Purchase, Sale And Contribution Agreement Dated March 29, 2007, BY And Among Ameristate Exploration,

THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into as of the 29th day of March, 2007, by and between AMERISTATE EXPLORATION, LLC , a Texas limited liability company whose address is 401 Congress, Suite 2900, Austin, Texas 78701 ("Seller"), and LEGACY RESERVES OPERATING LP , a Delaware limited partnership, whose address is 303 West Wall, Suite 1600, Midland, Texas 79701 ("Purchaser").



R E C I T A L S:



Seller desires to sell, and Purchaser desires to purchase, certain oil and gas properties and related rights on the terms and conditions set forth in this Agreement.



NOW, THEREFORE, in consideration of the premises, the mutual covenants, agreements, and obligations hereinafter set forth, and other good and valuable consideration, the legal sufficiency of which is hereby acknowledged, Seller and Purchaser have agreed and do hereby agree as follows:



ARTICLE I



SALE AND PURCHASE



1.01 Effective Time . The effective date and time of the purchase and sale contemplated hereby shall be 7:00 a.m., local time where the applicable properties are situated, on January 1, 2007 (the "Effective Time").



1.02 The Assets . Subject to all of the terms and conditions of this Agreement, Seller agrees to sell, convey, and deliver to Purchaser, and Purchaser agrees to purchase, pay for, and accept from Seller, effective as of the Effective Time, all of the following assets, less the Excluded Assets (hereinafter defined), (as so limited, the "Assets"):



(a) All of Seller's right, title, and interest in and to the oil and gas leases, lands, and other property rights described on Exhibit A attached hereto and made a part hereof for all purposes (collectively, the "Leases"), including, without limitation, all leasehold, overriding royalty, royalty, mineral, surface or other interests in the Leases or in the lands covered by the Leases;



(b) All of Seller's right, title, and interest in and to all improvements, fixtures, personal property, easements, permits, licenses, servitudes, and rights-of-way to the extent the same are situated upon and used or held for use in connection with the exploration, development, or operation of the Leases, or the production, treating, storage, or transportation of oil, gas, other hydrocarbons, or other minerals or the disposal of water or other wastes





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therefrom, including, without limitation, all wells (whether producing, plugged and abandoned, shut-in, injection, disposal, or water supply wells), tanks, boilers, buildings, machinery and other equipment, pipelines, power lines, telephone and telegraph lines, roads, and other appurtenances to the extent the same are situated upon and used or held for future use in connection with the exploration, development, or operation of the Assets and/or the production, treating, storing, or transportation of oil, gas, other hydrocarbons, or other minerals or the disposal of water or other wastes therefrom;



(c) All of Seller's right, title, and interest in, to, under, or derived from any presently existing and valid unitization, communitization and pooling agreements and the units created thereby (including all units formed by voluntary agreements and those formed under orders, regulations, rules, or other official acts of any federal, state, or other governmental agency having jurisdiction);


(d) All of Seller's right, title, and interest in, to, under, or derived from all of the presently existing and valid oil, casinghead gas and gas sales, purchase, exchange, operating, and processing contracts and agreements, and all other contracts, agreements, and instruments relating to the Leases, including, but not limited to, the agreements listed on Exhibit A attached hereto and made a part hereof for all purposes (the "Contracts");


(e) To the extent transferable, copies of all of Seller's seismic, geological, and geophysical data, records, information, and interpretations in any way related to the Leases or any lands or leases pooled, communitized or unitized therewith (the "Geoscientific Rights and Data");


(f) All of Seller's right, title, and interest in and to all lease files, land files, well files, production records, division order files, abstracts, title opinions, and contract files, insofar as they are directly related to the Leases or any lands or leases pooled, communitized or unitized therewith (collectively, the "Records"); and


(h) All of Seller's right, title, and interest in and to all oil, gas, and other hydrocarbon substances produced from or attributable or allocable to the Leases on and after the Effective Time.


1.03 Excluded Assets . Notwithstanding anything in this Agreement to the contrary, the Assets do not include, and Seller hereby expressly excludes from this sale and reserves unto itself, its successors and assigns, any and all rights, titles, and interests of Seller in and to the following





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(collectively, the "Excluded Assets"): (a) Seller's corporate, financial, and tax records and legal files, except that Seller will provide Purchaser with copies of any tax records that are necessary for Purchaser's ownership, administration, or operation of the Assets; (b) all claims and causes of action of Seller arising from or related to the ownership or operation of the Leases for all periods of time prior to the Effective Time; (c) all prepayments, deposits, and advances of Seller with respect to the Leases; and (d) all oil, gas, and other hydrocarbon substances produced from or attributable or allocable to Seller's interest in the Leases for periods prior to the Effective Time.







ARTICLE II



CONSIDERATION



2.01 Purchase Price . As the monetary consideration for the sale and transfer of the Assets pursuant to this Agreement, Purchaser shall pay to Seller at the Closing (hereinafter defined) the sum of FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000) (the "Purchase Price"), subject to adjustment as hereinafter provided in this Agreement. Seller and Purchaser agree to allocate the Purchase Price among the Assets as shown on attached Schedule 2.01 and agree to be bound by such allocation for federal income tax purposes and all other purposes incident to this Agreement.



2.02 Like-Kind Exchange Rights of Seller . In lieu of the sale of the Assets to Purchaser for the cash consideration provided herein, Seller shall have the right at any time prior to Closing to assign all or a portion of its rights under this Agreement to a qualified intermediary in order to effectuate the transactions contemplated hereby in a manner that will comply, either in whole or in part, with the requirements of a "like-kind exchange" pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). If Seller assigns its rights under this Agreement pursuant to this Section 2.02, Seller agrees to notify Purchaser in writing of the assignment prior to Closing. If Seller so assigns its rights under this Agreement, Purchaser agrees to (i) consent in writing to Seller's assignment of its rights under this Agreement, (ii) deposit the adjusted Purchase Price in the qualified escrow or qualified trust account designated by Seller at Closing, and (iii) take such further actions, at Seller's cost, as are reasonably required to effectuate the transactions contemplated hereby pursuant to Code Section 1031, but, in so acting, Purchaser shall have no liability to any party in connection with such actions. All risk associated with any like kind exchange and compliance thereof with applicable laws, rules, and regulations shall be the sole responsibility of Seller, and Seller agrees to indemnify and hold Purchaser harmless from and against all costs, expenses, liabilities, and obligations which arise as a result of Purchaser's facilitation of any such exchange pursuant to this Section 2.02.





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ARTICLE III



REPRESENTATIONS AND WARRANTIES OF SELLER



Seller represents, warrants, and covenants to and with Purchaser as follows:



3.01 Organization/Good Standing . Seller is a Texas limited liability company duly organized, validly existing, and in good standing under the laws of the state of its formation and is in good standing in all jurisdictions where it conducts business.



3.02 Power . Seller has the requisite power and authority to enter into and perform this Agreement and the transactions contemplated hereby. The execution, delivery, and performance of this Agreement by Seller, and the transactions contemplated hereby, will not (a) violate any provision of Seller's articles of organization or other governing documents, (b) conflict with, result in a breach of, constitute a default (or an event that with the lapse of time or notice, or both, would constitute a default) under any agreement or instrument to which Seller is a party or by which such Seller is bound, (c) violate any judgment, order, ruling, or decree applicable to Seller and entered or delivered in a proceeding in which Seller was or is a named party, or (d) to the best knowledge of Seller, violate any applicable law, rule or regulation.



3.03 Authorization . The execution, delivery, and performance of this Agreement and the transactions contemplated hereby have been duly and validly authorized by all requisite action on the part of Seller. This Agreement has been duly executed and delivered on behalf of Seller, and at the Closing all documents and instruments required hereunder to be executed and delivered by Seller shall be duly executed and delivered. This Agreement constitutes, and such documents and instruments shall constitute, legal, valid, and binding obligations of Seller, enforceable in accordance with their terms, subject, however, to the effect of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors, as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).



3.04 Brokers . Seller has incurred no obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of the matters provided for in this Agreement which will be the responsibility of Purchaser, and any such obligation or liability that might exist shall be the sole obligation of Seller.



3.05 Foreign Person . Seller is not a "foreign person" within the meaning of the Code.



3.06 Suits . Except as set forth on attached Schedule 3.06 , there is no suit, action, claim, investigation or inquiry by any person or entity or by any administrative agency or governmental authority and no legal, administrative or arbitration proceeding pending or, to Seller's knowledge, threatened against Seller, any Affiliate of Seller or the Assets, which could materially adversely





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affect the use, operation, or value of the Assets or the consummation of the transaction contemplated by this Agreement.



3.07 Royalties . To Seller's knowledge, all rentals, royalties and other payments due under the Leases have been paid, except those amounts properly held in suspense and where such failure would not have a material adverse effect on any of the Assets.



3.08 Taxes . To Seller's knowledge, all ad valorem, property, production, severence, excise and similar taxes and assessments based on or measured by the ownership of the Assets or the production of hydrocarbons or receipt of proceeds from the Assets that have become due and payable have been paid.



3.09 Contracts . To Seller's knowledge, all of the Contracts (i) are in full force and effect, and (ii) Seller is not in default with respect to any of its material obligations thereunder.



3.10 No Violation of Laws . To Seller's knowledge, Seller has not violated any applicable laws (excluding Environmental Laws which are handled exclusively under Article V) with respect to the ownership or operation of the Assets.



3.11 Prepayments . To Seller's knowledge, there have been no advanced, take or pay or other prepayments with respect to the Assets that would obligate Seller or Purchaser to deliver hydrocarbon production from the Assets after the Effective Time without receiving full payment therefor.



3.12 Production Sales Contracts . To Seller's knowledge, there are no production sales contracts pertaining to the Assets that provide for a fixed price and that cannot be cancelled at any time upon 90 days (or less) prior notice.



3.13 Preferential Purchase Rights and Third Party Consents . To Seller's knowledge, except as set forth on Schedule 3.13 attached hereto, there are no preferential purchase rights or third party consents to assignment pertaining to the Assets or the transaction contemplated hereby.



3.14 Outstanding Capital Commitments . Except as set forth on Schedule 3.14 attached hereto, there are no pending AFE's with respect to which the time period for responding has not yet expired, and there are no outstanding AFE's or other commitments to make capital expenditures which are binding on Seller or the Assets and which Seller reasonably anticipates will severally require expenditures in excess of $50,000 to the interest of Seller.



3.15 Gas Imbalances . To the knowledge of Seller, except as set forth on Schedule 3.15 attached hereto, there are no gas imbalances with respect to the Assets.



Except as expressly provided in this Agreement or in the Assignment and Bill of Sale, Seller





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makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing) to Purchaser (including, but not limited to, any information contained in the files or any opinions, information or advice which may have been provided to Purchaser by any officer, member, manager, employee, agent, consultant or representative of Seller or any of its Affiliates). Purchaser acknowledges that Seller has not made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING TO (a) THE CONDITIONS OF THE ASSETS (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) ANY INFRINGEMENT BY SELLER OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (c) ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER (INCLUDING WITHOUT LIMITATION, WITH RESPECT TO GEOLOGICAL DATA, THE EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION AFTER CLOSING) ; provided, however, that the foregoing disclaimer and negation of representations and warranties shall not affect or impair the representations of Seller as set forth in this Article III or in the Assignment and Bill of Sale. THE SALE OF THE WELLS, EQUIPMENT AND FACILITIES HEREUNDER SHALL BE "AS IS, WHERE IS, WITH ALL FAULTS."



ARTICLE IV



REPRESENTATIONS AND WARRANTIES OF PURCHASER



Purchaser represents and warrants to Seller that:



4.01 Existence . Purchaser is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware.



4.02 Power . Purchaser has the requisite power and authority to enter into and perform this Agreement and the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated hereby, will not (a) violate any provision of Purchaser's limited partnership agreement or other governing documents; (b) to the best knowledge of Purchaser, conflict with, result in a breach of, constitute a default (or an event that with the lapse of time or notice, or both, would constitute a default) under any agreement or instrument to which Purchaser is a party or by which Purchaser is bound, (c) to the best knowledge of Purchaser, violate any judgment, order, ruling, or decree applicable to Purchaser and entered or delivered in a





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proceeding in which Purchaser was or is a named party; or (d) to the best knowledge of Purchaser, violate any applicable law, rule or regulation.



4.03 Authorization . The execution, delivery and performance of this Agreement and the transactions contemplated hereby have been duly and validly authorized by all requisite action on the part of Purchaser. This Agreement has been duly executed and delivered on behalf of Purchaser, and at the Closing all documents and instruments required hereunder to be executed and delivered by Purchaser shall have been duly executed and delivered. This Agreement and such documents and instruments shall constitute legal, valid, and binding obligations of Purchaser, enforceable in accordance with their terms, subject, however, to the effect of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors, as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).



4.04 Brokers . Purchaser has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of the matters provided for in this Agreement which will be the responsibility of Seller, and any such obligation or liability that might exist shall be the sole obligation of Purchaser.



ARTICLE V



PURCHASER'S DUE DILIGENCE REVIEW



5.01 Access of Purchaser; Confidentiality . Pending Closing, Seller will make available to Purchaser, for examination in Seller's offices during normal business hours, such of the Records and such other existing records, files, data, and other information of Seller relating to the Assets as Purchaser may reasonably request and as Seller may lawfully provide without violating any existing agreements with third parties respecting confidentiality or dissemination thereof, including, but not limited to, any such lease files, land files, well files, production purchase and sale contracts, division order files, abstracts, title opinions, engineering and geological reports, maps, logs, and well records of Seller relating to the Assets. Prior to Closing, Purchaser, at Purchaser's sole expense, may copy any portion of the Records which Purchaser deems necessary for purposes incident to this Agreement. To the extent Seller may confer authority to do so, Seller shall likewise permit Purchaser and its authorized representatives to conduct, at Purchaser's sole risk and expense, on-site inspections and inventories of the Assets, including, without limitation, Phase I environmental assessments. Purchaser shall keep and hold all records and other information of a non-public information derived from its examinations, inspections, and assessments pursuant to the foregoing strictly confidential and shall not disclose the same to any third party without the prior written consent of Seller. If this transaction fails to close for any reason, Purchaser shall immediately return to Seller or, at Seller ?s option, destroy all such records obtained by Purchaser from Seller. Purchaser additionally agrees to indemnify and hold Seller harmless from and against any and all claims, demands, causes of action, liabilities, losses, and/or expenses (including reasonable attorneys' fees





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and costs of court) that may be suffered or incurred by Seller in connection with any inspections or assessments conducted by Purchaser, SAVE AND EXCEPT AS MAY BE OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL ACT OF SELLER.




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