year after the Closing Date (the
“Expiration Date”), at which time all such representations and warranties shall expire (the time
periods set forth in this Section 20.17(a) and Section 20.17(b) are each
respectively a “Survival Period”).

     (b) Covenants. Except as otherwise provided herein, the covenants and agreements contained in
this Agreement to the extent that, by their terms, they are to be performed or complied with (i)
prior to or on the Closing Date, shall expire at Closing and (ii) after the Closing Date, shall
expire on the later of (x) the Expiration Date or (y) 60 days after the period in which such
covenant is to be performed.

     (c) Notwithstanding anything in this Agreement to the contrary, no Party shall have any
obligation to indemnify the other pursuant to Section 17.2 or Section 17.3(as
those
provisions apply to the representations and warranties only) unless a notice has been received
by the indemnifying Party prior to the end of the respective Survival Period.

     20.18 Subsequent Adjustments.

     Regardless of the date set for the Final Settlement, Buyer and Seller agree that their intent
is to allow for the earliest practical forwarding of revenue and reimbursement of expenses between
them, and Seller and Buyer recognize that either may receive funds or pay expenses after the Final
Settlement Date which is properly the property or obligation of the other. Therefore, upon receipt
of net proceeds or payment of net expenses due to or payable by the other Party hereto, whichever
occurs first, Seller or Buyer, as the case may be, shall submit a statement to the other Party
hereto showing the relevant items of income and expense with supporting documentation. Payment of
any net amount due by Seller or Buyer, as the case may be, on the basis thereof shall be made
within ten (10) days of receipt of the statement.

     20.19 Counterparts.

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

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     20.20 Subrogation.

     To the fullest extent allowed by Law and the applicable agreements with third Persons, Seller
grants Buyer a right of subrogation in all Claims or rights Seller may have against third Persons
to the extent they relate to the Assumed Obligations.

     20.21 Government Reviews.

     The Parties have determined that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the “HSR Act”), applies to this transaction. Each will promptly file with the
Federal Trade Commission and the Department of Justice the required notifications, reports, and
supplemental information to comply, in all respects, with the requirements of the HSR Act. Seller
and Buyer shall in a timely manner (a) make all required filings, if any, with and prepare
applications to and conduct negotiations with, each governmental agency as to which such filings,
applications or negotiations are necessary or appropriate in the consummation of the transactions
contemplated hereby specifically including but not limited to the HSR Act, (b) provide such
information as each may reasonably request to make such filings, prepare such applications and
conduct such negotiations, and (c) request early termination or waiver of any applicable waiting
period under the HSR Act. Each party shall cooperate with and use all commercially reasonable
efforts to assist the other with respect to such filings, applications and negotiations. Buyer
will promptly pay to the appropriate Government Entity all filing fees required of “acquiring
persons” under the HSR Act. Each Party will bear its own costs and expenses of filing any required
notifications.

     20.22 Change of Name.

     As promptly as practicable, but in any case within ninety (90) days after the Closing Date, or
after transfer of operations, whichever is later, Buyer shall eliminate the names “Denbury
Resources Inc.,” “Denbury,” “Encore Operating, L.P.,” “EAP Operating, LLC,” “Encore Acquisition
Company,” “Encore” and any variants of these names from the Assets acquired pursuant to this
Agreement and, except with respect to such grace period for eliminating existing usage, shall have
no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.

     20.23 Replacement of Bonds, Letters of Credit and Guarantees.

     The Parties understand that none of the bonds, letters of credit and guarantees, if any,
posted by Seller with Governmental Entities and relating to the Assets may be transferable to
Buyer. Within fifteen (15) Business Days following Closing, Buyer shall obtain, or cause to be
obtained in the name of Buyer, replacements for such bonds, letters of credit and guarantees, to
the extent such replacements are necessary to permit the cancellation of the bonds, letters of
credit and guarantees posted by Seller or to consummate the transactions contemplated by this
Agreement.

     20.24 No Third-Party Beneficiaries.

     Nothing in this Agreement shall entitle any Person other than Buyer and Seller to any Claims,
remedy or right of any kind, except as to those rights expressly provided to Seller

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Indemnitees and Buyer Indemnitees (provided, however, any Indemnity Claim hereunder on behalf of a Seller
Indemnitee or a Buyer Indemnitee must be made and administered by a Party to this Agreement).

[Signature Page to Follow]

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

	 	 	 	 	 
	 	SELLER:

Encore Operating, L.P.
 	 
	 	By:  	EAP Operating, LLC
 	 
	 	 	Its General Partner 	 
	 
	 	 	 
	 	By:  	/s/ H. Raymond Dubuisson
 	 
	 	 	Name:  	H. Raymond Dubuisson 	 
	 	 	Title:  	Vice President-Legal 	 
	 
	 	BUYER:

Quantum Resources Management, LLC

 	 
	 	By:  	/s/
Mark P. Castiglione	 
	 	 	Mark P. Castiglione, 	 
	 	 	Vice President-Business Development 	 
	 

     Denbury Resources Inc. executes this Agreement solely for the limited purpose provided in
Section 20.4(b) and none other.

	 	 	 	 	 
	 	Denbury Resources Inc.

 	 
	 	By:  	/s/
H. Raymond Dubuisson 	 
	 	 	H. Raymond Dubuisson, 	 
	 	 	Vice President-Legal 	 
	 

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