false0001528129 0001528129 2019-11-05 2019-11-05

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): November 5, 2019 (November 4, 2019)

 

LAREDO PETROLEUM, INC.

(Exact name of registrant as specified in charter)

Delaware	001-35380	45-3007926
(State or other jurisdiction of  incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

15 W. Sixth Street	Suite 900
Tulsa	Oklahoma	74119
(Address of principal executive offices)		(Zip code)

 Registrant’s telephone number, including area code: (918) 513-4570

 Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	LPI	New York Stock Exchange

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
		Emerging Growth Company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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Item 1.01. Entry into a Material Definitive Agreement

On November 4, 2019, Laredo Petroleum, Inc. (the "Company") entered into a Purchase and Sale Agreement (the "Purchase Agreement") with Cordero Energy Resources LLC ("Cordero"). Pursuant to the Purchase Agreement, the Company agreed to purchase certain oil and gas properties and related assets and contracts for an aggregate purchase price of $130,250,000, subject to customary purchase price adjustments (the "Acquisition"). The Acquisition will be primarily financed through borrowings under the Company's existing revolving credit agreement.

Under the terms of the Purchase Agreement, the Company has deposited an amount equal to 10% of the unadjusted purchase price, or $13,025,000 (the "Deposit"). The Purchase Agreement contains representations and warranties, covenants, termination rights and indemnification provisions that are typical for a transaction of this size and nature that provide the parties thereto with specified rights and obligations and allocate risk among them.

The Company expects the Acquisition to close on or about December 12, 2019, subject to customary closing conditions. There can be no assurance that all of the conditions to closing the Acquisition will be satisfied.

The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.

Item 2.02. Results of Operations and Financial Condition.

     

On November 5, 2019, the Company announced its financial and operating results for the quarter ended September 30, 2019. Copies of the Company's press release and Presentation (as defined below) are furnished as Exhibit 99.1 and 99.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The Company plans to host a teleconference and webcast on November 6, 2019 at 7:30 am Central Time to discuss these results. To access the call, please dial 1.877.930.8286 or 1.253.336.8309 for international callers, and use conference code 8493537. A replay of the call will be available through Wednesday, November 13, 2019, by dialing 1.855.859.2056, and using conference code 8493537. The webcast may be accessed at the Company's website, www.laredopetro.com, under the tab "Investor Relations."

In accordance with General Instruction B.2 of the Form 8-K, the information furnished under this Item 2.02 of this Current Report on Form 8-K and the exhibits attached hereto are deemed to be "furnished" and shall not be deemed "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall such information and exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act.

Item 7.01. Regulation FD Disclosure.

On November 5, 2019, the Company issued a press release announcing the entry into the Purchase Agreement and its financial and operating results for the quarter ended September 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

On November 5, 2019, the Company also posted to its website the Third-Quarter 2019 Earnings Presentation (the "Presentation"). The Presentation is available on the Company's website, www.laredopetro.com, and is attached hereto as Exhibit 99.2 and incorporated into this Item 7.01 by reference.

All statements in the press release, teleconference and the Presentation, other than historical financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance, and actual results or developments may differ materially from those in the forward-looking statements. See the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and the Company's other filings with the SEC for a discussion of other risks and uncertainties. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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In accordance with General Instruction B.2 of Form 8-K, the information furnished under this Item 7.01 of this Current Report on Form 8-K and the exhibits attached hereto are deemed to be "furnished" and shall not be deemed "filed" for the purpose of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall such information and exhibit be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

Item 9.01. Financial Statements and Exhibits.

 

(d)  Exhibits.

 

Exhibit Number			Description
10.1			Purchase and Sale Agreement, dated November 4, 2019, by and between Cordero Energy Resources LLC and Laredo Petroleum, Inc.*
99.1			Press release dated November 5, 2019.
99.2			Third-Quarter 2019 Earnings Presentation.
104			Cover Page Interactive Data File (formatted as Inline XBRL)

* Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		LAREDO PETROLEUM, INC.
Date: November 5, 2019	By:	/s/ Michael T. Beyer
		Michael T. Beyer
		Senior Vice President and Chief Financial Officer

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Appendix I	Definitions

Exhibit A	Leases

Exhibit A-1	Mineral Interests

Exhibit A-2	Easements and Surface Interests

Exhibit B	Wells

Exhibit C	Personal Property

Exhibit D-1	Form of Assignment and Bill of Sale

Exhibit D-2	Form of Deed

Exhibit E	Excluded Assets

Exhibit F-1	Form of Closing Certificate (Seller)

Exhibit F-2	Form of Closing Certificate (Buyer)

Exhibit G	Target Area

Schedule 1.1(PE)	Certain Permitted Encumbrances

Schedule 1.05(a)	Current AFEs

Schedule 1.07	Allocation of Purchase Price

Schedule 2.02(b)	No Conflict

Schedule 2.04	Taxes

Schedule 2.05	Litigation

Schedule 2.07	Compliance with Legal Requirements

Schedule 2.09	Imbalances

Schedule 2.10	Material Contracts

Schedule 2.11	Consents and Preferential Purchase Rights

Schedule 2.12	Permits

Schedule 2.13	Current Commitments

Schedule 2.14	Environmental Laws

Schedule 2.15(b)	Wells

Schedule 4.02	Certain Authorized Pre-Closing Actions

Schedule 11.13(c)	Other Transaction Matters

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(a)	Subject to any adjustments that may be made under Section 1.05, the “Base Purchase Price” will be an aggregate amount equal to One Hundred Thirty Million, Two Hundred and Fifty Thousand and 0/100 Dollars ($130,250,000.00).

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(b)

As additional consideration to Seller hereunder, if and to the extent required by this Section 1.02(b), Seller shall be entitled to receive from Buyer an additional cash payment in an amount equal to the Earn-Out Payment, which shall be paid in accordance with this Section 1.02(b). Subject to the remainder of this Section 1.02(b), the Earn-Out Payment shall be due and payable by Buyer to Seller on or before the date that is thirty (30) days after the NYMEX Settlement Data Date (the “Earn-Out Payment Due Date”); provided, however, that any portion of the Earn-Out Payment submitted to the Accounting Expert shall be due and payable by Buyer as provided in Section 1.02(b)(i).

(i)

On or before the date which is ten (10) calendar days following the NYMEX Settlement Data Date, Buyer shall deliver to Seller a written notification setting forth the amount of the Earn-Out Payment, together with Buyer’s calculations and supporting documentation with respect to the Earn-Out Payment. Within ten (10) calendar days following receipt of Buyer’s notice, Seller shall deliver to Buyer a report containing any changes that Seller proposes to be made in the statement for the Earn-Out Payment. Any dispute with respect to a portion of the Earn-Out Payment owed hereunder that is not resolved by Buyer and Seller on or before the Earn-Out Payment Due Date shall be submitted by Buyer and Seller to the Accounting Expert for binding dispute resolution in accordance with the dispute resolution procedures set forth in Section 1.05(e), mutatis mutandis. Such dispute shall be submitted by the Parties no later than five (5) Business Days following the Earn-Out Payment Due Date. The amount of the Earn-Out Payment determined by the Accounting Expert in accordance with the terms hereof shall be paid by Buyer to Seller no later than five (5) Business Days after the Accounting Expert issues a final decision with respect to the Earn-Out Payment.

(ii)	The Parties understand and agree that the contingent rights to receive the Earn-Out Payment shall not be represented by any form of certificate or other instrument, (y) Seller shall not have any rights as a security holder of Buyer as a result of Seller’s contingent right to receive the Earn-Out Payment hereunder and (z) no interest is payable with respect to the Earn-Out Payment.

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(a)	Seller shall deliver (and execute and acknowledge, as appropriate), or cause to be delivered by the appropriate Person (and executed and acknowledged, as appropriate), to Buyer:

(i)	the Instruments of Conveyance in the appropriate number for recording in the real property records where the Assets are located, together with any assignments, on appropriate forms, of state and of federal Leases comprising portions of the Assets, if any, in sufficient counterparts necessary to facilitate filing with the applicable Governmental Bodies;

(ii)	possession of the Assets (except the Suspense Funds, which shall be conveyed to Buyer by way of one or more adjustments to the Base Purchase Price as provided in Section 1.05(d)(ii)(E));

(iii)	a certificate, in substantially the form set forth in Exhibit F-1 executed by an officer of Seller, certifying on behalf of Seller that the conditions to Closing set forth in Sections 6.01 and 6.02 have been fulfilled;

(iv)	a Treasury Regulation Section 1.1445-2(b)(2) statement, certifying that Seller (or its regarded owner, if Seller is an entity disregarded as separate from its owner) is not a “foreign person” within the meaning of Section 1445 of the Code;

(v)	an executed counterpart of the Preliminary Settlement Statement;

(vi)	for each Well operated by Seller or its Affiliate on the Closing Date, such regulatory documentation on forms prepared by Buyer (with assistance from Seller) as is necessary to designate Buyer as operator of such Wells;

(vii)	a recordable release in a form reasonably acceptable to Buyer of any trust, mortgages, financing statements, fixture filings and security agreements, in each case, securing indebtedness for borrowed money made by Seller or its Affiliates affecting the Assets; and

(viii)	such other documents as Buyer or counsel for Buyer may reasonably request, including letters-in-lieu of transfer or division order to third-party operators and purchasers of production from the Wells (which shall be prepared and provided by Buyer (with assistance from Seller) and reasonably satisfactory to Seller).

(b)	Buyer shall deliver (and execute and acknowledge, as appropriate) to Seller or Escrow Agent, as applicable:

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(i)	Buyer shall deposit an amount equal to the sum of the Indemnity Escrow Amount, plus the Defect Escrow Amount minus the Deposit Amount with the Escrow Agent pursuant to the Escrow Agreement;

(ii)	the Preliminary Amount (less the sum of the Indemnity Escrow Amount plus the Defect Escrow Amount) by wire transfer to the account specified by Seller in written notice given by Seller to Buyer at least two (2) Business Days prior to the Closing Date;

(iii)	the Instruments of Conveyance in the appropriate number for recording in the real property records where the Assets are located, together with any assignments, on appropriate forms, of state and of federal Leases comprising portions of the Assets, if any, in sufficient counterparts necessary to facilitate filing with the applicable Governmental Bodies;

(iv)	a certificate, in substantially the form set forth in Exhibit F-2 executed by an officer of Buyer, certifying on behalf of Buyer that the conditions to Closing set forth in Sections 7.01 and 7.02 have been fulfilled;

(v)	an executed counterpart of the Preliminary Settlement Statement;

(vi)	for each Well operated by Seller or its Affiliate on the Closing Date, such regulatory documentation on forms prepared by Buyer (with assistance from Seller) as is necessary to designate Buyer as operator of such Wells;

(vii)	evidence of replacement bonds, guarantees, and other sureties pursuant to Section 5.02 and evidence of such other authorizations and qualifications as may be necessary for Buyer to own and operate the Assets; and

(viii)	such other documents as Seller or counsel for Seller may reasonably request, including letters-in-lieu of transfer or division order to third-party operators and purchasers of production from the Wells (which shall be prepared and provided by Buyer (with assistance from Seller) and reasonably satisfactory to Seller).

(a)

Buyer shall be entitled to all production and products from or attributable to the Assets from and after the Effective Time and the proceeds thereof, and to all other income, proceeds, receipts and credits earned with respect to the Assets on or after the Effective Time (provided that, with respect to the Wells and operations covered by the Current AFEs, Buyer shall be entitled to all production and products from, proceeds attributable to and all other income, proceeds, receipts and credits earned with respect to such Wells prior to, on or after the Effective Time), and shall be responsible for (and entitled to any refunds with respect to) all Property Costs attributable to the Assets and incurred from and after the Effective Time. Buyer shall also be responsible for (and entitled to any refunds with respect to) all Property Costs paid by Seller prior to the Effective Time in connection with the Current AFEs. Seller shall be entitled to all production and products from or attributable to the Assets (other than the Wells and operations covered by the Current

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(b)

Without limiting the allocation of costs and receipts set forth in Section 1.05(a), for each Well operated by Seller or its Affiliate, Seller or its Affiliate shall be entitled to a monthly overhead amount (for the period commencing from the Effective Time through the Closing Date) equal to $1,000.00 per month for each Well operated by Seller or any of its Affiliates. The charges and deductions under this Section 1.05(b) shall accrue from the Effective Time through the month in which transfer of operations occurs; provided however, that the overhead charges for the month in which transfer of operations occurs shall be prorated based upon the number of days in such month that Seller or its Affiliate operated such Wells.

(c)

For purposes of allocating revenues, production, proceeds, income, accounts receivable and products under this Section 1.05(a), (i) liquid Hydrocarbons produced into storage facilities will be deemed to be “from or attributable to” the Wells when they pass through the pipeline connecting into the storage facilities into which they are run, and (ii) gaseous Hydrocarbons and liquid Hydrocarbons produced into pipelines will be deemed to be “from or attributable to” the Wells when they pass through the receipt point sales meters on the pipelines through which they are transported. In order to accomplish the foregoing allocation of production, the Parties shall rely upon the gauging, metering and strapping procedures which were conducted by Seller on or about the Effective Time and, unless demonstrated to be inaccurate, shall utilize reasonable interpolating procedures to arrive at an allocation of production when exact gauging, metering, and strapping data is not available on hand as of the Effective Time. Seller shall provide to Buyer evidence of all meter readings and all gauging and strapping procedures conducted on or about the Effective Time in connection with the Assets for purposes of establishing the adjustment to the Base Purchase Price pursuant to this Section 1.05(c). Asset Taxes shall be prorated in accordance with Section 11.02(b).

(d)	The Base Purchase Price shall be, without duplication,

(i)	increased by the following amounts:

(A)

the aggregate amount of (1) proceeds received by Buyer from the sale of Hydrocarbons produced from and attributable to the Assets (other than the Wells and operations covered by the Current AFEs) during any period prior to the Effective Time to which Seller is entitled under Section 1.05(a) (net of any (x) Royalties and (y) third party gathering, processing, transportation and other similar midstream costs) and (2) other proceeds received by Buyer with respect to the Assets for which Seller would otherwise be entitled under Section 1.05(a);

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(B)	the amount of all Asset Taxes allocable to Buyer pursuant to Section 11.02(b) but paid or economically borne by Seller;

(C)

the aggregate amount of all non-reimbursed Property Costs that have been paid by Seller that are attributable to (1) the ownership and operation of the Assets after the Effective Time (including prepayments of Property Costs made by Seller that are applied against operations conducted between the Effective Time and Closing, but excluding all other prepayments) or (2) the Wells and operations described in the Current AFEs, whether prior to, at, or after the Effective Time;

(D)	the amount of any other upward adjustment specifically provided for in this Agreement or mutually agreed upon by the Parties;

(E)	to the extent that proceeds for such volumes have not been received by Seller, an amount equal to the value of all merchantable Hydrocarbons attributable to the Assets in storage or existing in stock tanks, pipelines or plants (including inventory) as of the Effective Time;

(F)	if applicable, by the amount of any upward adjustment to the Base Purchase Price as required pursuant to Schedule 4.02;

(G)	if applicable, the amount, if any, of Imbalances in favor of Seller, multiplied by $2.75 per Mcf or $55.00 per bbl, as applicable, or, to the extent that the Applicable Contracts provide for cash balancing, the actual cash balance amount determined to be due to Seller as of the Effective Time; and

(ii)	decreased by the following amounts:

(A)

the aggregate amount of (1) proceeds received by Seller from the sale of Hydrocarbons produced from and attributable to the Assets from and after the Effective Time to which Buyer is entitled under Section 1.05(a) (net of any (x) Royalties and (y) third party gathering, processing, transportation and other similar midstream costs) and (2) other proceeds received by Seller with respect to the Assets (without duplication) for which Buyer would otherwise be entitled under Section 1.05(a);

(B)	the amount of all Asset Taxes allocable to Seller pursuant to Section 11.02(b) but paid or economically borne by Buyer;

(C)	the aggregate amount of all downward adjustments pursuant to Article 10;

(D)

the aggregate amount of all non-reimbursed Property Costs that are attributable to the ownership or operation of the Assets (other than the Wells and operations covered by the Current AFEs) prior to the Effective Time (excluding prepayments with respect to any period after the Effective Time) for which Seller would otherwise be responsible under Section 1.05(a) that are actually paid or otherwise economically borne by Buyer;

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(E)	the amount of the Suspense Funds;

(F)	the amount of any other downward adjustment specifically provided for in this Agreement or mutually agreed upon by the Parties;

(G)	if applicable, the amount, if any, of Imbalances owing by Seller, multiplied by $2.75 per Mcf or $55.00 per bbl, as applicable, or, to the extent that the Applicable Contracts provide for cash balancing, the actual cash balance amount determined to be owed by Seller as of the Effective Time; and

(H)	if applicable, by the amount of any downward adjustment to the Base Purchase Price as required pursuant to Schedule 4.02.

(e)

No earlier than sixty (60) days following the Closing Date, but no later than one hundred twenty (120) days following the Closing Date, Seller shall prepare and submit to Buyer a statement (the “Final Settlement Statement”) setting forth each adjustment or payment which was not finally determined as of the Closing Date and showing the values used to determine such adjustments to reflect the final adjusted Purchase Price based on actual credits, charges, receipts and other items before and after the Effective Time. Seller shall supply available documentation in reasonable detail to support any credit, charge, receipt or other item in such statement. On or before thirty (30) days after receipt of the Final Settlement Statement, Buyer shall deliver to Seller a written report containing any changes that Buyer proposes be made to the Final Settlement Statement and an explanation of any such changes and the reasons therefor together with any supporting information (the “Dispute Notice”). During such thirty (30)-day period, Buyer shall be given reasonable access to Seller’s and its Affiliates’ books and records relating to the matters required to be accounted for in the Final Settlement Statement to allow Buyer to conduct an audit and review of such items. Any changes not included in the Dispute Notice shall be deemed waived. If Buyer fails to timely deliver a Dispute Notice to Seller containing changes Buyer proposes to be made to the Final Settlement Statement, the Final Settlement Statement as delivered by Seller will be deemed to be mutually agreed upon by the Parties and will, without limiting Section 11.02(b) or Buyer’s right to indemnity under Section 9.02 for Seller Taxes, be final and binding on the Parties. Upon delivery of the Dispute Notice, the Parties shall undertake to agree with respect to any disputed amounts identified therein by the date that is one hundred sixty (160) days after the Closing Date (the “Post-Closing Date”). Except for Title Defect and Environmental Defect adjustments pursuant to Section 1.05(d)(ii)(C), which shall be subject to the arbitration provisions of Section 10.16, if the Parties are still unable to agree regarding any item set forth in the Dispute Notice as of the Post-Closing Date, then the Parties shall submit to an independent, nationally recognized accounting firm mutually agreed upon by the Parties (the “Accounting Expert”) a written notice of such dispute along with reasonable supporting detail for the position of Buyer and Seller, respectively, and the Accounting Expert shall finally determine such disputed item in accordance with the terms of this Agreement. The Accounting Expert shall act as an expert and not an arbitrator. In determining the proper amount of any adjustment to the Purchase Price related to the disputed item, the Accounting Expert shall not increase the Purchase Price more than the increase proposed by Seller nor decrease the Purchase Price more than the decrease proposed by Buyer, as applicable. The

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(f)

If, after the delivery of the Final Settlement Statement pursuant to the provisions of Section 1.05(e), either Party receives monies (including proceeds of production) belonging to the other Party pursuant to Section 1.05(a) or otherwise (except with respect to any payments that have been accounted for in the Preliminary Settlement Statement or the Final Settlement Statement, as applicable), then such monies shall, within five (5) Business Days after the end of the month in which they were received, be paid over by the receiving Party to the owed Party. Additionally, except with respect to any payments that have been accounted for in the Preliminary Settlement Statement or the Final Settlement Statement, as applicable, if after delivery of the Final Settlement Statement, (i) Seller pays monies relating to the Assets that are the obligation of Buyer or (ii) Buyer pays monies relating to the Assets that are the obligation of Seller, then the Party owing such obligation shall, within five (5) Business Days after the end of the month in which the applicable invoice and proof of payment of such invoice are received by it, reimburse the Party who made such payment therefor. Each Party shall be permitted to offset any monies owed by it to the other Party pursuant to this Section 1.05 against amounts owed to it by the other Party pursuant to this Section 1.05. Notwithstanding anything herein to the contrary, the final accounting for any amounts owing as between the Parties pursuant to this Section 1.05(f) shall occur on or before the date that is nine (9) months after the Closing Date (after which date this Section 1.05(f) shall terminate).

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(a)	The Purchase Price shall be allocated among the Assets as set forth in Schedule 1.07 hereto. Seller and Buyer agree to be bound by the Allocated Values set forth in Schedule 1.07 for purposes of Article 10 hereof.

(b)

As soon as reasonably practicable following the Final Settlement Date, Seller shall deliver to Buyer for its review and approval an allocation of the Final Amount and any items that are treated as consideration for U.S. federal Income Tax purposes among the Assets in accordance with Section 1060 of the Code, and the regulations thereunder, and to the extent permitted by applicable Legal Requirements, the amount allocated among the Assets shall

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(a)

The execution, delivery and performance of this Agreement and the Contemplated Transactions have been duly and validly authorized by all necessary limited liability company action on the part of Seller. This Agreement has been duly executed and delivered by Seller and at the Closing, all instruments executed and delivered by Seller at or in connection with the Closing shall have been duly executed and delivered by Seller. This Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally and by general principles of equity (regardless of whether such enforceability is considered in a Proceeding in equity or at law). Upon execution and delivery by Seller of the Instruments of Conveyance at the Closing, such Instruments of Conveyance and delivery shall constitute legal, valid and binding transfers and conveyances of the Assets. Upon the execution and delivery by Seller of any other documents at the Closing (collectively with the Instruments of Conveyance, the “Seller Closing Documents”), such Seller Closing Documents shall constitute the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally and by general principles of equity (regardless of whether such enforceability is considered in a Proceeding in equity or at law).

(b)

Except as set forth in Schedule 2.02(b), and assuming the receipt of all Consents and the waiver of all Preferential Purchase Rights (in each case) applicable to the Contemplated Transactions, neither the execution and delivery of this Agreement by Seller nor the consummation or performance of any of the Contemplated Transactions by Seller shall, directly or indirectly (with or without notice or lapse of time):

(i)	contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of Seller, or (B) any resolution adopted by the board of directors, managers or officers of Seller;

(ii)	contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions, to terminate, accelerate, or modify any terms of, or to exercise any remedy or obtain any relief under, any Contract or agreement or any Legal Requirement or Order to which Seller, or any of the Assets, may be subject;

(iii)	contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that relates to the Assets; or

(iv)

(A) result in a default, in any material respect, or the imposition, creation or continuance of any Encumbrance upon or with respect to any of the Assets or (B) give rise to any right of termination, cancellation or acceleration under, or require any consent under, any note, bond, mortgage, or indenture, to which Seller is a party or by which the Assets are bound, in each case, except for Permitted Encumbrances.

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(a)	any Applicable Contract that is a Hydrocarbon purchase and sale, transportation, gathering, treating, processing, compression, marketing or similar Applicable Contract that is not terminable by Seller without penalty on ninety (90) days’ or less notice, including any Contract that includes an acreage dedication or minimum volume commitment;

(b)

any Applicable Contract that can reasonably be expected to result in aggregate payments or receipts of revenue by Seller of more than Two Hundred Thousand Dollars ($200,000) (net to Seller’s interest) during the current or any subsequent fiscal year or more than One Million Dollars ($1,000,000) in the aggregate (net to Seller’s interest) over the term of such Applicable Contract (based on the terms thereof and contracted (or if none, current) quantities where applicable);

(c)	any Applicable Contract that is an indenture, mortgage, deed of trust, loan, credit agreement, sale-leaseback, guaranty of any obligation, bond, letter of credit, security interest or similar financial Contract;

(d)

any Applicable Contract that constitutes a partnership agreement, joint venture agreement, area of mutual interest agreement, non-compete agreement, joint exploration agreement, joint development agreement, joint operating agreement, drilling contract, farmin or farmout agreement, carry agreement, net profits interest agreement, participation agreement, production sharing agreement, unit agreement, purchase and sale agreement, exchange agreement or similar Contract where any material obligation has not been completed prior to the Effective Time (in each case, excluding any tax partnership);

(e)	any Applicable Contract that provides for a call upon, option to purchase or similar right under any agreements with respect to the Hydrocarbons from the Assets;

(f)	any Applicable Contract that provides for an irrevocable power of attorney that will be in effect after the Closing Date;

(g)	any Applicable Contract that provides for, as its primary purpose, an indemnity; and

(h)	any Applicable Contract for the sale, lease or farmout, exchange, of Seller’s interest in the Assets.

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(a)	To Seller’s Knowledge, there is no pending claim or Proceeding seeking to terminate, cancel, rescind or procure a reformation of any Lease or any provisions thereof, or seeking the release of any Lease (or portion thereof). To Seller’s Knowledge, there exists no condition or event which, after notice or lapse of time or both, would constitute a material

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(b)

To Seller’s Knowledge, Exhibit B sets forth a list of all wellbores located on the Leases, other than any wellbores that have been permanently plugged and abandoned in accordance with applicable Legal Requirements. Except as disclosed on Schedule 2.15(b), (i) all Wells drilled and completed by Seller or its Affiliates as operator have been drilled and completed within the limits permitted by all applicable Leases and Contracts and at locations that comply with applicable Legal Requirements, (ii) no Well is subject to material penalties on allowable production after the Effective Time because of any overproduction, and (iii) there are no Wells that Seller is currently obligated by applicable Legal Requirements or contract to plug or abandon, or that have been plugged, dismantled or abandoned by Seller or its Affiliates (or to Seller’s Knowledge by any other Person) in a manner that does not comply in all material respects with Legal Requirements, or that are currently subject to exceptions to a requirement to plug or abandon issued by a Governmental Body.

(a)	This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors

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(b)	Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer shall give any Person the right to prevent, delay or otherwise interfere with any of the Contemplated Transactions.

(c)

Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer shall (i) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of Buyer, (ii) contravene, conflict with or result in a violation of any resolution adopted by the board of managers or members of Buyer or (iii) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions, to terminate, accelerate or modify any terms of, or to exercise any remedy or obtain any relief under, any agreement or any Legal Requirement or Order to which Buyer may be subject.

(d)	Buyer is not and shall not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

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(a)

Between the Execution Date and the Defect Notice Date, to the extent doing so would not violate applicable Legal Requirements, Seller’s obligations to any Third Party or other restrictions on Seller, Seller shall (i) afford Buyer and its Representatives access, by appointment, at such times as Buyer may reasonably request during Seller’s regular hours of business to the Seller-operated Assets, contracts, books and records, and other documents and data related to the Assets, together with reasonably appropriate members of Seller’s management and personnel with knowledge of the foregoing, except any such contracts, books and records or other documents and data that are Excluded Assets, and (ii) promptly furnish Buyer and Buyer’s Representatives, at Buyer’s sole cost and expense, with existing electronic copies of all such Records, contracts, books and records, and other existing documents and data related to the Assets as Buyer or Buyer’s Representatives may reasonably request, except for any such contracts, books and records, or other documents and data that are Excluded Assets (and upon Buyer’s request, Seller shall use reasonable efforts to obtain the consent of Third Party operators to give Buyer and Buyer’s Representatives reasonable access to similar information with respect to Assets not operated by Seller or its Affiliates; provided that Seller shall not be required to make payments or undertake obligations in favor any Third parties in order to obtain such consent); provided that, except as expressly provided in this Agreement or in the Instruments of Conveyance, Seller makes no representation or warranty, and expressly disclaims all representations and warranties as to the accuracy or completeness of the documents, information, books, records, files and other data that it may provide or disclose to Buyer.

(b)

Notwithstanding the provisions of Section 4.01(a), (i) Buyer’s investigation shall be conducted in a manner that minimizes interference with the operation of the business of Seller and any applicable Third Parties, and (ii) Buyer’s right of access shall not entitle Buyer to operate equipment or conduct subsurface or other invasive testing or sampling. Environmental review shall not exceed the review contemplated by a Phase I Environmental Site Assessment of the Assets without Seller’s prior written permission, which may be withheld in Seller’s sole discretion.

(c)

Buyer acknowledges that, pursuant to its right of access to the Records and the Assets, Buyer will become privy to confidential and other information of Seller and Seller’s Affiliates and the Assets and that such confidential information shall be held confidential by Buyer and Buyer’s Representatives in accordance with the terms of the Confidentiality Agreement. If the Closing should occur, the foregoing confidentiality restriction on Buyer, including the Confidentiality Agreement, shall terminate (except as to the Excluded Assets); provided that such termination of the Confidentiality Agreement shall not relieve any party thereto from any liability thereunder for the breach of such agreement prior to the Execution Date.

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(a)	not transfer, sell, hypothecate, encumber or otherwise dispose of any of the Assets, except for sales of Hydrocarbons, equipment and inventory in the ordinary course of business;

(b)	not abandon any Asset;

(c)	not commence, propose or agree to participate in any single operation with respect to the Properties with an anticipated cost in excess of Two Hundred Thousand Dollars ($200,000) (net to Seller’s interest), except for any emergency operations;

(d)	not execute, terminate, cancel or materially amend or modify any Material Contract or Lease other than the execution or extension of a Contract for the sale, exchange, transportation, gathering, treating or processing of Hydrocarbons terminable without penalty on ninety (90) days’ or shorter;

(e)	not make any election (or fail to make an election, the result of which is) to go non-consent with respect to any of the Assets;

(f)	use commercially reasonable efforts to maintain in full force and effect each Lease;

(g)

not take, nor permit any of their Affiliates (or authorize any investment banker, financial advisor, attorney, accountant or other Person retained by, acting for or on behalf of Seller or any such Affiliate) to take, directly or indirectly, any action to solicit, or negotiate, any offer from any Person concerning the direct or indirect acquisition of the Assets by any Person other than Buyer or its Affiliates except for sales of Hydrocarbons, equipment and inventory in the ordinary course of business;

(h)	use commercially reasonable efforts to keep Buyer apprised of any drilling, re-drilling or completion operations proposed or conducted with respect to the Assets;

(i)	notify Buyer of any application for drilling permit by a Third Party affecting the Assets received by Seller; and

(j)	not enter into any agreement with respect to any of the foregoing.

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(a)

The Parties understand that none of the insurance currently maintained by Seller or Seller’s Affiliates covering the Assets, nor any of the bonds, letters of credit or guaranties, if any, posted by Seller or Seller’s Affiliates with Governmental Bodies or co-owners and relating to the Assets will be transferred to Buyer. On or before the Closing Date, Buyer shall obtain, and deliver to Seller evidence of, all necessary replacement bonds, letters of credit and guaranties, and evidence of such other authorizations, qualifications, and approvals, in each case, as set forth on Schedule 5.02(a) and necessary for Buyer to own and, with respect to Assets currently operated by Seller or its Affiliates, operate such Assets. Promptly following the Closing, Buyer shall obtain, or cause to be obtained, in the name of Buyer, such insurance covering the Assets as would be obtained by a reasonably prudent operator in a similar situation.

(b)

Promptly (but in no event later than thirty (30) days) after Closing, Buyer shall, at its sole cost and expense, make all filings with Governmental Bodies necessary to assign and transfer the Assets and title thereto and to comply with applicable Legal Requirements, and Seller shall reasonably assist Buyer with such filings. Buyer shall indemnify, defend and hold harmless Seller Group from and against all Damages arising out of Buyer’s holding of such title or operatorship of the Assets after the Closing and prior to the securing of any necessary Consents and approvals of the Contemplated Transactions from Governmental Bodies.

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(a)	by mutual written consent of Seller and Buyer;

(b)

by Buyer, if Seller has committed a material Breach of this Agreement and such Breach causes any of the conditions to Closing set forth in Article 6 not to be satisfied (or, if prior to Closing, such Breach is of such a magnitude or effect that it will not be possible for such condition to be satisfied); provided, however, that in the case of a Breach that is capable of being cured, Seller shall have a period of ten (10) Business Days following receipt of such notice to attempt to cure the Breach and the termination under this Section 8.01(b) shall not become effective unless Seller fails to cure such Breach prior to the end of such ten (10) Business Day period; provided, further, that if (i) Seller’s conditions to Closing have been satisfied or waived in full, (ii) Buyer is not in material Breach of the terms of this Agreement and (iii) all of Buyer’s conditions to Closing have been satisfied or waived, then the refusal or willful or negligent delay by Seller to timely close the Contemplated Transactions shall constitute a material Breach of this Agreement;

(c)	by Seller, if Buyer has committed a material Breach of this Agreement and such breach causes any of the conditions to Closing set forth in Article 7 not to be satisfied (or, if prior

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(d)	by either Seller or Buyer, if the Closing has not occurred on or before December 31, 2019 (the “Outside Date”), or such later date as the Parties may agree upon in writing; provided that such failure does not result primarily from the terminating Party’s material Breach of this Agreement; or

(e)

by either Seller or Buyer, if (i) any Legal Requirement has made the consummation of the Contemplated Transactions illegal or otherwise prohibited, or (ii) a Governmental Body has issued an Order, or taken any other action permanently restraining, enjoining, or otherwise prohibiting the consummation of the Contemplated Transactions, and such order, decree, ruling, or other action has become final and nonappealable.

(a)	Notwithstanding anything to the contrary in Section 8.02:

(i)	If Seller has the right to terminate this Agreement (A) pursuant to Section 8.01(c) or (B) pursuant to Section 8.01(d), if at such time Seller could have terminated this Agreement pursuant to Section 8.01(c) (without regard to any cure periods contemplated therein), then, in any such case, Seller shall have the right, at its sole

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(ii)

If Buyer has the right to terminate this Agreement (A) pursuant to Section 8.01(b) or (B) pursuant to Section 8.01(d), if at such time Buyer could have terminated this Agreement pursuant to Section 8.01(b) (without regard to any cure periods contemplated therein), then, in either case, Buyer shall have the right, at its sole discretion, to either (1) enforce specific performance by Seller of this Agreement, without posting any bond or the necessity of proving the inadequacy as a remedy of monetary damages, in which event the Deposit Amount will be applied as called for herein, or (2) if Buyer does not seek and successfully enforce specific performance, terminate this Agreement and (in addition to the Parties executing joint instructions to return the Deposit Amount to Buyer) seek to recover actual damages from Seller in an amount not to exceed Buyer’s actual documented, out-of-pocket expenses in connection with this Agreement, but in no case in an amount exceeding the Deposit Amount. If Buyer elects to terminate this Agreement pursuant to this Section 8.02(a)(ii) and seek damages in an amount up to the Deposit Amount, then, within two (2) Business Days of Buyer’s election, (x) the Parties shall execute joint written instructions to the Escrow Agent to return the Deposit Amount to Buyer via wire transfer of immediately available funds to the account designated therein by Buyer and (y) Seller shall be free to enjoy immediately all rights of ownership of the Assets and to sell, transfer, encumber, or otherwise dispose of the Assets to any Person without any restriction under this Agreement.

(b)	The Parties recognize that the actual damages for Buyer’s material Breach of this Agreement would be difficult or impossible to ascertain with reasonable certainty and agree that the Deposit Amount would be a reasonable liquidated damages amount for such material Breach.

(c)

If this Agreement is terminated by either Buyer or Seller pursuant to Section 8.01 for any reason other than as described in Section 8.02(a), then, within two (2) Business Days of such termination, the Parties shall execute joint written instructions to the Escrow Agent to return the Deposit Amount to Buyer (free and clear of any claims by Seller thereon) via wire transfer of immediately available funds to the account designated therein by Buyer.

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(a)	any Breach of any representation or warranty made by Seller in this Agreement, or in any certificate delivered by Seller pursuant to this Agreement;

(b)	any Breach by Seller of any covenant, obligation or agreement of Seller in this Agreement;

(c)	the use, ownership and operation of the Retained Assets (unless and until such Retained Assets are conveyed to Buyer in accordance with this Agreement); and

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(d)	the Specified Liabilities.

(a)	any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate delivered by Buyer pursuant to this Agreement;

(b)	any Breach by Buyer of any covenant, obligation or agreement of Buyer in this Agreement;

(c)

any Damages arising out of or relating to Buyer’s and its Representatives’ access to the Assets and contracts, books and records and other documents and data relating thereto prior to the Closing, including Buyer’s title and environmental inspections pursuant to Sections 4.01, 10.01 and 10.11, including Damages attributable to personal injury, illness or death, or property damage arising from such access; and

(d)	the Assumed Liabilities.

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(a)

Except with respect to the Fundamental Representations and the representations and warranties included in Section 2.04, if the Closing occurs, Seller shall not have any liability for any indemnification under Section 9.02(a): (a) for any Damages with respect to any occurrence, claim, award or judgment that do not individually exceed One Hundred Thousand Dollars ($100,000) net to Seller’s interest (the “Individual Claim Threshold”); or (b) unless and until the aggregate Damages for which claim notices for claims meeting the Individual Claim Threshold are delivered by Buyer exceed two percent (2%) of the unadjusted Base Purchase Price, and then only to the extent such Damages exceed two percent (2%) of the unadjusted Base Purchase Price. Except with respect to the Fundamental Representations and the representations and warranties included in Section 2.04, in no event will Seller be liable for Damages indemnified under Section 9.02(a) to the extent such damages, exceed twenty percent (20%) of the unadjusted Purchase Price. Notwithstanding anything herein to the contrary, in no event will Seller’s aggregate liability under this Agreement exceed one hundred percent (100%) of the unadjusted Purchase Price.

(b)

Notwithstanding anything herein to the contrary, the obligations and rights of the Parties under Section 9.02 or Section 9.03, and the Damages for which any Party is obligated to indemnify or entitled to indemnity under Section 9.02 or Section 9.03 shall be determined and calculated by excluding and without giving effect to any qualifiers as to materiality or other similar qualifiers set forth in any representation or warranty (including any bringdown of such representation or warranty in any certificate delivered pursuant to this Agreement).

(a)	Promptly after receipt by an indemnified party under Section 9.02 or 9.03 of a Third Party claim for Damages or notice of the commencement of any Proceeding against it, such indemnified party shall, if a claim is to be made against an indemnifying Party under such Section, give notice to the indemnifying Party of the commencement of such claim or

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(b)

If any Proceeding referred to in Section 9.06(a) is brought against an indemnified party and the indemnified party gives notice to the indemnifying Party of the commencement of such Proceeding, the indemnifying Party, subject to its admission in writing that it owes indemnification in respect of the claim, Damages or Proceeding, shall be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying Party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying Party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party, and, after notice from the indemnifying Party to the indemnified party of the indemnifying Party’s election to assume the defense of such Proceeding, the indemnifying Party shall not, as long as it diligently conducts such defense, be liable to the indemnified party under this Article 9 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding. If reasonably requested by the indemnifying Party, the indemnified Party agrees to cooperate in contesting any Proceeding which the indemnifying Party elects to contest (at the expense of the indemnifying Party); provided that the indemnified Party shall not be required to pursue any cross-claim or counter-claim. Notwithstanding anything to the contrary in this Agreement, the indemnifying Party shall not be entitled to assume or continue control of the defense of any such Proceeding if (A) such Proceeding relates to or arises in connection with any criminal Proceeding, (B) such Proceeding seeks an injunction or equitable relief against any indemnified Party, (C), in the case of an indemnification claim by Buyer pursuant to Section 9.02(a) (other than with respect to a Fundamental Representation) such Proceeding has or would reasonably be expected to result in Damages in excess of the amount set forth in Section 9.05 (i.e., twenty percent (20%) of the unadjusted Purchase Price) or (D) the indemnifying Party has failed or is failing to defend in good faith such Proceeding. If the indemnifying Party assumes the defense of a Proceeding, no compromise or settlement of such Third Party claims or Proceedings may be effected by the indemnifying Party without the indemnified party’s prior written consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other Third Party claims that may be made against the indemnified party, (B) the sole relief provided is monetary damages that are paid in full by the indemnifying Party and (C) the indemnified party shall have no liability with respect to any compromise or settlement of such Third Party claims or Proceedings effected without its consent.

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(a)

Notwithstanding anything to the contrary contained in this Agreement, except as and to the extent expressly set forth in this Agreement or in the Instruments of Conveyance, Seller makes no representations or warranties whatsoever, and except in the case of Fraud, disclaims all liability and responsibility for any representation, warranty, statement or information made or communicated (orally or in writing) to Buyer (including any opinion, information or advice that may have been provided to Buyer or its affiliates or representatives by any Affiliates or Representatives of Seller or by any investment bank or investment banking firm, any petroleum engineer or engineering firm, Seller’s counsel or any other agent, consultant or Representative of Seller). Without limiting the generality of the foregoing, except as and to the extent expressly set forth in this Agreement or in the Instruments of Conveyance, and except in the case of Fraud, Seller expressly disclaims and negates any representation or warranty, express, implied, at common law, by statute or otherwise, relating to (a) the title to any of the Assets, (b) the condition of the Assets (including any implied or express warranty of merchantability, fitness for a particular purpose or conformity to models or samples of materials), it being distinctly understood that the Assets are being sold “As Is,” “Where Is,” and “With All Faults As To All Matters,” (c) any infringement by Seller of any patent or proprietary right of any Third Party, (d) any information, data or other materials (written or oral) furnished to Buyer by or on behalf of Seller (including the existence or extent of Hydrocarbons or the mineral reserves, the recoverability of such reserves, any product pricing assumptions and the ability to sell Hydrocarbon production after the Closing), (e) the environmental condition and other condition of the Assets and any potential liability arising from or related to the Assets and (f) the presence or absence of asbestos, norm, or other wastes or hazardous materials in or on the assets

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(b)

Buyer acknowledges and affirms that it has made or intends to make and prior to Closing will make its own independent investigation, analysis and evaluation of the Contemplated Transactions and the Assets (including Buyer’s own estimate and appraisal of the extent and value of Seller’s Hydrocarbon reserves attributable to the Assets and an independent assessment and appraisal of the environmental risks associated with the acquisition of the Assets). Buyer acknowledges that in entering into this Agreement, it has relied or will rely on the aforementioned investigation and the express representations and warranties of Seller contained in this Agreement and the Seller Closing Documents. Except in the case of Fraud, Buyer hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim, or commencing, instituting or causing to be commenced, any Proceeding of any kind against Seller or its Affiliates alleging facts contrary to the foregoing acknowledgment and affirmation.

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(a)	Subject to the applicable limitations set forth in this Article 9, any amounts due by Seller to Buyer under this Article 9 shall be first satisfied from the Indemnity Escrow Amount, and thereafter, to the extent that Buyer is determined to be owed by Seller amounts in excess of the Indemnity Escrow Amount, Buyer may seek payment for such amount from Seller.

(b)

If Seller does not dispute any claim made by Buyer against Seller in accordance with this Article 9, Seller and Buyer shall execute and deliver a joint written instruction to the Escrow Agent in accordance with the Escrow Agreement to disburse to Buyer the amount of the undisputed claim from the Indemnity Escrow Amount. If Seller does dispute any claim made by Buyer against Seller in accordance with this Article 9, then upon final determination of indemnification (or a settlement between the Parties) with respect to such claim, Seller and Buyer shall provide written instructions to the Escrow Agent to disburse to Buyer the amount determined by such final determination or settlement to be due and which amount is then remaining in the Indemnity Escrow Amount.

(c)

Notwithstanding anything in this Agreement to the contrary, on the first Business Day following expiration of the Indemnity Escrow Period, Buyer and Seller shall jointly execute and deliver a joint written instruction to the Escrow Agent in accordance with the Escrow Agreement to Seller the then-remaining balance of the Indemnity Escrow Amount (and all earnings thereon) in excess of the aggregate amount of all unresolved or unsatisfied claims for indemnification that Buyer has made in good faith against Seller on or before such date pursuant to this Article 9 (if any) (and all earnings thereon) in excess of the aggregate amount of all unresolved or unsatisfied claims for indemnification that Buyer has made in

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(a)	If Seller fails to obtain any Consent necessary for the transfer of any Asset to Buyer, Seller’s failure shall be handled as follows:

(i)	If the Consent is not a Required Consent and has not been denied in writing, then the affected Assets shall nevertheless be conveyed at the Closing. Any Damages that arise due to the failure to obtain such Consent shall be borne by Buyer, and Buyer shall defend, release, indemnify and hold harmless Seller Group from and against the same.

(ii)

If the Consent is a Required Consent or other Consent that has been denied in writing, then the Base Purchase Price shall be adjusted downward by the Allocated Value of the affected Assets burdened by such Required Consents (including, with respect to any Required Consent burdening a Lease or Applicable Contract, all Leases and Wells affected by the Applicable Contract or Lease for which Consent is refused), and such affected Assets shall be treated as Retained Assets unless and until conveyed to Buyer in accordance with this Agreement.

(b)

Notwithstanding the provisions of Section 10.03(a), if Seller obtains a Required Consent described in Section 10.03(a)(ii) within one hundred eighty (180) days after the Closing, then Seller shall promptly deliver conveyances of the affected Asset(s) to Buyer and Buyer shall pay to Seller an amount equal to the Allocated Value of the affected Asset(s) in accordance with wire transfer instructions provided by Seller (subject to the adjustments set forth in Section 1.05).

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(a)	if the Parties agree on the Title Defect Value, then that amount shall be the Title Defect Value;

(b)	if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect Value shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;

(c)

if a Title Defect is based on a Lease that is (i) in its primary term, (ii) not held by production and (iii) has a primary term expiration date that is (A) more than fifteen (15) days earlier than the primary term expiration date set forth on Exhibit A with respect to such Lease and (B) twelve (12) months or less after the Target Closing Date, then the Title Defect Value shall be equal to (A) the Allocated Value of such Lease, multiplied by (B) a fraction, (1) the numerator of which is equal to the difference between (x) the number of days between the Execution Date and the expiration date set forth on Exhibit A and (y) the number of days between the Execution Date and the actual expiration date, and (2) the denominator of which is the number of days between the Execution Date and the expiration date set forth on Exhibit A;

(d)	if the Title Defect represents a discrepancy where (i) Seller’s actual Net Acres for such Lease as to the Target Depths is less than (ii) the Net Acres set forth on Exhibit A for such Lease, then the Title Defect Value shall be the product of the Net Acre deficiency, multiplied by the per-Net Acre Allocated Value of such Lease;

(e)

if the Title Defect represents a discrepancy between (i) Seller’s Net Revenue Interest as to the Target Depths for any Lease or the currently producing formation for any Well and (ii) the Net Revenue Interest set forth in Exhibit A (for any such Lease) or Exhibit B (for any such Well) and, in the case of any Well, Seller’s Working Interest therein is decreased in the same or greater proportion, as applicable, then the Title Defect Value shall be the product of the Allocated Value of such Title Defect Property, multiplied by a fraction, the numerator of which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest set forth for in Exhibit A (for any such Lease) or Exhibit B (for any such Well), as applicable;

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(f)

if the Title Defect with respect to a Well represents an increase of (i) Seller’s Working Interest for such Well over (ii) the Working Interest set forth for such Well in Exhibit B (except increases to the extent that such increases are accompanied by a proportionate increase in Seller’s Net Revenue Interest for such Well), then the Title Defect Value shall be the product of the Allocated Value of such Well, multiplied by a fraction, the numerator of which is the Working Interest increase and the denominator of which is the Working Interest set forth for such Well in Exhibit B;

(g)

if the Title Defect represents a discrepancy between (i) Seller’s Net Royalty Acres for a Mineral Interest as to the Target Depths and (ii) the Net Royalty Acres set forth on Exhibit A-1 for such Mineral Interest, then the Title Defect Value shall be the product of the Allocated Value of such Mineral Interest, multiplied by a fraction, the numerator of which is the Net Royalty Acre deficiency and the denominator of which is the number of Net Royalty Acres set forth for such Mineral Interest in Exhibit A-1; and

(h)

if the Title Defect represents an obligation or Encumbrance upon or other defect in title to the Title Defect Property of a type not described above, then the Title Defect Value shall be determined by taking into account the Allocated Value of the 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, the values placed upon the Title Defect by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation.

(a)

Seller shall have the right to cure any Title Defect on or before ninety (90) days after the Defect Notice Date or, if later, after the date of resolution of such Title Defect or the Title Defect Value by an Expert pursuant to Section 10.16 (the “Title Defect Cure Period”) by giving written notice to Buyer of its election to cure prior to the Closing Date or, if later, after the applicable Expert Decision date; provided, however, that if after pursuit of other remedies reasonably available to Seller to cure any such Title Defect, Seller reasonably believe that such Title Defect can be cured through a quiet title or similar Proceeding, then the Title Defect Cure Period with respect to such Title Defect shall be extended until such quiet title or similar Proceeding is finally resolved, so long as Seller initiates the quiet title or similar Proceeding on or before the end of the initial ninety (90)-day Title Defect Cure Period and diligently and continually pursues such Proceeding; provided, further, that the Title Defect Cure Period with respect to any such Title Defect shall not be extended beyond and shall be deemed terminated effective as of the end of the Indemnity Escrow Period. During the period of time from Closing to the expiration of the Title Defect Cure Period

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(i)	actually cures the Title Defect (“Cure”), prior to the Closing, then the Asset affected by such Title Defect shall be conveyed to Buyer at the Closing, and no Base Purchase Price adjustment will be made for such Title Defect; or

(ii)	does not Cure the Title Defect prior to the Closing, then Seller shall:

(A)

if Seller elects to cure the Title Defect, convey the affected Asset to Buyer and Buyer shall pay the Title Defect Value attributable to the affected Asset to the Escrow Agent at the Closing; provided, however, that if Seller is unable to Cure the Title Defect by the end of the Title Defect Cure Period, then (i) Seller shall include a downward adjustment in the Final Settlement Statement equal to the Title Defect Value for such Asset and (ii) the Parties shall issue joint written instructions to the Escrow Agent to release such Title Defect Value to Buyer; or

(B)	if and only if Buyer agrees to this remedy in its sole discretion, indemnify Buyer against all Damages (up to the Allocated Value of the applicable Title Defect Property) resulting from such Title Defect with respect to such Title Defect Property pursuant to an indemnity agreement prepared by Seller in a form and substance reasonably acceptable to Buyer.

(b)	If Seller does not elect to cure the Title Defect, subject to Seller’s continuing right to dispute the Title Defect, Seller shall convey the affected Asset to Buyer at the Closing and the Base Purchase Price shall be adjusted downward by the applicable Title Defect Value for such Asset.

(c)

Seller and Buyer shall attempt to agree on the existence and Title Defect Value for all Title Defects. Representatives of the Parties, knowledgeable in title matters, shall meet during the Title Defect Cure Period for this purpose. However, either Party may at any time prior to the final resolution of the applicable Title Defect hereunder submit any disputed Title Defect or the Title Defect Value to arbitration in accordance with the procedures set forth in Section 10.16. If a contested Title Defect cannot be resolved prior to Closing, except as otherwise provided herein, (i) the Asset affected by such Title Defect shall nevertheless be conveyed to Buyer at the Closing; (ii) subject to the Aggregate Title Defect Deductible, the Base Purchase Price shall be adjusted downward in an amount equal to the Title Defect Value set forth in the Title Defect Notice for such contested Title Defect for such Asset (the “Disputed Title Amount”), which Disputed Title Amount (after taking into account the Aggregate Title Defect Deductible) shall be deposited into the Escrow Account at

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(a)

If Seller discovers any right, circumstance or condition that operates (i) to increase the Net Acres of Seller for any Lease as to the Target Depths to an amount greater than the Net Acres for such Lease in Exhibit A, (ii) increase the Net Revenue Interest of Seller for any Lease (as to the Target Depths) or any Well (as to the currently producing formation) above that shown in Exhibit A for any such Lease or Exhibit B for any such Well, to the extent the same does not cause a greater than proportionate increase in Seller’s Working Interest therein above that shown in Exhibit B for any such Well, (iii) to decrease the Working Interest of Seller in any Well as to the currently producing formation below that shown in Exhibit B for such Well, to the extent the same causes a decrease in Seller’s Working Interest for such Well that is proportionately greater than the decrease in Seller’s Net Revenue Interest therein below that shown in Exhibit B or (iv) increase the number of Net Royalty Acres for any Mineral Interest as to the Target Depths to an amount greater than the Net Royalty Acres set forth for such Mineral Interest in Exhibit A-1 (each, a “Title Benefit”), then Seller shall, from time to time and without limitation, have the right, but not the obligation, to give Buyer written notice of any such Title Benefits (a “Title Benefit Notice”), as soon as practicable but not later than 5:00 p.m. Central Time on the Defect Notice Date, stating with reasonable specificity the Assets affected, the particular Title Benefit claimed and Seller’s good faith estimate of the amount the additional interest increases the value of the affected Assets over and above that Asset’s Allocated Value (the “Title Benefit Value”). Buyer shall also promptly furnish Seller with written notice of any Title Benefit (including a description of such Title Benefit and the Assets affected thereby

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(b)	Notwithstanding the provisions of Sections 10.08(a) and 10.08(b), Buyer shall be obligated to adjust the Base Purchase Price to account for Title Benefits only as an offset to the aggregate value of any downward adjustment to the Base Purchase Price for Title Defects calculated pursuant to the terms of this Article 10.

(c)

Seller and Buyer shall attempt to agree on the existence and Title Benefit Value for all Title Benefits on or before the end of the Title Defect Cure Period. If Buyer agrees with the existence of the Title Benefit and Seller’s good faith estimate of the Title Benefit Value, then, subject to the other terms of this Agreement, the applicable Title Benefit Value shall be used only to offset the Aggregate Title Defect Value and will not result in any upward adjustment to the Base Purchase Price. If the Parties cannot reach agreement by the end of the Title Defect Cure Period, the Title Benefit or the Title Benefit Value in dispute shall be submitted to arbitration in accordance with the procedures set forth in Section 10.16. If a contested Title Benefit cannot be resolved prior to the Closing, Seller shall convey the affected Asset to Buyer and Buyer shall pay for the Asset at the Closing in accordance with this Agreement as though there were no Title Benefits; provided, however, if the Title Benefit contest results in a determination that a Title Benefit exists, then, subject to the other terms of this Agreement, the applicable Title Benefit Value as determined in such

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(a)

Seller shall have the right to remediate or cure an Environmental Defect to the extent of the Lowest Cost Response on or before the Closing Date by giving written notice to Buyer to that effect prior to the Closing Date. If Seller elects to pursue remediation or cure as set forth in this clause (a), Seller shall implement such remediation or cure in a manner that is in compliance with all applicable Legal Requirements in a prompt and timely fashion for the type of remediation or cure. If Seller elects to pursue remediation or cure and:

(i)	completes a Complete Remediation of an Environmental Defect prior to the Closing Date, the affected Lease(s) or Well(s) shall be included in the Assets conveyed at Closing, and no Base Purchase Price adjustment will be made for such Environmental Defect;

(ii)

does not complete a Complete Remediation prior to the Closing or elects not to attempt to cure the Environmental Defect, unless Seller elects to exclude such Lease(s) or Well(s) in accordance with this Section 10.12, then Seller shall convey the affected Lease(s) or Well(s) to Buyer and the Base Purchase Price shall be reduced by an amount equal to the remaining Environmental Defect Value for such Asset(s) (taking into account Seller’s partial remediation or cure of such Environmental Defect, if any).

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(b)

Seller and Buyer shall attempt to agree on the existence and Environmental Defect Value of all Environmental Defects. Representatives of the Parties, knowledgeable in environmental matters, shall meet for this purpose. However, a Party may at any time prior to the final resolution of the applicable Environmental Defect hereunder elect to submit any disputed item to arbitration in accordance with the procedures set forth in Section 10.16. If a contested Environmental Defect cannot be resolved prior to the Closing, (i) the affected Lease(s) or Well(s), as applicable (together with any other Assets appurtenant thereto) shall be included with the Assets conveyed to Buyer at Closing; (ii) subject to the Aggregate Environmental Defect Deductible, the Base Purchase Price shall be reduced by the estimated Environmental Defect Value set forth in the Environmental Defect Notice for such contested Environmental Defect (the “Disputed Environmental Amount” and, together with any Disputed Title Amount, the “Defect Escrow Amount”), which Disputed Environmental Amount (after taking into account the Aggregate Environmental Defect Deductible) shall be deposited into the Escrow Account at Closing pending final resolution of such Environmental Defect and (iii) within two (2) Business Days following final resolution of such Environmental Defect in accordance with Section 10.16, Seller and Buyer shall execute and deliver a joint written instruction to the Escrow Agent to release the Disputed Environmental Amount to Seller or Buyer, as applicable.

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(a)

Each matter referred to this Section 10.16 (a “Disputed Matter”) shall be conducted in accordance with the Commercial Arbitration Rules of the AAA as supplemented to the extent necessary to determine any procedural appeal questions by the Federal Arbitration Act (Title 9 of the United States Code), but only to the extent that such rules do not conflict with the terms of this Section 10.16. Any notice from one Party to the other referring a dispute to this Section 10.16 shall be referred to herein as an “Expert Proceeding Notice”.

(b)

The arbitration shall be held before a one member arbitration panel (the “Expert”), mutually agreed upon by the Parties. The Expert must (a) be a neutral party who has never been an officer, director or employee of or performed material work for a Party or any Party’s Affiliate within the preceding five (5)-year period and (b) agree in writing to keep strictly confidential the specifics and existence of the dispute as well as all proprietary records of the Parties reviewed by the Expert in the process of resolving such dispute. The Expert must have not less than ten (10) years’ experience as a lawyer in the State where the Assets giving rise to the Disputed Matter are located with experience in exploration and production issues. If disputes exist with respect to both title and environmental matters, the Parties may mutually agree to conduct separate arbitration Proceedings with the title disputes and environmental disputes being submitted to separate Experts. If, within five (5) Business Days after delivery of an Expert Proceeding Notice, the Parties cannot mutually agree on an Expert, then within seven (7) Business Days after delivery of such Expert Proceeding Notice, each Party shall provide the other with a list of three (3) acceptable, qualified experts, and within ten (10) Business Days after delivery of such Expert Proceeding Notice, the Parties shall each separately rank from one through six in order of preference each proposed expert on the combined lists, with a rank of one being the most preferred expert and the rank of six being the least preferred expert, and provide their respective rankings to the local office of the AAA where the Assets giving rise to the Disputed Matter are located. Based on those rankings, the AAA will appoint the expert with the combined lowest numerical ranking to serve as the Expert for the Disputed Matters. If the rankings result in a tie or the AAA is otherwise unable to determine an Expert using the Parties’ rankings, the AAA will appoint an arbitrator from one of the Parties’ lists as soon as practicable upon receiving the Parties’ rankings. Each Party will be responsible for paying one-half (1/2) of the fees charged by the AAA for the services provided in connection with this Section 10.16(b).

(c)	Within five (5) Business Days following the receipt by either Party of the Expert Proceeding Notice, the Parties will exchange their written description of the proposed

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(d)

The Expert shall make its determination by written decision within fifteen (15) days following receipt of the materials described in Section 10.16(c) above (the “Expert Decision”). The Expert Decision with respect to the Disputed Matters shall be limited to the selection of the single proposal for the resolution of the aggregate Disputed Matters proposed by a Party that best reflects the terms and provisions of this Agreement; i.e., the Expert must select either Buyer’s proposal or Seller’s proposal for resolution of the aggregate Disputed Matters.

(e)

The Expert Decision shall be final and binding upon the Parties, without right of appeal, absent manifest error. In making its determination, the Expert shall be bound by the rules set forth in this Article 10. The Expert may consult with and engage disinterested Third Parties to advise the Expert, but shall disclose to the Parties the identities of such consultants. Any such consultant shall not have worked as an employee or consultant for either Party or its Affiliates during the five (5)-year period preceding the arbitration nor have any financial interest in the dispute.

(f)

The Expert shall act as an expert for the limited purpose of determining the specific matters submitted for resolution herein and shall not be empowered to award damages, interest or penalties to either Party with respect to any matter. Each Party shall bear its own legal fees and other costs of preparing and presenting its case. All costs and expenses of the Expert shall be borne by the non-prevailing Party in any such arbitration Proceeding.

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(a)

Except as otherwise expressly provided in this Agreement, each Party to this Agreement shall bear its respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, Representatives, counsel and accountants. However, the prevailing Party in any Proceeding brought under or to enforce this Agreement, excluding any expert Proceeding pursuant to Section 10.16 or Section 1.05(e), shall be entitled to recover court costs and arbitration costs, as applicable, and reasonable attorneys’ fees from the non-prevailing Party or Parties, in addition to any other relief to which such Party is entitled.

(b)

All Transfer Taxes and all required documentary, filing and recording fees and expenses in connection with the filing and recording of the Instruments of Conveyance, conveyances or other instruments of conveyance required to convey title to the Assets to Buyer shall be borne by Buyer. Seller shall retain responsibility for, and shall bear, all Asset Taxes for (i) any period ending prior to the Effective Time and (ii) the portion of any Straddle Period ending immediately prior to the Effective Time. All Asset Taxes arising on or after the Effective Time (including the portion of any Straddle Period beginning at the Effective Time) shall be allocated to and borne by Buyer. For purposes of allocation between the Parties of Asset Taxes, (A) Asset Taxes that are attributable to the severance or production of Hydrocarbons (other than Asset Taxes described in clause (C) below) shall be allocated based on severance or production occurring before the Effective Time (which shall be Seller’s responsibility) and from and after the Effective Time (which shall be Buyer’s responsibility); (B) Asset Taxes that are based upon or related to sales or receipts or imposed on a transactional basis (other than such Asset Taxes described in clause (A) or (C)) shall be allocated based on transactions giving rise to such Asset Taxes occurring before the Effective Time (which shall be Seller’s responsibility) and from and after the Effective Time (which shall be Buyer’s responsibility); and (C) Asset Taxes that are ad valorem, property or other Asset Taxes imposed on a periodic basis with respect to a Straddle Period shall be allocated pro rata per day between the portion of the Straddle Period ending immediately prior to the Effective Time (which shall be Seller’s responsibility) and the portion of the Straddle Period beginning at the Effective Time (which shall be Buyer’s responsibility). For purposes of the preceding sentence, any exemption, deduction, credit or other item that is calculated on an annual basis shall be allocated pro rata per day between the portion of the Straddle Period ending immediately prior to the Effective Time and the portion of the Straddle Period beginning at the Effective Time. To the extent the actual amount of any Asset Taxes described in this Section 11.02(b) is not determinable at Closing or the Final Settlement Date, Buyer and Seller shall utilize the most recent information available in estimating the amount of such Asset Taxes for purposes of Section 1.05. Upon determination of the actual amount of such Asset Taxes, timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Asset Taxes that is allocable to such Party under this Section 11.02(b). Any allocation of Asset Taxes between the Parties shall be in accordance with this Section 11.02(b).

(c)	Except as required by applicable Legal Requirements, (i) Seller shall be responsible for timely remitting all Asset Taxes due prior to the Closing Date (subject to Seller’s right to

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(d)

Buyer and Seller agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to Taxes attributable to the Assets, including access to books and records, as is reasonably necessary for the filing of all Tax Returns by Buyer or Seller, the making of any election relating to Taxes, the preparation for any audit by any taxing authority and the prosecution or defense of any claim, suit or Proceeding relating to any Tax attributable to the Assets. The Parties agree to retain all books and records with respect to Tax matters pertinent to the Assets relating to any Tax period beginning before the Closing Date until sixty (60) days after the expiration of the statute of limitations of the respective Tax periods (taking into account any extensions thereof) and to abide by all record retention agreements entered into with any taxing authority.

(e)

Seller shall be entitled to any and all refunds of Taxes allocated to Seller pursuant to Section 11.02(a), and Buyer shall be entitled to any and all refunds of Taxes allocated to Buyer pursuant to Section 11.02(b). If a Party receives a refund of Taxes to which the other Party is entitled pursuant to this Section 11.02(e), the first Party shall promptly pay such amount to the other Party, net of any reasonable costs or expenses incurred by the first Party in procuring such refund.

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Attention:	James L. Rice III

Email:	jrice@sidley.com

Attention:	Rahul Vashi

Email:	rahul.vashi@kirkland.com

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(a)

The Confidentiality Agreement shall terminate on the Closing Date and will thereafter be of no further force or effect. Each Party shall keep confidential, and cause its Affiliates and instruct its Representatives to keep confidential, all terms and provisions of this Agreement, except (i) as required by Legal Requirements or any standards or rules of any stock exchange to which such Party or any of its Affiliates is subject, (ii) for information that is available to the public on the Closing Date, or thereafter becomes available to the public other than as a result of a breach of this Section 11.13, (iii) to the extent required to be disclosed in connection with complying with or obtaining a waiver of any Preferential

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(b)	This Section 11.13 shall not prevent either Party from recording the Instruments of Conveyance delivered at the Closing or from complying with any disclosure requirements of Governmental Bodies that are applicable to the transfer of the Assets.

(c)	Seller shall, and shall cause its applicable Affiliates to, comply with the obligations set forth on Schedule 11.13(c). Additionally, from and after the Closing, Seller shall keep confidential and not use any of the Records other than for Tax purposes or in connection with any Proceeding or Threatened Proceeding against Seller.

(d)	The covenants set forth in this Section 11.13 shall, unless otherwise specified, terminate two (2) years after the Closing Date.

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(a)	if the Average NYMEX WTI Crude Price for the one (1) year period beginning on January 1, 2020 through December 31, 2020 (the “2020 Calendar Year”) exceeds $60.00 per barrel, Buyer shall pay to Seller an amount equal to TWENTY MILLION DOLLARS ($20,000,000.00); or

(b)	if the Average NYMEX WTI Crude Price is less than or equal to $60.00 per barrel for the 2020 Calendar Year, Buyer shall pay to Seller an amount equal to ZERO DOLLARS ($0.00).

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•	Produced 27,830 barrels of oil per day ("BOPD") and 81,921 barrels of oil equivalent ("BOE") per day, exceeding oil production guidance for the quarter by 2% and total production guidance by 4%

•	Generated $48.9 million of Free Cash Flow and reduced the amount outstanding on the Company's credit facility by $50.0 million, maintaining Net Debt to Adjusted EBITDAa at 1.7 times

•	Reduced controllable cash costs of combined unit lease operating expenses ("LOE") and unit cash general and administrative expenses ("G&A") to $4.41 per BOE, a 27% decrease from full-year 2018 results of $6.07 per BOE

•	Reduced well costs to $660 per lateral foot for Laredo's standard completion design, a decrease of 14% from year-end 2018 costs of $770 per lateral foot

•	Received net cash of $23.8 million on settlements of derivatives as the Company's hedges mitigated the impact of commodity price declines

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(1)	BOE is calculated using a conversion rate of six Mcf per one Bbl.

(2)	The numbers presented are based on actual amounts and are not calculated using the rounded numbers presented in the table above.

(3)	Actual prices received when control passes to the purchaser/customer adjusted for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point.

(4)	Price reflects the after-effects of our derivative transactions on our average sales prices. Our calculation of such after-effects includes settlements of matured derivatives during the respective periods in accordance with GAAP and an adjustment to reflect premiums incurred previously or upon settlement that are attributable to derivatives that settled during the respective periods.

(5)	For the three and nine months ended September 30, 2019, non-cash stock-based compensation, net, excluding forfeitures related to our organizational restructuring, on a per BOE sold basis was $0.52 and $0.75, respectively.

(6)	On a per BOE basis, average cash margins are calculated as average sales price less, (i) lease operating expenses, (ii) production and ad valorem taxes, (iii) transportation and marketing expenses, (iv) midstream service expenses and (v) cash general and administrative.

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(1)	Adjusted income tax expense is calculated by applying a statutory tax rate of 22% for each of the periods ended September 30, 2019 and 2018.

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•	is widely used by investors in the oil and natural gas industry to measure a company's operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon accounting methods, the book value of assets, capital structure and the method by which assets were acquired, among other factors;

•	helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and

•	is used by our management for various purposes, including as a measure of operating performance, in presentations to our board of directors and as a basis for strategic planning and forecasting.

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