Document:

Exhibit
10.1

THIS AGREEMENT is made this  29 day of  June 2004

B E T W E E
N :

(1)                                           GFI HOLDINGS LIMITED (“the Company”) of GFI House, 9 Hewett Street,
London EC2A 3RP; and

(2)                                            RONALD DANIEL LEVI (“the Employee”) of 47 West Heath Drive, London
NW11 7QG

together “the Parties”.

1.                                      DEFINITIONS

1.1                                 In
this Agreement unless the context otherwise requires:

1.1.1                        “Group” means any company which is from time to time a
holding company or parent undertaking of the Company, a subsidiary or
subsidiary undertaking of the Company or a subsidiary or subsidiary undertaking
of any such holding company or parent undertaking. The expressions “subsidiary”
and “holding company” shall have the meaning ascribed to them by sections 736
and 736A of the Companies Act 1985 and “parent undertaking” and “subsidiary
undertaking” shall have the meanings ascribed to them by sections 258, 259 and
260 of the Companies Act 1985.

1.1.2                        “Associated Company” means any company within the Group and
references to Associated Companies and Associated Company shall be construed
accordingly.

1.1.3                        “Board” means  the
board of directors of GFI Group Inc for the time being (including any duly
appointed sub-committee of the said Board.

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1.1.4                        “Commencement Date” means the date the Employee commences
Employment pursuant to the terms of this Agreement as stated in Clause 3;

1.1.5                        “Employment” means the employment of the Employee by the
Company pursuant to the terms of this Agreement;

1.1.6                        “Confidential Information” means all information which may be imparted in confidence or be of a confidential
nature including but not limited to all information relating to the business or
prospective business, current or projected plans, objectives or internal
affairs of the Company or the Group, all know-how, marketing information,
trade secrets, research and product development, client lists (including without limitation, the identities or
clients, names, addresses, contacts and the clients’ business status or needs),
sensitive employee information (including without limitation information
relating to the skill, compensation and benefits of employees) unpublished information relating to the Company’s
or any Group company’s Intellectual Property, and any other operational,
commercial, financial or technical information relating to the business or
prospective business of the Company or any Group company, or to any client,
customer or potential client or customer or supplier or potential supplier,
licensee, officer or employee of the Company or any Group company, or to any
member or person interested in the share capital of the Company or any Group
company.

1.1.7                        “Intellectual Property” includes letters, patents,
trademarks, designs, utilities, models, processes, copyright including design
copyrights, applications for any of the foregoing and the right to apply for
them in any part of the world, discoveries, creations, inventions or
improvements upon or additions to any invention, database rights, Confidential
Information, know-how and research effort relating to any of the above mentioned,
moral rights and any similar rights in any country, whether registered or
unregistered.

1.1.8                        “Documents” means documents,
disks, memory, notebooks, tapes, or any other medium, whether or not eye-readable,
on which information (whether confidential or otherwise) may from time to time
be referred to, written or recorded.

1.2                                 The
headings and marginal headings to the clauses are for convenience only and have
no legal effect.

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1.3                                 Words
denoting the singular include the plural and vice versa;  words denoting one gender include all
genders; words denoting persons include companies, all other similar types of
organisation, corporations, unincorporated associations and partnerships.

1.4                                 All
references to statutory provisions or enactments shall include references to
any consolidating legislation involving the provisions, enactments and
regulations referred to and any amendment, modification or re-enactment of any
such provision or enactment (whether on or before the date of this Agreement),
to any previous enactment which has been replaced or amended, and to any
regulation or order made under such provision or enactment.

2.                                      INTRODUCTION

2.1                                 This
Agreement includes those particulars of your Appointment which are required to
be given to you under the Employment Rights Act 1996, as amended. This Agreement is supplemented by the GFI Company
Handbook (“the Handbook”) as provided at clause 17.6 below. A copy of the
Handbook shall be provided to you by the Company. Should there be any
inconsistency between this Agreement and the contents of the Handbook, the
terms of this Agreement shall prevail.

2.2                                 You
warrant and confirm that at the Commencement Date under this Agreement you will
be under no legally valid and enforceable obligation to any third party which
is in any way inconsistent with or which imposes any restriction against you
commencing or continuing Employment with the Company.

2.3                                 You
further warrant and confirm that your performance of all of the terms of this
Agreement will not breach any agreement to keep in confidence any confidential
information, knowledge or data acquired by you in confidence or in trust prior
to your employment with the Company and that you will not disclose to the
Company or induce the Company to use any confidential information or material
belonging to any previous employer or others.

3.                                      APPOINTMENT

3.1                                 Your
employment under this Agreement shall commence on 1 April 2004 (the “Commencement Date”), and shall continue thereafter,
subject to earlier termination in accordance with clause 16, until terminated
by either party giving to the other not less than 6 (six) months notice in
writing.

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3.2                                 The
Company appoints you and you agree to serve the Company as Managing Director — GFI London & Europe or
in such other capacity as may be agreed between the parties from time to time.

3.3                                 Your
continuous employment with the Company commenced on 19 August 1993.

4.                                      JOB
TITLE AND DUTIES

4.1                                 During
the Term, in addition to your implied duty of fidelity and your duties as a
director at law, you shall:

4.1.1                        devote the
whole of your time and attention and the full benefit of your knowledge,
expertise, skills and ability in the proper performance of your duties to the
Company (unless on holiday as permitted by this Agreement or prevented by
ill-health or accident);

4.1.2                        faithfully
and diligently perform your duties and exercise and carry out such powers and
functions consistent with them as may from time to time be assigned to or
vested in you by or under the authority of the Board;

4.1.3                        obey all
lawful and reasonable directions given to you by or under the authority of the
Board, and save as inconsistent with the express terms of this Agreement, all
applicable rules and regulations from time to time laid down by the
Company concerning its employees.

4.1.4                        at all
times use your best endeavours to promote and protect the interests and welfare
and to maintain the goodwill of the Company and any Associated Company and to
exercise all reasonable endeavours to prevent there being done anything that is
or may be prejudicial or detrimental to the Company or any Associated Company;

4.1.5                        keep the
Board promptly and fully informed (in writing if so requested) of your  conduct of the business or affairs of the
Company and/or any Associated Company and provide such explanations in respect
of all matters as the Board may reasonably require;

4.1.6                        not at any
time make any untrue or misleading statement relating to the Company or any
Associated Company or omit to bring to the Board’s attention any matter
relevant to or that in any material way may affect the business or commercial
operation of the Company or any Associated

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Company.
Further, you shall promptly disclose to the Board any information which comes
into your possession or attention which affects adversely or may affect
adversely the Company or any Associated Company or the business of the Company
or any Associated Company. Such information shall include but not be limited to
the plans of any employee (other than you) to leave the Company or any
Associated Company (whether alone or in concert with other employees) the plans
of any employee (other than you) (whether alone or in concert with other
employees), to join a competitor or to establish a business in competition with
the Company or any Associated Company, any steps taken by an employee other
than you to implement either of such plans or the misuse by any employee of any
Confidential Information belonging to the Company or any Associated Company.

4.2                                 For the avoidance of
doubt, you shall, if reasonably required by the Board, and in addition to the
duties you carry out for the Company, carry out duties for and/or act in a
capacity as an employee for any Associated Company wherever situated and
without further fees or remuneration. Any duties that you may have under this
Agreement will be deemed to extend to such Associated Company. For the
avoidance of doubt, the Company shall not be entitled to require you to cease
to carry out your duties as Managing Director — GFI — London and Europe for the
Company without your prior consent.

4.3                                 You agree that you
will not offer to any third party or accept from any other party any benefit
whether financial or in kind (other than your proper remuneration from the
Company) and you further agree that you will not accept or offer gifts or
hospitality other than by way of a token nature from any person or business
with whom you are involved on the Company’s or Associated Company’s business.

4.4                                 Your job description
may following consultation with you from time to time be amended by the Company
and in addition to the duties set out above, you may from time to time be
required following consultation with you by the Board to undertake additional
or other duties, consistent with your status and seniority and your appointment
under Clause 3.2, as necessary to meet the needs of the business of the
Company, and any Associated Company.

4.5                                 You shall not publish
any literature, deliver any lecture or make any communication to the Press,
broadcasting or other media relating to the business of the Group without the
approval of the Board but should such prior approval be granted

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                                                copyright
in any such publication or lecture notes will belong absolutely to the Company.

4.6                                 Unless you have
obtained the prior written consent of the Board, you shall not during your
Employment by the Company carry on or be concerned, engaged, or interested,
directly or indirectly (whether as principal, shareholder, partner, employee,
officer, agent or otherwise), in any trade, business, or occupation, other than
that of the Company or any Associated Company, and shall not engage in any
other activity which the Company reasonably considers may impair your ability
to perform your duties under this Agreement, save that you may hold an interest in any units of any authorised unit
trust and an interest of not more than 3% in any class of shares or other
securities of any company which are traded on a recognised investment exchange
..

4.7                                 The prior written
consent of the Board may be given subject to such terms and conditions as the
Board shall decide (each of which shall be considered to be a term of this
Agreement), and the Board shall have the right to reconsider the consent or the
terms thereof if from time to time it considers that it is in the interests of
the Company to do so.

5.                                      CONDUCT

5.1                                 As Managing Director — GFI London &
Europe, you are an ambassador of the Company and the Group and all Associated
Companies whilst on Company business you will conduct yourself in a
professional and ethical fashion and in a manner that will credit the Company
and any Associated Company’s business and reputation.

6.                                      PLACE
AND HOURS OF WORK

6.1                                 Your
normal place of work will be at the Company’s offices at GFI House, 9 Hewett
Street, London EC2A 3RP or such other location as the Company may from time to
time reasonably require within Greater London.

6.2                                 In
addition you agree to travel and work overseas, staying away for periods of up
to several weeks duration, upon reasonable notice. If you are required to work
outside the United Kingdom for a period exceeding one month, you will be
notified in advance of any additional terms affecting you Employment.

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6.3                                 Your
normal hours of work are not fixed, but are the usual working hours of the
Company and such additional hours as may be necessary for the proper
performance of your duties. You will not be entitled to any further
remuneration for such additional hours worked.

6.4                                 To
the extent that the provisions of the Working Time Regulations 1998 apply to
your Employment, you agree to work longer than a 48 hour week on average if
required, and that you shall not withdraw such agreement without providing the
Company with three months’ written notice of such withdrawal.

7.                                      REMUNERATION

7.1                                 During your Employment,
subject to you complying with your obligations and duties under this Agreement,
the Company shall pay you a basic salary of £200,000 per
annum (the Salary”) which shall accrue from day-to-day and be payable by bank
credit transfer in equal monthly instalments in accordance with the Company’s standard
payroll practices from time to time. The Salary shall be deemed to include any
fees receivable by you as a Director of the Company, any Associated Company or
of any other company or unincorporated body in which you hold office as nominee

7.2                                 In
addition to the payments and benefits pursuant to clause 7.1 above you may also be eligible to
receive a discretionary bonus. The payment of and the amount of any such
discretionary bonus shall be at the absolute discretion of the Board.  To be eligible to receive such a bonus you
must be employed by the Company at the date of payment and not yourself have
given notice of termination of employment or be in fundamental breach of
contract.

7.3                                 Upon
termination of your Employment, the Company reserves the right to deduct from
any sums payable to you any monies which are owed by you to the Company or to
any Associated Company.

8.                                      OTHER
BENEFITS

8.1                                 Upon commencement of your Employment, you will
be entitled to participate in such medical and permanent disability insurance
schemes as the Company may from time to time operate, subject to the rules of
the schemes, details of which are available from the Human Resources
Department.

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8.2                                 Upon commencement of your Employment hereunder,
you will be entitled to life assurance benefits in accordance with the Company’s
death in service plan applicable to you from time to time, which plan will
provide for at least four times the Salary as provided for in clause 7.1
herein, as amended from time to time.

8.3                                 The Company runs a defined
contribution pension scheme for employees. You will be eligible to join the
Company’s defined contribution pension scheme and the Company will contribute a
maximum of 5% of your annual salary, as provided for in sub-clause 4.1 herein
(or as may be amended from time to time), subject to the Inland Revenue
Earnings cap, and to a matching employee contribution.

9.                                      EXPENSES

9.1                                 You are entitled to be
reimbursed for all reasonable documented out of pocket expenses, wholly,
exclusively and necessarily incurred by you in the performance of your duties
(including entertainment and travelling expenses) in accordance with the
Company’s standard policy from time to time in respect of such expenses.

10.                               HOLIDAY

10.1                           The
Company’s holiday year runs from 1 January to 31 December.

10.2                           In
addition to UK public and bank holidays, you are entitled to 25 days’ paid holiday in each holiday year to be taken at such
time or times as may be agreed with the Board. You are not permitted, without
the prior written consent of the Board, to carry forward any unused part of
your holiday entitlement to a subsequent holiday year and any such unused
holiday will be forfeited without payment in lieu.

10.3                           If your
Employment commences or terminates part way through the holiday year, your
entitlement to holidays during that year will be assessed on a pro rata basis. Holiday
shall accrue at the rate of 2.08 days per calendar month of Employment.

10.4                           Upon
termination of your Employment for whatever reason, you shall either be
entitled to pay in lieu of outstanding holiday entitlement or be required to
repay to the Company (or the Company shall be entitled to make a deduction from
your remuneration and by executing this Agreement you consent to any such
deduction) any salary received for holiday taken in excess of your actual
entitlement. The basis for payment and repayment shall be 1/265 of your Salary for each day’s holiday not
taken, or taken in excess of the accrued entitlement.

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10.5                           The
Company reserves the right to direct the timing of up to five days’ holiday
each year. Full details of this will be advised to you in advance if
appropriate. Requests for all other holiday days should, if appropriate, be
submitted to the Board as far in advance as possible.

11.                               SICKNESS

11.1                           If you are absent from
the office because of illness, injury or other circumstances, you shall notify
the Company of the reason for your absence no later than 10.00am on the first
day of such absence, giving a full explanation of the reasons for your absence.
If for any reason you are unable to make personal contact with the Company, you
should ensure that somebody contacts the Company on your behalf.

11.2                           If you
return to work following such a period of absence of seven days or less, you
must complete a self-certification form before midday on the first day back at
work which will be retained in the Company’s records. If you are absent for
more than seven consecutive days, you shall provide a medical practitioner’s
certificate on the eighth day and weekly thereafter so that your whole period
of absence is certified by such certificates.

11.3                           Upon
completion of six months continuous Employment with the Company if you are
absent due to sickness or injury duly certified in accordance with the
provisions of this clause 11 at the discretion of the Company you shall be
entitled to be paid your full salary for up to two months absence and
thereafter half of your full salary for a further two months in any sick pay
year which runs from 1st January to 31st December. Any further entitlement shall be to
statutory sick pay only. Any remuneration paid during such absence shall be
inclusive of any statutory sick pay to which you are entitled and any social
security sickness benefit or other benefits recoverable by you (whether or not
recovered) may be deducted there from.

11.4                           You
agree that you will at the expense of the Company and if directed to do so at
any time undergo a medical examination by a medical practitioner nominated by
the Company and that the Company shall be entitled to be supplied with and
retain a copy of any medical report, diagnosis or prognosis made or produced in
relation to any such medical examination and to discuss the same with the
practitioner who produced such report, diagnosis or prognosis.

11.5                           The
Company reserves the right to cease payment of any Salary or statutory sick pay
during any period of sickness absence where you fail to notify the Company of

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                                                your
absence on the first day of such absence or if you fail to comply with any of
the  certification provisions above.

11.6                           If you
are absent from work by reason of injury sustained wholly or partly as a result
of actionable negligence, nuisance or breach of any statutory duty on the part
of any third party other than any Associated Company of the Company, the
Company in its discretion may require you to take all reasonable steps to
recover compensation including repayment of all sums paid to you by the Company
under this clause in respect of such absence. Any such sum shall be repaid by
you when and to the extent that you recover compensation for loss of earnings
from that third party by action or otherwise less any reasonable costs incurred
in recovering any such compensation.

11.7                           The
Company reserves the right to terminate your employment without notice or
payment in lieu of notice if you are absent from work due to sickness or injury
for a period of 26 consecutive weeks or 150 days in any sick pay year provided
that doing so would not prejudice any entitlement you may have to benefit under
a permanent disability scheme operated by the Company.

12.                               CONFIDENTIAL
INFORMATION

12.1                           During
your Employment, and subsequently without limit of time you may not, except in
the proper course of your duties as an employee of the Company or thereafter,
divulge to any person, firm, company or organisation whatsoever, and shall use
your best endeavours to prevent the unauthorised publication or disclosure of,
any Confidential Information concerning the organisation, business, clients,
suppliers or finances of the Company (or any Associated Company) or any of its
dealings, transactions or affairs which may come to your knowledge during or in
the course of your employment and you shall keep with complete secrecy all
Confidential Information entrusted to you and shall not use or attempt to use
any such Confidential Information in any manner which may injure or cause loss
either directly or indirectly to the Company (or any Associated Company) or its
business or its clients or may be likely to do so. For the avoidance of doubt,
this provision shall not apply to information or knowledge which has become
public other than by unauthorised disclosure or prevent you following
termination of this agreement from using your acquired knowledge and
experience.

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12.2                           You
shall not during the continuance of this Agreement make or copy otherwise than
for the benefit of the Company (or if you have the prior written authority of
the Board for the benefit of any Associated Company) any data held on computer
disks or tapes or otherwise, notes, memoranda or other Documents of any nature
on any media relating to any matter within the scope of the business of the
Company (or any Associated Company) or concerning any of its dealings or
affairs with clients or whatsoever nor shall you either during the continuance
of this Agreement or afterwards use or permit to be used any such data,
computer disks or tapes, notes, memoranda or Documents otherwise than for the
benefit of the Company (or if you have the prior written authority of the Board
for the benefit of any Associated Company), it being the intention agreed by
the parties to this Agreement that all such computer data, notes, memoranda or
Documents made or copied by you are the property of the Company and shall be
left at the Company’s premises where you have been working upon the termination
of your Employment.

12.3                           After
the termination of your Employment, you shall not at any time or for any
purpose use the name of the Company (or any Associated Company) in connection
with your own business or the business of another or any other name in any way
calculated or likely to suggest that you are or have been connected with the
Company’s (or any Associated Company’s) business nor shall you use any
information which you may have acquired in the course of or as incident to your
employment concerning the Company (or any Associated Company), its business or
affairs or any customer or client of the Company (or any Associated Company)
for your own benefit or to the detriment or intended or probable detriment of
the Company (or any Associated Company) SAVE THAT this
restraint shall not prohibit you from disclosing the name of the Company (or
any Associated Company) on a bona fide curriculum vitae.

12.4                           You
acknowledge and agree that the obligations of confidentiality contained in this
clause 12 shall extend to Confidential Information belonging to
clients/customers of the Company (or any Associated Company) or suppliers to
the Company (or any Associated Company) or other third parties who may have
disclosed or entrusted the same to the Company (or any Associated Company) or
to you in the course of the Company’s (or any Associated Company’s) business.

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13.                               POST-TERMINATION
PROTECTIVE COVENANTS

13.1                           You
acknowledge that your skills and position as a senior executive of the Company
are unique and difficult to replace without substantial loss to the Company,
that you are being highly compensated for your unique and special skills and
that the Company has invested and will continue to invest significant resources
to develop your skills and to encourage and assist you to develop, expand and
maintain important relationships with customers and other business relationships
on behalf of the Company and the Group.  You further acknowledge that during the course
of your Employment you will, among other things be privy to Confidential
Information. Accordingly, you hereby covenant and agree that:

a)                                      During your
employment, and

b)                                    At
the Company’s option, exercisable no later than 7 (seven) days after the date
of termination of your employment, provided always that the Company shall
continue to pay to you an amount equivalent to your pre-termination salary and
pension contributions plus the average of the Bonus paid to you in respect of
the previous two years of your employment appropriately apportioned.You shall
not for a period of up to 3 (three) months after the termination of your
Employment, either on your own or for any other person, concern, undertaking
firm or corporate body, directly or indirectly, without the Board’s prior
written consent:

13.1.1                  interfere with
or entice, solicit or induce or endeavour to interfere with or entice, solicit
or induce away from the Company or any Associated Company, any person who at
the date of termination of your Employment or at any time during the 12
(twelve) month period immediately prior to such termination, is or was a
Relevant Employee employed by the Company or any Associated Company, and with
whom you have had material dealings in the performance of your duties at any
time during the 12 (twelve) month period immediately prior to the termination
of your Employment.

13.1.2                  work in the
business of any person who was, during the 12 (twelve) months prior to the date
of termination of your Employment, a Relevant Employee employed by the Company
or any Associated Company and with whom you had material dealings during the
course of your Employment, provided always that this restriction shall not
prevent you from working in a business

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which
relates solely or exclusively to services of a kind or nature with which you
shall not have been concerned at all during the 12 (twelve) month period
immediately prior to the termination of your Employment;

13.1.3                  in relation to
any business supplying services which are either the same, or similar to, or in
competition with those which you shall have supplied on behalf of the Company
or any Associated Company at any time during the 12 (twelve) month period
immediately prior to the termination of your Employment, interfere with or
entice, solicit or induce or endeavour to interfere with or entice, solicit or
induce away from the Company any client or customer or prospective client or
customer of the Company or of any Associated Company, with whom you shall have
had material dealings during the performance of your duties at any time during
the 12 (twelve) month period immediately prior to the termination of your
Employment;

13.1.4                  in relation to
any business supplying services which are either the same, or similar to, or in
competition with those which you shall have supplied on behalf of the Company
or any Associated Company at any time during the 12 (twelve) month period
immediately prior to the termination of your Employment, interfere with, deal
with or accept the custom of any client or customer or prospective client or
customer of the Company or of any Associated Company, with whom you shall have
had material dealings during the performance of your duties at any time during
the 12 (twelve) month period immediately prior to the termination of your
Employment.

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13.2                           For the
purposes of this Agreement, “Relevant Employee” shall mean any employee of the
Company or any Associated Company who is either :

13.2.1 a broker of more than 2 (two) years experience;

13.2.2 and / or paid a basic salary of £40,000 or more;

13.2.3 and /or a Desk Head;

13.2.4 and / or a Manager;

13.2.5 and / or a Director; and / or

13.2.6 any individual involved in Senior Management.

13.3                           For the
purposes of this Agreement, Senior Management shall mean any person who is paid
£50,000 per annum or more and who is either a Director and / or whose
responsibilities include the management and supervision of others, including
but not limited to back office settlement, technology, marketing, accounting or
administrative managers of more than two years experience and broking desk
managers.

13.4                           You agree that the
restrictions contained in this clause 13 are considered reasonable, but in the
event that any such restriction shall be found to be void but would be valid if
some part or parts were deleted, or the period or periods reduced, such
restriction shall apply with such modification as may be necessary to make it
valid and effective.

13.5                           You further
agree that each of the restrictions contained in this clause 13 is an entirely
separate, severable and independent restriction on you.

13.6                           Should the Company exercise
its entitlement pursuant to the provisions of clause 16.5 herein to place you
on Garden Leave during all or any part of your notice period, the period of the
restrictions set out in 13.1 shall be reduced by such period or periods as the
Company has elected to place you on Garden Leave.

13.7                           You
agree that if the Company transfers all or part of its business to a third
party (“the Transferee”), the restrictions contained in this clause 13 shall,
with effect from the date of your becoming an employee of the Transferee, apply
to you as if

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                                                references
to the Company included the Transferee and references to any Associated Company
are construed accordingly and as if references to customers or clients or
suppliers are of the Company and/or the Transferee and their respective
Associated Companies.

13.8                           You agree that you will show
a copy of this Agreement including these Post Termination Protective Covenants
to any future employer immediately upon any offer or assurance of employment
being made (whether orally or in writing) where you are to commence employment
with such employer before the expiration of 3 ( three) months following the
termination of the Employee’s Employment under this Agreement.

13.9                           The Company reserves the
right to send any prospective employer a copy of this Agreement to put such
prospective employer on notice that you are subject to the Post Termination
Protective Covenants set out above.

13.10                     If, during
your Employment with the Company, you receive any offer or assurance of
employment from a third party, whether oral or in writing, you agree that you
will disclose the fact of that offer or assurance to the Board immediately
after it is made and/or received.

13.11                     You confirm
and agree that you have had sufficient time to consider and have received
independent legal advice in respect of the effect of and potential liability
attaching to the Post Termination Protective Covenants and obligations
contained in this Clause 13.

14.                               INTELLECTUAL PROPERTY

14.1                           You
acknowledge and agree that the Intellectual Property (subject to the provisions
of Section 39 Patents Act 1977) discovered, developed, created or produced
by you alone or with others (except only those originated, conceived, written
or made by you wholly outside your normal working hours which are wholly
unconnected with your Employment) shall be the absolute property of the Company
and until such rights are fully and absolutely vested in the Company, you shall
hold them in trust for the Company absolutely.

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14.2                           You
shall immediately disclose to the Board any Intellectual Property discovered,
developed, created or produced by you alone or with others to enable the
Company to ascertain whether it was discovered, developed or produced wholly
outside your normal working hours and was wholly unconnected with your
Employment.

14.3                           You
hereby assign to the Company by way of future assignment for the full terms
thereof throughout the world all Intellectual Property originated, conceived,
written or made by you (except only those works originated, conceived, written
or made by you wholly outside your normal working hours which are wholly
unconnected with your Employment) during your Employment by the Company.

14.4                           You agree at the request of the Company (and
notwithstanding the termination of your Employment, however arising) to sign
and execute all such documents and do all such acts as the Company may
reasonably require:-

14.4.1                  to apply for and obtain in the sole name of the
Company alone (unless the Company otherwise directs) patent, registered design,
or other protection of any nature whatsoever in respect of the Intellectual
Property in any country throughout the world and, when so obtained, to renew
and maintain the same;

14.4.2                  to resist any objection or opposition to
obtaining, and any petitions or applications or revocation of, any such patent,
registered design or other protection; and

14.4.3                  to bring proceedings for infringement of any
such patent, registered design or other protection.

14.5                           For the avoidance of
doubt, the Company will pay all reasonable expenses incurred by you in
discharging your obligations under this Clause 14. You agree that you will not
be entitled to any other remuneration in respect of these obligations.

14.6                           You hereby irrevocably appoint the Company to be
your attorney to execute any such deeds and documents, to take such action and
to generally to use your name to enable the Company (or its nominee) to enjoy
the full benefit of any rights granted to it by this clause. A certificate in
writing signed by a Director or the Secretary of the Company that any
instrument or act falls within the authority conferred by this clause shall be
conclusive evidence that such is the case.

 16
 

 

14.7                           If notwithstanding the provisions of this clause
the Intellectual Property is not the property of the Company the Company shall
subject to the provisions of the Patents Act 1977 have the right to acquire for
itself or its nominee your rights in the Intellectual Property within three
months after disclosure pursuant to this clause 14 on fair and reasonable terms
to be agreed or settled by a single arbitrator appointed by the Parties or in
absence of agreement between them the president for the time being of the Law
Society.

14.8                           The
Company shall decide, in its sole discretion, whether and when to apply for
patent, registered design or other protection in respect of the Intellectual
Property and reserves the right to work any of the Intellectual Property as a
secret process in which event you should observe the obligations relating to
Confidential Information which are contained in Clause 12 of this Agreement.

14.9                           You
recognise the Company’s need to be able to deal without fetter any Intellectual
Property in the creation of which you may have been involved as a result of
your employment and you hereby irrevocably waive all moral rights as defined in
Chapter IV of Part I Copyright Designs and Patents Act 1988 in which
copyright or design right is vested in the Company whether by this Clause 14 or
otherwise.

14.10                     The rights and obligations under this clause
shall continue in force after termination of this Agreement in respect of Intellectual
Property made during your Employment under this Agreement and shall be binding
on your representatives.

15.                               RETURN
OF COMPANY PROPERTY

15.1                           At any
time at the request of the Company and in any event upon termination of your
Employment you (or if you shall be dead, of unsound mind or bankrupt, your
personal representatives or such other persons as shall be appointed to
administer your estate or affairs) shall immediately deliver up to the Company
all property in your possession, custody or under your control, belonging to
the Company or any Associated Company including but not limited to keys,
security and computer passes, computer hardware, facsimile machines and all
documents and other records (whether on paper, magnetic tape, CD Rom or any other
kind of computer disk, or in any other form and including correspondence, lists
of clients or customers, notes, memoranda, software, plans, drawings and other
Documents and records of whatsoever nature and all copies thereof) made or
compiled or acquired by you during your Employment with the Company and
concerning the business, finances or affairs of the Company or any Associated
Company including, for the avoidance

 17
 

 

of
doubt, the business, finances or affairs of the clients/customers of the
Company or any Associated Company.

16.                               SUSPENSION
AND TERMINATION

16.1                           Notwithstanding
the provisions of clause 3.1 of this Agreement, the Company may by written
notice terminate your Employment summarily without notice at any time if you
commit an act or acts of gross misconduct or in circumstances where the Company
is entitled to do so at law, including but without limitation:

16.1.1                  your substantial and continuing failure to
render services in accordance with your assigned duties;

16.1.2                  conviction for an indictable offence or for any
offence which results in a sentence of imprisonment being passed whether
immediate or suspended;

16.1.3                  negligence, dishonesty, breach of fiduciary
duty or material breach of the terms of this Agreement;

16.1.4                  your inability to meet or comply with the
regulations set by any regulatory bodies or should you fail any regulatory
requirements which render you unable to perform your duties for the Company;

16.1.5                  being guilty of conduct or permitting or
suffering events tending in the reasonable opinion of the Board to bring you,
the Company, or any Associated Company into disrepute;

16.1.6                  becoming prevented by any applicable law or
regulation, including being disqualified as a Director by any competent
authority, from continuing as a Director of the Company or any Associated
Company or performing any of your duties under this Agreement;

16.1.7                  becoming unable to pay your debts for the
purposes of Section 268 of the Insolvency Act 1986, or claiming the
benefit of any Act for the time being in force for the relief of insolvent
debtors, or having proposed or made any arrangements or composition with your
creditors;

 18
 

 

16.1.8                  becoming of unsound mind or a patient as
defined in either Section 112 or Section 145 of the Mental Health Act
1983, or being admitted to a hospital in pursuance of an application made under
Part 11 of that Act;

16.1.9                  in the reasonable opinion of the Company you
are incompetent in the performance of your duties;

16.1.10             you are found liable, following a full
investigation by the Company, of any serious act of discrimination prohibited
by law, whether such act or acts results in legal proceedings being brought
against the Company (or any Associated Company) or not.

16.2                           Any
delay by the Company in exercising any right to termination shall not
constitute a waiver of such right.

16.3                           If your Appointment shall be terminated (by
operation of law or otherwise) on or in connection with the sale of the whole
or a substantial part of the business or undertaking of the Company or on or in
connection with the sale by the Company of any Associated Company or on or by
reason of the liquidation of the Company for the purpose of reconstruction or
amalgamation (whether or not by reason of insolvency) and you shall be offered
employment with any concern or undertaking resulting from such reconstruction
or amalgamation on terms and conditions no less favourable than the terms of
this Agreement (apart from the identity of the Company) then you shall have no
claim against the Company in respect of the termination of your Employment
hereunder.

16.4                           Once
notice to terminate your Employment has been given either by either party or if
you seek to terminate your Employment under this Agreement in breach of
contract the Company shall be under no obligation to vest in or assign you any
powers or duties or to provide any work for you and may exclude you from the
premises of the Company and any Associated Company provided always that salary
plus the average of the Bonus paid to you in respect of the previous two years
of your employment appropriately apportioned and all other contractual
benefits, do not cease to be payable or provided by reason only of the Company
exercising its rights pursuant to this clause (“Garden Leave”). This clause
shall not affect the general right of the Company to suspend you for good cause
nor shall it affect the rights and obligations of the parties accrued prior to
the service of such notice.

 19
 

 

16.5                           Once
notice to terminate your Employment has been given either by either party or if
you seek to terminate your Employment under this Agreement in breach of
contract the Company may require you to resign from any directorship or other
office that you hold with the Company or any Associated Company and upon being
so required you shall be deemed simultaneously to submit your resignation and
shall have no claim or right of action against the Company or any Associated
Company for compensation, damages or otherwise in respect of such resignation
save that this provision shall not otherwise prejudice any of your rights in
respect of the termination of this Agreement or of your Employment.

17.                               MISCELLANEOUS
PROVISIONS

17.1                           You
warrant and confirm that you have not entered into any agreement, arrangement
or understanding, whether written or oral, with any supplier, contractor,
subcontractor or customer, relating to the business of the Company or any
Associated Company.

17.2                           The
expiration or termination of this Agreement shall not operate to affect such
of  the provisions of this Agreement as
are expressed to operate or have effect after then and shall be without
prejudice to any accrued rights or remedies of the Parties.

17.3                           The
validity, construction and performance of this Agreement shall be governed by
English law. All disputes claims or proceedings between the Parties relating to
the validity, construction or performance of this Agreement shall be subject to
the exclusive jurisdiction of the High Court of Justice in England and Wales to
which the Parties irrevocably submit.

17.4                           Any
notice to be given by a Party under this Agreement must be in writing and must
be given by delivery at or by sending first class post or other faster postal
service, or telex, facsimile transmission or other means of telecommunication
in permanent written form (provided the addressee has his own facilities for
receiving such transmissions) to the last known postal address or relevant
telecommunications number of the other Party. Where notice is given by sending
in a prescribed manner it shall be deemed to have been received at the time at
which the letter was delivered personally or transmitted or if sent by post, 48
hours after posting. To prove the giving of a notice it shall be sufficient to
show it was despatched.

17.5                           The
terms contained in this Agreement are such terms contained in the Handbook
which are stated to have contractual force embody the entire agreement between

 20
 

 

                                                the
Parties in relation to your Employment and all other agreements or
arrangements, whether written or oral, express or implied, between the Parties
relating to your services save as referred to in this Agreement shall be deemed
to have been cancelled and longer in effect.

17.6                           A
contracting-out certificate pursuant to the Pension Schemes Act 1993 is not in
force.

IN WITNESS
whereof you have signed as a deed and the Company has signed the date and year
first before written.

SIGNED by Ronald Daniel Levi                           )

in the presence of                                                    )

SIGNED by 
Sheena Griffiths                                )

for and on behalf of                                                 )

GFI Holdings Limited

 21Exhibit 10.1

 

PURCHASE AND SALE AGREEMENT

 

BETWEEN

 

DRILLING & XTRACTION, L.P.

 

OLOMA ENERGY, LP

 

WESTHOFF RANCH, LP

 

COOKIN WITH GAS, LP

 

JC 2 UNDER PAR, LP

 

and

 

McDOWELL PARTNERS, LP

 

AS SELLERS

 

AND

 

WHITTIER ENERGY COMPANY

 

AS BUYER

 

 

TABLE OF CONTENTS

 

	
  Article I 

  	
  Assets

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Agreement to Sell and Purchase

  	
  1

  
	
  Section 1.02

  	
  Assets

  	
  1

  
	
  Section 1.03

  	
  Excluded Assets

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article II 

  	
  Purchase Price

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Purchase Price

  	
  3

  
	
  Section 2.02

  	
  Deposit

  	
  3

  
	
  Section 2.03

  	
  Allocated Values

  	
  3

  
	
  Section 2.04

  	
  Effective Time

  	
  4

  
	
   

  	
   

  	
   

  
	
  Article III 

  	
  Title Matters

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Examination Period

  	
  4

  
	
  Section 3.02

  	
  Defensible Title and Permitted Encumbrances

  	
  4

  
	
  Section 3.03

  	
  Title Defect

  	
  7

  
	
  Section 3.04

  	
  Notice of Title Defects

  	
  7

  
	
  Section 3.05

  	
  Remedies for Title Defects.

  	
  8

  
	
  Section 3.06

  	
  Special Warranty of Title

  	
  9

  
	
  Section 3.07

  	
  No Preferential Rights

  	
  9

  
	
  Section 3.08

  	
  Consents to Assignment

  	
  9

  
	
  Section 3.09

  	
  Remedies for Title Benefits.

  	
  9

  
	
   

  	
   

  	
   

  
	
  Article IV 

  	
  Environmental Matters

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Environmental Review.

  	
  10

  
	
  Section 4.02

  	
  Environmental Definitions.

  	
  11

  
	
  Section 4.03

  	
  Notice of Environmental Defects

  	
  12

  
	
  Section 4.04

  	
  Remedies for Environmental Defects.

  	
  12

  
	
   

  	
   

  	
   

  
	
  Article V 

  	
  Representations and Warranties of Sellers

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Sellers’ Existence

  	
  13

  
	
  Section 5.02

  	
  Legal Power

  	
  13

  
	
  Section 5.03

  	
  Execution

  	
  14

  
	
  Section 5.04

  	
  Brokers

  	
  14

  
	
  Section 5.05

  	
  Bankruptcy

  	
  14

  
	
  Section 5.06

  	
  Suits

  	
  14

  
	
  Section 5.07

  	
  Royalties

  	
  14

  
	
  Section 5.08

  	
  Taxes

  	
  14

  
	
  Section 5.09

  	
  Contracts

  	
  14

  
	
  Section 5.10

  	
  Liens

  	
  14

  
				

 

i

 

	
  Article VI 

  	
  Representations and Warranties of Buyer

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Buyer’s Existence

  	
  14

  
	
  Section 6.02

  	
  Legal Power

  	
  15

  
	
  Section 6.03

  	
  Execution

  	
  15

  
	
  Section 6.04

  	
  Brokers

  	
  15

  
	
  Section 6.05

  	
  Bankruptcy

  	
  15

  
	
  Section 6.06

  	
  Suits

  	
  15

  
	
  Section 6.07

  	
  Qualifications

  	
  15

  
	
  Section 6.08

  	
  Investment

  	
  15

  
	
   

  	
   

  	
   

  
	
  Article VII 

  	
  Sellers’ Conditions to Close

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Representations

  	
  16

  
	
  Section 7.02

  	
  Performance

  	
  16

  
	
  Section 7.03

  	
  Pending Matters

  	
  16

  
	
  Section 7.04

  	
  Purchase Price

  	
  16

  
	
  Section 7.05

  	
  Execution and Delivery of the Closing Documents

  	
  16

  
	
  Section 7.06

  	
  Consents and Preferential Rights to Purchase

  	
  16

  
	
   

  	
   

  	
   

  
	
  Article VIII 

  	
  Buyer’s Conditions to Close

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Representations

  	
  16

  
	
  Section 8.02

  	
  Performance

  	
  16

  
	
  Section 8.03

  	
  Pending Matters

  	
  17

  
	
  Section 8.04

  	
  Execution and Delivery of the Closing Documents

  	
  17

  
	
  Section 8.05

  	
  Consents and Preferential Rights to Purchase

  	
  17

  
	
   

  	
   

  	
   

  
	
  Article IX 

  	
  Tax Matters

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  Transfer Taxes

  	
  17

  
	
  Section 9.02

  	
  Ad Valorem and Similar Taxes

  	
  17

  
	
  Section 9.03

  	
  Tax Deferred Exchange

  	
  17

  
	
   

  	
   

  	
   

  
	
  Article X 

  	
  The Closing

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 10.01

  	
  Time and Place of the Closing

  	
  18

  
	
  Section 10.02

  	
  Adjustments to Purchase Price at the Closing.

  	
  18

  
	
  Section 10.03

  	
  Closing Statement

  	
  19

  
	
  Section 10.04

  	
  Actions of Sellers at the Closing.

  	
  19

  
	
  Section 10.05

  	
  Actions of Buyer at the Closing.

  	
  20

  
	
   

  	
   

  	
   

  
	
  Article XI 

  	
  Termination

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.01

  	
  Right of Termination

  	
  20

  
	
  Section 11.02

  	
  Effect of Termination

  	
  21

  
	
  Section 11.03

  	
  Termination Damages.

  	
  21

  
	
  Section 11.04

  	
  Attorneys’ Fees, Etc

  	
  22

  
				

 

ii

 

	
  Article XII 

  	
  Post Closing Obligations

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 12.01

  	
  Allocation of Expense and Revenues.

  	
  22

  
	
  Section 12.02

  	
  Final Accounting Statement.

  	
  23

  
	
  Section 12.03

  	
  Further Cooperation

  	
  24

  
	
   

  	
   

  	
   

  
	
  Article XIII 

  	
  Operation of the Assets

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 13.01

  	
  Operations after Effective Time

  	
  24

  
	
  Section 13.02

  	
  Limitations on the Operational Obligations and Liabilities of Sellers

  	
  25

  
	
  Section 13.03

  	
  Operation of the Assets After the Closing

  	
  25

  
	
  Section 13.04

  	
  Casualty Loss.

  	
  26

  
	
  Section 13.05

  	
  Operatorship

  	
  26

  
	
  Section 13.06

  	
  Transition Period

  	
  26

  
	
   

  	
   

  	
   

  
	
  Article XIV 

  	
  Obligations and Indemnification

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 14.01

  	
  Retained Obligations

  	
  27

  
	
  Section 14.02

  	
  Assumed Obligations

  	
  27

  
	
  Section 14.03

  	
  Buyer’s Indemnification

  	
  27

  
	
  Section 14.04

  	
  Sellers’ Indemnification – Third Party Non-Environmental Claims

  	
  28

  
	
  Section 14.05

  	
  Sellers’ Indemnification – Third Party Environmental Claims

  	
  28

  
	
  Section 14.06

  	
  Notices and Defense of Indemnified Matters

  	
  28

  
	
   

  	
   

  	
   

  
	
  Article XV 

  	
  Limitations on Representations and Warranties

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 15.01

  	
  Disclaimers of Representations and Warranties

  	
  29

  
	
  Section 15.02

  	
  Independent Investigation

  	
  30

  
	
  Section 15.03

  	
  Survival

  	
  30

  
	
   

  	
   

  	
   

  
	
  Article XVI 

  	
  Dispute Resolution

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 16.01

  	
  General

  	
  30

  
	
  Section 16.02

  	
  Senior Management

  	
  30

  
	
  Section 16.03

  	
  Dispute by Independent Expert.

  	
  30

  
	
  Section 16.04

  	
  Limitation on Arbitration

  	
  31

  
	
   

  	
   

  
	
  Article XVII 

  	
  Miscellaneous

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 17.01

  	
  Names

  	
  31

  
	
  Section 17.02

  	
  Expenses

  	
  31

  
	
  Section 17.03

  	
  Entire Agreement

  	
  31

  
	
  Section 17.04

  	
  Waiver

  	
  32

  
	
  Section 17.05

  	
  Publicity

  	
  32

  
	
  Section 17.06

  	
  Construction

  	
  32

  
	
  Section 17.07

  	
  No Third Party Beneficiaries

  	
  32

  
	
  Section 17.08

  	
  Assignment

  	
  32

  
	
  Section 17.09

  	
  Governing Law

  	
  32

  
	
  Section 17.10

  	
  Notices

  	
  32

  
	
  Section 17.11

  	
  Severability

  	
  33

  
	
  Section 17.12

  	
  Time of the Essence

  	
  33

  
				

 

iii

 

	
  Section 17.13

  	
  Audit Rights

  	
  33

  
	
  Section 17.14

  	
  Counterpart Execution

  	
  33

  
	
   

  	
   

  	
   

  
	
  EXHIBITS AND SCHEDULES

  
	
   

  	
   

  
	
  Exhibit A – Subject Interests (Listing of Leases)

  
	
   

  
	
  Exhibit B – Wells and Interests

  
	
   

  
	
  Exhibit C – Allocated Values

  
	
   

  
	
  Exhibit D – Assignment and Bill of Sale

  
	
   

  
	
  Schedule 1.03 – Excluded Assets

  
	
   

  
	
  Schedule 5.06 – Existing Claims and Litigation

  

 

iv

 

PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”) is made and entered
into this 1st day of May, 2006, by and between Drilling & Xtraction,
L.P., a Texas limited partnership, Oloma Energy, LP, a Louisiana limited
partnership, Westhoff Ranch, LP, a Texas limited partnership, Cookin’ With Gas,
LP, a Texas limited partnership, JC 2 Under Par, LP, a Texas limited
partnership, and McDowell Partners, LP, a Texas limited partnership,
(individually each a “Sellers” and collectively, “Sellers”) and Whittier Energy
Company, a Nevada corporation (the “Buyer”). Buyer and Sellers are collectively
referred to herein as the “Parties”, and are sometimes referred to individually
as a “Party.”

 

W I T N E S S E T H:

 

WHEREAS, Sellers are willing to sell to Buyer, and Buyer is willing to
purchase from Sellers, the Assets (as defined in Section 1.02), all upon
the terms and conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the mutual benefits derived and to
be derived from this Agreement by each Party, Sellers and Buyer hereby agree as
follows:

 

Article I

Assets

 

Section 1.01           Agreement
to Sell and Purchase. Subject to and in accordance with the terms and
conditions of this Agreement, Buyer agrees to purchase the Assets from Sellers,
and Sellers agree to sell to Buyer an undivided 75% interest in the Assets,
from the surface to a drill depth of 7,500 feet, and an undivided 18.75%
interest in the Assets, from a drill depth below 7,500 feet.

 

Section 1.02           Assets.
Subject to Section 1.03 and limitations set forth in Exhibits A and B described
below, the term “Assets” shall mean all of Sellers’ right, title and interest
in and to:

 

(a)           the
leasehold estates in and to the oil, gas and mineral leases described or
referred to in Exhibit A (the “Leases”) and any overriding royalty
interests in and to the lands covered by the Leases, assignments and other
documents of title described or referred to in Exhibit A, all as more
specifically described in Exhibit A (collectively, the “Subject Interests,”
or singularly, a “Subject Interest”);

 

(b)           all
rights incident to the Subject Interests, including, without limitation, (i) all
rights with respect to the use and occupation of the surface of and the
subsurface depths under the Subject Interests; (ii) all rights with
respect to any pooled, communitized or unitized acreage by virtue of any
Subject Interest being a part thereof, including all Hydrocarbons (as
defined in Subsection (d) of this Section 1.02) production after
the Effective Time (as defined in Section 2.04) attributable to the
Subject Interests or any such pool or unit allocated to any such Subject
Interest;

 

 

(c)           to
the extent assignable or transferable, all easements, rights-of-way, surface
leases, servitudes, permits, licenses, franchises and other estates or similar
rights and privileges directly related to or used solely in connection with the
Subject Interests (the “Easements”), including, without limitation, the
Easements described or referred to in Exhibit A;

 

(d)           to
the extent assignable or transferable, all personal property, equipment,
fixtures, inventory and improvements located on or used in connection with the
Subject Interests and the Easements or with the production, treatment, sale, or
disposal of oil, gas or other hydrocarbons (collectively, “Hydrocarbons”),
byproducts or waste produced therefrom or attributable thereto, including,
without limitation, all wells located on the lands covered by the Subject
Interests or on lands with which the Subject Interests may have been
pooled, communitized or unitized (whether producing, shut in or abandoned, and
whether for production, injection or disposal), including, without limitation,
the wells described in Exhibit B, wellhead equipment, pumps, pumping
units, flowlines, gathering systems, piping, tanks, buildings, treatment
facilities, injection facilities, disposal facilities, compression facilities,
and other materials, supplies, equipment, facilities and machinery
(collectively, “Personal Property”);

 

(e)           to
the extent assignable or transferable, all contracts, agreements and other arrangements
that directly relate to the Subject Interests, the Leases or the Easements,
including, without limitation, production sales contracts, farmout agreements,
operating agreements, service agreements and similar arrangements
(collectively, the “Contracts”);

 

(f)            to
the extent assignable or transferable, copies of all books, records, files,
muniments of title, reports and similar documents and materials, including,
without limitation, lease records, well records, and division order records,
well files, title records (including abstracts of title, title opinions and
memoranda, and title curative documents related to the Assets), contracts and
contract files, correspondence, that relate to the foregoing interests in the
possession of, and maintained by, Sellers (collectively, the “Records”); and

 

(g)           all
geological and geophysical data relating to the Subject Interests, other than
such data that is interpretive in nature or which cannot be transferred without
the consent of or payment to any Third Party. For purposes of this Agreement, “Third
Party” means any person or entity, governmental or otherwise, other than
Sellers or Buyer, and their respective affiliates; the term includes, but is
not limited to, working interest owners, royalty owners, lease operators,
landowners, service contractors and governmental agencies.

 

Section 1.03           Excluded
Assets. Notwithstanding the foregoing, the Assets shall not include, and
there is excepted, reserved and excluded from the sale contemplated hereby 

 

2

 

(collectively,
the “Excluded Assets”): (a) all credits and refunds and all accounts,
instruments and general intangibles (as such terms are defined in the Texas Uniform Commercial
Code) attributable to the Assets with respect to any period of time prior to
the Effective Time; (b) all claims of Sellers for refunds of or loss carry
forwards with respect to (i) ad valorem, severance, production or any
other taxes attributable to any period prior to the Effective Time, (ii) income
or franchise taxes, or (iii) any taxes attributable to the other Excluded
Assets, and such other refunds, and rights thereto, for amounts paid in
connection with the Assets and attributable to the period prior to the
Effective Time, including refunds of amounts paid under any gas gathering or
transportation agreement; (c) all proceeds, income or revenues (and any
security or other deposits made) attributable to (i) the Assets for any
period prior to the Effective Time, or (ii) any other Excluded Assets; (d) all
of Sellers’ proprietary computer software, technology, patents, trade secrets,
copyrights, names, trademarks, logos and other intellectual property; (e) all
of Sellers’ rights and interests in geological and geophysical data that is
interpretive in nature or which cannot be transferred without the consent of or
payment to any Third Party; (f) all documents and instruments of Sellers
that may be protected by an attorney-client privilege; (g) data and
other information that cannot be disclosed or assigned to Buyer as a result of
confidentiality or similar arrangements under agreements with persons
unaffiliated with Sellers; (h) all audit rights arising under any of the
Contracts or otherwise with respect to any period prior to the Effective Time or
to any of the other Excluded Assets; (i) all corporate, partnership,
income tax records of Sellers; (j) the original of all Records; and (i) in
addition to the foregoing, those items, such as vehicles and certain equipment,
supplies and office equipment, or any other items or property interests
described on Schedule 1.03.

 

Article II

Purchase Price

 

Section 2.01           Purchase
Price. The total consideration for the purchase, sale and conveyance of the
Assets to Buyer is Buyer’s payment to Sellers of the sum of Nineteen Million
Nine Hundred Thousand Dollars ($19,900,000) (the “Purchase Price”), as adjusted
in accordance with the provisions of this Agreement. The Purchase Price shall
be increased by interest on the Purchase Price from the date of this Agreement
until the Closing Date (as defined in Section 10.01), calculated based on
the number of calendar days and simple interest of 5% using a 365 day year (“Computed
Interest”). The adjusted Purchase Price shall be paid to Sellers (or their
designees) at Closing (as defined in Section 10.01) by means of a
completed federal funds transfer to an account designated in writing by
Sellers.

 

Section 2.02           Deposit.
Concurrently with the execution of this Agreement by Buyer and Sellers, Buyer
shall deliver to Sellers a performance guarantee deposit in the amount of five
percent (5%) of the Purchase Price (the “Deposit”). The Deposit shall be paid
by Buyer to Sellers by means of a completed federal funds transfer to the
account of Westhoff Ranch, LP on behalf of Sellers, Account No. 0200025666,
at Coppermark Bank, ABA Routing Number 111024467. The Deposit shall bear
interest at the Computed Interest rate and shall be subject to the terms of
this Agreement.

 

Section 2.03           Allocated
Values. The Purchase Price is allocated among the Assets as set forth in Exhibit C
attached hereto (the “Allocated Values”). Sellers and Buyer agree that the
Allocated Values shall be used to compute any adjustments to the Purchase Price
pursuant to the 

 

3

 

provisions of Article III
and Article IV. In regards to Assets having upside potential, Exhibit C
should be as specific as possible regarding target reserve formation and
location.

 

Section 2.04           Effective
Time. If the transactions contemplated hereby are consummated in accordance
with the terms and provisions hereof, the ownership of the Assets shall be
transferred from Sellers to Buyer on the Closing Date, and effective as of 7:00 a.m.
local time where the Assets are located on February 1, 2006 (the “Effective
Time”).

 

Article III

Title Matters

 

Section 3.01           Examination
Period. Following the execution date of this Agreement until 5:00 p.m.,
local time in Houston, Texas on the date twenty (20) Business Days after the
execution of this Agreement (the “Examination Period”), Sellers shall permit
Buyer and/or its representatives to examine, at all reasonable times, in the
office of Encon Services, Inc. in Abilene, Texas, all abstracts of title,
title opinions, title files, ownership maps, lease files, contract files,
assignments, division orders, operating and accounting records and agreements
pertaining to the Assets insofar as same may now be in existence and in
the possession of Sellers, subject to such restrictions on disclosure as may exist
under confidentiality agreements or other agreements binding on Sellers or such
data. “Business Days” means all calendar days excluding Saturdays, Sundays and
U.S. legal holidays.

 

Section 3.02           Defensible
Title and Permitted Encumbrances. For purposes of this Agreement, the term “Defensible
Title” means, with respect to a given Asset, such cumulative ownership by
Sellers in such Asset that, subject to and except for the Permitted
Encumbrances (as defined in Subsection (d) of this Section 3.02):

 

(a)           entitles
Sellers to receive not less than the percentage set forth in Exhibit B as
Sellers’ “Net Revenue Interest” of all Hydrocarbons produced, saved and
marketed from each well or unit as set forth in Exhibit B, all without
reduction, suspension or termination of such interest throughout the productive
life of such well, except for carried interests, production payments,
reversionary interest or other changes in interest in time as specifically set
forth in Exhibit B;

 

(b)           obligates
Sellers to bear not greater than the percentage set forth in Exhibit B as
Sellers’ “Working Interest” of the costs and expenses relating to the
maintenance, development and operation of each well or unit as set forth in Exhibit B,
all without increase throughout the productive life of such well, except for
carried interests, production payments, reversionary interest or other changes
in interest in time as specifically set forth in Exhibit B; and

 

(c)           is
free and clear of all liens, encumbrances and defects in title.

 

(d)           The
term “Permitted Encumbrances” shall mean any of the following matters to the
extent the same are valid and subsisting and affect the Assets:

 

4

 

(i)            the
Leases, and Contracts;

 

(ii)           any
(A) undetermined or inchoate liens or charges constituting or securing the
payment of expenses that were incurred incidental to the maintenance,
development, production or operation of the Assets or for the purpose of
developing, producing or processing Hydrocarbons therefrom or therein, and (B) materialman’s,
mechanics’, repairman’s, employees’, contractors’, operators’ liens or other
similar liens or charges for liquidated amounts arising in the ordinary course
of business (1) that any Sellers has agreed to assume or pay pursuant to
the terms hereof, or (2) for which any Sellers is responsible for paying
or releasing at the Closing;

 

(iii)          any
liens for taxes and assessments not yet delinquent or, if delinquent, that are
being contested in good faith in the ordinary course of business and for which any
Sellers has agreed to pay pursuant to the terms hereof or which have been
prorated pursuant to the terms hereof;

 

(iv)          the
terms, conditions, restrictions, exceptions, reservations, limitations and
other matters contained in (including any liens or security interests created
by law or reserved in oil and gas leases for royalty, bonus or rental, or
created to secure compliance with the terms of) the agreements, instruments and
documents that create or reserve to any Sellers its interest in the Assets, provided
that such matters do not operate to reduce the cumulative Net Revenue Interests
of Sellers below those set forth on Exhibit B, or increase the cumulative
Working Interests of Sellers above those set forth on Exhibit B without a
corresponding increase in the Net Revenue Interests;

 

(v)           any
obligations or duties affecting the Assets to any municipality or public
authority with respect to any franchise, grant, license or permit and all
applicable laws, rules, regulations and orders of any Governmental Authority
(as defined in Section 4.02(b));

 

(vi)          any
(A) easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, pipelines, grazing, hunting,
lodging, canals, ditches, reservoirs or the like, and (B) easements for
streets, alleys, highways, pipelines, telephone lines, power lines, railways
and other similar rights-of-way on, over or in respect of property owned or
leased by Sellers or over which Sellers own rights-of-way, easements, permits
or licenses, to the extent that same do not materially interfere with the oil
and gas operations to be conducted on the Assets;

 

5

 

(vii)         all
lessors’ royalties, overriding royalties, net profits interests, carried interests,
production payments, reversionary interests and other burdens on or deductions
from the proceeds of production created or in existence as of the Effective
Time, whether recorded or unrecorded, provided that such matters do not operate
to reduce the cumulative Net Revenue Interests of Sellers below those set forth
in Exhibit B or increase the cumulative Working Interests of Sellers above
those set forth in Exhibit B without a corresponding increase in the Net
Revenue Interests;

 

(viii)        preferential
rights to purchase or similar agreements with respect to which (A) waivers
or consents are obtained from the appropriate parties for the transaction
contemplated hereby, or (B) required notices have been given for the
transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise of
such rights;

 

(ix)           required
Third Party consents to assignments or similar agreements with respect to which
(A) waivers or consents are obtained from the appropriate parties for the
transaction contemplated hereby, or (B) required notices have been given
for the transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise of
such rights;

 

(x)            all
rights to consent by, required notices to, filings with, or other actions by
Governmental Authorities in connection with the sale or conveyance of oil and
gas leases or interests therein that are customarily obtained subsequent to
such sale or conveyance;

 

(xi)           production
sales contracts; division orders; contracts for sale, purchase, exchange,
refining or processing of Hydrocarbons; unitization and pooling designations,
declarations, orders and agreements; operating agreements; agreements of
development; area of mutual interest agreements; gas balancing or deferred
production agreements; processing agreements; plant agreements; pipeline,
gathering and transportation agreements; injection, repressuring and recycling
agreements; carbon dioxide purchase or sale agreements; salt water or other
disposal agreements; seismic or geophysical permits or agreements; and any and
all other agreements that have terms that are ordinary and customary to the
oil, gas, sulphur and other mineral exploration, development, processing or
extraction business or in the business of processing of gas and gas condensate
production for the extraction of products therefrom, to the extent the same do
not reduce the Net Revenue Interests of Sellers below those set forth in Exhibit B
or increase 

 

6

 

the Working Interests of
Sellers above those set forth in Exhibit B without a corresponding
increase in the Net Revenue Interest;

 

(xii)          rights
reserved to or vested in any Governmental Authority to control or regulate any
of the Assets and the applicable laws, rules, and regulations of such
Governmental Authorities; and

 

(xiii)         all
defects and irregularities affecting the Assets which individually or in the
aggregate (A) do not operate to (1) reduce the Net Revenue Interest
of Sellers as set forth in Exhibit B, (2) increase the proportionate
share of costs and expenses of leasehold operations attributable to or to be
borne by the Working Interests of Sellers as set forth in Exhibit B, or (B) operate
to increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of Sellers,
so long as there is a proportionate increase in Sellers’ Net Revenue Interest.

 

Section 3.03           Title
Defect. The term “Title Defect,” as used in this Agreement, shall mean: (a) any
encumbrance, encroachment, irregularity, defect in or objection to Sellers’
ownership of any Asset (expressly excluding Permitted Encumbrances) that causes
Sellers not to have Defensible Title to such Asset; or (b) any default by
Sellers under a lease, farmout agreement or other contract or agreement that
would (i) have a adverse affect on the operation, value or use of such
Asset, (ii) prevent Sellers from receiving the proceeds of production
attributable to Sellers’ interest therein or (iii) result in cancellation
of Sellers’ interest therein.

 

Section 3.04           Notice
of Title Defects. If Buyer discovers any Title Defect affecting any Asset,
Buyer shall notify Sellers as promptly as possible, but no later than the
expiration of the Examination Period of such alleged Title Defect. To be
effective, such notice must (i) be in writing, (ii) be received by
Sellers prior to the expiration of the Examination Period, (iii) describe
the Title Defect in sufficient, specific detail (including any alleged variance
in the Net Revenue Interest), (iv) identify the specific Asset or Assets
affected by such Title Defect, and (v) include the value of such Title
Defect as determined by Buyer. Any matters that may otherwise constitute
Title Defects, but of which Sellers have not been specifically notified by
Buyer in accordance with the foregoing, shall be deemed to have been waived by
Buyer for all purposes and shall constitute Permitted Encumbrances.

 

(a)           The
value attributable to each Title Defect (the “Title Defect Value”) that is
asserted by Buyer in the Title Defect notices shall be determined based upon
the criteria set forth below:

 

(i)            If
the Title Defect is a lien upon any Asset, the Title Defect Value is the amount
necessary to be paid to remove the lien from the affected Asset.

 

(ii)           If
the Title Defect asserted is that the Net Revenue Interest attributable to any
well or unit is less than that stated in Exhibit C 

 

7

 

or the Working Interest
attributable to any well or unit is greater than that stated in Exhibit C,
then the Title Defect Value shall take into account the relative change in the
interest from Exhibit C and the appropriate Allocated Value attributed to
such Asset.

 

(iii)          The
Title Defect Value of a Title Defect shall be determined without duplication of
any costs or losses included in another Title Defect Value hereunder.

 

(iv)          Notwithstanding
anything herein to the contrary, in no event shall a Title Defect Value exceed
the Allocated Value of the wells, units or other Assets affected thereby.

 

Section 3.05           Remedies
for Title Defects.

 

(a)           Upon
the receipt of such effective notice from Buyer, Sellers and Buyer shall for a
period of five (5) Business Days after the Title Defect Notice attempt to
mutually agree on a resolution including, but if no such resolution is reached,
Sellers may, at their sole option (i) attempt to cure such Title Defect at
any time prior to the Closing, or (ii) exclude the affected Asset from the
sale and reduce the Purchase Price by the mutually agreed allocated value of
such affected Asset.

 

(b)           With
respect to each Title Defect that is not cured on or before the Closing, except
as otherwise provided in this Section 3.05, the Purchase Price shall be
reduced by an amount equal to the Title Defect Value agreed upon in writing by
Buyer and Sellers.

 

(c)           If
any Title Defect is in the nature of an unobtained consent to assignment or
other restriction on assignability, the provisions of Section 3.08 shall
apply.

 

(d)           If
on or before Closing the Parties have not agreed upon the validity of any
asserted Title Defect or have not agreed on the Title Defect Value attributable
thereto, either Party shall have the right to elect to have the validity of
such Title Defect and/or such Title Defect Value determined by an Independent
Expert pursuant to Section 16.03. If the validity of any asserted Title
Defect, or the Title Defect Value attributable thereto, is not determined
before Closing, the Purchase Price paid at Closing shall be reduced by virtue
of such disputed Title Defect or Title Defect Value, and upon the final
resolution of such dispute the Title Defect Value, if any, found to be
attributable to such Title Defect shall, subject to this Section, be paid by
Buyer to Sellers. Notwithstanding the foregoing, the Sellers shall have
unilateral right to exclude the affected Asset from the sale with a
corresponding reduction in the Purchase Price.

 

(e)           Notwithstanding
anything to the contrary in this Agreement, if the value of a given individual
Title Defect (or individual Title Benefit as defined in 

 

8

 

Section 3.09(a)) does not
exceed $250,000, then no adjustment to the Purchase Price shall be made for
such Title Defect (or Title Benefit); however, if the value of a Title Defect
(or Title Benefit) exceeds $250,000, then the total value of such Title Defect
(or Title Benefit) may be asserted and the Purchase Price shall be
adjusted accordingly.

 

Section 3.06           Special
Warranty of Title. Each Sellers hereby agrees to warrant and defend its
title to the Assets solely unto Buyer against every person whomsoever lawfully
claiming or to claim the same or any part thereof, by, through or under
such Sellers, but not otherwise; subject, however, to the Permitted
Encumbrances and the other matters set forth herein. In no event shall the
foregoing warranty extend to or be enforceable by any party other than Buyer,
specifically excluding Buyer’s successors and assigns in all or part of
the Assets.

 

Section 3.07           No
Preferential Rights. Sellers represents that there are no preferential
rights to purchase affecting the Assets.

 

Section 3.08           Consents
to Assignment. Each Sellers shall make a good faith effort to obtain all
necessary consents from third parties to assign the Assets prior to Closing
(other than governmental approvals that are customarily obtained after Closing)
and Buyer shall assist Sellers with such efforts. To the extent such consents
are not obtained prior to Closing and would render the assignment of some or
all of the Assets void or voidable or give rise to a claim for damages as a
result of the failure to obtain such consent, then such failure shall constitute
a Title Defect as to that portion of the Assets affected thereby.

 

Section 3.09           Remedies
for Title Benefits.

 

(a)           If
either Party discovers any Title Benefit during the Examination Period
affecting the Assets, it shall promptly notify the other Party in writing
thereof on or before the expiration of the Examination Period. Subject to Section 3.05,
Sellers shall be entitled to an upward adjustment to the Purchase Price
pursuant to Section 10.02(a)(i) with respect to all Title Benefits,
in an amount mutually agreed upon by the Parties. For purposes of this
Agreement, the term “Title Benefit” shall mean Sellers’ interest in any Subject
Interest that is greater than or in addition to that set forth in Exhibit B
(including, without limitation, a Net Revenue Interest that is greater than
that set forth in Exhibit B) or Sellers’ Working Interest in any Subject
Interest that is less than the Working Interest set forth in Exhibit B
(without a corresponding decrease in the Net Revenue Interest). Any matters
that may otherwise constitute Title Benefits, but of which Buyer has not
been specifically notified by Sellers in accordance with the foregoing, shall
be deemed to have been waived by Sellers for all purposes.

 

(b)           If
with respect to a Title Benefit the Parties are not deemed to have agreed on
the amount of the upward Purchase Price adjustment or have not otherwise agreed
on such amount prior to the Closing Date, Sellers or Buyer shall have the right
to elect to have such Purchase Price adjustment 

 

9

 

determined by an Independent
Expert pursuant to Section 16.03. If the amount of such adjustment is not
determined pursuant to this Agreement by the Closing, the undisputed portion of
the Purchase Price with respect to the Asset affected by such Title Benefit
shall be paid by Buyer at the Closing and, subject to Section 3.05, upon
determination of the amount of such adjustment, any unpaid portion thereof
shall be paid by Buyer to Sellers.

 

Article IV

Environmental Matters

 

Section 4.01           Environmental
Review.

 

(a)           Buyer
shall have the right to conduct or cause a consultant (“Buyer’s Environmental
Consultant”) to conduct an environmental review of the Assets prior to the
expiration of the Examination Period (“Buyer’s Environmental Review”). The cost
and expense of Buyer’s Environmental Review, if any, shall be borne solely by
Buyer. Buyer shall (and shall cause Buyer’s Environmental Consultant to): (i) consult
with Sellers before conducting any work comprising Buyer’s Environmental
Review, (ii) perform all such work in a safe and workmanlike manner
and so as to not unreasonably interfere with Sellers’s operations, and (iii) comply
with all applicable laws, rules, and regulations. Buyer shall be solely
responsible for obtaining any Third Party consents that are required in order
to perform any work comprising Buyer’s Environmental Review, and Buyer
shall consult with Sellers prior to requesting each such Third Party consent.
Sellers shall have the right to have a representative or representatives
accompany Buyer and Buyer’s Environmental Consultant at all times during Buyer’s
Environmental Review. With respect to any samples taken in connection with
Buyer’s Environmental Review, Buyer shall take split samples, providing one of
each such sample, properly labeled and identified, to Sellers. Buyer hereby
agrees to release, defend, indemnify and hold harmless Sellers from and against
all claims, losses, damages, costs, expenses, causes of action and judgments of
any kind or character (INCLUDING THOSE
RESULTING FROM SELLERS’ SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE OR
STRICT LIABILITY) arising out of or relating to Buyer’s
Environmental Review.

 

(b)           Unless
otherwise required by applicable law, Buyer shall (and shall cause Buyer’s Environmental
Consultant to) treat confidentially any matters revealed by Buyer’s
Environmental Review and any reports or data generated from such review (the “Environmental
Information”), and Buyer shall not (and shall cause Buyer’s Environmental
Consultant to not) disclose any Environmental Information to any Governmental
Authority or other Third Party without the prior written consent of Sellers.
Unless otherwise required by law, Buyer may use the Environmental
Information 

 

10

 

only in connection with the
transactions contemplated by this Agreement. If Buyer, Buyer’s Environmental
Consultant, or any Third Party to whom Buyer has provided any Environmental
Information become legally compelled to disclose any of the Environmental
Information, Buyer shall provide Sellers with prompt notice sufficiently prior
to any such disclosure so as to allow Sellers to file any protective order, or
seek any other remedy, as it deems appropriate under the circumstances. If this
Agreement is terminated prior to the Closing, Buyer shall deliver the
Environmental Information to Sellers, which Environmental Information shall
become the sole property of Sellers. Buyer shall provide copies of the
Environmental Information to Sellers without charge.

 

Section 4.02           Environmental
Definitions.

 

(a)           Environmental
Defects. For purposes of this Agreement, the term “Environmental Defect”
shall mean, with respect to any given Asset, an individual environmental
condition that constitutes a violation of Environmental Laws in effect as of
the date of this Agreement in the jurisdiction in which such Asset is located. Environmental
Defect shall not be deemed to include an environmental condition disclosed in
writing to Buyer prior to the execution of this Agreement.

 

(b)           Governmental
Authority. For purposes of this Agreement, the term “Governmental Authority”
shall mean, as to any given Asset, the United States and the state, county,
parish, city and political subdivisions in which such Asset is located and that
exercises jurisdiction over such Asset, and any agency, department, board or
other instrumentality thereof that exercises jurisdiction over such Asset.

 

(c)           Environmental
Laws. For purposes of this Agreement, the term “Environmental Laws” shall
mean all laws, statutes, ordinances, court decisions, rules and
regulations of any Governmental Authority pertaining to health or the
environment as may be interpreted by applicable court decisions or
administrative orders, including, without limitation, the Clean Air Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended (“CERCLA”), the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act, as amended, the Resources
Conservation and Recovery Act, as amended, the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund Amendment
and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and comparable state and local laws.

 

(d)           Environmental
Defect Value. For purposes of this Agreement, the term “Environmental
Defect Value” shall mean, with respect to any Environmental Defect, the value,
as of the Closing Date, of the estimated costs and expenses to correct such Environmental
Defect in the most

 

11

 

cost-effective
manner reasonably available, consistent with Environmental Laws.

 

Section 4.03           Notice
of Environmental Defects. If Buyer discovers any Environmental Defect
affecting the Assets, Buyer shall notify Sellers prior to the expiration of the
Examination Period of such alleged Environmental Defect. To be effective, such
notice must: (i) be in writing; (ii) be received by Sellers prior to
the expiration of the Examination Period; (iii) describe the Environmental
Defect in sufficient, specific detail, including, without limitation, (A) the
written conclusion of Buyer’s Environmental Consultants that an Environmental
Defect exists, which conclusion shall be reasonably substantiated by the
factual data gathered in Buyer’s Environmental Review, and (B) a separate
specific citation of the provisions of Environmental Laws alleged to be
violated and the related facts that substantiate such violation; (iv) identify
the specific Assets affected by such Environmental Defect, including, without
limitation, a site plan showing the location of all sampling events, boring
logs and other field notes describing the sampling methods utilized and the
field conditions observed, chain-of-custody documentation and laboratory
reports; (v) identify the procedures recommended to correct the
Environmental Defect, together with any related recommendations from Buyer’s
Environmental Consultant; and (vi) state Buyer’s estimate of the
Environmental Defect Value, including the basis for such estimate, for which
Buyer would agree to adjust the Purchase Price in order to accept such
Environmental Defect if Sellers elected Section 4.04(b) as the remedy
therefor. Any matters that may otherwise constitute Environmental Defects,
but of which Sellers has not been specifically notified by Buyer in accordance
with the foregoing, together with any environmental matter that does not
constitute an Environmental Defect, shall be deemed to have been waived by
Buyer for all purposes and constitute an Assumed Obligation (as defined in Section 14.02).

 

Section 4.04           Remedies
for Environmental Defects.

 

(a)           Upon
the receipt of such effective notice from Buyer, Sellers and Buyer shall
attempt for a period of five (5) Business Days after the Environmental
Defect Notice to mutually agree on a resolution. If the Parties do not reach
such resolution, Sellers may, at their sole option (i) attempt to cure
such Environmental Defect at any time prior to the Closing; or (ii) exclude
the affected Asset from the sale and reduce the Purchase Price by the allocated
value of such affected Asset.

 

(b)           If
any Environmental Defect described in a notice delivered in accordance with Section 4.03
is not cured on or before the Closing, then the Purchase Price shall be reduced
by the Environmental Defect Value of such Environmental Defect as agreed by the
Parties.

 

(c)           If
on or before Closing Buyer and Sellers have not agreed as to the validity of
any asserted Environmental Defect, or if the Parties have not agreed on the
Environmental Defect Value therefor, then either Party shall have the right to
elect to have validity of the asserted Environmental Defect, and/or the
Environmental Defect Value for such Environmental Defect, determined by an
Independent Expert pursuant to Section 16.03. If the validity of any such
asserted Environmental Defect or the amount of any 

 

12

 

such Environmental Defect Value
is not determined by the Closing, the Asset affected by such disputed
Environmental Defect shall be excluded from the Closing and the Purchase Price
paid at Closing shall be reduced by the value allocated to that Asset. Upon
resolution of such dispute, the Environmental Defect Value, if any, found to be
attributable to such Environmental Defect shall, subject to this Section 4.04,
be paid by Sellers to Buyer and the Asset conveyed to the Buyer, if that is part of
the mutually agreed settlement. Notwithstanding the foregoing, the Sellers shall
have unilateral right to exclude the affected Asset from the sale.

 

(d)           Notwithstanding
anything to the contrary in this Agreement, if the Environmental Defect Value
for a given individual Environmental Defect does not exceed $250,000, then no
adjustment to the Purchase Price shall be made for such Environmental Defect;
however, if the aggregate value of an Environmental Defect, exceeds $250,000
then the total value of such Environmental Defect may be asserted and the
Purchase Price shall be reduced accordingly.

 

Article V

Representations and Warranties of Sellers

 

Each respective Sellers represents and warrants to Buyer that:

 

Section 5.01           Sellers’
Existence. Except for Oloma Energy, LP, each Sellers is a limited
partnership, duly organized and validly existing under the laws of the State of
Texas and is qualified to conduct business in the State of Texas. Each Sellers
has full legal power, right and authority to carry on its business as such is
now being conducted and as contemplated to be conducted. Except for Oloma
Energy, LP, each Sellers’s headquarters and principal offices are all located
in the State of Texas. Oloma Energy, LP is a limited partnership, duly
organized and validly existing under the laws of the State of Louisiana. Oloma
Energy, LP has full legal power, right and authority to carry on its business
as such is now being conducted and as contemplated to be conducted. Oloma
Energy, LP’s headquarters and principal offices are all located in the State of
Louisiana.

 

Section 5.02           Legal
Power. Each Sellers has the legal power and right to enter into and perform this
Agreement and the transactions contemplated hereby. The consummation of the
transactions contemplated by this Agreement will not violate, nor be in
conflict with:

 

(a)           any
provision of each Sellers’s agreement of limited partnership or other governing
documents;

 

(b)           except
for any preferential purchase rights and consents to assignment, any material
agreement or instrument to which a Sellers is a party or by which a Sellers is
bound; or

 

(c)           any
judgment, order, ruling or decree applicable to a Sellers as a party in
interest or any law, rule or regulation applicable to a Sellers.

 

13

 

Section 5.03           Execution.
The execution, delivery and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite
partnership or corporate action on the part of Sellers. This Agreement
constitutes the legal, valid and binding obligation of Sellers enforceable in
accordance with its terms.

 

Section 5.04           Brokers.
Tristone Capital LP has acted for or on behalf of Sellers or any affiliate of
Sellers in connection with this Agreement or the transactions contemplated by
this Agreement. No broker or finder is entitled to any brokerage or finder’s
fee, or to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Sellers or any affiliate of Sellers for
which Buyer has or will have any liabilities or obligations (contingent or
otherwise).

 

Section 5.05           Bankruptcy.
There are no bankruptcy, reorganization or arrangement proceedings pending,
being contemplated by or to the knowledge of Sellers threatened against Sellers.
The term “Knowledge” shall mean with respect to a Sellers, the actual knowledge
of Sellers’s current personnel with a supervisory, or higher, level.

 

Section 5.06           Suits.
There is no suit, action, claim, investigation or inquiry by any person or
entity or by any administrative agency or Governmental Authority and no legal,
administrative or arbitration proceeding pending or, to each Sellers’s
Knowledge, threatened against Sellers or any affiliate of Sellers or the Assets
that has materially affected or will materially affect Sellers’ ability to
consummate the transactions contemplated herein or materially affect the title
to or value of the Assets except as shown on Schedule 5.06.

 

Section 5.07           Royalties.
To each Sellers’s Knowledge, all rentals, royalties and other payments due
under the Subject Interests described in Exhibit A have been paid in all
material respects, except those amounts in suspense.

 

Section 5.08           Taxes.
To each Sellers’s Knowledge, all ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the ownership
of the Assets or the production of Hydrocarbons or the receipt of proceeds
therefrom that have become due and payable have been paid in all material
respects.

 

Section 5.09           Contracts.
To each Sellers’s Knowledge, (a) all material Contracts are in full force
and effect, and (b) Sellers are not in default with respect to any of its
material obligations thereunder.

 

Section 5.10           Liens.
Except for Permitted Encumbrances, the Assets will be conveyed free and clear
of all liens, mortgages and encumbrances.

 

Article VI

Representations and Warranties of Buyer

 

Buyer represents and warrants to Sellers that:

 

Section 6.01           Buyer’s
Existence. Buyer is a corporation, duly organized and validly existing
under the laws of the State of Nevada and is qualified to conduct business in
the State of Texas. Buyer has full legal power, right and authority to carry on
its business as such is now 

 

14

 

being
conducted and as contemplated to be conducted. Buyer’s headquarters and
principal offices are all located in the State of Texas.

 

Section 6.02           Legal
Power. Buyer has the legal power and right to enter into and perform this
Agreement and the transactions contemplated hereby. The consummation of the
transactions contemplated by this Agreement will not violate, nor be in
conflict with:

 

(a)           any
provision of Buyer’s agreement of limited partnership or other governing
documents;

 

(b)           any
material agreement or instrument to which Buyer is a party or by which Buyer is
bound; or

 

(c)           any
judgment, order, ruling or decree applicable to Buyer as a party in interest or
any law, rule or regulation applicable to Buyer.

 

Section 6.03           Execution.
The execution, delivery and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite corporate
action on the part of Buyer. This Agreement constitutes the legal, valid
and binding obligation of Buyer enforceable in accordance with its terms.

 

Section 6.04           Brokers.
No broker or finder has acted for or on behalf of Buyer or any affiliate of
Buyer in connection with this Agreement or the transactions contemplated by
this Agreement. No broker or finder is entitled to any brokerage or finder’s
fee, or to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Buyer or any affiliate of Buyer for
which Sellers have or will have any liabilities or obligations (contingent or
otherwise).

 

Section 6.05           Bankruptcy.
There are no bankruptcy, reorganization or arrangement proceedings pending,
being contemplated by or to the knowledge of Buyer threatened against Buyer or
any affiliate of Buyer.

 

Section 6.06           Suits.
There is no suit, action, claim, investigation or inquiry by any person or
entity or by any administrative agency or Governmental Authority and no legal,
administrative or arbitration proceeding pending or, to Buyer’s knowledge,
threatened against Buyer or any affiliate of Buyer that has materially affected
or will materially affect Buyer’s ability to consummate the transactions
contemplated herein.

 

Section 6.07           Qualifications.
Buyer is now, and after the Closing shall continue to be, qualified with all
applicable Governmental Authorities to own and operate the Assets and has, and
shall maintain, all necessary bonds to own and operate the Assets.

 

Section 6.08           Investment.
Prior to entering into this Agreement, Buyer was advised by and has relied
solely on its own legal, tax and other professional counsel concerning this
Agreement, the Assets and the value thereof. Buyer is acquiring the Assets for
its own account and not for distribution or resale in any manner that would
violate any state or federal securities law, rule, regulation or order. Buyer
understands and acknowledges that if any of the Assets were held to be
securities, they would be restricted securities and could not be transferred 

 

15

 

without
registration under applicable state and federal securities laws or the
availability of an exemption from such registration.

 

Article VII

Sellers’ Conditions to Close

 

The obligations of Sellers to consummate the transaction provided for
herein are subject, at the option of Sellers, to the fulfillment on or prior to
the Closing Date of each of the following conditions:

 

Section 7.01           Representations.
The representations and warranties of Buyer herein contained shall be true and
correct in all material respects on the Closing Date as though made on and as
of such date.

 

Section 7.02           Performance.
Buyer shall have performed all material obligations, covenants and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing.

 

Section 7.03           Pending
Matters. No suit, action or other proceeding shall be pending or threatened
that seeks to restrain, enjoin or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.

 

Section 7.04           Purchase
Price. Buyer shall have delivered to Sellers the Purchase Price, as the
same may be adjusted hereunder, in accordance with the provisions of Article II.

 

Section 7.05           Execution
and Delivery of the Closing Documents. Buyer shall have executed,
acknowledged and delivered, as appropriate, to Sellers all closing documents
described in Section 10.05.

 

Section 7.06           Consents
and Preferential Rights to Purchase. Subject to Section 3.07 and 3.08,
all appropriate consents have been obtained and preferential rights to purchase
have been either exercised by the preferential right holder or the time period
for election to purchase has elapsed.

 

Article VIII

Buyer’s Conditions to Close

 

The obligations of Buyer to consummate the transaction provided for
herein are subject, at the option of Buyer, to the fulfillment on or prior to
the Closing Date of each of the following conditions:

 

Section 8.01           Representations.
The representations and warranties of Sellers herein contained shall be true
and correct in all material respects on the Closing Date as though made on and
as of such date.

 

Section 8.02           Performance.
Sellers shall have performed all material obligations, covenants and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing.

 

16

 

Section 8.03           Pending
Matters. No suit, action or other proceeding shall be pending or threatened
that seeks to restrain, enjoin, or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.

 

Section 8.04           Execution
and Delivery of the Closing Documents. Sellers shall have executed,
acknowledged and delivered, as appropriate, to Buyer all closing documents
described in Section 10.04.

 

Section 8.05           Consents
and Preferential Rights to Purchase. Subject to Section 3.07 and 3.08,
all appropriate consents have been obtained and preferential rights to purchase
have been either exercised by the preferential right holder or the time period
for election to purchase has elapsed.

 

Article IX

Tax Matters

 

Section 9.01           Transfer
Taxes. All sales, use or other taxes (other than taxes on gross income, net
income or gross receipts) and duties, levies, recording fees or other
governmental charges incurred by or imposed with respect to the property
transfers undertaken pursuant to this Agreement shall be the responsibility of,
and shall be paid by, Buyer.

 

Section 9.02           Ad
Valorem and Similar Taxes. Ad valorem, property, severance and similar
taxes and assessments based upon or measured by the value of the Assets shall
be divided or prorated between Sellers and Buyer as of the Effective Time. Sellers
shall retain responsibility for such taxes attributable to the period of time
prior to the Effective Time and Buyer shall assume responsibility for the
period of time from and after the Effective Time.

 

Section 9.03           Tax
Deferred Exchange. Either or both Buyer and/or Sellers may, at or before
the Closing, elect to affect a tax-deferred exchange of the Assets for other
qualifying properties (hereinafter collectively called the “Exchange Property”)
in accordance with the following:

 

(a)           In
the event Sellers make such an election prior to the Closing, Sellers may elect,
by notice to Buyer delivered on or before the Closing Date, to have the
Purchase Price paid to a qualified intermediary until Sellers have designated
the Exchange Property. The Exchange Property shall be designated by Sellers and
acquired by the qualified intermediary within the time periods prescribed in Section 1031(a)(3) of
the Internal Revenue Code, and shall thereupon be conveyed to Sellers. In the
event Sellers fail to designate and the qualified intermediary fails to acquire
the Exchange Property within such time periods, the agency or trust shall
terminate and the proceeds then held by the qualified intermediary shall be
paid immediately to Sellers.

 

(b)           In
the event Buyer makes such an election prior to the Closing, Buyer may elect,
by notice to Sellers delivered on or before the Closing Date, to have the
Assets conveyed to a qualified intermediary or an exchange 

 

17

 

accommodation titleholder (as
that term is defined in Rev. Proc. 2000-37 issued effective September 15,
2000).

 

(c)           The
rights and responsibilities of Sellers, Buyer and the qualified intermediary or
exchange accommodation titleholder shall be documented with such agreements
containing such terms and provisions as shall be reasonably determined by
Sellers and Buyer to be necessary to accomplish a tax deferred exchange under Section 1031
of the Internal Revenue Code, subject, however, to the limitations on costs and
liabilities of Buyer and Sellers set forth below. If Sellers makes a tax
deferred exchange election, Buyer shall not be obligated to pay any additional
costs or incur any additional obligations in the acquisition of the Assets. If
Buyer makes a tax deferred exchange election, Sellers shall not be obligated to
pay any additional costs or incur any additional obligations in the
consummation of the transactions contemplated in this Agreement. Any such tax
deferred exchange election by either Party shall not affect the duties, rights
or obligations of the Parties except as expressly set forth in this Section 9.03.

 

Should either
Sellers or Buyer make such an election and should the tax deferred exchange
fail or be disallowed by the Internal Revenue Service for any reason, the
non-electing party’s sole responsibility and liability to the electing party
shall be to take such actions as are required by subsections (a), (b) or (c) above
and such non-electing party shall have no other responsibility or liability
whatsoever to the electing party; and the electing party shall release,
indemnify, defend and hold harmless the non-electing party from any
responsibility or liability related to such election except for such actions as
may be required by subsections (a), (b) or (c) above.

 

Article X

The Closing

 

Section 10.01         Time
and Place of the Closing. If the conditions referred to in Articles VII and
VIII of this Agreement have been satisfied or waived in writing, and subject to
any extensions pursuant to Sections 3.04, 4.03 or 10.02, the transactions
contemplated by this Agreement (the “Closing”) shall take place at the offices
of Locke Liddell & Sapp LLP, whose address is 3400 JP Morgan Chase
Tower, 600 Travis Street, Houston, Texas 77002 on or before June 1, 2006
(the “Closing Date”).

 

Section 10.02         Adjustments
to Purchase Price at the Closing.

 

(a)           At
the Closing, the Purchase Price shall be increased by the following amounts:

 

(i)            all
upward Purchase Price adjustments for Title Benefits determined in accordance
with Article III;

 

(ii)           any
other amount provided for in this Agreement or agreed upon by Buyer and Sellers
including those in Section 12.01(d);

 

18

 

(iii)          Computed
Interest on the Purchase Price; and

 

(iv)          an
estimate of any and all transfer, sales, gross receipts, compensating use or
similar taxes, or assessments resulting from the transaction.

 

(b)           At
the Closing, the Purchase Price shall be decreased by the following amounts:

 

(i)            the
Allocated Value of any Subject Interest sold prior to the Closing to the holder
of a preferential right pursuant to Section 3.07;

 

(ii)           all
downward Purchase Price Adjustment for Title Defects and Environmental Defects
determined in accordance with Article III and Article IV;

 

(iii)          any
other amount provided for in this Agreement or agreed upon by Buyer and
Sellers; and

 

(iv)          the
Deposit and any Computed Interest on the Deposit.

 

(c)           The
adjustments described in Sections 10.02(a) and (b) are hereinafter
referred to as the “Purchase Price Adjustments.”

 

Section 10.03         Closing
Statement. Not later than three (3) Business Days prior to the Closing
Date, Sellers shall prepare and deliver to Buyer a statement of the estimated
Purchase Price Adjustments taking into account the foregoing principles (the “Statement”).
At the Closing, Buyer shall pay the Purchase Price, as adjusted by the
estimated Purchase Price Adjustments reflected on the Statement.

 

Section 10.04         Actions
of Sellers at the Closing.

 

At the Closing, Sellers shall:

 

(a)           execute,
acknowledge and deliver to Buyer the Assignment (as defined in Exhibit D
of this Agreement) and such other instruments (in form and substance
mutually agreed upon by Buyer and Sellers) as may be reasonably necessary
to convey the Assets to Buyer;

 

(b)           execute,
acknowledge and deliver to Buyer letters in lieu of transfer or division orders
directing all purchasers of production from the Subject Interests to make
payment of proceeds attributable to such production to Buyer from and after the
Effective Time as reasonably requested by Buyer prior to the Closing Date;

 

(c)           deliver
to Buyer possession of the Assets and all Reccords, operator’s files and data
pertaining to operations of the Subject Interests;

 

19

 

(d)           execute
and deliver to Buyer an affidavit attesting to its non-foreign status;

 

(e)           deliver
to Buyer appropriate change of operator forms on those Assets operated by
Sellers; and

 

(f)            execute,
acknowledge and deliver any other agreements provided for herein or necessary
or desirable to effectuate the transactions contemplated hereby.

 

Section 10.05         Actions
of Buyer at the Closing.

 

At the Closing, Buyer shall:

 

(a)           deliver
to Sellers the Purchase Price (as adjusted pursuant to the provisions hereof
and net of the Deposit) by wire transfer to an account designated in writing by
Sellers;

 

(b)           take
possession of the Assets; and

 

(c)           execute,
acknowledge and deliver the Assignment and any other agreements provided for
herein or necessary or desirable to effectuate the transactions contemplated
hereby.

 

Article XI

Termination

 

Section 11.01         Right
of Termination. This Agreement may be terminated at any time at or
prior to the Closing:

 

(a)           by
mutual written consent of the Parties;

 

(b)           by
Sellers on the Closing Date if the conditions set forth in Article VII
have not been satisfied in all material respects by Buyer or waived by Sellers
in writing by the Closing Date;

 

(c)           by
Buyer on the Closing Date if the conditions set forth in Article VIII have
not been satisfied in all material respects by Sellers or waived by Buyer in
writing by the Closing Date;

 

(d)           by
Sellers if the Closing shall not have occurred on or before June 15, 2006;

 

(e)           by
either Party if any Governmental Authority shall have issued an order, judgment
or decree or taken any other action challenging, delaying, restraining,
enjoining, prohibiting or invalidating the consummation of any of the
transactions contemplated herein;

 

20

 

(f)            by
either Party if (i) the aggregate amount of the Purchase Price Adjustments
agreed by the Parties or otherwise finally determined pursuant to this
Agreement with respect to all uncured Title Defects (net of the aggregate
amount of the Purchase Price Adjustments for all Title Benefits agreed by the
Parties) plus (ii) the aggregate amount of the Environmental Defect Values
agreed by the Parties or otherwise finally determined pursuant to this
Agreement with respect to all Environmental Defects, exceeds ten percent (10%)
percent of the Purchase Price;

 

(g)           by
Buyer in accordance with Section 13.04(c); or

 

(h)           as
otherwise provided herein;

 

provided, however, that no Party shall have the right to terminate this
Agreement pursuant to clause (b) or (c) above if such Party is at such
time in material breach of any provision of this Agreement.

 

Section 11.02         Effect
of Termination. In the event that the Closing does not occur as a result of
any Party exercising its right to terminate pursuant to Section 11.01,
then except as set forth in Section 11.03, this Agreement shall be null
and void and no Party shall have any further rights or obligations under this
Agreement, except that nothing herein shall relieve any Party from any
liability for any breach hereof or any liability that has accrued prior to the
date of such termination.

 

Section 11.03         Termination
Damages.

 

(a)           If
all conditions precedent to the obligations of Buyer set forth in Article VIII
have been met and the transactions contemplated by this Agreement are not
consummated on the Closing Date because of the failure of Buyer to perform any
of its material obligations hereunder or the breach of any representation
herein by Buyer, then in such event, Sellers shall have the option to terminate
this Agreement, in which case Sellers shall retain the Deposit as liquidated
damages on account of Buyer’s failure to perform its obligations under
this Agreement or Buyer’s breach of any representation under this Agreement,
which remedy shall be the sole and exclusive remedy available to Sellers for
Buyer’s failure to perform or breach. Buyer and Sellers acknowledge and
agree that (i) Sellers’ actual damages upon the event of such a
termination are difficult to ascertain with any certainty, (ii) that the
Deposit is a reasonable estimate of such actual damages and (iii) such
liquidated damages do not constitute a penalty.

 

(b)           If
this Agreement is terminated by the mutual written agreement of Buyer and
Sellers, or if the Closing does not occur on or before the Closing Date, for
any reason other than as set forth in this Section, then Sellers shall return
the Deposit with Computed Interest to Buyer in immediately available funds
within three (3) Business Days after the event giving rise 

 

21

 

to such payment to Buyer. Buyer
and Sellers shall thereupon have the rights and obligations set forth elsewhere
herein.

 

Section 11.04         Attorneys’
Fees, Etc. If either Party to this Agreement resorts to legal proceedings
to enforce this Agreement, the prevailing Party in such proceedings shall be
entitled to recover all costs incurred by such Party, including reasonable
attorneys’ fees, in addition to any other relief to which such Party may be
entitled. Notwithstanding anything to the contrary in this Agreement, in no
event shall either Party be entitled to receive any punitive, indirect or
consequential damages unless same are a part of a Third Party claim for
which a Party is seeking indemnification hereunder, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT,
COMPARATIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF THE OTHER PARTY.

 

Article XII

Post Closing Obligations

 

Section 12.01         Allocation
of Expense and Revenues.

 

(a)           Provided
that the Closing occurs, appropriate adjustments shall be made between Buyer
and Sellers so that (i) Buyer will receive all proceeds from sales of
Hydrocarbons that are produced and saved from and after the Effective Time and
any other revenues arising out of the ownership or operation of the Assets from
and after the Effective Time, net of all applicable production, severance, and
similar taxes, and net of all costs and expenses that are incurred in the
ownership or operation of the Assets from and after the Effective Time,
including, without limitation, all drilling costs, all capital expenditures,
all overhead charges under applicable operating or other agreements (regardless
of whether Sellers or an affiliate of Sellers serves as operator prior to the
Closing), and (ii) Sellers will receive all proceeds from sales of
Hydrocarbons that are produced and saved prior to the Effective Time and any
other revenues arising out of the ownership or operation of the Assets prior to
the Effective Time, net of all applicable production, severance, and similar
taxes, and net of all costs and expenses that are incurred in the ownership or
operation of the Assets prior to the Effective Time.

 

(b)           In
addition to the foregoing, the Sellers will be paid (i) the amount as of
the Effective Time of all prepaid ad valorem, property or similar taxes and
assessments based upon or measured by ownership of the Assets and any prepaid
costs, including rentals and insurance premiums, insofar as such prepaid costs
relate to periods of time after the Effective Time, and (ii) the value of
all merchantable Hydrocarbons produced prior to the Effective Time but in
storage above the inlet connection or upstream of the applicable sales meter on
the Closing Date.

 

(c)           In
addition to the foregoing, the Buyer will be paid (i) an amount equal to
all unpaid ad valorem, property, production, severance and similar taxes 

 

22

 

and assessments based upon or
measured by the ownership of the Assets that are attributable to periods of
time prior to the Effective Time, which amounts shall, to the extent not
actually assessed, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of Sellers’ and
Buyer’s ownership before and after the Effective Time), and (ii) an amount
equal to all cash in, or attributable to, suspense accounts relative to the
Assets for which Buyer has assumed responsibility under Section 14.02.

 

(d)           All
estimated amounts due under this Section 12.01 will be calculuated and
provided to Buyer five (5) Business Days prior to Closing as a Pre-Closing
Statement to be used at Closing..

 

Section 12.02         Final
Accounting Statement.

 

(a)           On
or before ninety (90) days after the Closing Date, Sellers shall prepare and
deliver to Buyer a post-closing statement setting forth a detailed calculation
of all post-Closing adjustments applicable to the period for time between the
Effective Time and Closing (“Accounting Statement”). The Accounting Statement
shall include any adjustment or payment which was not finally determined as of
the Closing Date and the allocation of revenues and expenses as determined in
accordance with Section 12.01. To the extent reasonably required by
Sellers, Buyer shall assist in the preparation of the Accounting Statement.
Sellers shall provide Buyer such data and information as Buyer may reasonably
request supporting the amounts reflected on the Accounting Statement in order
to permit Buyer to perform or cause to be performed an audit. The
Accounting Statement shall become final and binding upon the parties on the
thirtieth (30th) day following receipt thereof by Buyer (the “Final Settlement
Date”) unless Buyer gives written notice of its disagreement (a “Notice of
Disagreement”) to Sellers prior to such date. Any Notice of Disagreement shall
specify in detail the dollar amount, nature and basis of any disagreement so
asserted. If a Notice of Disagreement is received by Sellers in a timely
manner, then the Parties shall resolve the Dispute (as defined in Section 16.01)
evidenced by the Notice of Disagreement in accordance with Article XVI.

 

(b)           Within
five (5) Business Days after the Final Settlement Date, Sellers shall pay
to Buyer or Buyer shall pay to Sellers in immediately available funds the net
amount due. For purposes of this Agreement, the term “Final Statement” shall
mean (i) the revised Statement becoming final pursuant to this Section, or
(ii) upon resolution of any Dispute regarding a Notice of Disagreement,
the revised Statement reflecting such resolutions, which the Parties shall
issue, or cause the Independent Expert or arbitrators to issue, as applicable,
following such resolution.

 

23

 

Section 12.03         Further
Cooperation. Sellers shall make the Records available to be picked up by
Buyer at the offices of Sellers during normal business hours within five (5) Business
Days after the later of the Closing or the end of the Transition Period (as
defined in Section 13.06) to the extent the Records are in the possession
of Sellers and are not subject to contractual restrictions on transferability.
Sellers shall have the right to retain copies of any of the Records and the
rights granted under Section 17.03.

 

After the Closing Date, each Party, at the request of the other and
without additional consideration, shall execute and deliver, or shall cause to
be executed and delivered, from time to time such further instruments of
conveyance and transfer and shall take such other action as the other Party may reasonably
request to convey and deliver the Assets to Buyer and to accomplish the orderly
transfer of the Assets to Buyer in the manner contemplated by this Agreement.
After the Closing, the Parties will cooperate to have all proceeds received
attributable to the Assets be paid to the proper Party hereunder and to have
all expenditures to be made with respect to the Assets be made by the proper
Party hereunder.

 

Article XIII

Operation of the Assets

 

Section 13.01         Operations
after Effective Time. Sellers agrees, from and after the date hereof until
Closing, except as expressly contemplated by this Agreement, as expressly
consented to in writing by Buyer, or in situations wherein emergency action is
taken in the face of risk to life, property or the environment, to:

 

(a)           operate
the Properties in the usual, regular and ordinary manner consistent with past
practice;

 

(b)           maintain
the books of account and records relating to the Properties in the usual,
regular and ordinary manner, in accordance with the usual accounting practices
of each such Person;

 

(c)           not
enter into a material contract, or materially amend or change the terms of any
such contract that would involve individual commitments of more than $25,000;

 

(d)           not
plug or abandon any well located on the Properties without Buyer’s prior written
consent;

 

(e)           not
transfer, sell, mortgage, pledge or dispose of any material portion of the
Properties other than the sale and/or disposal of hydrocarbons in the ordinary
course of business and sales of equipment that is no longer necessary in the
operation of the Properties or for which replacement equipment has been
obtained; and

 

(f)            preserve
in full force and effect all oil and gas leases, operating agreements,
easements, rights-of-way, permits, licenses and agreements that relate to the
Properties.

 

24

 

 

(g)           submit
to Buyer for prior written approval, all requests for operating or capital
expenditures relating to the Properties that involve individual commitments of
more than $25,000, and

 

(h)           obtain
Buyer’s written approval prior to voting under any operating, joint venture,
partnership or similar agreement.

 

Section 13.02         Limitations
on the Operational Obligations and Liabilities of Sellers. From and after
the date of execution of this Agreement and until the Closing, and subject to
the provisions of applicable operating and other agreements, Sellers shall use
its reasonable efforts to operate the Assets and use its reasonable efforts to
cause any other operators to operate and administer the Assets in a 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. Buyer acknowledges that Sellers owns undivided interests in
some or all of the Assets, and Buyer agrees that the acts or omissions of the
other working interest owners shall not constitute a violation of the
provisions of this Article XIII, nor shall any action required by a vote of
working interest owners constitute such a violation so long as Sellers have
voted its interests in a manner that complies with the provisions of this
Article XIII. To the extent that a Seller is not the operator of any of the
Assets, the obligations of Sellers in this Article XIII shall be construed to
require that Sellers use 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 within the constraints
of the applicable operating agreements and other applicable agreements.

 

Section 13.03         Operation
of the Assets After the Closing. It is expressly understood and agreed that
Sellers shall not be obligated to continue operating any of the Assets
following the Closing and Buyer hereby assumes full responsibility for
operating (or causing the operation of) all Assets following the Closing. Sellers
shall make its personnel available to Buyer prior to the Closing as may be
reasonably necessary to assist in the transition if Buyer becomes the operator.
Without implying any obligation on Sellers’ part to continue operating any
Assets after the Closing, if Sellers elect to continue to operate any Assets
following the Closing at the request of Buyer or any Third Party working
interest owner, due to constraints of applicable joint operating agreement(s),
failure of a successor operator to take over operations or other reasonable
cause, such continued operation by Sellers shall be for the account of Buyer,
at the sole risk, cost and expense of Buyer. Sellers, as a part of the Assumed
Obligations, is hereby released and indemnified by Buyer from all claims,
losses, damages, costs, expenses, causes of action and judgments of any kind or
character (INCLUDING THOSE RESULTING FROM
SELLERS’ SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY)
with respect to (a) such continued operations by Sellers, (b) Buyer’s
assumption of operations from Sellers, and (c) compliance with the terms of any
applicable joint operating agreement related to the election of a successor
operator. Buyer shall conduct or cause to be conducted all operations on the
Assets after Closing in a good and workmanlike manner and in compliance with
all applicable laws, rules, regulations and agreements. Notwithstanding
anything to the contrary contained herein, within five (5) Business Days after
Closing, Sellers will resign as operator of any wells within the Assets that
Sellers currently operates.

 

25

 

Section 13.04         Casualty
Loss.

 

(a)           Buyer
shall assume all risk of loss with respect to, and any change in the condition
of, the Assets from the date of this Agreement until the Closing, including
with respect to the depletion of Hydrocarbons, the watering-out of any well,
the collapse of casing, sand infiltration of wells, and the depreciation of
personal property.

 

(b)           If
after the date of this Agreement and prior to the Closing any part of the
Assets shall be damaged or destroyed by fire or other casualty or if any part
of the Assets shall be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes shall be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding, or the threat thereof and the Parties shall
proceed with the transactions contemplated by this Agreement notwithstanding
such destruction or taking without reduction of the Purchase Price, but subject
to Section 13.04(c).

 

(c)           Notwithstanding
Section 13.04(a), in the event of any loss described in Section 13.04(b), at
the Closing, Sellers shall pay to Buyer all sums paid to Sellers by third
parties by reason of the destruction or taking of such Assets (up to the
Allocated Value thereof), including any sums paid pursuant to any policy or
agreement of insurance or indemnity, and shall assign, transfer and set over
unto Buyer all of the rights, title and interest of Sellers in and to any
claims, causes of action, unpaid proceeds or other payments from third parties,
including any policy or agreement of insurance or indemnity, arising out of
such destruction or taking (up to the Allocated Value thereof). Notwithstanding
anything to the contrary in this Section 13.04, Sellers shall maintain any
currently existing insurance coverage with respect to any of the Assets. Notwithstanding
anything to the contrary contained in this Section 13.04, should the
uncompensated loss exceed ten percent (10%) of the Purchase Price, Buyer shall
have the option to terminate this Agreement in which event Sellers shall return
the Deposit to Buyer within three (3) Business Days after such termination.

 

Section 13.05         Operatorship.
Within five (5) Business Days after Closing, Sellers will send out
notifications of its resignation as operator for all wells Sellers currently
operates and is selling to Buyer pursuant to this Agreement. Buyer acknowledges
that the rights and obligations associated with such wells are governed by
applicable agreements and that operatorship will be determined by the terms of
those agreements.

 

Section 13.06         Transition
Period. Effective as of Closing and until the end of the first production
month following Closing (the “Transition Period”), Sellers shall continue the
physical operations and accounting of the Sellers-operated Subject Interests.

 

26

 

Article XIV

Obligations and Indemnification

 

Section 14.01         Retained
Obligations. Provided that the Closing occurs, for a period of one (1) year
from Closing, and not thereafter, Sellers shall retain (a) all obligations and
liabilities of Sellers for the payment or improper payment of royalties,
rentals and other similar payments under the Leases relating to the Subject
Interests accruing prior to the Effective Time; (b) all obligations of Sellers
under the Contracts for (i) overhead charges related to periods prior to the
Effective Time, (ii) costs and expenses incurred prior to the Effective Time
for goods and services provided prior to the Effective Time, and (iii) other
payment obligations that accrue and become due prior to the Effective Time; (c)
all liability of Sellers to third parties for personal injury or death to the
extent occurring prior to the Effective Time as a result of the operation of
the Assets; (d) ad valorem, property, severance and similar taxes attributable
to the period of time prior to the Effective Time retained by Sellers under
Section 9.02; and (e) except as disclosed in Schedule 5.06, all litigation
existing as of the Closing Date, to the extent it relates to the period of time
prior to the Effective Time (collectively, the “Retained Obligations”).

 

Section 14.02         Assumed
Obligations. Provided that the Closing occurs, Buyer hereby assumes all
duties, obligations and liabilities of every kind and character with respect to
the Assets or the ownership or operation thereof (other than the Retained
Obligations), whether attributable to periods before or after the Effective
Time, including, without limitation, those arising out of (a) the terms of the
Easements, Contracts, Leases, Personal Property or Subject Interests comprising
part of the Assets, (b) suspense accounts, (c) ad valorem, property, severance
and other similar taxes or assessments based upon or measured by the ownership
of the Assets or the production therefrom, (d) the condition of the Subject
Interests, regardless of whether such condition arose before or after the
Effective Time, (e) obligations to properly plug and abandon or re-plug or
re-abandon or remove wells, flowlines, gathering lines or other facilities,
equipment or other personal property or fixtures comprising part of the Assets,
(f) obligations to restore the surface of the Subject Interests and obligations
to remediate or bring the Subject Interests into compliance with applicable
Environmental Laws (including conducting any remediation activities that may be
required on or otherwise in connection with activities on the Subject
Interests), regardless of whether such obligations or conditions or events
giving rise to such obligations, arose, occurred or accrued before or after the
Effective Time, and (g) any other duty, obligation, event, condition or
liability assumed by Buyer under the terms of this Agreement (collectively, the
“Assumed Obligations”).

 

Section 14.03         Buyer’s
Indemnification. Provided that the Closing occurs, Buyer shall release,
defend, indemnify and hold harmless Sellers, their partners, and their
respective officers, directors, employees, agents, partners, representatives,
members, shareholders, affiliates, subsidiaries, successors and assigns
(collectively, the “Sellers Indemnitees”) from and against any and all claims,
damages, liabilities, losses, causes of action, costs and expenses (including,
without limitation, those involving theories of negligence or strict liability
and including court costs and attorneys’ fees) (collectively, the “Losses”) as
a result of, arising out of, or related to the Assumed Obligations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE
SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF
THE SELLERS INDEMNITEES.

 

27

 

Section 14.04         Sellers’
Indemnification – Third Party Non-Environmental Claims. Provided that the
Closing occurs, Sellers shall release, defend, indemnify and hold harmless
Buyer, its partners, and their respective officers, directors, employees,
agents, representatives, members, shareholders, affiliates and subsidiaries
(collectively, the “Buyer Indemnitees”) from and against any and all Third
Party non-environmental claims relating to Sellers’ ownership or operation of
the Assets prior to the Effective Time or as a result of, arising out of, or
related to the Retained Obligations REGARDLESS
OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT, COMPARATIVE OR
CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE BUYER INDEMNITEES  Provided, however, not withstanding anything
to the contrary contained herein, Sellers’ indemnification obligation under
this Section 14.04 shall only apply if (a) Buyer has provided Sellers with
written notice claiming indemnification within six (6) months of the Closing,
and (b) Buyer shall bear sole responsibility for the aggregate costs associated
with all Third Party non-environmental claims relating to time periods prior to
the Effective Time up to a threshold percentage of $250,000 of the Purchase
Price. By the prior sentence, it is the intent that once the aggregate value of
all claims exceeds $250,000 of the Purchase Price, then the Sellers shall be
obligated to pay the total value of all such claims.

 

Section 14.05         Sellers’
Indemnification – Third Party Environmental Claims. Provided that the
Closing occurs, Sellers shall release, defend, indemnify and hold harmless
Buyer, its partners, and their respective officers, directors, employees,
agents, representatives, members, shareholders, affiliates and subsidiaries
(collectively, the Buyer Indemnitees) from and against any and all Third Party
environmental claims relating to Sellers’ ownership or operation of the Assets
prior to the Effective Time or as a result of, arising out of, or related to
the Retained Obligations REGARDLESS OF
WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT, COMPARATIVE OR CONCURRENT
NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE BUYER INDEMNITEES  Provided, however, not withstanding anything
to the contrary contained herein, Sellers’ indemnification obligation under
this Section 14.05 shall only apply if (i) Buyer has provided Sellers with
written notice claiming indemnification within six (6) months of the Closing,
and (ii) Buyer shall bear sole responsibility for the aggregate costs
associated with all Third Party environmental claims relating to time periods
prior to the Effective Time up to a threshold percentage of $250,000 of the
Purchase Price. By the prior sentence, it is the intent that once the aggregate
value of all claims exceeds $250,000 of the Purchase Price, then the Sellers
shall be obligated to pay the total value of all such claims.

 

Section 14.06         Notices
and Defense of Indemnified Matters. Each Party shall promptly notify the
other Party of any matter of which it becomes aware and for which it is
entitled to indemnification from the other Party under this Agreement. The
indemnifying Party shall be obligated to defend, at the indemnifying Party’s
sole expense, any litigation or other administrative or adversarial proceeding
against the indemnified Party relating to any matter for which the indemnifying
Party has agreed to indemnify and hold the indemnified Party harmless under
this Agreement. However, the indemnified Party shall have the right to
participate with the indemnifying Party in the defense of any such matter at
its own expense.

 

28

 

Article XV

Limitations on Representations and Warranties

 

Section 15.01         Disclaimers
of Representations and Warranties. The express representations and
warranties of Sellers contained in this Agreement are exclusive and are in lieu
of all other representations and warranties, express, implied or statutory. EXCEPT FOR THE EXPRESS REPRESENTATIONS OF SELLERS IN
THIS AGREEMENT, BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND SELLERS
HEREBY EXPRESSLY DISCLAIM AND NEGATE, AND BUYER HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, GAS BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE
RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY OR ON
BEHALF OF SELLERS, AND (c) THE ENVIRONMENTAL CONDITION OF THE ASSETS. EXCEPT
FOR THE EXPRESS REPRESENTATIONS OF SELLERS IN THIS AGREEMENT, SELLERS EXPRESSLY
DISCLAIMS AND NEGATES, AND BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES CONSTITUTING A PART OF THE ASSETS
(i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR
EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR
EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY
RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (v) ANY IMPLIED OR EXPRESS
WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN OR UNKNOWN, (vi) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW, AND (vii) ANY IMPLIED OR
EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO
THE ENVIRONMENT, OR PROTECTION OF THE ENVIRONMENT OR HEALTH, IT BEING THE
EXPRESS INTENTION OF BUYER AND SELLERS THAT THE PERSONAL PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY AND FIXTURES INCLUDED IN THE ASSETS SHALL BE CONVEYED TO
BUYER, AND BUYER SHALL ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN
THEIR PRESENT CONDITION AND STATE OF REPAIR AND BUYER REPRESENTS TO SELLERS
THAT BUYER WILL MAKE OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH
PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS BUYER DEEMS
APPROPRIATE. SELLERS AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW,
RULE OR ORDER.

 

29

 

Section 15.02         Independent
Investigation. Buyer represents and acknowledges that it is knowledgeable
of the oil and gas business and of the usual and customary practices of producers
such as Sellers and that it has had (or will have prior to the Closing) access
to the Assets, the officers and employees of Sellers, and the books, records
and files of Sellers relating to the Assets, and in making the decision to
enter into this Agreement and consummate the transactions contemplated hereby,
Buyer has relied solely on the basis of its own independent due diligence
investigation of the Assets and upon the representations and warranties made in
Article V, and not on any other representations or warranties of Sellers or any
other person or entity.

 

Section 15.03         Survival.
The representations, warranties, covenants and obligations of Buyer under this
Agreement shall indefinitely survive the Closing. The representations,
warranties, covenants and obligations of Sellers under this Agreement shall
survive the Closing for a period of six (6) months from the Closing.

 

Article XVI

Dispute Resolution

 

Section 16.01         General.
Any and all claims, Disputes, controversies or other matters in question arising
out of or relating to title issues, environmental issues, or calculation of the
Statement or revisions thereto (all of which are referred to herein as “Disputes”
which term shall not include any other disputes claims, disputes, controversies
or other matters in question arising under this Agreement) shall be resolved in
the manner prescribed by this Article XVI.

 

Section 16.02         Senior
Management. If a Dispute occurs that the senior representatives of the
Parties responsible for the transaction contemplated by this Agreement have
been unable to settle or agree upon within a period of fifteen (15) days after
such Dispute arose, Sellers shall nominate and commit one of its senior
officers, and Buyer shall nominate and commit one of its senior officers, to meet
at a mutually agreed time and place not later than thirty (30) days after the
Dispute has arisen to attempt to resolve same. If such senior management have
been unable to resolve such Dispute within a period of fifteen (15) days after
such meeting, or if such meeting has not occurred within forty-five (45) days
following such Dispute arising, then either Party shall have the right, by
written notice to the other, to resolve the Dispute through the relevant
Independent Expert pursuant to Section 16.03.

 

Section 16.03         Dispute
by Independent Expert.

 

(a)           Each
Party shall have the right to submit Disputes regarding title issues,
environmental issues, or calculation of the Statement or revisions thereto, to
an independent expert appointed in accordance with this Section 16.03 (each, an
“Independent Expert”), who shall serve as sole arbitrator. The Independent
Expert shall be appointed by mutual agreement of the Parties from among
candidates with experience and expertise in the area that is the subject of
such Dispute, and failing such agreement, such Independent Expert for such
Dispute shall be selected in accordance with the Rules (as defined in
Subsection (b) of this Section 16.03).

 

30

 

(b)           Disputes
to be resolved by an Independent Expert shall be resolved in accordance with
mutually agreed procedures and rules and failing such agreement, in accordance
with the rules and procedures of the Texas Arbitration Act and the Rules of the
American Arbitration Association to the extent such Rules do not conflict with
such Texas Arbitration Act or the provisions of this Agreement The Independent
Expert shall be instructed by the Parties to resolve such Dispute as soon as
reasonably practicable in light of the circumstances. The decision and award of
the Independent Expert shall be binding upon the Parties as an award under the
Federal Arbitration Act and final and nonappealable to the maximum extent
permitted by law, and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such court.

 

(c)           The
charges and expenses of the arbitrator shall be shared equally by Sellers and
Buyer.

 

(d)           Any
arbitration hearing held pursuant to Section 16.03 shall be held in Houston,
Texas

 

Section 16.04         Limitation
on Arbitration. ALL OTHER DISAGREEMENTS, DIFFERENCES, OR DISPUTES ARISING
BETWEEN SELLERS AND BUYER UNDER THE TERMS OF THIS AGREEMENT (AND NOT COVERED BY
SECTION 16.03) SHALL NOT BE SUBJECT TO ARBITRATION AND SHALL BE DETERMINED BY A
COURT OF COMPETENT JURISDICTION, UNLESS THE PARTIES OTHERWISE MUTUALLY AGREE.

 

Article XVII

Miscellaneous

 

Section 17.01         Names.
As soon as reasonably possible after the Closing, but in no event later than 45
days after the Closing, Buyer shall remove the names of Sellers and its
affiliates, and all variations thereof, from all of the Assets and make the
requisite filings with, and provide the requisite notices to, the appropriate
federal, state or local agencies to place the title or other indicia of
ownership, including operation of the Assets, in a name other than the name of
the Sellers or any of its affiliates, or any variations thereof.

 

Section 17.02         Expenses.
Each Party shall be solely responsible for all expenses, including due
diligence expenses, incurred by it in connection with this transaction, and
neither Party shall be entitled to any reimbursement for such expenses from the
other Party.

 

Section 17.03         Entire
Agreement. This Agreement, the documents to be executed hereunder, and the
exhibits attached hereto constitute the entire agreement between the Parties
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties pertaining to the subject matter hereof. No supplement, amendment,
alteration, modification or waiver of this Agreement

 

31

 

shall be
binding unless executed in writing by the Parties and specifically referencing
this Agreement.

 

Section 17.04         Waiver.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise expressly
provided.

 

Section 17.05         Publicity.
Neither Sellers nor Buyer will issue any public announcement or press release
concerning this transaction without the written consent of the other Party
(except as required by law and in such case with prior written agreement
between the Parties on the wording of the announcement or press release).

 

Section 17.06         Construction.
The captions in this Agreement are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Agreement. The Parties acknowledge that they have
participated jointly in the negotiation and drafting of this Agreement and as
such the Parties agree that if an ambiguity or question of intent or
interpretation arises hereunder, this Agreement shall not be construed more
strictly against one Party than another on the grounds of authorship.

 

Section 17.07         No
Third Party Beneficiaries. Except as provided in Sections 14.04 and 14.05,
nothing in this Agreement shall provide any benefit to any Third Party or
entitle any Third Party to any claim, cause of action, remedy or right of any
kind, it being the intent of the Parties that this Agreement shall otherwise
not be construed as a Third Party beneficiary contract.

 

Section 17.08         Assignment.
Neither Party may assign or delegate any of its rights or duties hereunder
without the prior written consent of the other Party and any assignment made
without such consent shall be void. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective permitted successors, assigns and legal representatives.

 

Section 17.09         Governing
Law. This Agreement, other documents delivered pursuant hereto and the
legal relations between the Parties shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to
principles of conflicts of laws that would result in the application of the
laws of another jurisdiction. The Parties agree to venue in Taylor County,
Texas.

 

Section 17.10         Notices.
Any notice, communication, request, instruction or other document required or
permitted hereunder shall be given in writing and delivered in person or sent
by U.S. Mail postage prepaid, return receipt requested, overnight courier or
facsimile to the addresses of Sellers and Buyer set forth below. Any such
notice shall be effective only upon receipt.

 

32

 

Buyer:

 

Whittier
Energy Corporation

333 Clay
Street, Suite 700

Houston, TX
77002

ATTN:   John D.
Brouillette

Land
Manager/Senior Land Attorney

(713) 328-0213
Telephone

(713) 850-1879
Facsimile

 

Sellers:

 

c/o Sellers’
Agent:

Ambassador
Petroleum, Inc.

722 Pin Oak
Road, Suite 204

Katy, Texas
77494

Attention:
Mark Swisher

 

Either Party
may, by written notice so delivered to the other Party, change its address for
notice purposes hereunder.

 

Section 17.11         Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect and the Parties shall negotiate in good faith to modify this
Agreement so as to effect their original intent as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.

 

Section 17.12         Time
of the Essence. Time shall be of the essence with respect to all time
periods and notice periods set forth in this Agreement.

 

Section 17.13         Audit
Rights. Buyer shall have the right from the execution date of this
Agreement until sixty days (60) days post Closing, to audit the books and
records of Encon Services, Inc. relating to the Assets.

 

Section 17.14         Counterpart
Execution. This Agreement may be executed in any number of counterparts,
and each counterpart hereof shall be effective as to each party that executes
the same whether or not all of such parties execute the same counterpart. If
counterparts of this Agreement are executed, the signature pages from various
counterparts may be combined into one composite instrument for all purposes. All
counterparts together shall constitute only one Agreement, but each counterpart
shall be considered an original.

 

33

 

IN WITNESS
WHEREOF, Sellers and Buyer have executed and delivered this Agreement as of the
date first set forth above.

 

SIGNATURE PAGES TO FOLLOW

 

SELLERS:

 

34

 

	
   

  	
  Drilling & Xtraction, L.P.

  
	
   

  
	
   

  	
  By:

  	
  /s/ Kelley J. Schubert

  
	
   

  	
  Name:

  	
  Kelley J. Schubert

  
	
   

  	
  Title:

  	
  President, Morris Flood General Partner,
  Inc.

  - general partner for Drilling & Xtraction, LP

  
					

 

35

 

	
   

  	
  Oloma Energy, LP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Mary Mobley

  
	
   

  	
  Name:

  	
  Mary Mobley

  
	
   

  	
  Title:

  	
  Member of Cotter Minerals, L.L.C. as

  General Partner of Oloma Energy, L.P.

  
					

 

36

 

	
   

  	
  Westhoff Ranch, LP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Kelley J. Schubert

  
	
   

  	
  Name:

  	
  Kelley J. Schubert

  
	
   

  	
  Title:

  	
  President, Morris Flood General Partner,
  Inc.

  - general partner for Westhoff Ranch, LP

  
					

 

37

 

	
   

  	
  Cookin With Gas, LP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Kelley J. Schubert

  
	
   

  	
  Name:

  	
  Kelley J. Schubert

  
	
   

  	
  Title:

  	
  President, Schuvia Management, Inc. -

  general partner for Cookin’ With Gas, L.P.

  
					

 

38

 

	
   

  	
  JC 2 Under Par, LP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Sandra J. Aycock

  
	
   

  	
  Name:

  	
  Sandra J. Aycock

  
	
   

  	
  Title:

  	
  President, Anglo Petroleum, Inc.

  General Partner of JC 2 Under Par, LP

  
					

 

39

 

	
   

  	
  McDowell Partners, LP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Kelley J. Schubert

  
	
   

  	
  Name:

  	
  Kelley J. Schubert

  
	
   

  	
  Title:

  	
  President, Morris Flood General Partner,
  Inc.

  - general partner for McDowell Partners, LP

  
					

 

40

 

	
   

  	
  BUYER:

  
	
   

  
	
   

  	
  Whittier Energy Company

  
	
   

  
	
   

  	
  By:

  	
  /s/ Daniel Silverman

  
	
   

  	
  Name:

  	
  Daniel Silverman

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  
					

 

41

 

EXHIBIT A

 

SUBJECT
INTERESTS

 

Attached
hereto and made a part of that certain Purchase and Sale Agreement between

Drilling
& Xtraction, L.P., et al, as Sellers, and Whittier Energy Company, as Buyer

 

A-1

 

EXHIBIT B

 

WELLS AND INTERESTS

 

Attached
hereto and made a part of that certain Purchase and Sale Agreement between
Drilling & Xtraction, L.P., et al, as Sellers, and Whittier Energy Company,
as Buyer

 

B-1

 

EXHIBIT C

 

ALLOCATED
VALUES

 

Attached
hereto and made a part of that certain Purchase and Sale Agreement between
Drilling & Xtraction, L.P., et al, as Sellers, and Whittier EnergyCompany,
as Buyer

 

C-1

 

EXHIBIT D

 

ASSIGNMENT AND BILL OF SALE

 

Attached
hereto and made a part of that certain Purchase and Sale Agreement between

Drilling & Xtraction, L.P., et al, as Sellers, and Whittier Energy Company,
as Buyer

 

THIS
ASSIGNMENT AND BILL OF SALE (this “Assignment”), effective as of        
a.m. on              ,
200   (the “Effective Time”), is made by
Drilling Xtraction, L.P., a Texas limited partnership, Oloma Energy, LP, a
Louisiana limited partnership, Westhoff Ranch, LP, a Texas limited partnership,
Cookin With Gas, LP, a Texas limited partnership, JC 2 Under Par, LP, a              
limited partnership, and McDowell Partners, LP, a Texas limited partnership
(collectively, the “Assignor”), to [name of business], a [identify type of
entity; i.e., corporation] (the “Assignee”), whose address is                                 ,
[City], [State] [Zip Code].

 

ARTICLE I

Granting and Habendum

 

For Ten
Dollars ($10.00) and other good and valuable consideration, the receipt, and
sufficiency of which are hereby acknowledged, Assignor does hereby grant,
bargain, sell, transfer, convey, set over, assign and deliver unto Assignee,
its successors and assigns, effective for all purposes as of the Effective Time
and subject to the matters set forth herein, an undivided 75% interest in the
Assets, from the surface to a drill depth of 7,500 feet, and an undivided
18.75% interest in the Assets, from a drill depth below 7,500 feet. The term “Assets”
shall mean all of Assignor’s right, title and interest in and to the following:

 

(a)           the leasehold estates
in and to the oil, gas and mineral leases described or referred to in Exhibit A
(the “Leases”) and any overriding royalty interests in and to the lands covered
by the leases, assignments and other documents of title described or referred
to in Exhibit A, all as more specifically described in Exhibit A (collectively,
the “Subject Interests,” or singularly, a “Subject Interest”);

 

(b)           all rights incident
to the Subject Interests, including, without limitation, (i) all rights with
respect to the use and occupation of the surface of and the subsurface depths
under the Subject Interests; (ii) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any Subject Interest being a part
thereof, including all Hydrocarbon production after the Effective Time
attributable to the Subject Interests or any such pool or unit allocated to any
such Subject Interest;

 

(c)           to the extent
assignable or transferable, all easements, rights-of-way, surface leases,
servitudes, permits, licenses, franchises and other estates or similar rights
and privileges directly related to or used solely in connection with the
Subject Interests (“Easements”), including, without limitation, the
Easements described on Exhibit A;

 

(d)           to the extent
assignable or transferable, all personal property, equipment, fixtures,
inventory and improvements located on or used solely in connection with the
Subject Interests and the Easements or with the production, treatment, sale, or
disposal of 

 

D-1

 

oil, gas or other hydrocarbons (collectively, “Hydrocarbons”),
byproducts or waste produced therefrom or attributable thereto, including,
without limitation, all wells located on the lands covered by the Subject
Interests or on lands with which the Subject Interest have been pooled,
communitized or unitized (whether producing, shut in or abandoned, and whether
for production, injection or disposal), including, without limitation, the
wells described in Exhibit B to the Purchase Agreement described below,
wellhead equipment, pumps, pumping units, flowlines, gathering systems, piping,
tanks, buildings, treatment facilities, injection facilities, disposal
facilities, compression facilities, and other materials, supplies, equipment,
facilities and machinery (collectively, “Personal Property”);

 

(e)           to the extent
assignable or transferable, all contracts, agreements and other arrangements
that relate to the Subject Interests, the Leases or the Easements, including,
without limitation, production sales contracts, farmout agreements, operating
agreements, service agreements and similar agreements (collectively, the
“Contracts”);

 

(f)            to the extent
assignable or transferable, all books, records, files, muniments of title,
reports and similar documents and materials, including, without limitation,
lease records, well records, and division order records, well files, title
records (including abstracts of title, title opinions and memoranda, and title
curative documents related to the Assets), contracts and contract files, and
correspondence, that relate to the foregoing interests in the possession of,
and maintained by, Assignor (collectively, the “Records”); and

 

(g)           all geological and
geophysical data relating to the Subject Interests, other than such data that
is interpretive in nature or which cannot be transferred without the consent of
or payment to any Third Party. For purposes hereof “Third Party” means
any person or entity, governmental or otherwise, other than Assignor or
Assignee, and their respective affiliates; the term includes, but is not
limited to, working interest owners, royalty owners, lease operators,
landowners, service contractors and governmental agencies.

 

(h)           NOTWITHSTANDING THE
FOREGOING, the Assets shall not include, and there is excepted, reserved and
excluded from the assignment contemplated hereby (collectively, the “Excluded
Assets”): (i) all trade credits and all accounts, instruments and general
intangibles (as such terms are defined in the Texas Uniform Commercial Code)
attributable to the Assets with respect to any period of time prior to the
Effective Time; (ii) all claims and causes of action of Assignor (A) arising
from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time, (B) arising under or with respect to any
of the Contracts that are attributable to periods of time prior to the
Effective Time (including claims for adjustments or refunds), or (C) with
respect to any of the other Excluded Assets; (iii) all rights and interests of
Assignor (A) under any policy or agreement of insurance or indemnity, (B) under
any bond, or (C) to any insurance or condemnation proceeds or awards arising,
in each case, from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time; (iv) all Hydrocarbons produced from or
attributable to the Subject Interests with respect to all periods prior to the
Effective Time, together with all proceeds from the sale of such Hydrocarbons;
(v) all claims of Assignor for refunds of or loss carry forwards with respect
to (A) ad valorem, severance, production or any other taxes 

 

D-2

 

attributable to any period prior to the
Effective Time, (B) income or franchise taxes, or (C) any taxes attributable to
the other Excluded Assets, and such other refunds, and rights thereto, for
amounts paid in connection with the Assets and attributable to the period prior
to the Effective Time, including refunds of amounts paid under any gas
gathering or transportation agreement; (vi) all amounts due or payable to
Assignor as adjustments to insurance premiums related to the Assets with
respect to any period prior to the Effective Time; (vii) all proceeds, income
or revenues (and any security or other deposits made) attributable to (A) the
Assets for any period prior to the Effective Time, or (B) any other Excluded
Assets; (viii) all vehicles, personal computers and associated peripherals and
all radio, and telephone and other communication equipment; (ix) all of
Assignor’s proprietary computer software, technology, patents, trade secrets,
copyrights, names, trademarks, logos and other intellectual property; (x) all
of Assignor’s rights and interests in geological and geophysical data which
cannot be transferred without the consent of or payment to any Third Party;
(xi) all documents and instruments of Assignor that may be protected by an
attorney-client privilege; (xii) data and other information that cannot be
disclosed or assigned to Assignee as a result of confidentiality or similar
arrangements under agreements with persons unaffiliated with Assignor; (xiii)
all audit rights arising under any of the Contracts or otherwise with respect
to any period prior to the Effective Time or to any of the other Excluded
Assets; (xiv) suspense accounts related to the Assets; and (xv) all corporate,
partnership, income tax and financial records of Assignor.

 

TO HAVE AND TO
HOLD the Assets, together with all and singular the rights, privileges, contracts
and appurtenances, in any way appertaining or belonging thereto, unto Assignee,
its successors and assigns, forever, subject to the matters set forth herein.

 

ARTICLE II

Special Warranty of Title and Disclaimers

 

Section 2.01 Special
Warranty of Title. Sellers hereby agrees to warrant and defend title to the
Assets solely unto Buyer against every person whomsoever lawfully claiming or
to claim the same or any part thereof, by, through or under Sellers, but not
otherwise; subject, however, to the Permitted Encumbrances (as such term is
defined in the Purchase Agreement described below) and the other matters set
forth herein. In no event shall the foregoing warranty extend to or be
enforceable by any party other than Buyer, specifically excluding Buyer’s
successors and assigns in all or part of the Assets.

 

Section 2.02           Disclaimer. ASSIGNEE
ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY
DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION
OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING
TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS
BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF
HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS; (b) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO ASSIGNEE BY OR ON
BEHALF OF ASSIGNOR; AND (c) THE ENVIRONMENTAL CONDITION OF THE ASSETS. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS ASSIGNMENT, ASSIGNOR EXPRESSLY DISCLAIMS AND
NEGATES, AND ASSIGNEE HEREBY WAIVES, AS TO PERSONAL 

 

D-3

 

PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES CONSTITUTING A PART OF THE ASSETS
(i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR
EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR
EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS
OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION
OR RETURN OF THE PURCHASE PRICE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM
FROM DEFECTS, WHETHER KNOWN OR UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES
EXISTING UNDER APPLICABLE LAW, AND (vii) ANY IMPLIED OR EXPRESS WARRANTY
REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, OR
PROTECTION OF THE ENVIRONMENT OR HEALTH, IT BEING THE EXPRESS INTENTION OF
ASSIGNEE AND ASSIGNOR THAT THE PERSONAL PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY AND FIXTURES INCLUDED IN THE ASSETS SHALL BE CONVEYED TO ASSIGNEE,
AND ASSIGNEE SHALL ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR AND ASSIGNEE REPRESENTS TO ASSIGNOR THAT
ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH
PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS ASSIGNEE
DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED
IN THIS SECTION ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY
APPLICABLE LAW, RULE OR ORDER.

 

ARTICLE III

Miscellaneous

 

Section 3.01 Construction.
The captions in this Assignment are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Assignment. Assignor and Assignee acknowledge that they have
participated jointly in the negotiation and drafting of this Assignment and as
such they agree that if an ambiguity or question of intent or interpretation
arises hereunder, this Assignment shall not be construed more strictly against
one party than another on the grounds of authorship.

 

Section 3.02 No
Third Party Beneficiaries. Nothing in this Assignment shall provide any
benefit to any Third Party or entitle any thirty party to any claim, cause of
action, remedy or right of any kind, it being the intent of the parties hereto
that this Assignment shall otherwise not be construed as a Third Party
beneficiary contract.

 

Section 3.03 Assignment.
This Assignment shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.

 

Section 3.04 Governing
Law. This Assignment, other documents delivered pursuant hereto and the
legal relations between the parties hereto shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to
principles of conflicts of laws that would result in the application of the
laws of another jurisdiction.

 

Section 3.05 Counterpart
Execution. This Assignment may be executed in any number of counterparts,
and each counterpart hereof shall be effective as to each party that executes
the same whether or not all of such parties execute the same counterpart. If
counterparts of this 

 

D-4

 

Assignment are
executed, the signature pages from various counterparts may be combined into
one composite instrument for all purposes. All counterparts together shall
constitute only one Assignment, but each counterpart shall be considered an
original.

 

Section 3.06 Recording.
To facilitate the recording or filing of this Assignment, the counterpart to be
recorded in a given county may contain only that portion of the exhibits that
describes Assets located in that county. In addition to filing this Assignment,
the parties hereto shall execute and file with the appropriate authorities,
whether federal, state or local, all forms or instruments required by
applicable law to effectuate the conveyance contemplated hereby. Said
instruments shall be deemed to contain all of the exceptions, reservations,
rights, titles and privileges set forth herein as fully as though the same were
set forth in each such instrument. The interests conveyed by such separate
assignments are the same, and not in addition to the Assets conveyed herein.

 

Section 3.07 Purchase
Agreement. This Assignment is subject to all of the terms and conditions of
the Purchase and Sale Agreement dated                         
      , 2006 by and between Assignor and Assignee
(the “Agreement”).

 

IN WITNESS
WHEREOF, this Assignment is executed by the parties on the date of their
respective acknowledgments below, but shall be effective for all purposes as of
the Effective Time.

 

	
   

  	
  ASSIGNOR:

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  [ADD ADDITIONAL SELLERS PARTIES]

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
				

 

[Insert
Acknowledgments]

 

D-5

 

EXHIBIT E

 

TRANSITION SERVICES AGREEMENT

 

Attached
hereto and made a part of that certain Purchase and Sale Agreement between

Drilling & Xtraction, L.P., et al, as Sellers, and Whittier Energy Company,
as Buyer

 

E-1

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