Form 8-K Sanchez Production Partn For: Oct 06

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): October 6, 2016

Sanchez Production Partners LP

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (713) 783-8000

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

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:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01                                           Entry into a Material Definitive Agreement.

Carnero Processing Purchase and Sale Agreement

On October 6, 2016, Sanchez Production Partners LP (the “Partnership”) entered into that certain Purchase and Sale Agreement (the “Carnero Purchase Agreement”) with Sanchez Energy Corporation (“Sanchez Energy”) and SN Midstream, LLC (“SNM”), a wholly-owned subsidiary of Sanchez Energy, to purchase all of SNM’s issued and outstanding membership interests in Carnero Processing, LLC (the “Company”) for total consideration of approximately $47.7 million, plus the assumption of approximately $32.3 million of remaining capital contribution commitments.  The membership interests acquired constitute 50% of the outstanding membership interests in the Company, with the other 50% of the membership interests of the Company being owned by TPL SouthTex Processing Company LP (“Targa”).  The Company is constructing a cryogenic gas processing facility located in La Salle County, Texas.

The Carnero Purchase Agreement contains customary representations and warranties by the parties, and the parties have agreed to customary indemnities relating to breaches of representations, warranties and covenants and the payment of assumed and excluded obligations.

The consummation of the transactions contemplated by the Carnero Purchase Agreement is subject to the satisfaction of customary closing conditions, including, among other things, the Partnership obtaining financing to pay the purchase price, the performance by the parties, in all material respects, of their respective covenants as set forth in the Carnero Purchase Agreement and the accuracy, in all material respects, of their respective representations and warranties as set forth in the Carnero Purchase Agreement.  The transactions contemplated by the Carnero Purchase Agreement are expected to close in October 2016, subject to satisfaction of the closing conditions.

The foregoing description of the Carnero Purchase Agreement is qualified in its entirety by reference to the full text of the Carnero Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1 and incorporated herein by reference.

EWI Purchase and Sale Agreement

On October 6, 2016, SEP Holdings IV, LLC (the “Buyer”), a wholly-owned subsidiary of the Partnership, and the Partnership entered into that certain Purchase and Sale Agreement (the “EWI Purchase Agreement”) with SN Cotulla Assets, LLC and SN Palmetto, LLC (together, the “Seller”), each a wholly-owned subsidiary of Sanchez Energy, to purchase oil and gas properties for total consideration of $27.0 million.  After $2.1 million in normal and customary closing adjustments, consideration paid at closing will consist of $24.9 million cash paid to the Seller by the Buyer.  Components of the acquisition include working interests in 23 producing Eagle Ford wellbores located in Dimmit and Zavala counties in South Texas together with escalating working interests in an additional 11 producing wellbores located in the Palmetto Field in Gonzales County, Texas.  The transaction is expected to add approximately 700 Boe/d of production, on average, in 2017.   The estimated proved reserves from the producing wellbores is approximately 2,136 MBoe, of which 73% is oil, 13% natural gas liquids, and 14% natural gas.

While the Partnership believes that the anticipated reserve and production estimates and its assumptions underlying these estimates are reasonable based upon its evaluation of information provided in connection with the acquisition, actual reserve and production information will be dependent on numerous factors, including, but not limited to, well performance and realized commodity prices.  The proved reserve estimates were prepared by the Seller’s reserve engineers and are based on benchmark prices and certain future cost variability.  Any such estimates are inherently uncertain and are subject to significant business, economic, regulatory, environmental and competitive risks and uncertainties that could cause actual results to differ materially from those that the Partnership anticipates.

The EWI Purchase Agreement contains customary representations and warranties by the parties, and the parties have agreed to customary indemnities relating to breaches of representations, warranties and covenants and the payment of assumed and excluded obligations.

The consummation of the transactions contemplated by the EWI Purchase Agreement is subject to the satisfaction of customary closing conditions, including, among other things, the Partnership obtaining financing to pay the purchase price, the performance by the parties, in all material respects, of their respective covenants as set forth in the EWI Purchase Agreement and the accuracy, in all material respects, of their respective representations and warranties as set forth in the EWI Purchase Agreement.  The transactions contemplated by the EWI Purchase Agreement are expected to close in October 2016, subject to satisfaction of the closing conditions.

The foregoing description of the EWI Purchase Agreement is qualified in its entirety by reference to the full text of the EWI Purchase Agreement, a copy of which is attached hereto as Exhibit 2.2 and incorporated herein by reference.

The Carnero Purchase Agreement and the EWI Purchase Agreement and the transactions contemplated thereby were unanimously approved on behalf of the Partnership by the Board of Directors of the Partnership’s general partner (the “General Partner”), upon the unanimous recommendation of the Conflicts Committee of the Board of Directors of the General Partner (the “Conflicts Committee”).  The Conflicts Committee, consisting of independent members of the Board of Directors of the General Partner, retained legal and financial advisors to assist it in evaluating and negotiating the foregoing purchase agreements and the transactions contemplated thereby.

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Costa Azul Option

On October 6, 2016, the Partnership entered into that certain Purchase and Sale Agreement (the “Lease Option Purchase Agreement”) with Sanchez Energy and SN Terminal, LLC (the “SNT”), a wholly-owned subsidiary of Sanchez Energy, pursuant to which the Partnership obtained an option to acquire a ground lease (the “Lease Option”) to which SNT is a party for a tract of land leased from the Calhoun Port Authority in Point Comfort, Texas.  In addition, if Sanchez Energy or any of its affiliates have entered into an option to engage in the construction of or participation in a Project (as defined below) and/or receive the benefit of an acreage dedication from an affiliate of Sanchez Energy relating to a Project, then such option and/or acreage dedication will also be assigned to the Partnership, if the Partnership exercises the Lease Option.  The Partnership will pay SNT $1.00 if the Lease Option is exercised, along with $250,000 if the Partnership or any other person affiliated with the Partnership constructs a marine crude storage terminal on the leased premises or within five miles thereof (a “Project”).

The Lease Option Purchase Agreement contains customary representations and warranties by the parties, and the parties have agreed to customary indemnities relating to breaches of representations, warranties and covenants and the payment of assumed and excluded obligations.

The consummation of the transactions contemplated by the Lease Option Purchase Agreement is subject to the satisfaction of customary closing conditions, including, among other things, approval by the board of directors of the general partner of the Partnership approving the exercise of the Lease Option, the performance by the parties, in all material respects, of their respective covenants as set forth in the Lease Option Purchase Agreement and the accuracy, in all material respects, of their respective representations and warranties as set forth in the Lease Option Purchase Agreement.

The foregoing description of the Lease Option Purchase Agreement is qualified in its entirety by reference to the full text of the Lease Option Purchase Agreement, a copy of which is attached hereto as Exhibit 2.3 and incorporated herein by reference.

Item 7.01                                           Regulation FD.

On October 6, 2016, the Partnership posted an updated company overview presentation on its website.  A copy of this presentation is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing.

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Item 8.01                                           Other Events.

On October 6, 2016, the Partnership issued a press release relating to the transactions described in this Form 8-K.  A copy of the press release is attached as Exhibit 99.2 hereto and incorporated herein by reference.

In connection with entering into the transactions described in Item 1.01 and other proposed capital projects, the Partnership is providing an updated overview of its midstream projects through the presentation set forth in Exhibit 99.3 attached hereto, which is incorporated herein by reference.

Item 9.01                                           Financial Statements and Exhibits.

(d)                                 Exhibits.

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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.

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Exhibit Index

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Exhibit 2.1

PURCHASE AND SALE AGREEMENT

AMONG

SANCHEZ ENERGY CORPORATION

(“SN”),

SN MIDSTREAM, LLC

(“SELLER”)

AND

SANCHEZ PRODUCTION PARTNERS LP

(“BUYER”)

DATED AS OF OCTOBER 6, 2016

(Carnero Processing)

TABLE OF CONTENTS

i

ii

Schedules:

iii

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), is entered into on October 6, 2016, by and among Sanchez Energy Corporation, a Delaware corporation (“SN”), SN Midstream, LLC, a Delaware limited liability company (“Seller” and, together with SN, the “SN Parties”), and Sanchez Production Partners LP, a Delaware limited partnership (“Buyer”). The above-named entities are sometimes referred to in this Agreement each as a “Party” and collectively as the “Parties.”

WHEREAS, SN is the parent of Seller.

WHEREAS, Seller owns 50% of the issued and outstanding membership interests (the “Interests”) in Carnero Processing, LLC, a Delaware limited liability company (the “Company”).

WHEREAS, the Company is developing and constructing an expected 200,000 Mcfd cryogenic gas processing facility to be located in La Salle County, Texas.

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Interests, on and subject to the terms and conditions of this Agreement.

WHEREAS, Buyer intends to partly finance the acquisition of the Interests with the proceeds of the issuance and sale of common units representing limited partnership interests in Buyer in an underwritten public offering intended to raise an amount at least equal to the Purchase Price (the “Offering”).

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:

ARTICLE I.
DEFINED TERMS

Section 1.1                                    Defined Terms.  Unless the context expressly requires otherwise, the respective terms defined in this Section 1.1 shall, when used in this Agreement, have the respective meanings herein specified, with each such definition to be equally applicable both to the singular and the plural forms of the term so defined.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person through one or more intermediaries or otherwise.  For the purposes of this definition, “control” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings; provided, however, that (i) the Company is not an Affiliate of either Buyer or the SN Parties or their subsidiaries and (ii) Buyer and its subsidiaries shall not be deemed to be Affiliates of the SN Parties or any of their subsidiaries.

“Agreement” has the meaning set forth in the Preamble.

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“Applicable Law” means any applicable statute, law, regulation, ordinance, rule, judgment, rule of law, decree, Permit, requirement, or other governmental restriction or any similar form of decision of, or any provision or condition issued under any of the foregoing by, or any determination by any Governmental Authority having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect and in each case as amended (including all of the terms and provisions of the common law of such Governmental Authority), as interpreted and enforced at the time in question, including Environmental Law.

“Assignment Document” has the meaning set forth in Section 9.2(a).

“Assumed Obligations” means all obligations and liabilities of any kind whatsoever arising from or relating to the Company, whether known or unknown, liquidated or contingent, but only to the extent such obligations and liabilities arise on or after the Effective Date or  relate to or are otherwise attributable to the period commencing on the Effective Date.  The Assumed Obligations shall not include the Retained Obligations.

“Books and Records” means all of the records and files of the Company and other records and files in control of or maintained by the SN Parties prior to the Closing primarily related to the Company or the ownership of the Interests (that, in the case of the Company at or prior to the Closing, the SN Parties have the Legal Right to provide to Buyer), including the minute books and other limited liability company records of the Company and any plans, drawings, instruction manuals, operating and technical data and records, whether computerized or hard copy, Tax files, books, records, Tax Returns and Tax work papers, supplier lists, surveys, engineering records, maintenance records and studies, environmental records, environmental reporting information, emission data, testing and sampling data and procedures, construction, inspection and operating records, and any and all information necessary to meet compliance obligations with respect to Applicable Law.

“Business Day” means any day that is not a Saturday, Sunday, or legal holiday in the State of Texas and that is not otherwise a federal holiday in the United States.

“Buyer Indemnified Costs” means all Losses incurred or suffered by the Buyer Indemnified Parties as a result of, relating to or arising out of (i) any breach of any representation or warranty contained in Article III or Article IV made by the SN Parties as though such representation or warranty were made as of the Closing Date (except to the extent that such representation and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been made as of such earlier date); (ii) the breach of any covenant or agreement made or to be performed by the SN Parties under this Agreement and (iii) the Retained Obligations.

“Buyer Indemnified Parties” means Buyer, its Affiliates and, from and after the Closing, the Company, and each of their respective officers, members, managers, partners, directors, employees and representatives.

“CG” means Carnero Gathering, LLC, a Delaware limited liability company.

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“CG Gathering Agreement” means that certain Firm Gas Gathering Agreement, by and among SN, SN Catarina, LLC and the TPL Member, dated as of October 2, 2015, as amended, supplemented or modified from time to time.

“CG LLC Agreement” means that certain Amended and Restated Limited Liability Company Agreement of CG, dated as of June 23, 2016, as amended, supplemented or modified from time to time

“Claim” means any existing or threatened future claim, demand, suit, action, investigation, proceeding, inquiry, condemnation, audit or cause of action of any kind or character (in each case, whether civil, criminal, investigative or administrative) before any court or other Governmental Authority or any arbitration proceeding, known or unknown, under any theory, including those based on theories of contract, tort, statutory liability, strict liability, employer liability, premises liability, products liability, breach of warranty or malpractice.

“Closing” has the meaning set forth in Section 9.1.

“Closing Date” has the meaning set forth in Section 9.1.

“Company” has the meaning set forth in the Recitals.

“Confidential Information” means any proprietary or confidential information that is competitively sensitive material or otherwise of value to a Party (including, with respect to the SN Parties prior to the Closing Date and Buyer after the Closing Date, the Company) or its Affiliates and not generally known to the public, including trade secrets, scientific or technical information, design, invention, process, procedure, formula, improvements, product planning information, marketing strategies, financial information, information regarding operations, consumer and/or customer relationships, consumer and/or customer identities and profiles, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of a Party (including, with respect to the SN Parties prior to the Closing Date and Buyer after the Closing Date, the Company) or its Affiliates and the consumers, customers, clients and suppliers of any of the foregoing. Confidential Information includes such information as may be contained in or embodied by documents, substances, engineering and laboratory notebooks, reports, data, specifications, computer source code and object code, flow charts, databases, drawings, pilot plants or demonstration or operating facilities, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation (including data in computer or other digital format) of the foregoing; provided, however, that Confidential Information does not include information that a receiving Party can show (i) has been published or has otherwise become available to the general public as part of the public domain without breach of this Agreement; (ii) has been furnished or made known to the receiving Party without any obligation to keep it confidential by a third party under circumstances which are not known to the receiving Party to involve a breach of the third party’s obligations to a Party or its Affiliates; (iii) was developed independently of information furnished or made available to the receiving Party as contemplated under this Agreement; or (iv) has been published or otherwise disclosed as required by Applicable Law.  From and after the Closing Date, Confidential Information disclosed by the SN Parties to Buyer that relates to the Company shall become, and be treated as, Confidential Information of Buyer disclosed to the SN Parties

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(other than Books and Records to the extent utilized or intended to be utilized for purposes specified in clauses (i) through (v) of Section 7.4(a)).

“Consents” means all notices to, authorizations, consents, orders or approvals of, or registrations, declarations or filings with, or expiration of waiting periods imposed by, any Governmental Authority, and any notices to, consents or approvals of any other third party.

“Contract” means any written contract, agreement, indenture, instrument, note, bond, loan, lease, easement, mortgage, franchise, license agreement, purchase order, binding bid or offer, binding term sheet or letter of intent or memorandum, commitment, letter of credit or any other legally binding arrangement, including any amendments or modifications thereof and waivers relating thereto.

“Effective Date” means 12:01 a.m. Houston, Texas time on the Closing Date.

“Encumbrance” means any mortgage, pledge, charge, hypothecation, easement, right of purchase, security interest, deed of trust, conditional sales agreement, encumbrance, interest, option, lien, right of first refusal, right of way, defect in title, encroachments or other restriction, whether or not imposed by operation of Applicable Law, any voting trust or voting agreement, stockholder agreement or proxy.

“Environmental Laws” means all Applicable Laws relating to health, safety, the protection of the environment, natural resources, or threatened or endangered species, pollution, or its impacts on human health, including those Applicable Laws relating to the storage, handling and use of chemicals and other Hazardous Substances and those relating to the generation, processing, treatment, storage, transportation, disposal or other management thereof.

“Environmental Permit” means all Permits of Governmental Authorities required by Environmental Laws for the conduct of the business of the Company.

“Financing” has the meaning set forth in Section 8.2(c).

“Fundamental Representations” has the meaning set forth in Section 11.4(a).

“GAAP” means generally accepted accounting principles of the United States, consistently applied.

“General Partner” means Sanchez Production Partners GP LLC, a Delaware limited liability company.

“Governmental Authority” means any federal, state, local, tribal, or foreign government, or any court of competent jurisdiction, regulatory or administrative agency, commission, or other governmental authority that exercises jurisdiction over Buyer, the SN Parties or the Company, as applicable.

“Hazardous Substance” means any chemicals, constituents, fractions, derivatives, compounds or other substances that are defined or regulated as pollutants, contaminants, wastes, toxic substances, hazardous substances, hazardous materials, radioactive materials or radioactive

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wastes or that may form the basis of liability or obligations under any Environmental Laws.  Hazardous Substances shall also expressly include petroleum substances (and any components, fractions or derivatives thereof) and exploration and production wastes.

“Hydrocarbons” means oil, gas, natural gas liquids, casinghead gas, coal bed methane, condensate and other gaseous and liquid hydrocarbons or any combination thereof.

“Indemnified Costs” means Buyer Indemnified Costs and Seller Indemnified Costs, as applicable.

“Indemnified Party” means Buyer Indemnified Parties and Seller Indemnified Parties.

“Indemnifying Party” has the meaning set forth in Section 11.2.

“Indemnity Cap” means an amount equal to 20% of the Purchase Price.

“Indemnity Deductible” means an amount equal to 1% of the Purchase Price.

“Individual Indemnity Threshold” has the meaning set forth in Section 11.4(b).

“Interests” has the meaning set forth in the Recitals.

“Knowledge” means, (i) as to the SN Parties, the actual knowledge of those Persons listed in Schedule 1.1 as of the date of this Agreement and (ii) as to Buyer, the actual knowledge of Charles Ward, Patricio Sanchez and Gerald Willinger.

“Legal Right” means, to the extent arising from, or in any way related to the Company (including the assets and operations associated with the Company), the legal authority and right (without risk of liability, criminal, civil or otherwise), including through the exercise of voting, managerial or other similar authority or right, if any; provided, however, that the Legal Right shall be deemed not to exist with respect to any contemplated conduct unless the SN Parties reasonably determine that such conduct would not constitute a violation, termination or breach of, or require any payment under, or permit any termination under, any: contract or agreement; arrangement; Applicable Law; fiduciary, quasi-fiduciary or similar duty; or any other obligation.

“LLC Agreement” means that certain Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 5, 2016, as amended, supplemented or modified from time to time.

“Losses” means any and all losses, damages, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including court costs and reasonable attorneys’ and experts’ fees) of any and every kind or character.

“Material Contracts” means the following Contracts to which the SN Parties, the Company or any of their Affiliates is a party and which relate to the Interests or the “Company Business” (as defined in the LLC Agreement as in effect on the date hereof) but, for the avoidance of doubt, excluding any (i) Contracts relating to the SO II Plant (as defined in the LLC Agreement), (ii) Contracts relating to CG, including the CG LLC Agreement and the CG

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Gathering Agreement and (iii) any Contracts to which the TPL Group (as defined in the LLC Agreement) is a party that the SN Parties do not have Knowledge of:

(a)                                 the Contracts listed on Schedule 4.9;

(b)                                 a non-competition agreement or any agreement that purports to restrict, limit or prohibit the Company from engaging in any line of business or the manner in which, or the locations at which the Company conducts business;

(c)                                  a Contract for the gathering, treatment, processing, storage, or transportation of Hydrocarbons which is not cancellable without penalty upon 30 or less days’ notice;

(d)                                 a Contract for the construction and installation or rental of equipment, fixtures, or facilities with guaranteed production throughput requirements or demand charges or which cannot be terminated without penalty on no more than 30 days’ notice;

(e)                                  an option, swap, hedge, collar or other derivative contract, including any master agreement and confirmation thereunder;

(f)                                   a Contract that involves performance of services or delivery of goods or materials (other than Hydrocarbons) by or to Seller or the Company of an amount or value in excess of $1,000,000 determined on an annual basis;

(g)                                  a Contract that involves expenditures or receipts of Seller or the Company in excess of $1,000,000 determined on an annual basis; or

(h)                                 a material software license or other license agreement related to intellectual property involving expenditures of Seller or the Company in excess of $100,000 determined on an annual basis.

“New Seller Information” has the meaning set forth in Section 6.2(a).

“Offering” has the meaning set forth in the Recitals.

“Organizational Documents” means any charter, certificate of incorporation, certificate or articles of formation, articles of association, partnership agreements, limited liability company agreements, bylaws, operating agreement or similar formation or governing documents and instruments.

“Outside Date” has the meaning set forth in Section 10.1(d).

“Party” and “Parties” have the meanings set forth in the Preamble.

“Permits” means all permits, licenses, approvals and Consents from appropriate Governmental Authorities necessary for the Company to construct, own and operate its assets and business.

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“Person” means an individual or a corporation, firm, limited liability company, partnership, joint venture, trust, unincorporated organization, association, Governmental Authority or other entity.

“Preferential Rights” means any right or agreement that enables any Person to purchase or acquire any Interests or any interest therein or portion thereof as a result of or in connection with (i) the sale, assignment or other transfer of any Interest or any interest therein or portion thereof or (ii) the execution or delivery of this Agreement or the consummation or performance of the transactions contemplated by this Agreement.

“Purchase Price” has the meaning set forth in Section 2.2.

“Receiving Party Personnel” has the meaning set forth in Section 12.6(d).

“Retained Obligations” means all obligations and liabilities of any kind whatsoever arising from or relating to the Company, whether known or unknown, liquidated or contingent, but only to the extent such obligations and liabilities arose prior to the Effective Date or relate to or are otherwise attributable to the period prior to the Effective Date.  The Retained Obligations shall not include the Assumed Obligations.

“Securities Act” mean the Securities Act of 1933, as amended.

“Seller Indemnified Costs” means all Losses incurred or suffered by the Seller Indemnified Parties as a result of, relating to or arising out of, (i) any breach of any representation or warranty contained in Article V made by Buyer as though such representation or warranty was made as of the Closing Date (except to the extent that such representation and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been made as of such earlier date); (ii) the breach of any covenant or agreement made or to be performed by Buyer under this Agreement; and (iii) the Assumed Obligations.

“Seller Indemnified Parties” means the SN Parties, each of their respective Affiliates and, prior to the Closing, the Company, and each of their respective officers, members, managers, partners, directors, employees and representatives.

“SN” has the meaning set forth in the Preamble.

“SN Credit Agreement” means that certain Second Amended and Restated Credit Agreement dated as of June 30, 2014 among SN, as borrower, SN Palmetto, LLC (f/k/a SEP Holdings III, LLC), SN Marquis LLC, SN Cotulla Assets, LLC, SN Operating, LLC, SN TMS, LLC and SN Catarina, LLC, as loan parties, Royal Bank of Canada, as administrative agent, Capital One, National Association, as syndication agent, Compass Bank and SunTrust Bank as co-documentation agents, RBC Capital Markets as sole lead arranger and sole book runner, and the lenders party thereto, as may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time.

“SN Indentures” means (i) that certain Indenture, dated as of June 13, 2013 (as amended or supplemented from time to time), among SN, the guarantors party thereto and U.S. Bank National Association, as trustee, and (ii) that certain Indenture, dated as of June 27, 2014 (as

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amended or supplemented from time to time), among SN, the guarantors party thereto and U.S. Bank National Association, as trustee.

“SN Parties” has the meaning set forth in the Preamble.

“Tax” or “Taxes” means any federal, state, local or foreign income tax, ad valorem tax, excise tax, sales tax, use tax, franchise tax, real or personal property tax, transfer tax, gross receipts tax or other tax, assessment, duty, fee, levy or other governmental charge, together with and including, any and all interest, fines, penalties, assessments, and additions to Tax resulting from, relating to, or incurred in connection with any of those or any contest or dispute thereof.

“Tax Authority” means any Governmental Authority having jurisdiction over the payment or reporting of any Tax.

“Tax Return” means any report, statement, form, return or other document or information required to be supplied to a Tax Authority in connection with Taxes.

“third-party action” has the meaning set forth in Section 11.2.

“TPL Member” has the meaning therefor set forth in the LLC Agreement.

“Transaction Taxes” has the meaning set forth in Section 7.2(b).

ARTICLE II.
PURCHASE AND SALE

Section 2.1                                    Purchase and Sale of Interests.  Upon the terms and subject to the conditions set forth in this Agreement, Seller shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from Seller, at the Closing, the Interests. Seller shall transfer the Interests to Buyer by delivery of the Assignment Document at Closing.

Section 2.2                                    Consideration.  In consideration for the purchase of the Interests, Buyer agrees to pay to Seller at Closing an amount equal to (i) $80,000,000, minus (ii) the amount of all “Capital Contributions” (as defined in the LLC Agreement as in effect on the date hereof) required to be made by Buyer to the Company on or after the Closing Date in respect of the Plant (as defined in the LLC Agreement) through the In-Service Date (as defined in the LLC Agreement) and which are Assumed Obligations and set forth on Schedule 2.1 (collectively, the “Purchase Price”).  Schedule 2.1 sets forth a schedule of such Capital Contributions (y) through the date of this Agreement and (z) an estimate of such additional Capital Contributions until the In-Service Date.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES RELATING TO THE SN PARTIES

The SN Parties hereby jointly and severally represent and warrant to Buyer that, as of the date of this Agreement and as of the Closing:

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Section 3.1                                    Organization of the SN Parties.  Seller is a limited liability company duly formed, validly existing and in good standing under the Applicable Laws of the State of Delaware and has the requisite organizational power and authority to own the Interests.  Seller is duly qualified to do business, and in good standing, in the State of Texas. SN is a corporation duly formed, validly existing and in good standing under the Applicable Laws of the State of Delaware and is duly qualified to do business, and in good standing, in each state where failure to be so qualified could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement.

Section 3.2                                    Authorization; Enforceability.  Each of the SN Parties has full capacity, power, and authority to execute and deliver this Agreement and to perform its obligations hereunder.  The execution, delivery, and performance of this Agreement, and the performance of the transactions contemplated hereby, have been duly and validly authorized on the part of each of the SN Parties, and no other proceeding on the part of either of the SN Parties is necessary to authorize this Agreement or performance of the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by each of the SN Parties (and all documents required hereunder to be executed and delivered by the SN Parties at the Closing will be duly executed and delivered by the SN Parties), and this Agreement constitutes, and at the Closing each such document will constitute, a valid and binding obligation of each of the SN Parties, enforceable against each of the SN Parties in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Applicable Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

Section 3.3                                    Ownership of Interests.

(a)                                 Seller holds of record and owns beneficially the Interests, free and clear of all Encumbrances (other than (i) restrictions under federal and state securities laws and in the Organizational Documents of the Company and (ii) prior to the Closing, the pledge of the Interests pursuant to the Pledge Agreement (as defined on Schedule 4.9) and Section 3.13 of the LLC Agreement).

(b)                                 Except as set forth in Section 3.3(a), neither of the SN Parties is a party to any option, warrant, purchase right or other contract or commitment (other than this Agreement or the Organizational Documents of the Company and, until the Closing, the Pledge Agreement) that could require Seller to sell, transfer or otherwise dispose of the Interests, and other than this Agreement, the Interests are not subject to any voting agreement or other contract, agreement, arrangement, commitment or understanding (other than the Organizational Documents of the Company) restricting or otherwise relating to the voting, dividend rights, or disposition of the Interests.

(c)                                  Upon the occurrence of the Closing, the delivery of the Interests to Buyer in accordance with the terms of this Agreement will transfer good and marketable title to the Interests free and clear of any Encumbrance (but subject to applicable restrictions on transferability under federal and state securities laws and in the Organizational Documents of the Company).

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(d)                                 Upon the occurrence of the Closing, none of the Interests will be subject in any respect to any indebtedness (other than customary bonds posted with Governmental Authorities), including the terms and conditions of the documents and instruments governing the indebtedness of the SN Parties or their Affiliates, including the SN Credit Agreement, the SN Indentures or any related security agreements, guarantees, documents and instruments.

Section 3.4                                    No Conflict; Consents.  Except as set forth on Schedule 3.4, the execution and delivery of this Agreement by the SN Parties and the consummation of the transactions contemplated hereby do not and shall not:

(a)                                 violate any Applicable Law applicable to either of the SN Parties or, to the Knowledge of the SN Parties with respect to either of the SN Parties or their Affiliates, require any material filing with, consent, approval, or authorization of or notice to, any Person except as required by the Organizational Documents of the Company; or

(b)                                 violate any Organizational Document of either of the SN Parties.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND THE INTERESTS

The SN Parties hereby jointly and severally represent and warrant to Buyer that, as of the date of this Agreement and as of the Closing:

Section 4.1                                    Organization.  The Company is a limited liability company, validly existing and in good standing under the laws of the State of Delaware and has the requisite organizational power and authority to own or lease its assets and conduct its business as currently conducted.  The Company is duly qualified to do business, and in good standing, in the State of Texas.

Section 4.2                                    No Conflict; Consents.  Except as set forth on Schedule 4.2, the execution and delivery of this Agreement by the SN Parties and the consummation of the transactions contemplated hereby do not and shall not:

(a)                                 violate any Applicable Law applicable to the Company or, to the Knowledge of the SN Parties with respect to the Company, require any material filing with, Permit, consent, approval, or authorization of or notice to, any Person except as required by the Organizational Documents of the Company;

(b)                                 violate any Organizational Document of the Company; or

(c)                                  to the Knowledge of the SN Parties (i) breach any Material Contract (other than any Organizational Documents of the Company); (ii) result in the termination of or the right of any party to terminate any Material Contract; (iii) result in the creation of any Encumbrance under any Material Contract; or (iv) constitute an event that, after notice or lapse of time or both, would result in any such breach, termination or creation of an Encumbrance.

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Section 4.3                                    Capitalization.

(a)                                 Interests.  The Interests (i) are duly authorized, validly issued and, except as contemplated by the Organizational Documents of the Company, fully paid and nonassessable (except as such nonassessability may be affected by matters described in Sections 18-607 and 18-804 of the Delaware Limited Liability Company Act); (ii) are free of preemptive rights; (iii) were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws or pursuant to valid exemptions therefrom; and (iv) are uncertificated.  Seller has timely paid each Capital Call (as defined in the LLC Agreement) that it has received from the Company.

(b)                                 No Other Rights.  Except as set forth in the Organizational Documents of the Company (including with respect to the TPL Member), to the Knowledge of the SN Parties, as of the date hereof there are no (i) outstanding securities of the Company other than the Interests and the membership interests of the Company owned by the TPL Member, and no outstanding securities which are convertible into, or exchangeable or exercisable for, membership interests, equity interests or other securities of the Company; (ii) authorized or outstanding options, warrants, stock or other rights to purchase or acquire from the Company, or obligations of the Company to issue, any equity interests, stock or other securities, including securities convertible into or exchangeable for membership interests, stock or other securities of the Company; (iii) preemptive rights related to any membership interests, equity interests, stock or other securities of the Company; (iv) contractual arrangements giving any Person a right to receive any benefits or rights similar to the rights enjoyed by or accruing to the holders of any equity or other interest in the Company; or (v) authorized or outstanding bonds, debentures, notes or other indebtedness that entitles the holders to vote (or convertible or exercisable for or exchangeable into securities that entitle the holders to vote) with holders of units or interests of the Company on any matter.

(c)                                  Subsidiaries.  To the Knowledge of the SN Parties, as of the date hereof the Company does not own, directly or indirectly, any capital stock or equity interests of any other Person.

Section 4.4                                    Absence of Litigation; Compliance with Law.  Except with respect to any Claims under any Environmental Laws which are addressed exclusively in Section 4.8, to the Knowledge of the SN Parties, there is no material Claim pending or threatened against the Company or the Interests that, if adversely determined, would be material to the Interests.  To the Knowledge of the SN Parties, the operations and business of the Company have been conducted by the Company in substantial compliance in all material respects with all Applicable Laws except with respect to Environmental Laws, which are addressed exclusively in Section 4.8.

Section 4.5                                    Bankruptcy.  To the Knowledge of the SN Parties, there are no bankruptcy, reorganization or rearrangement proceedings under any bankruptcy, insolvency, reorganization, moratorium or other similar Applicable Laws with respect to creditors pending against, being contemplated by, or threatened, against the Company.

Section 4.6                                    Brokers and Finders.  No investment banker, broker, finder, financial advisor or other intermediary has been (directly or indirectly) retained by or is authorized to act on behalf of the SN Parties or their Affiliates who is entitled to receive from Buyer any fee or commission in connection with the transactions contemplated by this Agreement.

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Section 4.7                                    Tax Matters

(a)                                 All Tax Returns required to be filed with respect to the Interests and, to the Knowledge of the SN Parties, by the Company have been duly filed on a timely basis (taking into account all extensions of due dates), and such Tax Returns are true, correct and complete.

(b)                                 All Taxes with respect to the Interests and, to the Knowledge of the SN Parties, all Taxes owed by the Company which are or have become due have been timely paid in full.

(c)                                  There are no Encumbrances for Taxes on the Interests or, to the Knowledge of the SN Parties, the Company’s assets, other than Taxes not yet due and payable.

(d)                                 To the Knowledge of the SN Parties, there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company or the Company’s assets nor is there any outstanding agreement or waiver by or with respect to the Company or the Company’s assets extending the period for assessment or collection of any Tax.

(e)                                  To the Knowledge of the SN Parties, there is no pending or threatened action, audit, required for ruling, proceeding or investigation for assessment or collection of Tax and no Tax assessment, deficiency or adjustment has been asserted or proposed in writing with respect to the Company or the Company’s assets that has not been resolved.

(f)                                   To the Knowledge of the SN Parties, the Company is not a party to any Tax allocation or Tax sharing agreement that will be binding on such entity after Closing.

(g)                                  Since the date of its formation, for U.S. federal income tax purposes, the Company has been validly classified as a partnership and has in effect an election pursuant to Section 754 of the Internal Revenue Code of 1986, as amended.

Section 4.8                                    Environmental Matters.  To the Knowledge of the SN Parties, the Company (i) is in substantial compliance in all material respects with all applicable Environmental Laws and Environmental Permits; (ii) is not the subject of any outstanding administrative or judicial order, judgment, agreement or arbitration award from any Governmental Authority under any Environmental Law relating to the Company or its assets and requiring remediation or the payment of a fine or penalty; and (iii) is not subject to any material pending Claims under any Environmental Laws with respect to which the SN Parties or the Company have been notified in writing by or on behalf of a plaintiff or claimant.

Section 4.9                                    Material Contracts.  To the Knowledge of the SN Parties, all Material Contracts in effect as of the date hereof are specified in the definition thereof or otherwise listed on Schedule 4.9.  To the Knowledge of the SN Parties, each Material Contract is in full force and effect and represents the legal, valid and binding obligation of the parties thereto, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.  Neither the SN Parties nor, to the Knowledge of the SN Parties, the Company and, to the Knowledge of the SN Parties, no other party, is in

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breach of any Material Contract.  Neither the SN Parties nor, to the Knowledge of the SN Parties,  the Company has received or delivered notice of a default or breach with respect to any Material Contract.  To the Knowledge of the SN Parties, the SN Parties have made available to Buyer or its representatives correct and complete copies of each Material Contract and all amendments and other modifications thereto.

Section 4.10                             Employees.  To the Knowledge of the SN Parties, except as contemplated by the Services and Secondment Agreement, dated as of October 5, 2016, between the TPL Member and the Company, the Company does not have any employees.

Section 4.11                             Preferential Rights.  Except as set forth on Schedule 4.11 or the Organizational Documents of the Company, to the Knowledge of the SN Parties, there are no Preferential Rights attributable to or with respect to any part of the Interests.

Section 4.12                             Permits.  To the Knowledge of the SN Parties, the Company has maintained all material Permits necessary for it to construct the facilities constructed or being constructed by it, as the case may be.  To the Knowledge of the SN Parties, no event has occurred (including the execution and delivery of this Agreement) which permits, or after the giving of notice or lapse of time or both would permit, the revocation or termination of any Permit or the imposition of any (i) restrictions of such a nature as may limit any of the operations of the Company as historically conducted by it or (ii) material fines, costs or penalties under any Permit.

Section 4.13                             Affiliate Transactions.  Other than any such Contracts identified as Material Contracts, there are no Contracts between Seller or an Affiliate of Seller, on the one hand, and the Company or an Affiliate of the Company, on the other hand, that will continue to be binding upon or directly affect the Company from and after the Closing.

Section 4.14                             Projections and Budgets.The projections and budgets provided to Buyer by the SN Parties and their Affiliates as part of Buyer’s review of the Company in connection with this Agreement have a reasonable basis, were prepared in good faith and are consistent with the expectations of the management of the SN Parties and their Affiliates.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to the SN Parties that, as of the date of this Agreement and as of the Closing:

Section 5.1                                    Organization of Buyer.  Buyer is a limited partnership, duly formed and validly existing and in good standing under the Applicable Laws of the State of Delaware.

Section 5.2                                    Authorization; Enforceability.  Buyer has all requisite limited partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  The execution, delivery, and performance of this Agreement, and the performance of the transactions contemplated hereby have been duly and validly authorized and approved by Buyer, and no other limited partnership proceeding on the part of Buyer is necessary to authorize this Agreement.  This Agreement has been duly and validly executed and delivered by Buyer

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(and all documents required hereunder to be executed and delivered by Buyer at the Closing will be duly executed and delivered by Buyer), and this Agreement constitutes, and at the Closing each such document will constitute, a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Applicable Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

Section 5.3                                    No Conflict; Consents.  Except as would not reasonably be expected to prevent, impede, or materially delay the ability of Buyer to enter into and perform its obligations under this Agreement, the execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby by Buyer do not and shall not:

(a)                                 violate any Applicable Law applicable to Buyer or, to the Knowledge of Buyer, require any filing with, consent, approval or authorization of, or, notice to, any Governmental Authority;

(b)                                 violate any Organizational Document of Buyer; or

(c)                                  to the Knowledge of Buyer, require any filing with, or permit, consent or approval of, or the giving of any notice to, any Person except as required by the Organizational Documents of the Company.

Section 5.4                                    Absence of Litigation.  There is no Claim pending or, to the Knowledge of Buyer, threatened against Buyer relating to the transactions contemplated by this Agreement which, if adversely determined, would reasonably be expected to materially impair the ability of Buyer to perform its obligations and agreements under this Agreement and to consummate the transactions contemplated hereby.

Section 5.5                                    Brokers and Finders.  No investment banker, broker, finder, financial advisor or other intermediary has been (directly or indirectly) retained by or is authorized to act on behalf of Buyer or its Affiliates who is entitled to receive from Seller any fee or commission in connection with the transactions contemplated by this Agreement.

Section 5.6                                    Buyer’s Independent Investigation.  Buyer has undertaken an independent investigation and verification of the business, operations and financial condition of the Company.  Except for the representations and warranties made by the SN Parties in Article III and Article IV, Buyer acknowledges that there are no representations or warranties, express or implied, as to the condition (financial or otherwise), assets, liabilities, operations, business or prospects of the Company.

Section 5.7                                    Independent Evaluation.  Buyer is sophisticated in the evaluation, purchase, ownership and operation of midstream properties and related facilities.  Buyer acknowledges and agrees that the SN Parties have not made any representations or warranties as to the Company except as expressly and specifically provided in Article III and Article IV and that Buyer may not rely on any other representations or warranties made by the SN Parties or their representatives or, except as expressly provided in Article III and Article IV, on any of the SN Parties’ estimates with respect to the value of the Company or any projections as to future events or other analyses or forward looking statements.  In making its decision to enter into this

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Agreement and to consummate the transactions contemplated herein, subject to the express representations of the SN Parties set forth in this Agreement, Buyer (i) has relied or shall rely solely on its own independent investigation and evaluation of the Company and the express provisions of this Agreement and (ii) has satisfied or shall satisfy itself as to the environmental and physical condition of and contractual arrangements affecting the Company.

Section 5.8                                    Acquisition as Investment.  Buyer (i) is acquiring the Interests for its own account and not with a view to distribution in violation of applicable securities laws; (ii) has sufficient knowledge and experience in financial and business matters so as to be able to evaluate the merits and risk of an investment in the Interests and is able financially to bear the risks thereof; (iii) understands that the Interests will, upon purchase, be characterized as “restricted securities” under state and federal securities Laws and that under such Laws the Interests may be resold without registration under such Laws only in certain limited circumstances; and (iv) is an “accredited investor” as defined under Rule 501 promulgated under the Securities Act.

Section 5.9                                    Permitted Transferee. Buyer has not constructed, initially participated in a facility or agreed to construct or initially participate in a facility that would have constituted an Additional Plant (as defined in the LLC Agreement) if the TPL Member or the Seller had constructed or initially participated in such facility.

ARTICLE VI.
PRE-CLOSING COVENANTS

Section 6.1                                    General; Financing.  Until the Closing, Buyer shall use commercially reasonable efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement, including satisfying the SN Parties’ conditions to Closing in Section 8.3 and obtaining the Financing as promptly as practicable.  Until the Closing, the SN Parties shall (and, until the Closing, to the extent they have the Legal Right, shall cause the Company to) use commercially reasonable efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement, including satisfying Buyer’s conditions to Closing in Section 8.2.  To the extent permitted by Applicable Law, Buyer shall keep Seller reasonably informed with respect to all material activity concerning the status of the Financing and shall give Seller prompt notice of any material adverse change with respect to the Financing.  Without limiting the foregoing, Buyer agrees to notify Seller promptly, and in any event within two Business Days, if at any time for any reason Buyer no longer believes in good faith that it will be able to obtain all or any portion of the Financing.

Section 6.2                                    Notices, Consents and Books and Records.

(a)                                 Until the Closing, the SN Parties shall (and, until the Closing, to the extent they have the Legal Right, shall cause the Company to) give any notices to, make any filings with, and use their commercially reasonable best efforts to obtain any authorizations, Consents and approvals of Governmental Authorities and third parties that are required in connection with the matters referred to in Section 3.4 and Section 4.2 including the corresponding Schedules.  Until the Closing, each of Buyer and the SN Parties shall give the other Party prompt notice of the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would

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be reasonably likely to (i) cause a breach of any of the representations, warranties or covenants of such Party under this Agreement or (ii) cause any of the conditions of the other Party to consummate the transactions contemplated by this Agreement not to be satisfied.  If Buyer has a right to terminate this Agreement pursuant to Section 10.1(b), without taking into consideration any new information provided by the SN Parties pursuant to this Section 6.2(a) (the “New Seller Information”) for purposes of qualifying any of the representations and warranties of the SN Parties set forth in this Agreement, but Buyer elects to proceed with the Closing, then each of the applicable Schedules shall be deemed to have been amended to include the New Seller Information, the New Seller Information shall be deemed to be waived by Buyer and Buyer shall not be entitled to make a Claim thereon under this Agreement.

(b)                                 Until the Closing, the SN Parties agree to (and, until the Closing, to the extent they have the Legal Right, shall cause the Company to) provide access to its Books and Records to allow Buyer and Buyer’s outside auditing firm to prepare (at Buyer’s expense) any information required to be filed with or furnished to the Securities and Exchange Commission by Buyer pursuant to Applicable Laws regarding securities.

Section 6.3                                    Operations of the Company.  Except as expressly contemplated by this Agreement or as contemplated by Schedule 6.3, until the Closing, to the extent they have the Legal Right, the SN Parties will cause the Company and (to the extent related to the Company) Affiliates of the SN Parties not to engage in any practice, take any action or enter into any transaction outside the ordinary course of business without the prior written consent of Buyer except in case of emergency or as may otherwise be required to prevent injury or damage to Persons, property or the environment.

Section 6.4                                    Reasonable Access.  Unless prohibited by Applicable Law, to the extent the SN Parties have the Legal Right, the SN Parties shall use commercially reasonable efforts to cause, until the Closing, the Company to permit Buyer and representatives of Buyer to have reasonable access at reasonable times, and in a manner so as not to interfere with the normal business operations of the SN Parties or the Company and their Affiliates, to all premises, properties, personnel, books, records (including Tax records), contracts and documents of or pertaining to the Company, subject to Section 7.4(b) and Section 12.14.  Buyer shall abide by the SN Parties’ and any lessors’ safety rules, regulations and operating policies while conducting its due diligence evaluation of the Company including any environmental or other inspection or assessment of the Company.  Buyer does hereby RELEASE, DEFEND, INDEMNIFY and HOLD HARMLESS the Seller Indemnified Parties from and against any and all Claims arising out of, resulting from or relating to the acts or omissions of Buyer or any of the Buyer Indemnified Parties in connection with any field visit, environmental assessment or other due diligence activity conducted by Buyer or any of its representatives with respect to the Company conducted prior to Closing.  SUCH OBLIGATIONS OF BUYER SHALL APPLY EVEN IF SUCH CLAIMS ARISE OUT OF OR RESULT FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE SELLER INDEMNIFIED PARTIES; PROVIDED, HOWEVER, THE AFOREMENTIONED OBLIGATIONS SHALL NOT APPLY TO ANY CLAIM TO THE EXTENT ACTUALLY RESULTING ON ACCOUNT OF THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE SELLER INDEMNIFIED PARTIES.

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Section 6.5                                    Insurance.  To the extent the SN Parties have the Legal Right, the SN Parties shall cause the Company’s insurance policies of the Company to remain in force and effect or to be renewed and maintained in full force and effect through (but not after) the Closing Date.

Section 6.6                                    LLC Agreement; Securities; Subsidiaries. Except as expressly contemplated by this Agreement, until the Closing, the SN Parties, to the extent they have the Legal Right, will not cause, or allow to be caused, except with the prior written consent of  Buyer, (i) the amendment, amendment and restatement, modification or supplement of the LLC Agreement as in effect on the date hereof, (ii) the issuance or creation of any securities or other rights contemplated by Section 4.3(b) not set forth in the Organizational Documents of the Company as of the date hereof, and (iii) the acquisition of any capital stock or equity interest of any other Person by the Company after the date hereof.

ARTICLE VII.
POST-CLOSING COVENANTS

Section 7.1                                    Further Assurances.  After the Closing, each Party shall use its commercially reasonable efforts to take such further actions, including obtaining or transferring to the other Party all necessary Permits, Consents, orders and Contracts and executing and causing its Affiliates to execute such further documents, as may be necessary or reasonably requested by another Party in order to effectuate the intent of this Agreement and to provide such other Party with the intended benefits of this Agreement.

Section 7.2                                    Tax Matters.

(a)                                 Taxes.  The Parties agree that the income related to the Interests for the period up to and including the Closing Date will be reflected on the federal income Tax Return of Seller and that Seller shall bear the liability for any Taxes associated with such income.  The Parties further agree that the income related to the Interests for the period after the Closing Date will be reflected on the federal income Tax Return of Buyer and that the partners of Buyer shall bear the liability for any Taxes associated with such income.

(b)                                 Transaction Taxes.  All sales, use, transfer, filing, recordation, registration and similar Taxes arising from or associated with the transactions contemplated by this Agreement other than Taxes based on income (“Transaction Taxes”), shall be borne 50% by Seller and 50% by Buyer.  To the extent under Applicable Law the transferee is responsible for filing Tax Returns in respect of Transaction Taxes, Buyer shall prepare and file all such Tax Returns.  The Parties shall provide such certificates and other information and otherwise cooperate to the extent reasonably required to minimize Transaction Taxes.  The Party that is not responsible under Applicable Law for paying the Transaction Taxes shall pay its share of the Transaction Taxes to the responsible Party prior to the due date of such Taxes.

(c)                                  Cooperation on Tax Matters.  Following the Closing Date, the Parties shall cooperate fully with each other and shall make available to the other, as reasonably requested and at the expense of the requesting Party, and to any Governmental Authority responsible for the administration of any Tax, all information, records or documents relating to Tax liabilities or

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potential Tax liabilities of the Company for all periods at or prior to the Effective Date and any information which may be relevant to determining the amount payable hereunder, and shall preserve all such information, records and documents at least until the expiration of any applicable statute of limitations or extensions thereof.

Section 7.3                                    Cooperation for Litigation and Other Actions.  Each Party shall cooperate reasonably with each other Party, at the requesting Party’s expense (but including only out-of-pocket expenses to unaffiliated third parties, photocopying and delivery costs and not the costs incurred by any Party for the wages or other benefits paid to its officers, directors or employees), in furnishing reasonably available information, testimony and other assistance in connection with any Claims or other disputes involving any of the Parties (other than in connection with Claims or disputes between the Parties).

Section 7.4                                    Retention of and Access to Books and Records.

(a)                                 Buyer agrees to afford the SN Parties and their Affiliates and their respective accountants, counsel and other designated individuals, during normal business hours, upon reasonable request, at a mutually agreeable time, full access to and the right to make copies of the Books and Records at no cost to the SN Parties or their Affiliates (other than for reasonable out-of-pocket expenses); provided that such access will not be construed to require the disclosure of Books and Records that would cause the waiver of any attorney-client, work product or like privilege; provided, further, that in the event of any litigation, nothing herein shall limit any Party’s rights of discovery under Applicable Law. Without limiting the generality of the preceding sentences, Buyer agrees to provide SN Parties and their Affiliates reasonable access to and the right to make copies of the Books and Records after the Closing for the purposes of assisting SN Parties and their Affiliates (i) in complying with the SN Parties’ obligations under this Agreement, Applicable Laws (including securities laws) or applicable stock exchange requirements; (ii) in preparing Tax Returns; (iii) in responding to or disputing any tax audit; (iv) in asserting, defending or otherwise dealing with any Claim or dispute, known or unknown, under this Agreement; and (v) in asserting, defending or otherwise dealing with any third-party Claim or dispute by or against SN Parties and their Affiliates relating to the Company.

(b)                                 Notwithstanding the foregoing provisions of this Section or anything else to the contrary in this Agreement, with respect to any Books and Records the transfer or other disclosure of which to Buyer would waive (or would reasonably risk the waiver of) any attorney/client, work product, tax practitioner, audit or other privilege relating to the Retained Obligations, the SN Parties shall not be required to transfer such Books and Records (or any copies thereof) to Buyer until the appropriate Parties enter into a mutually-agreed joint defense agreement to allow for the sharing of common defense privileged materials.

Section 7.5                                    Post-Closing Collection and Payment Matters.

(a)                                 If the transfer of any of the Interests pursuant hereto is not effective against the Company as of the Effective Date, then (i) the Parties shall nevertheless proceed to Closing and such effectiveness shall not be a condition to Closing, (ii) Seller, to the extent it has the Legal Right, shall provide Buyer with the economic benefits and risks thereof, and Buyer

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hereby assumes such risks at and after the Effective Date (including the Assumed Obligations and the Seller Indemnified Costs), and (iii) Seller shall, at the request and expense of Buyer, until the transfer of Interests is effective against the Company, enforce in a reasonable manner as directed by Buyer, any and all rights of Seller under the Interests.

(b)                                 From time to time after the Closing, as promptly as practical (but not less than once each calendar month), the Parties shall settle any then outstanding obligations under this Section 7.5, including the first Party reimbursing the other Party for benefits received by the first Party that should accrue to the other Party (such as the first Party’s receipt of a distribution that the other Party was entitled to or the other Party’s payment of a capital contribution that was an obligation of the first Party).

ARTICLE VIII.
CONDITIONS TO CLOSE

Section 8.1                                    Condition to Close of Both Parties.  The respective obligations of Buyer and the SN Parties to consummate the transactions contemplated by this Agreement is subject to the satisfaction at or prior to the Closing of the following conditions:

(a)                                 there must not be any pending or threatened injunction, judgment, order, decree, ruling or charge in effect preventing consummation of any of the transactions contemplated by this Agreement or any suit or action pending or threatened by a Governmental Authority to enjoin the consummation of any of the transactions contemplated by this Agreement; and

(b)                                 all consents set forth on Schedule 3.4 shall have been obtained in form and substance reasonably satisfactory to the Parties.

Section 8.2                                    Conditions to Obligations of Buyer.  The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions:

(a)                                 the representations and warranties of the SN Parties contained in Article III and Article IV must be true and correct in all material respects as of the date of this Agreement and as of the Closing (except for those which refer to another specific date, which must be true and correct as of such date);

(b)                                 the SN Parties must have performed and complied in all material respects with each of their covenants hereunder through the Closing;

(c)                                  Buyer shall have closed the Offering or shall have obtained other financing (collectively, “Financing”) on such other terms, in the case of a Financing other than the Offering, as it deems reasonably acceptable in order to pay the Purchase Price; and

(d)                                 the SN Parties must have timely delivered all items required to be delivered at Closing pursuant to Section 9.2.

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Buyer may waive any condition specified in this Section 8.2 if it executes and delivers to the SN Parties a writing so stating at or before the Closing.

Section 8.3                                    Conditions to Obligations of the SN Parties.  The obligation of the SN Parties to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions:

(a)                                 the representations and warranties of Buyer contained in Article V must be true and correct in all material respects as of the date of this Agreement and as of the Closing;

(b)                                 Buyer must have performed and complied in all material respects with each of its covenants hereunder through the Closing;

(c)                                  Buyer must have timely delivered all items required to be delivered at Closing pursuant to Section 9.3; and

(d)                                 that certain Guaranty dated October 2, 2015 by SN in favor of the Company shall have been released.

The SN Parties may waive any condition specified in this Section 8.3 if either SN or Seller executes and delivers to Buyer a writing so stating at or before the Closing.

ARTICLE IX.
CLOSING

Section 9.1                                    Closing.  The closing of the transactions contemplated hereby (the “Closing”) shall take place at the offices of Seller, 1000 Main Street, Suite 3000, Houston, Texas 77002 within five days after the conditions set forth in Article VIII have been satisfied or waived, or such other date as may be mutually agreed to by the Parties (the “Closing Date”), and the Closing is deemed to be effective as of the Effective Date.

Section 9.2                                    Deliveries by the SN Parties.  At the Closing, the SN Parties shall deliver, or cause to be delivered, to Buyer the following:

(a)                                 a counterpart of the Assignment of Membership Interests and Adoption Agreement, substantially in the form attached as Exhibit E to the LLC Agreement (the “Assignment Document”), duly executed by Seller;

(b)                                 an executed statement described in Treasury Regulation § 1.1445-2(b)(2) certifying that Seller (or such affiliate of Seller as required under Treasury Regulations § 1.1445-2(b)(2)(iii) to the extent that Seller is disregarded for federal income tax purposes) is not a foreign person within the meaning of the Internal Revenue Code and the Treasury Regulations promulgated thereunder;

(c)                                  the Books and Records that are in the possession or control of the SN Parties or their Affiliates, subject to Section 7.4(b) and Section 12.14; and

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(d)                                 a certificate of an executive officer of SN, dated as of the Closing Date, stating that the SN Parties are in compliance with Section 8.2(a) and Section 8.2(b).

Section 9.3                                    Deliveries by Buyer.  At the Closing, Buyer shall deliver, or cause to be delivered, to Seller the following:

(a)                                 the Purchase Price by wire transfer to one or more accounts designated in writing by Seller no later than two Business Days prior to Closing;

(b)                                 a counterpart of the Assignment Document, duly executed by Buyer; and

(c)                                  a certificate of an executive officer of Buyer, dated as of the Closing Date, stating that Buyer is in compliance with Section 8.3(a) and Section 8.3(b).

Section 9.4                                    Deliveries to the Company.  On the day of Closing, Seller shall deliver, or cause to be delivered, to the Company the Assignment Document pursuant to Section 3.5 and Section 3.8 of the LLC Agreement.

ARTICLE X.
TERMINATION

Section 10.1                             Termination of Agreement.  The Parties may terminate this Agreement, as provided below:

(a)                                 Buyer and the SN Parties may terminate this Agreement by mutual written consent at any time before the Closing;

(b)                                 by Buyer, (i) if the SN Parties shall have breached or failed to perform in any material respect any of their representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform would give rise to the failure of a condition set forth in Section 8.2 or (ii) if all of the conditions set forth in Article VIII have been satisfied or waived, as applicable, and the SN Parties nevertheless refuse or fail to Close the transactions contemplated in this Agreement; provided, the SN Parties shall first be entitled to 10 days’ notice and the opportunity to cure and provided furthermore that Buyer shall not be in breach at such time;

(c)                                  by the SN Parties, (i) if Buyer shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform would give rise to the failure of a condition set forth in Section 8.3 or (ii) if all of the conditions set forth in Article VIII have been satisfied or waived, as applicable, and Buyer nevertheless refuses or fails to Close the transactions contemplated in this Agreement; provided, Buyer shall first be entitled to 10 days’ notice and the opportunity to cure and provided furthermore that the SN Parties shall not be in breach at such time;

(d)                                 by either Buyer or the SN Parties, upon notice to the other Party, if the transactions contemplated at the Closing have not been consummated by March 31, 2017 (the “Outside Date”), provided that neither Buyer nor the SN Parties shall be entitled to terminate

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this Agreement pursuant to this Section 10.1(d) if such Person’s breach of this Agreement has prevented the consummation of the transactions contemplated by this Agreement; or

(e)                                  by either Buyer or the SN Parties, if any Governmental Authority shall have issued an order, decree or ruling or shall have taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable.

Section 10.2                             Effect of Termination.

(a)                                 Except for the provisions of this Article X, Article XII and Article XIII, if the Parties terminate this Agreement pursuant to Section 10.1(a), all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to the other Party and except that termination of this Agreement will not affect any liability of either Party for any breach of this Agreement prior to termination, or any breach at any time of the provisions hereof surviving termination.

(b)                                 If the SN Parties terminate this Agreement pursuant to Section 10.1(c) due to a material breach of this Agreement by Buyer, then the SN Parties shall be entitled to seek all rights and remedies at law or in equity against Buyer or its Affiliates. Each of Buyer and the SN Parties agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

(c)                                  If Buyer terminates this Agreement pursuant to Section 10.1(b) due to a material breach of this Agreement by the SN Parties, then Buyer shall be entitled to seek all rights and remedies at law or in equity against the SN Parties or their Affiliates. Each of Buyer and the SN Parties agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

ARTICLE XI.
INDEMNIFICATION

Section 11.1                             Indemnification.  From and after the Closing and subject to the provisions of this Article XI, (i) the SN Parties agree to indemnify and hold harmless Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs and (ii) Buyer agrees to indemnify and hold harmless Seller Indemnified Parties from and against any and all Seller Indemnified Costs.

Section 11.2                             Defense of Third-Party Claims.  An Indemnified Party shall give prompt written notice to the SN Parties or Buyer, as applicable (the “Indemnifying Party”), of the commencement or assertion of any Claim by a third party (collectively, a “third-party action”) in respect of which such Indemnified Party seeks indemnification hereunder. Any failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it, he, or she may have to such Indemnified Party under this Article XI unless and to the extent the failure to give such notice materially and adversely prejudices the Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as it deems appropriate; provided, however, that:

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(a)                                 The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Party shall pay the attorneys’ fees of the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such third-party action; (ii) the Indemnifying Party shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action; (iii) the Indemnified Party shall have reasonably concluded that there may be defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (iv) the Indemnified Party’s counsel shall have advised the Indemnified Party in writing, with a copy delivered to the Indemnifying Party, that there is a material conflict of interest that could violate applicable standards of professional conduct to have common counsel);

(b)                                 The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission or acknowledgment could have a material adverse effect with respect to the Indemnified Party;

(c)                                  The Indemnifying Party shall not consent to the entry of any judgment or enter into any settlement without the consent of the Indemnified Party that does not include as an unconditional term thereof the giving by each claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such third-party action; and

(d)                                 The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time (except to the extent (A) the Indemnifying Party shall have reasonably concluded that there may be defenses available to such Indemnifying Party that are different from or additional to those available to the Indemnified Party or (B) the Indemnifying Party’s counsel shall have advised the Indemnifying Party in writing, with a copy delivered to the Indemnified Party, that there is a material conflict of interest that could violate applicable standards of professional conduct to have common counsel) or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party.

The Parties shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested.

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Section 11.3                             Direct Claims.  In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.2 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof.  Subject to the limitations set forth in Section 11.4(a), the failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless and to the extent the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim.

Section 11.4                             Limitations.  The following provisions of this Section 11.4 shall limit the indemnification obligations hereunder:

(a)                                 The Indemnifying Party shall not be liable for any Indemnified Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.2 or Section 11.3 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before 5:00 p.m., Houston, Texas time, on or prior to the date that is eighteen (18) months after of the Closing Date; provided, however, that written claims for indemnification (i) for Indemnified Costs arising out of a breach of any representation or warranty contained in Article III, Section 4.1, Section 4.2, Section 4.3, Section 4.6, Section 4.7, Section 5.1, Section 5.2 and Section 5.5 (the “Fundamental Representations”) may be made at any time and (ii) for Indemnified Costs arising out of a breach of any covenant may be made at any time.

(b)                                 Except as set forth in this Agreement, an Indemnified Party will not be entitled to any Indemnified Costs with respect to any individual Claim that does not equal or exceed 0.05% of the Purchase Price (the “Individual Indemnity Threshold”), and all such Claims that equal or exceed the Individual Indemnity Threshold must collectively also exceed the Indemnity Deductible, and thereafter, the Indemnified Party shall only be entitled to indemnity for the amount in excess of the Indemnity Deductible, subject to the limitations set forth in this Agreement.  Except as set forth below, the maximum aggregate liability of the SN Parties under Section 11.1 shall not exceed the Indemnity Cap.  Except as set forth below, the maximum aggregate liability of Buyer under Section 11.1 shall not exceed the Indemnity Cap.

(c)                                  The limitations set forth above in this Section 11.4 shall not apply to any claim for indemnification under Section 11.1 with respect to any breach of (i) the Fundamental Representations or (ii) the indemnification obligations set forth in this Article XI.

(d)                                 With respect to Buyer Indemnified Costs incurred by the Company for which indemnification by the SN Parties is required hereunder, the SN Parties shall be obligated to indemnify the Buyer Indemnified Parties only for such Buyer Indemnified Costs only to the extent of Buyer’s 50% responsibility for such Buyer Indemnified Costs (with the other 50% of such Buyer Indemnified Costs being the obligation of the LLC Agreement’s counterparty).  With respect to Seller Indemnified Costs incurred by the Company for which indemnification by Buyer is required hereunder, Buyer shall be obligated to indemnify the Seller Indemnified Parties only for such Seller Indemnified Costs only to the extent of Seller’s 50% responsibility for such Seller Indemnified Costs (with the other 50% of such Seller Indemnified Costs being the obligation of LLC Agreement’s counterparty).

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(e)                                  Each Party acknowledges and agrees that, after the Closing Date, except as otherwise set forth in Section 6.4 and Article XII, Buyer’s and the other Buyer Indemnified Parties’ and the SN Parties’ and the other Seller Indemnified Parties’ sole and exclusive remedy with respect to the Indemnified Costs shall be in accordance with, and limited by, the provisions set forth in this Article XI.

(f)                                   For purposes of determining any Losses resulting from a breach of any of the SN Parties’ representations and warranties contained in Article III or Article IV for which Buyer Indemnified Parties would be entitled to indemnification, any dollar or materiality qualifications in the SN Parties’ representations and warranties shall be disregarded.

Section 11.5                             Tax Treatment of Payment of Indemnity Costs.  The SN Parties and Buyer agree that any payment of Indemnified Costs made hereunder will be treated by the Parties on their Tax Returns as an adjustment to the Purchase Price.

Section 11.6                             Express Negligence Rule.  THE FOREGOING INDEMNITIES ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, STRICT LIABILITY OR FAULT OF ANY OF THE INDEMNIFIED PARTIES.

ARTICLE XII.
MISCELLANEOUS

Section 12.1                             WAIVERS AND DISCLAIMERS.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES AND OTHER COVENANTS AND AGREEMENTS MADE BY THE PARTIES IN THIS AGREEMENT, THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE PARTIES HAVE MADE, DOES NOT MAKE, AND EACH SUCH PARTY SPECIFICALLY NEGATES AND DISCLAIMS, ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED OR STATUTORY, ORAL OR WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE COMPANY OR ITS ASSETS, INCLUDING THE WATER, SOIL, GEOLOGY OR ENVIRONMENTAL CONDITION OF THE ASSETS OF THE COMPANY GENERALLY, THE PRESENCE OR LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON THE ASSETS OF THE COMPANY; (B) THE INCOME TO BE DERIVED FROM THE COMPANY OR ITS ASSETS; (C) THE SUITABILITY OF THE ASSETS OF THE COMPANY FOR ANY AND ALL ACTIVITIES AND USES THAT MAY BE CONDUCTED THEREON; (D) THE COMPLIANCE OF OR BY THE ASSETS OF THE COMPANY OR ITS OPERATION WITH ANY APPLICABLE LAWS (INCLUDING ANY ZONING, ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS); OR (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF

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THE ASSETS OF THE COMPANY. EXCEPT TO THE EXTENT PROVIDED IN THIS AGREEMENT, NONE OF THE PARTIES IS LIABLE OR BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE COMPANY OR ITS ASSETS FURNISHED BY ANY AGENT, EMPLOYEE, SERVANT OR THIRD PARTY. THIS Section 12.1 SHALL SURVIVE THE PURCHASE OF THE INTERESTS OR THE TERMINATION OF THIS AGREEMENT. THE PROVISIONS OF THIS Section 12.1 HAVE BEEN NEGOTIATED BY THE PARTIES AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE COMPANY OR ITS ASSETS THAT MAY ARISE PURSUANT TO APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE, EXCEPT AS SET FORTH IN THIS AGREEMENT.

Section 12.2                             Expenses.  Except as expressly provided in this Agreement, all costs and expenses incurred by the Parties in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the Party which has incurred such expense. For the avoidance of doubt, (i) Buyer shall be responsible for all costs and expenses (including attorneys’ fees and expenses) incurred by the conflicts committee of the board of directors of the General Partner in connection with this Agreement and the transactions contemplated herein and (ii) the SN Parties and their Affiliates shall be responsible for all costs and expenses (including attorneys’ fees and expenses) incurred by the audit committee of the board of directors of SN in connection with this Agreement and the transactions contemplated herein.

Section 12.3                             Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be valid and effective under Applicable Law, but if any provision of this Agreement or the application of any such provision to any person or circumstance will be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof, and the Parties will negotiate in good faith with a view to substitute for such provision a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.

Section 12.4                             Notice.  Any notice, communication, request, instruction or other document by any party to another required or permitted hereunder shall be given in writing and addressed as set forth below.  Any such notice, communication, request, instruction or other document shall be deemed to have been duly made or given and the receiving Party charged with notice as follows: (i) if personally delivered, when received; (ii) if sent by facsimile, with electronic confirmation of delivery, if sent during normal business hours on a Business Day, and if not sent during normal business hours on a Business Day, on the next subsequent Business Day; (iii) if mailed certified mail, return receipt requested, on the day such notice is received, and if such day is not a Business Day, on the next subsequent Business Day; or (iv) if sent by overnight courier, the next Business Day after placement into the custody of the overnight courier.  All notices shall be addressed as follows:

SN Parties:

Sanchez Energy Corporation

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1000 Main Street, Suite 3000

Houston, Texas  77002

Attn.:           President

Fax:                 (713) 756 - 2784

with a copy (which shall not constitute notice) to:

Akin Gump Strauss Hauer & Feld LLP

1111 Louisiana Street, 44th Floor

Houston, Texas  77002

Attention:  David Elder

Fax:  (713) 236 - 0822

Buyer:

Sanchez Production Partners LP

1000 Main Street, Suite 3000

Houston, Texas  77002

Attn.:           Chief Financial Officer

Fax:                 (832) 308 - 3720

with a copy (which shall not constitute notice) to:

Andrews Kurth Kenyon LLP

600 Travis, Suite 4200

Houston, Texas  77002

Attention:  Scott Olson

Fax:  (713) 238 - 7410

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

Section 12.5                             Governing Law; Consent to Jurisdiction; Enforcement.

(a)                                 This Agreement shall be subject to and governed by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state.

(b)                                 The Parties hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts located in the State of Texas over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby, and each Party irrevocably agrees that all claims in respect of such dispute or proceeding shall be brought, heard and determined only in such courts. The Parties hereby irrevocably waive, to the fullest extent permitted by Applicable Law, any objection which they may now or hereafter have to the venue of any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each Party agrees that a judgment in any such dispute may be

27

enforced in other jurisdictions by suit on the judgment or in any other manner provided by Applicable Law.

(c)                                  The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the Parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any state or federal court located in the State of Texas, this being in addition to any other remedy to which they are entitled at law or in equity. Each of the Parties further hereby waives (i) any defense in any action for specific performance that a remedy at law would be adequate and (ii) any requirement under any law to post security as a prerequisite to obtaining equitable relief.

Section 12.6                             Confidentiality.

(a)                                 Obligations.  Each Party shall use commercially reasonable efforts to retain the other Party’s Confidential Information in confidence and not disclose the same to any third party nor use the same, except as authorized by the disclosing Party in writing or as expressly permitted in this Section 12.6.  Each Party further agrees to take the same care with the other Party’s Confidential Information as it does with its own, but in no event less than a reasonable degree of care.

(b)                                 Required Disclosure.  Notwithstanding Section 12.6(a) above, if the receiving Party becomes legally compelled to disclose the Confidential Information by a court, Governmental Authority or Applicable Law, including the rules and regulations of the Securities and Exchange Commission, or is required to disclose pursuant to the rules and regulations of any national securities exchange upon which the receiving Party or its parent entity is listed, any of the disclosing Party’s Confidential Information, the receiving Party shall promptly advise the disclosing Party of such requirement to disclose Confidential Information as soon as the receiving Party becomes aware that such a requirement to disclose might become effective, in order that, where possible, the disclosing Party may seek a protective order or such other remedy as the disclosing Party may consider appropriate in the circumstances.  The receiving Party shall disclose only that portion of the disclosing Party’s Confidential Information that it is required to disclose and shall cooperate with the disclosing Party in allowing the disclosing Party to obtain such protective order or other relief.

(c)                                  Return of Information.  Upon written request by the disclosing Party, all of the disclosing Party’s Confidential Information in whatever form shall be returned to the disclosing Party upon termination of this Agreement or destroyed with destruction certified by the receiving Party, without the receiving Party retaining copies thereof except that one copy of all such Confidential Information may be retained by a Party’s legal department for purposes of resolving any dispute that may arise hereunder or for complying with Applicable Law or the rules of any securities exchange applicable to the Party, and the receiving Party shall be entitled to retain any Confidential Information in electronic form stored on automatic computer back-up archiving systems during the period such backup or archived materials are retained under such Party’s customary procedures and policies; provided, however, that any Confidential Information retained by the receiving Party shall be maintained subject to confidentiality pursuant to the

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terms of this Section 12.6, and such archived or back-up Confidential Information shall not be accessed except as required by Applicable Law.

(d)                                 Receiving Party Personnel.  The receiving Party will limit access to the Confidential Information of the disclosing Party to those of its employees, attorneys, representatives and contractors that have a need to know such information in order for the receiving Party to exercise or perform its rights and obligations under this Agreement (the “Receiving Party Personnel”).  The Receiving Party Personnel who have access to any Confidential Information of the disclosing Party will be made aware of the confidentiality provision of this Agreement, and will be required to abide by the terms thereof.

(e)                                  Survival.  The obligation of confidentiality under this Section 12.6 shall survive until the second anniversary the Closing Date.

Section 12.7                             Parties in Interest.  This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person (other than the Indemnified Parties with respect to Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement.

Section 12.8                             Assignment of Agreement.  Neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any Party without the prior written consent of the other Party hereto.

Section 12.9                             Captions.  The captions in this Agreement are for purposes of reference only and shall not limit or otherwise affect the interpretation hereof.

Section 12.10                      Counterparts.  This Agreement may be executed in one or more counterparts (including by facsimile or portable document format (pdf)) for the convenience of the Parties, each of which counterparts will be deemed an original, but all of which counterparts together will constitute one and the same agreement.

Section 12.11                      Integration.  This Agreement supersedes any previous understandings or agreements among the Parties, whether oral or written, with respect to their subject matter. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof and thereof.  No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it is contained in a written amendment hereto or thereto and executed by the Parties or parties thereto after the date of this Agreement.

Section 12.12                      Amendment; Waiver.  This Agreement may be amended only in a writing signed by all Parties. Any waiver of rights hereunder must be set forth in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive any Party’s rights at any time to enforce strict compliance thereafter with every term or condition of this Agreement. Any amendment or waiver executed by any of the Parties or their respective subsidiaries shall not be effective unless and until the execution of such amendment or waiver has been approved by, with respect to Buyer, the conflicts committee

29

of the board of directors of the General Partner, and with respect to the SN Parties, the audit committee of the board of directors of SN.

Section 12.13                      Mitigation.  Each Party shall take all reasonable steps, and shall reasonably cooperate with the other Parties in good faith, to mitigate damages in respect of any Claim under Article XI for which it or another Buyer Indemnified Party or Seller Indemnified Party, as applicable, is seeking indemnification and shall use reasonable efforts to avoid any costs or expenses associated with such Claim and, if such costs and expenses cannot be avoided, to minimize the amount thereof.  Further, no Party shall take nor fail to take any action, which action or inaction induces, incentivizes or otherwise is reasonably likely to lead a third party to make a Claim against a Buyer Indemnified Party or Seller Indemnified Party, for which it seeks indemnification under Article XI.

Section 12.14                      Privileged Information.  The SN Parties and Buyer and its and their respective successors and assigns, hereby acknowledge and agree that all attorney-client privileged communications between or among the Company’s members (involving the SN Parties), the Company and their respective counsel, including, without limitation, Akin Gump Strauss Hauer & Feld, LLP, made in connection with the negotiation, preparation, execution, delivery and closing under, or any dispute or proceeding arising solely in connection with, this Agreement which, immediately prior to the Closing, would be deemed to be privileged communications of the Company, its members and/or their counsel and would not be subject to disclosure to Buyer in connection with any process relating to a dispute arising under or in connection with this Agreement, shall continue after the Closing to be privileged communications with such counsel, and neither Buyer, the Company, nor any Person purporting to act on behalf of or through Buyer or the Company, shall seek to obtain the same by any process on the grounds that the privilege attaching to such communications belongs to the Company, and not the Company members (it being understood that the foregoing shall not apply to any communications between the Company and its counsel not made in connection with the negotiation, preparation, execution, delivery and closing under, or any dispute or proceeding arising solely in connection with, this Agreement).

ARTICLE XIII.
INTERPRETATION

Section 13.1                             Interpretation.  It is expressly agreed that this Agreement shall not be construed against any Party, and no consideration shall be given or presumption made, on the basis of who drafted this Agreement or any particular provision hereof or who supplied the form of Agreement.  Each Party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transaction that this Agreement contemplates. In construing this Agreement:

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

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

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

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

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

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

(g)                                  currency amounts referenced herein, unless otherwise specified, are in U.S. Dollars;

(h)                                 unless the context otherwise requires, all references to time shall mean time in Houston, Texas;

(i)                                     whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified; and

(j)                                    if a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb).

Section 13.2                             References, Gender, Number.  All references in this Agreement to an “Article,” “Section,” “subsection” or “Exhibit” shall be to an Article, Section, subsection or Exhibit of this Agreement, unless the context requires otherwise. Unless the context clearly requires otherwise, the words “this Agreement,” “hereof,” “hereunder,” “herein,” “hereby,” or words of similar import shall refer to this Agreement as a whole and not to a particular Article, Section, subsection, clause or other subdivision hereof. Cross references in this Agreement to a subsection or a clause within a Section may be made by reference to the number or other subdivision reference of such subsection or clause preceded by the word “Section.” Whenever the context requires, the words used herein shall include the masculine, feminine and neuter gender, and the singular and the plural.

[Signature page follows.]

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

[Signature Page to Purchase and Sale Agreement (Carnero Processing)]

Exhibit 2.2

PURCHASE AND SALE AGREEMENT

AMONG

SN COTULLA ASSETS, LLC

(“COTULLA”)

AND

SN PALMETTO, LLC

(“PALMETTO”, AND COTULLA ARE COLLECTIVELY, “SELLER”)

AND

SEP HOLDINGS IV, LLC

(“BUYER”)

AND

SANCHEZ PRODUCTION PARTNERS LP

(THE “PARTNERSHIP”)

DATED AS OF OCTOBER 6, 2016

(Escalating Working Interests)

TABLE OF CONTENTS

EXHIBITS

SCHEDULES

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement is dated as of October 6, 2016 (the “Execution Date”), by and among SN Cotulla Assets, LLC, a Texas limited liability company (“Cotulla”), and SN Palmetto, LLC, a Delaware limited liability company (“Palmetto”, and Cotulla are collectively, “Seller”), on the one hand, and SEP Holdings IV, LLC, a Delaware limited liability company (“Buyer”), and Sanchez Production Partners LP, a Delaware limited partnership (the “Partnership”), on the other hand.  Seller, Buyer and, if context requires, the Partnership are sometimes jointly referred to herein as “Parties” and individually referred to as a “Party.”

RECITALS

1.                                      Seller owns various oil and gas properties and interests as more fully described in Exhibits A and B hereto.

2.                                      Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Assets, in the manner and upon the terms and conditions hereafter set forth.

3.                                      Sanchez Energy Corporation, a Delaware corporation (“Sanchez”), is the parent of Seller and the Partnership is the parent of Buyer.

4.                                      Buyer, an affiliate of the Partnership, intends to partly finance the acquisition of the Assets with the proceeds of the issuance and sale of common units representing limited partnership interests in the Partnership in an underwritten public offering intended to raise an amount at least equal to the Purchase Price (as defined below) (the “Offering”).

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound by the terms hereof, agree as follows:

ARTICLE 1
DEFINED TERMS

Section 1.1                                    Definitions.  The following capitalized terms have the meanings given such terms below or elsewhere in this Agreement as set forth below.

“Accounting Arbitrator” is defined in Section 9.3(c).

“Action” is defined in Section 6.10.

“AFE” means authorization for expenditure.

“Affiliate” means, with respect to any specified Person, another Person that directly or indirectly controls, is controlled by, or is under common control with, such specified Person, with “control” in such context meaning the possession, directly or indirectly, of the power to

direct the management or policies of a Person, whether through ownership of voting securities, by contract, or otherwise.  Notwithstanding anything to the contrary herein, in no event shall the Partnership or any of its subsidiaries (including Buyer) be deemed to be an “Affiliate” of Sanchez or its Affiliates (including Seller).

“Agreement” means this Purchase and Sale Agreement, as amended, restated, supplemented or otherwise modified from time to time.

“Allocation Schedule” is defined in Section 3.2.

“Assets” is defined in Section 2.2.

“Assumed Obligations” is defined in Section 2.4.

“Business Day” means any day other than a Saturday, a Sunday, or a day on which banks are authorized or required by Law to be closed for business in Houston, Texas.

“Buyer” is defined in the preamble of this Agreement.

“Buyer Indemnitees” means Buyer and its Affiliates and their respective officers, directors, managers, employees, agents, partners, representatives, members, shareholders, subsidiaries, successors and assigns.

“Casualty Loss” is defined in Section 6.5.

“Certain Reworking Operations” is defined in Section 6.11.

“Closing” is defined in Section 9.1.

“Closing Date” is defined in Section 9.1.

“Code” means the Internal Revenue Code of 1986, as interpreted by applicable Treasury Regulations.

“Contract” means any agreement, contract, obligation, promise, understanding or undertaking (whether written or oral and whether express or implied) that is legally binding and (a) under which Seller has or may acquire any rights with respect to the Assets, (b) under which Seller has or may become subject to any Obligation with respect to the Assets, or (c) by which Seller or any of the Assets is or may become bound.

“Conveyance” means that certain conveyance the form of which is more particularly set forth on Exhibit C to this Agreement.

“Cotulla” is defined in the preamble to this Agreement.

“Eagle Ford Shale Formation” means the stratigraphic equivalent of the formation which is the entire correlative interval from 10,294 feet to 10,590 feet as shown on the log of the EOG Resources, Inc. — Milton Unit, Well No. 1 (API No. 42-255-31608), Section 64, John Randon Survey, A-247, Karnes County, Texas; provided that if a Wellbore is producing from a greater

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depth as of the Effective Time, the Eagle Ford Shale Formation for that specific Wellbore shall also include all such greater depths at which there are open perforations for such applicable Wellbore.

“Effective Time” means 12:01 a.m. Houston, Texas time on July 1, 2016.

“Environmental Laws” means all Laws pertaining to health or the environment as may be interpreted by applicable court decisions or administrative orders, including the Clean Air Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Water Pollution Control Act, the Occupational Safety and Health Act, the Resources Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Superfund Amendment and Reauthorization Act of 1986, the Hazardous Materials Transportation Act, and comparable state and local Laws, but excluding all Laws of the Railroad Commission of Texas relating to spacing, density, setbacks, specifications or grades for equipment or materials (including drilling mud or fluid), well integrity or construction, the prevention of physical or economic waste, or the protection of correlative rights in Hydrocarbons, and, in each case, any cause of action or other rights in favor of third Persons arising therefrom, or relating thereto.

“Equipment” means personal property, fixtures and equipment located on or under lands covered by the Leases and used in connection with the Wellbores.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Taxes” means Taxes measured by (a) net income, gross receipts, profits, capital, capital gains, or similar measures or (b) multiple bases (including corporate, franchise, business and occupation, business license, withholding, payroll, employment, social security, unemployment, stamp, occupation, or similar Taxes) if one or more bases upon which such Tax may be based, measured by, or calculated with respect to, is described in clause (a).

“Execution Date” is defined in the Preamble.

“Financing” is defined in Section 8.8.

“Fundamental Representations” means the representations and warranties made by (i) Seller in Section 4.1, Section 4.2, Section 4.3, Section 4.4, Section 4.5 and Section 4.23 and (ii) Buyer and the Partnership in Section 5.1, Section 5.2, Section 5.3, Section 5.4 and Section 5.5.

“GAAP” means accounting principles generally accepted in the United States.

“Governmental Authority” means any federal, state, local, tribal, or foreign government, or any court of competent jurisdiction, regulatory or administrative agency, commission, or other governmental authority that exercises jurisdiction over Seller or any of the Assets.

“Hydrocarbons” is defined in Section 2.2.

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“Imbalances” means over-production or under-production or over-delivery or under-delivery with respect to Hydrocarbons produced from the Assets, regardless of whether the same arise at the wellhead, pipeline, gathering system, transportation system, processing plant, or any other location, including any imbalances under gas balancing or similar agreements, production handling agreements, processing agreements, and/or gathering or transportation agreements.

“Indemnified Party” is defined in Section 11.5(a).

“Indemnifying Party” is defined in Section 11.5(a).

“Information” is defined in Section 6.2(a).

“JOA” means, as applicable, each of that certain (1) Joint Operating Agreement, dated December 28, 2009, by and between Hilcorp Energy Company, as operator, and SEP Holdings III, LLC, et al., as non-operators, (2) Joint Operating Agreement, dated December 28, 2009, by and between Hess Corporation, as operator, and Initial Energy Eagle Ford, LLC, as non-operator, or (3) Operating Agreement, dated June 16, 2009, by and between Sanchez Oil & Gas Corporation, as operator, and Ameritex Minerals, Inc. and U.S. Enercorp, Ltd., as non-operators, each as respectively amended, restated, supplemented or otherwise modified from time to time.

“Laws” means all laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments, and codes of Governmental Authorities.

“Leases” is defined in Section 2.2.

“Legal Right” means, to the extent arising from, or in any way related to the Assets, the legal authority and right, including through the exercise of voting, managerial or other similar authority or right, if any; provided, however, that a Legal Right shall be deemed not to exist with respect to any contemplated conduct unless Seller reasonably determines that such conduct would not constitute a violation, termination or breach of, or require any payment under, or permit any termination under, any agreement, applicable Law, duty or any other obligation.

“Losses” means any and all losses, damages, Obligations, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including court costs and reasonable attorneys’ and experts’ fees) of any and every kind or character.

“Material Agreements” means, to the extent binding on Seller and which relate to any of the Assets, any Contract, other than the instruments constituting the Leases, which is one or more of the following types:

(a)                                 A Contract for the sale, purchase, exchange, or other disposition of Hydrocarbons which is not cancelable without penalty on 30 or less days’ prior written notice;

(b)                                 A Contract to sell, lease, farmin, farmout, exchange, or otherwise dispose of all or any part of the Assets (including contracts containing rights of first refusal, rights of first offer, or put or call rights, but excluding conventional rights of reassignment upon intent to abandon or release a Well or Lease);

(c)                                  A joint operating agreement, unit operating agreement, unit agreement, unitization, communitization, or pooling agreement, or other similar agreement;

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(d)                                 A non-competition agreement or any agreement that purports to restrict, limit, or prohibit Seller from engaging in any line of business or the manner in which, or the locations at which Seller conducts business, including area of mutual interest agreements, or that would obligate Seller to purchase or sell any interest in any Asset(s), purchase any leasehold interest or other asset, or employ and pay for a drilling rig;

(e)                                  A Contract for the gathering, treatment, processing, storage, or transportation of Hydrocarbons which is not cancellable by Seller without penalty upon 30 or less days’ notice;

(f)                                   A Contract for the construction and installation or rental of equipment, fixtures, or facilities with guaranteed production throughput requirements or demand charges or which cannot be terminated by Seller without penalty on no more than 60 days’ notice;

(g)                                  An option, swap, hedge, collar or other derivative contract, including any master agreement and confirmation thereunder;

(h)                                 A contract that involves performance of services or delivery of goods or materials (other than Hydrocarbons) by or to Seller of an amount or value in excess of $250,000 determined on an annual basis;

(i)                                     A contract that involves expenditures or receipts of Seller in excess of $250,000 determined on an annual basis;

(j)                                    A seismic or geophysical contract; or

(k)                                 A material software license or other license agreement related to intellectual property involving expenditures of Seller in excess of $25,000 determined on an annual basis.

“Material Losses” is defined in Section 11.4(b).

“Net Revenue Interest” means, with respect to any Wellbore, the interest in and to all Hydrocarbons produced, saved, and sold from or allocated to such Wellbore after giving effect to all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests, and other burdens upon, measured by, or payable out of production therefrom.

“Obligations” means duties, liabilities, and obligations, whether vested, absolute, or contingent, known or unknown, asserted or unasserted, accrued or unaccrued, liquidated or unliquidated, due or to become due, and whether contractual, statutory, or otherwise.

“Offering” has the meaning set forth in the Recitals.

“Operating Agreement” means that certain Contract Operating Agreement, dated as of May 8, 2014, by and between SOG and the Partnership, as amended, restated, supplemented or otherwise modified from time to time.

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“Palmetto” is defined in the preamble to this Agreement.

“Partnership” is defined in the preamble to this Agreement.

“Party” and “Parties” are defined in the preamble to this Agreement.

“Permits” means all permits, licenses, approvals and consents from appropriate Governmental Authorities necessary to conduct operations on or with respect to the Assets.

“Permitted Encumbrances” means any or all of the following:

(a)                                 The terms and conditions of the oil and gas leases covering the lands on which the Wellbores are located and all lessors’ royalties, overriding royalties, net profits interests, carried interests, production payments, reversionary interests and other burdens on or deductions from the proceeds of production created or in existence as of the Effective Time to the extent that such terms and conditions do not, individually or in the aggregate, operate to reduce the Net Revenue Interest of any Wellbore below that set forth on Exhibit A for such Wellbore or increase the Working Interest for any Wellbore above that set forth on Exhibit A for such Wellbore without a proportionate increase in the corresponding Net Revenue Interest for such Wellbore (in each foregoing case, subject to the effective percentage amounts and times set forth on Exhibit A);

(b)                                 All rights to consent by, required notices to, filings with, or other actions by a Governmental Authority, in connection with the conveyance of the applicable Wellbores if the same are customarily obtained after such conveyance;

(c)                                  Easements, rights of way, servitudes, permits, surface leases and other similar rights with respect to surface operations, on, over, or in respect of any Wellbore, or restrictions on access thereto, that do not materially interfere with or impair the exploration, development and/or operation of the affected Wellbores;

(d)                                 The terms and conditions of the Material Agreements, to the extent that such terms and conditions (other than the non-consent provisions of joint operating agreements or calls on production) do not, individually or in the aggregate, reduce the Net Revenue Interest for any Wellbore below that set forth in Exhibit A for such Wellbore or increase the Working Interest for any Wellbore above that set forth in Exhibit A for such Wellbore without a proportionate increase in the corresponding Net Revenue Interest for such Wellbore (in each foregoing case, subject to the effective percentage amounts and times set forth on Exhibit A);

(e)                                  Materialmens’, mechanics’, operators’ or other similar liens arising in the ordinary course of business incidental to operation of the Wellbores (i) if such liens and charges have not been filed pursuant to law and the time for filing such liens and charges has expired; (ii) if filed, such liens and charges have not yet become delinquent or payment is being withheld as provided by law; or (iii) if their validity is being contested in good faith by appropriate action;

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(f)                                   Errors or omissions in documents related to the Wellbores caused by oversights in drafting, executing, or acknowledging that (i) a prudent operator, when applying industry standards, would regard as immaterial, (ii) do not affect and have not historically affected the operations of or production from the Wellbores, and (iii) do not reduce the Net Revenue Interest for any Wellbore below that set forth in Exhibit A for such Wellbore or increase the Working Interest for any Wellbore above that set forth in Exhibit A for such Wellbore without a proportionate increase in the corresponding Net Revenue Interest for such Wellbore (in each foregoing case of (iii), subject to the effective percentage amounts and times set forth on Exhibit A);

(g)                                  Defects or irregularities of title (i) as to which the relevant statute(s) of limitations or prescription would bar any attack or claim against Seller’s title, (ii) arising out of lack of corporate authorization (unless Buyer provides affirmative evidence that such corporate or other entity action may not be authorized) or a variation in corporate name, (iii) consisting of the failure to recite marital status or omission of heirship proceedings in documents (unless Buyer provides clear and convincing evidence that such failure or omission has resulted in another Person’s actual and superior claim of title to the relevant Wellbore), or (iv) resulting from lack of survey (unless a survey is expressly required by applicable Law) or failure to record releases of liens, production payments or mortgages that have expired by their own terms;

(h)                                 Imbalances whether resulting from overproduction or underproduction, and plugging and surface restoration obligations;

(i)                                     Liens for current period Taxes, or assessments not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business, adequate cash reserves for which are maintained in accordance with GAAP; and

(j)                                    Conventional rights of reassignment triggered by Seller’s express indication of its intention to release or abandon its interest prior to expiration of the primary term or other termination of such interest.

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

“Preferential Rights” means any right or agreement that enables any Person to purchase or acquire any Assets or any interest therein or portion thereof as a result of or in connection with (a) the sale, assignment or other transfer of any Asset or any interest therein or portion thereof, or (b) the execution or delivery of this Agreement or the consummation or performance of the transactions contemplated by this Agreement.

“Property Costs” means all capital expenses, joint interest billings, lease operating expenses, lease rental and maintenance costs, royalties, overriding royalties, leasehold payments, Taxes (other than Excluded Taxes), drilling expenses, workover expenses, geological, geophysical and any other exploration or development expenditures chargeable under applicable operating agreements or other agreements consistent with the standards established by the

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Council of Petroleum Accountant Societies of North America that are attributable to the Assets during the period in question; provided, however, that Property Costs relating to periods prior to the Closing shall not include any liabilities, losses, costs, or expenses that are attributable to: (a) claims, investigations, administrative proceedings, arbitration or litigation directly or indirectly arising out of or resulting from actual or claimed personal injury or other torts, illness or death; (b) property damage (other than damage to structures, fences, irrigation systems and other fixtures, crops, livestock, and other personal property in the ordinary course of business); (c) violation of any Law (or a private cause or right of action under any Law); (d) environmental damage or liabilities, including Remediation obligations for any contamination of groundwater, surface water, soil, sediments, or Equipment; (e) title and environmental claims (including claims that Leases have terminated); (f) claims of improper calculation or payment of royalties (including overriding royalties and other burdens on production) related to deduction of post-production costs or use of posted or index prices or prices paid by Affiliates; (g) gas balancing and other production balancing obligations; (h) destruction by fire or other casualty or taking in condemnation or under right of eminent domain; or (i) any claims for indemnification, contribution, or reimbursement from any third Person with respect to liabilities, losses, costs and expenses of the type described in the preceding clauses (a) through (h), whether such claims are made pursuant to contract or otherwise.

“Purchase Price” is defined in Section 3.1.

“Purchase Price Adjustments” is defined in Section 9.2.

“Records” is defined in Section 6.1.

“Remediation” means the implementation and completion of any remedial, removal, response, construction, repair, closure, disposal, restoration, or other corrective actions required under Environmental Laws.

“Retained Asset” is defined in Section 6.3(b).

“Retained Obligations” is defined in Section 11.1.

“Sanchez” is defined in the Recitals.

“Schedule” means any disclosure Schedule attached to this Agreement.

“SEC” means the Securities and Exchange Commission.

“SEC Financial Statements” is defined in Section 6.4.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” is defined in the preamble to this Agreement.

“Seller Credit Facility” means the Second Amended and Restated Credit Agreement, dated as of June 30, 2014, among Sanchez Energy Corporation, as borrower, Palmetto, SN Marquis LLC, Cotulla, SN Operating, LLC, SN TMS, LLC and Seller, as loan parties, Royal

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Bank of Canada, as administrative agent, Capital One, National Association, as syndication agent, Compass Bank and SunTrust Bank as co-documentation agents, RBC Capital Markets as sole lead arranger and sole book runner, and the lenders party thereto, as amended, restated, supplemented or otherwise modified from time to time.

“Seller Indemnitees” means Seller and its Affiliates and their respective officers, directors, managers, employees, agents, partners, representatives, members, shareholders, subsidiaries, successors and assigns.

“Seller’s Knowledge” (or “Knowledge” with respect to Seller) means the actual knowledge of any fact, circumstance or condition by the individuals set forth on Schedule 1.1, in each case, after due inquiry and the exertion of reasonable diligence.

“Settlement Amount” is defined in Section 6.9(c).

“Shared Services Agreement” means that certain Amended and Restated Shared Services Agreement, dated as of March 6, 2015, by and between SP Holdings and the Partnership, as amended, restated, supplemented or otherwise modified from time to time.

“SOG” means Sanchez Oil & Gas Corporation, a Delaware corporation.

“SP Holdings” means SP Holdings, LLC, a Texas limited liability company.

“Special Warranty” is defined in Section 6.12.

“Specified Date” means each of the Effective Time and the dates on which the Net Revenue Interest and Working Interest automatically increase as specified in Exhibit A.

“Statement” is defined in Section 9.3(a).

“Stifel Parties” is defined in Section 6.10.

“Tax” means:

(a)                                 federal, state, local, or foreign taxes, charges, fees imposts, levies, or other assessments, including all net income, gross receipts, franchise, capital, sales, use, ad valorem, value added, transfer, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, fees, assessments, and charges of any kind whatsoever; and

(b)                                 all interest, penalties, fines, additions to tax, or additional amounts imposed by any Governmental Authority in connection with any item described in subsection (a).

“Tax Claim” is defined in Section 6.7(c).

“Tax Return” is defined in Section 4.19(a).

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“Transfer Requirement” means any consent, approval, authorization or permit of, or filing with or notification to, any Person which is required to be obtained, made or complied with for or in connection with the transactions contemplated by this Agreement.

“Treasury Regulations” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code.  All references herein to Sections of the Treasury Regulations shall include any corresponding provision or provisions of Treasury Regulations hereafter proposed or adopted.

“Wellbores” is defined in Section 2.2.

“Working Interest” means, with respect to any Wellbore, the interest in and to such Wellbore that is burdened with the obligation to bear and pay costs and expenses of maintenance, development, and operations on or in connection with such Wellbore, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests, and other similar burdens upon, measured by, or payable out of production therefrom.

Section 1.2                                    Interpretation and Construction.  In interpreting and construing this Agreement, the following principles shall be followed:

(a)                                 If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb).  The terms “herein,” “hereof,” “hereby,” and “hereunder,” and other similar terms refer to this Agreement as a whole and not only to the particular Article, Section or subdivision in which any such terms may be employed.  The terms “include,” “includes,” and “including” shall be deemed to be followed by “without limitation.”  The plural shall be deemed to include the singular, and vice versa.

(b)                                 Unless the context of this Agreement clearly requires otherwise, references to Articles, Sections, subsections, Exhibits and Schedules refer to the Articles, Sections, and subdivisions of, and Exhibits and Schedules to, this Agreement.

(c)                                  Any accounting term not otherwise defined herein has the meaning assigned to it under GAAP.  Words not otherwise defined herein that have well-known and generally accepted technical or trade meanings in the oil and gas industry are used herein in accordance with such recognized meanings.

(d)                                 The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.

(e)                                  Each exhibit, attachment, and schedule to this Agreement constitutes a part of this Agreement and is incorporated herein by reference, but if there is any conflict or inconsistency between the main body of this Agreement and any exhibit, attachment, or schedule, the provisions of the main body of this Agreement shall prevail.

(f)                                   Every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Party

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(notwithstanding any rule of law requiring an agreement to be strictly construed against the drafting party), it being understood that the Parties to this Agreement are sophisticated and have had adequate opportunity and means to retain counsel to represent their interests and to otherwise negotiate the provisions of this Agreement.

(g)           Any reference to a Law shall include any amendment thereof or any successor thereto, and any rules and regulations promulgated thereunder.

(h)           Without limitation to any restrictions on assignment, transfer or alienation in this Agreement, any reference to a Person shall include its successors and assigns.

(i)            Any reference to “$” or “dollars” means United States Dollars.

(j)            The words “shall,” “shall not,” “will” and “will not” are expressions of command and not merely expressions of future intent or expectation.

ARTICLE 2
PURCHASE AND SALE

Section 2.1            Purchase and Sale.  At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Assets, in exchange for the Purchase Price and the assumption by Buyer of the Assumed Obligations.

Section 2.2            The Assets.  As used herein, the term “Assets” means all of Seller’s respective right, title and interest in, to and under: the oil, gas, water, injection or disposal wells located on the Lands, whether producing, shut-in, or temporarily or permanently abandoned, including those described in Exhibit B (i) the undivided Working Interests and Net Revenue Interests of the wellbores of the oil, gas and mineral wells set forth on Exhibit A hereto, and, in the instances specified on such Exhibit A, effective in the incremental percentages as of the dates set forth thereon, together with all oil, gas, casinghead gas, condensate, natural gas liquids, and other gaseous and liquid hydrocarbons or any combination thereof and other minerals extracted from or produced with the foregoing (collectively, “Hydrocarbons”) produced therefrom after the applicable Specified Date with respect thereto, insofar and only insofar as such Hydrocarbons are produced from the depths of such wellbores in the Eagle Ford Shale Formation as of the Effective Time (the “Wellbores”); (ii) the oil, gas and mineral leases covering rights in the Wellbores (and all tenements, hereditaments and appurtenances belonging to such leases), including those described on Exhibit B hereto, insofar and only insofar as such leases entitle the owner of such Wellbores to Hydrocarbons produced from such Wellbores and to any pooling rights associated therewith (the “Leases”); (iii) the Material Agreements listed on Schedule 4.12, insofar and only insofar as such Material Agreements relate to the applicable percentage interests in the Wellbores that have been sold to Buyer pursuant to the terms hereof; and (iv) a copy of all files, records and data relating to the foregoing Assets in control of or maintained by Seller, including, without limitation, the following, if and to the extent that such files exist and to the extent Buyer reasonably requests a copy:  records of production and maintenance, revenue, sales, expenses, Lease files, land files, Wellbore files and Contract files but excluding those subject to a written unaffiliated third party contractual restriction on disclosure or transfer for

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which no consent to disclose or transfer has been received, or the extent such disclosure or transfer is subject to payment of a fee or other consideration, for which Buyer has not agreed in writing to pay the fee or other consideration, as applicable.

It is intended that the applicable percentage interests to the Wellbores of the oil, gas and mineral wells set forth on Exhibit A hereto will be (upon conveyance at the Closing pursuant to the Conveyance) presently vested interests in real property and shall be owned by Buyer as of the Effective Time.  The increase in percentages of Working Interests and Net Revenue Interests are intended to be (pursuant to the Conveyance) self-executing and occur automatically on the applicable Specified Date set forth on Exhibit A, without the need for any further action of any Party.

Section 2.3            Receipts and Credits.

(a)           Allocation of Income and Costs.  If the Closing occurs, subject to the effective percentage amounts and times set forth on Exhibit A:  (i) Buyer shall be entitled to all revenues, production, proceeds, income, and products from or attributable to the Assets from and after the applicable Specified Date with respect thereto, and to all other income, proceeds, receipts, and credits earned (including delay rentals, shut-in royalties, and lease bonuses) with respect to the Assets on or after the applicable Specified Date with respect thereto, and shall be responsible for (and entitled to any refunds and indemnities with respect to) all Property Costs incurred with respect to the Assets from and after the applicable Specified Date with respect thereto; and (ii) except as expressly set forth to the contrary herein, Seller shall be entitled to all revenues, production, proceeds, income, and products from or attributable to the Assets prior to the applicable Specified Date with respect thereto, and to all other income, proceeds, receipts, and credits earned (including delay rentals, shut-in royalties, and lease bonuses), and to all joint interest audit exceptions, with respect to the Assets prior to applicable Specified Date with respect thereto, and shall be responsible for (and entitled to any refunds and indemnities with respect to) all Property Costs incurred with respect to the Assets prior to the applicable Specified Date with respect thereto.  For the avoidance of doubt, Buyer will be entitled to all amounts set forth in clause (i) above from the Assets and will be responsible for Property Costs, in each case in proportion to the percentages set forth on Exhibit A as of the applicable dates set forth therein.

(b)           Determinations.  The terms “earned” and “incurred,” as used in this Agreement, shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Societies standards.  For purposes of this Section 2.3, determination of whether Property Costs are attributable to the period before or after the Specified Date shall be based on when services are rendered, when the goods are delivered, or when the work is performed.  For clarification, the date on which the item ordered is delivered to the job site, or the date on which the work ordered is performed, shall be the relevant date for settlement purposes.  For purposes of allocating Hydrocarbon production (and accounts receivable with respect thereto), under this Section 2.3: (i) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Assets if they are or have been in storage above the pipeline connection, or, if there is no such facility, the applicable LACT meters through which they are run; and (ii) gaseous Hydrocarbons shall be

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deemed to be “from or attributable to” the Assets when they pass through the delivery point sales meters on the pipelines through which they are transported.  Buyer shall utilize reasonable interpolative procedures to arrive at an allocation of Hydrocarbon production when exact meter readings or gauging and strapping data is not available.

(c)           Allocation of Taxes.  Taxes (other than Excluded Taxes), right-of-way fees, insurance premiums and other Property Costs that are paid periodically shall be prorated based on the number of days in the applicable period falling before, and the number of days in the applicable period falling at or after, the Specified Date, except that Hydrocarbon production, severance and similar Taxes shall be prorated based on the number of units actually produced, purchased or sold or proceeds of sale, as applicable, before, and at or after, the Specified Date.  In each case, Buyer shall be responsible for the portion allocated to the period at and after the Specified Date and Seller shall be responsible for the portion allocated to the period before the Specified Date.

(d)           Joint Interest Audits.  After Closing, each Party shall be entitled to participate in all joint interest audits and other audits of Property Costs for which such Party is responsible or revenues to which such Party is entitled (whether entirely or in part) pursuant to this Section 2.3.

(e)           Payments.  If Buyer or Seller receives any amount to which the other is entitled pursuant to this Section 2.3, such receiving Party will promptly account for and transmit such amount to the other.  If Buyer or Seller pays any amount for which the other is obligated pursuant to this Section 2.3, such paying Party will notify the other, and such other Party shall promptly reimburse such paying Party for such amount.

Section 2.4            Assumed Obligations.  If the Closing occurs, from and after the Closing Date, Buyer shall assume, pay and discharge the following insofar as allocable to the Assets (“Assumed Obligations”), but excluding the Retained Obligations and the matters for which Seller owes indemnification under Section 11.3:

(a)           Any and all Obligations in any way relating to the ownership of the Assets arising during, related to or otherwise attributable to the period commencing with the applicable Specified Date;

(b)           All Property Costs and other costs which are for the account of Buyer pursuant to Section 2.3(a) or Section 9.2;

(c)           Subject to the pro ration set forth in Section 2.3(c), ad valorem, property, severance and other similar Taxes or assessments based upon or measured by the ownership of the Assets or the production therefrom attributable to any period from and after the applicable Specified Date; and

(d)           Any and all sales, use, transfer (including real property transfer), stamp, documentary, filing, recordation, and other similar fees and Taxes, together with any interest, additions, or penalties with respect thereto and any interest in respect of such additions or penalties, if any, imposed or required in connection with the sale of the

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Assets to Buyer or the filing or recording of all assignments related to the sale of the Assets to Buyer.

Notwithstanding anything to the contrary in this Agreement, there shall be no duplication among the Assumed Obligations, increases to the Purchase Price and Buyer’s obligation to indemnify Seller.

ARTICLE 3
PURCHASE PRICE

Section 3.1            Purchase Price.  In consideration for the conveyance of the Assets to Buyer, Buyer shall pay to Seller at Closing consideration consisting of $27,000,000 in cash (which shall be paid by wire transfer of available funds to an account designated by Seller) (the “Purchase Price”), as adjusted, if applicable pursuant to Section 6.5 and Section 9.2;

Section 3.2            Allocation of Purchase Price.  The Parties agree that the unadjusted Purchase Price is allocated in accordance with Section 1060 of the Code among the Assets in the amounts set forth in Exhibit D (the “Allocation Schedule”).

ARTICLE 4
SELLER’S REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Buyer as of the Execution Date and the Closing as follows:

Section 4.1            Organization and Standing.  Cotulla is a limited liability company, duly organized, validly existing and in good standing under the Laws of the State of Texas, and is duly qualified to carry on its business in each jurisdiction in which the nature of its business as now conducted makes such qualification necessary, except where the failure to be so qualified or in good standing would not materially hinder or impede the consummation by Seller of the transactions contemplated by this Agreement. Palmetto is a limited liability company, duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to carry on its business in each jurisdiction in which the nature of its business as now conducted makes such qualification necessary, except where the failure to be so qualified or in good standing would not materially hinder or impede the consummation by Seller of the transactions contemplated by this Agreement.

Section 4.2            Legal Power; No Conflicts.  Seller has all requisite power and authority to carry on its business as presently conducted and to execute, deliver and perform this Agreement (and all documents Seller required to be executed and delivered by Seller at Closing).  The execution, delivery and performance of this Agreement (and such documents) and the consummation of the transactions contemplated hereby (and thereby) will not (i) violate, or be in conflict with, (x) any material provision of Seller’s governing documents or any material provisions of any Material Agreement or (y) to Seller’s Knowledge, any material Law applicable to Seller; or (ii) except with respect to the Preferential Rights and Transfer Requirements listed on Schedule 4.18, result in the creation, imposition or continuation of any material adverse claim or interest, or any material lien, encumbrance, charge, equity or restriction of any nature whatsoever, on or affecting Seller or the Assets.

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Section 4.3            Authorization and Enforceability.  The execution, delivery and performance by Seller of this Agreement (and all documents required to be executed and delivered by Seller at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary action on the part of Seller.  This Agreement constitutes (and, at Closing, such documents shall constitute) Seller’s legal, valid and binding obligation, enforceable against Seller in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and other Laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity or at law.

Section 4.4            Liability for Brokers’ Fees.  Seller or its Affiliates have not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated hereby for which Buyer or its Affiliates will have any responsibility.

Section 4.5            No Bankruptcy.  There are no bankruptcy, reorganization, or receivership proceedings pending, being contemplated by Seller, or, to Seller’s Knowledge, threatened against Seller by any third Person.

Section 4.6            Consents and Approvals.  No filing or registration with, and no permit, authorization, certificate, waiver, license, consent or approval of, any Governmental Authority is necessary for the execution, delivery or performance by Seller of this Agreement (and all documents required to be executed and delivered by Seller at Closing) (other than existing permits and other existing approvals).

Section 4.7            Litigation.

(a)           Seller has not received a written claim or written demand notice that has not been resolved and that would materially and adversely affect Buyer or any Asset;

(b)           There are no actions, suits, governmental investigations, written governmental inquiries or proceedings pending or, to Seller’s Knowledge, threatened in writing against Seller or any of the Assets, in any court or by or before any Governmental Authority or arbitrator with respect to Seller or the Assets or that would affect Seller’s ability to consummate the transactions contemplated by this Agreement, or materially and adversely affect Buyer or any Asset; and

(c)           There is no existing award, decision, injunction, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any Governmental Authority that materially and adversely affects the use and/or ownership of the Assets.

Section 4.8            Judgments.  There are no unsatisfied judgments or injunctions issued by a Governmental Authority outstanding against Seller or any Assets that would be reasonably expected to materially interfere with Buyer’s use and/or ownership of the Assets from and after Closing or impair Seller’s ability to consummate the transactions contemplated by this Agreement.

Section 4.9            Compliance with Law.  Seller is in compliance with all Laws to which Seller or the Assets are subject (including, all record keeping and reporting requirements

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thereof).  To Seller’s Knowledge, the ownership and operation of the Assets are in compliance with all applicable Laws.  Seller has not received written notice of a material violation of any Law applicable to Seller’s business or operations that remains uncured, and that would, individually or in the aggregate, have a material and adverse effect on the Assets.  Seller has not engaged in any transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds which have been and are reflected in the normally maintained books and records of Seller.  Notwithstanding anything to the contrary contained herein, the use of the words “Law” or “Laws” in this Section 4.9 does not include Environmental Laws, which are covered exclusively by Section 4.22.

Section 4.10          Rights to Production.  To Seller’s Knowledge, except with respect to Imbalances or as set forth on Schedule 4.10, no Person has any call upon, right to purchase or to market, option to purchase or market, or similar rights with respect to any portion of the Hydrocarbons produced from the Assets that is not terminable without penalty.

Section 4.11          Take-or-Pay Arrangements.  Seller has not received any prepayments or buydowns, or entered into any take-or-pay or forward sale arrangements, such that Seller (or, after the Closing, Buyer) will be obligated to make deliveries of Hydrocarbons produced from the Assets without receiving full payment therefor.

Section 4.12          Material Agreements.  All Material Agreements are listed on Schedule 4.12.  Each Material Agreement is in full force and effect and represents the legal, valid and binding obligation of the parties thereto, enforceable in accordance with its terms.  Seller is not and, to Seller’s Knowledge, no other party is, in breach of any Material Agreement.  Seller has not received or delivered notice of a default or breach with respect to any Material Agreement.  Prior to the Execution Date, Seller has made available to Buyer or its representatives complete copies of each Material Agreement and all amendments and other modifications thereto.

Section 4.13          Compliance With Leases.  Seller is in compliance in all material respects with the Leases, including all express and implied covenants thereunder, and no written demands or notices of default or non-compliance have been issued to or received by Seller.  Except proceeds attributable to interests being held in suspense in accordance with prudent industry practice, all proceeds of production, which Seller is disbursing or is required to disburse to third parties, have been and are being accounted for under appropriate division orders, transfer orders or similar documents signed by or otherwise clearly binding on the parties receiving such proceeds and reflecting as to each party the decimal interest of such party.  Prior to the Execution Date, Seller has made available to Buyer or its representatives complete copies of each Lease and all amendments and other modifications thereto.

Section 4.14          Payouts.  No Wellbores are subject to a revision or other adjustment at some level of cost recovery or payout other than as expressly set forth on Exhibit A.

Section 4.15          Non-Consent Operations.  Seller has not elected not to participate in any operation or activity proposed with respect to any Asset which could result in any of Seller’s interest in such Asset becoming subject to a penalty or forfeiture as a result of such election.

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Section 4.16          Royalties and Rentals.  To Seller’s Knowledge, all bonuses, delay rentals, minimum royalties and royalties, other than suspended royalties, with respect to the Assets have been timely paid in accordance with applicable Leases and Laws.

Section 4.17          Permits.  Seller has maintained and is maintaining all material Permits necessary to operate the Assets as currently conducted by it.  The Assets are in material compliance with applicable Permits.  Seller has all Permits necessary to operate the Assets in all material respects as currently conducted by it.  No event has occurred (including the execution and delivery of this Agreement) which permits, or after the giving of notice or lapse of time or both would permit, the revocation or termination of any Permit or the imposition of any (a) restrictions of such a nature as may limit any of the operations of Seller as historically conducted by it or (b) material fines, costs, or penalties under any Permit.

Section 4.18          Preferential Rights and Transfer Requirements.  Except as set forth on Schedule 4.18 or relating to a consent by, required notices to, filings with, or other actions by a Governmental Authority, in connection with the conveyance of the Assets if the same are customarily delivered, obtained or made, as applicable, after such conveyance, there are no Preferential Rights or Transfer Requirements attributable to or with respect to any of the Assets.

Section 4.19          Taxes and Assessments.

(a)           Each income and other material Tax return, declaration, report, claim for refund or information return or statement relating to Taxes (a “Tax Return”), including any schedule or attachment thereto and including any amendment thereof, required to be filed by or with respect to Seller, or Sanchez with respect to the Assets, has been timely and properly filed and all Taxes owed by or with respect to Seller, or Sanchez with respect to the Assets, has been timely and properly paid.  There is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax.

(b)           Seller has not received written notice of any pending claim (which remains outstanding) from any applicable Governmental Authority for assessment of Taxes with respect to the Assets.

(c)           The Assets are not subject to a Tax partnership agreement or provision requiring a partnership income Tax Return to be filed under applicable Law.

(d)           There are no Tax liens on any of the Assets except for liens for current period Taxes, or assessments not yet delinquent.

Section 4.20          Wellbores and Equipment.  To Seller’s Knowledge,

(a)           All Wellbores have been drilled and completed at legal locations and within the limits permitted by all applicable Leases, contracts, and pooling or unit agreements;

(b)           No Wellbore is subject to penalties on allowables due to overproduction or any other violation of Law;

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(c)           There are no Wellbores or other Equipment located on the Assets that (i)  the operator is currently obligated by any Law or contract to currently plug, dismantle or abandon; or (ii) have been plugged, dismantled, or abandoned in a manner that does not comply in all material respects with applicable Law;

(d)           All currently producing Wellbores and Equipment are in an operable state of repair adequate to maintain normal operations in accordance with past practices, ordinary wear and tear excepted;

(e)           There are no shut-in or inactive Wellbores listed on Exhibit A as of the Execution Date; and

(f)            The operator has all easements, rights of way, licenses, and authorizations from Governmental Authorities necessary to access, construct, operate, maintain, and repair the Equipment in the ordinary course of business as currently conducted and in compliance with all applicable Laws.

Section 4.21          Outstanding Capital Commitments.  To Seller’s Knowledge:

(a)           As of the Execution Date, there are no outstanding AFEs that are binding on the Assets and that Seller reasonably anticipates will individually require expenditures by Seller or its respective successors-in-interest (including Buyer) from and after the Effective Time in excess of $100,000, other than as shown on Schedule 4.21; and

(b)           There are no Leases that (i) are currently held by payment of shut-in royalties, reworking operations, any substitute for production in paying quantities, or any other means other than production in paying quantities, or (ii) will expire, terminate, or otherwise be materially impaired absent actions (other than continued production in paying quantities) by or on behalf of Buyer within 60 days after the Closing Date.

Section 4.22          Environmental Matters.  Except as described on Schedule 4.22, to Seller’s Knowledge, (a) the Assets are in material compliance with all applicable Environmental Laws, (b) the Assets are not the subject of any outstanding administrative or judicial order, judgment, agreement or arbitration award from any Governmental Authority under any Environmental Law relating to the Assets and requiring remediation or the payment of a fine or penalty, and (c) Seller has not received any written notice of violation of any Environmental Law relating to the Assets where such violation has not been cured or otherwise remedied.

Section 4.23          Buyer Information.  The estimates and projections (including those contained in the internal reserve report) provided to Buyer by Seller and its Affiliates as part of Buyer’s review of the transactions contemplated by this Agreement were prepared and delivered in good faith, have a reasonable basis, and are consistent with Seller’s current expectations regarding the Assets.  To the extent such information relates to the periods during which Seller owned such Assets, to Seller’s Knowledge, the historical and current information (including that contained in the internal reserve report) relating to the Assets provided to Buyer are correct in all material respects for the respective periods in which Seller owned such Assets, and are derived from Seller’s books and records.

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Section 4.24          Suspense Funds.  Schedule 4.24 lists all material suspense funds held in suspense by Seller as of the Effective Time.

Section 4.25          Affiliate Transactions.  There are no Contracts binding upon or directly affecting any of the Assets between Seller, on the one hand, and an Affiliate of Seller, on the other hand, that will continue to be binding upon or directly affect the Assets beyond the Closing.

ARTICLE 5
BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer (as to itself only) and the Partnership (as to itself and Buyer) represent and warrant to Seller as of the Execution Date and the Closing as follows:

Section 5.1            Organization and Standing.  Buyer is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware and is duly qualified to carry on its business in each State where failure to be so qualified could reasonably be expected to adversely affect the Assets or consummation of the transactions contemplated by this Agreement.  The Partnership is a limited partnership duly organized, validly existing and in good standing under the Laws of the State of Delaware and is duly qualified to carry on its business in each State where failure to be so qualified could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement.

Section 5.2            Legal Power; No Conflicts.  Each of Buyer and the Partnership has all requisite power and authority to carry on its business as presently conducted and to execute, deliver and perform this Agreement (and all documents required to be executed and delivered by Buyer at Closing).  The execution, delivery and performance of this Agreement (and such documents) and the consummation of the transactions contemplated hereby (and thereby) shall not violate, or be in conflict with, any material provision of Buyer or the Partnership’s governing documents or any material provisions of any material agreement or instrument to which it is a party or by which it is bound, or, to its knowledge, any material Law applicable to Buyer or the Partnership.

Section 5.3            Authorization and Enforceability.  The execution, delivery and performance by Buyer and the Partnership of this Agreement (and all documents required to be executed and delivered by Buyer at Closing), and the consummation of the transactions contemplated hereby (and thereby), have been duly authorized by all necessary action on behalf of Buyer and the Partnership.  This Agreement constitutes (and, at Closing, such documents shall constitute) Buyer and the Partnership’s legal, valid and binding obligation, enforceable against Buyer and the Partnership in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar Laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity or at law.

Section 5.4            Liability for Brokers’ Fees.  Buyer, the Partnership or their respective Affiliates have not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees

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relating to the transactions contemplated hereby for which Seller or its Affiliates will have any responsibility.

Section 5.5            No Bankruptcy.  There are no bankruptcy, reorganization, or receivership proceedings pending, being contemplated by Buyer or the Partnership, or, to their knowledge, threatened against Buyer or the Partnership by any third Person.

Section 5.6            Litigation.  There is no action, suit, proceeding, claim or investigation by any Person or Governmental Authority that impedes or is likely to impede Buyer or the Partnership’s ability to consummate the transactions contemplated hereby and to assume the liabilities to be assumed by Buyer under this Agreement, including the Assumed Obligations.

ARTICLE 6
COVENANTS AND AGREEMENTS

Section 6.1            Covenants and Agreements of Seller.  Seller covenants and agrees with Buyer as follows:

(a)           Access to Records and Assets.  From the Execution Date to the Closing, Seller will:

(i)            Make all records, files, orders, maps, data, interpretations, seismic data, geological and geographic information, schedules, reports, logs, and geophysical data and other records and data relating to the Assets (the “Records”) available to Buyer and its representatives for inspection and review at Seller’s offices during normal business hours to permit Buyer to perform its due diligence review.  Subject to the consent and cooperation of third Persons, Seller will assist Buyer in its efforts to obtain, at Buyer’s expense, such additional information from such Persons as Buyer may reasonably desire.  Buyer may inspect the Records and such additional information only to the extent it may do so without violating any obligation of confidence or contractual commitment of Seller to a third Person.  If disclosure or access is prohibited, Seller shall use commercially reasonable efforts to obtain permission to grant such access to Buyer and its representatives, and shall provide Buyer and its representatives with as much information or access concerning the matter as is practical while still complying with applicable Laws and Seller’s obligations; provided that Seller shall not be required to make any payments for the benefit of any third Person in order to do so.

(ii)           To the extent Seller has the Legal Right, grant Buyer, during normal business hours, physical access to the Assets to allow Buyer to conduct, at Buyer’s sole risk and expense, on-site inspections and environmental assessments of the Assets.  In connection with any such on-site inspections, Buyer agrees not to unreasonably and materially interfere with the normal operation of the Assets and agrees to comply with all requirements of the operators of the Assets.  If Buyer or its agents prepare an environmental assessment of any Asset, Buyer agrees to keep such assessment confidential, unless disclosure is required

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pursuant to applicable Law, and to timely furnish copies thereof to Seller. IN CONNECTION WITH GRANTING SUCH ACCESS, BUYER REPRESENTS THAT IT IS ADEQUATELY INSURED AND WAIVES, RELEASES AND AGREES TO INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST ANY AND ALL LOSSES FOR OR FROM INJURY TO, OR DEATH OF, PERSONS OR FOR DAMAGE TO PROPERTY ARISING IN ANY WAY FROM THE ACCESS AFFORDED TO BUYER OR ITS AGENTS HEREUNDER OR THE ACTIVITIES OF BUYER OR ITS AGENTS, REGARDLESS OF CAUSE, INCLUDING THE CONCURRENT NEGLIGENCE OF SELLER AND ITS CONTRACTORS AND SUBCONTRACTORS AND THEIR EMPLOYEES, BUT EXCLUDING HOWEVER, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH PERSON. THIS WAIVER, RELEASE AND INDEMNITY BY BUYER SHALL SURVIVE TERMINATION OF THIS AGREEMENT.

(b)                                 Operation of the Assets. From the Execution Date to the Closing, Seller will, to the extent it has the Legal Right:

(i)                                     Use reasonable efforts to cause the Assets to be operated in a good and workmanlike manner consistent with past practices;

(ii)                                  Pay or cause to be paid its proportionate share of all costs and expenses incurred in connection with the operation of the Assets;

(iii)                               Pay or cause to be paid all bonuses and rentals, royalties, overriding royalties, shut-in royalties, and minimum royalties and development and operating expenses, ad valorem, property, production, severance, excise, and similar Taxes, and other payments incurred with respect to the Assets except (A) royalties held in suspense as a result of title issues and that do not give any third party a right to cancel an interest in an Asset and (B) expenses or royalties being contested in good faith, unless the nonpayment of such contested expenses or royalties could result in the loss of a Lease, in which case Seller shall notify Buyer and obtain Buyer’s approval prior to withholding such payment;

(iv)                              Comply in all material respects with all applicable Laws;

(v)                                 Keep Buyer reasonably informed regarding current and proposed activities and operations relating to the Assets of which Seller has Knowledge;

(vi)                              Use commercially reasonable efforts to preserve intact its present business organization and endeavor to preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall not be adversely affected in any material respect at the Closing;

(vii)                           Keep and maintain accurate books, records and accounts;

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(viii)                        Maintain in full force and effect existing insurance policies and binders subject only to variations required by the ordinary course of business, or else obtain, prior to the lapse of any such policy or binder, substantially similar coverage with insurers of recognized standing;

(ix)                              Pay all Taxes imposed upon any of the Assets or with respect to its franchises, business, income or assets before any penalty or interest accrues thereon;

(x)                                 Pay all claims and expenses (including claims and expenses for labor, services, materials and supplies) which are not the subject of a bona fide dispute when they become due and payable in accordance with their terms;

(xi)                              Comply with and enforce the provisions of the Material Agreements, including paying when due all indebtedness, payables, rentals, royalties, expenses and other liabilities relating to its business or Assets which are not the subject of a bona fide dispute; and

(xii)                           At all times preserve and keep in full force and effect its company existence.

(c)                                  Restriction on Operations. From the Execution Date to the Closing, Seller shall not, to the extent it has the Legal Right, without Buyer’s written consent (which shall not be unreasonably withheld):

(i)                                     Take any action that would cause its representations or warranties under this Agreement to be materially incorrect (or with respect to representations and warranties qualified by materiality or material adverse effect, incorrect in any respect) as of the Closing Date;

(ii)                                  Consent to or cause the abandonment of any Asset (except after the expiration of the primary term of the applicable Lease if not capable of producing in paying quantities);

(iii)                               Commence, propose, or agree to participate in any single operation with respect to any of the Assets with an anticipated net cost with respect to the Assets of greater than $100,000, except for emergency operations, operations required under presently existing contractual obligations disclosed pursuant to Section 4.21 and ongoing commitments under existing AFEs disclosed pursuant to Section 4.21;

(iv)                              Enter into, terminate, cancel, or materially amend or modify any Material Agreement (except for marketing contracts, which are addressed in Section 6.1(d)) or Lease, or enter into any new farmout, farmin or other similar contract affecting any Asset;

(v)                                 Consent to or make any change to a division order, revenue deck or expense deck relating to any Asset that causes the Net Revenue Interest or

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Working Interest in such Asset to differ from that set forth for such Asset on Exhibit A;

(vi)                              Consent to or make any other material change to a division order, revenue deck or expense deck relating to any Asset (for such purposes, a customary change to the ownership of an individual interest arising from a transfer by sale, gift or death shall not constitute a material change);

(vii)                           Consent to or make any written or oral agreement allowing for the use of land covered by the Leases for mining purposes;

(viii)                        Sell, lease, encumber or otherwise dispose of all or any part of the Assets (other than sales of Hydrocarbons in the ordinary course of business);

(ix)                              Grant or create any preferential right to purchase, right of first negotiation, right of first purchase, Transfer Requirement or similar right, obligation or requirement with respect to any Asset;

(x)                                 Liquidate, dissolve, merge, consolidate, restructure, recapitalize or otherwise reorganize Seller or make any other change in the capitalization of Seller;

(xi)                              Amend or otherwise modify Seller’s governing documents; or

(xii)                           Agree to do any of the foregoing.

(d)                                 Marketing Contracts. From the Execution Date to the Closing, except for amendments made in the ordinary course of business adding additional wells or production to existing marketing contracts, unless Seller obtains the prior written consent of Buyer (which shall not be unreasonably withheld) to act otherwise, Seller shall not enter into any new marketing contracts or agreements providing for the sale of Hydrocarbons produced from the Assets.

Section 6.2                                    Confidentiality.

(a)                                 All data and information, whether written or oral, obtained from Seller in connection with the transactions contemplated hereby, including the Records, whether obtained by Buyer before or after the execution of this Agreement, and data and information generated by Buyer based on data or information obtained from Seller in connection with the transactions contemplated hereby (collectively, the “Information”), is deemed by the Parties to be confidential. Until the Closing, except as required by Law, Buyer and its respective officers, agents and representatives shall hold in strict confidence all Information, except any Information which:

(i)                                     At the time of disclosure by Seller is in the public domain;

(ii)                                  After disclosure by Seller becomes part of the public domain by publication or otherwise, except by breach of this commitment by Buyer;

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(iii)                               Buyer can establish was rightfully in its possession at the time of disclosure by Seller;

(iv)                              Buyer rightfully received from third Persons free of any obligation of confidence; or

(v)                                 Is developed independently by Buyer without the Information, provided that the Person or Persons developing the data shall not have had access to the Information.

(b)                                 Return of Information. If Closing does not occur and this Agreement is terminated, if Seller so requests at any time, Buyer shall: (i) return to Seller all copies of the Information in its possession obtained pursuant to any provision of this Agreement, which Information is at the time of termination required to be held in confidence pursuant to this Section 6.2; and (ii) destroy any and all notes, reports, studies or analyses based on, or incorporating, the Information. The terms of this Section 6.2 shall survive termination of this Agreement.

(c)                                  Injunctive Relief. Buyer agrees that Seller shall not have an adequate remedy at law if Buyer violates any of the terms of this Section 6.2. In such event, Seller shall have the right, in addition to any other it may have, to obtain injunctive relief to restrain any breach or threatened breach of the terms of this Section 6.2, or to obtain specific enforcement of such terms.