Document:

Exhibit 10.2

FIRST AMENDMENT TO 

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT (hereinafter referred to as the “Amendment”) dated as of February 20,
2008, by and among EXCO RESOURCES, INC. (“Borrower”), CERTAIN
SUBSIDIARIES OF BORROWER, as Guarantors (the “Guarantors”), the LENDERS party hereto (the “Lenders”),
and JPMORGAN CHASE BANK, N.A., as Administrative Agent (“Administrative
Agent”).  Unless the context
otherwise requires or unless otherwise expressly defined herein, capitalized
terms used but not defined in this Amendment have the meanings assigned to such
terms in the Credit Agreement (as defined below).

 

WITNESSETH:

 

WHEREAS, Borrower, Guarantors, Administrative Agent and
Lenders have entered into that certain Second Amended and Restated Credit
Agreement dated as of May 2, 2007 (as amended, supplemented or otherwise
modified from time to time, the “Credit
Agreement”); and

 

WHEREAS, in connection with (i) the acquisition by EXCO
Appalachia, Inc. (“EXCO Appalachia”) of certain oil and gas
properties pursuant to that certain Asset Purchase Agreement, dated as of December 7,
2007 (the “Purchase Agreement”), among certain Persons, as sellers, and
EXCO Appalachia, as buyer (the “Appalachia Purchase”) and (ii) the
merger of EXCO Appalachia with and into North Coast Energy, Inc. (“North
Coast”), Borrower has requested that (x) the Administrative Agent and
the Lenders amend the Credit Agreement to increase the Maximum Facility Amount
and (y) the Lenders increase the Borrowing Base;

 

NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, Borrower, Guarantors, Administrative Agent and the Lenders hereby
agree as follows:

 

SECTION 1. 
Amendments to Credit Agreement.  Subject to the
satisfaction or waiver in writing of each condition precedent set forth in Section 3
hereof, and in reliance on the representations, warranties, covenants and
agreements contained in this Amendment, the Credit Agreement shall be amended
in the manner provided in this Section 1.

 

1.1          Amended Definitions.  Section 1.01
of the Credit Agreement shall be and it hereby is amended by amending and
restating the following definitions to read in its entirety as follows:

 

“Adjusted LIBO Rate”
means, with respect to any Eurodollar Borrowing for any Interest Period, an
interest rate per annum equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.

 

“Maximum Facility Amount” means
$1,175,000,000.

 

1.2          Redetermined Borrowing Base.  This
Amendment shall constitute a notice of the redetermination of the Borrowing
Base pursuant to Section 3.04 of the Credit Agreement and 

 

 

1

 

 

Administrative Agent hereby notifies Borrower that, as
of the effective date of this Amendment, the Borrowing Base as of such date and
until but not including the next Redetermination Date, is $1,200,000,000.

 

1.3          Notices.  Subclause (ii) of
Section 11.01(a) shall be and it hereby is amended in its
entirety to read as follows:

 

(ii)          if to
the Administrative Agent or Issuing Bank, to JPMorgan Chase Bank, N.A.,
JPMorgan Loan Services, 21 South Clark St., 19th Floor, Chicago, Illinois
60603-2003, Telecopy No.: (312) 385-7096, Attention: Claudia Kech, with a copy
to JPMorgan Chase Bank, N.A., 2200 Ross Avenue, 3rd Floor, TX1-2448,
Dallas, Texas 75201, Telecopy No. (214) 965-3280, Attention:  Wm. Mark Cranmer, Senior Vice President;

 

1.4          Amendment to Schedule 2.01.  Schedule
2.01 to the Credit Agreement shall be and it hereby is amended in its
entirety by substituting Schedule 2.01 attached hereto.

 

SECTION 2. 
New
Lenders and Reallocation of Commitments and Loans. 
The Lenders have agreed among themselves to reallocate their respective
Commitments and to, among other things, allow certain financial institutions
identified by J.P. Morgan Securities, Inc., in its capacity as Lead Arranger,
in consultation with the Borrower, to become a party to the Credit Agreement as
a Lender (each, a “New Lender”) by acquiring an interest in the
Aggregate Commitment, and Administrative Agent and the Borrower hereby consent
to such reallocation and each New Lender’s acquisition of an interest in the
Aggregate Commitment.  On the date this
Amendment becomes effective and after giving effect to such reallocation of the
Aggregate Commitment, the Commitment of each Lender shall be as set forth on Schedule
2.01 of this Amendment.  With respect
to such reallocation, each New Lender shall be deemed to have acquired the
Commitment allocated to it from each of the other Lenders pursuant to the terms
of the Assignment and Assumption attached as Exhibit A to the Credit
Agreement as if such New Lender  and the other
Lenders had executed an Assignment and Assumption with respect to such
allocation.  The Borrower and
Administrative Agent hereby consent to such assignment to the New Lenders.

 

SECTION 3. 
Conditions.  The amendments to the Credit Agreement
contained in Section 1 of this Amendment, including the
redetermination of the Borrowing Base as set forth in Section 1.2
of this Amendment and the assignments and reallocations contained in Section 2
of this Amendment shall be effective upon the satisfaction of each of the
conditions set forth in this Section 3.

 

3.1          Execution and Delivery.  Each Credit
Party, each Lender and the Administrative Agent shall have executed and
delivered this Amendment.

 

3.2          Consummation of Asset Purchase. 
EXCO Appalachia shall have consummated the Appalachia Purchase in
accordance with the Purchase Agreement without waiver or amendment of any
material term thereof not otherwise consented to by the Administrative Agent.

 

3.3          North Coast Merger.  The Borrower
shall have delivered to the Administrative Agent evidence reasonably
satisfactory to the Administrative Agent that promptly following the
consummation of the Appalachia Purchase, and in any event within two (2) Business
Days 

 

2

 

thereafter, EXCO Appalachia will merge with and into
North Coast and North Coast, as the surviving entity of such merger, will
comply with the requirements of Sections 6.09 and 6.10 of the
Credit Agreement.

 

3.4          No Default.  No Default
shall have occurred and be continuing.

 

3.5          Fees.  The Borrower shall have paid to
the Administrative Agent for the benefit of the Lenders, an upfront fee in an
amount equal to (i) 0.20% on the actual allocation of the increase in the
Aggregate Commitment allocated to any Lender, including any New Lender, that
committed to less than $40,000,000 of such increase in the Aggregate
Commitment, plus (ii) 0.35% on the actual allocation of the increase in
the Aggregate Commitment allocated to any Lender, including any New Lender,
that committed to $40,000,000 or more of such increase in the Aggregate
Commitment, in each case with respect to each of the foregoing clauses (i) and
(ii), respectively, to be shared pro rata among
the Lenders based on their respective increases in the Commitment.

 

3.6          Other Documents.  The
Administrative Agent shall have received such other instruments and documents
incidental and appropriate to the transaction provided for herein as the
Administrative Agent or its special counsel may reasonably request, and all
such documents shall be in form and substance satisfactory to the
Administrative Agent.

 

SECTION 4. 
Representations and Warranties of Borrower. 
To induce the Lenders to enter into this Amendment, each Credit Party
hereby represents and warrants to the Lenders as follows:

 

4.1          Reaffirmation of Representations and Warranties/Further
Assurances.  After giving effect to the amendments herein,
each representation and warranty of such Credit Party contained in the Credit
Agreement or in any other Loan Document is true and correct in all material
respects on the date hereof (except to the extent such representations and
warranties relate solely to an earlier date).

 

4.2          Corporate Authority; No Conflicts. 
The execution, delivery and performance by such Credit Party of this
Amendment and all documents, instruments and agreements contemplated herein are
within such Credit Party’s corporate or other organizational powers, have been
duly authorized by all necessary action, require no action by or in respect of,
or filing with, any court or agency of government and do not violate or
constitute a default under any provision of any applicable law or other
agreements binding upon such Credit Party or result in the creation or
imposition of any Lien upon any of the assets of such Credit Party except for
Liens permitted under Section 7.02 of the Credit Agreement.

 

4.3          Enforceability.  This
Amendment constitutes the valid and binding obligation of such Credit Party
enforceable in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditor’s rights generally, and (ii) the availability of equitable
remedies may be limited by equitable principles of general application.

 

SECTION 5. 
Miscellaneous.

 

 

 

3

 

5.1          Reaffirmation of Loan Documents and Liens. 
Any and all of the terms and provisions of the Credit Agreement and the
Loan Documents shall, except as amended and modified hereby, remain in full
force and effect.  Each Credit Party
hereby agrees that the amendments and modifications herein contained shall in
no manner affect or impair the liabilities, duties and obligations of any
Credit Party under the Credit Agreement and the other Loan Documents or the
Liens securing the payment and performance thereof.

 

5.2          Parties in Interest.  All of the
terms and provisions of this Amendment shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns.

 

5.3          Legal Expenses.  Each Credit
Party hereby agrees to pay all reasonable fees and expenses of special counsel
to the Administrative Agent incurred by the Administrative Agent in connection
with the preparation, negotiation and execution of this Amendment and all
related documents.

 

5.4          Counterparts.  This
Amendment may be executed in one or more counterparts and by different parties
hereto in separate counterparts each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the
same document.  However, this Amendment
shall bind no party until each Credit Party, the Lenders (or at least the
required percentage thereof), and the Administrative Agent have executed a
counterpart.  Delivery of photocopies of
the signature pages to this Amendment by facsimile or electronic mail
shall be effective as delivery of manually executed counterparts of this
Amendment.

 

5.5          Complete Agreement.  THIS
AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

 

5.6          Headings.  The headings,
captions and arrangements used in this Amendment are, unless specified
otherwise, for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Amendment, nor affect the meaning thereof.

 

[Signature Pages Follow]

 

4

 

IN WITNESS WHEREOF, the parties have caused this First
Amendment to Second Amended and Restated Credit Agreement to be duly executed
as of the date first above written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  EXCO RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  
	
   

  	
  Name:  J. Douglas Ramsey, Ph.D.

  
	
   

  	
  Title:  Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  EXCO Resources, Inc.

  
	
   

  	
  12377 Merit Drive, Suite 1700

  
	
   

  	
  Dallas, Texas 75251

  
	
   

  	
  Facsimile No. 214-368-2087

  
	
   

  	
  Attn:

  	
  Douglas H. Miller

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  and

  
	
   

  	
   

  
	
   

  	
  Attn:

  	
  J. Douglas Ramsey

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NORTH COAST ENERGY, INC.

  
	
   

  	
  NORTH COAST ENERGY EASTERN, INC.

  
	
   

  	
  POWER GAS MARKETING & TRANSMISSION,
  INC.

  
	
   

  	
  EXCO SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  
	
   

  	
  Name:  J.
  Douglas Ramsey, Ph.D.

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
	
   

  	
   

  	
  for each of the Credit Parties listed above

  
				

 

 

 

 

	
   

  	
   

  	
  JPMORGAN
  CHASE BANK, N.A.,

  as a Lender and
  as Administrative Agent,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Wm. Mark Cranmer

  
	
   

  	
   

  	
  Name:

  	
  Wm. Mark Cranmer

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

 

 

	
   

  	
   

  	
  UBS
  LOAN FINANCE LLC

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David B. Julie

  
	
   

  	
   

  	
  Name:

  	
  David B. Julie

  
	
   

  	
   

  	
  Title:

  	
  Associate Director

  
	
   

  	
   

  	
   

  	
  Banking Products
  Services, US

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Iga H. Disa

  
	
   

  	
   

  	
  Name:

  	
  Iga H. Disa

  
	
   

  	
   

  	
  Title:

  	
  Associate Director

  Banking Products
  Services, US

  
					

 

 

 

 

	
   

  	
   

  	
  TORONTO
  DOMINION (TEXAS) LLC

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ian Murray

  
	
   

  	
   

  	
  Name:

  	
  Ian Murray

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
					

 

 

 

	
   

  	
   

  	
  CREDIT
  SUISSE, CAYMAN ISLANDS BRANCH

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Vanessa Gomez

  
	
   

  	
   

  	
  Name:

  	
  Vanessa Gomez

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Morenikeji Ajayi

  
	
   

  	
   

  	
  Name:

  	
  Morenikeji Ajayi

  
	
   

  	
   

  	
  Title:

  	
  Associate

  
					

 

 

 

 

	
   

  	
   

  	
  LEHMAN
  BROTHERS COMMERCIAL BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ George Janes

  
	
   

  	
   

  	
  Name:

  	
  George Janes

  
	
   

  	
   

  	
  Title:

  	
  Chief Credit Officer

  
					

 

 

 

	
   

  	
   

  	
  BNP
  PARIBAS

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David Dodd

  
	
   

  	
   

  	
  Name:

  	
  David Dodd

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Richard Hawthorne

  
	
   

  	
   

  	
  Name:

  	
  Richard Hawthorne

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  KEYBANK
  N.A.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Keven D. Smith

  
	
   

  	
   

  	
  Name:

  	
  Keven D. Smith

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  MORGAN
  STANLEY SENIOR FUNDING, INC.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Daniel Twenge 

  
	
   

  	
   

  	
  Name:

  	
  Daniel Twenge 

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  NATIXIS

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Donovan C.
  Broussard

  
	
   

  	
   

  	
  Name:

  	
  Donovan C. Broussard

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Liana Tchernysheva

  
	
   

  	
   

  	
  Name:

  	
  Liana Tchernysheva

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

 

	
   

  	
   

  	
  ROYAL
  BANK OF CANADA

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Don J. McKinnerney

  
	
   

  	
   

  	
  Name:

  	
  Don J. McKinnerney

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
					

 

 

 

 

	
   

  	
   

  	
  THE
  ROYAL BANK OF SCOTLAND PLC

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Mark Lumpkin, Jr

  
	
   

  	
   

  	
  Name:

  	
  Mark Lumpkin, Jr

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  SOCIETE
  GENERALE

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Elena Robcine

  
	
   

  	
   

  	
  Name:

  	
  Elena Robcine

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

	
   

  	
   

  	
  STERLING
  BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jeff A. Forbis

  
	
   

  	
   

  	
  Name:

  	
  Jeff A. Forbis

  
	
   

  	
   

  	
  Title:

  	
  Sterling Bank

  
					

 

 

 

	
   

  	
   

  	
  SUNTRUST
  BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ James M. Warren

  
	
   

  	
   

  	
  Name:

  	
  James M. Warren

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					

 

 

 

 

	
   

  	
   

  	
  UNION
  BANK OF CALIFORNIA, N.A.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Doug Gale

  
	
   

  	
   

  	
  Name:

  	
  Doug Gale

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  SCOTIABANC,
  INC.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ R. Blackwood

  
	
   

  	
   

  	
  Name:

  	
  R. Blackwood

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

 

	
   

  	
   

  	
  WACHOVIA
  BANK NATIONAL ASSOCIATION

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Paul Pritchett

  
	
   

  	
   

  	
  Name:

  	
  Paul Pritchett

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  WELLS
  FARGO BANK, N.A.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jason Hicks

  
	
   

  	
   

  	
  Name:

  	
  Jason Hicks

  
	
   

  	
   

  	
  Title:

  	
  Assistant Vice
  President

  
					

 

 

 

 

	
   

  	
   

  	
  WESTLB
  AG, NEW YORK BRANCH

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Dominick D’Ascoli

  
	
   

  	
   

  	
  Name:

  	
  Dominick D’Ascoli

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Martin C.
  Livingston

  
	
   

  	
   

  	
  Name:

  	
  Martin C. Livingston

  
	
   

  	
   

  	
  Title:

  	
  Exective Director

  
					

 

 

 

 

	
   

  	
   

  	
  BMO
  CAPITAL MARKETS FINANCING, INC.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ James V. Ducote

  
	
   

  	
   

  	
  Name:

  	
  James V. Ducote

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

	
   

  	
   

  	
  BANK
  OF SCOTLAND PLC

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Karen Welch

  
	
   

  	
   

  	
  Name:

  	
  Karen Welch

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  CITIBANK,
  N.A.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ryan Watson

  
	
   

  	
   

  	
  Name:

  	
  Ryan Watson

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  ALLIED
  IRISH BANKS, P.L.C.

  as
  a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Vaughn Buck

  
	
   

  	
   

  	
  Name:

  	
  Vaughn Buck

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert F. Moyle 

  
	
   

  	
   

  	
  Name:

  	
  Robert F. Moyle

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  DEUTSCHE
  BANK TRUST COMPANY AMERICAS

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Erin Morrissey

  
	
   

  	
   

  	
  Name:

  	
  Erin Morrissey

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Susan LaFavre

  
	
   

  	
   

  	
  Name:

  	
  Susan LaFavre

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

 

	
   

  	
   

  	
  CALYON
  NEW YORK BRANCH

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Tom Byargeon 

  
	
   

  	
   

  	
  Name:

  	
  Tom Byargeon 

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Sharada Manne

  
	
   

  	
   

  	
  Name:

  	
  Sharada Manne

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Daria Mahoney

  
	
   

  	
   

  	
  Name:

  	
  Daria Mahoney

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  COMERICA
  BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Peter L. Sefzik

  
	
   

  	
   

  	
  Name:

  	
  Peter L. Sefzik

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

 

 

	
   

  	
   

  	
  FORTIS
  CAPITAL CORP.

  as
  a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michele Jones

  
	
   

  	
   

  	
  Name:

  	
  Michele Jones

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Darrell Holley

  
	
   

  	
   

  	
  Name:

  	
  Darrell Holley

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

 

	
   

  	
   

  	
  BANK
  OF AMERICA

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jeffrey H. Rathkamp

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey H. Rathkamp

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					

 

 

 

 

	
   

  	
   

  	
  SUMITOMO
  MITSUI BANKING CORPORATION

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Masakaza Hasegawa

  
	
   

  	
   

  	
  Name:

  	
  Masakaza Hasegawa

  
	
   

  	
   

  	
  Title:

  	
  Joint General Manager

  
					

 

 

 

 

	
   

  	
   

  	
  GOLDMAN
  SACHS CREDIT PARTNERS, L.P.

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jaime Weisfelner

  
	
   

  	
   

  	
  Name:

  	
  Jaime Weisfelner

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
					

 

	
   

  	
   

  	
  By:

  	
  /s/ Stephen Scheer

  
	
   

  	
   

  	
  Name:

  	
  Stephen Scheer

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
					

 

 

 

	
   

  	
   

  	
  MORGAN
  STANLEY BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Daniel Twenge

  
	
   

  	
   

  	
  Name:

  	
  Daniel Twenge

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
					

 

 

 

 

	
   

  	
   

  	
  THE
  BANK OF NOVA SCOTIA

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David Mills

  
	
   

  	
   

  	
  Name:

  	
  David Mills 

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

 

 

 

	
   

  	
   

  	
  COMPASS
  BANK

  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Dorothy Marchand

  
	
   

  	
   

  	
  Name:

  	
  Dorothy Marchand

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice PresidentExhibit 10.3

 

EXECUTION VERSION

 

 

 

ASSET PURCHASE AGREEMENT

 

 

 

DATED AS OF DECEMBER 7, 2007,

 

 

 

BY AND BETWEEN

 

 

 

EOG RESOURCES, INC.,

EOG RESOURCES APPALACHIAN LLC AND

ENERGY SEARCH, INCORPORATED

 

 

 

 

AS SELLER,

 

 

 

AND

 

 

 

EXCO APPALACHIA, INC.

 

 

 

AS BUYER

 

 

 

TABLE OF
CONTENTS

 

	
   

  	
  Page

  
	
   

  	
   

  
	
   

  	
   

  
	
  ARTICLE I.

  
	
  DEFINITIONS

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Certain
  Defined Terms

  	
  1

  
	
  Section 1.2

  	
  References,
  Gender, Number

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.

  
	
  SALE AND PURCHASE OF ASSETS

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Sale
  and Purchase

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.

  
	
  PURCHASE PRICE AND PAYMENT

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Purchase
  Price

  	
  2

  
	
  Section 3.2

  	
  Payment

  	
  2

  
	
  Section 3.3

  	
  Adjustment
  Period Cash Flow

  	
  2

  
	
  Section 3.4

  	
  Post
  Closing Review

  	
  4

  
	
  Section 3.5

  	
  Pipeline
  Imbalance Adjustments; Royalty Accounts

  	
  5

  
	
  Section 3.6

  	
  No
  Duplicative Effect

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV.

  
	
  REPRESENTATIONS AND WARRANTIES

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Representations
  and Warranties of Seller

  	
  6

  
	
  Section 4.2

  	
  Representations
  and Warranties of Buyer

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.

  
	
  ACCESS TO INFORMATION; NO WARRANTY; ETC.

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  General
  Access

  	
  14

  
	
  Section 5.2

  	
  Confidential
  Information

  	
  15

  
	
  Section 5.3

  	
  No
  Warranty or Representation

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.

  
	
  ENVIRONMENTAL MATTERS

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Environmental
  Review and Audit

  	
  16

  
	
  Section 6.2

  	
  Environmental
  Defects

  	
  18

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.

  
	
  TITLE ADJUSTMENTS

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  No
  Title Warranty or Representation

  	
  20

  

 

 

-i-

 

TABLE OF
CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.2

  	
  Buyer’s
  Title Review

  	
  20

  
	
  Section 7.3

  	
  Determination
  of Title Defects

  	
  24

  
	
  Section 7.4

  	
  Seller
  Title Credit

  	
  25

  
	
  Section 7.5

  	
  Exclusion
  of Defect Properties

  	
  26

  
	
  Section 7.6

  	
  Deferred
  Claims and Disputes

  	
  26

  
	
  Section 7.7

  	
  No
  Duplication

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.

  
	
  REFERENCE RIGHTS AND TRANSFER REQUIREMENTS

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Compliance

  	
  27

  
	
  Section 8.2

  	
  Allocations

  	
  28

  
	
  Section 8.3

  	
  Preference
  Rights

  	
  28

  
	
  Section 8.4

  	
  Transfer
  Requirements

  	
  28

  
	
  Section 8.5

  	
  Certain
  Governmental Consents

  	
  29

  
	
  Section 8.6

  	
  Express
  Conditions on Sale

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.

  
	
  COVENANTS OF SELLER AND BUYER

  
	
   

  	
   

  	
   

  
	
  Section 9.1

  	
  Conduct
  of Business Pending Closing

  	
  29

  
	
  Section 9.2

  	
  Qualifications
  on Conduct

  	
  31

  
	
  Section 9.3

  	
  Conveyance;
  Pennsylvania Oil and Gas Lease

  	
  33

  
	
  Section 9.4

  	
  Public
  Announcements

  	
  33

  
	
  Section 9.5

  	
  Amendment
  of Schedules

  	
  33

  
	
  Section 9.6

  	
  Parties’
  Efforts and Further Assurances

  	
  33

  
	
  Section 9.7

  	
  Asset
  Records

  	
  34

  
	
  Section 9.8

  	
  Recording

  	
  34

  
	
  Section 9.9

  	
  Casualty
  and Condemnation

  	
  34

  
	
  Section 9.10

  	
  Transition
  Agreement

  	
  35

  
	
  Section 9.11

  	
  Employees

  	
  35

  
	
  Section 9.12

  	
  Licenses

  	
  39

  
	
  Section 9.13

  	
  Successor
  Operator

  	
  39

  
	
  Section 9.14

  	
  No
  Solicitation of Transactions

  	
  39

  
	
  Section 9.15

  	
  Financial
  Information

  	
  40

  
	
  Section 9.16

  	
  Guaranty
  Agreement

  	
  40

  
	
  Section 9.17

  	
  Letters-in-Lieu;
  Assignments; Operatorship

  	
  40

  
	
  Section 9.18

  	
  Proprietary
  Seismic Data License

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE X.

  
	
  CLOSING CONDITIONS

  
	
   

  	
   

  	
   

  
	
  Section 10.1

  	
  Seller’s
  Closing Conditions

  	
  41

  
	
  Section 10.2

  	
  Buyer’s
  Closing Conditions

  	
  42

  

 

-ii-

 

TABLE OF
CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.3

  	
  Deferred
  Adjustment Claims Extension

  	
  43

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI.

  
	
  CLOSING

  
	
   

  	
   

  	
   

  
	
  Section 11.1

  	
  Closing

  	
  43

  
	
  Section 11.2

  	
  Seller’s
  Closing Obligations

  	
  43

  
	
  Section 11.3

  	
  Buyer’s
  Closing Obligations

  	
  44

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII.

  
	
  EFFECT OF CLOSING

  
	
   

  	
   

  	
   

  
	
  Section 12.1

  	
  Revenues

  	
  44

  
	
  Section 12.2

  	
  Expenses

  	
  45

  
	
  Section 12.3

  	
  Tax
  Matters

  	
  45

  
	
  Section 12.4

  	
  Payments
  and Obligations

  	
  46

  
	
  Section 12.5

  	
  Survival

  	
  46

  
	
  Section 12.6

  	
  Certain
  Post-Closing Obligations

  	
  47

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII.

  
	
  LIMITATIONS

  
	
   

  	
   

  	
   

  
	
  Section 13.1

  	
  Disclaimer
  of Warranties

  	
  47

  
	
  Section 13.2

  	
  Texas
  Deceptive Trade Practices Act Waiver

  	
  48

  
	
  Section 13.3

  	
  Damages

  	
  48

  
	
  Section 13.4

  	
  Plugging
  and Abandonment Obligations

  	
  49

  
	
  Section 13.5

  	
  Environmental
  Release

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV.

  
	
  INDEMNIFICATION

  
	
   

  	
   

  	
   

  
	
  Section 14.1

  	
  Indemnification
  By Buyer

  	
  50

  
	
  Section 14.2

  	
  Indemnification
  By Seller

  	
  50

  
	
  Section 14.3

  	
  Indemnification
  and Defense Procedures

  	
  51

  
	
  Section 14.4

  	
  Seller’s
  General Liability Limitation

  	
  54

  
	
  Section 14.5

  	
  Materiality
  Exclusion

  	
  54

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV.

  
	
  TERMINATION; REMEDIES

  
	
   

  	
   

  	
   

  
	
  Section 15.1

  	
  Termination

  	
  54

  
	
  Section 15.2

  	
  Remedies

  	
  55

  

 

-iii-

 

TABLE OF
CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI.

  
	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  Section 16.1

  	
  Counterparts

  	
  56

  
	
  Section 16.2

  	
  Governing
  Law; Jurisdiction; Process

  	
  56

  
	
  Section 16.3

  	
  Entire
  Agreement

  	
  57

  
	
  Section 16.4

  	
  Expenses

  	
  57

  
	
  Section 16.5

  	
  Notices

  	
  57

  
	
  Section 16.6

  	
  Successors
  and Assigns

  	
  59

  
	
  Section 16.7

  	
  Amendments
  and Waivers

  	
  59

  
	
  Section 16.8

  	
  Appendices,
  Schedules and Exhibits

  	
  59

  
	
  Section 16.9

  	
  Interpretation

  	
  59

  
	
  Section 16.10

  	
  Dispute
  Resolution

  	
  60

  
	
  Section 16.11

  	
  Agreement
  for the Parties’ Benefit Only

  	
  60

  
	
  Section 16.12

  	
  Attorneys’
  Fees

  	
  61

  
	
  Section 16.13

  	
  Severability

  	
  61

  
	
  Section 16.14

  	
  No
  Recordation

  	
  61

  
	
  Section 16.15

  	
  Purchase
  Price Allocation for Tax Purposes

  	
  61

  
	
  Section 16.16

  	
  Time
  of Essence

  	
  61

  
	
  Section 16.17

  	
  Affiliate
  Liability

  	
  62

  
	
  Section 16.18

  	
  Schedules

  	
  62

  
	
  Section 16.19

  	
  Liability

  	
  62

  

 

-iv-

 

	
  EXHIBITS

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit 6.2(b)

  	
   

  	
  —

  	
   

  	
  Access Agreement

  
	
  Exhibit 9.3(a)

  	
   

  	
  —

  	
   

  	
  Conveyance

  
	
  Exhibit 9.3(b)

  	
   

  	
  —

  	
   

  	
  Pennsylvania Oil and
  Gas Lease

  
	
  Exhibit 10.1(e)

  	
   

  	
  —

  	
   

  	
  Buyer’s Counsel’s
  Opinion

  
	
  Exhibit 10.2(e)

  	
   

  	
  —

  	
   

  	
  Seller’s Counsel’s
  Opinion

  
	
  Exhibit 11.2(e)

  	
   

  	
  —

  	
   

  	
  Affidavit of
  Non-Foreign Status

  
	
  Exhibit A-1

  	
   

  	
  —

  	
   

  	
  Arbitration Procedures

  
	
  Exhibit B

  	
   

  	
  —

  	
   

  	
  Proprietary Seismic
  Data License Agreement

  
	
  Exhibit C

  	
   

  	
  —

  	
   

  	
  Guaranty Agreement

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule A-1

  	
   

  	
  —

  	
   

  	
  Property Schedule

  
	
  Schedule A-1-A

  	
   

  	
  —

  	
   

  	
  Incidental Rights

  
	
  Schedule A-2

  	
   

  	
  —

  	
   

  	
  Excluded Assets

  
	
  Schedule A-3

  	
   

  	
  —

  	
   

  	
  Certain Permitted
  Encumbrances

  
	
  Schedule A-4

  	
   

  	
   

  	
   

  	
  Royalty Accounts

  
	
  Schedule 4.1(e)

  	
   

  	
  —

  	
   

  	
  Seller’s Consents

  
	
  Schedule 4.1(f)

  	
   

  	
  —

  	
   

  	
  Seller’s Actions

  
	
  Schedule 4.1(g)

  	
   

  	
  —

  	
   

  	
  Compliance with Laws

  
	
  Schedule 4.1(j)

  	
   

  	
  —

  	
   

  	
  Material Contracts

  
	
  Schedule 4.1(k)

  	
   

  	
  —

  	
   

  	
  Compliance with Material
  Contracts

  
	
  Schedule 4.1(l)

  	
   

  	
  —

  	
   

  	
  Tax Matters

  
	
  Schedule 4.1(o)

  	
   

  	
  —

  	
   

  	
  Payout Balance

  
	
  Schedule 4.1(p)

  	
   

  	
  —

  	
   

  	
  Tax Partnerships

  
	
  Schedule 4.1(q)

  	
   

  	
  —

  	
   

  	
  AFEs and Other
  Commitments

  
	
  Schedule 4.1(r)

  	
   

  	
  —

  	
   

  	
  Wells Being Drilled

  
	
  Schedule 4.1(t)

  	
   

  	
  —

  	
   

  	
  Inactive Wells

  
	
  Schedule 4.1(u)

  	
   

  	
  —

  	
   

  	
  Current Bonds

  
	
  Schedule 4.1(v)

  	
   

  	
  —

  	
   

  	
  Governmental
  Authorizations

  
	
  Schedule 4.1(w)

  	
   

  	
  —

  	
   

  	
  Condemnation
  Proceedings

  
	
  Schedule 4.1(y)(i)

  	
   

  	
  —

  	
   

  	
  Seller Benefit Plans

  
	
  Schedule 4.1(y)(ii)

  	
   

  	
  —

  	
   

  	
  Title IV Plans

  
	
  Schedule 4.1(y)(iii)

  	
   

  	
  —

  	
   

  	
  Labor Unions

  
	
  Schedule 4.1(z)

  	
   

  	
  —

  	
   

  	
  Changes Affecting
  Reserve Report

  
	
  Schedule 4.1(bb)

  	
   

  	
  —

  	
   

  	
  Nonconsent Elections

  
	
  Schedule 4.1(cc)

  	
   

  	
  —

  	
   

  	
  Joint Operating
  Agreements

  
	
  Schedule 4.1(ee)

  	
   

  	
  —

  	
   

  	
  Preference Rights and
  Transfer Requirements

  
	
  Schedule 6.1

  	
   

  	
  —

  	
   

  	
  Environmental
  Conditions

  
	
  Schedule 9.1

  	
   

  	
  —

  	
   

  	
  Conduct of Business

  
	
  Schedule 9.11(a)

  	
   

  	
  —

  	
   

  	
  Company Employees

  
	
  Schedule 16.15

  	
   

  	
  —

  	
   

  	
  Purchase Price
  Allocations

  

 

-v-

 

ASSET
PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”),
dated as of December 7, 2007, is by and among EOG Resources, Inc., a
Delaware corporation (“EOG”), EOG Resources Appalachian LLC, a Delaware
limited liability company (“EOG Appalachian”), and Energy Search,
Incorporated, a Tennessee corporation (“ESI”) (EOG, EOG Appalachian and
ESI are hereinafter collectively referred to as “Seller”), and EXCO Appalachia, Inc.,
a Delaware corporation (“Buyer”).

 

WHEREAS, Seller owns undivided interests in certain
oil and gas leases and related assets located in various fields situated in the
States of Ohio, Pennsylvania, Virginia and West Virginia; and

 

WHEREAS, Seller desires to sell to Buyer, and Buyer
desires to purchase from Seller, such oil and gas leases and related assets
upon the terms and subject to the conditions set forth in this Agreement; and

 

WHEREAS, Seller owns undivided mineral fee interests
in oil, gas and other hydrocarbons in place in and under certain lands situated
in the State of Pennsylvania; and

 

WHEREAS, Seller desires to lease to Buyer, and Buyer
desires to lease from Seller, such undivided mineral fee interests upon the
terms and subject to the conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth in this Agreement, the parties hereto agree as
follows:

 

ARTICLE I.

DEFINITIONS

 

Section 1.1             Certain Defined Terms.  Unless the
context otherwise requires, the respective terms defined in Appendix A attached hereto and
incorporated herein shall, when used herein, have the respective meanings
therein specified, with each such definition to be equally applicable both to
the singular and the plural forms of the term so defined.

 

Section 1.2             References, Gender, Number.  All
references in this Agreement to an “Article,” “Section,” or “subsection” shall
be to an Article, Section, or subsection of this Agreement, unless the context
requires otherwise.  Unless the context
otherwise requires, the words “this Agreement,” “hereof,” “hereunder,” “herein,”
“hereby,” or words of similar import shall refer to this Agreement as a whole
and not to a particular Article, Section, subsection, clause or other
subdivision hereof.  Whenever the context
requires, the words used herein shall include the masculine, feminine and
neuter gender, and the singular and the plural.

 

 

ARTICLE II.

SALE AND PURCHASE OF
ASSETS

 

Section 2.1             Sale and Purchase.  On and subject to the terms
and conditions of this Agreement, Seller agrees to sell and convey to Buyer,
and Buyer agrees to purchase from Seller, the Assets.

 

ARTICLE III.

PURCHASE PRICE AND
PAYMENT

 

Section 3.1             Purchase Price.  The purchase price for the
sale and conveyance of the Assets to Buyer is Three Hundred Ninety-Five Million
Dollars $395,000,000 (the “Purchase Price”), subject to adjustment in
accordance with the terms of this Agreement. 
The “Adjusted Purchase Price” shall be the Purchase Price (i) as
adjusted by the Initial Adjustment Amount determined pursuant to Section 3.3,
(ii) as adjusted downward for Preference Properties which are excluded
from the Assets in accordance with and as contemplated by Section 8.3, (iii) as
adjusted downward for any Environmental Defect or the exclusion of any
Environmental Defect Property pursuant to Section 6.2, (iv) as
adjusted downward for Title Defects, if any, in accordance with Section 7.2,
(v) as adjusted downward for excluded Title Defect Properties, if any, in
accordance with Section 7.5, (vi) as adjusted for pipeline imbalances
and Royalty Accounts, if any, pursuant to Section 3.5, (vii) as
adjusted downward by the amount of the Deposit delivered pursuant to Section 3.2,
together with interest on the Deposit from the date of execution of this
Agreement until the Closing Date at the Agreed Rate, and (viii) as
adjusted upward by an amount equal to interest on the Adjusted Purchase Price,
as adjusted in the manner provided in items (i) through (vii) above,
from the Effective Time until the Closing Date at the Agreed Rate.

 

Section 3.2             Payment.  On the date of execution of this Agreement,
Buyer shall deposit an amount equal to $39,500,000 with Seller as a deposit
hereunder (the “Deposit”) by wire transfer of such amount in immediately
available funds to Bank of America N.A., in Dallas, Texas, ABA No. 026-009-593
for the account of Seller, Account No. 375-049-4400, named “EOG Resources, Inc.”.  At the Closing, Buyer shall assume the
Assumed Liabilities and wire transfer the Adjusted Purchase Price in
immediately available funds to such account specified above, or such other
account or accounts specified by Seller to Buyer on or prior to the Business
Day immediately preceding the Closing Date.

 

Section 3.3             Adjustment Period Cash Flow.  The Purchase
Price shall be increased or decreased, as the case may be, by an amount equal
to the Net Cash Flow with respect to the Assets for the time period (the “Adjustment
Period”) beginning at the Effective Time and ending at 7:00 a.m.
Eastern Standard time on the Closing Date. 
Seller shall deliver to Buyer on or prior to the fifth Business Day
preceding the Closing Date a statement (the “Adjustment Statement”)
setting forth Seller’s preliminary determination (the “Initial Adjustment
Amount”) of the Net Cash Flow.  If
the Initial Adjustment Amount shown on the Adjustment Statement is a positive
number, then the Purchase Price shall be increased by such amount.  If the Initial Adjustment Amount shown on the
Adjustment Statement is a negative number, then the Purchase Price shall be
decreased by such amount.

 

-2-

 

(a)           The Adjustment Statement shall be based
upon actual information available to Seller at the time of its preparation and
upon Seller’s good faith estimates and assumptions.  There shall be attached to the Adjustment
Statement such supporting documentation and other data as is reasonably
necessary to provide a basis for the Net Cash Flow shown therein.

 

(b)           If Buyer has any questions or
disagreements regarding the Adjustment Statement, then, upon request by Buyer
at least two Business Days prior to the Closing Date, Seller and Buyer shall in
good faith attempt to resolve any disagreements, and Seller shall afford Buyer
the opportunity to examine the Adjustment Statement and such supporting
schedules, analyses, and workpapers on which the Adjustment Statement is based
or from which the Adjustment Statement is derived as are reasonably requested
by Buyer.  If Buyer and Seller agree on
changes to the Initial Adjustment Amount based on such discussions, then the
Adjusted Purchase Price shall be paid at Closing based on such changes.  If Buyer and Seller do not agree on changes
to the Initial Adjustment Amount, then the Adjusted Purchase Price shall be
paid at the Closing based on the amounts set forth in the Adjustment
Statement.  In either such case,
appropriate adjustments to the Purchase Price shall be made after the Closing
pursuant to Section 3.4.

 

(c)           The “Net Cash Flow”, calculated in
accordance with GAAP, shall be the algebraic sum of (i) a positive amount
equal to the aggregate amount paid by Seller as Seller’s share of the costs of
exploration, development, maintenance, operation, abandonment and production of
the Assets during the Adjustment Period, which costs shall include, but shall
not be limited to, royalties, overriding royalties, net profit interests and
other similar burdens on production, general and administrative and operating
costs, Taxes (other than Income Taxes), the cost of maintaining leaseholds or
other interests included in the Assets, the cost of extension or renewal of any
interest included in the Assets, the cost of treating, processing, storing,
compressing, transporting, selling, marketing and otherwise handling and
dealing with hydrocarbon production with respect to the Assets, the cost of any
exploration or development activities on the Assets performed in accordance with
Article IX, and costs of insurance coverage (including prepayments of any
costs in accordance with Article IX), (ii) a negative amount equal to
the aggregate gross proceeds received by Seller from the sale of hydrocarbons
produced from or attributable to the Assets during the Adjustment Period or
from the sale, salvage or other disposition of any Assets during the Adjustment
Period (excluding any payments accounted for under clause (ii) of Section 3.1),
and (iii) a negative amount equal to the aggregate amount of any costs
paid under clause (i) above and reimbursed to Seller by any third party
(unless such reimbursement is accounted for under clause (ii) above); provided, however, the amounts held by Seller for the
account or benefit of any third party joint interest owners shall not be
included in the calculation of Net Cash Flow, and therefore, shall not have an
effect on the Purchase Price.  If an
operating agreement is not in place during any part of the Adjustment Period
with respect to any Asset for which Seller or an Affiliate of Seller is acting
as operator, then to compensate Seller for administrative overhead expenses
associated with conducting operations of any such Asset with respect to such
part of the Adjustment Period, an administrative overhead fee of $250.00 per
month  per operated well that is flowing and
$300.00 per month per operated well that is pumping, shall be deemed paid by
Seller and shall be charged and allocated to such Asset for purposes of
determining Net Cash Flow.

 

-3-

 

(d)           The Adjustment Statement shall include
Seller’s good faith estimate of any sales Taxes owed by Buyer.

 

Section 3.4            Post Closing Review. 
After the Closing, Seller shall review the Adjustment Statement and
determine the actual Net Cash Flow.  On
or prior to the 120th day after the Closing Date, Seller shall present Buyer
with a statement of the actual Net Cash Flow and such supporting documentation
as is reasonably necessary to support the Net Cash Flow shown therein (the “Final
Adjustment Statement”).  To the
extent reasonably necessary to Seller, Buyer will give personnel, accountants
and representatives of Seller reasonable access to the Assets and Buyer’s
premises and to its books and records for purposes of preparing the Final
Adjustment Statement and will cause appropriate personnel of Buyer to assist
Seller and Seller’s personnel, accountants and representatives, with no charge
to Seller for such assistance, in the preparation of the Final Adjustment
Statement.  Seller will give personnel,
accountants and representatives of Buyer reasonable access to Seller’s premises
and to its books and records for purposes of reviewing the calculation of Net
Cash Flow and will cause appropriate personnel of Seller to assist Buyer and
Buyer’s personnel, accountants and representatives, with no charge to Buyer for
such assistance, in verification of such calculation.  The Final Adjustment Statement shall become
final and binding on Seller and Buyer as to the Net Cash Flow 30 days following
the date the Final Adjustment Statement is received by Buyer, except to the
extent that prior to the expiration of such 30-day period Buyer shall deliver
to Seller one or more notices, as hereinafter required, of its disagreement
with the contents of the Final Adjustment Statement. Such notices shall be in
writing and set forth all of Buyer’s disagreements with respect to any portion
of the Final Adjustment Statement, together with Buyer’s proposed changes
thereto, and shall include an explanation in reasonable detail of, and such
supporting documentation as is reasonably necessary to support, such
changes.  Any disagreements with or
changes to the Final Adjustment Statement not included in such notices shall be
waived by Buyer.  If Buyer has timely
delivered one or more notices of disagreement to Seller in the manner required
above, then, upon written agreement between Buyer and Seller resolving all
disagreements of Buyer set forth in such notices, the Final Adjustment
Statement (including any revisions thereto as are so agreed) will become final
and binding on Buyer and Seller as to the Net Cash Flow.  If the Final Adjustment Statement has not
become final and binding by the 180th day following the Closing Date, then
Buyer or Seller may submit any unresolved disagreements of Buyer set forth in
the aforesaid notices to Ernst & Young, Houston, Texas for final and
binding determination and Buyer and Seller shall execute such engagement,
indemnity and other agreements as such accounting firm may reasonably require
in connection with or as a condition to such engagement.  Buyer and Seller shall cooperate diligently
with any reasonable request of the accounting firm and furnish to the
accounting firm such workpapers and other documents and information relating to
such objections as the accounting firm may reasonably request and are available
to such party or its subsidiaries (or its independent public accountants) and
will be afforded the opportunity to present to the accounting firm any material
relating to the determination of the matters in dispute and to discuss such
determination with the accounting firm prior to any written notice of
determination hereunder being delivered by the accounting firm and to the
extent that a value has been assigned to any objection that remains in dispute,
the accounting firm shall not assign a value to such objection that is greater
than the greatest value for such objection claimed by either party or less than
the smallest value for such objection claimed by either party.  The fees and expenses of said accounting firm
in making such 

 

-4-

 

determination shall be shared equally by Buyer and
Seller.  Upon resolution of such
unresolved disagreements of Buyer, the Final Adjustment Statement (including
any revisions thereto as are so resolved or agreed), shall be conclusive, final
and binding on Buyer and Seller as to the Net Cash Flow.  If the final amount of Net Cash Flow is more
or less than the Initial Adjustment Amount, the Adjusted Purchase Price shall
be redetermined under Section 3.1 using such final amount of Net Cash
Flow.  If such redetermination under Section 3.1
results in a reduction in the Adjusted Purchase Price, Seller shall pay Buyer
the amount of such reduction.  If such
redetermination results in an increase in the Adjusted Purchase Price, Buyer
shall pay Seller the amount of such increase. 
Within three (3) Business Days after the Final Adjustment Statement
(as so resolved or agreed) becomes final and binding, Seller or Buyer, as
appropriate, shall pay to the other party the amount of such increase or
reduction, if any, in the Adjusted Purchase Price, together with interest on
the amount of such increase or reduction from the Closing Date until paid at
the Agreed Rate.  Except for specific
costs which are expressly set forth and accounted for in the final and binding
Final Adjustment Statement, neither the Final Adjustment Statement nor this Section 3.4
shall operate to waive, release or impair the indemnity and hold harmless
obligations of Buyer under Sections 5.1, 6.1 and 14.1.

 

Section 3.5            Pipeline Imbalance Adjustments; Royalty
Accounts.  The Purchase Price shall be:

 

(a)           reduced by the product obtained by
multiplying the aggregate amount of Negative Imbalances by $3.50 per MMBtu;

 

(b)           increased by the product obtained by
multiplying the aggregate amount of Positive Imbalances by $3.50 per MMBtu; and

 

(c)           reduced by the amount of the Royalty
Accounts.

 

Section 3.6            No Duplicative Effect. 
The provisions of Sections 3.1, 3.3, 3.4, and 3.5 and as set forth in
any of the other Transaction Documents shall apply in such a manner so as not
to give the components and calculations duplicative effect to any item of
adjustment and, except as otherwise expressly provided in this Agreement, the
parties hereto covenant and agree that no amount shall be (or is intended to
be) included, in whole or in part (either as an increase or a reduction), more
than once in the calculation or preparation of (including any component of) the
Adjusted Purchase Price, the Initial Adjustment Amount, the Adjustment
Statement or the Final Adjustment Statement, or any other calculated amount
pursuant to this Agreement if the effect of such additional inclusion (either
as an increase or a reduction) would be to cause such amount to be over- or
under-counted for purposes of such calculation. The parties acknowledge and
agree that in the event that there is a conflict between a determination,
calculation or methodology set forth in this Agreement on the one hand, and
those provided by GAAP, on the other hand, (a) the determination,
calculation or methodology set forth in this Agreement shall control to the
extent that the matter is included in this Agreement as a line item or specific
adjustment and (b) the determination, calculation or methodology
prescribed by GAAP shall control to the extent the matter is not so addressed
in this Agreement or requires reclassification as an asset or liability to be
included in a line item or specific adjustment.

 

-5-

 

ARTICLE IV.

REPRESENTATIONS AND
WARRANTIES

 

Section 4.1             Representations and Warranties of Seller.  As of the
date of this Agreement, Seller represents and warrants to Buyer as follows:

 

(a)           Organization and Qualification. 
Each of EOG and ESI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and Tennessee,
respectively, and has the requisite corporate power to carry on its business as
it is now being conducted.  EOG
Appalachian is a limited liability company duly formed, validly existing and in
good standing under the laws of the State of Delaware.  Seller is duly qualified to do business, and
is in good standing, in each jurisdiction in which the Assets owned or leased
by it makes such qualification necessary, except where the failure to so
qualify and be in good standing will not have a Material Adverse Effect.

 

(b)           Authority.  Seller has
all requisite corporate or limited liability power and authority to execute and
deliver this Agreement and the Transaction Documents required to be executed
and delivered by Seller hereunder and to perform its obligations hereunder and
thereunder.  The execution, delivery and
performance of this Agreement and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate and
limited liability company action on the part of Seller.

 

(c)           Enforceability. 
This Agreement constitutes, and upon the Closing each of the Transaction
Documents required to be executed and delivered by Seller hereunder will
constitute, a valid and binding agreement of Seller enforceable against Seller
in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application with respect to creditors, (ii) general principles of equity
and (iii) the power of a court to deny enforcement of remedies generally
based upon public policy.

 

(d)           No Conflict or Violation. 
Except for any exceptions set forth in Section 4.1(e) (or
referenced in Schedule 4.1(e)), neither the
execution and delivery of this Agreement or the Transaction Documents nor the
consummation of the transactions and performance of the terms and conditions
contemplated hereby and thereby by Seller will (i) conflict with or result
in a violation or breach of or default under any provision of the certificate
of incorporation, by-laws, operating agreement or other similar governing
documents of Seller, (ii) conflict with or result in a violation or breach
of or default under any agreement, indenture or other instrument under which
Seller is bound and to which any Asset is subject, other than such conflicts,
breaches, violations or defaults as will not have a Material Adverse Effect, or
(iii) violate or conflict with any Law applicable to Seller or the Assets.

 

(e)           Consents.  Except for (i) consents
or approvals of or filings with the United States Department of Interior, or
applicable Governmental Authorities in connection with assignments of the
Subject Interests as contemplated by Section 8.5 that are customarily
obtained post-closing in a purchase and sale transaction of this nature, (ii) Preference
Rights and Transfer Requirements, and  (iii) consents,
approvals, authorizations, permits, filings or notices referenced in Schedule 4.1(e), no consent,
approval, authorization or permit of, or filing with or notification 

 

-6-

 

to, any Person is required for or in connection with
the execution and delivery of this Agreement by Seller or for or in connection
with the consummation of the transactions and performance of the terms and
conditions contemplated hereby by Seller.

 

(f)            Actions.  Except as set
forth in Schedule 4.1(f), there is no
Action pending or, to the knowledge of Seller, threatened to which Seller is
(or is threatened to be made) a party and which relates to the Assets or any
material part thereof.

 

(g)           Compliance With Laws.  Except
as set forth in Schedule 4.1(g),
with respect to those Assets operated by Seller, Seller is not, and with
respect to the Assets operated by third parties, to the knowledge of Seller,
such third party operators are not, in violation of any Law with respect to the
Assets, other than violations of Law which are not reasonably expected by
Seller to have a Material Adverse Effect; provided that, Seller makes no
representation or warranty, express or implied, with respect to (i) any
Environmental Law, (ii) any Tax Law, except as set forth in Section 4.1(l),
or (iii) Seller’s title to the Assets.

 

(h)           Brokerage Fees and Commissions. 
Neither Seller nor any Affiliate of Seller has incurred any obligation
or entered into any agreement for any investment banking, brokerage or finder’s
fee or commission or other similar form of compensation in respect of
the transactions contemplated by this Agreement for which Buyer or any of its
Affiliates shall incur any liability.

 

(i)            Bankruptcy.  There are no
bankruptcy, reorganization or arrangement proceedings pending against, being
contemplated by, or, to the knowledge of Seller, threatened against Seller or
any Affiliate of Seller.

 

(j)            Material Contracts.  Schedule 4.1(j) sets forth a list of the following
contracts, agreements or commitments to which the Assets are subject or by
which Seller is bound with respect to the Assets:

 

(1)           any written contract or agreement between Seller and
any Affiliate of Seller relating to the provision of goods or services in
respect of the Assets which will survive the Closing or which affects the
Assets on or after the Effective Time;

 

(2)           any contract, agreement or commitment that commits
Seller or its assigns to aggregate expenditures with respect to the Subject
Interests or other Assets of more than $100,000 in any calendar year; excluding
(i) the Subject Interests and any contracts or agreements creating
interests or rights in the Subject Interests or in any Hydrocarbon Interests,
wells or units, (ii) joint operating agreements, and (iii) unitization
or pooling agreements;

 

(3)           any contract, agreement or commitment that commits
Seller or its assigns to sell, exchange, gather, process, treat, handle, store
or transport any Hydrocarbon production attributable to the Subject Interests
exceeding 100 Mcfe per day; excluding (i) any such contract, agreement or
commitment which expires within six months or can be terminated by Seller or
its assigns upon not more than six months notice 

 

-7-

 

without penalty, (ii) the
Subject Interests, (iii) joint operating agreements, and (iv) unitization
or pooling agreements; and

 

(4)           any contract, agreement or commitment included in the
Assets and that constitutes (i) an indenture, mortgage, loan, credit or
similar contract for borrowed money or any hedge or derivative contract (in
each case) for which Buyer or any of its Affiliates will be responsible or
which affects any revenues or expenses attributable to the Assets on or after
the Effective Time, (ii) any agreement for the use or sharing of drilling
rigs in connection with the Assets, (iii) any farmin or farmout agreement,
exploration agreement, participation agreement, agreement for development or
similar agreement providing for the earning of an ownership interest that has
not been earned as of the date of this Agreement, (iv) any non-competition
agreement or any agreement that would restrict, limit or prohibit the manner in
which, or the localities in which, Buyer or any of its Affiliates conduct their
respective businesses, and of which Seller has knowledge, or (v) any
agreement creating an area of mutual interest of which Seller has knowledge.

 

(k)           Compliance with Contracts. 
Except as set forth in Schedule 4.1(k),
(i) neither  Seller nor, to Seller’s
knowledge, any other party thereto is in material breach of or material default
under any contract, agreement or commitment listed in Schedule
4.1(j), and (ii) there does not exist under any provision
thereof, to Seller’s knowledge, any event that, with the giving of notice or
the lapse of time or both, would constitute such a breach or default, except
for such breaches, defaults or events which would not have a Material Adverse
Effect.

 

(l)            Tax Matters. 
Except as set forth in Schedule 4.1(l),
(i) All Tax Returns relating to or in connection with the Assets required
to be filed have been timely filed and all such Tax Returns are correct and
complete in all material respects, (ii) all Taxes relating to or in
connection with the Assets that are or have become due have been timely paid in
full, and Seller is not delinquent in the payment of any Taxes (including all
Property Taxes and Hydrocarbon Taxes) attributable to any periods through the
Effective Time relating to or in connection with the Assets, (iii) there
is not currently in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Tax (other than Income Taxes) of Seller relating to or in connection with the
Assets, (iv) there are no administrative or judicial proceedings pending
against the Assets or against Seller relating to or in connection with the
Assets by any Taxing Authority with respect to Taxes (other than Income Taxes),
(v) there are no liens on any of the Assets that arose in connection with
the failure (or alleged failure) to pay any Tax, other than current period
Property Taxes not yet delinquent, and (vi) Seller is not a foreign person
within the meaning of Section 1445(f) of the Code.

 

(m)          Status of Seller. 
Seller is not an “investment company” or a company “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

 

(n)           Payments for Production. 
To Seller’s knowledge, all shut-ins, rentals, royalties, excess royalty,
overriding royalty interests and other payments due and payable by Seller to
overriding royalty holders and other interest owners (including working
interest owners) 

 

-8-

 

under
or with respect to the Assets and the Hydrocarbons produced therefrom or
attributable thereto have been paid except for the amounts held in suspense in
the Royalty Accounts, and Seller is not obligated under any contract or
agreement for the sale of gas from the Assets containing a take-or-pay, advance
payment, prepayment, or similar provision, or under any gathering,
transmission, or any other contract or agreement with respect to any of the
Assets to gather, deliver, process, or transport any gas without then or
thereafter receiving full payment therefor.

 

(o)           Payout Balance. 
To Seller’s knowledge, Schedule 4.1(o) sets
forth the status of any “payout” balance as of the Effective Time, for the
wells and units comprising the Assets, subject to reversion or other adjustment
at some level of cost recovery or payout.

 

(p)           Tax Partnership. 
To Seller’s knowledge, except as set forth in Schedule
4.1(p), none of the Assets is held by or is subject to any
contractual arrangement between Seller and any other Persons, whether owning
undivided interests therein or otherwise, that is treated as or constitutes a
partnership for United States federal Tax purposes (a “Tax Partnership”).

 

(q)           AFEs and Other Commitments. 
Except as set forth in Schedule 4.1(q),
as of the Effective Time and as of the date of this Agreement, there were and
are no AFEs, capital expenditures related to the drilling or reworking of
wells, or other commitments for capital expenditures outstanding with respect
to the Assets in excess of $50,000 individually (net to Seller’s interest).

 

(r)            Wells.  The only
wells being drilled on the Subject Interests as of the date of this Agreement
are those set forth in Schedule 4.1(r).

 

(s)           Production Allowables. 
To Seller’s knowledge, since the Effective Time through the date of this
Agreement, Seller has not received written notice that there has been any
change proposed in the production allowables for any wells located on the
Subject Interests.

 

(t)            Plugging and Abandonment. 
To Seller’s knowledge, since the Effective Time, Seller has not
abandoned, and is not in the process of abandoning, any wells (nor has it
removed, nor is it in the process of removing, any material items of personal
property, except those replaced by items of substantially equivalent
suitability and value).  Except as set
forth in Schedule 4.1(t), there are no
wells located on the Subject Interests:

 

(1)           with respect to which Seller has received an order
from any Governmental Authority requiring that such well be plugged and
abandoned that has not been plugged and abandoned;

 

(2)           that formerly produced but that are currently shut in
or temporarily abandoned; or

 

(3)           that, to Seller’s knowledge, have been plugged and
abandoned but have not been plugged in accordance with all applicable
requirements of each Governmental Authority having jurisdiction over the Subject
Interests.

 

-9-

 

(u)           Current Bonds.  Schedule 4.1(u) sets forth a list
of all surety bonds, letters of credit and other similar instruments maintained
by Seller or any of its Affiliates with respect to the Assets.

 

(v)           Governmental Authorizations. 
Except as set forth in Schedule 4.1(v),
Seller has obtained and is maintaining all material federal, state and local
governmental licenses, permits, franchises, orders, exemptions, variances,
waivers, authorizations, certificates and consents (the “Governmental
Authorizations”) that are presently necessary or required for the ownership
and operation of the Assets operated by Seller as currently owned and operated
(excluding Governmental Authorizations required by Environmental Laws), except
for any Governmental Authorizations the failure of which to obtain and maintain
will not have a Material Adverse Effect. 
Except as set forth in Schedule 4.1(v),
since the Effective Time no written notices of material violation have been
received by Seller.

 

(w)          Condemnation. 
Except as set forth in Schedule 4.1(w),
there is no actual or, to Seller’s knowledge, threatened taking (whether
permanent, temporary, whole or partial) of any part of the Subject Interests by
reason of condemnation or the threat of condemnation.

 

(x)            FERC.  Neither
Seller nor any of its Affiliates has filed any tariffs with the Federal Energy
Regulatory Commission with respect to the operation of any of the Assets.

 

(y)           Employee Related Matters.

 

(i)            Schedule 4.1(y)(i) sets forth a true and complete list
of each of the following that is sponsored, maintained or contributed to by
Seller in which any Company Employee (as defined in Section 9.11(a))
currently participates or may be eligible for a benefit (the “Seller Benefit
Plans”):

 

(1)           each “employee benefit plan,” as such term is defined
in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), including but not limited to employee
benefit plans, such as foreign plans, that are not subject to the provisions of
ERISA; and

 

(2)           each material personnel policy, stock option plan,
stock purchase plan, stock appreciation rights plan, phantom stock plan,
collective bargaining agreement, bonus plan or arrangement, incentive award
plan or arrangement, vacation policy, education, adoption or dependent care
assistance program, severance pay plan, policy or agreement, deferred
compensation agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement, and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding.

 

(ii)           Except as set forth on Schedule
4.1(y)(ii), neither Seller, nor any corporation, trade, business
or entity under common control with Seller, within the meaning of Section 414(b),
(c), or (m) of the Code, or Section 4001 of ERISA (a “Seller
Controlled Entity”), sponsors, maintains or has any obligation to
contribute to (nor has sponsored, maintained or contributed to within the last
six years prior to the Closing 

 

-10-

 

Date) any employee
benefit plan (within the meaning of Section 3(3) of ERISA) that is
subject to Title IV of ERISA or Section 412 of the Code (a “Title IV Plan”)
with respect to which Seller or a Seller Controlled Entity has or may have any
liability.  Except as set forth on Schedule 4.1(y)(ii), with respect
to any such Title IV Plan, (1) no withdrawal liability (within the meaning
of Section 4201 of ERISA) has been incurred, which withdrawal liability
has not been satisfied, (2) no liability to the Pension Benefit Guaranty
Corporation (“PBGC”) (other than liability for premiums, which premiums
have been paid when due) has been incurred which has not been satisfied, (3) no
accumulated funding deficiency (within the meaning of Section 302 of ERISA
or Section 412 of the Code), whether or not waived, has been incurred, (4) all
contributions (including installments) to such plan required by Section 302
of ERISA and Section 412 of the Code have been timely made, (5) no
reportable event (within the meaning of Section 4043 of ERISA or the
regulations issued thereunder) has occurred, other than an event for which the
thirty (30) day notice period is waived, (6) no event or condition  has occurred or exists that would reasonably
be expected to present the risk of termination, (7) no notice of intent to
terminate any such Title IV Plan has been given under Section 4041 of
ERISA, and (8) no proceeding has been instituted under Section 4042
of ERISA to terminate any such Title IV Plan.

 

(iii)          Except as set forth on Schedule
4.1(y)(iii), neither Seller nor any of its Affiliates has agreed
to recognize any labor union or other collective bargaining representative nor
has any labor union or other collective bargaining representative been
certified as the exclusive bargaining representative of any employees of Seller
or any of its Affiliates.

 

(z)            Reserve Report. 
Seller makes no warranty or representation as to quantity, quality or
recoverability of the oil, gas and other hydrocarbon reserves attributable to
the Subject Interests, except that Seller warrants and represents that (i) to
Seller’s knowledge, the production history data, data on operating history,
seismic data and well logs (excluding any opinion, interpretation, analysis,
evaluation or other similar work product) that Seller provided to Degolyer and
Macnaughton to prepare the Reserve Report are true and correct in all material
respects, and (ii) except for production in the ordinary course of
business, changes set forth in Schedule 4.1(z) and
changes (including changes in commodity prices) generally affecting the oil and
gas industry, to the knowledge of Seller, since the date of the Reserve Report,
(A) there has been no material adverse change with respect to the matters
addressed in the Reserve Report and (B) neither Seller nor any of its
Affiliates has disposed of any material oil and gas property that was included
in the Reserve Report.

 

(aa)         FCC Matters. 
To the knowledge of Seller, Seller does not hold any licenses, permits,
certificates, approvals, franchises, consents, waivers, registrations or other
authorizations issued by the Federal Communications Commission with respect to
the ownership or operation of the Assets.

 

(bb)         Nonconsent Elections. 
To the knowledge of Seller, Schedule 4.1(bb)
sets forth each situation in which Seller elected not to participate in an
operation on the Subject Interests since the date of the Reserve Report that
remains subject to a loss of interest or penalty.

 

-11-

 

(cc)         Joint Operating Agreements. 
To the knowledge of Seller, Schedule 4.1(cc)
sets forth each joint operating agreement to which the Assets are subject.

 

(dd)         No Liens Securing Financings. 
The Assets are not encumbered by any mortgages or security interests
granted or created by Seller to secure obligations of Seller or any of its
Affiliates under any credit agreement, loan agreement or similar financing
arrangements with any banks or other financial institutions.

 

(ee)         Preference Rights and Transfer
Requirements.  To Seller’s knowledge, all agreements
containing (i) a Preference Right are set forth in Part I of Schedule 4.1(ee) and (ii) a
Transfer Requirement are set forth in Part II of Schedule
4.1(ee), except for any agreements that do not affect any
material property included in the Assets.

 

Section 4.2             Representations and Warranties of Buyer.  Buyer
represents and warrants to Seller as follows:

 

(a)           Organization and Qualification. 
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power to carry on its business as it is now being conducted.  Buyer is duly qualified to do business, and
is in good standing, in each jurisdiction in which the Assets to be acquired by
it makes such qualification necessary, except where the failure to so qualify
and be in good standing would not impact Buyer’s ability to consummate the
transactions contemplated under this Agreement.

 

(b)           Authority.  Buyer has all
requisite corporate power and authority to execute and deliver this Agreement
and the Transaction Documents required to be executed and delivered by Buyer
hereunder and to perform its obligations hereunder and thereunder.  The execution, delivery and performance of
this Agreement and the Transaction Documents required to be executed and
delivered by Buyer hereunder and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action
on the part of Buyer.

 

(c)           Enforceability. 
This Agreement constitutes, and upon the Closing each of the Transaction
Documents required to be executed and delivered by Buyer hereunder will
constitute, a valid and binding agreement of Buyer enforceable against Buyer in
accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application with respect to creditors, (ii) general principles of equity
and (iii) the power of a court to deny enforcement of remedies generally
based upon public policy.

 

(d)           No Conflict or Violation. 
Except for any exceptions set forth in Section 4.2(e), neither the
execution and delivery of this Agreement or the Transaction Documents nor the
consummation of the transactions and performance of the terms and conditions
contemplated hereby or thereby by Buyer will (i) conflict with or result
in a violation or breach of or default under any provision of the certificate
of incorporation, by-laws or other similar governing documents of Buyer or any
material agreement, indenture or other instrument under which Buyer is bound or
(ii) violate or conflict with any Law applicable to Buyer or the Assets.

 

-12-

 

(e)           Consents.  Except for (i) consents
or approvals of or filings with the United States Department of Interior or
other the applicable Governmental Authorities in connection with assignments of
the Subject Interests as contemplated by Section 8.5 that are customarily
obtained post-closing in a purchase and sale transaction of this nature, and (ii) Preference
Rights and Transfer Requirements, no consent, approval, authorization or permit
of, or filing with or notification to, any Person is required for or in
connection with the execution and delivery of this Agreement by Buyer or for or
in connection with the consummation of the transactions and performance of the
terms and conditions contemplated hereby by Buyer.

 

(f)            Actions.  There is no
Action pending or, to the knowledge of Buyer, threatened to which Buyer is (or
is threatened to be made) a party, other than Actions which are not reasonably
expected by Buyer to have a material adverse effect on Buyer.

 

(g)           Brokerage Fees and Commissions. 
Neither Buyer nor any Affiliate of Buyer has incurred any obligation or
entered into any agreement for any investment banking, brokerage or finder’s
fee or commission or similar form of compensation in respect of the
transactions contemplated by this Agreement for which Seller or any of its
Affiliates shall incur any liability.

 

(h)           Qualified Owner. 
At or prior to Closing, Buyer (i) shall be qualified in all
material respects under Law to own the Assets and (ii) will have complied
with all necessary governmental bonding requirements required for its ownership
of the Assets.

 

(i)            Funds.  Buyer will
have sufficient funds available to enable Buyer to consummate the transactions
contemplated hereby and to pay the Adjusted Purchase Price and all related fees
and expenses of Buyer.

 

(j)            No Distribution. 
Buyer is an experienced and knowledgeable investor in the oil and gas
business, Buyer is able to bear the economic risks of its acquisition and
ownership of the Assets, and Buyer is capable of evaluating (and has evaluated)
the merits and risks of the Assets and Buyer’s acquisition and ownership
thereof.  Prior to entering into this
Agreement, Buyer was advised by its counsel and such other persons it has
deemed appropriate concerning this Agreement and has relied solely on an
independent investigation and evaluation of, and appraisal and judgment with
respect to, the geologic and geophysical characteristics of the Subject
Interests, the estimated reserves recoverable therefrom, and the price and
expense assumptions applicable thereto. Buyer is an “accredited investor,” as
such term is defined in Regulation D of the Securities Act of 1933, as amended
(the “Securities Act”), and will acquire the Assets for its own account
and not with a view to a sale or distribution thereof in violation of the
Securities Act of 1933, as amended, and the rules and regulations
thereunder, any applicable state blue sky laws or any other applicable
securities laws.

 

(k)           Bankruptcy.  There are no
bankruptcy, reorganization or arrangement proceedings pending against, being
contemplated by, or to the knowledge of Buyer, threatened against Buyer or any
Affiliate of Buyer.

 

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ARTICLE V.

ACCESS TO INFORMATION;
NO WARRANTY; ETC.

 

Section 5.1            General Access.  Subject to Section 6.1
(which shall govern all environmental reviews, inspections and audits),
promptly following the execution of this Agreement and until the Closing Date
(or earlier termination of this Agreement), Seller shall:

 

(a)           permit Buyer and its representatives to
have reasonable access at reasonable times in the Seller’s offices, and in a
manner so as not to interfere unduly with the business operations of Seller, to
Seller’s books, records, Tax Returns (other than with respect to corporate
Income Taxes), contracts, abstracts of title, title opinions, title files,
ownership maps, lease files, assignments, division orders, and documents
relating to the Assets (including the Asset Records) insofar as the same are in
Seller’s possession and insofar as Seller may do so without (i) violating
legal constraints or any legal obligation or (ii) waiving any
attorney/client, work product or like privilege (provided, clauses (i) and
(ii) of this subsection (a) shall not apply to title opinions
relating to the Subject Interests), together with the opportunity to make
copies of such books, records, or other documents, at Buyer’s sole cost and
expense, and to discuss the business operations of Seller with respect to the
Assets with such officers, directors, accountants, consultants and counsel of
Seller as Buyer and/or its lenders deem reasonably necessary or appropriate to
familiarize itself or themselves with the Assets; and

 

(b)           subject to any required consent of any
third Person, permit Buyer and its representatives at reasonable times and at
Buyer’s sole risk, cost and expense, to conduct, in the presence of Seller’s
representatives, reasonable inspections of the Assets;

 

provided,
however, Buyer shall repair any damage to the Assets resulting from such
inspections and Buyer does hereby indemnify and hold harmless, release and
agree to defend the Seller Indemnified Persons from and against any and all
Covered Liabilities arising, in whole or in part, from Buyer’s inspection of
the Assets, regardless of any concurrent negligence or
strict liability on the part of the Seller Indemnified Persons and regardless
of the form of claim whether at common law, strict liability, negligence or
under any statute or regulation. 
Nothing in this Agreement shall be construed to permit Buyer or its
representatives to have access to any files, records, contracts or documents of
Seller relating to this transaction, including, without limitation, any bids or
offers received by Seller for the sale of the Assets in competition with the
Buyer’s bid or offer, it being agreed that all such competing bids or offers
shall be the sole property of Seller. 
Seller shall use commercially reasonable efforts to assure that all
copies (including electronic copies) of any files, records, contracts or
documents of a material nature that are provided to Buyer pursuant to this Section 5.1
shall be accurate and complete recitations of the originals of such files,
records, contracts and documents.

 

(c)           Seller acknowledges that Buyer may be
required at some time following the Closing to file with the U.S. Securities
and Exchange Commission certain statements of revenues and direct expenses and
notes related thereto related to the Assets in such form that such statements
can be audited.  Seller shall use its
commercially reasonable efforts to prepare, at the sole cost and expense of
Buyer, statements of revenues and direct expenses and notes related to the
Assets for the calendar year 2007 (the “2007 Statements of Revenues and
Expenses”).  

 

-14-

 

Seller
(i) shall cooperate with and permit Buyer to reasonably participate in the
preparation of such 2007 Statements of Revenues and Expenses and (ii) shall
provide Buyer and its representatives with reasonable access to the personnel
of Seller who engage in the preparation of such 2007 Statements of Revenues and
Expenses.

 

(d)           Promptly after the date of this
Agreement, Seller shall engage Deloitte & Touche LLP, to perform an
audit of the 2007 Statements of Revenues and Expenses and shall use
commercially reasonable efforts to cause Deloitte & Touche LLP, to
issue unqualified opinions with respect to the 2007 Statements of Revenues and
Expenses (the 2007 Statements of Revenues and Expenses and related audit
opinions being hereinafter referred to as the “2007 Audited Financial
Statements”).  Buyer shall reimburse
Seller for all fees and expenses charged by Deloitte & Touche LLP,
pursuant to such engagement.  Seller
shall use commercially reasonable efforts to facilitate the completion of such
audit and delivery of the 2007 Audited Financial Statements to Buyer or any of
its Affiliates no later than sixty (60) days after Closing.  Seller shall keep Buyer regularly informed
regarding the progress of such audit and also shall periodically provide Buyer
with copies of drafts of the 2007 Audited Financial Statements and related
audit opinions.

 

Section 5.2             Confidential Information.  Buyer agrees
to maintain all information made available to it pursuant to this Agreement
confidential and to cause its partners, directors, officers, employees, agents,
representatives, consultants and advisors to maintain all information made
available to them pursuant to this Agreement confidential, to the extent
provided in that certain confidentiality agreement dated August 9, 2007
(the “Confidentiality Agreement”), by and between Seller and EXCO, the
terms of which are incorporated herein by reference and made a part of this
Agreement.  Notwithstanding anything to
the contrary contained in this Section 5.2 or in Section 9.4, Buyer
may disclose the existence and contents of this Agreement, the transactions
contemplated hereby and information regarding the Assets to the Standard &
Poor’s and Moody’s rating agencies and any actual or potential lenders or other
financing sources of Buyer in connection with the transactions contemplated
hereby; provided that, any such third party to whom Buyer discloses any such
information shall be informed by Buyer of the confidential nature thereof and
of Buyer’s confidentiality obligations under this Agreement and shall have
agreed in writing to be bound by the obligations of confidentiality under this Section 5.2.  Buyer shall be responsible for any use or
disclosure of such confidential information by any of such third parties.

 

Section 5.3             No Warranty or Representation.  Seller makes no warranty or representation,
express, implied, statutory or otherwise, with respect to any Environmental
Matters (including, without limitation, any Environmental Condition) and Buyer
hereby acknowledges and agrees that Buyer’s sole remedy for any Environmental
Matter (including, without limitation, any Environmental Defect or
Environmental Condition) with respect to any of the Assets shall be pursuant to
the procedures set forth in Sections 6.1 and 6.2.  Furthermore, without limiting the provisions
of paragraph 7 of the Confidentiality Agreement (which shall continue in full
force and effect) and except for the representations and warranties made by
Seller in Section 4.1, Seller makes no warranty or representation,
express, implied, statutory or otherwise, with respect to the accuracy or
completeness of the information, records and data now, heretofore or hereafter
made 

 

-15-

 

available to Buyer in connection
with this Agreement; including, without limitation, any description of the
Assets, pricing assumptions, potential for production of oil, gas or other
hydrocarbons from the Subject Interests, projected development costs, projected
plugging and abandonment costs or any other matters contained in or related to
the Reserve Report; any environmental information; or any other material
furnished to Buyer by Seller or any director, officer, shareholder, employee,
counsel, agent or advisor of Seller.

 

ARTICLE VI.

ENVIRONMENTAL MATTERS

 

Section 6.1                                  Environmental
Review and Audit.

 

(a)                            Environmental
Access. Prior to the expiration of sixty (60) days after the date of
execution of this Agreement (the “Environmental Examination Period”),
subject to the restrictions contained in this Agreement and any required
consent or waiver of any third Person, Seller shall (i) permit Buyer and
representatives of Buyer and its lenders to have reasonable access at
reasonable times in the Seller’s offices, and in a manner so as not to
interfere unduly with the business operations of Seller, to Seller’s
environmental files and records in Seller’s possession relating to the Assets
insofar as Seller may do so without waiving any attorney/client, work product
or like privilege (other than any such privilege related to title opinions),
permit Buyer and the Environmental Consultant to have reasonable access to the
Assets for the purpose of allowing Buyer and the Environmental Consultant to
inspect, test and/or audit the Assets for any Environmental Defects
(collectively, “Buyer’s Environmental Review”), all at Buyer’s sole
risk, cost and expense. If requested by Buyer, Seller shall request that the
operators of Assets not operated by Seller afford to Buyer and the
Environmental Consultant, at Buyer’s sole cost, risk and expense, reasonable
access to such Assets for the purpose of allowing Buyer and the Environmental
Consultant to inspect such Assets for any Environmental Defects; provided that,
Seller shall have the right to be present during any such inspection and Buyer’s
inspection shall be subject to such reasonable limitations and restrictions as
may be determined by such operators. In the event that, during such inspection
of any Assets not operated by Seller, Buyer or the Environmental Consultant
discovers an Environmental Condition affecting any such Assets, Seller, if
requested by Buyer, shall request that such operator afford Buyer and the
Environmental Consultant, at Buyer’s sole cost, risk and expense, reasonable
access for the purpose of performing such invasive investigations of such
properties as may be reasonable in light of all relevant facts and
circumstances and consistent with the provisions of Sections 6.1(b) and
(c).

 

(b)                           Conduct
of Review. Prior to conducting Buyer’s Environmental Review, Buyer shall
furnish Seller with a proposed scope of Buyer’s Environmental Review, including
a description of the activities to be conducted and the locations of such
activities. No third Person, other than the Environmental Consultant and Buyer’s
employees, may conduct Buyer’s Environmental Review. Buyer shall not commence
any activity proposed to be included in Buyer’s Environmental Review unless and
until such activity (including the location thereof) has been approved in
writing by Seller which approval shall not be unreasonably withheld or delayed.
Seller shall have the right to be present during any inspection (including
Buyer’s 

 

-16-

 

Environmental Review) of
the Assets and shall have the right, at its option and expense, to split
samples with Buyer.

 

(c)                            Buyer
Responsibility for Review. In connection with Buyer’s Environmental Review,
Buyer agrees that Buyer, the Environmental Consultant and Buyer’s employees,
agents and contractors shall comply with all Laws and shall exercise due care
with respect to the Assets and their condition, taking into consideration the
characteristics of any wastes or substances found thereon, and in light of all
relevant facts and circumstances. Specifically, but without limitation, when
handling solid waste or hazardous substances, if any, discovered during the
inspection of the Assets, Buyer, the Environmental Consultant and Buyer’s
employees, agents and contractors shall handle such waste or substances in
accordance with all Laws. Any soil or water samples taken by Buyer from the
Assets shall become the sole property and possession of Buyer and will be
managed consistent with the applicable rules and regulations of the U.S. Environmental
Protection Agency and other applicable Governmental Authorities with regulatory
authority. Promptly after completing Buyer’s Environmental Review, Buyer shall,
at its sole cost and expense, restore the Assets to their original condition,
in accordance with good engineering practice, if changed due to Buyer’s
Environmental Review. Failure by Buyer to comply with the requirements of this
subsection within a reasonable time period will entitle (but shall not
obligate) Seller to take any action deemed necessary or appropriate by Seller
to correct such failure, all at Buyer’s expense. Prior to Closing, Buyer shall
maintain and shall cause its officers, directors, employees, agents,
representatives, contractors, consultants and advisors to maintain all
information obtained pursuant to Buyer’s Environmental Review strictly
confidential and shall not disclose the same to any third Person without the
prior written consent of Seller, except to the extent required by Law. Buyer
shall provide Seller’s counsel with copies of any reports prepared and
analytical test results received by Buyer or the Environmental Consultant
promptly following Buyer’s or the Environmental Consultant’s preparation or
receipt of the same. Buyer does hereby indemnify and hold harmless, release and
agree to defend the Seller Indemnified Persons from and against any and all
Covered Liabilities, including all Environmental Liabilities, arising out of
any violation by Buyer, the Environmental Consultant, or Buyer’s or the
Environmental Consultant’s officers, directors, employees, agents,
representatives, contractors, consultants and advisors of the provisions of
this Section or, in whole or in part, from Buyer’s or the Environmental
Consultant’s inspection or testing of the Assets or handling any substances or
samples in connection therewith, regardless of any
concurrent negligence or strict liability on the part of any Seller Indemnified
Person and regardless of the form of claim whether at common law, strict
liability, negligence or under any statute or regulation.

 

(d)                           Buyer’s
Right to Exclude. If Buyer is not granted access to any Property
Subdivision which is not operated by Seller in accordance with the provisions
of Section 6.1(a) applicable thereto, Buyer may, in addition to any
other remedies hereunder, elect to exclude such Property Subdivision (or
portion thereof) (together with the Incidental Rights and assets attributable
or appurtenant thereto) from the Assets, in the manner provided for in Section 7.5
for excluded Title Defect Properties and reduce the Purchase Price by the
portion of the Purchase Price allocated to such Property Subdivision (or
portion thereof).

 

-17-

 

Section 6.2                                  Environmental
Defects.

 

(a)                            Buyer’s
Assertions of Environmental Defects. Prior to the expiration of the
Environmental Examination Period, Buyer may notify Seller in writing of any
matters which, in Buyer’s reasonable opinion, constitute Environmental Defects.
Buyer’s written notice must include (i) a reasonably specific description
of each Asset (or portion thereof) that is affected by the alleged
Environmental Defect, (ii) a description of the alleged Environmental
Defect and the facts and circumstances giving rise thereto, including all
evidence compiled by Buyer which supports the existence of such alleged
Environmental Defect, and (iii) a calculation of the Remediation Amount
(itemized in reasonable detail) that Buyer asserts is attributable to such
Environmental Defect. Buyer’s calculation of the Remediation Amount must
describe the Remediation proposed for the Environmental Condition that gives
rise to the asserted Environmental Defect, identify all assumptions used by the
Buyer in calculating the Remediation Amount, including the standards the Buyer
asserts must be met to comply with Environmental Laws.

 

(b)                           Seller’s
Election. Without limiting or waiving Seller’s right to then or thereafter
dispute Buyer’s compliance with Section 6.2(a), the existence of an
Environmental Defect or the alleged Environmental Defect Amount, if Buyer
timely notifies Seller in writing of an Environmental Defect as required by Section 6.2(a),
Seller, at its option, shall elect, at or prior to the Closing, one of the
following options with respect to the Assets affected by the alleged
Environmental Defect and, at Seller’s option, any other Assets which form part
of any field or other economic operating unit which includes such affected
Assets (collectively, the “Environmental Defect Property”):

 

(i)                             exclude
such Environmental Defect Property (together with the Incidental Rights and
assets attributable or appurtenant thereto) from the Assets, in the manner
provided in Section 7.5 for excluded Title Defect Properties, and reduce
the Purchase Price by the portion of the Purchase Price allocated to such
Environmental Defect Property in the Property Schedule;

 

(ii)                          leave
such Environmental Defect Property in the Assets and assume responsibility for
the Remediation of such Environmental Defect; provided that, all costs for
Remediation shall first be borne by Buyer to the extent Seller elects to apply
any of the Defect Deductible to such costs; or

 

(iii)                       leave such
Environmental Defect Property in the Assets and reduce the Purchase Price by
the Environmental Defect Amount with respect to such Environmental Defect
(taking into account any application of the Defect Deductible which Seller
elects to make with respect thereto).

 

Seller’s foregoing elections shall be subject to
Seller’s right to then or thereafter dispute Buyer’s compliance with Section 6.2(a),
the existence of an Environmental Defect or the alleged Environmental Defect
Amount. If Seller elects the option set forth in clause (iii) above, Buyer
shall be deemed to have assumed responsibility for Remediation of such
Environmental Defect and such Environmental Defect shall be deemed to
constitute an Assumed Liability. If Seller 

 

-18-

 

elects the option set forth in clause (ii) above,
Seller shall use commercially reasonable efforts to implement such Remediation
in a manner which is consistent with the requirements of Environmental Laws and
shall have access to the Environmental Defect Property after the Closing Date
to implement and complete such Remediation in accordance with an Access
Agreement in substantially the form attached hereto as Exhibit 6.2(b) (the
“Access Agreement”). Seller will be deemed to have adequately completed the
Remediation required in the immediately preceding sentence (A) upon
receipt of a certificate or approval from the applicable Governmental Authority
that the Remediation has been implemented to the extent necessary to comply
with existing regulatory requirements or (B) upon receipt of a
certification from a licensed professional engineer, to the effect that the
Remediation has been implemented to the extent necessary to comply with
existing regulatory requirements, if the approval or certification specified in
(A) cannot be obtained because provision for such approval or
certification is not provided under applicable Environmental Law.

 

(c)                            Environmental
Defect Amount. If Seller elects the option set forth in Section 6.2(b)(iii) with
respect to one or more Environmental Defects, then as Buyer’s sole and
exclusive remedy with respect to such Environmental Defects, Buyer shall be
entitled to reduce the Purchase Price by the amount (the “Environmental
Defect Amount”), if any, by which (i) the aggregate amount of the sum
of (A) all Remediation Amounts with respect to the Environmental
Conditions giving rise to such Environmental Defects plus (B) all Title
Defect Amounts with respect to all Title Defect Properties exceeds (ii) the
Defect Deductible (the reduction to the Purchase Price in this Section 6.2(c) shall
be in conjunction with the reduction to the Purchase Price in Section  7.2(d) and
Buyer shall not be entitled to duplicative reductions to the Purchase Price
under either section). Seller may also apply any part of the Defect Deductible
to the cost of any Remediation undertaken by Seller pursuant to the option set
forth in Section 6.2(b)(ii). Any Remediation costs to which Seller elects
to apply the Defect Deductible shall be borne under Section 6.2(b)(ii) by
the Buyer. Seller shall have the right from time to time by written notice to
Buyer to reallocate and change its application of the Defect Deductible, except
to the extent of Remediation costs already incurred by Buyer based on Seller’s
previous application thereof. It is expressly understood and agreed that the
Defect Deductible represents an aggregate deductible for Environmental Defects
and Title Defects which may be apportioned as provided in this Section 6.2(c) rather
than as a separate deductible for each individual Environmental Defect.

 

(d)                           Waiver
by Buyer. For all purposes of this Agreement, any Environmental Condition
which Buyer fails to assert as an Environmental Defect by a written notice
given to Seller in accordance with the requirements of Section 6.2(a) on
or before the expiration of the Environmental Examination Period shall be
waived by Buyer and all Environmental Liabilities arising out of or
attributable to such Environmental Condition shall constitute Assumed
Liabilities.

 

(e)                            Right
of Contribution and Reimbursement. With respect to any Environmental Defect
as to which Seller elects to assume responsibility pursuant to Section 6.2(b)(ii),
if any Buyer Indemnified Person has a claim for or right of contribution,
reimbursement, indemnity or other similar actions from or against any third
Person (including any Affiliate of Buyer) with respect thereto, the Buyer
Indemnified Person having such claim or right shall assign to Seller such claim
or right to the extent necessary to provide to Seller the 

 

-19-

 

right to assert such
claim or right up to the amount expended by Seller for the Remediation of such
Environmental Defect and shall assist Seller in pursuing and enforcing same;
provided that, Buyer shall retain all rights to assert such claims or rights in
excess of the amounts expended by Seller for Remediation of such Environmental
Defect. Furthermore, effective upon Closing, Buyer hereby releases, acquits and
forever discharges Seller and the Seller Indemnified Persons from any and all
claims, demands or causes of action (including all Covered Liabilities) which
Buyer may have against Seller or any Seller Indemnified Person with respect to
any and all Environmental Matters relating to the Assets (including, but not
limited to, any right of contribution or reimbursement provided under Environmental
Laws or other Laws) for which Seller has not agreed to assume responsibility
for Remediation pursuant to this Agreement. At Seller’s request, Buyer shall
provide Seller with a written confirmation of the foregoing release at or after
Closing.

 

ARTICLE VII.

TITLE ADJUSTMENTS

 

Section 7.1                                No
Title Warranty or Representation. Without limiting Buyer’s right to adjust
the Purchase Price by operation of Section 7.2, Seller makes no warranty
or representation, express, implied, statutory or otherwise, with respect to
Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees
that Buyer’s sole remedy for any defect of title, including any Title Defect,
with respect to any of the Assets shall be pursuant to the procedures set forth
in this Article VII, which remedies shall cease, and be deemed to be
finally and conclusively satisfied, in all respects, upon the Closing.

 

Section 7.2                                Buyer’s
Title Review.

 

(a)                            Buyer’s
Assertion of Title Defects. Prior to the expiration of sixty (60) days
after the date of execution of this Agreement (the “Title Examination Period”),
Buyer shall furnish Seller written notice meeting the requirements of this Section
7.2(a) (the “Title Defect Notice”) setting forth any matters which,
in Buyer’s reasonable opinion, constitute Title Defects and which Buyer intends
to assert as a Title Defect with respect to any portion of a Property
Subdivision pursuant to this Article VII. For all purposes of this
Agreement, Buyer shall be deemed to have waived any Title Defect which Buyer
fails to assert as a Title Defect by a Title Defect Notice given to Seller on
or before the expiration of the Title Examination Period. To be effective,
Buyer’s Title Defect Notice of a Title Defect must include (i) a brief
description of the matter constituting the asserted Title Defect, (ii) the
claimed Title Defect Amount attributable thereto, and (iii) supporting
documents reasonably necessary for Seller (as well as any title attorney or
examiner hired by Seller) to verify the existence of such asserted Title Defect.
To give Seller an opportunity to commence reviewing and curing Title Defects,
Buyer agrees to give Seller, on or before Friday of each second calendar week
after the date of execution of this Agreement and until the end of  the Title Examination Period, written notice
of all Title Defects discovered by Buyer during such two calendar week period
preceding the two-week period then ending, which may be preliminary in nature
and supplemented prior to the end of the Title Examination Period. Buyer shall
also promptly furnish Seller with written notice of any Seller Title Credit
which is discovered by any of Buyer’s employees or representatives while 

 

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conducting Buyer’s title
review, due diligence or investigation with respect to the Subject Interests
and Property Subdivisions.

 

(b)                           Purchase
Price Allocations. A portion of the Purchase Price has been allocated to
the various Subject Interests in Property Subdivisions in the manner and in accordance
with the respective values set forth in the Property Schedule. If any
adjustment is made to the Purchase Price pursuant to this Section 7.2 or Section 6.2,
a corresponding adjustment shall be made to the portion of the Purchase Price
allocated to the affected Property Subdivision in the Property Schedule.

 

(c)                            Seller’s
Opportunity to Cure.

 

(i)                                   Seller
shall have until two (2) days prior to the Closing Date (the “Title
Curative Period”), at its cost and expense, if it so elects but without
obligation, to cure all or a portion of such asserted Title Defects. Any
asserted Title Defects which are waived by Buyer or cured within such time
shall be deemed “Permitted Encumbrances” hereunder. Subject to Sections 7.2(c)(ii) and
7.2(c)(iii) and Seller’s continuing right to dispute the existence of a
Title Defect and/or the Title Defect Amount asserted with respect thereto, if
Seller within such time fails to cure any Title Defect of which Buyer has given
timely written notice as required above, and Buyer has not and does not waive
same in a written notice from Buyer to Seller, the Property Subdivision
affected by such uncured and unwaived Title Defect shall be a “Title Defect
Property”.

 

(ii)                                If
Buyer furnishes to Seller timely Title Defect Notice(s) of one or more
asserted Title Defects and the same are not waived or cured as provided in Section 7.2(c)(i),
Seller may elect to delay the Closing for a period of up to thirty (30)
calendar days to afford Seller the opportunity, if it so elects, to attempt to
cure any of the asserted Title Defects prior to the Closing. Seller’s election
to delay the Closing pursuant to this Section 7.2(c)(ii) shall not
waive Seller’s right to dispute the existence of a Title Defect and/or the
Title Defect Amount asserted with respect thereto. Subject to Section 7.2(c)(iii) and
Seller’s continuing right to dispute the existence of a Title Defect and/or the
Title Defect Amount asserted with respect thereto, if Seller within such time
period fails or refuses to cure any Title Defect of which Buyer has given a
timely Title Defect Notice and Buyer has not waived and does not waive the same
before the delayed Closing, the Property 
Subdivision affected by such uncured and unwaived Title Defect shall be
a Title Defect Property.

 

(iii)                             If
Buyer furnishes to Seller timely Title Defect Notice(s) of one or more
Title Defects and the same are not waived or cured as provided in Section 7.2(c)(i) or
Section 7.2(c)(ii), as applicable, Seller may elect to close the
transactions contemplated hereby and retain the right to cure any of such Title
Defects after Closing (whether or not Seller elects to delay Closing pursuant
to Section 7.2(c)(ii) above). In such event, but subject to Seller’s
continuing right to dispute the existence of a Title Defect and/or the Title
Defect Amount asserted with respect thereto, the Purchase Price shall be
subject to reduction pursuant to Section 7.2(d) taking into account
all Title Defect Amounts attributable to the Title Defect Properties affected
by the Title Defects 

 

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which Seller may elect to cure after Closing. The
Title Defect Properties affected by the Title Defects which Seller may elect to
cure after Closing shall not be excluded from the Assets pursuant to Section 7.5.
Seller shall have one hundred twenty (120) calendar days after the Closing Date
(as delayed pursuant to Section 7.2(c)(ii) above) in which to attempt
to cure any such Title Defects and to increase or restore any Seller Title
Credits. If Seller cures any such Title Defect, then Buyer shall promptly pay
Seller the Title Defect Amount with respect to the Title Defect that is so
cured, but not exceeding the aggregate amount of the reductions in the Purchase
Price which Buyer received as a result of any Title Defects, together with
interest on the amount due Seller from the Closing Date through and including
the date of payment at the Agreed Rate. Furthermore, the Defect Deductible
shall be restored to the extent any portion of the Defect Deductible was applied
as a credit against the Title Defect Amount attributable to such cured Title
Defect. If a positive balance exists in the Defect Deductible after any
restorations or increases thereof pursuant to the foregoing, and Seller has
suffered a reduction in the Purchase Price as a result of any one or more
uncured Title Defects, Buyer shall pay to Seller an amount (together with
interest thereon from the Closing  Date
through and including the date of payment at the Agreed Rate) equal to the
lesser of (i) the amount by which the Purchase Price was reduced as a
result of such uncured Title Defects and (ii) the then existing balance of
the Defect Deductible.

 

(d)                           Buyer’s
Title Adjustments. Subject to Section 7.5, as Buyer’s sole and
exclusive remedy with respect to Title Defects, Buyer shall be entitled to
reduce the Purchase Price by the amount, if any, by which (i) the
aggregate amount of the sum of (A) all Title Defect Amounts with respect
to all Title Defect Properties in excess of the aggregate amount of Seller
Title Credits (to the extent that Seller Title Credits exceed the Title Defect
Amounts, Seller shall not be entitled to receive an upward adjustment of the
Purchase Price) with respect to all Property Subdivisions, plus (B) all
Remediation Amounts with respect to the Environmental Conditions giving rise to
such Environmental Defects exceeds (ii) the Defect Deductible (the
reduction in Purchase Price in this Section 7.2(d) shall be in
conjunction with the reduction to the Purchase Price in Section 6.2(c) and
Buyer shall not be entitled to duplicative reductions to the Purchase Price
under either section). “Title Defect Amount” shall mean, with respect to
a Title Defect Property, the amount by which the value of such Title Defect
Property (as set forth in the Property Schedule) is impaired or reduced as a
result of the existence of one or more uncured and unwaived Title Defects,
which amount shall be determined as follows and subject to the following
conditions:

 

(1)                        If the
Title Defect results from Seller having a lesser Net Revenue Interest in such
Title Defect Property than the Net Revenue Interest specified therefor in the
Property Schedule, the Title Defect Amount shall be equal to the product
obtained by multiplying the portion of the Purchase Price allocated to such
Title Defect Property in the Property Schedule by a fraction, the numerator of
which is the reduction in the Net Revenue Interest and the denominator of which
is the Net Revenue Interest specified for such Title Defect Property in the Property
Schedule.

 

(2)                        If the
Title Defect results from Seller having a greater Working Interest in a Title
Defect Property than the Working Interest specified therefor 

 

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in the Property Schedule, the Title Defect Amount
shall be equal to the present value (discounted at 10% compounded annually) of
the increase in the costs and expenses forecasted in the Reserve Report with
respect to such Title Defect Property for the period from and after the
Effective Time which is attributable to such increase in Seller’s Working
Interest.

 

(3)                        If the
Title Defect results from the existence of a lien, the Title Defect Amount
shall be an amount sufficient to discharge such lien.

 

(4)                        If the
Title Defect results from any matter not described in paragraphs (1), (2) or
(3) above, the Title Defect Amount shall be an amount equal to the
difference between the value of the Title Defect Property (as set forth in the
Property Schedule) affected by such Title Defect with such Title Defect and the
value of such Title Defect Property without such Title Defect (taking into
account the portion of the Purchase Price allocated in the Property Schedule to
such Title Defect Property, the portion of the Title Defect Property affected
by the Title Defect, the legal effect of the Title Defect, the potential
economic effect of the Title Defect over the life of the Title Defect Property
and such other factors as are necessary to make a proper evaluation); provided,
that if such Title Defect is reasonably susceptible of being cured, the Title
Defect Amount shall not be greater than the lesser of (i) the reasonable
cost and expense of curing such Title Defect or (ii) if applicable, the
share of such curative work cost and expense which is allocated to such Title
Defect Property pursuant to Section 7.2(d)(6).

 

(5)                        If a Title
Defect is not effective or does not affect a Title Defect Property throughout
the entire productive life of such Title Defect Property, such fact shall be
taken into account in determining the Title Defect Amount.

 

(6)                        The Title
Defect Amount with respect to a Title Defect Property shall be determined
without duplication of any costs or losses included in another Title Defect
Amount hereunder. For example, but without limitation, if a lien affects more
than one Title Defect Property or the curative work with respect to one Title
Defect results (or is reasonably expected to result) in the curing of any other
Title Defect affecting the same or another Title Defect Property, the amount
necessary to discharge such lien or the cost and expense of such curative work
shall be allocated among the Title Defect Properties so affected (in the ratios
of the respective portions of the Purchase Price allocated to such Title Defect
Properties) and the amount so allocated to a Title Defect Property shall be
included only once in the Title Defect Amount therefor.

 

(7)                        If a Title
Defect affects only a portion of a Property Subdivision (as contrasted with an
undivided interest in the entirety of such Property Subdivision) and a portion
of the Purchase Price has not been allocated specifically to such portion of a
Property Subdivision in the Property Schedule, then for purposes of computing
the Title Defect Amount, the portion of the Purchase Price allocated to such
Property Subdivision shall be further allocated among the portions of such
Property Subdivision in the proportion that the net acreage (or net acre feet,
as appropriate) of such Property Subdivision affected by such Title Defect
bears to the net acreage (or net acre 

 

-23-

 

feet, as appropriate) in the entire Property
Subdivision. In the event such Property Subdivision is subject to a unitization
agreement, the foregoing allocation shall be made in a manner which is
consistent with the allocation of production or productive acreage in such
unitization agreement.

 

(8)                        The Title
Defect Amount attributable to a Title Defect Property or any portion thereof
shall not exceed the portion of the Purchase Price allocated to such Title
Defect Property in the Property Schedule or such portion in Section 7.2(b) and
paragraph (7) above. For example, but without limitation, if Seller does
not own fifty percent (50%) of the Net Revenue Interest specified in the Property
Schedule for a Title Defect Property and such unowned fifty percent (50%)
interest is also burdened by a lien, the Title Defect Amount for such Title
Defect Property shall not exceed the portion of the Purchase Price allocable to
such fifty percent (50%) interest notwithstanding that it may be affected by
multiple Title Defects.

 

(9)                        No Title
Defect Amount shall be allowed on account of and to the extent that an increase
in Seller’s Working Interest in a Property Subdivision has the effect of proportionately
increasing Seller’s Net Revenue Interest in such Property Subdivision.

 

(10)                  Notwithstanding
the foregoing, if the Title Defect Amount determined pursuant to the foregoing
with respect to a Title Defect Property is $35,000.00 or less, then the Title
Defect Amount with respect to such Title Defect Property shall be deemed zero.

 

Section 7.3                                Determination
of Title Defects. A portion of a Property Subdivision constituting a part
of the Assets shall be deemed to have a “Title Defect” if any one or more
of the following statements is untrue with respect to such portion of a
Property Subdivision as of the Effective Time and as of the Closing Date:

 

(a)                            Seller
has Defensible Title thereto.

 

(b)                           All
royalties, rentals, Pugh clause payments, shut-in gas payments and other
payments due with respect to such portion of a Property Subdivision have been
properly and timely paid, except for payments held in suspense for title or
other reasons which are customary in the industry and which will not result in
grounds for cancellation of Seller’s rights in such portion of a Property
Subdivision; provided that, royalty audits with respect to any lease shall not
be considered a Title Defect.

 

(c)                            Seller
is not in default under the terms of any leases, farmout agreements or other
contracts or agreements respecting such portion of a Property Subdivision which
could (1) prevent Seller from receiving the proceeds of production
attributable to Seller’s interest therein, or (2) result in cancellation
of Seller’s interest therein.

 

Notwithstanding any other provision in this Agreement
to the contrary, the following matters shall not be asserted as, and shall not
constitute, Title Defects:  (i) defects
arising out of lack of survey, (ii) defects arising out of lack of
corporate authorization, unless Buyer provides 

 

-24-

 

affirmative evidence that such corporate action was
not authorized and gives rise to another Person having a right to a superior
claim of title to the relevant Subject Interest or portion thereof, and (iii) defects
in the early chain of title consisting of the failure to recite marital status
in documents or omissions of heirship proceedings.

 

Section 7.4                                Seller
Title Credit. A “Seller Title Credit” shall mean, with respect to a
Property Subdivision, the amount by which the value of such Property
Subdivision is enhanced by virtue of (a) Seller having a greater Net
Revenue Interest in such Property Subdivision than the Net Revenue specified
therefor in the Property Schedule, (b) Seller having a lesser Working
Interest in such Property Subdivision than the Working Interest specified
therefor in the Property Schedule without a corresponding reduction in Net
Revenue Interest with respect to such Property Subdivision specified therefor
in the Property Schedule, or (c) such Property Subdivision being subject
to lesser lien indebtedness than expressly disclosed in any Schedule hereto. Notwithstanding
the foregoing, if a Seller Title Credit with respect to a Property Subdivision
is $35,000 or less, then the Seller Title Credit with respect to such Property
Subdivision shall be deemed zero. The amount of Seller Title Credits shall be
determined as follows:

 

(1)                        If the
Seller Title Credit results from Seller having a greater Net Revenue Interest
in such Property Subdivision than the Net Revenue Interest specified therefor
in the Property Schedule, the Seller Title Credit shall be equal to the product
obtained by multiplying the portion of the Purchase Price allocated to such
Property Subdivision in the Property Schedule by a fraction, the numerator of
which is the increase in the Net Revenue Interest and the denominator of which
is the Net Revenue Interest specified for such Property Subdivision in the
Property Schedule.

 

(2)                        If the
Seller Title Credit results from Seller having a lesser Working Interest in a
Property Subdivision than the Working Interest specified therefor in the
Property Schedule without a corresponding reduction in Net Revenue Interest
with respect to such Property Subdivision specified therefor in the Property
Schedule, the Seller Title Credit shall be equal to the present value
(discounted at 10% compounded annually) of the decrease in the costs and
expenses forecasted in the Reserve Report with respect to such Property
Subdivision for the period from and after the Effective Time which is
attributable to such decrease in Seller’s Working Interest.

 

(3)                        If the
Seller Title Credit results from a Property Subdivision being subject to lesser
lien indebtedness, the Seller Title Credit shall be equal to the amount of
Seller’s proportionate share of the reduction in such lien indebtedness;
provided that, if lien indebtedness affects more than one Property Subdivision,
the Seller Title Credits with respect to such Property Subdivisions shall be
determined in the manner provided in Section 7.2(d)(6).

 

(4)                        In
determining the amount of Seller Title Credits, the principles and methodology
set forth in paragraphs (5), (6) and (7) of Section 7.2(d) shall
be applied, mutatis mutandis.

 

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(5)                        No Seller
Title Credit shall be allowed on account of and to the extent that a decrease
in Seller’s Working Interest in a Property Subdivision has the effect of
proportionately decreasing Seller’s Net Revenue Interest in such Property
Subdivision.

 

The Defect Deductible shall be restored to the extent
that any portion thereof is applied as a credit against a Title Defect Amount
attributable to a Title Defect which is subsequently cured by Seller or
determined not to constitute a Title Defect.

 

Section 7.5                                Exclusion
of Defect Properties. Prior to the expiration of the Title Curative Period,
Seller may elect to exclude any Title Defect Property, together with a pro rata
share of all Incidental Rights, oil, gas and other hydrocarbons and other
assets attributable or appurtenant thereto, from the Assets so long as the
Purchase Price is reduced by the portion of the Purchase Price allocated to
such Title Defect Property in the Property Schedule.

 

Section 7.6                                Deferred
Claims and Disputes. In the event that Buyer and Seller have not agreed by
Closing upon (i) the existence of one or more Title Defects or one or more
adjustments, credits or offsets claimed by Buyer or Seller pursuant to and in
accordance with the requirements of this Article VII or (ii) the
existence of one or more Environmental Defects, any Remediation, Remediation
Amount or plan therefor, or one or more adjustments, credits or offsets claimed
by Buyer or Seller pursuant to Section 6.2, any such dispute or claim (a “Deferred
Adjustment Claim”) shall be settled pursuant to this Section 7.6 and,
except as provided in Sections 10.1(f) and 10.2(f), shall not prevent or
delay Closing. In no event shall any Title Defect Amount, Environmental Defect
Amount or Remediation Amount asserted by Buyer as a Deferred Adjustment Claim
exceed the amount asserted by Buyer therefor prior to the end of the Title
Examination Period in accordance with Section 7.2 or the Environmental
Examination Period in accordance with Section 6.2, as applicable. Likewise,
in no event shall any Seller Title Credit exceed the amount asserted by Seller
therefor prior to the Closing Date. With respect to each potential Deferred
Adjustment Claim, Buyer and Seller shall deliver to the other a written notice
describing each such potential Deferred Adjustment Claim, the amount in dispute
and a statement setting forth the facts and circumstances that support such
party’s position with respect to such Deferred Adjustment Claim. At Closing,
the Purchase Price shall not be adjusted on account of and subject to Sections
10.1(f) and 10.2(f), no effect shall be given to the Deferred Adjustment
Claim, except to the extent that the Deferred Adjustment Claim is with respect
to an Excluded Asset excluded from the Assets pursuant to Section 6.2(b)(i) or
7.5. To the extent the Deferred Adjustment Claim relates to such an Excluded
Asset, the Purchase Price at the Closing shall be adjusted to the extent
provided in Section 6.2(b)(i) or 7.5 and such Excluded Asset shall
not be conveyed to Buyer at the Closing, subject to the potential of a
subsequent Closing with respect to such Excluded Asset as hereinafter provided
in this Section 7.6. On or prior to the thirtieth (30th) calendar day
following the Closing Date (the “Deferred Matters Date”), Seller and
Buyer shall attempt in good faith to reach agreement on the Deferred Adjustment
Claims and, ultimately, to resolve by written agreement all disputes regarding
the Deferred Adjustment Claims. Any Deferred Adjustment Claims which are not so
resolved on or before the Deferred Matters Date may be submitted by either
party to final and binding arbitration in accordance with the Arbitration
Procedures; provided, however, that Seller may elect at any time prior to
resolution of a disputed Deferred Adjustment Claim to resolve all 

 

-26-

 

disputes relating to such
Deferred Adjustment Claim, not relating to an Excluded Asset under Section 6.2(b)(i) or
7.5, by the payment to Buyer of the amount by which the Purchase Price would
otherwise have been reduced at Closing (if such Deferred Adjustment Claim had
been given effect at Closing at the amount claimed by Buyer) on account of the
Title Defects or Environmental Defects giving rise to such Deferred Adjustment
Claim, together with interest thereon from the Closing Date to the date of such
payment at the Agreed Rate. Notwithstanding anything herein provided to the
contrary, including Section 7.2(c), but without limiting Seller’s rights
under Section 7.2(c)(ii) and 7.2(c)(iii), Seller shall be entitled to
cure any Title Defect which gives rise to a Deferred Adjustment Claim at any
time prior to the point in time when a final and binding written decision of
the board of arbitrators is made with respect thereto in accordance with the
Arbitration Procedures (provided however that, notwithstanding the provisions
of Exhibit A-1 or Section 16.10,
in any arbitration proceedings pursuant to this Section 7.6 the board of
arbitrators shall be comprised of one arbitrator, who shall be mutually agreed
upon by Buyer and Seller and who shall be a title attorney with at least ten (10) years
experience in oil and gas titles involving properties in the regional area in
which the Subject Interests are located). The amount of any reduction in the
Purchase Price to which Buyer becomes entitled under the final and binding
written decision of the board of arbitrators shall be promptly refunded by
Seller to Buyer, together with interest thereon from the Closing Date to the
date of payment at the Agreed Rate. If an Asset becomes an Excluded Asset by
virtue of an asserted Title Defect or Environmental Defect, the existence of
which is disputed by Seller as a Deferred Adjustment Claim, and such Title Defect
or Environmental Defect (or both if applicable) is (or are) determined not to
exist by a final and binding written decision of the board of arbitrators, then
a delayed Closing shall occur with respect to such Excluded Asset on the first
Business Day after the expiration of 21 days after such arbitration decision is
delivered to Buyer and Seller, which delayed date of Closing shall become the
new Closing Date for such Excluded Asset. At such delayed Closing, Seller shall
convey such Excluded Asset to Buyer and Buyer shall pay Seller the Purchase
Price allocated to such Excluded Asset, as adjusted pursuant to Section 3.1
through the new Closing Date therefor and such Excluded Asset, together with
all excluded Incidental Rights, oil, gas and other hydrocarbons and other
assets attributable or appurtenant thereto, shall thereafter be considered as
an Asset.

 

Section 7.7                                No
Duplication. Notwithstanding anything herein provided to the contrary, if a
Title Defect results from any matter which could also result in the breach of
any representation or warranty of Seller set forth in Section 4.1, then
Buyer shall only be entitled to assert such matter as a Title Defect pursuant
to this Article VII and shall be precluded from also asserting such matter
as the basis of the breach of any such representation or warranty.

 

ARTICLE VIII.

REFERENCE RIGHTS AND TRANSFER REQUIREMENTS

 

Section 8.1                                Compliance.
Buyer’s purchase of the Assets is expressly subject to all validly existing and
applicable Preference Rights and Transfer Requirements. Within ten (10) Business
Days after the date of this Agreement, Seller shall initiate all procedures
which Buyer and Seller mutually agree are required to comply with or obtain the
waiver of all Preference Rights and Transfer Requirements set forth in Schedule 4.1(ee) with respect to
the transactions contemplated by this Agreement. Seller shall use its
commercially reasonable efforts to obtain 

 

-27-

 

all applicable consents;
provided, however, that Seller shall not be obligated to pay any consideration
to (or incur any cost or expense for the benefit of) the holder of any
Preference Right on Transfer Requirement in order to obtain the waiver thereof
or compliance therewith.

 

Section 8.2                                Allocations.
The portion of the Purchase Price to be allocated to any Asset or portion
thereof affected by a Preference Right (a “Preference Property”) shall
be the portion of the Purchase Price allocated thereto in the Property Schedule.
If a Preference Right affects only a portion of a Property Subdivision and a
portion of the Purchase Price has not been allocated specifically to such
portion of a Property Subdivision in the Property Schedule, then the portion of
the Purchase Price to be allocated to such Preference Property shall be
determined in the same manner as provided in Section 7.2(d)(7) when a
Title Defect affects only a portion of a Property Subdivision.

 

Section 8.3                                Preference
Rights. If a third party who has been offered a Preference Property
pursuant to Section 8.1 elects prior to Closing to purchase such
Preference Property in accordance with the terms of such Preference Right, and
Seller and Buyer receive written notice of such election prior to the Closing
Date, such Preference Property will be eliminated from the Assets and the
Purchase Price shall be reduced by the portion of the Purchase Price allocated
to such Preference Property pursuant to Section 8.2. If a third party who
has been offered a Preference Property or who has been requested to waive its
Preference Right pursuant to Section 8.1 does not elect to purchase such
Preference Property or waive such Preference Right with respect to the
transactions contemplated by this Agreement prior to the Closing Date, such
Preference Property shall be conveyed to Buyer at Closing subject to such
Preference Right, unless such Preference Property has been otherwise eliminated
from the Assets in accordance with other provisions of this Agreement. If a
third party elects to purchase a Preference Property subject to a Preference
Right and Closing has already occurred with respect to such Preference
Property, Buyer shall be obligated to convey said Preference Property to such
third party and shall be entitled to the consideration for the sale of such
Preference Property.

 

Section 8.4                                Transfer
Requirements. If a Transfer Requirement applicable to the transactions
contemplated by this Agreement is not obtained, complied with or otherwise
satisfied prior to the Closing Date, then, unless otherwise mutually agreed by
Seller and Buyer, any Asset or portion thereof affected by such Transfer
Requirement (a “Retained Asset”) shall be held back from the Assets to
be transferred and conveyed to Buyer at Closing and the Purchase Price to be
paid at Closing shall be reduced by the portion of the Purchase Price which
would be allocated to such Retained Asset pursuant to Section 8.2 if such
Retained Asset were a Preference Property. Any Retained Asset so held back at
the initial Closing will be conveyed to Buyer at a delayed Closing (which shall
become the new Closing Date with respect to such Retained Asset), within ten (10) days
following the date on which Seller obtains, complies with or otherwise
satisfies all Transfer Requirements with respect to such Retained Asset, for a purchase
price equal to the amount by which the Purchase Price was reduced on account of
the holding back of such Retained Asset (as adjusted pursuant to Section 3.1
through the new Closing Date therefor); provided, however, if all Transfer
Requirements with respect to any Retained Asset so held back at the initial
Closing are not obtained, complied with or otherwise satisfied within one
hundred and twenty (120) days after Closing has occurred with respect to any of
the Assets, then such Retained Asset shall be eliminated from the Assets and
this 

 

-28-

 

Agreement, unless Seller
and Buyer mutually agree to proceed with a closing on such Retained Asset in
which case Buyer shall be deemed to have waived any objection with respect to
non-compliance with such Transfer Requirements. In connection with any
subsequent conveyance of a Retained Asset (or an Excluded Asset pursuant to Section 7.6),
appropriate adjustments in Net Cash Flow, proration of revenues and costs, and
interest contemplated by Section 3.1 will be made to account for any
delayed Closing with respect to such Retained Asset (or Excluded Asset).

 

Section 8.5                                Certain
Governmental Consents. Seller  and
Buyer will use commercially reasonable efforts after Closing to obtain all
approvals and consents from, and make all filings with, the United States
Department of Interior and other applicable Governmental Authorities that may
be required under the terms of (or regulations specifically applicable to) any leases
as a condition to the assignment of the Subject Interests therein from Seller
to Buyer. Until such approvals and consents are obtained, Seller shall continue
to hold legal title to such Subject Interests as nominee for Buyer. Seller
shall not be obligated to incur any expenses in Seller’s capacity as nominee. For
purposes of Article XIV, Seller and Buyer shall treat and deal with such
Subject Interests as if full legal and equitable title to such Subject
Interests had passed from Seller to Buyer at Closing.

 

Section 8.6                                Express
Conditions on Sale. Buyer acknowledges that Seller desires to sell all of
the Assets and would not have entered into this Agreement but for Buyer’s
agreement to purchase all of the Assets as herein provided. Accordingly, it is
expressly understood and agreed that Seller does not desire to sell any
Preference Property unless the sale of all of the Assets is consummated by the
Closing Date in accordance with the terms of this Agreement. In furtherance of
the foregoing, Seller’s obligation hereunder to sell the Preference Properties
to Buyer is expressly conditioned upon the consummation by the Closing Date of
the sale of all of the Assets in accordance with the terms of this Agreement,
either by conveyance to Buyer or conveyance pursuant to an applicable
Preference Right; provided that, nothing herein is intended or shall operate to
extend or apply any Preference Right to any portion of the Assets which is not
otherwise burdened thereby. Time is of the essence with respect to the parties’
agreement to consummate the sale of the Assets by the Closing Date.

 

ARTICLE IX.

COVENANTS OF SELLER AND BUYER

 

Section 9.1                                Conduct
of Business Pending Closing. Subject to Section 9.2 and the
constraints of applicable operating agreements and other existing agreements,
from the date hereof through the Closing, except as disclosed in Schedule 9.1 or as otherwise
consented to or approved by Buyer, Seller covenants and agrees that:

 

(a)                                 Changes
in Business. Seller shall not:

 

(1)                        make any
material change in the conduct of its business or operations with respect to
the Assets;

 

-29-

 

(2)                        except in
the ordinary course of business and consistent with past practices, enter into,
assign, terminate or amend, in any material respect, any contract or agreement
required to be disclosed pursuant to Section 4.1(j);

 

(3)                        sell,
lease or otherwise dispose of any of the Assets, except (i) oil, gas and
other hydrocarbons sold or otherwise disposed of in the ordinary course of
business and consistent with past practices, (ii) incident to the
exploration, operation or development of the Assets in accordance with this Section 9.1
or Section 9.2, (iii) personal property or equipment which is
replaced with personal property or equipment of comparable or better value and
utility in connection with the maintenance, repair and operation of the Assets,
and (iv) any item of personal property or equipment having a value of less
than $5,000; or

 

except in the ordinary course
of business and consistent with past practices, materially increase or change
the wages, salaries and benefits payable to the Company Employees.

 

(b)                           Liens.
Seller shall not create any express lien or security interest on any Assets,
except to the extent (i) required or permitted incident to the
exploration, operation or development of the Assets pursuant to this Section 9.1
or Section 9.2, (ii) required or evidenced by the Hydrocarbon
Interests, joint operating agreements or unitization or pooling agreements
relating to the Subject Interests, or (iii) required or evidenced by any
contract or agreement required to be disclosed pursuant to Section 4.1(j).
Without limiting the foregoing, Seller shall not mortgage, pledge or otherwise
encumber the Assets to secure obligations of Seller or any of its Affiliates
under any present or future credit agreement, loan agreement or similar
financing arrangement with any banks or other financial institutions.

 

(c)                            Operation
of Assets. Seller shall:

 

(1)                        cause the
Assets to be maintained and operated (and the production attributable thereto
marketed, sold, exchanged, processed and otherwise handled) in the ordinary
course of business in accordance with Seller’s past practices (including the
repair or replacement of damaged, destroyed, obsolete, depreciated, non-working
or non-economical items of equipment or other personal property without regard
to the limitation of Section 9.1(c)(2) below), maintain insurance now
in force with respect to the Assets, and pay or cause to be paid all costs and
expenses in connection therewith promptly when due;

 

(2)                        not commit
to participate in the drilling of any new well or other new operations on, or
capital expenditures with respect to, the Assets the projected cost of which
(net to Seller’s interest and without consideration of any cost overruns) is in
excess of $50,000 in any single instance, without the advance written consent
of Buyer, which consent or non-consent must be given by Buyer within the lesser
of (x) ten (10) days of Buyer’s receipt of the notice from Seller or (y) one-half
(1⁄2) of the applicable notice period within which Seller is contractually
obligated to respond to third parties to avoid a deemed election by Seller
regarding such operation, as specified in Seller’s notice 

 

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to Buyer requesting such consent; provided that,
failure by Buyer to respond within the aforesaid applicable period shall
constitute Buyer’s consent to Seller’s participation in such well or other
operation;

 

(3)                        maintain
and keep the Assets in full force and effect, except where such failure is due
to (i) the failure to pay a delay rental, royalty, shut in royalty or
other payment by mistake or oversight (including Seller’s negligence) unless
caused by Seller’s gross negligence or willful misconduct, or (ii) the
failure to participate in an operation which requires the approval of Buyer
under this Agreement and to which Buyer does not timely approve;

 

(4)                        maintain
all material governmental permits and approvals with respect to the Assets; and

 

(5)                        use Seller’s
reasonable best efforts to maintain its relationships with suppliers, customers
and others having material business relations with Seller with respect to the
Assets so that they will be preserved for Buyer on and after the Closing Date.

 

(d)                                         Contracts
and Agreements. Seller shall not:

 

(1)                        grant or
create any Preference Right or Transfer Requirement with respect to the Assets
except (i) in connection with the performance by Seller of an obligation
or agreement existing on the date hereof or pursuant to this Agreement or (ii) in
connection with the renewal or extension of Assets after the Effective Time if
granting or creating such Preference Right or Transfer Requirement is a
condition of such renewal or extension;

 

(2)                        enter into
any oil, gas or other hydrocarbon sales, exchange, gathering, processing or
transportation contract with respect to the Assets having a term in excess of
one (1) year which is not terminable without penalty on notice of ninety
(90) days or less; or

 

(3)                        voluntarily
relinquish Seller’s position as operator with respect to any of the Assets.

 

Section 9.2                                Qualifications
on Conduct.

 

(a)                                          Emergencies;
Legal Requirements. Seller may take (or not take, as the case may be) any
of the actions mentioned in Section 9.1 if reasonably necessary under
emergency circumstances (or if required or prohibited, as the case may be,
pursuant to Law) and provided Buyer is notified as soon thereafter as
practicable.

 

(b)                                         Non-Operated
Properties. If Seller is not the operator of a particular portion of the
Assets, the obligations of Seller in Section 9.1 with respect to such
portion of the Assets, which have reference to operations or activities that
pursuant to existing contracts are 

 

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carried out or performed
by the operator, shall be construed to require only that Seller use its
reasonable best efforts (without being obligated to incur any expense or
institute any cause of action) to cause the operator of such portion of the
Assets to take such actions or render such performance within the constraints
of the applicable operating agreements and other applicable agreements.

 

(c)                            Certain
Operations.

 

(1)                        Should
Seller not wish to pay any lease rental or other payment or participate in any
reworking, deepening, drilling, completion, equipping or other operation on or
with respect to any well or other Property Subdivision constituting part of the
Assets which may otherwise be required by Section 9.1, Seller shall give
Buyer written notice thereof at least fifteen (15) days prior to the date such
rental or other payment is due or, in the case of an operation, promptly after
Seller receives notice of such proposed operation from the operator of such
property (or if Seller is the operator, at the same time Seller gives or is
required to give notice of such proposed operation to the non-operators of such
property). Seller shall not be obligated to make any such payment or to elect
to participate in any such operation which Seller does not wish to make or
participate in unless Seller receives from Buyer, within a reasonable time
prior to the date when such payment or election is required to be made by
Seller, (a) the written election and agreement of Buyer (i) to
require Seller to take such action and (ii) to pay all costs and expenses
of Seller with respect to such lease rental or other payment or such operation
and (b) the funds necessary for such payment or operation as contained in
the applicable AFE therefor or estimated by Seller. Notwithstanding the
foregoing, Seller shall not be obligated to pay any lease rental or other
payment or to elect to participate in any operation if the operator of the
property involved recommends that such action not be taken. If Buyer advances
any funds pursuant to this Section 9.2(c) with respect to a
particular portion of the Assets, such portion of the Assets is excluded from
the Assets pursuant to the terms hereof or Closing does not occur, and such
funds are not reimbursed to Buyer within thirty (30) days after the earlier of
Closing or termination of this Agreement, then with respect to such particular
portion of the Assets, (i) Buyer shall own and be entitled to any interest
of Seller that would have lapsed but for such payment or (ii) in the case
of operations, Buyer shall be entitled to receive the penalty, if any, that
Seller, as nonconsenting party, would have suffered under the applicable
operating or other agreement with respect to such operations as if Buyer were a
consenting party thereunder.

 

(2)                        If a
notice delivered to Buyer pursuant to Section 9.1(c)(2) sets forth a
recommendation that Seller participate in an operation or capital expenditure
the failure in which to participate will cause the forfeiture of all or any
portion of a Subject Interest (or any interest in production attributable
thereto) and Buyer timely notifies Seller that it does not desire Seller to
participate in same, then, on or before the Closing, Seller may elect to
exclude from the Assets and reserve to Seller the Subject Interest (or the
interest therein or interest in production therefrom) that would be so
forfeited, together with a pro rata share of all Incidental Rights, oil, gas
and other hydrocarbons and other assets attributable or appurtenant thereto
(but only to the extent 

 

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such Incidental Rights, oil, gas and other
hydrocarbons and other assets are practicably severable from the Assets without
adversely impacting in any material respect the value or operations of the
remaining Assets). If such Incidental Rights, oil, gas and other hydrocarbons
and other assets are not so practicably severable from the Assets, Buyer shall
execute and deliver to Seller at Closing a perpetual use agreement on commercially
reasonable terms which grants to Seller and its successors and assigns the
practical benefits Seller would have received from such Incidental Rights, oil,
gas and other hydrocarbons and other assets had they been so excluded and
reserved to Seller. No reduction in the Purchase Price shall be made on account
of any exclusion, reservation, use agreement or other matter provided for in
this Section 9.2(c)(2).

 

Section 9.3                               Conveyance;
Pennsylvania Oil and Gas Lease. Upon the terms and subject to the conditions
of this Agreement, at or prior to the Closing,

 

(a)                            Seller
and Buyer shall execute and deliver or cause the execution and delivery of the
General Conveyance, in substantially the form attached hereto as Exhibit 9.3(a) (the “Conveyance”),
together with all special governmental assignment forms as may be required by
Law to be executed in connection with the conveyance of specific Assets;
provided that the terms and provisions of the Conveyance shall control as to
any conflict between the Conveyance and any such special assignment forms; and

 

(b)                           Seller
and Buyer shall execute and deliver or cause the execution and delivery of an
oil and gas lease, in substantially the form attached hereto as Exhibit 9.3(b) (the “Pennsylvania
Oil and Gas Lease”), covering the Pennsylvania Fee Interests.

 

Section 9.4                                Public
Announcements. Without the prior written approval of the other party
hereto, no party hereto will issue, or permit any agent or Affiliate of it to
issue, any press releases or otherwise make, or cause any agent or Affiliate of
it to make, any public statements with respect to this Agreement and the
transactions contemplated hereby, except where such release or statement is
deemed in good faith by the releasing party to be required by Law or under the rules and
regulations of the New York Stock Exchange (or other public stock exchange of
similar reputation and standing) on which the shares of such party or any of
its Affiliates are listed. In each case to which such exception applies, the
releasing party will use its reasonable best efforts to provide a copy of such
release or statement to the other parties prior to releasing or making the
same.

 

Section 9.5                                Amendment
of Schedules. As of the Closing Date, all Schedules hereto shall be deemed
amended and supplemented to include reference to any matter (a) relating
to Seller or the Assets which first arises or occurs after the date of this
Agreement and does not result from a breach by Seller of Section 9.1, (b) which
results in an adjustment to the Purchase Price pursuant to Section 3.1, (c) which
relates to a property excluded from the Assets pursuant to Section 6.1(d),
6.2(b)(i), 7.5, 9.2(c)(2), 9.2(d) or 9.9 for which Seller assumes
responsibility pursuant to Section 6.2(b)(ii).

 

Section 9.6                                Parties’
Efforts and Further Assurances. Buyer covenants and agrees to take all
actions which are necessary for it to be in compliance with its warranties and

 

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representations contained
in Sections 4.2(h), 4.2(i) and 4.2(j) on the Closing Date. Each of
the parties agrees to use commercially reasonable efforts (and to cause its
Affiliates to use commercially reasonable efforts) to refrain from taking any
action within its control which would cause a breach of any of its
representations and warranties contained in Article IV or which would
prevent it from delivering to the other parties the certificate which it is
required to deliver pursuant to Section 10.1(b) or 10.2(b), as the
case may be. Seller and Buyer each agree that from time to time after the
Closing Date, each of them will execute and deliver or cause their respective
Affiliates to execute and deliver such further instruments, and take (or cause
their respective Affiliates to take) such other action, as may be reasonably
necessary to carry out the purposes and intents of this Agreement.

 

Section 9.7                                Asset
Records. Within a reasonable period of time following the end of the term
of the Transition Agreement, Seller shall make all Asset Records available for
delivery to Buyer at Seller’s offices in Houston, Texas or at the locations of
the Assets in the case of Asset Records maintained at such locations. Buyer
agrees to maintain all Asset Records until the fifth anniversary of the Closing
Date (or for such longer period of time as Seller shall advise Buyer is
necessary in order to have the Asset Records available with respect to open
years for Tax audit purposes), or, if any of the Asset Records pertain to any
claim or dispute pending on the fifth anniversary of the Closing Date, Buyer
shall maintain any of the Asset Records designated by Seller until such claim
or dispute is finally resolved and the time for all appeals has been exhausted.
Buyer shall provide Seller and its representatives reasonable access to and the
right to copy the Asset Records for the purposes of (i) preparing and
delivering any accounting provided for under this Agreement and adjusting,
prorating and settling the charges and credits provided for in this Agreement, (ii) complying
with any Law affecting Seller’s interest in the Assets prior to the Closing
Date, (iii) conducting and preparing any audit of the books and records of
any third party relating to Seller’s interest in the Assets prior to the
Closing Date, or responding to any audit conducted or prepared by such third
parties, (iv) preparing Tax returns, (v) responding to or disputing
any Tax audit or (vi) asserting, defending or otherwise dealing with any
claim or dispute under this Agreement or with respect to the Assets. In no
event shall Buyer or any of its Affiliates destroy any Asset Records without
giving Seller sixty (60) days’ advance written notice thereof and the
opportunity, at Seller’s expense, to obtain such Asset Records prior to their
destruction.

 

Section 9.8                                Recording.
As soon as practicable following the Closing but, in any event within ten (10) Business
Days following the Closing, Buyer, at its cost and expense, shall record the
Conveyance and all other instruments of assignment in the appropriate
governmental offices of the jurisdictions in which the Assets are located. Promptly
following such recording, Buyer shall advise Seller in writing of the pertinent
recording data.

 

Section 9.9                                Casualty
and Condemnation. If after the Effective Time and prior to the Closing any part
of the Assets shall be destroyed or damaged by fire or other casualty or if any
part of the Assets shall be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes shall be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof. In any such event,
Seller may elect, at its sole option, by written notice to Buyer prior to
Closing,

 

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(a)                            to
cause the Assets affected by any such casualty or taking to be repaired or
restored to at least their condition prior to such casualty or taking, in which
event Seller shall undertake to repair or restore such affected Assets at
Seller’s sole cost and expense as promptly as reasonably practicable (which
work may extend after the Closing Date); or

 

(b)                           to
exclude the affected Assets from the Assets so long as the Purchase Price is
reduced by the portion of the Purchase Price allocated to such affected Assets
in the Property Schedule.

 

In the event Seller fails
timely to exercise either option set forth in clause (a) or (b) above,
then Seller shall at the Closing (i) assign to Buyer Seller’s right to
receive all insurance or condemnation proceeds, awards or payments owed to
Seller by reason of such destruction or taking, less any reasonable costs and
expenses incurred by Seller in collecting same or in connection with such
proceedings or the threat thereof, and (ii) pay to Buyer all insurance or
condemnation proceeds, awards or payments theretofore paid to Seller by reason
of such destruction or taking, less any reasonable costs and expenses incurred
by Seller in collecting same or in connection with such proceedings or the
threat thereof; and, to the extent such proceeds, awards or payments are
insufficient to repair or restore such affected Assets to at least their
condition prior to such casualty or taking, Seller shall promptly reimburse
Buyer for all reasonable costs of repair or restoration of such affected Assets
in excess of such proceeds, awards or payments, upon receipt by Seller of
reasonable supporting documentation. Notwithstanding the foregoing, any
insurance or condemnation proceeds, awards or payments (or any rights thereto)
by reason of such destruction or taking which are held by or owed to Seller for
the account or benefit of any third party joint interest owners shall not be
paid or assigned by Seller to Buyer pursuant to this Section and shall
instead be transferred to the successor operator or other Person responsible
therefor pursuant to the terms of the applicable operating or other agreement.

 

Section 9.10                          Transition
Agreement. At Closing, Seller and Buyer shall execute and deliver a
Transition Services Agreement (the “Transition Agreement”) providing for
the performance by Seller or its Affiliates of certain transition services with
respect to the operation of the Assets after Closing, which Transition
Agreement shall be in such form and shall contain such terms and conditions as
may be mutually agreed by Seller and Buyer.

 

Section 9.11                          Employees.

 

(a)                                    Company
Employees. “Company Employees” shall mean the employees of Seller
listed on Schedule 9.11(a) attached
hereto. Effective as of 11:59 p.m. on the Closing Date (such day being herein
referred to as the “Seller Employment Termination Date”), the employment
of the Company Employees with Seller shall terminate (other than those who are
on short-term disability leave). As soon as is practicable after the date of
this Agreement, Buyer or another member of the controlled group (within the
meaning of Section 414(b), (c), (m) or (o) of the Code) of which
Buyer is a member (the “Buyer Controlled Group”) shall make offers of
employment, effective as of the Seller Employment Termination Date, to such
Company Employees (other than those on short-term disability leave) as Buyer,
in its sole discretion, may determine. Each such offer of employment shall be
an offer of employment that provides for a 

 

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period of one year
following the Closing employment (a) at the Company Employee’s current
base salary and bonus opportunity with Seller as of the date of this Agreement
(as set out on Schedule 9.11(a));
(b) with participation in an annual bonus plan at the Employee’s target
bonus opportunity with Seller as of the date of this Agreement (as set out on Schedule 9.11(a)); (c) with benefits
that, in the aggregate, are substantially the same as or similar to those being
provided to the Company Employees immediately before the Seller Employment
Termination Date; (d) with substantially the same duties and
responsibilities; (e) within 50 miles of the Employee’s current work
location, and (f) made only after prior written notice to Seller of the
name of each such Company Employee and the terms of such offer.

 

(b)                           Continuing
Employees. Company Employees who receive and accept an offer of employment
and become employed by a member of the Buyer Controlled Group on the Seller
Employment Termination Date, are hereinafter referred to as the “Continuing
Employees.”  The effective date of
employment of the Continuing Employee with the employing member of the Buyer
Controlled Group shall be 12:01 a.m. on the day immediately following the
Seller Employment Termination Date. Nothing contained herein shall confer upon
any Continuing Employee any right with respect to continuance of employment by
Buyer or any other member of the Buyer Controlled Group, nor shall anything
herein interfere in any way with the right of an employing member of the Buyer
Controlled Group to terminate the employment of a Continuing Employee at any
time with or without cause. Seller shall remain solely responsible for all its
obligations with respect to Company Employees who do not become Continuing
Employees.

 

(c)                            Company
Employees on Short-Term Disability Leave. Any Company Employee who is on
short-term disability leave as of the Seller Employment Termination Date shall
remain employed by Seller through the Company Employee’s short-term disability
leave; provided, however, that if he or she recovers from his or her disability
within the period of his or her short-term disability leave or the six-month
period following the Seller Employment Termination Date (whichever is shorter),
Buyer shall at the end of such period make an offer of employment to him or her
on the same employment terms and conditions as are applicable to similarly
situated Continuing Employees, and Buyer shall reimburse Seller for the full
amount of any short-term disability leave cash compensation paid by Seller to
such person with respect to periods beginning with the Seller Employment
Termination Date until the date that such person accepts employment with Buyer;
each such person who accepts employment with Buyer shall also be deemed a “Continuing
Employee” as of the date of such acceptance.

 

(d)                           Severance
Benefits. If a Continuing Employee is involuntarily terminated from
employment with any member of the Buyer Controlled Group within the one-year
period beginning on the Seller Employment Termination Date (or as to Company
Employees on short-term disability leave on such date, as of the date of
employment by Buyer) other than for “Cause” (as defined below), Buyer shall pay
or provide, or shall cause the Buyer Controlled Group member employing such
terminated Continuing Employee to pay or provide, to such terminated Continuing
Employee the same severance benefits, under the same terms and conditions,
which such employee would have received had he terminated employment with
Seller prior to the Seller Employment Termination Date; provided, however that
the amount of the severance benefit shall be determined as follows:

 

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(i)                             A
lump sum severance payment equal to the sum of two (2) weeks of base
salary (as set out on Schedule 9.11(a))
for each year of service or portion thereof, and two (2) weeks of base
salary for each $10,000 of annual base salary or portion thereof, up to a
maximum severance benefit equal to 52 weeks of base salary.

 

For purposes of this Section, if within the one-year
period beginning on the Seller Employment Termination Date (or as to Company
Employees on short-term disability leave on such date, as of the date of
employment by Buyer), a Continuing Employee who is not involuntarily terminated
for Cause is offered continued employment (i) at less than the Continuing
Employee’s current base salary (as set out on Schedule
9.11(a)), (ii) with a bonus less than the most recent bonus paid
by Seller (as set out on Schedule 9.11(a)) or
(iii) at a location that is in excess of 50 miles from such Continuing Employee’s
worksite described in Section 9.11(a) above, and such Continuing
Employee refuses such offer of continued employment, such Continuing Employee shall
be deemed to have been involuntarily terminated (other than for Cause). If a
Company Employee who does not become a Continuing Employee under Section 9.11(b) or
(c) is subsequently employed by any member of the Buyer Controlled Group
or otherwise provides services to a member of the Buyer Controlled Group within
the one-year period following the Seller Employment Termination Date (or as to
Company Employees on short-term disability leave on such date, as of the date
of employment by Buyer) Buyer shall, or shall cause another member of the Buyer
Controlled Group to, pay to Seller the total amount of severance benefits that
Seller paid to such Company Employee. For purposes of this Section, “Cause”
means fraud, misappropriation of Buyer Controlled Group property, misconduct
damaging to the property or to the business of the Buyer Controlled Group, the
commission of a felony, or the substantial failure to perform his or her
material duties in a reasonable manner and the failure of such Continuing
Employee to remedy such failure within thirty (30) days following his or her
receipt of written notice of such failure from such member of the Buyer
Controlled Group.

 

(e)                            Past
Service Credit. Effective as of the Seller Employment Termination Date (or
as to Company Employees on short-term disability leave on such date, as of the
date of employment by Buyer), Buyer shall take such actions as are necessary to
grant past service credit for all the Continuing Employees for purposes of
determining vesting and eligibility (but not benefit accruals) under all Buyer
Controlled Group members’ employee benefit programs, including pension,
severance, vacation, bonus, incentive compensation and employee welfare benefit
plans of Buyer provided by Buyer or a Buyer Controlled Group member to such
Continuing Employees equal to that which such Continuing Employees were
credited with by Seller as of the Seller Employment Termination Date for
service with Seller or any predecessor employer (but excluding benefit accruals
for Buyer’s defined benefit plans, if any).

 

(f)                              Pension
and Savings Plans. Effective as of the Seller Employment Termination Date
(or as to Company Employees on short-term disability leave on such date, as of
the date of employment by Buyer), Buyer shall cause each Buyer Controlled Group
member employing Continuing Employees to provide for participation by the
Continuing Employees in the pension plans, within the meaning of Section 3(2) of
ERISA, of such Buyer Controlled Group member, on terms and conditions that are substantially the same as those
that are applied to other similarly situated employees of Buyer or members of
the Buyer Controlled Group. 

 

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Buyer will use commercially reasonable efforts to cause a
section 401(k) plan (or other eligible retirement plan) maintained by
Buyer to accept direct rollovers of Continuing Employee’s eligible rollover
distributions (including, to the extent permitted under the Code, plan loan
notes) from Seller’s section 401(k) plan as elected by Continuing
Employees; provided however, that Buyer shall have
no obligation to cause the trustee of Buyer’s section 401(k) plan (or
other eligible retirement plan) to accept any such rollover distribution if
Buyer does not receive proof which is satisfactory to Buyer that Seller’s
section 401(k) plan will be qualified under section 401(a) of
the Code at the time of the rollover.

 

(g)                           Post-Closing
Benefits for Continuing Employees.

 

(i)                                   Buyer
shall, or shall cause another member of the Buyer Controlled Group to, provide
coverage and benefits for each Continuing Employee (and his or her dependents
or beneficiaries) in each employee benefit plan, program, practice and policy
(within the meaning of Section 3(3) of ERISA) and any other similar
arrangement of the Buyer Controlled Group member employing the Continuing
Employee, on terms and conditions that, in the aggregate, are substantially the
same as or similar to those being provided to the Company Employee immediately
before the Seller Employment Termination Date. Further, no waiting periods,
exclusions or limitations with respect to any pre-existing conditions, evidence
of insurability or good health or actively-at-work exclusions shall be
applicable with respect to the participation of any Continuing Employee (or
dependents or beneficiaries thereof) in any group health plan of any member of
the Buyer Controlled Group to the extent such Continuing Employee (or
dependents or beneficiaries thereof) is deemed to have satisfied such waiting
periods, limitations and other exclusions under any Seller Benefit Plan that is
a group health plan. Any costs or expenses incurred by such Continuing
Employees (and their dependents or beneficiaries) for the calendar year in
which the Seller Employment Termination Date occurs shall be taken into account
for purposes of satisfying any applicable deductible, copayment, coinsurance,
maximum out-of-pocket provision and like adjustments or limitations on coverage
under any such group health plans of Buyer or a Buyer Controlled Group member. Seller
will provide Buyer with the information
described in the preceding sentence in a timely fashion.

 

(ii)                                Each
Buyer Controlled Group member shall calculate a Continuing Employee’s vacation
entitlement by crediting each such Continuing Employee with years of service
and seniority with Seller (to the extent such service is recognized under the
vacation policy maintained by the Seller). To the extent any Continuing
Employee has any unused vacation days previously accrued with Seller as of the
Seller Employment Termination Date, Seller shall make a lump sum payment in
cash to each such Continuing Employee on the Seller Employment Termination Date
equal to the value of such Continuing Employee’s accrued vacation; provided,
that in the event Seller does not have in place as of the date of this
Agreement a written vacation policy providing for such a lump sum cash out of
accrued vacation amounts upon an employee’s termination of employment, Seller
shall enter into a written agreement to that effect no later than the Seller
Employment Termination Date with each Continuing Employee to whom an accrued
vacation cash out obligation would be due under this Section 9.11(g)(ii).

 

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(h)                           Continuation
Health Coverage. Seller shall have sole liability with respect to offering
and providing  continuation health
coverage as described in Section 4980B of the Code to any eligible Company
Employee and his or her eligible dependents who incur a qualifying event (as
defined in Section 4980B of the Code) on or before the Seller Employment
Termination Date (or as to Company Employees on short-term disability leave on
such date, on or before the date of employment by Buyer). Buyer shall have sole
liability with respect to offering and providing continuation health coverage
as described in Section 4980B of the Code to any eligible Continuing
Employee and his or her eligible dependents who incur a qualifying event (as
defined in Section  4980B of the Code) after the Seller Employment
Termination Date (or as to Company Employees on short-term disability leave on
such date, after the date of employment by Buyer).

 

(i)                               No
Amendment. Unless explicitly designated otherwise, no provision of this
Agreement is intended to be an amendment of any benefit plan maintained by
Seller or Buyer (or their Controlled Group members). If a person not entitled
to enforce this Agreement brings a lawsuit or other action to enforce any
provision in this Agreement as an amendment to any such benefit plan or another
agreement, plan, program or document, and that provision is construed to be
such an amendment despite not being explicitly designated as one in this
Agreement, that provision shall lapse retroactively, thereby precluding it from
having any amendatory effect.

 

Section 9.12                          Licenses.
Except to the extent the same are transferable by Seller to Buyer at no cost to
Seller, it is expressly understood and agreed that Buyer shall be solely
responsible for obtaining any and all licenses, permits and other
authorizations, including automation and communication software licenses, from
third Persons required for the operation of the Assets after Closing.

 

Section 9.13                          Successor
Operator. Within five (5) Business Days after Closing, Seller shall resign
as operator of all Assets then operated by Seller. While Buyer may desire to
succeed Seller as operator of the Assets or portions thereof operated by Seller
at Closing, Buyer expressly acknowledges and agrees that Seller has not and
does not make any representations or warranties, and has not and does not
covenant or agree, that Buyer shall become successor operator of such Assets,
since the Assets or portions thereof may be subject to unit, pooling,
communitization, operating agreements or other agreements that control the
appointment of a successor operator.

 

Section 9.14                          No
Solicitation of Transactions. So long as Buyer is not in default under this
Agreement, Seller shall not, directly or indirectly, through any officer,
director, stockholder, employee, agent, financial advisor, banker or other
representative or Affiliate, or otherwise, solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to any acquisition
or purchase of all or any material portion of the Assets or participate in any
negotiations regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way with, or assist or participate
in, facilitate, or encourage, any effort or attempt by any other Person to do
or seek any of the foregoing. Seller shall communicate as soon as reasonably
practicable to Buyer the material terms of any such proposal (and the identity
of the party making such proposal) which it may receive and, if such proposal
is

 

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in writing, Seller shall promptly deliver a copy of
such proposal to Buyer. Seller agrees not to release any third party from, or
waive any provision of, any confidentiality agreement relating to the Assets to
which Seller or any of its Affiliates is a party. Seller immediately shall
cease and cause to be terminated all existing discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.

 

Section 9.15           Financial Information. Between the
date of this Agreement and the Closing Date, Seller shall deliver to the Chief
Operating Officer of EXCO Resources, Inc., a Texas corporation (“EXCO”),
copies of all production reports and daily drilling reports relating to Seller’s
operation of the Assets promptly after the preparation thereof in the ordinary
course of business.

 

Section 9.16           Guaranty Agreement. On even date
herewith, Buyer is delivering to Seller the Guaranty Agreement duly executed by
EXCO.

 

Section 9.17           Letters-in-Lieu; Assignments;
Operatorship.

 

(a)           Seller shall execute on
the Closing Date letters in lieu of division and transfer orders relating to
the Assets, on forms prepared by Seller and reasonably satisfactory to Buyer,
to reflect the transaction contemplated hereby.

 

(b)           Seller shall prepare
and execute, and Buyer shall execute, on the Closing Date, all assignments
necessary to convey to Buyer all state oil and gas leases in the form as
prescribed by the applicable Governmental Authority and otherwise acceptable to
Buyer and Seller.

 

(c)           Seller makes no representations
or warranties to Buyer as to transferability or assignability of operatorship
of any Assets operated by Seller. Rights and obligations associated with
operatorship of such Assets are governed by operating and similar agreements
covering the properties and shall be determined in accordance with the terms of
such agreements. However, Seller shall assist Buyer in Buyer’s efforts to
succeed Seller as operator of any such Assets. Buyer shall, promptly following
Closing, file all appropriate forms and declarations or bonds with federal and
state agencies relative to its assumption of operatorship. For all Assets
operated by Seller, Seller shall execute and deliver to Buyer, and Buyer shall
promptly file the appropriate forms (including a change of operator card on the
form established by the applicable Governmental Authority, duly executed
by Seller and naming Buyer as the successor operator) with the applicable
Governmental Authority transferring operatorship of such Assets to Buyer.

 

Section 9.18           Proprietary Seismic Data License. At
Closing, Seller and Buyer shall execute and deliver a Proprietary Seismic Data
License Agreement (the “Proprietary Seismic Data License Agreement”)
substantially in the form attached hereto as Exhibit B.

 

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ARTICLE X.

CLOSING CONDITIONS

 

Section 10.1           Seller’s Closing Conditions. The
obligation of Seller to proceed with the Closing contemplated hereby is
subject, at the option of Seller, to the satisfaction on or prior to the
Closing Date of all of the following conditions:

 

(a)           Representations,
Warranties and Covenants. The (i) representations and warranties of
Buyer contained in this Agreement shall be true and correct in all material
respects (and in all respects, in the case of representations and warranties
which are qualified by the requirement of a material adverse effect or other
materiality qualifier) on and as of the Closing Date, and (ii) covenants
and agreements of Buyer to be performed on or before the Closing Date in
accordance with this Agreement shall have been duly performed in all material
respects.

 

(b)           Officer’s
Certificate. Seller shall have received a certificate dated as of the
Closing Date, executed on behalf of Buyer by a duly authorized officer of
Buyer, to the effect that the conditions set forth in subsection (a) of
this Section 10.1 have been satisfied.

 

(c)           Closing Documents.
On or prior to the Closing Date, Buyer shall have delivered, or be standing
ready to deliver at Closing, all agreements, instruments and other documents
required to be delivered by Buyer pursuant to Section 11.3.

 

(d)           No Action. On
the Closing Date, no suit, action or other proceeding (excluding any such
matter initiated by Seller or any of its Affiliates) shall be pending or
threatened before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of the Closing or
recover damages from Seller or any Affiliate of Seller resulting therefrom, and
no order, writ, injunction or decree shall have been entered and be in effect
by any court or other Governmental Authority of competent jurisdiction, and no
statute, rule, regulation or other requirement shall have been promulgated or
enacted and be in effect, that on a temporary or permanent basis restrains,
enjoins or invalidates the transactions contemplated hereby; provided, however,
the Closing shall proceed notwithstanding any proceedings seeking to restrain,
enjoin or otherwise prohibit consummation of the transactions contemplated
hereby brought by holders of Preference Rights seeking to enforce such rights
with respect to the Assets with aggregate allocated values of less than ten
percent (10%) of the total Purchase Price, and the Assets subject to such
proceedings shall be treated in accordance with Article VIII.

 

(e)           Opinion of Counsel.
Buyer shall have delivered to Seller the written opinion, dated as of the
Closing Date, of William L. Boeing, counsel to Buyer, substantially in the form attached
hereto as Exhibit 10.1(e).

 

(f)            Adjustments to the
Purchase Price. Downward adjustments to the Purchase Price as a result of (i) the
exercise by third parties of Preference Rights, (ii) Environmental Defects
or the exclusion of any Environmental Defect Properties pursuant to Section 6.2
and/or (iii) Title Defects pursuant to Section 7.2 or the exclusion
of any Title Defect Properties in accordance with Section 7.5, shall not
equal or exceed $39,500,000.

 

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Section 10.2           Buyer’s Closing Conditions. The
obligation of Buyer to proceed with the Closing contemplated hereby is subject,
at the option of Buyer, to the satisfaction on or prior to the Closing Date of
all of the following conditions:

 

(a)           Representations,
Warranties and Covenants. The (i) representations and warranties of
Seller contained in this Agreement shall be true and correct in all material
respects (and in all respects, in the case of representations and warranties
which are qualified by materiality or the requirement of a Material Adverse
Effect or other materiality qualifier) on and as of the Closing Date as though
made as of the Closing Date with the Schedules to this Agreement amended and
supplemented in accordance with Section 9.5, and (ii) covenants and
agreements of Seller to be performed on or before the Closing Date in
accordance with this Agreement shall have been duly performed in all material
respects.

 

(b)           Officer’s
Certificate. Buyer shall have received a certificate dated as of the
Closing Date, executed on behalf of Seller by a duly authorized officer of
Seller, to the effect that the conditions set forth in subsection (a) of
this Section 10.2 have been satisfied.

 

(c)           Closing Documents.
On or prior to the Closing Date, Seller shall have delivered, or be standing
ready to deliver at the Closing, all agreements, instruments and other
documents required to be delivered by Seller pursuant to Section 11.2.

 

(d)           No Action. On
the Closing Date, no suit, action or other proceeding (excluding any such
matter initiated by Buyer or any of its Affiliates) shall be pending or
threatened before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of the Closing or
recover damages from Buyer or any Affiliate of Buyer resulting therefrom, and
no order, writ, injunction or decree shall have been entered and be in effect
by any court or other Governmental Authority of competent jurisdiction, and no
statute, rule, regulation or other requirement shall have been promulgated or
enacted and be in effect, that on a temporary or permanent basis restrains,
enjoins or invalidates the transactions contemplated hereby; provided, however,
the Closing shall proceed notwithstanding any proceedings seeking to restrain,
enjoin or otherwise prohibit consummation of the transactions contemplated
hereby brought by holders of Preference Rights seeking to enforce such rights
with respect to the Assets with aggregate allocated values of less than ten
percent (10%) of the total Purchase Price, and the Assets subject to such
proceedings shall be treated in accordance with Article VIII.

 

(e)           Opinion of Counsel.
Seller shall have delivered to Buyer the written opinion, dated as of the
Closing Date, of Michael P. Donaldson, counsel to Seller, substantially in the form attached
hereto as Exhibit 10.2(e).

 

(f)            Adjustments to the
Purchase Price. Downward adjustments to the Purchase Price as a result of (i) the
exercise by third parties of Preference Rights, (ii) Environmental Defects
or the exclusion of any Environmental Defect Properties pursuant to Section 6.2
and/or (iii) Title Defects pursuant to Section 7.2 or the exclusion
of any Title Defect Properties in accordance with Section 7.5, shall not
equal or exceed $39,500,000.

 

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(g)           No Material Adverse
Change. Except for (i) any casualty or condemnation affecting any of
the Assets (which shall be governed exclusively by the provisions of Section 9.9),
(ii) any facts or circumstances disclosed on any of the Schedules attached
hereto as of the date hereof, (iii) any change in economic, industry or
market conditions (whether general or regional in nature or limited to any area
where any Assets are located), (iv) production in the ordinary course of
business, and (v) any change in Law or regulatory policy, from the date of
this Agreement to the Closing Date, there shall not have been any material
adverse change in the Assets, taken as a whole.

 

Section 10.3           Deferred Adjustment Claims Extension.
Notwithstanding Sections 10.1(f) or 10.2(f), if Seller or Buyer elects not
to proceed with the Closing as a result of the non-satisfaction of the
condition set forth in Section 10.1(f) or 10.2(f) and such
condition would have been satisfied but for the amount of Environmental Defect
Amounts and Title Defect Amounts claimed by Buyer with respect to unresolved
Deferred Adjustment Claims, Seller or Buyer may elect to delay the Closing
Date and Closing until the tenth Business Day following the date when a
sufficient amount of such Deferred Adjustment Claims have been resolved
pursuant to Section 7.6 to determine that the condition set forth in Section 10.1(f) or
10.2(f) has been satisfied or has not been satisfied but in no event later
than the Termination Date. A Deferred Adjustment Claim will be deemed resolved
pursuant to Section 7.6 when a final and binding written decision of the
board of arbitrators is made with respect thereto in accordance with the
Arbitration Procedures.

 

ARTICLE XI.

CLOSING

 

Section 11.1           Closing. The Closing shall be held on
the Closing Date at 10:00 a.m., Houston time, at the offices of Fulbright &
Jaworski L.L.P., Fulbright Tower, 1301 McKinney, Suite 5100, Houston,
Texas, or at such other time or place as Seller and Buyer may otherwise agree
in writing.

 

Section 11.2           Seller’s Closing Obligations. At
Closing, Seller shall execute and deliver, or cause to be executed and
delivered, to Buyer the following:

 

(a)           The Conveyance and the
special assignment forms contemplated by Section 9.3 in sufficient
duplicate originals to allow recording in all appropriate jurisdictions and
offices and copies of any exhibits or schedules to the Conveyance separated by
jurisdiction to allow individual recording of the Conveyance in each separate
jurisdiction, duly executed by Seller;

 

(b)           The officer’s
certificate referred to in Section 10.2(b);

 

(c)           The legal opinion
referred to in Section 10.2(e);

 

(d)           Letters in lieu of
division and transfer orders executed by Seller relating to the Subject
Interests in form reasonably satisfactory to Buyer to reflect the
conveyances contemplated hereby;

 

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(e)           A non-foreign
affidavit, as such affidavit is referred to in Section 1445(b)(2) of
the Code, in form attached hereto as Exhibit 11.2(e),
dated as of the Closing Date;

 

(f)            The Transition
Agreement;

 

(g)           The Proprietary Seismic
Data License Agreement;

 

(h)           certificates of title
(in a form recordable in all appropriate jurisdictions and offices) to the
vehicles and other movable personal property of which title is required to be
registered with any Governmental Authority that are owned by either Seller or
any of their respective Affiliates and included among the Assets;

 

(i)            The Pennsylvania Oil
and Gas Lease; and

 

(j)            Any other agreements,
instruments and documents which are required by other terms of this Agreement
to be executed and/or delivered by Seller to Buyer at the Closing.

 

Section 11.3          Buyer’s
Closing Obligations. At Closing, Buyer shall (i) deliver, or cause to
be delivered, the Adjusted Purchase Price to Seller in immediately available
funds to the bank account as provided in Section 3.2 and (ii) execute
and deliver, or cause to be executed and delivered, to Seller the following:

 

(a)           The officer’s
certificate of Buyer referred to in Section 10.1(b);

 

(b)           The legal opinion
referred to in Section 10.1(e);

 

(c)           The Conveyance and the
special assignment forms contemplated by Section 9.3 which require or
contemplate execution by Buyer;

 

(d)           The Transition
Agreement;

 

(e)           The Proprietary Seismic
Data License Agreement;

 

(f)            The Pennsylvania Oil
and Gas Lease; and

 

(g)           Any other agreements,
instruments and documents which are required by other terms of this Agreement
to be executed and/or delivered by Buyer to Seller at the Closing.

 

ARTICLE XII.

EFFECT OF CLOSING

 

Section 12.1           Revenues. After Closing, all
proceeds, accounts receivable, notes receivable, income, revenues, monies and
other items included in or attributable to the Excluded Assets and all other
Excluded Assets shall belong to and be paid over to Seller, and all proceeds,
accounts receivable, notes receivable, income, revenues, monies and other items
included in or attributable to the Assets with respect to any period of time
after the Effective Time shall belong to and be paid over to Buyer, except
that, to the extent any such items are credited to Buyer in 

 

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calculating the Adjusted Purchase Price, as adjusted
pursuant to Section 3.4, the same shall belong to and be paid over to
Seller.

 

Section 12.2           Expenses. After Closing, (i) all
accounts payable and other costs and expenses with respect to the Assets for
which Seller is given credit in the determination of Net Cash Flow pursuant to Section 3.3,
as adjusted pursuant to Section 3.4, shall be borne by Seller, and (ii) all
costs and expenses incurred by Seller during the Adjustment Period and paid for
by Seller subsequent to the Adjustment Period shall be reimbursed by Buyer to
Seller within ten (10) days after receipt by Buyer of Seller’s invoice
therefor together with reasonable supporting documentation. Ad valorem and
severance taxes related to the Assets and not accounted for in the
determination of Net Cash Flow will be prorated as of the Effective Time. For
any such ad valorem or severance taxes for a period which the Effective Time
splits and which are paid by Seller, Buyer shall reimburse Seller for the
portion thereof equal to the percentage of such period represented by the
portion of such period beginning at the Effective Time. For any such ad valorem
or severance taxes for a period which the Effective Time splits and which are
not paid by Seller, Buyer shall pay such taxes and Seller shall reimburse Buyer
for a percentage of such taxes equal to the portion of such period which ends
on the day immediately preceding the Effective Time.

 

Section 12.3           Tax Matters.

 

(a)           Tax Refunds. The
amount of any refunds of Hydrocarbon Taxes or Property Taxes attributable to
periods prior to the Effective Time shall be for the account of Seller. The
amount of any refunds of Hydrocarbon Taxes or Property Taxes attributable to
periods on or subsequent to the Effective Time shall be for the account of
Buyer, except that to the extent any such refund was accounted for in the
determination of Net Cash Flow, such refund shall be for the account of Seller.
Each party shall forward to the party entitled to receive a refund of Tax
pursuant to this Section 12.3(a) the amount of such refund within ten
(10) days after such refund is received.

 

(b)           Section 754
Elections. If any Tax Partnership does not currently have in effect an
election under Section 754 of the Code, Seller shall, upon request by
Buyer following the Closing, use its commercially reasonable efforts to assist
Buyer in causing such Tax Partnership to make an election under Section 754
of the Code that will result in the U.S. federal income tax bases of such Tax
Partnership’s assets being adjusted under Section 743 of the Code upon the
consummation of the transactions contemplated by this Agreement; provided,
however, that Seller shall not be obligated to pay any consideration or waive
or release any right or privilege as part of such efforts.

 

(c)           Cooperation. Buyer
and Seller shall cooperate fully as and to the extent reasonably requested by
the other party, in connection with the filing of any Tax Returns and any
audit, litigation or other proceeding (each, a “Tax Proceeding”) with
respect to Taxes relating to or in connection with the Assets. Such cooperation
shall include the retention and (upon the other party’s request) the provision
of such records and information which are reasonably relevant to any such Tax
Return or Tax Proceeding and making employees available on a 

 

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mutually convenient basis to provide additional
information and explanation of any material provided hereunder.

 

(d)           Section 1031
Exchange. Either party agrees to cooperate with the other party to
accommodate such other party in effectuating a like kind exchange (an “Exchange”)
pursuant to Section 1031 of the Code in connection with the purchase and
sale of the Assets, provided that:  (i) the
Closing shall not be delayed or affected by reason of the Exchange nor shall
the consummation or accomplishment of an Exchange be a condition precedent or
condition subsequent to the exchanging party’s obligations under this Agreement
and the exchanging party’s failure or inability to consummate an exchange for
any reason or for no reason at all shall not be deemed to excuse or release the
exchanging party from its obligations under this Agreement, (ii) the
exchanging party shall effect its Exchange through an assignment of this
Agreement, or its rights under this Agreement, to a qualified intermediary, but
such assignment shall not release the exchanging party from any of its
liabilities or obligations to the non-exchanging party under this Agreement or
expand any liabilities or obligations of the non-exchanging party under this
Agreement, (iii) neither party shall be required to take an assignment of
the purchase agreement for the relinquished or replacement property or be
required to acquire or hold title to any real property for purposes of
consummating an Exchange desired by the other party; and (iv) the
exchanging party shall pay any additional costs that would not otherwise have
been incurred by the non-exchanging party had the exchanging party not
consummated the transaction through an Exchange and the exchanging party shall
indemnify the non-exchanging party against any such additional costs or
liabilities. Neither party shall by this Agreement or acquiescence to an
Exchange desired by the other party have its rights under this Agreement
affected or diminished in any manner or be responsible for compliance with or
be deemed to have warranted to the exchanging party that its Exchange in fact
complies with Section 1031 of the Code.

 

Section 12.4           Payments and Obligations. If monies
are received by any party hereto which, under the terms of this Article XII,
belong to another party, the same shall immediately be paid over to the proper
party. If an invoice or other evidence of an obligation is received which under
the terms of this Article XII is partially the obligation of Seller and
partially the obligation of Buyer, then the parties shall consult each other
and each shall promptly pay its portion of such obligation to the obligee.

 

Section 12.5           Survival. All representations and
warranties of Seller and Buyer contained in Article IV shall survive the
Closing and shall terminate on the first anniversary of the Closing Date;
provided, however, that the representations and warranties contained in Section 4.1(b),
Section 4.1(c), Section 4.1(h), Section 4.1(l), Section 4.2(b),
Section 4.2(c), and Section 4.2(g) shall survive the Closing
until the expiration of the applicable statute of limitations period. Upon the
termination of a representation or warranty in accordance with the foregoing,
such representation or warranty shall have no further force or effect for any
purpose of this Agreement, unless and to the extent that a party has alleged
breach of such representation or warranty prior to such anniversary in
accordance herewith. The covenants and other agreements of Seller and Buyer set
forth in this Agreement shall survive the Closing and shall terminate on the
first anniversary of the Closing Date; provided, however, that (a) the
covenants or other agreements of Seller and Buyer set forth in Sections 3.2,
3.3(a)-(c) and (e), 6.1(a), 

 

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6.1(b), 6.1(d), 6.2(a), 7.2(a), 7.5, and Article XI
that are to be performed prior to or at Closing shall not survive the Closing,
and (b) Section 5.1 (other than the last sentence of Section 5.1(b)),
Section 6.1(c) and the covenants to be performed by Seller and Buyer
under this Agreement after Closing shall survive the Closing until fully
performed. In addition, the definitions set forth in Appendix
A to this Agreement or in any other provision of this Agreement
which are used in the representations, warranties, covenants and agreements
which survive the Closing pursuant to this Section 12.5 shall survive the
Closing to the extent necessary to give operative effect to such surviving
representations, warranties, covenants and agreements.

 

Section 12.6           Certain Post-Closing Obligations. Within
five (5) days after the Closing, Buyer shall (i) obtain and file with
the appropriate Governmental Authorities replacement surety bonds and/or
guarantees for all Assets for which Seller has surety bonds and/or guarantees
outstanding (as reflected in a list of such surety bonds and/or guarantees set
forth in Schedule 4.1(u)), (ii) obtain
the full and complete release of Seller from (or the full and complete
cancellation of) all such bonds and/or guarantees insofar as they relate to the
Assets, and (iii) furnish Seller appropriate evidence of Buyer’s
compliance with the requirements of clauses (i) and (ii), including copies
of such replacement bonds and/or guarantees and such releases and/or cancellations.
Within a reasonable period of time following the Closing, Buyer shall remove or
paint over, as appropriate, any logo, service mark, trade name or trademark
which constitutes an Excluded Asset and is on the Assets.

 

ARTICLE XIII.

LIMITATIONS

 

SECTION 13.1       Disclaimer of Warranties. NOTWITHSTANDING ANYTHING
CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, IT IS THE
EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS NOT MAKING ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, BEYOND THOSE REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN THIS
AGREEMENT AND (IF CLOSING OCCURS) IN THE CERTIFICATE TO BE DELIVERED BY SELLER
PURSUANT TO SECTION 10.2(B), AND IT IS UNDERSTOOD THAT, WITHOUT LIMITING
SUCH EXPRESS REPRESENTATIONS AND WARRANTIES, BUYER TAKES THE ASSETS AS IS AND
WHERE IS AND WITH ALL FAULTS. WITHOUT LIMITING THE GENERALITY OF THE
IMMEDIATELY PRECEDING SENTENCE, SELLER HEREBY (I) EXPRESSLY DISCLAIMS AND
NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW, BY
STATUTE OR OTHERWISE, RELATING TO (A) THE CONDITION OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS, OR THE PRESENCE OR ABSENCE OF ANY HAZARDOUS MATERIALS
IN OR ON, OR DISPOSED OF OR DISCHARGED FROM, THE ASSETS) OR (B) ANY
INFRINGEMENT BY SELLER OR ANY OF ITS AFFILIATES OF ANY PATENT OR PROPRIETARY
RIGHT OF ANY THIRD PARTY; AND (II) NEGATES ANY RIGHTS OF BUYER UNDER
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION AND ANY CLAIMS BY BUYER FOR
DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF
SELLER AND BUYER THAT THE ASSETS ARE TO BE ACCEPTED BY BUYER IN THEIR PRESENT
CONDITION AND STATE OF REPAIR.

 

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Section 13.2           Texas Deceptive Trade Practices Act
Waiver. BUYER (A) REPRESENTS
AND WARRANTS TO SELLER THAT IT (I) IS ACQUIRING THE ASSETS FOR COMMERCIAL
OR BUSINESS USE, (II) IS REPRESENTED BY LEGAL COUNSEL,
(III) ACKNOWLEDGES THE CONSIDERATION PAID OR TO BE PAID FOR THE ASSETS
WILL EXCEED $500,000, AND (IV) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL
AND BUSINESS MATTERS SUCH THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF
THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT AND IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION WITH RESPECT TO THE SELLER; AND (B) HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHTS OR REMEDIES IT MAY HAVE
UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT OF THE STATE OF
TEXAS, TEX. BUS. & COM. CODE § 17.41 ET SEQ. (THE “DTPA”)
TO THE MAXIMUM EXTENT IT CAN DO SO UNDER APPLICABLE LAW, IF SUCH ACT WOULD FOR
ANY REASON BE DEEMED APPLICABLE TO THE TRANSACTIONS CONTEMPLATED HEREBY;
PROVIDED HOWEVER, THAT BUYER DOES NOT WAIVE § 17.555 OF THE DTPA.

 

WAIVER OF CONSUMER RIGHTS

 

BUYER
WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION
ACT, SECTION 17.41 ET SEQ.,
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS
AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BUYER’S OWN SELECTION,
BUYER VOLUNTARILY CONSENTS TO THIS WAIVER.

 

FURTHERMORE,
WITH RESPECT TO ASSETS WHICH ARE LOCATED IN A STATE OR SUBJECT TO A
JURISDICTION OTHER THAN TEXAS, BUYER WAIVES ANY COMPARABLE PROVISION OF THE LAW
OF THE STATE OR OTHER JURISDICTION WHERE SUCH ASSETS ARE LOCATED OR TO WHICH
SUCH ASSETS ARE SUBJECT.

 

Section 13.3           Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION
OF THIS AGREEMENT, SELLER AND BUYER AGREE THAT, EXCEPT FOR THE LIQUIDATED
DAMAGES SPECIFICALLY PROVIDED FOR IN SECTIONS 14.4 AND 15.2, THE RECOVERY BY
EITHER PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS A RESULT OF
ANY BREACH BY THE OTHER PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR
OBLIGATIONS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES
SUFFERED OR INCURRED BY THE NON-BREACHING PARTY (AND THE INDEMNIFIED PERSONS TO
WHICH SUCH OBLIGATIONS MAY EXTEND UNDER THE TERMS HEREOF) AS A RESULT OF
THE BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES OR
OBLIGATIONS HEREUNDER AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO
THE NON-BREACHING PARTY OR ANY INDEMNIFIED PERSON FOR ANY INDIRECT,
CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT
LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES, BUSINESS
INTERRUPTION OR LOST OR DELAYED PRODUCTION) SUFFERED OR INCURRED BY THE
NON-BREACHING PARTY OR ANY INDEMNIFIED PERSON AS A RESULT OF THE BREACH BY THE
BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS
HEREUNDER. For purposes of
the foregoing, actual damages may, however, include indirect, consequential,
special, exemplary or punitive damages to the extent (i) the injuries or
losses 

 

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resulting in or giving rise
to such damages are incurred or suffered by a Person which is not a Seller
Indemnified Person, a Buyer Indemnified Person or an Affiliate of any of the
foregoing and (ii) such damages are recovered against an Indemnified
Person by a Person which is not a Seller Indemnified Person, a Buyer
Indemnified Person or an Affiliate of any of the foregoing. This Section 13.3
shall operate only to limit a party’s liability and shall not operate to
increase or expand any contractual obligation of a party hereunder or cause any
contractual obligation of a party hereunder to survive longer than provided in Section 12.5.

 

Section 13.4           Plugging and Abandonment Obligations.
NOTWITHSTANDING ANYTHING
CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, IT IS
EXPRESSLY AGREED FOR ALL PURPOSES OF THIS AGREEMENT THAT (I) THE PLUGGING
AND ABANDONMENT OBLIGATIONS CONSTITUTE ASSUMED LIABILITIES, (II) THE
PLUGGING AND ABANDONMENT OBLIGATIONS SHALL NOT CONSTITUTE ENVIRONMENTAL
CONDITIONS, ENVIRONMENTAL LIABILITIES, ENVIRONMENTAL DEFECTS OR ENVIRONMENTAL
MATTERS, (III) EXCEPT FOR THE REPRESENTATION SET FORTH IN SECTION 4.1(T),
SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO
THE PLUGGING AND ABANDONMENT OBLIGATIONS, AND (IV) SELLER SHALL HAVE NO
LIABILITIES OR OBLIGATIONS WITH RESPECT TO PLUGGING AND ABANDONMENT OBLIGATIONS
EXCEPT TO THE EXTENT SUCH OBLIGATIONS RELATE TO PROPERTY LOCATED ON THE
EXCLUDED ASSETS.

 

Section 13.5           Environmental Release. From and after
Closing, the Buyer Indemnified Persons shall have no rights to recovery or
indemnification for Environmental Liabilities or any Environmental Matters
relating to the Assets under this Agreement or Law other than the rights and
remedies specifically provided in Sections 6.2 and 7.6, and all rights or
remedies which any Buyer Indemnified Person may have at or under Law with
respect to any Environmental Liabilities or Environmental Matters are expressly
waived other than the rights and remedies specifically provided in Sections 6.2
and 7.6. FROM AND AFTER CLOSING AND
EXCEPT FOR THE RIGHTS AND REMEDIES SPECIFICALLY PROVIDED IN SECTIONS 6.2 AND
7.6, ALL BUYER INDEMNIFIED PERSONS DO HEREBY AGREE, WARRANT AND COVENANT TO
RELEASE, ACQUIT AND FOREVER DISCHARGE ALL SELLER INDEMNIFIED PERSONS FROM ANY
AND ALL CLAIMS, DEMANDS AND CAUSES OF ACTION OF WHATSOEVER NATURE, INCLUDING
WITHOUT LIMITATION ALL CLAIMS, DEMANDS AND CAUSES OF ACTION FOR CONTRIBUTION
AND INDEMNITY UNDER STATUTE, INCLUDING THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION, AND LIABILITY ACT, OR COMMON LAW, WHICH COULD BE
ASSERTED NOW OR IN THE FUTURE AND THAT RELATE TO OR IN ANY WAY ARISE OUT OF
ENVIRONMENTAL LIABILITIES OR ENVIRONMENTAL MATTERS RELATING TO THE ASSETS. FROM
AND AFTER CLOSING, ALL BUYER INDEMNIFIED PERSONS WARRANT, AGREE AND COVENANT
NOT TO SUE OR INSTITUTE ARBITRATION AGAINST ANY SELLER INDEMNIFIED PERSON UPON
ANY CLAIM, DEMAND OR CAUSE OF ACTION FOR INDEMNITY AND CONTRIBUTION THAT HAVE
BEEN ASSERTED OR COULD BE ASSERTED FOR ANY ENVIRONMENTAL LIABILITIES OR
ENVIRONMENTAL MATTERS RELATING TO THE ASSETS, EXCEPT FOR THE PURPOSE OF
ENFORCING SECTIONS 6.2 AND 7.6.

 

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ARTICLE XIV.

INDEMNIFICATION

 

Section 14.1           Indemnification By Buyer. From and
after the Closing, Buyer shall assume, pay, perform, fulfill and discharge all
Assumed Liabilities and shall indemnify and hold harmless Seller, Seller’s
Affiliates, each of Seller’s and its Affiliates’ respective past, present and
future directors, officers, employees, consultants, agents and other
representatives (including legal counsel, accountants and financial advisors),
and each of the directors, officers, heirs, executors, successors and assigns
of any of the foregoing (collectively, the “Seller Indemnified Persons”)
from and against any and all (i) Assumed Liabilities incurred by or
asserted against any of the Seller Indemnified Persons, INCLUDING, WITHOUT LIMITATION, ANY ASSUMED LIABILITY BASED ON
NEGLIGENCE, GROSS NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE SELLER
INDEMNIFIED PERSONS OR ON ANY OTHER THEORY OF LIABILITY, WHETHER IN LAW
(WHETHER COMMON OR STATUTORY) OR EQUITY and (ii) subject to the limitations of Section 12.5
and Article XIII, any Covered Liability resulting from any breach or
nonfulfillment of any representation, warranty, covenant or agreement on the part of
Buyer which is expressly set forth in this Agreement. Notwithstanding anything
to the contrary in this Section 14.1, in no event shall any amounts be
recovered from Buyer for any Covered Liability resulting from any breach or
nonfulfillment of any representation or warranty (other than the
representations and warranties set forth in Sections 4.2(b), (c) and (g))
on the part of Buyer until the aggregate amount of Covered Liabilities for
which Buyer would (but for this sentence) be obligated to indemnify the Seller
Indemnified Persons under this Section 14.1 exceeds $7,900,000,  in which event Buyer will be obligated, subject to the
other provisions of this Article XIV, to indemnify the Seller Indemnified
Persons to the extent and only to the extent such Covered Liabilities exceed
$7,900,000.

 

Section 14.2           Indemnification By Seller. Subject to
the provisions of Section 14.4, from and after the Closing, Seller (for
all purposes hereof, jointly and severally) shall indemnify and hold harmless
Buyer, Buyer’s Affiliates, each of Buyer’s and its Affiliates’ respective past,
present and future, directors, officers, employees, consultants, agents and
other representatives (including legal counsel, accountants and financial
advisors), and each of the directors, officers, heirs, executors, successors
and assigns of any of the foregoing (collectively, the “Buyer Indemnified
Persons”) from and against any and all (i) Excluded Liabilities
incurred by or asserted against any of the Buyer Indemnified Persons, INCLUDING, WITHOUT LIMITATION, ANY EXCLUDED LIABILITY BASED ON
NEGLIGENCE, GROSS NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE BUYER
INDEMNIFIED PERSONS OR ON ANY OTHER THEORY OF LIABILITY, WHETHER IN LAW
(WHETHER COMMON OR STATUTORY) OR EQUITY and (ii) subject to the
limitations of Section 12.5 and Article XIII and to the last sentence
of this Section 14.2, any Covered Liability resulting from any breach or
nonfulfillment of any representation, warranty, covenant or agreement on the part of
Seller which is expressly set forth in this Agreement. Notwithstanding anything
to the contrary in this Section 14.2, in no event shall any amounts be
recovered from Seller for any Covered Liability resulting from any breach or
nonfulfillment of any representation or warranty (other than the
representations and warranties set forth in Sections 4.1(b), (c), (h) and
(l)) on the part of Seller until the aggregate amount of Covered
Liabilities for which Seller would (but for this sentence) be obligated to
indemnify the Buyer Indemnified Persons under this Section 14.2 exceeds
$7,900,000,  in which event Seller will be
obligated, 

 

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subject to the other provisions of this Article XIV,
to indemnify the Buyer Indemnified Persons to the extent and only to the extent
such Covered Liabilities exceed $7,900,000.

 

Section 14.3           Indemnification and Defense Procedures.
A Person which is entitled to be indemnified under Section 5.1, 6.1,
12.3(d), 14.1 or 14.2 is herein referred to as an “Indemnified Person”
and the party which is obligated to indemnify an Indemnified Person under Section 5.1,
6.1, 14.1 or 14.2 is herein referred to as the “Indemnifying Party” with
respect to the matter for which it is obligated to indemnify such Indemnified
Person. All claims for indemnification under Sections 5.1, 6.1, 14.1 and 14.2
shall be asserted and resolved as follows:

 

(a)           If a third party claim
for which an Indemnified Person is entitled to indemnity under Sections 5.1,
6.1, 14.1 and/or 14.2 (an “Indemnified Claim”) is made against an
Indemnified Person, and if Buyer or Seller intends to seek indemnity with
respect thereto by or from an Indemnifying Party pursuant to Sections 5.1, 6.1,
14.1 and/or 14.2, then the party electing to seek indemnity on behalf of such
Indemnified Person shall promptly transmit to the Indemnifying Party a written
notice (“Claim Notice”) (i) notifying such Indemnifying Party of
such Indemnified Claim and requesting indemnity on behalf of such Indemnified
Person with respect to such Indemnified Claim under Sections 5.1, 6.1, 14.1
and/or 14.2, as the case may be, (ii) setting forth the full name,
address for all notices and the authorized representatives of such Indemnified
Person with respect to such Indemnified Claim, and (iii) describing in
reasonable detail the nature of the Indemnified Claim, including a copy of all
papers served with respect to such Indemnified Claim (if any) and the basis of
such request for indemnification under Sections 5.1, 6.1, 14.1 and/or 14.2, as
the case may be. Failure to provide such Claim Notice promptly shall not
affect the right of the Indemnified Person to indemnification hereunder except
to the extent the Indemnifying Party is prejudiced thereby; provided that, the
Indemnifying Party shall not be obligated to defend, indemnify or otherwise
hold harmless an Indemnified Person with respect to a third party claim until a
Claim Notice meeting the foregoing requirements is furnished to the
Indemnifying Party by the party seeking indemnity hereunder. Within 30 days
after receipt of any Claim Notice (the “Election Period”), the
Indemnifying Party shall notify the party who sent the Claim Notice (A) whether
the Indemnifying Party disputes its potential liability to indemnify the
Indemnified Person under Sections 5.1, 6.1, 14.1 and/or 14.2, as the case may be,
with respect to such third party claim and (B) whether the Indemnifying
Party desires to defend, at its sole cost and expense, the Indemnified Person
against such third party claim; provided that, if the Indemnifying Party fails
to so notify the Indemnified Person during the Election Period, the
Indemnifying Party shall be deemed to have elected to dispute such liability
and not to defend against such third party claim.

 

(b)           If the Indemnifying
Party notifies the party who sent the Claim Notice within the Election Period
that the Indemnifying Party (i) does not dispute its liability to
indemnify the Indemnified Person under Sections 5.1, 6.1, 14.1 and/or 14.2, as
the case may be (or reserves the right to dispute whether such claim is an
Indemnified Claim under Sections 5.1, 6.1, 14.1 and/or 14.2) and (ii) elects
to assume the defense of such Indemnified Person with respect to such third
party claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, with counsel of its choosing that is reasonably
satisfactory to the Indemnified Person, such third party claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by
the Indemnifying Party to a final conclusion or settled at the 

 

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discretion of the Indemnifying Party in accordance
with this Section 14.3(b). If an Indemnifying Party elects pursuant to the
foregoing to assume the defense of an Indemnified Person with respect to a
third party claim which is subsequently determined not to be an Indemnified
Claim, the Indemnifying Party shall not be entitled to recover from the
Indemnified Person the costs and expenses incurred by the Indemnifying Party in
providing such defense. The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided that the Indemnifying Party shall not enter into any settlement
agreement (or settle or compromise any such third party claim in a manner)
which provides for or results in any payment by or liability of the Indemnified
Person of or for any damages or other amount, any lien, charge or encumbrance
on any property of the Indemnified Person, any finding of responsibility or
liability on the part of the Indemnified Person or any sanction or
restriction upon the conduct of any business by the Indemnified Person without
the Indemnified Person’s express written consent, which consent shall not be
unreasonably withheld, and any such settlement agreement shall contain an
unconditional provision whereby each plaintiff or claimant in such third party
claim releases the Indemnified Person from all liability with respect thereto. The
Indemnified Person is hereby authorized, at the sole cost and expense of the
Indemnifying Party to file, during the Election Period, any motion, answer or
other pleadings which the Indemnified Person shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party. If
requested by the Indemnifying Party, the Indemnified Person agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any such third party claim which the
Indemnifying Party elects to contest, including the making of any related
counterclaim or cross-complaint against any Person (other than a Buyer
Indemnified Person, if the Indemnified Person is a Buyer Indemnified Person, or
a Seller Indemnified Person, if the Indemnified Person is a Seller Indemnified
Person). The Indemnified Person may participate in, but not control, any
defense or settlement of any third party claim controlled by the Indemnifying
Party pursuant to this Section 14.3(b), and the Indemnified Person shall
bear its own costs and expenses with respect to such participation; provided,
however, that notwithstanding the foregoing, the Indemnifying Party shall pay
the reasonable attorneys’ fees of the Indemnified Person if the Indemnified
Person’s counsel shall have advised the Indemnified Person that there is a
conflict of interest that could make it inappropriate under applicable
standards of professional conduct to have common counsel for the Indemnifying
Party and the Indemnified Person (provided that the Indemnifying Party shall
not be responsible for paying for more than one separate firm of attorneys and
one local counsel to represent all of the Indemnified Persons subject to such
third party claim). The prosecution of the defense of a third party claim with
reasonable diligence shall include the taking of such action (including the posting
of a bond, deposit or other security) as may be necessary to prevent any
action to foreclose a lien against or attachment of the property of the
Indemnified Person for payment of such third party claim.

 

(c)           If the Indemnifying
Party (i) fails to notify the party who sent the Claim Notice within the
Election Period that the Indemnifying Party elects to defend the Indemnified
Person pursuant to Section 14.3(b), (ii) elects to defend the
Indemnified Person pursuant to Section 14.3(b) but fails to prosecute
the defense of (or to settle) the third party claim with reasonable diligence,
or (iii) the third party claim seeks an order, injunction, or other
equitable relief against the Indemnified Person which, if successful, could
materially adversely affect the business, condition (financial or other),
capitalization, assets, liabilities, results of operations or 

 

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prospects of the Indemnified Person, then the
Indemnified Person shall have the right to defend, at the sole cost and expense
of the Indemnifying Party, the third party claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Person to a final conclusion or settled. The Indemnified Person
shall have full control of such defense and proceedings; provided, however,
that the Indemnified Person may not enter into any compromise or
settlement of such third party claim, without the Indemnifying Party’s express
written consent, which shall not be unreasonably withheld. The Indemnifying
Party may participate in, but not control, any defense or settlement
controlled by the Indemnified Person pursuant to this Section 14.3(c), and
the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.

 

(d)           If the Indemnifying
Party elects not to assume the defense of a third party claim, or elects to
assume the defense of a third party claim, but reserves the right to dispute
whether such claim is an Indemnified Claim under Sections 5.1, 6.1, 14.1 and/or
14.2, as the case may be, the determination of whether the Indemnified
Person is entitled to indemnification hereunder shall be resolved pursuant to
arbitration as provided in Section 16.10.

 

(e)           If an Indemnified
Person is entitled to indemnity under Sections 5.1, 6.1, 14.1 and/or 14.2 for a
claim or other matter which does not involve a third party claim, and if Buyer
or Seller intends to seek indemnity on behalf of an Indemnified Person with
respect thereto by or from an Indemnifying Party pursuant to Sections 5.1, 6.1,
14.1 and/or 14.2, then the party electing to seek indemnity on behalf of an
Indemnified Person shall promptly transmit to the Indemnifying Party a written
notice describing in reasonable detail the nature of such claim or other
matter, the Indemnified Person’s best estimate of the Covered Liabilities
attributable to such claim or other matter (which shall not constitute an
admission or be binding in any respect) and the basis for the Indemnified
Person’s entitlement to indemnification under Sections 5.1, 6.1, 14.1 and/or
14.2, as the case may be. If the Indemnifying Party does not notify the
party who sent such notice within 30 days from its receipt of such notice that
the Indemnifying Party does not dispute such claim for indemnity, the
Indemnifying Party shall be deemed to have disputed such claim. If the
Indemnifying Party has disputed such claim, such dispute shall be resolved
pursuant to arbitration as provided in Section 16.10.

 

(f)            To the extent any
claim, action, suit or proceeding includes one or more Indemnified Claims with
respect to an Indemnified Person and one or more third party claims which are
not Indemnified Claims with respect to such Indemnified Person, any such
non-Indemnified Claim insofar as it is with respect to such Indemnified Person
shall not be covered by the indemnity in Sections 5.1, 6.1, 14.1 and 14.2, the
Indemnifying Party shall not be obligated to undertake, conduct and control the
defense or settlement of such non-Indemnified Claim insofar as it is with
respect to such Indemnified Person, and such Indemnified Person shall be
responsible for its own defense and settlement of such non-Indemnified Claim. The
seeking by a party of indemnity hereunder on behalf of any Indemnified Person
with respect to any third party claim or other claim or matter shall not
prevent such party from then or thereafter also seeking indemnity hereunder on
behalf of any other Indemnified Person with respect to such third party claim
or other claim or matter and shall not prevent the other party from seeking
indemnity hereunder on behalf of any Indemnified Person with respect to the
same third party claim or other claim or matter.

 

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Section 14.4           Seller’s General Liability Limitation.
(a) Notwithstanding anything herein provided to the contrary, Seller shall
have no liability to Buyer or any of the other Buyer Indemnified Persons
pursuant to Section 14.2 or for any breach by Seller of any representation
or warranty made by Seller in clauses (a),(d) through (g), (i), (j), (k) and
(m) through (ee) of Section 4.1 to the extent that the aggregate
amount of all Covered Liabilities attributable to any such liability or breach
exceeds an amount equal to fifty percent (50%) of the sum of the Deposit plus
the Adjusted Purchase Price (as same may be further adjusted downward
after the Closing pursuant to Section 7.6); provided that, the foregoing
shall not limit Seller’s indemnity obligations hereunder with respect to the
Excluded Assets.

 

(b)           Notwithstanding
anything herein provided to the contrary but without in any way affecting the
obligations of a Buyer Indemnified Person to notify Seller of a third party
claim pursuant to Section 14.3, Seller shall not have any liability to a
Buyer Indemnified Person with respect to any Covered Liability pursuant to Section 14.2
unless and until Buyer enforces any and all of the rights and remedies that
Buyer may have with respect to such Covered Liability against any other
Person pursuant to (i) any insurance maintained for the joint account
under any operating agreement with respect to the Assets and (ii) any
other agreements for insurance, indemnification, guarantee or similar
assurances which may be included in the Assets.

 

Section 14.5           Materiality Exclusion. Notwithstanding
anything to the contrary contained in this Agreement, for purposes of
determining if there has been a breach of any representation or warranty
hereunder by Seller or Buyer and the amount of the Covered Liabilities in
respect thereof, the representations and warranties of Seller and Buyer shall,
for purposes of this Article XIV, be read without giving effect to any
materiality, Material Adverse Effect or qualification with a similar meaning in
such representation or warranty.

 

ARTICLE XV.

TERMINATION; REMEDIES

 

Section 15.1           Termination.

 

(a)           Termination of
Agreement. This Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Closing:

 

(1)           By the
mutual consent of Seller and Buyer;

 

(2)           If the
Closing has not occurred by the close of business on May 15, 2008 (the “Termination
Date”), then (A) by Seller if any condition specified in Section 10.1
has not been satisfied on or before such close of business, and shall not
theretofore have been waived by Seller or (B) by Buyer if any specified in
Section 10.2 has not been satisfied on or before such close of business,
and shall not theretofore have been waived by Buyer; provided that the failure
to consummate the transactions contemplated hereby on or before such date did
not result from the failure by the terminating party to fulfill any undertaking
or commitment provided for herein on the part of the terminating party
that is required to be fulfilled on or prior to Closing;

 

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(3)           By Seller
pursuant to Section 10.1(f) or by Buyer pursuant to Section 10.2(f);

 

(4)           If there
shall be any Law that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or a Governmental Authority shall have
issued an order, decree, or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the consummation of the
transactions contemplated hereby, and such order, decree, ruling, or other
action shall have become final and non appealable;

 

(5)           By
Seller, if (A) any of the representations and warranties of Buyer
contained in this Agreement shall not be true and correct in all material
respects (provided that any such representation or warranty that is already
qualified by a materiality standard or a material adverse effect qualification
shall not be further qualified); or (B) Buyer shall have failed to fulfill
in any material respect any of its obligations under this Agreement; and, in the
case of each of clauses (A) and (B), such misrepresentation, breach of
warranty or failure, if curable, has not been cured within ten (10) days
after written notice thereof from Seller to Buyer; provided that any cure
period shall not extend beyond the Termination Date and shall not extend the
Termination Date; or

 

(6)           By Buyer,
if (A) any of the representations and warranties of Seller contained in
this Agreement shall not be true and correct in all material respects (provided
that any such representation or warranty that is already qualified by a
materiality or Material Adverse Effect qualification shall not be further
qualified); or (B) Seller shall have failed to fulfill in any material
respect any of its obligations under this Agreement, and, in the case of each
of clauses (A) and (B), such misrepresentation, breach of warranty or
failure, if curable, has not been cured within ten (10) days after written
notice thereof from Buyer to Seller; provided that any cure period shall not
extend beyond the Termination Date and shall not extend the Termination Date.

 

(b)           Effect of
Termination. Without limiting Seller’s and Buyer’s respective remedies and
rights in regard to the Deposit under Section 15.2, in the event of
termination of this Agreement by Seller, on the one hand, or Buyer, on the
other hand, pursuant to Section 15.1(a), written notice thereof shall
forthwith be given by the terminating party or parties to the other party or
parties hereto, and this Agreement shall thereupon terminate; provided, however,
that following such termination Buyer will continue to be bound by its
obligations set forth in Sections 5.1, 5.2 and 6.1. If this Agreement is
terminated as provided herein all filings, applications and other submissions
made to any Governmental Authority shall, to the extent practicable, be
withdrawn from the Governmental Authority to which they were made.

 

Section 15.2           Remedies.

 

(a)           Seller’s Remedies.
Notwithstanding anything herein provided to the contrary, if this Agreement is
not terminated by Buyer pursuant to Section 15.1(a) and Buyer fails
to satisfy on or prior to the Closing Date the conditions to Closing or the
Closing 

 

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obligations, as the case may be, set forth in
Sections 10.1(a), 10.1(b), 10.1(c), 10.1(e) or 11.3, Seller, at its sole
option, may terminate this Agreement and, without waiving or releasing
Buyer’s obligations under Sections 5.1, 5.2 and 6.1, retain the Deposit,
including any interest and other amounts earned thereon, as liquidated damages.
Such remedy shall be Seller’s sole and exclusive remedy for such failure, all
other remedies being expressly waived by Seller. Seller and Buyer agree upon
the Deposit as liquidated damages due to the difficulty and inconvenience of measuring
actual damages and the uncertainty thereof, and Seller and Buyer agree that
such amount is a reasonable estimate of Seller’s loss in the event of any such
failure by Buyer.

 

(b)           Buyer’s Remedies.
Notwithstanding anything herein provided to the contrary, if this Agreement is
not terminated by Seller pursuant to Section 15.1(a) and Seller fails
to satisfy on or prior to the Closing Date the conditions to Closing or the
Closing obligations, as the case may be, set forth in Sections 10.2(a),
10.2(b), 10.2(c), 10.2(e) or 11.2, Buyer, at its sole option, may terminate
this Agreement and receive back the Deposit, together with interest thereon
from the date of this Agreement to the date repayment is made by Seller to
Buyer at the Agreed Rate, and receive an amount equal to $39,500,000 from
Seller as liquidated damages. Such remedy shall be Buyer’s sole and exclusive
remedy for such failure, all other remedies being expressly waived by Buyer. Seller
and Buyer agree upon such amount as liquidated damages due to the difficulty
and inconvenience of measuring actual damages and the uncertainty thereof, and
Seller and Buyer agree that such amount is a reasonable estimate of Buyer’s
loss in the event of any such failure by Seller.

 

ARTICLE XVI.

MISCELLANEOUS

 

Section 16.1           Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other party.

 

Section 16.2           Governing Law; Jurisdiction; Process.

 

(a)           THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW RULES THAT
WOULD DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE
EXTENT THAT IT IS MANDATORY THAT THE LAW OF ANOTHER JURISDICTION, WHEREIN OR
ADJACENT TO WHICH THE ASSETS ARE LOCATED, SHALL APPLY.

 

(b)           SUBJECT TO THE ARBITRATION AGREEMENT SET FORTH IN SECTION 16.10,
EACH PARTY CONSENTS TO PERSONAL JURISDICTION IN ANY LEGAL ACTION, SUIT OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT IN ANY COURT, FEDERAL OR STATE,
WITHIN HARRIS COUNTY, TEXAS, HAVING SUBJECT MATTER JURISDICTION AND WITH
RESPECT TO ANY SUCH CLAIM, EACH SUCH PARTY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY CLAIM, OR ANY OBJECTION THAT SUCH PARTY MAY NOW
OR HEREAFTER HAVE, THAT VENUE OR JURISDICTION IS NOT PROPER WITH RESPECT TO ANY
SUCH LEGAL ACTION, 

 

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SUIT OR PROCEEDING BROUGHT IN
SUCH COURT IN HARRIS COUNTY, TEXAS, INCLUDING ANY CLAIM THAT SUCH LEGAL ACTION,
SUIT OR PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM AND ANY CLAIM THAT SUCH PARTY IS NOT SUBJECT TO PERSONAL JURISDICTION OR
SERVICE OF PROCESS IN SUCH HARRIS COUNTY, TEXAS FORUM.

 

Section 16.3           Entire Agreement. This Agreement
(including the Confidentiality Agreement) and the Appendices, Schedules and
Exhibits hereto contain the entire agreement between the parties with respect
to the subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set forth or
referred to herein.

 

Section 16.4           Expenses. Buyer shall be responsible
for (i) any sales Taxes which may become due and owing by reason of
the sale of the Assets hereunder, (ii) all transfer, stamp, documentary
and similar Taxes imposed on the parties hereto with respect to all transfers
of property contemplated pursuant to this Agreement, and (iii) all
recording, filing or registration fees relating to the filing, recording or
registration of the Conveyance, the special governmental assignment forms
contemplated by Section 9.3 and any other instruments or documents
transferring title in or to the Assets or any part thereof from Seller to
Buyer pursuant to this Agreement. If any of the transactions contemplated by
this Agreement are exempt from any such transfer, stamp, documentary or similar
Taxes upon the filing of an appropriate certificate or other evidence of
exemption, Buyer will timely furnish to Seller such certificate or evidence. Provided
Buyer shall have timely furnished to Seller such certificate or evidence,
Seller shall use commercially reasonable efforts to obtain any exemption,
certificate or other document from any Governmental Authority or other Person
as may be necessary to mitigate, reduce or eliminate any Tax that could be
imposed on Buyer by reason of the sale of the Assets hereunder. All other costs
and expenses incurred by each party hereto in connection with all things
required to be done by it hereunder, including attorney’s fees, accountant’s
fees and the expense of environmental and title examination, shall be borne by
the party incurring same.

 

Section 16.5           Notices. Unless otherwise expressly
provided in this Agreement, all notices required or permitted hereunder shall
be in writing and deemed sufficiently given for all purposes hereof if (i) delivered
in person, by courier or by registered or certified United States Mail to the
Person to be notified, with receipt obtained, or (ii) sent by telecopy,
telefax or other facsimile or electronic transmission, with “answer back” or
other “advice of receipt” obtained, in each case to the appropriate address or
number as set forth below. Each notice shall be deemed effective on receipt by
the addressee as aforesaid; provided that, notice received by telex, telecopy,
telefax or other facsimile or electronic transmission after 5:00 p.m. at
the location of the addressee of such notice shall be deemed received on the
first Business Day following the date of such electronic receipt. Notices to
Seller shall be addressed as follows:

 

EOG Resources, Inc.

EOG Resources Appalachian LLC

Energy Search, Incorporated

1111 Bagby, Sky Lobby 2

Houston, Texas  77002

Attention:  Frederick J. Plaeger, II
– Senior Vice President 

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  and General Counsel

  	
   

  
	
   

  	
  Telecopy No.: 
  (713) 651-6987

  	
   

  

 

With a copy to
(which

shall not constitute 

notice to Seller):

 

Fulbright &
Jaworski L.L.P.

1301 McKinney Street, Suite 5100

Houston, Texas 77010

Attention:              Michael P. Irvin

Telephone:            (713) 651-3705

Telecopy:              (713) 651-5246

Attention:              Craig Vogelsang

Telephone:            (713) 651-8208

Telecopy:              (713) 651-5246

or at such other address or to such other telecopy,
telefax or other facsimile or electronic transmission number and to the
attention of such other Person as Seller may designate by written notice
to Buyer. Notices to Buyer shall be addressed to:

 

EXCO Appalachia, Inc.

c/o EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas  75251

Attention:  William L. Boeing

Telephone:  (214) 368-2084

Telecopy:  (214) 706-3409

 

With a copy to
(which

shall not constitute

notice to Buyer):

 

Vinson & Elkins L.L.P.

2001 Ross Avenue, Suite 3700

Dallas, Texas  75201

Attention:  Jeffrey A. Chapman

Telephone:  (214) 220-7797

Telecopy:  (214) 999-7797

Attention:  P. Gregory Hidalgo

Telephone:  (214) 220-7959

Telecopy:  (214) 999-7959

 

-58-

 

or at such other address or to such other telecopy,
telefax or other facsimile or electronic transmission number and to the
attention of such other Person as Buyer may designate by written notice to
Seller.

 

Section 16.6           Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that the
respective rights and obligations of the parties hereto shall not be assignable
or delegable by any party hereto without the express written consent of the
non-assigning or non-delegating party.

 

Section 16.7           Amendments and Waivers. Except as
contemplated by Section 9.5, this Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision of this Agreement on the part of
the other party hereto to be performed or complied with. The waiver by either
party hereto of a breach of any term or provision of this Agreement shall not
be construed as a waiver of any subsequent breach.

 

Section 16.8           Appendices, Schedules and Exhibits. All
Appendices, Schedules and Exhibits hereto which are referred to herein are
hereby made a part of this Agreement and incorporated herein by such
reference.

 

Section 16.9           Interpretation. It is expressly
agreed that this Agreement shall not be construed against any party, and no
consideration shall be given or presumption made, on the basis of who drafted
this Agreement or any particular provision hereof or who supplied the form of
Agreement. Each party agrees that this Agreement has been purposefully drawn
and correctly reflects its understanding of the transaction that this Agreement
contemplates. In construing this Agreement:

 

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

 

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

 

(c)           a defined term has its
defined meaning throughout this Agreement and each Appendix, Exhibit and Schedule to
this Agreement, regardless of whether it appears before or after the place
where it is defined;

 

(d)           each Exhibit and Schedule to
this Agreement is a part of this Agreement, but if there is any conflict or
inconsistency between the main body of this Agreement (including Appendix A which shall be
considered part of the main body of this Agreement) and any Exhibit or
Schedule, the provisions of the main body of this Agreement shall prevail;

 

(e)           the term “cost”
includes expense and the term “expense” includes cost;

 

-59-

 

(f)          the
headings and titles herein are for convenience only and shall have no
significance in the interpretation hereof; and

 

(g)         references
to a period of time measured by a “day” or number of “days” mean calendar days
unless otherwise expressly provided herein.

 

Section 16.10       Dispute
Resolution.

 

(a)       Negotiation. 
The parties shall attempt in good faith to promptly resolve amicably any
dispute or difference arising under or out of, in relation to or in any way
connected with this Agreement (whether contractual, tortious, equitable,
statutory or otherwise) (a “Dispute”) by negotiation between Senior
Executives.  A “Senior Executive”
means an individual who is the chairman, chief executive officer, president or
a vice-president of a party and who has authority to negotiate the settlement
of the Dispute for such party.  The
disputing party shall give the other party written notice of the Dispute.  Within twenty-five (25) days after receipt of
such notice, each receiving party shall submit a written response to the
disputing party.  The notice and response
shall include a statement of the relevant party’s position and a summary of the
evidence and arguments supporting its position. 
The Senior Executives shall meet at a mutually acceptable time and place
within forty-five (45) days after the date of the disputing party’s notice and
thereafter as often as they reasonably deem necessary to exchange relevant
information and to attempt to resolve the Dispute.

 

(b)       Arbitration. 
If the Dispute has not been resolved through negotiation within ninety
(90) days after the date of the disputing party’s notice, the Dispute shall be
finally referred to and settled by arbitration under the Commercial Arbitration
Rules (the “Rules”) of the American Arbitration Association (“AAA”)
pursuant and subject to the arbitration procedures set forth in the Arbitration
Procedures.  In the event of any conflict
between the Rules and the Arbitration Procedures, the Arbitration
Procedures shall govern and control.

 

(c)       Equitable Relief. 
Nothing contained in this Section 16.10 shall prevent Seller or its
Affiliates from seeking specific performance, an injunction or other equitable
relief with respect to their rights under the Confidentiality Agreement through
judicial means in any jurisdiction.

 

Section 16.11     Agreement for the Parties’ Benefit Only. 
This Agreement is for the sole benefit of Buyer, Seller and their
respective successors and assigns as permitted herein and no other Person shall
be entitled to enforce this Agreement, rely on any representation, warranty,
covenant or agreement contained herein, receive any rights hereunder or be a
third party beneficiary of this Agreement. 
Any Indemnified Person which is a third party shall be indemnified and
held harmless under the terms of this Agreement only to the extent that a party
expressly elects to exercise such right of indemnity and hold harmless on
behalf of such third party Indemnified Person pursuant to Section 14.3;
and no party shall have any direct liability or obligation to any third party
or be liable to any third party for any election or non-election or any act or
failure to act under or in regard to any term of this Agreement.  Any claim for indemnity or hold harmless
hereunder on behalf of an Indemnified Person must be made and administered 

 

-60-

 

by a
party to this Agreement.  Any claim on
behalf of an Indemnified Person may only be brought against the defaulting
party or parties.

 

Section 16.12       Attorneys’
Fees.  The prevailing party in any
legal proceeding brought under or to enforce this Agreement shall be
additionally entitled to recover court costs, reasonable costs of arbitration
and reasonable attorneys’ fees from the nonprevailing party.

 

Section 16.13       Severability.  If any term, provision or condition of this
Agreement, or any application thereof, is held invalid, illegal or
unenforceable in any respect under any Law, this Agreement shall be reformed to
the extent necessary to conform, in each case consistent with the intention of
the parties, to such Law, and to the extent such term, provision or condition
cannot be so reformed, then such term, provision or condition (or such invalid,
illegal or unenforceable application thereof) shall be deemed deleted from (or
prohibited under) this Agreement, as the case may be, and the validity,
legality and enforceability of the remaining terms, provisions and conditions
contained herein (and any other application such term, provision or condition)
shall not in any way be affected or impaired thereby.  Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.

 

Section 16.14       No
Recordation.  Without limiting any
party’s right to file suit to compel arbitration to enforce its rights under
this Agreement and except as required by Law, Buyer and Seller expressly
covenant and agree not to record or place of record this Agreement or any copy
or memorandum hereof.

 

Section 16.15       Purchase
Price Allocation for Tax Purposes. 
Seller and Buyer agree that the Adjusted Purchase Price and the Assumed
Obligations shall be allocated among the various Assets for federal and state
income tax purposes in a manner consistent with Schedule
16.15 (which shall be jointly prepared by Buyer and Seller and
attached to this Agreement on or before the Closing Date) and Section 7.2(b).  Seller and Buyer shall cooperate to update
the allocation to reflect any adjustment to the Adjusted Purchase Price.  The allocation of the Purchase Price shall be
reflected on a completed Form 8594 (Asset Acquisition Statement Under Section 1060),
which Form Seller and Buyer will each file separately with the Internal
Revenue Service pursuant to the requirements of section 1060(b) of the
Code.  The parties agree not to take a
federal or state income tax reporting position inconsistent with the
allocations set forth on Schedule 16.15,
as adjusted.  The parties further agree
that the allocations set forth on Schedule 16.15
represent reasonable estimates of the fair market values of the Assets
described therein.  Seller shall provide
an estimate of allocation of the Purchase Price to Buyer fifteen (15) days
prior to Closing.

 

Section 16.16       Time
of Essence.  Time is of the essence
in this Agreement.  If the date specified
in this Agreement for giving any notice or taking any action is not a Business
Day (or if the period during which any notice is required to be given or any
action taken expires on a date which is not a Business Day), then the date for
giving such notice or taking such action (and the 

 

-61-

 

expiration
date of such period during which notice is required to be given or action
taken) shall be the next day which is a Business Day.

 

Section 16.17       Affiliate
Liability.  Each of the following is
herein referred to, for purposes of this Section 16.17, as a “Buyer
Affiliate”: (a) any direct or indirect holder of equity interests or any
other form of ownership in Buyer (whether limited or general partners, members,
shareholders or otherwise); and (b) any director, officer, manager,
employee, representative or agent of (i) Buyer or (ii) any Affiliate
of Buyer.  Except to the extent that a
Buyer Affiliate is an express signatory and party hereto or an express
signatory and party to the Guaranty Agreement, no Buyer Affiliate shall have
any liability or obligation of any nature whatsoever in connection with or
under this Agreement, or the transactions contemplated hereby, and Seller
hereby waives and releases all claims of any such liability and obligation.

 

Section 16.18       Schedules.  The disclosures in any Schedule must relate
only to the representations, warranties and covenants in the Section of
this Agreement to which it expressly relates and not to any other
representation, warranty or covenant in this Agreement, unless some other
representation, warranty or covenant is specifically and clearly referred to in
such Schedule.

 

Section 16.19       Liability.  All obligations and duties of Seller or any
of their respective successors and assigns contained in this Agreement or in
any of the Transaction Documents shall for all purposes hereof and thereof be
the joint and several obligations and duties of each of EOG, EOG Appalachian
and ESI and each of their respective successors and assigns.

 

[SIGNATURE PAGE FOLLOWS]

 

-62-

 

IN WITNESS WHEREOF, this Agreement has been signed by
or on behalf of each of the parties as of the day first above written.

 

	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  EOG RESOURCES,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ LLOYD W.
  HELMS, JR.

  
	
   

  	
   

  	
  Lloyd W.
  Helms, Jr., Vice President,

  
	
   

  	
   

  	
  Acquisitions &
  Engineering

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EOG RESOURCES
  APPALACHIAN LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GARY L.
  THOMAS

  
	
   

  	
   

  	
  Gary L. Thomas,
  Chairman and Chief

  
	
   

  	
   

  	
  Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ENERGY SEARCH,
  INCORPORATED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ LLOYD W.
  HELMS, JR.

  
	
   

  	
   

  	
  Lloyd W.
  Helms, Jr., Vice President,

  
	
   

  	
   

  	
  Engineering &
  Acquisitions

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  EXCO APPALACHIA,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN D.
  JACOBI

  
	
   

  	
   

  	
  John D. Jacobi,
  Vice President

  
					

 

 

Signature Page to Asset
Purchase Agreement

 

APPENDIX A

 

TO

 

ASSET PURCHASE
AGREEMENT

 

DEFINITIONS

 

“AAA” shall be as defined in Section 16.10(b).

 

“Access Agreement” shall be as defined in Section 6.2(b).

 

“Action” shall mean any action, suit, proceeding, condemnation
or audit by or before any court or other Governmental Authority or any
arbitration proceeding.

 

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

 

“Adjustment Period” shall be as defined in Section 3.3(a).

 

“Adjustment Statement” shall be as defined in Section 3.3(a).

 

“Affiliate” shall mean, as to the Person specified, any Person
controlling, controlled by or under common control with such specified
Person.  The concept of control,
controlling or controlled as used in the aforesaid context means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities, by contract or otherwise.  No Person shall be deemed an Affiliate of any
Person by reason of the exercise or existence of rights, interests or remedies
under this Agreement.

 

“Agreed Rate” shall mean an annual rate of interest equal to the
lesser of (i) five percent (5%)  and (ii) the
maximum rate of interest allowed by Law.

 

“Agreement” shall be as defined in the preamble hereto.

 

“Arbitration Procedures” shall mean the arbitration procedures
set forth in Exhibit A-1.

 

“Asset Records” shall mean, except to the extent constituting
Excluded Assets, and other than title opinions relating to the Subject
Interests, except to the extent the transfer thereof may not be made without
violating legal constraints or legal obligations or waiving any attorney/client
privilege, any and all lease files, land files, division order files,
production marketing files, well files, production records, seismic,
geological, geophysical and engineering data, litigation files, abstracts,
title opinions, land surveys, logs and all other books and records, files, maps
and data (in whatever form) arising out of or relating to the Subject Interests
or the ownership, use, maintenance or operation of the Assets.

 

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

 

Appendix A – Page 1

 

(a)         the
Subject Interests;

 

(b)         the
Incidental Rights;

 

(c)         the
Claims;

 

(d)         the
Royalty Accounts; and

 

(e)         all (i) oil, gas and other
hydrocarbons produced from or attributable to the Subject Interests with
respect to all periods subsequent to the Effective Time and (ii) proceeds
from or of such oil, gas and other hydrocarbons.

 

“Assumed Liabilities” shall mean
(i) all Covered Liabilities of Seller with respect to the Claims, the
Royalty Accounts, title to the Assets and/or any Permitted Encumbrances with
respect to the Assets (other than Taxes allocated to Seller pursuant to Section 12.2),
(ii) the Plugging and Abandonment Obligations, (iii) all Covered
Liabilities to the extent arising out of or attributable to the ownership, use,
construction, maintenance or operation of any of the Assets on or subsequent to
the Effective Time, (iv) any and all Environmental Liabilities and any and
all other Covered Liabilities arising out of or attributable to any
Environmental Matter with respect to the Assets or any Environmental Matter
arising out of or attributable to the ownership, use, construction, maintenance
or operation of any of the Assets before or after the Effective Time, excluding
any such obligations and liabilities that are required to be paid or performed
by Seller pursuant to Section 6.2, (v) all Covered Liabilities
arising out of or attributable to any injury, death or damage to person or
property occurring on or after the Closing Date on or to the Assets or the
Lands (or any adjacent lands or any pooled or unitized lands) or in connection
with any operations or activities relating thereto to the extent arising out of
or attributable to the use, construction, maintenance or operation of any of
the Assets on or after the Closing Date, and (vi) all Covered Liabilities
of Seller with respect to the pending condemnation suit described in Schedule 4.1(w) arising after
the Effective Time; provided that, the Assumed Liabilities shall not include
any Covered Liability resulting from any breach or nonfulfillment of any
representation, warranty, covenant or agreement on the part of Seller hereunder
for which Seller is obligated to indemnify the Buyer pursuant to clause (ii) of
Section 14.2.

 

“2007 Audited Financial Statements” shall be as defined in Section 5.1(d).

 

“Business Day” shall mean any day which is not a Saturday,
Sunday or legal holiday recognized by the United States of America.

 

“Buyer” shall be as defined in the preamble to this Agreement.

 

“Buyer Controlled Group” shall be as defined in Section 9.11(a).

 

“Buyer Indemnified Persons” shall be as defined in Section 14.2.

 

“Buyer’s Environmental Review” shall be as defined in Section 6.1(a).

 

Appendix A – Page 2

 

“Cause” shall be as defined in Section 9.10(c).

 

“Claim Notice” shall be as defined in Section 14.3(a).

 

“Claims” shall mean all right, title and interest of Seller to
any claims to the extent attributable to ownership, use, construction,
maintenance or operation of the Assets subsequent to the Effective Time,
including, without limitation, past, present or future claims, whether or not
previously asserted by Seller, excluding, however, any claims against Seller or
any past or present Affiliate of Seller.

 

“Closing” shall be the consummation of the transaction
contemplated by Article XI.  The
Closing with respect to part of the Assets may be delayed or extended as
provided in Sections 7.6 and 8.4.

 

“Closing Date” shall mean (a) February 20, 2008, or (b) such
other date as may be mutually agreed to by Seller and Buyer.  The Closing Date with respect to part of the
Assets may also be delayed or extended as provided in Sections 7.6, 8.4 and
10.3.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended,
and any successor thereto, together with all regulations promulgated
thereunder.

 

“Company Employees” shall be as defined in Section 9.11(a).

 

“Confidentiality Agreement” shall be as defined in Section 5.2.

 

“Continuing Employees” shall be as defined in Section 9.11(b).

 

“Conveyance” shall be as defined in Section 9.3(a).

 

“Corrective Action” shall mean any remedial, removal, response,
construction, closure, disposal, monitoring or other corrective action.

 

“Covered Liabilities” shall mean any and all debts, losses,
liabilities, duties, fines, damages, claims, Taxes, costs and expenses
(including, without limitation, those arising out of any demand, assessment,
settlement, judgment or compromise relating to any actual or threatened Action
and any court costs, reasonable fees and expenses of expert witnesses,
reasonable investigative expenses, reasonable fees and disbursements of legal
counsel and other reasonable legal and investigative fees and expenses incurred
in investigating, preparing or defending any Action), matured or unmatured,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known
or unknown, including, without limitation, any of the foregoing arising under,
out of or in connection with any Action, any order or consent decree of any
Governmental Authority, any award of any arbitrator, or any Law, contract,
commitment or undertaking.

 

“Defect Deductible” shall mean $15,800,000.

 

Appendix A – Page 3

 

“Defensible Title” shall mean, respectively as to the Subject
Interest or Subject Interests related to a particular Property Subdivision,
title to such Property Subdivision and the Subject Interest or Subject
Interests related to such Property Subdivision that, subject to and except for
any Permitted Encumbrances:  (i) entitles
Seller to receive not less than the applicable Net Revenue Interest or Net
Revenue Interests specified for such Property Subdivision in the Property
Schedule throughout the productive life of such Property Subdivision; (ii) obligates
Seller to bear the costs and expenses attributable to the maintenance,
development, and operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working Interests specified for
such Property Subdivision in the Property Schedule (unless Seller’s Net Revenue
Interest therein is at least proportionately increased) throughout the
productive life of such Property Subdivision; and (iii) is free and clear
of all liens and encumbrances.

 

“Deferred Adjustment Claim” shall be as defined in Section 7.6.

 

“Deferred Matters Date” shall be as defined in Section 7.6.

 

“Deposit” shall be as defined in Section 3.2.

 

“Disputed Issues” shall be as defined in the Arbitration
Procedures.

 

“Effective Time” shall mean 7:00 a.m., Houston Time, on November 1,
2007; provided that, with respect to occurrences, prorations and allocations
with respect to a particular Asset, Effective Time shall be 7:00 a.m. at
the location of such Asset on November 1, 2007.

 

“Election Period” shall be as defined in Section 14.3(a).

 

“Environmental Condition” shall mean a condition existing at the
Effective Time with respect to the air, soil, subsurface, surface waters,
groundwaters, and/or sediments that causes (i) an Asset (or Seller with
respect to an Asset) not to be in compliance with any Environmental Law (other
than any Future Law) in a material respect or (ii) an Asset to be required
to be remediated (or other Corrective Action taken with respect to such Asset)
under any Environmental Law (other than any Future Law).  The existence or presence of asbestos or NORM
(Naturally Occurring Radioactive Material) in or with respect to any equipment,
tubulars, material, facility or other property which is currently in use and
which is not currently required to be remediated under Environmental Law shall
not be considered an Environmental Condition notwithstanding that remediation
may be required when such property is taken out of service.

 

“Environmental Consultant” shall mean Kane Environmental or
another environmental consulting firm of similar expertise and reputation
approved by Seller, which approval will not be withheld unreasonably, which is
retained by Buyer in connection with Buyer’s Environmental Review.

 

“Environmental Defect” shall mean an Environmental Condition
with respect to the Assets which is not set forth in Schedule
6.1; provided that, if the reasonably anticipated 

 

Appendix A – Page 4

 

Remediation Amount with respect to such Environmental
Condition is not in excess of $50,000, such Environmental Condition shall not
constitute an Environmental Defect.

 

“Environmental Defect Amount” shall be as defined in Section 6.2(c).

 

“Environmental Defect Property” shall be as defined in Section 6.2(b).

 

“Environmental Examination Period” shall be as defined in Section 6.1(a).

 

“Environmental Laws” shall mean all Laws relating to (a) the
control of any potential pollutant, or protection of the air, water or land, (b) solid,
gaseous or liquid waste generation, handling, treatment, storage, disposal or
transportation, and (c) exposure to hazardous, toxic or other substances
alleged to be harmful.  “Environmental
Laws” shall include, but are not limited to, the Clean Air Act, the Clean Water
Act, the Resource Conservation Recovery Act, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, the Safe Drinking Water
Act, and the Comprehensive Environmental Response, Compensation and Liability
Act and shall also include all state, local and municipal Laws dealing with the
subject matter of the above listed Federal statutes or promulgated by any
governmental or quasi-governmental agency thereunder in order to carry out the
purposes of any Federal, state, local or municipal Law.

 

“Environmental Liabilities” shall mean any and all costs
(including costs of Remediation), damages, settlements, expenses, penalties,
fines, prejudgment and post-judgment interest, court costs and attorneys’ fees
incurred or imposed (i) pursuant to any order, notice of responsibility,
directive (including requirements embodied in Environmental Laws), injunction,
judgment or similar act (including settlements) by any Governmental Authority
to the extent arising out of or under Environmental Laws (excluding any claim
or cause of action of Buyer or any Affiliate of Buyer) or (ii) pursuant to
any claim or cause of action by a Governmental Authority or other third Person
(other than Buyer and any Affiliate of Buyer) for personal injury, property
damage, damage to natural resources, remediation or response costs to the
extent arising out of or attributable to any violation of, or any remedial
obligation under, any Environmental Law.

 

“Environmental Matters” shall mean (i) any order, decree,
notice of responsibility, directive (including requirements embodied in
Environmental Laws), injunction, judgment or similar act (including
settlements) by any Governmental Authority arising out of or under any
Environmental Laws or (ii) pursuant to any claim or cause of action by a
Governmental Authority or other Person for personal injury, property damage,
damage to natural resources, remediation or response costs arising out of or
attributable to any Hazardous Materials or any violation of, or any remedial
obligation under, any Environmental Law.

 

“EOG” shall be as defined in the preamble to this Agreement.

 

“EOG Appalachian” shall be as defined in the preamble to this
Agreement.

 

“ERISA” shall be as defined in Section 4.1(y)(i)(1).

 

Appendix A – Page 5

 

“ESI” shall be as defined in the preamble to this Agreement.

 

“Exchange” shall be as defined in Section 12.3(d).

 

“Exchange Act” shall be as defined in Section 5.1(c).

 

“Excluded Assets” shall mean the following:

 

(a)         the right to retain copies (but not the
originals) of all Asset Records;

 

(b)        except
to the extent constituting the Royalty Accounts, all deposits, cash, checks,
funds and accounts receivable attributable to Seller’s interests in the Assets
with respect to any period of time prior to the Effective Time;

 

(c)         all (i) oil, gas and other
hydrocarbons produced from or attributable to the Subject Interests with
respect to all periods prior to the Effective Time, (ii) oil, gas and
other hydrocarbons attributable to the Subject Interests which, at the
Effective Time, are in storage, within processing plants, in pipelines or
otherwise held in inventory, and (iii) proceeds from or of such oil, gas
and other hydrocarbons;

 

(d)         any interests, properties and assets
which Seller elects to exclude from the Assets pursuant to Section 6.2(b)(i),
Section 7.5, Section 9.2(c)(2), and/or Section 9.9, or which
Buyer elects to exclude from the Assets pursuant to Section 6.1(d), in
each case together with a pro rata share of all applicable Incidental Rights,
oil, gas and other minerals, and other assets attributable or appurtenant
thereto which are excluded from the Assets in connection therewith;

 

(e)         all receivables and cash proceeds which
were expressly taken into account and for which credit was given in the
determination of Net Cash Flow pursuant to Section 3.3, as adjusted
pursuant to Section 3.4;

 

(f)          claims of Seller for refund of or loss
carry forwards with respect to (i) Taxes attributable to any period prior
to the Effective Time or (ii) any Taxes attributable to the Excluded
Assets;

 

(g)         all corporate, financial, tax and legal
records of Seller;

 

(h)         all rights, interests, assets and
properties described in Schedule A-2;

 

(i)          except as otherwise provided in Section 9.9,
all rights, titles, claims and interests of Seller or any Affiliate of Seller (i) under
any policy or agreement of insurance, (ii) under any bond, or (iii) to
any insurance or condemnation proceeds or awards;

 

(j)          except as expressly listed on Schedule A-1-A, all computer or
communications software or intellectual property (including tapes, data and 

 

Appendix A – Page 6

 

program
documentation and all tangible manifestations and technical information
relating thereto) owned, licensed or used by Seller;

 

(k)         any logo, service mark, copyright,
trade name or trademark of or associated with Seller or any Affiliate of Seller
or any business of Seller or of any Affiliate of Seller; and

 

(l)          all Seller Benefit Plans or Title IV
Plans.

 

“Excluded Liabilities” shall mean, except to the extent
constituting an Assumed Liability, (i) any and all Covered Liabilities to
the extent arising out of or attributable to the ownership, use, construction,
maintenance or operation of the Excluded Assets, (ii) any and all Covered
Liabilities arising out of or attributable to any injury, death or damage to
person or property occurring prior to the Closing Date to the extent (A) arising
out of or attributable to the use, construction, maintenance or operation of the
Assets by Seller prior to the Closing Date and (B) such Covered
Liabilities are asserted against any Buyer Indemnified Parties in any Action
brought by a third Person or Persons within three (3) years following the
Closing Date, (iii) fines, penalties and sanctions asserted or levied,
within three (3) years following the Closing Date, by any Governmental
Authority and arising out of the ownership, use, maintenance or operation of
the Assets prior to the Closing Date, and (iv) any and all claims, demands
and actions, and related liabilities and obligations, for the non-payment,
underpayment, or miscalculation of royalties, overriding royalties, Taxes and
similar items attributable to the production of oil, gas and other hydrocarbons
from the Assets prior to the Effective Time, in each case excluding any Covered
Liability which any Buyer Indemnified Person or any Affiliate thereof may have
without regard to Buyer’s acquisition of the Assets from Seller.

 

“EXCO” shall be as defined in Section 9.15.

 

“Final Adjustment Statement” shall be as defined in Section 3.4.

 

“Future Laws” shall mean (i) any statutes, laws or
ordinances enacted or decreed after the Effective Time (including the
elimination of the exclusion of petroleum from the definition of “hazardous substance”
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 and the elimination of the exclusion of oil and gas exploration,
development and production wastes from the definition of “hazardous wastes”
under the Resource Conservation and Recovery Act) to the extent the liabilities
or requirements sought to be imposed under such subsequent statutes, laws or
ordinances could not have been imposed under statutes, laws or ordinances
existing as of the Effective Time and (ii) any regulations, rules, rulings
or orders promulgated after the Effective Time to the extent such regulations,
rules, rulings or orders implement new requirements for matters not addressed
or otherwise regulated in regulations, rules, rulings or orders existing as of
the Effective Time or implement more stringent requirements for matters
addressed or otherwise regulated in regulations, rules, rulings or orders
existing as of the Effective Time.

 

“GAAP” shall mean United States generally accepted accounting principles,
consistently applied throughout the periods involved.

 

Appendix A – Page 7

 

“Governmental Authority” shall mean (i) the United States
of America, (ii) any state, county, municipality or other governmental
subdivision within the United States of America, and (iii) any court or
any governmental department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any state, county,
municipality or other governmental subdivision within the United States of
America.

 

“Governmental Authorizations” shall be as defined in Section 4.1(v).

 

“Guaranty Agreement” shall mean that certain Guaranty Agreement,
in the form attached as Exhibit C.

 

“Hazardous Materials” shall mean any explosives, radioactive
materials, asbestos material, urea formaldehyde, hydrocarbon contaminants,
underground tanks, pollutants, contaminants, hazardous, corrosive or toxic
substances, special waste or waste of any kind, including compounds known as
chlorobiophenyls and any material or substance the storage, manufacture,
disposal, treatment, generation, use, transport, mediation or release into the
environment of which is prohibited, controlled, regulated or licensed under
Environmental Laws, including, but not limited to, (i) all “hazardous
substances” as that term is defined in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, and (ii) petroleum and petroleum products.

 

“Hydrocarbon Interests” shall mean (a) mineral servitudes
and leases affecting, relating to or covering any oil, gas and other
hydrocarbons in place and the leasehold interests and estates in the nature of
working or operating interests under such leases, as well as overriding royalties,
net profits interests, production payments, carried interests, rights of
recoupment and other interests in, under or relating to such leases, (b) fee
interests in oil, gas or other hydrocarbons in place, (c) royalty
interests in oil, gas or other hydrocarbons in place, (d) any other
interest in oil, gas or other hydrocarbons in place, (e) any economic or
contractual rights, options or interests in and to any of the foregoing,
including, without limitation, any sublease, farmout or farmin agreement or
production payment affecting any interest or estate in oil, gas or other
hydrocarbons in place, and (f) any and all rights and interests
attributable or allocable thereto by virtue of any pooling, unitization,
communitization, production sharing or similar agreement, order or declaration.

 

“Hydrocarbon Tax” means any hydrocarbon production or similar
excise Tax based upon or measured by the operation of the Assets or the
production of hydrocarbons therefrom, but excluding any Income Tax or Property
Tax.

 

“Incidental Rights” shall mean all right, title and interest of
Seller in and to or derived from the following insofar as the same are
attributable to the Subject Interests:  (a) all
rights with respect to the use and occupancy of the surface of and the subsurface
depths under the Lands; (b) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any Subject Interest being a part
thereof; (c) all agreements and contracts, easements, rights-of-way,
servitudes and other estates, including those described in Part I of Schedule A-1-A; (d) all real
and personal property located upon the Lands and used in connection with the
exploration, 

 

Appendix A – Page 8

 

development or operation of the Subject Interests,
including those described in Part II of Schedule
A-1-A; and (e) the Asset Records.

 

“Income Tax” means any federal, state, local or foreign income,
franchise or similar Tax.

 

“Indemnified Claim” shall be as defined in Section 14.3(a).

 

“Indemnified Person” shall be as defined in Section 14.3.

 

“Indemnifying Party” shall be as defined in Section 14.3.

 

“Initial Adjustment Amount” shall be as defined in Section 3.3(a).

 

“knowledge” shall mean the actual knowledge (excluding any
imputed or implied knowledge) of any fact, circumstance or condition by a
current officer or manager of the party involved.

 

“Lands” shall mean the lands covered by or subject to the
Subject Interests.

 

“Law” shall mean any applicable statute, law (including common
law), ordinance, regulation, rule, ruling, order, writ, injunction, decree or
other official act of or by any Governmental Authority.

 

“Material Adverse Effect” shall mean a material adverse effect
on the value of the Assets (taken as a whole and after taking into account any
insurance, indemnity and other recoveries payable in respect thereof),
excluding any effect resulting from any change in economic, industry or market
conditions (whether general or regional in nature or limited to any area where any
Assets are located) or from any change in Law or regulatory policy.

 

“Negative Imbalance” shall mean, respectively as to each
Property Subdivision to which the Subject Interests are attributable and
without duplication, the sum (expressed in MMBtus) of (i) the aggregate
make-up, prepaid or other volumes of natural gas that Seller was obligated as
of the Effective Time, on account of prepayment, advance payment, take-or-pay,
gas balancing or similar obligations, to deliver from the Subject Interests
attributable to such Property Subdivision after the Effective Time without then
or thereafter being entitled to receive full payment therefor (proportionately
reduced to the extent Seller will be entitled to receive partial payment
therefor) and (ii) the aggregate pipeline or processing plant imbalances
or overdeliveries for which Seller is obligated to pay or deliver natural gas
or cash to any pipeline, gatherer, transporter, processor, co-owner or
purchaser in connection with any other natural gas attributable to the Subject
Interests.

 

“Net Cash Flow” shall be as defined in Section 3.3(d).

 

“Net Revenue Interest” shall mean an interest (expressed as a
percentage or decimal fraction) in and to all oil, gas and other hydrocarbons
produced and saved from or attributable to a Property Subdivision.

 

Appendix A – Page 9

 

“PBGC” shall be as defined in Section 4.1(y)(ii).

 

“Pennsylvania Fee Interests” shall mean and include (i) the
undivided fee interests in oil, gas and other hydrocarbons in place specified
in Part IV of Schedule A-1-A
and (ii) all other undivided fee interests of Seller in oil, gas and other
hydrocarbons in place in the lands covered by or subject to any of the
undivided fee interests described in Part IV of Schedule
A-1-A, even though such interests of Seller may be incorrectly
described or referred to in, or a description thereof may be omitted from, Part IV
of Schedule A-1-A, excluding any Excluded Assets.

 

“Pennsylvania Oil and Gas Lease” shall be as defined in Section 9.3(b).

 

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

 

(a)         all agreements, instruments, documents,
liens, encumbrances, and other matters which are described in Schedule A-3 or any other Schedule
or Exhibit to this Agreement to the extent they do not (i) reduce the
Net Revenue Interest or Net Revenue Interests below that shown in the Property
Schedule or (ii) increase Seller’s Working Interest above that shown in
the Property Schedule without at least a proportionate increase in Net Revenue
Interest or Net Revenue Interests;

 

(b)         any (i) undetermined or inchoate
liens or charges constituting or securing the payment of expenses which were
incurred incidental to the maintenance, development, production or operation of
the Assets or for the purpose of developing, producing or processing oil, gas
or other hydrocarbons therefrom or therein which do not reduce the Net Revenue
Interest or Net Revenue Interests below that shown in the Property Schedule, or
increase the Working Interest above that shown in the Property Schedule without
at least a proportionate increase in Net Revenue Interest or Net Revenue
Interests and (ii) materialman’s, mechanics’, repairman’s, employees’,
contractors’, operators’ or other similar liens, security interests or charges
for liquidated amounts arising in the ordinary course of business incidental to
construction, maintenance, development, production or operation of the Assets
or the production or processing of oil, gas or other hydrocarbons therefrom,
that are not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in good faith;

 

(c)         any liens for Taxes not yet delinquent;

 

(d)         any liens or security interests created
by Law or reserved in oil, gas and/or mineral leases for royalty, bonus or
rental or for compliance with the terms of the Subject Interests;

 

(e)         all Preference Rights and Transfer
Requirements applicable to this or any future transaction;

 

(f)          any easements, rights-of-way, servitudes,
permits, licenses, surface leases and other rights with respect to operations
to the extent they do not (i) reduce 

 

Appendix A – Page 10

 

Seller’s
Net Revenue Interest or Net Revenue Interests below that shown in the Property
Schedule, (ii) increase Seller’s Working Interest above that shown in the
Property Schedule without at least a proportionate increase in Net Revenue
Interest or Net Revenue Interests or (iii) interfere in any material
respect with Seller’s operation of the portion of the Assets burdened thereby;

 

(g)         any obligations, prohibitions,
restrictions, terms or provisions contained in any existing joint operating
agreement, farmout, farmin or tax partnership agreement to which the Assets are
subject that is similar to those provided under any A.A.P.L. Model Form Operating
Agreement, to the extent they do not (i) reduce the Net Revenue Interest
or Net Revenue Interests below that shown in the Property Schedule or (ii) increase
Seller’s Working Interest above that shown in the Property Schedule without at
least a proportionate increase in Net Revenue Interest or Net Revenue
Interests;

 

(h)         all agreements and obligations relating
to (1) imbalances with respect to the production, gathering, transportation
or processing of gas, (2) calls or purchase options on oil, gas or other
minerals exercisable at current fair market prices or the posted prices of such
purchaser, or (3) processing rights or commitments;

 

(i)          all royalties, overriding royalties,
net profits interests, carried interests, reversionary interests and other
burdens on productions to the extent that the net cumulative effect of such
burdens, as to a particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Seller in such Property Subdivision as specified in
the Property Schedule or increase the Working Interest of Seller in such
Property Subdivision as specified in the Property Schedule;

 

(j)          all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract for the
sale of gas production, including by virtue of “take-or-pay” or similar
provisions, to deliver gas produced from or attributable to the Subject
Interests after the Effective Time without then or thereafter being entitled to
receive full payment therefor, in each case to the extent the same are
disclosed in any Schedule or Exhibit to this Agreement;

 

(k)         all liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects, irregularities and
other matters affecting any Asset which individually or in the aggregate are
not such as to interfere materially with the operation, value or use of such
Asset, which do not reduce the Net Revenue Interest or Net Revenue Interests
below that shown in the Property Schedule, or increase the Working Interest
above that shown in the Property Schedule without at least a proportionate
increase in Net Revenue Interest or Net Revenue Interests;

 

(l)          any encumbrance, title defect or other
matter (whether or not constituting a Title Defect) waived or deemed waived by
Buyer pursuant to Article VII;

 

Appendix A – Page 11

 

(m)        rights reserved to or vested in any
Governmental Authority to control or regulate any of the wells or units or
other properties  included in the Assets
and all applicable laws, rules, regulations and orders of such authorities so
long as the same do not decrease Seller’s Net Revenue Interest below the Net
Revenue Interest shown in the Property Schedule or increase Seller’s Working
Interest above the Working Interest shown in the Property Schedule;

 

(n)         the terms and conditions of all
contracts and agreements relating to the Subject Interests, including, without
limitation, exploration agreements, gas sales contracts, processing agreements,
farmins, farmouts, operating agreements, area of mutual interest agreements,
and right-of-way agreements, to the extent such terms and conditions do not
decrease Seller’s Net Revenue Interest below the Net Revenue Interest shown in
the Property Schedule or increase Seller’s Working Interest above the Working
Interest shown in the Property Schedule;

 

(o)         rights of reassignment requiring notice
and/or the reassignment (or granting an opportunity to receive a reassignment)
of a leasehold interest to the holders of such reassignment rights prior to
surrendering or releasing such leasehold interest; and

 

(p)         all consents and approvals of or
filings with the United States Department of Interior or other applicable
Governmental Authorities in connection with assignments of the Subject
Interests customarily obtained post-closing as contemplated by Section 8.5.

 

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

 

“Plugging and Abandonment Obligations” shall mean any and all
Covered Liabilities arising out of or attributable to the plugging, abandonment
or removal, or any obligation to plug, abandon or remove, any well, platform,
pipeline, facilities, equipment, fixtures or other property described or
referenced in the Property Schedule or located on the Assets which as of the
Effective Time has not been plugged, abandoned and removed in accordance with
the terms of the Subject Interests and all Laws applicable thereto.

 

“Positive Imbalance” shall mean, respectively as to each
Property Subdivision to which the Subject Interests are attributable and
without duplication, the sum (expressed in MMBtus) of (i) the aggregate
make-up, prepaid or other volumes of natural gas that Seller was entitled as of
the Effective Time, on account of prepayment, advance payment, take-or-pay, gas
balancing or similar obligations, to receive from the Hydrocarbon Interests
(other than the Subject Interests) attributable to such Property Subdivision
after the Effective Time and (ii) the aggregate pipeline or processing
plant imbalances or underdeliveries for which Seller is entitled to receive
natural gas or cash from any pipeline, gatherer, transporter, processor,
co-owner or purchaser in connection with any natural gas attributable to the
Subject Interests.

 

Appendix A – Page 12

 

“Preference Property” shall be as defined in Section 8.2.

 

“Preference Right” shall mean any right or agreement that
enables or may enable any Person to purchase or acquire any Asset or any
interest therein or portion thereof as a result of or in connection with (i) the
sale, assignment, encumbrance or other transfer of any Asset or any interest
therein or portion thereof or (ii) the execution or delivery of this
Agreement or the consummation or performance of the terms and conditions
contemplated by this Agreement.

 

“Property Schedule” means Schedule A-1
attached to and made a part of this Agreement.

 

“Property Subdivision” means each well, well completion,
multiple well completion, unit, lease or other subdivision of property
described or referenced in the Property Schedule.

 

“Property Tax” means any ad valorem or property tax imposed with
respect to the Assets.

 

“Proprietary Seismic Data License Agreement” shall be as defined in Section 9.18.

 

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

 

“Remediation” shall mean, with respect to an Environmental
Condition, the implementation and completion of any Corrective Actions required
under Environmental Laws to correct or remove such Environmental Condition;
provided that, such Remediation shall not extend to or cover any Corrective
Actions to the extent required under Future Laws or to the extent required to
correct or remove any condition or any aggravation of or effect on such
Environmental Condition which is caused or contributed to by any act or
omission of any Person after the Closing Date, other than Seller or Seller’s
employees, consultants, contractors or agents.

 

“Remediation Amount” shall mean, with respect to an
Environmental Condition, the present value as of the Closing Date (using an
annual discount rate of 10%) of the cost of the most cost effective Remediation
of such Environmental Condition.

 

“Reserve Report” shall mean that certain reserve report dated November 1,
2007, prepared by Degolyer and Macnaughton, with respect to the Subject
Interests as of November 1, 2007.

 

“Retained Asset” shall be as defined in Section 8.4.

 

“Royalty Accounts” shall mean those separately identifiable
accounts (and all monies contained therein) which are expressly identified and
set forth in Schedule A-4 in which Seller
is holding as of the Effective Time monies which (i) are owing to third
party owners of royalty, overriding royalty, working or other interests in
respect of past production of oil, gas or other hydrocarbons attributable to
the Assets or (ii) may be subject to refund by royalty owners or other
third parties to purchasers of past production of oil, gas or other
hydrocarbons attributable to the Assets.

 

“Rules” shall be as defined in Section 16.10(b).

 

Appendix A – Page 13

 

“Seller” shall be as defined in the preamble to this Agreement.

 

“Seller Benefit Plans” shall be as defined in Section 4.1(y)(i).

 

“Seller Controlled Entity” shall be as defined in Section 4.1(y)(ii).

 

“Seller Employment Termination Date” shall be as defined in Section 9.11(a).

 

“Seller Indemnified Persons” shall be as defined in Section 14.1.

 

“Seller Title Credit” shall be as defined in Section 7.4.

 

“Senior Executive” shall be as defined in Section 16.10(a).

 

“2007 Statements of Revenues and Expenses” shall be as defined
in Section 5.1(c).

 

“Subject Interests” shall mean and include (i) the
undivided interests specified in Parts I and II of the Property Schedule in, to
or under the Hydrocarbon Interests specifically described in the Property Schedule,
and (ii) all other interests of Seller in, to or under any Hydrocarbon
Interests in, to or under or derived from any lands covered by or subject to
any of the Hydrocarbon Interests described in Parts I and II of the Property
Schedule, even though such interests of Seller may be incorrectly described or
referred to in, or a description thereof may be omitted from, Parts I and II of
the Property Schedule, excluding any interests which become Excluded Assets.

 

“Tax Partnership” shall be as defined in Section 4.1(p).

 

“Tax Proceeding” shall be as defined in Section 12.3(c).

 

“Taxes” means all federal, state, local, and foreign income,
profits, franchise, sales, use, ad valorem, property, severance, hydrocarbon
production, excise, stamp, documentary, real property transfer or gain, gross
receipts, goods and services, registration, capital, transfer, withholding or
other taxes or governmental fees or charges imposed by any Governmental
Authority, including any interest, penalties or additional amounts which may be
imposed with respect thereto.

 

“Tax Return” means any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

 

“Taxing Authority” means, with respect to any Tax, the
Governmental Authority or political subdivision thereof that imposes such Tax,
and the agency (if any) charged with the collection of such Tax for such entity
or subdivision, including any Governmental Authority or agency that imposes, or
is charged with collecting, social security or similar charges or premiums.

 

“Termination Date” shall be as defined in Section 15.1(a).

 

Appendix A – Page 14

 

“Title Curative Period” shall be as defined in Section 7.2(c)(i).

 

“Title Defect” shall be as defined in Section 7.3.

 

“Title Defect Amount” shall be as defined in Section 7.2(d).

 

“Title Defect Notice” shall be as defined in Section 7.2(a).

 

“Title Defect Property” shall be as defined in Section 7.2(c)(i).

 

“Title Examination Period” shall be as defined in Section 7.2(a).

 

“Title IV Plan” shall be as defined in Section 4.1(y)(ii).

 

“Transaction Documents” shall mean this Agreement and all other
agreements, instruments and documents which are required by the terms of this
Agreement to be executed and/or delivered by Seller and/or Buyer.

 

“Transfer Requirement” shall mean any consent, approval,
authorization or permit of, or filing with or notification to, any Person which
is required to be obtained, made or complied with for or in connection with any
sale, assignment, transfer or encumbrance of any Asset or any interest therein,
other than any consent or approval of or filing with any Governmental Authority
in connection with the assignment of any Subject Interest that are customarily
obtained post-closing as contemplated by Section 8.5.

 

“Transition Agreement” shall be as defined in Section 9.10.

 

“Working Interest” shall mean the percentage of costs and
expenses attributable to the maintenance, development and operation of a
Property Subdivision.

 

Appendix A – Page 15

 

EXHIBIT
A-1

 

TO

 

ASSET
PURCHASE AGREEMENT

 

ARBITRATION
PROCEDURES

 

The arbitration procedures referred to in the Asset Purchase Agreement
(the “Agreement”) to which this Exhibit A-1 is attached shall be as
follows:

 

1.             Capitalized terms used herein, and not otherwise
herein defined, shall have the meanings ascribed to such terms in the
Agreement.  Any controversy or dispute
submitted to arbitration pursuant to the arbitration agreement set forth in the
Agreement and these Arbitration Procedures shall be referred to herein as the “Disputed
Issues”.  The persons identified in the
arbitration agreement set forth in the Agreement which are parties to the
Disputed Issues are referred to herein individually as a “Concerned Party” and
collectively as “Concerned Parties”.  If
the controversy or dispute constituting the Disputed Issues is solely between
Buyer, its Affiliates and/or their respective successors, assigns or legal
representatives, on the one hand, and Seller, its Affiliates and/or their
respective successors, assigns or legal representatives, on the other hand,
then solely for purposes of appointing or replacing an arbitrator pursuant to
Paragraphs 3, 4 and 5 below (and for purposes of sharing the expenses of
arbitration pursuant to Paragraph 9 below), those of the Buyer, its Affiliates
and their respective successors, assigns and legal representatives which are
parties to the Disputed Issues shall be deemed to be a single Concerned Party
and those of the Seller, its Affiliates and their respective successors,
assigns and legal representatives which are parties to the Disputed Issues
shall be deemed to be a single Concerned Party.

 

2.             Any Concerned Party desiring to submit any Disputed
Issues to arbitration shall give written notice to the other Concerned Parties
of its demand to submit such Disputed Issues to arbitration pursuant to these
Arbitration Procedures (an “Arbitration Notice”).

 

3.             Within twenty (20) days after any Concerned Party
receives the Arbitration Notice from the AAA, each Concerned Party shall, by
written notice to the other and to the AAA, appoint one arbitrator.  The two arbitrators so appointed shall name
the third, presiding arbitrator within twenty (20) days after the selection of
the second arbitrator.  If they fail to
do so, either arbitrator or any Concerned Party may request the AAA to appoint
the third arbitrator.  The presiding
arbitrator shall have experience in the oil and gas exploration and production
business or in the resolution of disputes involving same and, to the extent the
Disputed Issues relate to accounting, must be experienced in and knowledgeable
about oil and gas accounting matters.  In
addition, the third arbitrator shall be required to meet the qualification
requirements of the Commercial Arbitration Rules of the American
Arbitration Association (the “AAA Rules”), whether appointed by the
arbitrators or by a judge as provided above.

 

Exhibit A-1 – Page 1

 

4.             If more than two Concerned Parties are parties to the
Disputed Issues (a “Multi-Party Arbitration”), all Concerned Parties
which are parties to the Disputed Issues shall jointly name and agree on the
appointment of the two arbitrators to be appointed by the Concerned Parties
pursuant to Paragraph 3 above.  If the
Concerned Parties in a Multi-Party Arbitration do not agree on the choice of
any arbitrator to be appointed by the Concerned Parties pursuant to Paragraph 3
above within thirty (30) days after the Arbitration Notice with respect to such
Multi-Party Arbitration has been given (or on the choice of a replacement
arbitrator pursuant to Paragraph 5 below within thirty (30) days from notice of
resignation or inability to serve), then any Concerned Party in such
Multi-Party Arbitration may request the AAA to make the appointment of such
arbitrator (or replacement arbitrator).

 

5.             If prior to rendering a decision an arbitrator resigns
or becomes unable to serve, the arbitrator shall be replaced as follows.  If that arbitrator was one of the two
arbitrators appointed by the Concerned Parties, the Concerned Party that named
him or her (or all Concerned Parties in a Multi-Party Arbitration) shall name a
replacement; provided, however, that if that replacement is not named within
twenty (20) days from notice of resignation or inability to serve, the AAA
shall name a replacement (or, in the case of a Multi-Party Arbitration, the procedure
specified in Paragraph 4 above shall apply). 
If he or she was the third arbitrator, the other two arbitrators shall
name a replacement; provided, however, that if they fail to agree on a
replacement within fifteen (15) days, either arbitrator or any Concerned Party
may follow the procedures specified in Paragraph 3 above and request judicial
appointment of the replacement by the AAA.

 

6.             Except as expressly permitted in the arbitration
agreement set forth in the Agreement, no Concerned Party subject to these
Arbitration Procedures will commence or prosecute any suit or action against
another Concerned Party subject to these Arbitration Procedures relating to the
Disputed Issues, other than as may be necessary to compel arbitration under
these Arbitration Procedures, seek injunctive relief pending arbitration
hereunder, for the purpose of aiding the arbitration or the collection of
evidence for same, or to enforce the award of the arbitral tribunal.

 

7.             The arbitral tribunal may in all matters act through a
majority of its members on any Disputed Issues.

 

8.             No matters whatsoever, other than the Disputed Issues,
are subject to the agreement to arbitrate embodied in these Arbitration
Procedures.  The arbitral tribunal shall
be empowered hereunder solely to resolve the Disputed Issues.  The validity, construction, and
interpretation of this agreement to arbitrate, and all procedural aspects of
the arbitration conducted pursuant to this agreement to arbitrate, including
but not limited to, the scope of this agreement to arbitrate, the determination
of the issues that are subject to arbitration (i.e., arbitrability),
allegations of waiver, laches, delay or other defenses to arbitrability, and
the rules governing the conduct of the arbitration, shall be decided by
the arbitral tribunal.  The arbitral
tribunal shall have no power to award any indirect, consequential, exemplary or
punitive damages, regardless of whether such remedy would be available under
the applicable law.  The arbitral
tribunal shall  have the power to enter 

 

Exhibit A-1 – Page 2

 

such interim orders as it
deems necessary, including, without limitation, orders to preserve the subject
matter of the Disputed Issues or to preserve or adjust the status of the
Concerned Parties pending resolution of the Disputed Issues in
arbitration.  The presiding arbitrator
shall be authorized to issue procedural orders or interim measures upon
application of any Concerned Party, provided, however, that such rulings shall
be presented to the full arbitral tribunal for confirmation at the earliest
reasonable time.  The Concerned Parties
agree to accept and honor any interim orders and agree that any such interim
orders may be enforced as necessary in any court having relevant
jurisdiction.  The seat of the
arbitration and the sole venue for any proceedings in the arbitration shall be
Harris County, Texas.

 

9.             Subject to Section 16.12 of the Agreement, the
expenses of arbitration, including reasonable compensation of the arbitrators,
shall be borne equally by the Concerned Parties.  Subject to Section 16.12 of the
Agreement, each Concerned Party shall bear the compensation and expenses of its
own counsel, witnesses and employees.  If
the testimony of a witness is obtained by all Concerned Parties, the costs
associated with obtaining such testimony shall be borne equally by the
Concerned Parties.  The arbitral tribunal
shall render a final award resolving all issues in the Disputed Issues, and it
may issue partial awards as it deems appropriate.  The final award shall be rendered no later
than 180 days following the appointment of the presiding arbitrator, unless the
arbitral tribunal determines that good cause exists for delay or the Concerned
Parties agree to extend the time for the final award.  The decision of the arbitral tribunal shall
be rendered in writing and shall state the reasons for the decision, identify
the composition of the board of arbitration, the date and the place of the
decision, and any allocation of costs and expenses of the arbitration between
the Concerned Parties.  The arbitration
decision shall be final and binding upon the Concerned Parties and their
respective successors, assigns and legal representatives.  Judgment upon the arbitration decision may be
entered and execution had in any court of competent jurisdiction or application
may be made to such court for a judicial acceptance of the decision and an
order of enforcement.

 

10.           Matters not specifically provided for in
the Arbitration Procedures shall be governed by the Rules or the Texas
General Arbitration Act, chap. 171, Texas Civil Practice & Remedies
Code.

 

Exhibit A-1 – Page 3

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