Document:

exv10w10

Exhibit 10.10

GROUND LEASE AGREEMENT

between

JOHN GIESENSCHLAG and CONNIE GIESENSCHLAG,

Husband and wife

Landlord

and

CERES, INC.,

A Delaware Corporation

Tenant

Effective Date: April 1, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	FUNDAMENTAL LEASE PROVISIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE 1 - INTRODUCTORY PROVISIONS
	 	 	1	 
	Section 1.01 - Exhibits
	 	 	1	 
	Section 1.02 - Selected Definitions
	 	 	1	 
	 
	 	 	 	 
	ARTICLE 2 - PREMISES
	 	 	2	 
	Section 2.01 - Lease of Premises
	 	 	2	 
	Section 2.02 - Delivery of Premises
	 	 	2	 
	Section 2.03 - Development
	 	 	2	 
	 
	 	 	 	 
	ARTICLE 3 - TERM
	 	 	2	 
	Section 3.01 - Term of Lease
	 	 	2	 
	Section 3.02 - Preliminary Term
	 	 	2	 
	Section 3.03 - Main Term
	 	 	2	 
	Section 3.04 - Option Term
	 	 	3	 
	 
	 	 	 	 
	ARTICLE 4 - RENT
	 	 	3	 
	Section 4.01 - Tenant’s Agreement to Pay Rent
	 	 	3	 
	Section 4.02 - Rent Commencement Date
	 	 	3	 
	Section 4.03 - Base Rent
	 	 	3	 
	Section 4.04 - Additional Charges
	 	 	4	 
	Section 4.05 - Where Rent Payable and to Whom/Late Charges and Default Interest
	 	 	4	 
	 
	 	 	 	 
	ARTICLE 5 - TAXES AND ASSESSMENTS
	 	 	4	 
	Section 5.01 - Real Estate Taxes and Assessments
	 	 	4	 
	Section 5.02 - Tenant’s Business and Personal Property Taxes
	 	 	5	 
	Section 5.03 - Rent Tax
	 	 	5	 
	 
	 	 	 	 
	ARTICLE 6 - UTILITIES
	 	 	5	 
	Section 6.01 - Utilities
	 	 	5	 
	Section 6.02 - Trash and Garbage Removal
	 	 	5	 
	Section 6.03 - Utility Easements
	 	 	5	 
	 
	 	 	 	 
	ARTICLE 7 - USE OF PREMISES
	 	 	6	 
	Section 7.01 - Permitted Use
	 	 	6	 
	Section 7.02 - Compliance with Law
	 	 	6	 

 

 

	 	 	 	 	 
	ARTICLE 8 - LEASEHOLD IMPROVEMENTS, FIXTURES AND PERSONAL PROPERTY
	 	 	6	 
	Section 8.01 - Leasehold Improvements
	 	 	6	 
	Section 8.02 - Mechanics’ and Materialmen’s Liens
	 	 	6	 
	 
	 	 	 	 
	ARTICLE 9 - INDEMNITY AND INSURANCE
	 	 	6	 
	Section 9.01 -Tenant’s Insurance
	 	 	6	 
	Section 9.02 - Indemnification by Tenant
	 	 	8	 
	Section 9.03 - Effect on Landlord’s Insurance
	 	 	8	 
	Section 9.04 - Limit of Landlord’s Responsibility
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 10 - RECONSTRUCTION
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 11 - ENVIRONMENTAL COMPLIANCE
	 	 	9	 
	Section 11.01 - Compliance with Environmental Laws
	 	 	9	 
	Section 11.02
- Environmental Waste Removal
	 	 	10	 
	Section 11.03 - Environmental Regulations
	 	 	10	 
	Section 11.04 - Indemnification for Environmental Hazards
	 	 	10	 
	Section 11.05 - Landlord Indemnification of Environmental Hazards
	 	 	11	 
	Section 11.06 - Warranties and Representations of Landlord
	 	 	11	 
	 
	 	 	 	 
	ARTICLE 12 - MAINTENANCE OF PREMISES
	 	 	9	 
	Section 12.01 - No Landlord Obligation
	 	 	9	 
	Section 12.02
- Tenant’s Duty to Maintain Premises
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 13 - ASSIGNMENT AND SUBLETTING
	 	 	12	 
	 
	 	 	 	 
	ARTICLE 14 - DEFAULTS BY TENANT
	 	 	12	 
	Section 14.01 - Events of Default
	 	 	12	 
	Section 14.02 - Landlord’s Rights and Remedies
	 	 	12	 
	Section 14.03 - No Waiver
	 	 	13	 
	 
	 	 	 	 
	ARTICLE 15 - NON-DISTURBANCE; TENANT MORTGAGEE
	 	 	13	 
	Section 15.01 - Estoppel Certificate
	 	 	13	 
	Section 15.02 - Tenant Mortgagee
	 	 	13	 
	 
	 	 	 	 
	ARTICLE 16 - QUIET ENJOYMENT
	 	 	14	 
	 
	 	 	 	 
	ARTICLE 17 - EMINENT DOMAIN
	 	 	14	 
	Section 17.01 - Partial Condemnation
	 	 	14	 
	Section 17.02
- Condemnation Award
	 	 	14	 
	 
	ARTICLE 18 - LITIGATION AND ATTORNEY’S FEES
	 	 	14	 

 

 

	 	 	 	 	 
	ARTICLE 19 - NOTICES
	 	 	14	 
	 
	 	 	 	 
	ARTICLE 20 - CAPTIONS AND TERMS
	 	 	15	 
	 
	 	 	 	 
	ARTICLE 21 - STUDY PERIOD
	 	 	15	 
	 
	 	 	 	 
	ARTICLE 22 - CONDITIONS PRECEDENT
	 	 	16	 
	Section 22.01 - Conditions Precedent
	 	 	16	 
	Section 22.02 - Deliveries
	 	 	16	 
	Section 22.03 - Representations
	 	 	16	 
	 
	 	 	 	 
	ARTICLE 23 - MISCELLANEOUS
	 	 	16	 
	Section 23.01 - Relationship of Parties
	 	 	16	 
	Section 23.02 - Severability
	 	 	16	 
	Section 23.03 - Warranty of Authority
	 	 	17	 
	Section 23.04 - Entire Agreement
	 	 	17	 
	Section 23.05 - Governing Law
	 	 	17	 
	Section 23.06 - Waiver or Consent Limitation
	 	 	17	 
	Section 23.07 - No Brokerage
	 	 	17	 
	Section 23.08 - Holdover Tenant
	 	 	18	 
	Section 23.09 - Force Majeure
	 	 	18	 
	Section 23.10 - Usury
	 	 	18	 
	Section 23.11 - Time Is Of The Essence
	 	 	18	 
	Section 23.12 - Recording
	 	 	18	 
	Section 23.13 - Encumbrances
	 	 	18	 
	Section 23.14 - Mineral Interests
	 	 	18	 
	Section 23.15 - Option to Purchase
	 	 	19	 
	Section 23.16 - Attornment
	 	 	19	 

 

 

GROUND LEASE

     THIS
GROUND LEASE (“Lease”) is executed as of the
1st day
of April, 2008, (the “Effective
Date”), by and between JOHN GIESENSCHLAG and CONNIE GIESENSCHLAG, husband and wife (“Landlord”),
and CERES, INC., a Delaware corporation (“Tenant”).

FUNDAMENTAL LEASE PROVISIONS

Certain Fundamental Lease Provisions are presented in this Section and are hereby incorporated into
this Lease subject to further definition and elaboration elsewhere in this Lease. References
contained in said Fundamental Lease Provisions to Articles and Sections of this Lease are intended
to be informative only and not intended to limit any of the provisions of this Lease:

	 	 	 	 	 	 	 

	(a)

	 	Main Term:
	 	Fifteen (15) Rent Years
	 	(See § 3.03)
	 
	 	 	 	 	 	 
	(b)

	 	Option Term(s):
	 	Three (3) Option Terms of Five (5)
Rent Years
	 	(See § 3.04)
	 
	 	 	 	 	 	 
	(c)

	 	Premises:
	 	Approximately 5 acres in

Burleson County, Texas
	 	(See § 1.02[a])
	 
	 	 	 	 	 	 
	(d)

	 	Rent Commencement Date:
	 	(See § 4.02)
	 
	 	 	 	 	 	 
	(e)

	 	Base Rent:
	 	$750.00 per month (Lease Years 1 to 5)
	 	(See Article 4)
	 

	 	 	 	$1,000.00 per month (Lease Years 6 to 10)	 	 
	 

	 	 	 	$1,250.00 per month (Lease Years 11 to 15)	 	 

ARTICLE 1 – INTRODUCTORY PROVISIONS

     Section 1.01 – Exhibits. The following drawings and special provisions are attached hereto as
exhibits and hereby made a part of this Lease:

     EXHIBIT A  –  Legal Description of the Premises

     EXHIBIT B  –  Memorandum of Lease

     Section 1.02 – Selected Definitions.

     (a) The term “Premises” shall mean the real estate legally described on Exhibit
“A”.

     (b) The term “Lease Year” means each successive twelve (12) month period from January 1st
through December 31st occurring during the Main Term. “Partial Lease Year” means

 

 

the period between the Rent Commencement Date, if that date is not on January 1st, and the
immediately succeeding December 31st; and if the Main Term ends on other than a December 31st, it
also means the period beginning on the last January 1st of the Main Term and ending on the last day
of the Main Term.

     (c) The term “Rent Year” means each successive twelve (12) month period during the Lease Term
commencing on the Rent Commencement Date.

ARTICLE 2 – PREMISES

     Section 2.01 – Lease of Premises. Landlord, in consideration of the Rent and other sums to be
paid and the covenants to be performed by Tenant, hereby demises and leases the Premises unto
Tenant, and Tenant hereby leases and takes the Premises from Landlord, for the Lease Term, at the
rental, and upon the covenants and conditions herein set forth.

     Section 2.02 – Delivery of Premises. Landlord shall deliver and Tenant shall accept possession
of the Premises upon satisfaction of the conditions precedent set forth in Article 22 hereof (the
“Delivery Date”).

     Section 2.03 – Development. Landlord and Tenant acknowledge that Tenant is to improve the
Premises (the “Improvements”). Landlord and Tenant shall cooperate and execute such development
plans and agreements as may be required therefor, so long as Landlord shall not be required to
comply with any obligations imposed by any governmental agency or authority in connection
therewith, it being understood and agreed that such obligations shall be those of Tenant. Landlord
shall furnish the Premises with access to a public road. Such access to a public road must be
adequate to comply with the platting requirements for Burleson County, Texas, and the State of
Texas. Landlord’s obligation to furnish the Premises with access to a public road is limited to
providing an easement over and across contiguous land owned by the Landlord; under no circumstances
shall the Landlord be obligated to incur or pay for any expenses associated with construction of
roads, culverts, bridges or driveways that may be necessary to furnish the Premises with access to
a public road.

ARTICLE 3 – TERM

     Section 3.01 – Term of Lease. The term “Term of this Lease” (sometimes herein called the
“Term” or “Lease Term”) means, inclusively, the Preliminary Term, if any, and the Main Term and any
Option Term, extension, renewal or holdover of the Main Term which is consented to in writing by
Landlord.

     Section 3.02 – Preliminary Term. The term “Preliminary Term”, if any, means the period
beginning as of the date of this Lease and, unless sooner terminated as herein provided, continuing
thereafter through the day immediately prior to the Rent Commencement Date.

2

 

     Section 3.03 – Main Term. The term “Main Term” means the period beginning as of the Rent
Commencement Date and, subject to the terms and conditions of this Lease, ending on the last day of
the Fifteenth (15th) Rent Year.

     Section 3.04 – Option Term. Tenant is hereby granted an option to extend the Main Term for
three (3) additional terms of five (5) Rent Years each (each an “Option Term”), the first of which
shall begin immediately upon the expiration of the Main Term and the second, to begin immediately
upon the expiration of the first Option Term, and the third of which shall begin immediately upon
the expiration of the second Option Term (without the necessity of executing a new Lease therefore)
upon the same terms, provisions and conditions as contained in the Lease, except for the rental
provisions hereinafter set forth, and except there shall be no additional options to extend;
provided, however, Tenant’s right to exercise any such option to extend hereunder shall, at the
time of each and every exercise of such option, be subject to each of the following conditions: (i)
that Tenant is not then in default of Tenant’s obligations under the Lease beyond any applicable
grace or notice and cure period; and (ii) notice of exercise of each option to extend shall be
delivered in writing to Landlord not fewer than sixty (60) days prior to the expiration of the Main
Term of this Lease or the immediately preceding Option Term, as the case may be. The Base Rent for
each Option Term shall be as set forth in Section 4.03.

ARTICLE 4 – RENT

     Section 4.01 – Tenant’s Agreement to Pay Rent. Tenant hereby agrees to pay for the use and
occupancy of the Premises during the Lease Term, at the times and in the manner herein provided,
the Base Rent and Additional Charges specified herein (sometimes referred to collectively herein as
“Rent”).

     Section 4.02 – Rent Commencement Date. As used in this Lease, the term “Rent Commencement
Date” shall mean the date on which construction of Improvements begins.

     Section 4.03 – Base Rent. The Base Rent shall be in the amount specified in the Fundamental
Lease Provisions and shall be payable in twelve (12) equal monthly installments during each Rent
Year, in advance, commencing on the Rent Commencement Date, and continuing thereafter on the first
day of each calendar month throughout the Term. If the Rent Commencement Date is not the first day
of a calendar month, Base Rent shall be prorated for the first partial calendar month and paid on
the Rent Commencement Date and shall be prorated for any partial calendar month at the end of the
Term. Base Rent under each Option Term shall be in the amount as determined by Landlord and Tenant
following the exercise of Tenant’s option to extend the Term and prior to the commencement of such
Option Term, not to exceed $1,500.00 per month for the first Option Term (Years 16 to 20), not to
exceed $1,750.00 per month for the second Option Term (Years 21 to 25) and not to exceed $2,000.00
per month for the third Option Term (Years 26 to 30). In the event the parties are unable to agree
on the Base Rent for the Option Term(s) then the monthly Base Rent payable during such Option
Term(s) shall be the sum of $1,500.00 per month for the first Option Term (Years 16 to 20),
$1,750.00 per month for the

3

 

second Option Term (Years 21 to 25) and $2,000.00 per month for the
third Option Term (Years 26 to 30), unless Tenant shall give notice that it withdraws its exercise of its option to extend
the Term on or before the first day of the commencement of such Option Term.

     Section 4.04 – Additional Charges. In addition to Base Rent, Tenant shall pay all other sums
of money or charges of whatsoever nature required to be paid by Tenant to Landlord pursuant to this
Lease (herein called “Additional Charges”) whether or not the same are designated as Additional
Charges. It is the intention of the parties that Additional Charges shall not be considered Rent
but shall comprise a portion of the material consideration hereunder, provided however that
Landlord shall have the same rights and remedies for the collection of Additional Charges as the
Lease provides for the collection of Rent.

     Section 4.05 – Where Rent Payable and to Whom/Late Charges and Default Interest. Rent and
Additional Charges payable by Tenant under this Lease shall be paid when due without prior demand
therefore (unless such prior demand is expressly provided for in the Lease), shall be payable
without any deductions, recoupment or setoffs whatsoever (except for credits expressly permitted by
this Lease), and shall be paid by Tenant to Landlord at the address of Landlord set forth in
Article 19 below, or to such payee and/or at such other place as may be designated from time to
time by notice from Landlord to Tenant.

ARTICLE 5 – TAXES AND ASSESSMENTS

     Section 5.01 – Real Estate Taxes and Assessments. During the term Tenant shall pay or cause to
be paid all real estate and other ad valorem taxes and assessments of every kind and nature
(including, but not limited to, general and special assessments, foreseen as well as unforeseen)
with respect to the Premises, including all land, together with the buildings and improvements
constituting and situated on the Premises (collectively, “Tenant Improvements”). Tenant shall pay
or cause to be paid all rollback, open space, “Green Acres”, or similar taxes attributable to
agricultural or special use valuation and any other deferred taxes or assessments which pertain to
a period prior to the term of this Lease and shall indemnify, defend and hold Landlord harmless
from such taxes, penalties and interest. The provisions of this Paragraph shall survive the
termination of this Lease. Tenant, at its sole cost and expense, may dispute and contest the taxes
and assessment on the Premises, and in such cases if permitted under applicable law the disputed
charge need not be paid until finally adjudged to be valid. Tenant shall pay the charge contested
to the extent it is held valid, together with all court and other costs, interest, penalties and
other expenses related thereto. If taxes are billed to Landlord, Landlord shall send statements
therefor to Tenant at Tenant’s address for notice in accordance with Article 19 below. If at any
time during the Lease Term the Premises do not constitute a separate tax parcel, Tenant shall pay
its proportionate share of such Taxes for the assessor’s parcel of which the Premises forms a part
based upon the square footage of land comprising the Premises as compared with the square footage
of the land comprising the tax assessor’s parcel together with the amount of the assessment which
is attributable to Tenant’s Improvements. If the Premises do not constitute a separate tax parcel,
Landlord and Tenant shall cooperate, at Tenant’s expense, to cause the

4

 

Premises to become a
separate tax parcel and to have the statement for such taxes issued directly to Tenant. With
respect to any assessments which may be levied as part of Taxes, or
which may be evidenced by improvements or other bonds, or may be paid in annual installments, only the amount
of such annual installment (prorated for any partial Lease Year) including any interest charged by
the governmental or public authority with regard to such installment shall be included within the
computation of the annual Taxes for the Lease Year in question. Tenant, at its sole cost and
expense, may dispute and contest the Taxes and assessment on the Premises, and in such cases if
permitted under applicable law the disputed charge need not be paid until finally adjudged to be
valid. Tenant shall pay the charge contested to the extent it is held valid, together with all
court and other costs, interest, penalties and other expenses related thereto.

     Section 5.02 - Tenant’s Business and Personal Property Taxes. Tenant shall pay, or cause to be
paid, before delinquency all taxes, assessments, license fees and public charges levied, assessed
or imposed upon its business operation, as well as upon its leasehold interest, trade fixtures,
furnishings, equipment, leasehold improvements, alterations, changes and additions made by Tenant,
merchandise and personal property of any kind owned, installed or used by Tenant in, on or upon the
Premises. In the event any such items of property are assessed with property of Landlord, then, and
in such event, such assessment shall be equitably divided. Landlord shall determine the basis of
dividing any such assessments and such determination shall, if not arbitrary or capricious, be
binding upon both Landlord and Tenant.

     Section 5.03 - Rent Tax. Any excise, transaction, sales, privilege, or other tax (except net
income tax) now or hereafter levied or imposed upon Landlord by any government or governmental
agency on account of, attributed to or measured by this Lease or by rental or other charges or
prorations (including, without limitation, Rent, real estate taxes and assessments and other
Additional Charges) payable by Tenant hereunder shall be paid by Tenant to Landlord along with the
rental and other charges payable hereunder, at Landlord’s election, with monthly installments of
Base Rent and/or within ten (10) days after Tenant’s receipt of a statement therefore from
Landlord.

ARTICLE 6 – UTILITIES

     Section 6.01 – Utilities. Tenant shall be responsible for the payment of, or causing the
payment of, utilities consumed on the Premises.

     Section 6.02 – Trash and Garbage Removal. Tenant shall be solely responsible for trash and
garbage removal from the Premises.

     Section 6.03 – Utility Easements. Tenant shall be responsible for obtaining such easements as
may be required and causing to be installed such utilities as may be necessary for the development
of the Premises and as required under the Ceres Agricultural Lease. In connection therewith,
Landlord hereby agrees to execute, at no cost to Tenant, such easements as may be required for the
development of the Premises over, under or across any real property

5

 

adjacent to the Premises owned
or controlled by Landlord or an affiliate thereof; subject to Landlord’s sole discretion and
control over the determination of the location of any such easements. Landlord represents to
Tenant that Landlord owns a private water line that is connected to the City of Snook, Texas (“Water Line”) water system and that water is available at
the Premises from the Water Line. The Landlord will allow the Tenant to connect to the Water Line,
and the Tenant will pay a connection fee of $1,500.00. In consideration for the connection
fee, the Tenant will receive a 2 inch meter with backflow preventer connected to the Landlord’s
Water Line. The Landlord will separately meter the Tenant’s use of water from the Water Line and
the Tenant will pay for water use, on a monthly basis, at a rate equal to 1.25 times the rate
charged for water by the City of Snook as such rate changes from time to time. As of the date of
this Lease, the City of Snook charges $4.00 per 1,000 gallons of water; accordingly, the rate
charged Tenant will be $5.00 per 1,000 gallons of water until such time that the rate charged by
the City of Snook changes. Notwithstanding any provision of this Lease to the contrary, the Tenant
may not sub-meter or sell the water it purchases from the Landlord.

ARTICLE 7 - USE OF PREMISES

     Section 7.01 – Permitted Use. Tenant shall use the Premises, or cause the Premises to be
used, for office, administrative, greenhouse and laboratory uses, and to grow crops related to
Tenant’s bio-environmental research.

     Section 7.02 - Compliance with Law. Tenant shall comply, or cause or require its tenants to
comply, with all present and future federal, state, and local laws, ordinances, orders, rules and
regulations.

ARTICLE 8 – LEASEHOLD IMPROVEMENTS, FIXTURES AND PERSONAL PROPERTY

     Section 8.01 – Leasehold Improvements. Tenant shall make, or cause to be made, certain
improvements to the Premises which Tenant may alter, remove, and/or replace from time to time
during the Term. Tenant shall not be required to remove any of Tenant’s improvements or to restore
the Premises to the original elevation. Landlord authorizes Tenant, as a part of the Tenant’s work
and at Tenant’s expense, to elevate up to two (2) acres of the Premises out of the flood plain.
The Tenant’s plans and specifications for elevating the Premises must be approved in advance by the
Landlord, such approval not to be unreasonably withheld, delayed or conditioned. The Landlord will
sell soil to the Tenant, from a location determined by Landlord, for the sum of $2.00 per cubic
yard in place, and all costs of extraction, transportation and delivery will be at Tenant’s sole
cost and expense.

     Section 8.02 – Mechanics’ and Materialmen’s Liens. Tenant shall pay or cause to be paid all
costs for work done by it or caused to be done by it on, and for materials furnished to the
Premises, and Tenant shall keep the Premises free and clear of all mechanics’ and other
materialmen’s liens and other liens on account of work done by Tenant or persons claiming under

6

 

it.
Tenant shall cause its tenants to pay or cause to be paid all costs for work done by them, or any
of them, or caused to be done by them, or any of them or for materials furnished to the Premises at
the request of such parties. Tenant agrees to and shall indemnify, defend and save Landlord free
and harmless against liability, loss, damage, costs, attorneys’
fees, and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or materials or
supplies furnished to the Premises. Should any claims of lien be filed against the Premises or any
action affecting the title to such property be commenced, the party receiving notice of such lien
or action, whether Landlord or Tenant, shall thereupon give the other notice thereof.

ARTICLE 9 – INDEMNITY AND INSURANCE

     Section 9.01 – Tenant’s Insurance.

     (a) Tenant covenants and agrees that it shall obtain and maintain, for its benefit and the
benefit of Landlord, the insurance as herein provided. Commercial general liability insurance
covering the Premises and Tenant’s use and occupancy thereof against claims for personal injury or
death and property damage occurring upon, in or about the Premises with such insurance to afford
protection to a limit of not less than $5,000,000.00 in respect of injury or death to any number of
persons whether arising out of one or more occurrences in the aggregate and a limit of not less
than $500,000.00 in respect of any instance of property damage. The insurance coverage required
under this Section 9.01(a)(i) shall, in addition, extend to any liability of Tenant arising out of
the indemnities provided for in Section 9.02.

     (b) All policies of insurance provided for in Section 9.0 l(a) shall be issued in form by
insurance companies with general policy holder’s rating of not less than A- and a financial rating
of not less than VIL as rated by A.M. Best Co. in the most current available Best’s Insurance
Reports or Best Key Guide (or the then most nearly equivalent thereof if the same hereafter ceases
to be published), and qualified to do business in the State of Texas. Each and every such policy:

(i) shall be issued in the name of Tenant with Landlord and any other parties in interest
from time to time designated in writing by notice from Landlord to Tenant as additional
insureds;

(ii) shall be for the mutual and joint benefit and protection of Landlord and Tenant and any
such other parties in interest;

(iii) shall (or a certificate thereof shall) be delivered to Landlord and any other parties
in interest within ten (10) days after delivery of possession of the Premises to Tenant, and
thereafter within thirty (30) days prior to the expiration of each such policy, and, as
often as any such policy shall expire or terminate, renewal or additional policies shall be
procured and maintained by Tenant in like manner and to like extent; and

(iv) shall contain a provision that the insurer will give to Landlord and such other parties
in interest at least thirty (30) days notice in writing in advance of any material

7

 

change,
cancellation, termination or lapse, or the effective date of any reduction in the amounts of
insurance.

     (c) Any insurance provided for in Section 9.01 may be maintained by means of a policy or
policies of blanket insurance, covering additional items or locations or insureds, provided,
however, that:

(i) Landlord and any other parties in interest from time to time designated by Landlord to
Tenant shall be named as an additional insured thereunder as its interest may appear;

(ii) the coverage afforded Landlord and any such other parties in interest shall not be
reduced or diminished by reason of the use of such blanket policy of insurance; and

(iii) the requirements set forth in this Article 9 are otherwise satisfied.

     (d) Tenant agrees to permit Landlord at all reasonable times to inspect the policies of
insurance of Tenant with respect to the Premises for which policies or copies thereof are not
delivered to Landlord.

     Section 9.02 – Indemnification by Tenant. Except as to any damage or liability resulting
solely from Landlord’s wrongful acts or negligence, Tenant agrees that Landlord and Landlord’s
present and future partners and/or members and their respective officers, directors, partners,
members, manager, agents, contractors, servants or employees shall not be liable for any damage or
liability of any kind or for any injury to or death of persons or damage to property of Tenant or
any other person during the Term, for any cause whatsoever by reason of the construction, use,
occupancy or enjoyment of the Premises by Tenant or any person therein or holding under Tenant.
Tenant does hereby indemnify, defend, protect and hold harmless Landlord and Landlord’s present and
future partners and their respective officers, directors, partners, members, managers, agents,
contractors, servants or employees from all claims, actions, demands, costs and expenses and
liability whatsoever, including reasonable attorney’s fees, on account of any such real or claimed
damage or liability, and from all liens, claims and demands occurring in, or at the Premises, or
arising out of the construction, use, occupancy or enjoyment of the Premises and its facilities, or
any repairs or alterations which Tenant may make upon the Premises or occasioned in whole or in
part by any act or omission of Tenant, its agents, contractors, servants, employees or invitees
during or with respect to the Lease Term. If any damages are caused wholly or in part by a
negligent act or omission of Landlord, its employees, agents, contractors, customers or invitees,
the extent of this indemnity shall only apply to the extent of the negligence of Tenant and its
employees, agents, contractors, customers and invitees. Tenant’s obligation to indemnify Landlord
as herein provided shall survive the expiration or earlier termination of this Lease for acts or
omissions occurring prior to such expiration or earlier termination, and shall additionally include
any failure of Tenant in any respect to comply with and perform all the requirements and provisions
of this Lease, including without limiting the generality of the foregoing the requirements and
provisions of Article 11 relating to compliance

8

 

with laws and Environmental Laws (including without
limitation any and all costs of investigation, compliance and remediations).

     Section 9.03 – Effect on Landlord’s Insurance. Tenant shall not do or suffer to be done, or
keep or suffer to be kept, anything in, upon or about the Premises which will contravene Landlord’s
policies insuring against loss or damage by fire or other hazards, or which will prevent Landlord
from procuring such policies in companies acceptable to Landlord or which will in any way cause an
increase in the insurance rates upon any portion of the Premises. If Tenant violates any
prohibition provided for in the first sentence of this Section, Landlord may, without notice to
tenant, correct the same at Tenant’s expense. Tenant shall pay to Landlord as Additional Charges
forthwith upon demand the amount of any increase in premiums for insurance resulting from any
violation of the first sentence of this Section, even if Landlord shall have consented to the doing
of, the keeping of, anything on the Premises which constituted such a violation (but payment of
such Additional Charges shall not entitle Tenant to violate the provisions of the first sentence of
this Section).

     Section 9.04 – Limit of Landlord’s Responsibility. Landlord shall not be responsible or
liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions
of persons occupying any part of the Premises, or for any loss or damage resulting to Tenant or its
property on the Premises from any cause whatsoever, except to the extent caused by negligence or
willful misconduct of Landlord.

ARTICLE 10 – RECONSTRUCTION

     If at any time during the Lease Term the Premises, Tenant Improvements or any fixtures,
equipment, furniture, furnishings or other improvements now or hereafter situated upon or within
the Premises shall be damaged or destroyed by any cause whatsoever, there shall be no abatement in
rent and unless such are repaired, replaced and reconstructed, Tenant shall cause any debris and
damaged materials to be removed from the Premises and to thereafter pave or otherwise cause the
Premises to be maintained in a sightly condition in accordance with applicable dust control or
other Laws.

ARTICLE 11 – ENVIRONMENTAL COMPLIANCE

     Section 11.01 – Compliance with Environmental Laws. Tenant covenants and agrees to comply
with all applicable environmental laws, including without limitation all laws governing hazardous
substances and all requirements related to storm water discharges and permits, and to provide to
Landlord, immediately upon receipt, copies of any correspondence, notice, pleading, citation,
indictment, complaint, order, decree or other document from any source asserting or alleging a
circumstance or condition which requires, or may require, a clean-up, removal, remedial action, or
other response by or on the part of Tenant under environmental laws, or which seek civil, criminal
or punitive penalties from Tenant for an alleged violation of environmental laws. Tenant further
agrees to advise the Landlord in writing as soon as Tenant becomes aware of any condition or
circumstances that may result in a potential violation of any environmental laws.

9

 

     Section 11.02 – Environmental Waste Removal. Without limiting the foregoing, Tenant shall not
dump, flush, or in any way introduce any hazardous materials or
hazardous waste or any other toxic materials upon the Premises nor shall it improperly store, or dispose of any hazardous
materials or hazardous waste from any such property, except in full compliance with all applicable
laws and regulations. For purposes of this paragraph, the term hazardous materials shall mean
inflammable, explosives, radioactive materials and hazardous substances defined as “hazardous
substances,” “hazardous materials” or “toxic substances” in the Comprehensive Environmental
Response Compensation Liability Act of 1980, as amended, the Hazardous Conservation and Recovery
Act, and the Resources Conservation and Recovery Act, or any similar federal, state or local law,
or in any regulations promulgated pursuant thereto, or in any other applicable law. The term
“hazardous materials” shall also include any other chemical, material or substance which is or may
be regulated as toxic or hazardous or exposure to which is prohibited, limited or regulated by any
federal, state or other governmental authority or agency or which, even if not so regulated, may or
could pose a hazard to human health and safety. If in the opinion of Landlord, there exists any
uncorrected violation by Tenant of an environmental law which requires, or may require, a cleanup,
removal or any condition or other remedial action by Tenant under any environmental law,
regulation, permit, license, judgment or decree, and such cleanup, removal or other remedial action
is not completed, or commenced and diligently pursued, within sixty (60) days from the date of
written notice from Landlord to Tenant, the same shall, at the option of Landlord, constitute an
event of default hereunder.

     Section 11.03 – Environmental Regulations. For the purposes of this Section 11, the term
“environmental law or laws” shall mean all Federal, State and Local laws including statutes,
regulations, ordinances, codes, rules, permits, licenses, judgments, decrees, or other governmental
restrictions and requirements relating to the environment or any hazardous substance, including but
not limited to, the State of Texas environmental protection statutes, the Federal Solid Waste
Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Research Conservation and
Recovery Act of 1976, the Federal Comprehensive Environmental Responsibility, Cleanup and Liability
Act of 1980 as amended by the Super Fund Amendments and Reauthorization Act of 1986, regulations of
the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations
of any State Department of Environmental Protection or successor agency now or anytime hereafter in
effect.

     Section 11.04 – Indemnification for Environmental Hazards. Tenant shall defend, indemnify and
hold the Landlord harmless from and against and in respect of any and all damages, costs and
expenses, including without limitation, fines, penalties, reasonable attorney’s fees, consequential
damages and remedial costs and other liabilities arising from claims based upon the environmental
condition of the Premises and the surrounding property (including without limitation all
facilities, improvements, structures and equipment thereon and soil and groundwater thereunder),
resulting from (a) Tenant’s use of the Premises or operations thereon by or on behalf of Tenant;
(b) claims arising out of, related to, or in connection with (I) the release by Tenant of any
hazardous material into, onto or from the Premises; or (ii) any arrangement by 

10

 

Tenant for the
treatment, recycling, storage or disposal at any facility owned or operated by any person or entity
of a hazardous material which is present on the Premises or has been or may be deposited at,
disposed on or released onto the Premises; and (c) claims related to demolition, cleanup or other
remedial measure with regard to environmental conditions on or around
the Premises, caused by Tenant, or (d) claims resulting from any act or omission of Tenant in violation
of any federal, state or local environmental laws or regulations with respect to Tenant’s use of
the Premises. Tenant has no duty to hold Landlord harmless for any damages that result from any
environmental condition that was in existence at the time Tenant accepts possession of the
Premises.

Section 11.05 – Warranties and Representations of Landlord.

	 	(a)	 	Landlord has no actual, current knowledge of the existence of any
hazardous materials, hazardous waste or any other toxic substances located on the
Premises. Notwithstanding the foregoing, Landlord may be aware of the existence or
presence of materials that may, in fact, fall within common definitions of “hazardous
materials, hazardous waste or any other toxic substances”, but Landlord has no actual,
current knowledge that such materials fall within the definition of “hazardous
materials, hazardous waste or any other toxic substances”. Landlord’s knowledge of
such materials is not and shall not be a violation or breach of this warranty and
representation. Landlord further notifies Tenant that there may be now or from time to
time substances used in the ordinary course of farming that might fall within the
definition of “hazardous materials, hazardous waste or any other toxic substances”,
such as diesel, gasoline, oil, fertilizers of all kinds, herbicides, pesticides and so
forth. The Tenant is going to conduct a Phase I Environmental Site Assessment, and the
Tenant will rely on the results of that Assessment to determine whether or not there
are any environmental matters of concern to Tenant.
	 
	 	(b)	 	To Landlord’s actual, current knowledge, Landlord has never been
advised or requested to remove or remediate any hazardous material, hazardous waste or
toxic substances located on the Property. The terms hazardous materials, hazardous
waste and toxic substances shall have the same definitions as set forth in Section 18
of this Lease.
	 
	 	(c)	 	Landlord owns the Premises and Landlord has the right and authority to enter
into this Lease.

ARTICLE 12 – MAINTENANCE OF PREMISES

     Section 12.01 – No Landlord Obligation. Landlord shall have no obligation whatsoever with
respect to the maintenance, repair, or replacement of the Premises or any improvements thereto.

11

 

     Section 12.02 – Tenant’s Duty to Maintain Premises. Tenant shall at all times, from and after
the delivery date, maintain the Premises.

ARTICLE 13 – ASSIGNMENT AND SUBLETTING.

     Tenant may sublet or assign any part of all of this lease and the Premises with the written
consent of the Landlord, whose consent shall not be unreasonably delayed, withheld or conditions,
provided however, it is specifically understood and agreed that Tenant shall be solely responsible
for the performance of all of the terms, covenants and conditions of this lease as well as
maintaining the demised Premises in accordance with the terms hereof, and shall be responsible for
any assignee’s or subTenant’s defaulting hereunder at all times, and in no event shall Tenant be
released from such obligations and responsibilities by virtue of any assignment or sublease, unless
approved in writing by Landlord. Notwithstanding the above language, Tenant may sublease or assign
this Lease, without Landlord’s consent to an Affiliated Company of Tenant, provided Tenant is not
released from Tenant’s obligations under the terms and covenants of the Lease. “Affiliated
Company” shall mean any company owned or controlled by, under common control with or controlling
Tenant, “control” meaning in this context the direct or indirect ownership of more than fifty
percent (50%) of the voting stock/shares of a company, or the power to nominate at least half of
the Directors.

ARTICLE 14 – DEFAULTS BY TENANT

     Section 14.01 – Events of Default. The occurrence of any one or more of the following events
shall constitute events of default (hereinafter “default” or “event of default”):

     (a) Tenant’s failure to pay any rental or Additional Charges payable by Tenant under this
Lease within twenty (20) days after Tenant’s receipt of written notice from Landlord that the same
is past due, but notwithstanding anything contained herein to the contrary, Landlord shall not be
obligated to provide more than two (2) written notices of a failure to pay any rental within any
Lease Year, or

     (b) Tenant violates any provision of this Lease for which a specific performance or notice and
cure period is provided and Tenant fails to perform such action or cure such violation within the
time period therein provided; or

     (c) Tenant’s failure to promptly and fully perform any other of its promises, covenants or
agreements herein contained within thirty (30) days after receipt of written notice thereof from
Landlord; provided, however, Landlord agrees that if such a default is of such a nature that it
cannot be cured within such period, then if within such period Tenant has commenced the cure
thereof, and Tenant diligently continues thereafter to effect such rectification and cure, the
Tenant shall be provided with a reasonable period of time within which to complete said
rectification and

12

 

cure, and the Landlord shall give the Tenant an additional thirty (30) days
notice of the Landlord’s determination that a reasonable period of time has expired.

     Section 14.02 – Landlord’s Rights and Remedies. Landlord shall have upon the occurrence of any
event of default, at its option and without further notice or demand
of any kind to Tenant or any other person, the following rights: (I) the right to terminate Tenant’s interest
in the Premises or (ii) seek to recover from Tenant the damages arising from Tenant’s default.

     Section 14.03 – No Waiver. The waiver by Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term, covenant or condition
or any subsequent breach of the same or any other term, covenant or condition herein contained. The
subsequent acceptance of rent or other sum hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord’s knowledge of such preceding breach at the time of acceptance of such rent or other sum.
No endorsement or statement on any check or any letter accompanying any check or payment of a
lesser amount of any rent or other sum hereunder shall be deemed an accord and satisfaction, and
Landlord’s acceptance of such check or lesser amount shall be on account only and without prejudice
to Landlord’s right to recover the balance of such rent or other sum, none of Landlord’s rights and
remedies being affected thereby. No covenant, term, or condition of this Lease shall be deemed to
have been waived by Landlord unless such waiver shall be in writing by Landlord.

ARTICLE 15 – NON-DISTURBANCE; TENANT MORTGAGEE

     Section 15.01 – Estoppel Certificate. Within ten (10) days after request therefor by Landlord
(or by any mortgagee), Tenant agrees to deliver in recordable form a certificate addressed to
Landlord or to said Mortgagee as the case may be, or to any prospective purchaser, or mortgagee
certifying (1) that this Lease is in full force and effect and has not been amended or supplemented
(if such be the case); (2) that there are no defenses or offsets thereto or stating those claimed
by Tenant; (3) the date to which Base Rent has been paid; (4) the date of expiration or earlier
termination of this Lease; and (5) any other matters concerning the Lease as may be reasonably
requested.

     Section 15.02 – Tenant Mortgagee. Tenant may not encumber its leasehold interest in the
Premises without the prior written consent of the Landlord, such consent not to be unreasonably
withheld, delayed or conditioned.

ARTICLE 16 – QUIET ENJOYMENT

     Landlord agrees that Tenant, upon paying the rental and performing the covenants and
conditions of this Lease, respectively, shall quietly have, hold and enjoy the Premises during the
Lease Term.

13

 

ARTICLE 17 – EMINENT DOMAIN

     Section 17.01 – Partial Condemnation. If any portion of the Premises shall be acquired for
any public or quasi-public use or purpose or condemned by eminent domain (a “Condemnation”), and if
such Condemnation causes the Tenant to be unable to continue its intended use of the Premises, the
Tenant may terminate this Lease.

     Section 17.02 – Condemnation Award. In the event of a taking of the entire Premises, the
Lease shall terminate and Rent shall be paid to the date of Termination.

ARTICLE 18 – LITIGATION AND ATTORNEY’S FEES

     In the event either Landlord or Tenant shall bring any action or proceeding for damages for
any alleged breach of any provision of this Lease, to recover rents, or to enforce, protect, or
establish any right or remedy of either party, the prevailing party shall be entitled to recover as
part of, or incident to, such action or proceeding, all reasonable attorneys1 fees,
expert witness fees and other costs and expenses incurred in the preparation and processing of such
action or proceedings. In addition, all reasonable attorneys’ fees, expert witness fees and other
costs and expenses incurred by Landlord by reason of any action to which Landlord shall be made a
defendant because of any action or omission of Tenant shall constitute additional rent under this
Lease.

ARTICLE 19 – NOTICES

     Wherever in this Lease (including also any exhibits, addenda and riders attached hereto and
made a part hereof) it shall be required or permitted that notice, request, approval, demand,
consent or other communication be given or served by Landlord or Tenant such notice, request,
approval, demand, consent or other communication shall be in writing and shall be deemed to be
given or served three (3) days after depositing the notice with the U.S. Postal Service if mailed
by certified or registered mail, postage prepaid, or upon the next business day if deposited with a
nationally recognized overnight courier service whose standard practice is to obtain a receipt upon
delivery, addressed to the address of the addressee specified below. Either party may change such
address by notice by certified or registered mail to the other. Landlord and Tenant have the
following notice addresses on the date of this Lease:

	 	 	 

	LANDLORD:

	 	JOHN GIESENSCHLAG
	 

	 	14735 FM 166
	 

	 	Caldwell, Texas 77835
	 
	 	 
	with a copy to:

	 	WEST, WEBB, ALLBRITTON & GENTRY, P.C.
	 

	 	1515 Emerald Plaza
	 

	 	College Station, Texas 77845
	 

	 	Attn: Michael H. Gentry
	 
	 	 

14

 

	 	 	 

	TENANT:

	 	CERES, INC., a Delaware corporation
	 

	 	1535 Rancho Conejo Blvd.
	 

	 	Thousand Oaks, CA 91320
	 
	 	 
	with a copy to:

	 	PAYNE, WATSON, MILLER, MALECHEK & SCHERR, P.C.
	 

	 	3000 Briarcrest Drive, Suite 600
	 

	 	Bryan, Texas 77802
	 

	 	Attn: Jay Don Watson

ARTICLE 20 – CAPTIONS AND TERMS

     The captions of Articles and Sections of this Lease are for convenience only, are not a part
of this Lease and do not in any way limit or amplify the terms and provisions of this Lease. If
more than one person, corporation or other entity is named as Tenant in this Lease and executes the
same as such, then and in such event, the word “Tenant” wherever used in this Lease is intended to
refer to all such persons, corporations or other entities, and the liability of such persons,
corporations or other entities for compliance with and performance of all the terms, covenants and
provisions of this Lease shall be joint and several. If Tenant is composed in whole or in part of a
husband and wife, the separate estate of each spouse as well as their community property shall be
liable hereunder. The masculine pronoun used herein shall include the feminine or the neuter as the
case may be, and the use of the singular shall include the plural.

ARTICLE 21 – STUDY PERIOD

     (a) Within the first ninety (90) days after the Effective Date of the Lease (the “Study
Period”) Tenant shall have the right to terminate the Lease by delivery of written notice of such
termination to Landlord.

     (b) Within thirty (30) days after the Effective Date of the Lease, Landlord shall cause to be
issued to Tenant a title insurance commitment from Burleson County Title Company (the “Title
Commitment”) leading to the issuance, at Landlord’s cost, of a leasehold policy of title insurance,
in an amount equal to one year of Base Rent, pertaining to the leasehold estate created hereunder
free and clear of all liens and encumbrances except those approved by Tenant, in its sole
discretion, in writing during the Study Period. The Title Insurance Policy shall be delivered at
such time the Tenant’s right to terminate during the Study Period has terminated.

ARTICLE 22 – CONDITIONS PRECEDENT

     Section 22.01 – Conditions Precedent. It is acknowledged and agreed between Landlord and
Tenant that Tenant intends to develop the Premises for a facility to be used by Tenant and Tenant
shall require a period of time within which to investigate the Premises and to develop plans
therefore and secure loan commitments and development approvals.

15

 

     Section 22.02 – Deliveries. Within fifteen (15) days after the Effective Date, Landlord shall
deliver to Tenant to facilitate its investigation of the Premises any information in its possession
or under its control pertaining to the Premises, including without limitation, ALTA/ACSM surveys,
soils reports, environmental site assessments, geotechnical studies, and any similar items or items
prepared by engineers as submitted to any governmental agency or authority and any notices that may
have been received by Landlord from any governmental agency or authority pertaining to the
Premises.

     Section 22.03 – Representations. In order to facilitate Tenant’s investigation of the
Premises, Landlord represents and warrants to Tenant that:

     (a) Landlord has fee simple title to the Premises and the power and authority to execute and
deliver this Lease and to comply with all the provisions hereof.

     (b) The execution and entry into this Lease, the execution and delivery of the documents and
instruments to be executed and delivered by Landlord hereunder, and the performance by Landlord of
Landlord’s duties and obligations under this Lease and of all other acts necessary and appropriate
for the full consummation of the lease of the Premises as contemplated herein, are consistent with
and not in violation of, and will not create any adverse condition under, any contract, agreement
or other instrument to which Landlord is a party, any judicial order or judgment of any nature by
which Landlord is bound.

ARTICLE 23 – MISCELLANEOUS

     Section 23.01 – Relationship of Parties. Nothing contained in this Lease shall be deemed or
construed as creating a partnership or joint venture between Landlord and Tenant or between
Landlord and any other party or causing Landlord to be responsible in any way for the debts or
obligations of Tenant or of any other party.

     Section 23.02 – Severability. If any provision of this Lease shall be determined to be void
by any court of competent jurisdiction, then such determination shall not affect any other
provision of this Lease, and all such other provisions shall remain in full force and effect. It is
the intention of the parties hereto that if any provision of this Lease is capable of two
constructions, one of which would render the provision void and the other of which would render the
provision valid, then the provision shall have the meaning which renders it valid. It is further
the intention of the parties hereto that the covenants of this Lease be independent of each other.

     Section 23.03 – Warranty of Authority. In the event Tenant shall be a corporation, or limited
liability company the party(ies) executing this Lease on behalf of Tenant hereby covenant and
warrant that they are authorized to do so and that Tenant is a duly qualified corporation or
limited liability company, as applicable, and all steps have been taken prior to the date hereof to
qualify Tenant to do business in Texas; corporate taxes have been paid to date; and all future

16

 

forms, reports, fees and other documents necessary to comply with applicable laws will be filed
when due. In the event Tenant shall be a partnership, the liability of each and every partner
thereof for compliance with and performance of all the terms, covenants and provisions of this
Lease shall be joint and several, and no withdrawing partner shall be relieved of any liability
hereunder as the result of any such withdrawal.

     Section 23.04 – Entire Agreement. It is understood that there are no oral agreements between
the parties hereto affecting this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings,
if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject thereof, and none
thereof shall be used to interpret or construe this Lease. All negotiations and oral agreements
acceptable to both parties have been merged into and are included herein, and no modification of
this Lease shall be effective unless the same shall be in writing and be signed by the parties
hereto or, as the case may be, their respective successors or assigns.

     Section 23.05 – Governing Law. The laws of the State of Texas shall govern the validity,
performance and enforcement of this Lease. Should either party institute legal suit or action for
enforcement of any obligation contained herein, it is agreed that the venue of such suit or action
shall be, at the option of Landlord, in Burleson County, Texas, Tenant expressly consenting to
Landlord’s designating the venue of any such suit or action, and consents to personal jurisdiction
in such courts and each party waives the right to a jury in any action, proceeding or counterclaim
brought by either of them against the other on any matters whatsoever arising under this Lease.
Although the printed provisions of this Lease were drawn by Landlord, this Lease shall not be
construed either for or against Landlord or Tenant, but this Lease shall be interpreted in
accordance with the general tenor of the language in an effort to reach an equitable result.

     Section 23.06 – Waiver or Consent Limitation. A waiver of any breach or default shall not be
a waiver of any other breach or default. Landlord’s acceptance of partial Rent or Additional
Charges or late payments shall not cure any default or constitute a waiver by Landlord to exercise
its rights and remedies hereunder or granted at law or in equity. Landlord’s consent to, or
approval of, any act by Tenant requiring Landlord’s consent or approval shall not be deemed to
waive or render unnecessary Landlord’s consent to or approval of any subsequent similar act by
Tenant.

     Section 23.07 – No Brokerage. Tenant covenants, warrants and represents to Landlord that no
conversation or negotiations were had by Tenant with any broker concerning the renting of the
Premises. Tenant agrees to protect, indemnify, save and keep harmless Landlord, against and from
all liabilities, claims, losses, costs, damages and expenses, including attorneys’ fees, arising
out of, resulting from or in connection with a breach of the foregoing covenant, warranty and
representation.

17

 

     Section 23.08 – Holdover Tenant. If Tenant shall remain in possession of all or any part of
the Premises after the expiration of the original Lease Term or any extension or renewal thereof,
with the consent of Landlord, men Tenant shall be deemed a tenant of the Premises from
month-to-month, subject to all of the terms and provisions hereof, except as to the Lease Term and
any further extension or renewal thereof and as to Base Rent, which Base Rent shall be equal to
125% of the Base Rent in effect during the last Rent Year of the original Lease Term or, as the
case may be, any applicable extension or renewal thereof.

     Section 23.09 – Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes
therefor, governmental restrictions, governmental regulations,
governmental controls, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes
beyond the control of the party obligated to perform shall excuse the performance by such party for
a period equal to any such prevention, delay or stoppage, except the obligations imposed with
regard to rental and other monies to be paid by Tenant pursuant to this Lease.

     Section 23.10 - Usury. Notwithstanding any provision contained herein to the contrary, if any
interest rate specified in this Lease is higher than the rate then permitted by law, such interest
rate specified herein shall automatically be adjusted from time to time to the maximum rate
permitted by law.

     Section 23.11 – Time Is Of The Essence. Time is of the essence with respect to each and every
provision of this Lease.

     Section 23.12 – Recording. This Lease shall not be recorded. However, Tenant shall have the
right to record a memorandum thereof, at any time during the Lease Term signed by Landlord and
Tenant in the form of Exhibit “B” hereto.

     Section 23.13 – Encumbrances. The Premises are leased subject to the matters disclosed in the
Title Commitment.

     Section 23.14 – Mineral Interests. This lease is subordinate to any present or future oil,
gas, or other mineral exploration agreements and leases relating to the Land. Landlord will not be
liable to Tenant for any damages for actions attributable to those agreements and will receive all
consideration paid therefor; provided, however, any damages to growing crops or to Tenant’s
improvements, arising from any oil, gas, or mineral operation, shall be paid to Tenant. Tenant
shall not be prohibited from negotiating directly with the producer or developer of the
oil, gas and other minerals, for any damages caused to any crops, improvements or other property of
Tenant as a result of mining, drilling or producing oil, gas and other minerals. Landlord agrees
to, limited to the extent of Landlord’s interest in the minerals and the surface, not
voluntarily consent to the use of the Surface of the Premises for the drilling, mining, storage or
transporting of oil, gas and other hydrocarbon products.

18

 

     Section 23.15 – Option to Purchase. After year 5 of the Main Term of this Lease and any of
the Option Terms of this Lease, Tenant may purchase the Premises for ONE HUNDRED TWENTY-FIVE
THOUSAND AND NO/100 DOLLARS ($125,000.00), less fifty percent (50%) of the Base Rent Tenant has
paid to Landlord under this Lease up to the date of such purchase.

     Section 23.16 – Attornment. Landlord agrees to provide Tenant with an Attornment Agreement
from any party holding a lien on the Premises, wherein such lienholder agrees that Tenant may
continue to occupy the Premises pursuant to this Lease in the event of a foreclosure of such lien.

     IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year
first above written.

LANDLORD:

	 	 	 	 	 
	 	 	 
	 	By:  	
/s/ John R. Giesenschlag
 	 
	 	 	John R. Giesenschlag, 	 
	 	 	husband of Connie Giesenschlag 	 
	 
	 	 	 
	 	By:  	     /s/ Connie Giesenschlag
 	 
	 	 	Connie Giesenschlag, 	 
	 	 	wife of John Giesenschlag 	 
	 
	TENANT:
	 
	 	CERES, INC., a Delaware corporation

 	 
	 	By:  	/s/
Kenneth A. Feldmann
 	 
	 	Name:  	Kenneth A. Feldmann 	 
	 	Title:  	Vice President, R&D 	 
	 
	 	 	 
	 	By:  	/s/ Richard Hamilton
 by Kenneth Feldmann
Attorney in Fact 	 
	 	Name: 	Richard Hamilton 	 
	 	Title: 	Chief Executive Officer  	
	 
	 

19

 

EXHIBIT “A”

LEGAL DESCRIPTION OF THE PREMISES

 

    

20

 

EXHIBIT “B”

Notice of Confidentiality Rights: If you are a natural person, you may remove or strike any of the

following information from this instrument before it is filed for record in the public records:

Your social security number or your driver’s license number.

When recorded, return to:

Michael H. Gentry

West, Webb, Allbritton, & Gentry, P.C.

1515 Emerald Plaza

College Station, Texas 77845

MEMORANDUM OF LEASE AND OPTION TO PURCHASE

     THIS MEMORANDUM OF LEASE is entered into as of the 29th
day of April , 2008, by and
between John Giesenschlag and Connie Giesenschlag, husband and wife, (“Landlord”), and CERES, INC.,
a Delaware corporation (“Tenant”).

     1. Pursuant to a Lease Agreement (the “Lease”) executed by
 Landlord and Tenant, dated April 1
, 2008, Landlord has leased to Tenant certain Premises which are legally described

in “Exhibit A” attached hereto.

     2. The Main Term of the Lease shall commence on the Effective Date set forth in the Lease and

shall expire upon the expiration of the fifteenth (15th) Rent Year as determined by the provisions

of the Lease. Tenant has been granted three (3) options to extend the Main Term, each of five (5)

years.

     3. This Memorandum of Lease is subject to all of the terms, conditions and understandings set

forth in the Lease, which are incorporated herein by reference and made a part hereof, as though

copied verbatim herein. In the event of a conflict between the terms and conditions of this

Memorandum of Lease and the terms and conditions of the Lease, the terms and conditions of the

Lease shall prevail.

     4. Upon the expiration or earlier termination of this Lease, Tenant will join with Landlord in

the execution of a termination instrument, in recordable form, to provide public record notice as

to the expiration or termination of this Lease and Tenant shall execute in favor of Landlord a quit

claim deed and bill of sale conveying, transferring, and assigning to Landlord any improvements to

the Premises and all appurtenant rights.

     5. The Lease contains an option pursuant to which Tenant may acquire the Premises upon thirty

(30) days prior written notice given prior to the expiration of the Main Term or any Option Term.

21

 

      EXECUTED as of the date first written above.

LANDLORD:

	 	 	 	 	 
	 	 	 
	 	By:   	 /s/ John Giesenschlag 	 
	 	 	John Giesenschlag, 	 
	 	 	husband of Connie Giesenschlag 	 
	 
	 	 	 
	 	By:  	 /s/ Connie Giesenschlag

 	 
	 	 	Connie Giesenschlag, 	 
	 	 	wife of John Giesenschlag 	 
	 

	 	 	 

	THE STATE OF TEXAS

	 	§
	 
	 	 
	COUNTY OF BURLESON

	 	§

     The foregoing instrument was acknowledged before me this 29  day of April, 2008, by John

Giesenschlag.

	 
	 	 	/s/ Pam Coffman

	 

	 	 
	 

	 	Notary Public in and for the State of Texas
	 

	 	My Commission Expires: 12/18/10

	 	 	 

	THE STATE OF TEXAS

	 	§
	 
	 	 
	COUNTY OF BURLESON

	 	§

     The foregoing instrument was acknowledged before me
this 29 day of April, 2008, by

Connie Giesenschlag.

	 
	 	 	/s/ Pam Coffman

	 

	 	 
	 

	 	Notary Public in and for the State of Texas
	 

	 	My Commission Expires: 12/18/10

[Signatures continued on next page]

22

 

	 	 	 	 	 
	TENANT:	 CERES, INC., a Delaware Corporation

 	 
	 	By:  	/s/ Kenneth Feldmann

 	 
	 	Name:  	Kenneth  Feldmann 	 
	 	Title:  	VP of  Research & Development 	 
	 

	 	 	 

	THE STATE OF CALIFORNIA

	 	§
	 
	 	 
	COUNTY OF VENTURA

	 	§

     The foregoing instrument was acknowledged before me this 22nd
day of April, 2008, by Holly D. Dungca, Notary Public, of Ceres, Inc., a Delaware corporation, on behalf of said corporation.

 	 	 	 	 	 
	 	 	 
	 	 /s/ Holly D. Dungca

 	 
	 	Notary Public in and for the State
of California 	 
	 	My Commission Expires: Sept.
18, 2011	 
	 

23

 

EXHIBIT A TO MEMORANDUM OF LEASE

Leased Premises

24exv10w1

Exhibit 10.1

FORM OF CONVEYANCE OF NET PROFITS INTEREST

     This Conveyance of Net Profits Interest (as may be amended, supplemented or otherwise modified
from time to time, this “Conveyance”) has been executed on [_________ __], 2011 (the
“Execution Date”), but is made effective as of the Effective Time (as defined below), from
_______________________ (“Grantor”), to The Bank of New York Mellon Trust Company, N.A.,
with offices at 919 Congress Avenue, Suite 500, Austin, Texas 78701, Attention: Michael J. Ulrich,
as trustee (“Trustee”), acting not in its individual capacity but solely as trustee of the
Enduro Royalty Trust (the “Trust”), a statutory trust created under the Delaware Statutory
Trust Act as of May 3, 2011 (such Trustee acting as trustee of the Trust, “Grantee”).
Grantor and Grantee are sometimes referred to herein individually as a “Party” and
collectively as the “Parties.” Capitalized terms used in this Conveyance shall have the
respective meanings ascribed to them in Article II.

ARTICLE I

GRANT OF NET PROFITS INTEREST

     For and in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable
consideration to Grantor paid by Grantee, the receipt and sufficiency of which are hereby
acknowledged by Grantor, Grantor has bargained, sold, granted, conveyed, transferred, assigned, set
over, and delivered, and by this Conveyance does hereby bargain, sell, grant, convey, transfer,
assign, set over, and deliver unto Grantee, its successors and assigns, effective as of the
Effective Time, the Net Profits Interest, which shall be calculated in accordance with the
provisions of Article IV and payable solely out of the Net Profits derived from the gross proceeds
attributable to the sale of the Subject Hydrocarbons, all as more fully provided hereinbelow.

     TO HAVE AND TO HOLD the Net Profits Interest, together with all and singular the rights and
appurtenances thereto in anywise belonging, unto Grantee, its successors and assigns, subject,
however, to the following terms and provisions:

ARTICLE II

INTERPRETATION; DEFINITIONS

     Section 2.1 Interpretation

          (a) All references in this Conveyance to Exhibits, Articles, Sections, subsections, clauses
and other subdivisions refer to the corresponding Exhibits, Articles, Sections, subsections,
clauses and other subdivisions of or to this Conveyance unless expressly provided otherwise.
Titles or headings appearing at the beginning of any Exhibits, Articles, Sections, subsections,
clauses and other subdivisions of this Conveyance are for convenience only, do not constitute any
part of this Conveyance and shall be disregarded in construing the language hereof. The words
“this Conveyance,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer
to this Conveyance as a whole and not to any particular Article, Section, subsection, clause or
other subdivision unless expressly so limited. The words “this Article,” “this Section,” “this
subsection,” “this clause,” and words of similar import, refer only to the Article, Section,
subsection and clause hereof in which such words occur. The word

 

 

“including” (in its various forms) means including without limitation. All references to “$”
or “dollars” shall be deemed references to United States dollars. Each accounting term not defined
herein will have the meaning given to it under GAAP as interpreted as of the date of this
Conveyance. Unless expressly provided to the contrary, the word “or” is not exclusive. Pronouns
in masculine, feminine or neuter genders shall be construed to state and include any other gender,
and words, terms and titles (including terms defined herein) in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise requires. Exhibits
referred to herein are attached to and by this reference incorporated herein for all purposes.
Reference herein to any federal, state, local or foreign Law shall be deemed to also refer to all
rules and regulations promulgated thereunder, unless the context requires otherwise.

          (b) As used in this Conveyance, in regard to Subject Interests located in Louisiana:

          (i) Each reference to “person” will include “juridical persons” as such term is used in
the Louisiana Civil Code.

          (ii) Each reference to “lien” will include a reference to “privilege.”

          (iii) Each reference to “sale” or “conveyance” (and derivations thereof) will, if the
context requires, include a reference to “assignment” and “transfer of ownership” as such
terms are used in the Louisiana Civil Code.

          (iv) The term “fee interest” will refer to the rights of a landowner or a mineral
servitude owner in minerals as used in the Louisiana Mineral Code. Each reference to
“leaseholds” or “leasehold interests” will include a reference to “interests in a mineral
lease” as contemplated by the Louisiana Mineral Code.

          (v) Each reference to “pooling or unitization agreement” will include a reference to
“unitization orders,” and each reference to “pooled unit” will include a reference to units
created by order or by agreement or declared pursuant to contractual authority.

          (vi) Each reference to “property” will include, as the context may require,
“corporeals” and “incorporeals” and “movables” and “immovables” as such terms are used in
the Louisiana Civil Code. Each reference to “real property” will include “immovables,”
whether corporeal immovables or incorporeal immovables as the context may require, as such
terms are used in the Louisiana Civil Code, and also “minerals rights” as such term is used
in the Louisiana Mineral Code. Each reference to the term “personal property” will include
“movables,” whether corporeal movables or incorporeal movables as the context may require,
as such terms are used in the Louisiana Civil Code. Each reference to “fixtures” will
include a reference to “component parts” as such term is used in the Louisiana Civil Code.
Each reference to “easement” or “right-of-way” will include a reference to “servitude” as
such term is used in the Louisiana Civil Code. Each reference to “running with the Subject
Interests” will include the phrase “and a real right in the Subject Interests.”

2

 

     Section 2.2 Definitions. As used herein, the following terms shall have the respective
meanings ascribed to them below:

     “Administrative
Hedge Costs” shall mean those costs paid by Grantor after
June 30, 2011 to counter-parties
under the Existing Hedges or to Persons that provide credit to maintain any Existing Hedge (in each
case) after the Effective Time, but excluding any Hedge Settlement Costs.

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

     “BOE” shall mean (a) for Oil included in the Subject Hydrocarbons, one barrel, (b) for
Gas Liquids included in the Subject Hydrocarbons, one (1) barrel, and (c) for Gas included in the
Subject Hydrocarbons, the amount of such hydrocarbons equal to one barrel, determined using the
ratio of six (6) Mcf of Gas to one barrel of Oil.

     “Business Day” shall mean any day that is not a Saturday, Sunday, a holiday determined
by the New York Stock Exchange as affecting “‘ex’ dates” or any other day on which national banking
institutions in New York, New York are closed as authorized or required by law.

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Conveyance” shall have the meaning ascribed to it in the Preamble to this Conveyance.

     “Credits” shall have the meaning given such term in Section 4.1(b).

     “Debit Balance” shall have the meaning given such term in Section 4.2(b).

     “Debit Balance Amount” shall have the meaning given such term in Section 4.2(b).

     “Debits” shall have the meaning given such term in Section 4.1(b).

     “Effective Time” shall mean 7:00 a.m., Central Standard Time, on May 1, 2011.

     “Eligible Materials” shall mean Materials for which amounts in respect of the cost of
such Materials were properly debited to the Net Profits Account.

     “Environmental Laws” shall mean, as the same have been amended to the date
hereof, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601
et_seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et_seq.; the Federal Water
Pollution Control Act, 33 U.S.C. § 1251 et_seq.; the Clean Air Act, 42 U.S.C. § 7401 et_seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et_seq.; the Toxic Substances Control Act,
15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et_seq.; the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et_seq.; and the Safe Drinking Water
Act, 42 U.S.C. §§ 300f through 300j; and all similar laws

3

 

as of the date hereof of any governmental body having jurisdiction over the property in question
addressing pollution or protection of the environment and all regulations implementing the
foregoing that are applicable to the operation and maintenance of the Subject Interests.

     “Excluded Deductions” shall mean deduction amounts related to any of the following
items: (a) any amount that has also been used to reduce or offset the amount of the Subject
Hydrocarbons (or proceeds of production thereof) or has otherwise not been included therein
(including proceeds attributable to royalties, overriding royalties, production payments and other
charges burdening the Subject Interests as of the Effective Time); (b) any overriding royalty,
production payment or other charge burdening the Subject Interests which was created by Grantor
after the Effective Time; (c) any general, administrative or overhead costs paid or incurred by
Grantor or its Affiliates, except for those expressly permitted hereunder; (d) any interest,
premiums, fees or similar charges arising out of borrowings or purchases of any goods, equipment or
other items on credit, whether or not used on or otherwise related to the Subject Interests; (e)
all Manufacturing Costs; (f) any amounts paid by Grantor (initial or a successor) to such Grantor’s
predecessor in interest with respect to part or all of the Subject Interests (including without
limitation any purchase price or other consideration paid by Grantor to such predecessor in
interest to acquire all or part of the Subject Interests); (g) any amount arising from any
condition, circumstance, activity, practice, incident, action, or plan that gives rise to any
material liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation, based on or related to the processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, Release or threatened Release into
the environment, of any pollutant, contaminant, or hazardous substance or other toxic material or
waste from or attributable to the use or operation of any of the Subject Interests which either
occurred prior to, on or after the Effective Time and are attributable to Grantor’s gross
negligence or willful misconduct; and (h) costs and expenses (not to exceed, in the aggregate,
$9,098,000) arising out of operations covered by the AFEs for the wells set forth on Exhibit
B.

     “Excluded Proceeds” shall mean the following proceeds and amounts:

          (a) any Offset Amounts, except that, for purposes of determining the proceeds and amounts that
constitute “Excluded Proceeds” for purposes hereof, (i) there shall not be any deductions to such
proceeds and amounts, in the cases of subsections (c), (h) and (j) of the definition for “Offset
Amounts,” for the actual costs of salvage or disposition or any Manufacturing Costs, as applicable,
(ii) cash payments received by Grantor as a result of any pooling or unitization of the Subject
Interests shall be considered Excluded Proceeds regardless of whether the costs giving rise to such
payments were charged to the Net Profits Interest and (iii) insurance proceeds received by Grantor
shall be considered Excluded Proceeds regardless of whether the cost of such insurance was charged
to the Net Profits Account;

          (b) any proceeds that are withheld from Grantor for any reason (other than at the request of
Grantor), until such time that the proceeds are actually received by Grantor, provided that
proceeds that are received by Grantor and promptly deposited by it with an escrow agent in order to
resolve a dispute with respect thereto shall not be considered to be “received” by Grantor for
purposes of this definition until the time that such amounts are actually collected by Grantor;

4

 

          (c) if Grantor becomes an underproduced party under any Gas balancing or similar arrangement
affecting the Subject Interests, any amounts for any Gas attributable to the Subject Interests for
which Grantor is entitled to receive as “make-up” Gas that would otherwise be attributable to the
Subject Interests;

          (d) if Grantor becomes an overproduced party under any Gas balancing or similar arrangement
affecting the Subject Interests, any amounts for any Gas taken by an underproduced party as
“make-up” Gas that would otherwise be attributable to the Subject Interests;

          (e) any amount received by Grantor in respect of any production of Subject Hydrocarbons prior
to the Effective Time;

          (f) any amount to which Grantor is entitled by virtue of a judgment of a court of competent
jurisdiction resolving a dispute hereunder between Grantee and Grantor in favor of Grantor, or any
amount paid to Grantor in settlement of such dispute;

          (g) except as set forth in Section 6.2, any amounts or compensation received by Grantor in
connection with any Prior Reversionary Interest; and

          (h) any additional proceeds (i.e., proceeds attributable to the non-participating party) from
the sale of Hydrocarbons related to any Subject Well with respect to which Grantor elects to be a
participating party (whether such rights are available pursuant to an operating agreement or other
agreement or arrangement) with respect to any operation with respect to such Subject Well for which
another party or parties have elected not to participate in such operation (or have elected to
abandon such Subject Well) and Grantor elects to pay the costs of such nonparticipating or
abandoning party and as a result of which Grantor becomes entitled to receive, either temporarily
(i.e., through a period of recoupment) or permanently such additional proceeds from the sale of
Hydrocarbons related to such Subject Well.

     “Execution Date” shall have the meaning ascribed to it in the Preamble to this
Conveyance.

     “Existing Hedges” shall mean the Hedges entered into by Grantor and described on
Exhibit C.

     “Fair Value” shall mean an amount equal to the excess, if any, of (a) the proceeds
which could reasonably be expected to be obtained from the sale of such portion of the Net Profits
Interest to a party which is not an Affiliate of either Grantor or the Trust on an arms-length
negotiated basis, taking into account relevant market conditions and factors existing at the time
of any such proposed sale or release, over (b) Grantee’s proportionate share of any sales costs,
commissions and brokerage fees related to such sales.

     “GAAP” shall mean U.S. generally accepted accounting principles.

     “Gas” shall mean natural gas and other gaseous hydrocarbons or minerals, including
helium, but excluding any Gas Liquids.

5

 

     “Gas Liquids” shall mean those natural gas liquids and other liquid hydrocarbons,
including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from
a Gas stream by the liquids extraction process of any field facility or gas processing plant and
delivered by the facility or plant as natural gas liquids.

     “Grantee” shall have the meaning ascribed to it in the Preamble to this Conveyance.

     “Grantor” shall have the meaning ascribed to it in the Preamble to this Conveyance.

     “Gross Deductions” shall mean the following costs and expenses (and, where applicable,
losses, liabilities and damages), to the extent that the same (x) are properly allocable to the
Subject Interests (and any related equipment or property used in connection therewith) and the
production and marketing of Subject Hydrocarbons therefrom and (y) have been incurred or accrued by
Grantor, from and after the Effective Time, but that are not attributable to a production month
that occurs prior to the Effective Time (excluding, in all instances, the Excluded Deductions):

          (a) all costs paid by Grantor (i) for drilling, development, production and abandonment
operations (including activities necessary to gain access to and prepare well locations for
drilling; operations and activities related to drilling and equipping Subject Wells and service
wells; operations constituting or associated with workovers; the plugging and abandoning of any
well or facility on the Subject Interests; and secondary recovery, pressure maintenance,
repressuring, recycling and other operations conducted for the purpose of enhancing production from
the Subject Interests), (ii) for all direct labor (including employee and fringe benefits) and
other services necessary for drilling, operating, producing and maintaining the Subject Interests
and workovers of any Subject Well, (iii) for treatment, dehydration, compression, separation and
transportation of the Subject Hydrocarbons (including activities related to the acquisition,
construction and installation of production and injection facilities), (iv) for all Materials
purchased for use on, or in connection with, any of the Subject Interests and (v) for any other
operations with respect to the exploration, development or operation of Subject Hydrocarbons
(including costs for the maintenance of any Subject Well or facility on the Leases; replacement of
any facilities; the restoration or remediation of the surface or subsurface sites associated with
the Subject Interests or lands pooled or unitized therewith; and any marketing fees paid to
non-Affiliates of Grantor); provided, however, that (A) the costs charged to the Net Profits
Account for such items shall be made (1) on the same basis as such costs are charged under the
operating agreement associated with the applicable portion of the Subject Interests at the time the
transaction giving rise to such costs occurred, or (2) in the absence of such operating agreement,
on the same basis as Grantor is charged under existing third party arrangements; and (B) if Grantor
elects to pay the costs of a nonconsenting party or nonparticipating party with respect to which
the gross proceeds derived from such costs are not credited to the Net Profits Account, Grantor
shall be solely responsible for such costs;

          (b) (i) all losses, costs, expenses, liabilities and damages (including outside legal,
accounting and engineering services) attributable to, or incident to the operation or maintenance
of, the Subject Interests associated with (A) defending, prosecuting, handling, investigating or
settling litigation, administrative proceedings, claims (including lien claims other than liens for
borrowed funds), damages, judgments, fines, penalties and other liabilities, (B) the

6

 

payment of judgments, penalties and other liabilities (including interest thereon), paid by
Grantor and not reimbursed under insurance maintained by Grantor or others (including all losses,
costs, expenses, liabilities and damages arising from third-party claims, lawsuits or causes of
action for personal injury or death or damage to personal or real property (both surface and
subsurface), including those losses, costs, expenses, liabilities and damages arising under
Environmental Laws with respect to the Subject Interests or in any way from the environmental
condition of the Subject Interests), (C) the payment or restitution of any proceeds of Subject
Hydrocarbons, (D) complying with applicable local, state and federal statutes, ordinances, rules
and regulations, and (E) tax or royalty audits, and (ii) any other loss, cost, expense, liability
or damage (including settlement costs and reasonable attorneys’ fees) incurred by Grantor in
relation to the Subject Interests not paid or reimbursed under insurance; excluding, in each
instance, any expenses incurred by Grantor in litigation of any claim or dispute arising hereunder
between the Parties or amounts paid by Grantor to Grantee pursuant to a final order entered by a
court of competent jurisdiction resolving any such claim or dispute or amounts paid by Grantor to
Grantee in connection with the settlement of any such claim or dispute;

          (c) all taxes, charges and assessments (excluding federal and state income, transfer,
mortgage, inheritance, estate, franchise and like taxes) incurred, accrued or paid by Grantor with
respect to the ownership of the Subject Interests or the extraction of the Subject Hydrocarbons,
including production, severance or excise and other similar taxes, charges and assessments assessed
against, or measured by, the production of (or the proceeds or value of production of) Subject
Hydrocarbons, occupation taxes, gathering, pipeline, excise, sales, use and other taxes, and ad
valorem and property taxes, charges and assessments assessed against or attributable to the Subject
Interests or any equipment used in connection with production from any of the Subject Interests and
any extraordinary or windfall profits taxes, charges and assessments that may be assessed in the
future based upon profits realized or prices received from the sale of Subject Hydrocarbons;

          (d) all insurance premiums attributable to the ownership or operation of the Subject Interests
paid by Grantor for insurance actually carried for periods after the Effective Time with respect to
the Subject Interests, or any equipment located on any of the Subject Interests, or incident to the
operation or maintenance of the Subject Interests;

          (e) all amounts and other consideration paid by Grantor for (i) rent and the use of or damage
to the surface, (ii) delay rentals, shut-in well payments, minimum royalties and similar payments,
and (iii) fees for renewal, extension, modification, amendment, replacement or supplementation of
the Leases included in the Subject Interests;

          (f) all amounts charged by the relevant operator as overhead, administrative or indirect
charges specified in the applicable operating agreements or other arrangements now or hereafter
covering the Subject Interests or operations with respect thereto;

          (g) to the extent Grantor is the operator of certain of the Subject Interests and there is no
operating agreement covering such portion of the Subject Interests, those overhead, all
administrative or indirect charges that are allocated by Grantor to such portion of the Subject
Interests, to the extent that such charges are allocated in the same manner that Grantor allocates
to other similarly owned and operated properties;

7

 

          (h) if, as a result of the occurrence of the bankruptcy or insolvency or similar occurrence of
the purchaser of Subject Hydrocarbons, any and all amounts previously credited to the Net Profits
Account are reclaimed from Grantor or its representative, then the amounts reclaimed as promptly as
practicable following Grantor’s payment thereof;

          (i) all costs and expenses paid by Grantor for recording this Conveyance and, immediately
prior to the last Payment Period, costs estimated in good faith to record the termination or
release of this Conveyance;

          (j) all Administrative Hedge Costs paid by Grantor;

          (k) all
Hedge Settlement Costs paid by Grantor;

          (l) all amounts previously included, or otherwise accounted for, in the calculation of Gross
Profits but subsequently paid by Grantor as a refund, interest or penalty; and

          (m) at the option of Grantor, all amounts reserved for approved development expenditure
projects, including amounts for drilling, recompletion and workover costs, provided that, such
amounts, (i) to the extent not already spent or incurred by Grantor, will at no time exceed two
million dollars ($2,000,000) in the aggregate, and (ii) shall not be included as part of the Gross
Deductions in subsequent Payment Periods.

     “Gross Fair Value” means an amount equal to the Fair Value divided by eighty percent
(80%).

     “Gross Profits” shall mean, for each Payment Period following the Effective Time, an
amount equal to the sum of (excluding, in all instances, the Excluded Proceeds) the gross proceeds
received by Grantor during the applicable Payment Period (and that are not attributable to a
production month that occurs prior to the Effective Time) from the sale of all Subject
Hydrocarbons, including the following proceeds and amounts: (a) all proceeds and consideration
received, directly or indirectly, for advance payments and payments under take-or-pay and similar
provisions of Production Sales Contracts when credited against the price for delivery of
production; and (b) all proceeds and amounts received by Grantor (i) from any “make up” Gas taken
by Grantor as a result of its position as an underproduced party under any Gas balancing or similar
arrangement affecting the Subject Interests, (ii) received as a balancing of accounts under a Gas
balancing or other similar arrangement affecting the Subject Interests either as an interim
balancing or at the depletion of the reservoir, and (iii) for any Gas taken by Grantor attributable
to the Subject Interests in excess of its entitlement share of such Gas; provided, however, that
Gross Profits (A) shall not include any Manufacturing Proceeds and (B) in the event that Subject
Hydrocarbons are Processed prior to sale, shall only include the Payment Value of such Subject
Hydrocarbons before any such Processing.

     “Gross Reversionary Compensation” means an amount equal to (a) that portion of the
Reversionary Compensation that is attributable to the Net Profits Interest released pursuant to
Section 6.2 divided by (b) eighty percent (80%).

     “Hedge” shall mean any commodity hedging transaction pertaining to Hydrocarbons,
whether in the form of (a) forward sales and options to acquire or dispose of a futures contract

8

 

solely on an organized commodities exchange, (b) derivative agreements for a swap, cap, collar
or floor of the commodity price, or (c) similar types of financial transactions classified as
“notional principal contracts” pursuant to Treasury Regulation § 1.988-1(a)(2)(iii)(B)(2).

     “Hedge Settlement Costs” shall mean any and all payments required to be made by
Grantor after June 30, 2011 to the counterparties in connection with the settlement or mark-to-market of trades made
under any Existing Hedge and all payments made by Grantor for any early termination of any Existing
Hedge.

     “Hedge Settlement Revenues” shall mean any and all payments received by Grantor after June 30, 2011 from
the counterparties in connection with the settlement or mark-to-market of trades made under any
Existing Hedge and all payments received by Grantor for any early termination of any Existing
Hedge.

     “Hydrocarbons” shall mean Oil, Gas and Gas Liquids.

     “Lease” shall mean, subject to the depth limitations and other restrictions that may
be set forth therein, (a) the oil and gas leases, oil, gas and mineral leases, subleases and other
leaseholds, contractual rights, and other rights to hydrocarbons set forth on Exhibit A as
to all lands and depths described in such lease (or the applicable part or portion thereof, if
limited in depth or areal extent in Exhibit A) and any interest therein and any leasehold
interest in any other lease of Hydrocarbons derived from the pooling or unitization of each such
lease (or portion thereof, if limited in depth or areal extent in Exhibit A) with other leases,
together with any interest acquired or maintained in any and all renewals and extensions of such
lease, (b) any replacement lease taken upon or in anticipation of termination of such lease (if
executed and delivered during the term of or within one year after the expiration of the
predecessor lease), as to all lands and depths described in the predecessor lease and in which
Grantor had an interest under the predecessor lease (unless the extended or predecessor lease is
specifically limited in depth or areal extent in Exhibit A, in which event only the
corresponding portion of such lease shall be considered a renewal or extension or a replacement
lease subject to this Conveyance), and (c) any other leasehold, royalty, overriding royalty or fee
interest described on Exhibit A.

     “Manufacturing Costs” shall mean the costs of Processing that generate Manufacturing
Proceeds received by Grantor.

     “Manufacturing Proceeds” shall mean the excess, if any, of (a) proceeds received by
Grantor from the sale of Subject Hydrocarbons that are the result of any Processing over (b) the
part of such proceeds that represents the Payment Value of such Subject Hydrocarbons before any
Processing.

     “Materials” shall mean materials, supplies, equipment and other personal property or
fixtures located on or used in connection with the Subject Interests.

     “Mcf” shall mean one thousand cubic feet.

     “Monthly Statement” shall have the meaning given such term in Section 4.5.

9

 

     “Net Deductions” shall mean, for each Payment Period following the Effective Time, an
amount equal to the excess, if any, of (a) the sum of the Gross Deductions over (b) the sum of the
Offset Amounts.

     “Net Profits” shall have the meaning given such term in Section 4.2(a)

     “Net Profits Account” shall mean the account maintained in accordance with the
provisions of Section 4.1.

     “Net Profits Interest” shall mean an overriding royalty calculated as a variable
undivided percentage interest in and to the Subject Hydrocarbons entitling Grantee to receive a sum
equal to the Proceeds Percentage of the Net Profits for each Payment Period for the term of this
Conveyance.

     “NPI Calculation” shall have the meaning given such term in Section 4.2(a).

     “NPI Payout” shall have the meaning given such term in Section 4.2(a).

     “Offset Amounts” shall mean the following amounts (net of any applicable taxes):

          (a) any amounts received by Grantor as delay rentals, bonus, royalty or other similar
payments;

          (b) any amounts received by Grantor in connection with, or for dry hole, bottom hole or other
similar contributions related to, the Subject Interests;

          (c) upon salvage or other disposition, the applicable actual salvage value (determined in
accordance with the applicable operating agreement then in effect and binding upon Grantor or, in
the absence of such agreement, based on the fair market value of such items in the region in which
they are located) of any Eligible Materials, less, in each instance, the actual costs of salvage or
other disposition paid or incurred by Grantor in connection with such sale;

          (d) any cash payments received by Grantor as a result of any pooling or unitization of the
Subject Interests if the costs giving rise to such payments were charged to the Net Profits
Account, directly or indirectly;

          (e) any insurance proceeds received by Grantor as a result of any loss, liability or damage
relating to the Subject Interests, Eligible Materials or Subject Hydrocarbons if the cost of such
insurance was charged to the Net Profits Account;

          (f) any amounts received by Grantor from third parties as rental or use fees for Eligible
Materials;

          (g) the gross proceeds of any judgments or claims received by Grantor for damages occurring on
or after the Effective Time to (i) the Subject Interests, (ii) any Eligible Materials and (iii) any
Subject Hydrocarbons;

10

 

          (h) to the extent not covered under subsection (c) above, any proceeds received by Grantor
from the sale of Eligible Materials less the actual costs paid or incurred by Grantor in connection
with such sale;

          (i) any payments made to Grantor in connection with the drilling or deferring of drilling of
any Subject Well;

          (j) for any Subject Hydrocarbons that are Processed before sale, the excess, if any, of the
Manufacturing Proceeds arising therefrom (that are received by Grantor) over the Manufacturing
Costs of such Processing (that are paid or incurred by Grantor);

          (k) any interest, penalty or other amount not derived from the sale of the Subject
Hydrocarbons that is paid to Grantor by the purchaser of production or escrow agent in connection
with proceeds withheld or deposited with an escrow agent;

          (l) any
Hedge Settlement Revenues;

          (m) in the event that any such Transfers occur, the Gross Fair Value of the Net Profits
Interest released during the relevant Payment Period in connection with the Transfers described in
Section 6.1(a)(ii); and

          (n) any amounts of Gross Reversionary Compensation associated with a conveyance of all or any
portion of the Subject Interests, or cessation of production from any Subject Well, in connection
with a Prior Reversionary Interest pursuant to Section 6.2.

     “Oil” shall mean crude oil, condensate and other liquid hydrocarbons recovered by
field equipment or facilities, excluding Gas Liquids.

     “Party” or “Parties” shall have the meaning ascribed to it in the Preamble to
this Conveyance.

     “Payment Period” shall mean a calendar month, provided that for purposes of the Net
Profits Interest, (a) the first Payment Period shall mean the period from and after the Effective
Time until [_________ __], 2011, and (b) the last Payment Period shall mean any portion of the
calendar month during which the expiration of the term of this Agreement occurs from the beginning
of such calendar month until and including the date of such expiration.

     “Payment Value” of any Subject Hydrocarbons shall mean:

          (a) With respect to Oil and Gas Liquids, (i) the highest price available to Grantor for such
Oil and Gas Liquids at the Lease on the date of delivery pursuant to a bona fide offer, posted
price or other generally available marketing arrangement from or with a non-Affiliate purchaser, or
(ii) if no such offer, posted price or arrangement is available, the fair market value of such Oil
or Gas Liquids, on the date of delivery at the Lease, determined in accordance with generally
accepted and usual industry practices; and

          (b) With respect to Gas, (i) the price specified in any Production Sales Contract for the sale
of such Gas, or (ii) if such Gas cannot be sold pursuant to a Production

11

 

Sales Contract, (A) the average of the three highest prices (adjusted for all material
differences in quality) being paid at the time of production for Gas produced from the same field
in sales between non-affiliated Persons (or, if there are not three such prices within such field,
within a 50-mile radius of such field) but, for any Gas subject to price restrictions established,
prescribed or otherwise imposed by any governmental authority having jurisdiction over the sale of
such Gas, no more than the highest price permitted for such category or type of Gas after all
applicable adjustments (including tax reimbursement, dehydration, compression and gathering
allowances, inflation and other permitted escalations), or (B) if subsection (b)(ii)(A) above is
not applicable, the fair market value of such Gas, on the date of delivery, at the Lease,
determined in accordance with generally accepted and usual industry practices.

     “Permitted Encumbrances” shall mean the following insofar as they cover, describe or
relate to the Subject Interests or the lands described in any Lease:

          (a) the terms, conditions, restrictions, exceptions, reservations, limitations and other
matters contained in the agreements, instruments and documents that create or reserve to Grantor
its interests in any of the Leases, including any Prior Reversionary Interest;

          (b) any (i) undetermined or inchoate liens or charges constituting or securing the payment of
expenses that were incurred incidental to maintenance, development, production or operation of the
Leases or for the purpose of developing, producing or processing Hydrocarbons therefrom or therein,
and (ii) materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’ or other
similar liens or charges for liquidated amounts, in each case, arising in the ordinary course of
business that Grantor has agreed to pay or is contesting in good faith in the ordinary course of
business;

          (c) any liens for taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith by Grantor in the ordinary course of business;

          (d) any liens or security interests created by law or reserved in any Lease for the payment of
royalty, bonus or rental, or created to secure compliance with the terms of the agreements,
instruments and documents that create or reserve to Grantor its interests in the Leases;

          (e) any obligations or duties affecting the Leases 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;

          (f) any (i) 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 (ii) easements for streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other similar rights-of-way, on, over or in respect of the lands described in
the Leases;

          (g) all lessors’ royalties, overriding royalties, net profits interests, carried interests,
production payments, reversionary interests and other burdens on the Subject Interests or
deductions from the proceeds of production attributable to the Subject Interests created or in
existence as of the Effective Time;

12

 

          (h) preferential rights to purchase or similar agreements and required third party consents to
assignments or similar agreements;

          (i) all rights to consent by, required notices to, filings with, or other actions by any
Person in connection with the Transfer of the Leases or interests therein;

          (j) 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 for 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; salt water or other disposal agreements; seismic or geophysical permits or
agreements; and any and all other agreements entered into by Grantor or its Affiliates in
connection with the exploration or development of the Leases or the extraction, processing or
marketing of production therefrom or to which any of the Leases were subject when acquired by
Grantor or its Affiliates; and

          (k) conventional rights of reassignment that obligate Grantor to reassign all or part of a
property to a third party if Grantor intends to release or abandon such property, including any
Prior Reversionary Interest.

     “Person” shall mean any individual, partnership, limited liability company,
corporation, trust, unincorporated association, governmental agency, subdivision, instrumentality,
or other entity or association.

     “Prime Rate” means the rate of interest published from time to time as the “Prime
Rate” in the “Money Rates” section of The Wall Street Journal.

     “Prior Reversionary Interest” shall mean any contract, agreement, lease, deed,
conveyance or operating agreement that exists as of the Effective Time or that burdened the Subject
Interests at the time the Subject Interests were acquired by Grantor, that by the terms thereof
requires a Person to convey a part of the Subject Interests (or the Net Profits Interest with
respect to any part of the Subject Interests) to another Person or to permanently cease production
of any Subject Well, including obligations arising pursuant to any operating agreements, Leases,
and other similar agreements or instruments affecting or burdening the Subject Interests.

     “Proceeds Percentage” shall mean eighty percent (80%).

     “Processing” or “Processed” shall mean to manufacture, fractionate or refine
Subject Hydrocarbons, but such terms do not mean or include activities involving the use of normal
lease or well equipment (such as dehydrators, gas treating facilities, mechanical separators,
heater-treaters, lease compression facilities, injection or recycling equipment, tank batteries,
field gathering systems, pipelines and equipment and similar items) to treat or condition
Hydrocarbons or other normal operations on any of the Subject Interests.

     “Production Sales Contracts” shall mean all contracts, agreements and arrangements for
the sale or disposition of Hydrocarbons.

13

 

     “Release” shall mean any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching,
dumping or disposing into the environment.

     “Reversionary Compensation” shall have the meaning given such term in Section 6.2.

     “Subject Hydrocarbons” shall mean all Hydrocarbons in and under and that may be
produced, saved, and sold from, and are attributable to, the Subject Interests from and after the
Effective Time, after deducting the appropriate share of all royalties and any overriding
royalties, production payments, net profits interests and other similar charges (except the Net
Profits Interest) burdening the Subject Interests at the Effective Time, provided that, (a) there
shall not be included in the Subject Hydrocarbons (i) any Hydrocarbons attributable to non-consent
operations conducted with respect to the Subject Interests (or any portion thereof) as to which
Grantor shall be a non-consenting party as of the Effective Time that are dedicated to the
recoupment or reimbursement of costs and expenses of the consenting party or parties by the terms
of the relevant operating agreement, unit agreement, contract for development, or other instrument
providing for such non-consent operations (including any interest, penalty or other amounts related
thereto), or (ii) any Hydrocarbons lost in production or marketing or used by Grantor for drilling,
production or plant operations (including fuel, secondary or tertiary recovery) conducted solely
for the purpose of producing Subject Hydrocarbons from the Subject Interests, and (b) there shall
be included in the Subject Hydrocarbons any Hydrocarbons attributable to non-consent operations
conducted with respect to the Subject Interests (or any portion thereof) as to which Grantor shall
be a non-consenting party as of the Effective Time that are produced, saved, and sold from, and are
attributable to the Subject Interests after the Effective Time from and after the recoupment or
reimbursement of costs and expenses (including any interest, penalty or other amounts related
thereto) of the consenting party or parties by the terms of the relevant operating agreement, unit
agreement, contract agreement, contract development, or other instruments providing for such
non-consent operations.

     “Subject Interests” shall mean each kind and character of right, title, claim, or
interest (solely for purposes of this definition, collectively “rights”) that Grantor has or owns
in the Leases and the Subject Wells, whether such rights be under or by virtue of a lease, a
unitization or pooling order or agreement, an operating agreement, a division order, or a transfer
order or be under or by virtue of any other type of claim or title, legal or equitable, recorded or
unrecorded, even though Grantor’s interest be incorrectly or incompletely described in, or a
description thereof omitted from, Exhibit A, all as such rights shall be (a) enlarged or
diminished by virtue of the provisions of Section 5.2, and (b) enlarged by the discharge of any
obligations for payments out of production or by the removal of any charges or encumbrances to
which any of such rights are subject at the Effective Time (provided that such discharge or removal
is pursuant to the express terms of the instrument that created such charge, obligation or
encumbrance) and any and all renewals, extensions and replacements of the right occurring within
one year after the expiration of such rights.

     “Subject Well” shall mean each well (whether now existing or hereinafter drilled) on
the Leases in respect of which Grantor owns any interest or is entitled to any of the Hydrocarbons
production or the proceeds therefrom (including directly or indirectly by virtue of the effect of
any farmout or farmin provisions or other provisions).

14

 

     “Transfer” shall mean any assignment, sale, transfer, conveyance, exchange, or
disposition of any property (and shall include any derivative variants of each such term);
provided, however, that, as used herein, the term “Transfer” shall not include the granting of a
security interest, pledge, or mortgage in or of Grantor’s interest in any property, including the
Subject Interests or the Subject Hydrocarbons.

     “Trust” shall have the meaning ascribed to it in the Preamble to this Conveyance.

     “Trust Units” shall have the meaning ascribed to such term in the Trust Agreement.

     “Trust Agreement” shall mean that certain Amended and Restated Trust Agreement of
Enduro Royalty Trust dated [_________ __], 2011 by and among Enduro Resource Partners LLC,
Wilmington Trust Company and The Bank of New York Mellon Trust Company N.A.

     “Transaction Documents” shall have the meaning ascribed to it in the Trust Agreement.

     “Trustee” shall have the meaning ascribed to it in the Preamble to this Conveyance.

ARTICLE III

SPECIAL WARRANTY OF TITLE

     Grantor warrants title to the Net Profits Interest, subject to the Permitted Encumbrances,
unto Grantee, its successors and assigns, against all persons whomsoever claiming or to claim the
same, or any part thereof, by, through or under Grantor, but not otherwise. Grantor transfers to
Grantee by way of substitution and subrogation (to the fullest extent that same may be
transferred), all rights or actions over and against all of Grantor’s predecessors, covenantors or
warrantors of title (other than Affiliates of Grantor). Grantor’s special warranty of title set
forth in this Article III is understood to include, in regard to Subject Interests located in
Louisiana, an express exclusion of the warranty against eviction as provided in Article 2503 of the
Louisiana Civil Code, including any obligation on the part of Grantor for return of the price or
other consideration given.

ARTICLE IV

ESTABLISHMENT OF NET PROFITS ACCOUNT

     Section 4.1 Net Profits Account.

          (a) In order to account for, track and make the payments associated with the Net Profits
Interest, Grantor shall establish and maintain true and correct books and records in order to
determine the credits and debits to a Net Profits Account to be maintained by Grantor at all times
during the term hereof. The Net Profits Account will be maintained in accordance with the terms of
this Conveyance and prudent and accepted accounting principles.

          (b) From and after the Execution Date with respect to each Payment Period, (i) the Net Profits
Account shall be credited with an amount equal to the sum of the Gross Profits (subject to the
deduction described in Section 4.4(a)) received by Grantor from the sale of all Subject
Hydrocarbons during the applicable Payment Period (the “Credits”), and (ii) the Net Profits
Account shall be debited with an amount equal to the sum of the Net Deductions during

15

 

the applicable Payment Period (subject to the following sentence) (the “Debits”). If,
in calculating the amount of Net Deductions for any Payment Period, the Offset Amounts exceed the
Gross Deductions, then the Net Deductions for that Payment Period shall be zero, and such excess,
plus interest on such excess amount at the Prime Rate for the period between the last day of the
preceding Payment Period and the date the excess amount has been used to reduce the Net Deductions
in succeeding Payment Periods, shall be applied to reduce the Net Deductions in each succeeding
Payment Period until exhausted. Under no circumstances shall the amount paid in respect of any
Payment Period exceed eighty percent (80)% of Gross Profits for such Payment Period.

          (c) The Credits and Debits to the Net Profits Account shall not be interpreted or applied in
any manner that (i) results in any duplication of all or any part of any such Credit or Debit (or
reduction thereto) under this Conveyance, or (ii) ever results in the inclusion of any charge to
the Net Profits Account that is reimbursed to Grantor by any Person.

          (d) GRANTEE ACKNOWLEDGES AND AGREES THAT THE PROVISIONS ESTABLISHING AND MAINTAINING THE NET
PROFITS ACCOUNT AND THE DEBITING OF ITEMS THERETO SHALL BE APPLICABLE REGARDLESS OF WHETHER THE
LOSSES, COSTS, EXPENSES, LIABILITIES AND DAMAGES THAT MAY BE DEBITED IN ACCORDANCE WITH THIS
CONVEYANCE AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OF GRANTOR OR ANY OF ITS AFFILIATES, OTHER THAN LOSSES, COSTS, EXPENSES,
LIABILITIES AND DAMAGES THAT AROSE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF GRANTOR OR
ANY OF ITS AFFILIATES, WHICH SHALL NOT BE DEBITED TO THE NET PROFITS ACCOUNT. NOTWITHSTANDING THE
FOREGOING, NOTHING IN THIS CONVEYANCE SHALL BE CONSTRUED AS A WAIVER OR RELEASE OF GRANTOR FROM ANY
CLAIM, ACTION OR LIABILITY ARISING UNDER SECTION 5.1(a).

     Section 4.2 Accounting and Payment.

          (a) Following the conclusion of each Payment Period, a calculation (the “NPI
Calculation”) shall be made by Grantor by deducting (i) (A) the total Debits for such Payment
Period and (B) the absolute value of the Debit Balance Amount, if any, carried forward in the Net
Profits Account at the beginning of such Payment Period from (ii) the total Credits for such
Payment Period. If the NPI Calculation results in a positive amount with respect to the Payment
Period (the “Net Profits”), then (i) that positive amount shall be subtracted from the
balance of the Net Profits Account to cause the Net Profits Account to have a zero balance
immediately following the end of such Payment Period, (ii) that positive amount shall be multiplied
by the Proceeds Percentage, and (iii) the resulting product thereof (the “NPI Payout”)
shall be payable to Grantee as specified in Section 4.3.

          (b) If the NPI Calculation results in a negative amount with respect to a Payment Period, the
negative sum shall be deemed the “Debit Balance” for purposes hereof; and no payments
shall be made to Grantee in respect of the Net Profits Interest nor shall Grantee ever be liable to
make any payment to Grantor in respect of the Debit Balance. Any Debit Balance, plus interest on
such amount at the Prime Rate for the period between the last day of the Payment

16

 

Period that resulted in such Debit Balance and the last day of the next Payment Period, (the
“Debit Balance Amount”) shall be carried forward in the Net Profits Account for the
following Payment Period.

          (c) All amounts received by Grantor from the sale of the Subject Hydrocarbons for any Payment
Period shall be held by Grantor in one of its general bank accounts and Grantor shall not be
required to maintain a segregated account for such funds.

     Section 4.3 Payment of NPI Payout. For each Payment Period, Grantor shall transfer or cause to
be transferred to Grantee an amount equal to the NPI Payout, if any, with respect to the Payment
Period on or before the last day of the month that follows such period. All funds payable to
Grantee on account of the Net Profits Interest shall be calculated and paid entirely and
exclusively out of the Net Profits.

     Section 4.4 Overpayment; Past Due Payments.

          (a) If Grantor ever pays Grantee more than the amount of money then due and payable to Grantee
under this Conveyance, Grantee shall not be obligated to return the overpayment, but Grantor may at
any time thereafter reduce the NPI Payout by, and retain for its own account, an amount equal to
the overpayment, plus interest at the Prime Rate on such amount for the period between the
fifteenth (15th) day from the date of the overpayment and the date such amount is recovered by
Grantor. In order to exercise its rights under this Section 4.4(a), Grantor must give Grantee
written notice with respect to any such overpayment, together with supporting information and data.

          (b) Any amount not paid by Grantor to Grantee with respect to the Net Profits Interest when
due shall bear, and Grantor hereby agrees to pay, interest at the Prime Rate from the due date
until such amount has been paid. Grantor shall give Grantee written notice with respect to any
such past due payment, together with supporting information and data.

     Section 4.5 Statements. For each Payment Period, Grantor shall deliver to Grantee a
statement (“Monthly Statement”) showing the NPI Calculation with respect to the Payment
Period on or before the last day of the month that follows such period. Additionally, the Monthly
Statement delivered in July shall also show the computation of the NPI Calculation for the
preceding calendar year. If Grantee takes exception to any item or items included in any Monthly
Statement, Grantee must notify Grantor in writing within one hundred and twenty (120) days after
the end of the calendar year with respect to which such Monthly Statement relates. Such notice
must set forth in reasonable detail the specific Debits or Credits to which exception is taken.
Adjustments shall be made for all exceptions that are agreed to by the Parties. If the Parties do
not reach an agreement as to any such exceptions, such disputed matters shall be subject to the
arbitration provisions set forth in Article XI of the Trust Agreement. All matters contained in
Monthly Statements that are not objected to by Grantee in the manner provided by this Section 4.5
shall be conclusively deemed correct.

     Section 4.6 Information; Access. Grantor shall maintain true and correct books, records and
accounts of (a) all transactions required or permitted by this Conveyance (including all financial
information necessary to reflect such transactions), and (b) the financial information

17

 

necessary to make the NPI Calculation with respect to any Payment Period. Grantee or its
representative, at the Trust’s expense and upon reasonable prior written notice, may inspect and
copy such books, records, and accounts, and such other documents, contracts and information as may
be reasonably requested by the Trustee, in Grantor’s office during normal business hours. At
Grantee’s request, subject to applicable restrictions on disclosure and transfer of information,
Grantor shall give Grantee and its designated representatives (on behalf of the Trust) reasonable
access in Grantor’s office during normal business hours to (i) all production data in Grantor’s
possession or Grantor’s Affiliates’ possession, relating to operations on the Subject Interests,
and (ii) all reserve reports and reserve studies in the possession of Grantor or of Grantor’s
Affiliates, relating to the Subject Interests, whether prepared by Grantor, by Grantor’s
Affiliates, or by consulting engineers. GRANTOR MAKES NO REPRESENTATIONS OR WARRANTIES ABOUT THE
ACCURACY OR COMPLETENESS OF ANY SUCH DATA, REPORTS, OR STUDIES REFERRED TO IN THIS SECTION 4.6 AND
SHALL HAVE NO LIABILITY TO GRANTEE, THE TRUST OR ANY OTHER PERSON RESULTING FROM SUCH DATA,
STUDIES, OR REPORTS OR THE USE THEREOF.

ARTICLE V

OPERATION OF THE SUBJECT INTERESTS

     Section 5.1 Operations.

          (a) To the extent that it has the right to do so under the terms of any lease, operating
agreement or similar instrument affecting or pertaining to the Subject Interests, Grantor shall
conduct and carry on, or use commercially reasonable efforts to cause the operator thereof to
conduct and carry on, the operation and maintenance of the Subject Interests in the same manner as
a reasonably prudent operator in the State in which the applicable portion of the Subject Interests
is located would under the same or similar circumstances acting with respect to its own properties
(without regard to the existence of the Net Profits Interest).

          (b) As to any third Person, the acts of Grantor shall be binding on Grantee, and it shall not
be necessary for Grantee to join with the Grantor in the execution or ratification of any operating
agreement, unit operating agreement, contract for development, or similar instrument affecting or
pertaining to any of the Subject Interests.

          (c) Grantee acknowledges that Grantor is not the only undivided interest owner in the
properties underlying the Subject Interests. As such, Grantee agrees that the acts or omissions of
Grantor’s co-owners shall not be deemed to constitute a violation of the provisions of Section
5.1(a), nor shall any action required by a vote of co-owners be deemed to constitute such a
violation so long as Grantor has voted its interest in a manner designed to comply with Section
5.1(a).

          (d) WITHOUT LIMITING THE FOREGOING, (i) THE PARTIES ACKNOWLEDGE THAT GRANTEE HAS NO RIGHT
OR POWER TO PROPOSE THE DRILLING OF A WELL OR ANY OTHER OPERATIONS, TO DETERMINE THE TIMING OR
SEQUENCE OF ANY OPERATIONS, TO COMMENCE OR SHUT DOWN PRODUCTION, TO TAKE OVER OPERATIONS, OR TO
SHARE IN ANY OPERATING DECISION WHATSOEVER OR IN ANY DECISION PERTAINING TO THE MARKETING

18

 

AND SALE OF PRODUCTION WHATSOEVER AND, (ii) THE PARTIES HEREBY EXPRESSLY NEGATE ANY INTENT TO
CREATE (AND THIS CONVEYANCE SHALL NEVER BE CONSTRUED AS CREATING) A MINING OR OTHER PARTNERSHIP OR
JOINT VENTURE OR OTHER RELATIONSHIP SUBJECTING GRANTOR AND GRANTEE TO JOINT LIABILITY OR ANY OTHER
DUTIES BETWEEN GRANTOR AND GRANTEE (EXCEPT THOSE EXPRESSLY SET FORTH HEREIN).

     Section 5.2 Pooling and Unitization

          (a) Certain of the Subject Interests may have been heretofore pooled or unitized for the
production of Hydrocarbons. Such Subject Interests are and shall be subject to the terms and
provisions of such pooling or unitization agreements, and this Conveyance shall apply to and affect
only the production of Hydrocarbons from such units which accrues to such Subject Interests under
and by virtue of the applicable pooling and unitization agreements.

          (b) Grantor shall have the right to pool or unitize all or any of the Subject Interests (and
the Net Profits Interest) and to alter, change, amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as to all or any part of the lands covered by the
Leases, as to one or more of the formations or horizons thereunder, when, in the sole discretion of
Grantor, it is necessary or advisable to do so in order to facilitate the orderly development of
the Subject Interests or to comply with the requirements of any law or governmental order or
regulation relating to the spacing of wells or proration of the production therefrom. For purposes
of computing Net Profits, there shall be allocated to the Subject Interests included in such unit a
pro rata portion of the Hydrocarbons produced from the pooled unit on the same basis that
production from the pool or unit is allocated to other working interests in such pool or unit by
virtue of the applicable pooling or unitization agreement. The interest in any such unit allocable
to the Subject Interests included therein shall become a part of the Subject Interests and shall be
subject to the Net Profits Interest.

     Section 5.3 Non-Consent. Grantor shall have the right to elect not to participate in any
operations that are to be conducted under the terms of any operating agreement, unit operating
agreement, contract for development, or similar instrument affecting or pertaining to any of the
Subject Interests. If Grantor elects to be a non-participating party under any such arrangement
with respect to any operation on any portion of the Subject Interests or elects to be an abandoning
party with respect to a Subject Well, the consequence of which election is that Grantor’s interest
in such Subject Well is temporarily (i.e., during a recoupment period) or permanently relinquished
to the parties participating in such operations, or electing not to abandon such Subject Well, then
the costs and proceeds attributable to such relinquished interest shall not, for the period of such
relinquishment (which may be a continuous and permanent period), be debited or credited to the Net
Profits Account and such relinquished interest shall not, for the period of such relinquishment, be
considered to be subject to the Net Profits Interest. Notwithstanding the foregoing, Grantor shall
not elect, as to any portion of the Subject Interests, to be a non-participating party with respect
to any operation contemplated in this Section 5.3 in the event any Affiliate of Grantor will also
be a participating party in such operation.

     Section 5.4 Marketing. Grantor shall have exclusive charge and control of the marketing of all
Subject Hydrocarbons. Grantor shall use reasonable efforts to market or cause

19

 

to be marketed all commercial quantities of the Subject Hydrocarbons, and shall not be entitled to
deduct from the calculation of the Net Profits any fee for marketing the Subject Hydrocarbons
allocable to the Net Profits Interest other than fees for marketing paid to non-Affiliates.
Grantor shall not enter into any Hedges (other than the Existing Hedges) with respect to the
Subject Hydrocarbons from and after the Effective Time or modify or terminate the Existing Hedges.
Grantee shall have no right to take in kind any Subject Hydrocarbons.

     Section 5.5 Leases. Grantor shall have the right to renew, extend, modify, amend or supplement
the Leases with respect to any of the lands covered thereby without the consent of Grantee. The
Net Profits Interest shall apply to all such renewals, extensions, modifications, amendments and
supplements of the Leases (as to all lands and depths described in the predecessor lease and in
which Grantor had an interest under the predecessor lease), and no renewal, extension,
modification, amendment, or supplement shall adversely affect any of Grantee’s rights hereunder.
Any fees payable with respect to such renewal, extension, modification, amendment or supplement
shall be considered Gross Deductions for purposes hereof. Grantor shall promptly furnish Grantee
with written notice of any renewal, extension, modification, amendment, or supplementation that
materially affects the Net Profits Interest identifying the location and the acreage covered
thereby.

     Section 5.6 Abandonment. Grantor shall have the right to release, surrender or abandon its
interest in any portion of the Subject Interests that Grantor reasonably believes will no longer
produce (or be capable of producing) Subject Hydrocarbons in paying quantities. The effect of such
release, surrender or abandonment will be to release, surrender or abandon the Net Profits Interest
insofar as the Net Profits Interest covers the applicable portion of the Subject Interests so
released, surrendered or abandoned by Grantor. Following any such release, surrender or
abandonment (which would materially reduce the NPI Payout), Grantor will promptly notify Grantee in
writing of the portion of the Subject Interests that has been released, surrendered or abandoned,
and the date on which such release, surrender or abandonment has occurred. Further, Grantor shall
have the right to abandon any portion of the Subject Interests if (a) such abandonment is necessary
for health, safety or environmental reasons, or (b) the Subject Hydrocarbons that would have been
produced from the abandoned portion of the Subject Interests would reasonably be expected to be
produced from Subject Wells located on the remaining portion of the Subject Interests.

     Section 5.7 Contracts with Affiliates. Grantor and its Affiliates may perform services and
furnish supplies or equipment with respect to the Subject Interests that are required to operate
the Subject Interests and treat the costs of such services or furnishing of such supplies or
equipment as Gross Deductions for purposes hereof. The terms of the provision of such services or
furnishing of supplies or equipment shall be substantially similar to those terms available from
non-Affiliates in the same area as the applicable portion of the Subject Interests that are engaged
in the business of rendering comparable services or furnishing comparable equipment and supplies,
taking into consideration all such terms, including the price, term, condition of supplies or
equipment, and availability of supplies or equipment.

     Section 5.8 No Personal Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS CONVEYANCE, GRANTEE SHALL NEVER
BE PERSONALLY RESPONSIBLE FOR THE PAYMENT OF ANY PART OF THE LOSSES,

20

 

COSTS, EXPENSES, LIABILITIES OR DAMAGES INCURRED IN CONNECTION WITH THE EXPLORING, DEVELOPING,
OPERATING AND MAINTAINING OF THE SUBJECT INTERESTS, AND, SUBJECT TO SECTION 4.1(d), ALL SUCH
LOSSES, COSTS, EXPENSES, LIABILITIES OR DAMAGES SHALL, TO THE EXTENT THE SAME RELATE TO ACTS,
OMISSIONS, EVENTS, CONDITIONS OR CIRCUMSTANCES OCCURRING FROM AND AFTER THE EFFECTIVE TIME, BE
TREATED AS GROSS DEDUCTIONS FOR PURPOSES HEREOF.

     Section 5.9 Real Property Interest. IT IS THE EXPRESS INTENT OF THE PARTIES THAT, AS TO
SUBJECT INTERESTS LOCATED IN TEXAS AND NEW MEXICO, THE NET PROFITS INTEREST SHALL FOR ALL PURPOSES
CONSTITUTE (AND THIS CONVEYANCE SHALL CONCLUSIVELY BE CONSTRUED FOR ALL PURPOSES AS CREATING) A
SINGLE AND SEPARATE NON-POSSESSORY, NON-OPERATING, ROYALTY INTEREST IN AND TO THE SUBJECT INTERESTS
AND A FULLY VESTED AND FULLY CONVEYED INTEREST IN REAL PROPERTY RUNNING WITH THE SUBJECT INTERESTS.

     Section 5.10 Incorporeal Immovable and Real Right. IT IS THE EXPRESS INTENT OF THE PARTIES
THAT, AS TO SUBJECT INTERESTS LOCATED IN LOUISIANA, THE NET PROFITS INTEREST SHALL FOR ALL PURPOSES
CONSTITUTE (AND THIS CONVEYANCE SHALL CONCLUSIVELY BE CONSTRUED FOR ALL PURPOSES AS CREATING) A
SINGLE AND SEPARATE NON-POSSESSORY, NON-OPERATING, ROYALTY INTEREST IN AND TO THE SUBJECT INTERESTS
AND A FULLY VESTED AND FULLY CONVEYED INCORPOREAL IMMOVABLE AND A REAL RIGHT IN THE SUBJECT
INTERESTS.

ARTICLE VI

TRANSFERS AND CHARGES

     Section 6.1 Assignment by Grantor Subject to Net Profits Interest.

          (a) Right to Sell.

          (i) Grantor may from time to time Transfer its interest in the Subject Interests, or
any part thereof or undivided interest therein, subject to the Net Profits Interest and this
Conveyance. Grantor shall cause the assignee, purchaser, transferee or grantee of any such
transaction to take the affected Subject Interests subject to the Net Profits Interest and
this Conveyance and, from and after the actual date of any such Transfer, to assume
Grantor’s obligations under this Conveyance with respect to such Subject Interests.

          (ii) Notwithstanding the foregoing, Grantor may from time to time Transfer to
non-Affiliates of Grantor, free and clear of the Net Profits Interest and this Conveyance,
any of the Subject Interests that accounts for less than or equal to 0.25% of the total
production of Subject Hydrocarbons from the Subject Interests in the preceding twelve
(12) month period. The aggregate Fair Value of all portions of the Net Profits Interest
released in connection with such Transfers shall not exceed an aggregate Fair

21

 

Value of five hundred thousand dollars ($500,000) during any consecutive twelve (12) month
period. In the event of any such Transfer, (A) the Gross Fair Value of the released portion
of the Net Profits Interest shall be considered an Offset Amount for purposes hereof during
the Payment Period in which the Transfer occurs, and (B) Grantee shall, upon receiving a
written request from Grantor, immediately prior to any such Transfer, execute, acknowledge,
and deliver to Grantor a recordable instrument (reasonably acceptable to Grantor) that
terminates and releases the Net Profits Interest with respect to the Subject Interests being
Transferred.

          (b) Effect of Sale. From and after the actual date of any of the Transfers described
in Section 6.1(a) by Grantor, Grantor (and in the case of Section 6.1(a)(ii) only, any grantee,
purchaser, transferee or grantee of the Subject Interests) shall be relieved of all obligations,
requirements, and responsibilities arising under this Conveyance with respect to the Subject
Interests Transferred, except for those that accrued prior to such date.

          (c) Allocation of Consideration. Grantee is not entitled to receive any share of the
sales proceeds received by Grantor in any transaction permitted by this Section 6.1.

          (d) Separate Interest. Effective on the effective date of any Transfer of any Subject
Interest pursuant to this Section 6.1, Gross Profits, Excluded Proceeds, Net Deductions, Gross
Deductions, Offset Amounts and Net Profits shall thereafter be calculated and determined separately
(by the assignee, purchaser, transferee or grantee) with respect to such Subject Interests; and
Debits and Credits during each Payment Period in respect of the Subject Interests Transferred shall
reflect items received or incurred by the assignee, purchaser, transferee or grantee, and shall be
calculated in accordance with Article IV hereof.

     Section 6.2 Release of Other Properties. Notwithstanding anything herein to the contrary, in
the event that any Person notifies Grantor that, pursuant to a Prior Reversionary Interest, Grantor
is required to convey all or any portion of the Subject Interests (or the Net Profits Interest
with respect to all or any portion of the Subject Interests) to such Person or cease production
from any Subject Well, Grantor shall have the right to provide such conveyance with respect to such
portion of the Subject Interests (or the Net Profits Interest with respect to such portion of the
Subject Interests) or permanently cease production from any such Subject Well. If in connection
with any such conveyance or permanent cessation of production pursuant to any Prior Reversionary
Interest, Grantor receives compensation attributable to all or any portion of the Net Profits
Interest (“Reversionary Compensation”), an amount equal to the Gross Reversionary
Compensation shall be considered an Offset Amount for purposes hereof during the Payment Period in
which Grantor receives the Reversionary Compensation. In connection with any such conveyance or
permanent cessation of production, Grantee shall, on request, immediately prior to such event,
execute, acknowledge, and deliver to Grantor a recordable instrument (reasonably acceptable to
Grantor) that terminates and releases the Net Profits Interest with respect to any such portion of
the Subject Interests or Subject Well, as applicable, to Grantor. From and after the actual date
of any such conveyance or permanent cessation of production, Grantor and any grantee, purchaser,
transferee or grantee of such Subject Interest (or the Net Profits Interest with respect to such
Subject Interest) shall be relieved of all obligations, requirements, and responsibilities arising
under the Net Profits Interest or this Conveyance with respect to such portion of the Subject
Interests, except for those that accrued prior to such date.

22

 

     Section 6.3 Mortgages and Security Interests. Nothing herein shall prevent Grantor from
granting a lien, mortgage, security interest or other charge in Grantor’s interest in any property,
including the Subject Interests and the Subject Hydrocarbons. Grantor agrees that it shall cause
each agreement, indenture, bond, deed of trust, filing, application or other instrument that
creates or purports to create a lien, mortgage, security interest or other charge secured by the
Subject Interests, the Subject Hydrocarbons or the proceeds from the sale of the Subject
Hydrocarbons to include an express agreement and acknowledgement by the parties thereto that the
Net Profits Interest is senior in right of payment and collection to any and all obligations
created thereby in respect of the Subject Interests, the Subject Hydrocarbons or the proceeds from
the sale of the Subject Hydrocarbons. The preceding sentence shall not apply to any agreement,
indenture, bond, deed of trust, filing, application or other instrument that creates a lien,
mortgage, security interest or other charge secured by not more than Grantor’s residual interest in
the Subject Interests, the Subject Hydrocarbons or the proceeds from the sale of the Subject
Hydrocarbons.

     Section 6.4 Rights of Mortgagee, Pledgee or Trustee. If Grantee shall at any time execute a
mortgage, pledge or deed of trust covering all or part of the Net Profits Interest, the
mortgagee(s), pledge(s) or trustee(s) therein named or the holder of any obligation secured thereby
shall be entitled, to the extent such mortgage, pledge or deed of trust so provides, to exercise
all the rights, remedies, powers, and privileges conferred upon Grantee by the terms of this
Conveyance and to give or withhold all consents required to be obtained hereunder by Grantee, but
the provisions of this Section 6.4 shall in no way be deemed or construed to impose upon Grantor
any obligation or liability undertaken by Grantee under such mortgage, pledge or deed of trust or
under any obligation secured thereby.

     Section 6.5 Assignment or Mortgage by Grantee. Grantee shall provide Grantor with written
notice of any Transfer, mortgage or pledge of all or any portion of the Net Profits Interest. No
such Transfer, mortgage or pledge will affect the method of computing Gross Profits, Excluded
Proceeds, Net Deductions, Gross Deductions, Offset Amounts or Net Profits, or impose any additional
obligation or liability on Grantor. Grantor shall never be obligated to pay the NPI Payout (or
portions thereof) to more than one Person. If more than one Person is ever entitled to receive
payment of any part of the NPI Payout, Grantor may suspend payments of the NPI Payout until the
concurrent owners or claimants of the Net Profits Interest or the right to receive payment of the
NPI Payout appoint one Person in writing to receive all payments of the Net Profits on their
behalf. Grantor may thereafter conclusively rely upon the authority of that Person to receive
payments of the NPI Payout and shall be under no further duty to inquire into the authority or
performance of such Person

ARTICLE VII

MISCELLANEOUS

     Section 7.1 Notices. All notices and other communications which are required or may be given
pursuant to this Conveyance must be given in writing, in English and delivered personally, by
courier, by telecopy or by registered or certified mail, postage prepaid, as follows:

23

 

     If to Grantor:

[Name]

777 Main Street, Suite 800

Forth Worth, Texas 76102

Attention: Jon S. Brumley

Facsimile No.: [________________]

     If to Grantee:

Enduro Royalty Trust

c/o The Bank of New York Mellon Trust Company, N.A.

Institutional Trust Services

919 Congress Avenue, Suite 500

Austin, Texas 78701

Attention: Michael J. Ulrich

Facsimile No.: (512) 479-2253

Either Party may change its address for notice by notice to the other Party in the manner set forth
above. All notices shall be deemed to have been duly given at the time of receipt by the Party to
which such notice is addressed.

     Section 7.2 Ownership of Certain Property. The Net Profits Interest does not include any
right, title, or interest in and to any personal property, fixtures, or equipment and is
exclusively an interest in and to the Subject Interests and the Subject Hydrocarbons.

     Section 7.3 Non-Recourse. Grantee shall look solely to the Net Profits for the
satisfaction and discharge of the Net Profits Interest and, except in the event of Grantor’s
failure to pay as required by Section 4.3, Grantor shall not be liable for such satisfaction or
discharge. Grantor shall not have any liability (and Grantee shall have no recourse or remedy
against Grantor) in the event that the Subject Interests terminate without having generated the
Subject Hydrocarbons, Net Profits or NPI Payouts that are expected to be generated during the term
of the Net Profits Interest.

     Section 7.4 Payments. Grantor shall transfer or cause to be transferred all monies to
which Grantee is entitled hereunder by Federal funds wire transfer not later than the date when
due, to Grantee at the bank account specified by Grantee in writing to Grantor.

     Section 7.5 Amendments. This Conveyance may not be amended, altered or modified except
pursuant to a written instrument executed by the Parties.

     Section 7.6 Further Assurances. The Parties shall from time to time do and perform such
further acts and execute and deliver such further instruments, conveyances, and documents as may be
required or reasonably requested by the other Party to establish, maintain, or protect the
respective rights and remedies of the Parties and to carry out and effectuate the intentions and
purposes of this Conveyance.

24

 

     Section 7.7 Waivers. Any failure by either Party to comply with any of its obligations,
agreements or conditions herein contained may be waived by the Party to whom such compliance is
owed by an instrument signed by such Party and expressly identified as a waiver, but not in any
other manner. No waiver of, or consent to a change in, any of the provisions of this Conveyance
shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.

     Section 7.8 Severability. The invalidity or unenforceability of any term or provision of this
Conveyance in any situation or jurisdiction shall not affect the validity or enforceability of the
other terms or provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction and the remaining terms and
provisions shall remain in full force and effect, unless doing so would result in an interpretation
of this Conveyance which is manifestly unjust.

     Section 7.9 No Partition. The Parties acknowledge that Grantee has no right or interest that
would permit Grantee to partition any portion of the Subject Interests, and Grantee hereby waives
any such right.

     Section 7.10 Governing Law; Dispute Resolution. EXCEPT WHERE PROHIBITED BY THE LAW OF THE STATE IN WHICH THE RELEVANT SUBJECT INTERESTS
ARE LOCATED, THIS CONVEYANCE AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO CONFLICTS OF LAW
RULES OR PRINCIPLES THAT MAY REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. ALL
DISPUTES ARISING UNDER OR IN CONNECTION WITH THIS CONVEYANCE SHALL BE HANDLED AND RESOLVED PURSUANT
TO AND IN ACCORDANCE WITH THE ARBITRATION PROVISIONS SET FORTH IN ARTICLE XI OF THE TRUST
AGREEMENT.

     Section 7.11 Rule Against Perpetuities. It is not the intent of the Parties that any
provision herein violate any applicable law regarding the rule against perpetuities or other rules
regarding the vesting or duration of estates, and this Conveyance shall be construed as not
violating any such rule to the extent the same can be so construed consistent with the expressed
intent of the Parties as set forth herein. In the event, however, that any provision hereof is
determined to violate any such rule, then such provision shall nevertheless be effective for the
maximum period (but not longer than the maximum period) permitted by such rule that will result in
no violation. To extent that the maximum period is permitted to be determined by reference to
“lives in being,” the Parties agree that “lives in being” shall refer to the lifetime of the last
survivor of the descendents of the late Joseph P. Kennedy (the father of the late John F. Kennedy,
the 35th President of the United States of America) living as of the Effective Time.

     Section 7.12 Tax Matters. Without limiting the disclaimer in Section 5.1(d)(ii), nothing
herein contained shall be construed to constitute a partnership or to cause either Party (under
state law or for tax purposes) to be treated as being the agent of, or in partnership with, the
other party. Grantor may cause to be withheld from any payment hereunder any tax withholding
required by law or regulations, including, in the case of any withholding obligation arising
from

25

 

income that does not give rise to any cash or property from which any applicable withholding tax
could be satisfied, by way of set off against any subsequent payment of cash or property hereunder.

     Section 7.13 Counterparts. This Conveyance may be executed in counterparts, each of which
shall be deemed an original instrument, but all such counterparts together shall constitute but one
instrument. No Party shall be bound until such time as all of the Parties have executed
counterparts of this Conveyance. To facilitate recordation, there may be omitted from the Exhibits
to this Conveyance in certain counterparts descriptions of property located in recording
jurisdictions other than the jurisdiction in which the particular counterpart is to be filed or
recorded.

     Section 7.14 Conspicuous. GRANTOR AND GRANTEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE OR ENFORCEABLE, THE PROVISIONS IN THIS CONVEYANCE IN ALL CAPS FONT ARE
“CONSPICUOUS” FOR THE PURPOSE OF ANY APPLICABLE LAW.

     Section 7.15 Binding Effect. All the covenants, restrictions and agreements of Grantor herein
contained shall be deemed to be covenants running with the Subject Interests and the lands affected
thereby. All of the provisions hereof shall inure to the benefit of Grantee and its successors and
assigns and shall be binding upon Grantor and its successors and assigns and all other owners of
the Subject Interests or any part thereof or any interest therein.

     Section 7.16 Limitation on Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY, NONE OF
GRANTOR, GRANTEE OR ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE ENTITLED TO CONSEQUENTIAL, SPECIAL,
INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS CONVEYANCE, AND EACH PARTY, FOR
ITSELF AND ON BEHALF OF ITS AFFILIATES, HEREBY EXPRESSLY WAIVES ANY RIGHT TO CONSEQUENTIAL,
SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS CONVEYANCE AND THE
TRANSACTIONS CONTEMPLATED HEREBY.

     Section 7.17 Term. The Net Profits Interest shall remain in full force and effect as long as
any portion of the Subject Interests is in full force and effect. At any time after the
termination of the Net Profits Interest, Grantee shall, upon the request of Grantor, execute and
deliver such instruments as may be necessary to evidence the termination of the Net Profits
Interest.

     Section 7.18 Trust Agreement. This Conveyance is delivered pursuant to, and hereby made
subject to, the terms and conditions of the Trust Agreement. In the event that any provision of
this Conveyance is construed to conflict with any provision of the Trust Agreement, the provisions
of this Conveyance shall be deemed controlling to the extent of such conflict.

     Section 7.19 No Third Party Beneficiaries. Nothing in this Conveyance shall entitle any Person
other than the Parties to any claims, cause of action, remedy or right of any kind.

     Section 7.20 Construction. The Parties acknowledge that (a) Grantor and Grantee have had the
opportunity to exercise business discretion in relation to the negotiation of the details of

26

 

the transaction contemplated hereby, (b) this Conveyance is the result of arms-length negotiations
from equal bargaining positions, and (c) Grantor and Grantee and their respective counsel
participated in the preparation and negotiation of this Conveyance. Any rule of construction that
a document be construed against the drafter shall not apply to the interpretation or construction
of this Conveyance.

     Section 7.21 Merger Clause. This Conveyance and the Transaction Documents 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.

     Section 7.22 Reliance by Third Parties. No third party (including operators, production
purchasers and disbursing parties) is responsible for calculating or separately reporting and
paying to Grantee any sums that are potentially attributable to the Net Profits Interest; and such
third parties may include the interest of Grantee within the interest credited to Grantor for all
purposes. Grantor shall attend to the actual distribution of the NPI Payout to Grantee as
provided in this Conveyance. To the extent that any provision of a state oil and gas proceeds
payment statute requires an operator, production purchaser or disbursing party to account for and
separately pay proceeds of production attributable to the Net Profits Interest, Grantor and Grantee
specifically (a) authorize such third parties to include the Net Profits Interest within the
interest credited to Grantor, and (b) waive the application of such statute, to the extent
possible, and such payment shall be made to Grantor directly. No third party shall be under any
obligation to inquire as to, or to see to, the application by Grantor of the proceeds received by
it from any sale of production attributable to the Net Profits Interest.

[Signature Page Follows]

27

 

     IN WITNESS WHEREOF, this Conveyance has been signed by each of the Parties on the Execution
Date and duly acknowledged before the undersigned competent witnesses and Notary Public.

	 	 	 	 	 	 	 	 	 	 	 

	WITNESSES:	 	 	 	GRANTOR:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	[Name]	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
	 	 	 	By:	 	 	 	 
	Printed Name:

	 	 
 
	 	 
	 	Name:
	 	 

	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By: 

Printed Name:

	 	 
 

 
 

	 	  	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	WITNESSES:	 	 	 	GRANTEE:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Enduro Royalty Trust	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By: 

Printed Name:

	 	 
 

 
 

	 	  
	 	By its Trustee, The Bank of New York Mellon Trust Company, N.A.
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
	 	 	 	By:	 	 	 	 
	Printed Name:

	 	 
 
	 	 
	 	Name:
	 	 

	 	 
	 

	 	 

	 	 
	 	Title:
	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 

[Signature Page — Conveyance]

 

 

	 	 	 

	STATE OF ___________

	 	§
	 

	 	§
	COUNTY OF ___________

	 	§

     BE IT KNOWN, that on this ___ day of ______, 2011, before me, the undersigned authority,
personally came and appeared ___________________ appearing herein in ___ capacity as
___________________ of ____________________________, to me personally known to be the identical
person whose name is subscribed to the foregoing instrument as the said officer of said company,
and declared and acknowledged to me, Notary, that ___________________ executed the same on behalf
of said company with full authority of its ___________________, and that the said instrument is the
free act and deed of the said company and was executed for the uses, purposes and benefits therein
expressed.

                                                            

Printed Name:                                        

Notary Public for the State of ___________

County of ___________

My commission expires:                                        

	 	 	 

	STATE OF ___________

	 	§
	 

	 	§
	COUNTY OF ___________

	 	§

     BE IT KNOWN, that on this ___ day of ______, 2011, before me, the undersigned authority,
personally came and appeared ___________________ appearing herein in ___ capacity as
___________________ of The Bank of New York Mellon Trust Company, N.A., to me personally known to
be the identical person whose name is subscribed to the foregoing instrument as the said officer of
said national banking association, and declared and acknowledged to me, Notary, that
___________________ executed the same on behalf of said national banking association with full
authority of its ___________________, and that the said instrument is the free act and deed of the
said national banking association and was executed for the uses, purposes and benefits therein
expressed.

                                                            

Printed Name:                                        

Notary Public for the State of ___________

County of ___________

My commission expires:                                        

[Acknowledgement Page — Conveyance]

`

 

 

EXHIBIT A

ATTACHED TO AND MADE A PART OF THAT

CERTAIN CONVEYANCE OF NET PROFITS INTEREST

DATED AS OF [_________ __], 2011

LEASES

[To be provided]

Exhibit A

 

 

EXHIBIT B

ATTACHED TO AND MADE A PART OF THAT

CERTAIN CONVEYANCE OF NET PROFITS INTEREST

DATED AS OF [_________ __], 2011

WELLS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operator	 	Operator AFE #	 	Enduro AFE #	 	API	 	Enduro Well ID	 	Field	 	County/Parish	 	State
	QEP
	 	9*35868
	 	N11LA-0001
	 	1701524682
	 	70038.012.00
	 	ELM GROVE
	 	BOSSIER
	 	LA
	XCO
	 	810*20574
	 	N10LA-0077
	 	1703125129
	 	70178.001.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22699
	 	N10LA-0088
	 	1703125507
	 	70087.014.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22697
	 	N10LA-0087
	 	1703125249
	 	70087.013.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22777
	 	N11LA-0010
	 	1703125508
	 	70087.017.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22781
	 	N11LA-0009
	 	1703125604
	 	70087.016.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22718
	 	N11LA-0008
	 	1703125527
	 	70087.018.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22911
	 	N11LA-0015
	 	1703125588
	 	70079.017.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22721
	 	N11LA-0007
	 	1703125525
	 	70079.015.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22672
	 	N11LA-0011
	 	1703125597
	 	70079.014.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22906
	 	N11LA-0016
	 	1703125644
	 	70079.018.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22857
	 	N11LA-0017
	 	1703125556
	 	70079.020.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*22912
	 	N11LA-0018
	 	1703125526
	 	70079.019.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*21163
	 	N11LA-0032
	 	1703125645
	 	70079.021.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*23388
	 	N11LA-0036
	 	1703125672
	 	70168.003.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*23306
	 	N11LA-0029
	 	1703125652
	 	70082.006.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*23549
	 	N11LA-0034
	 	1703125677
	 	70082.009.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*23387
	 	N11LA-0035
	 	1703125679
	 	70082.010.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	810*23677
	 	N11LA-0049
	 	1703125653
	 	70082.007.00
	 	KINGSTON
	 	DESOTO
	 	LA
	XCO
	 	310-23673
	 	N11LA-0051
	 	1703125673
	 	70168.002.00
	 	KINGSTON
	 	DESOTO
	 	LA
	OXY
	 	N/A
	 	N11NM-0052
	 	3001538254
	 	84064.020.00
	 	LOST TANK
	 	EDDY
	 	NM

Exhibit B

 

 

EXHIBIT C

EXISTING HEDGES

Exhibit C

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00192-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00192-of-00352.parquet"}]]