1 EXHIBIT 10 PURCHASE AGREEMENT

1
EXHIBIT 10

================================================================================

PURCHASE AGREEMENT

by and between

SHERIDAN ENERGY, INC.

and

JEDI HYDROCARBON INVESTMENTS I LIMITED PARTNERSHIP

dated as of

December 31, 1997

================================================================================
2

TABLE OF CONTENTS

ARTICLE I.

Definitions

1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II.

Sale and Purchase; Closing

2.1 Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Ownership, Revenues and Expenses of JEDI I Properties . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Certain Reassignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE III.

Representations and Warranties of Sheridan

3.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Corporate Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 SEC Documents and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Liabilities; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Title to Properties and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.14 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 No Restrictions on Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.16 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.19 Intellectual Property and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.20 No Public Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.22 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.23 Plugging and Abandonment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.24 No Material Misstatements or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

-i-
3

3.25 Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE IV.

Representations and Warranties of JEDI I Partnership

4.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 Consents and Preferential Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Title to Properties and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.8 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.10 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.11 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.12 Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.13 Plugging and Abandonment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE V.

Covenants

5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.3 Operation of Business by Sheridan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Operation of JEDI I Properties by JEDI I Partnership . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Full Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.6 Notice of Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE VI.

Closing Conditions

6.1 Conditions to Obligation of JEDI I Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Conditions to Obligation of Sheridan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE VII.

Other Provisions

7.1 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 No Restrictions on Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Certain Public Utility Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4 Business Opportunity Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

-ii-
4

7.5 Indemnification . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Survival of Terms; Failure to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 Disclaimers of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.8 Transfer Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.9 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.10 Actions by Sheridan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE VIII.

Miscellaneous

8.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.8 Further Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.10 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.11 Exhibits; Schedules; Amendment of Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . 37
8.12 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

-iii-
5
EXHIBITS

Exhibit A - Form of Warrant Agreement
Exhibit B - Form of Assignment and Xxxx of Sale
Exhibit C - Form of Registration Rights Agreement

Schedule I - JEDI I Leases
Schedule II - JEDI I Xxxxx
Schedule III - 3-D Seismic Data

-iv-
6
PURCHASE AGREEMENT

This PURCHASE AGREEMENT (this "Agreement") is made as of December 31,
1997, by and between Sheridan Energy, Inc., a Delaware corporation
("Sheridan"), and JEDI Hydrocarbon Investments I Limited Partnership, a
Delaware limited partnership ("JEDI I Partnership").

RECITALS

Sheridan desires to issue and sell to JEDI I Partnership, subject to
the terms and conditions set forth herein, (i) 382,500 shares of Common Stock
(the "Shares"), and (ii) Warrants to purchase up to 67,500 shares of Common
Stock in exchange for all of the right, title and interest to those certain oil
and gas properties (the "JEDI I Leases") described in Schedule I hereto owned
by JEDI I Partnership, together with all of JEDI I Partnership's interest in
and to personal property, equipment, fixtures, contracts and data relating
thereto, including the 3-D seismic data described in Schedule III attached
hereto, LESS AND EXCEPT and JEDI I Partnership hereby excludes from the
foregoing all 2-D seismic information, licenses and data relating to the JEDI I
Leases, to the extent that the same is not transferable without consent,
payment or penalty (collectively such interests to be exchanged by JEDI
Partnership is hereinafter referred to as, the "JEDI I Properties").

Simultaneously herewith, (i) Sheridan is entering into an agreement
with Grand Gulf Production, L.L.C. ("GGP") (the "GGP/Sheridan Purchase
Agreement") pursuant to which Sheridan will acquire substantially all of the
oil and gas properties, together with all personal property, equipment,
fixtures and data relating thereto, and all other assets of GGP in exchange for
467,500 shares of Common Stock and warrants to purchase up to 82,500 shares of
Common Stock, (ii) GGP is entering into a termination agreement with JEDI I
Partnership (the "GGP/JEDI I Partnership Termination Agreement") pursuant to
which GGP and JEDI I Partnership will terminate the Farmout Agreement and the
Participation Agreement, and (iii) GGP and Xxxxxx X. Xxxxx are entering into an
agreement (the "GGP/JEDI Termination Agreement") with Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership ("JEDI"),
pursuant to which JEDI will terminate all of the outstanding debt obligations
of GGP to JEDI and the guaranty of Xxxxxx X. Xxxxx in exchange for the transfer
by GGP to JEDI under the JEDI Loan Agreement of 467,500 shares of Common Stock
and warrants to purchase up to 82,500 shares of Common Stock of Sheridan.

It is the desire of Sheridan and JEDI I Partnership that the
transactions contemplated by this Purchase Agreement, the GGP/Sheridan Purchase
Agreement, the GGP/JEDI I Partnership Termination Agreement, and the GGP/JEDI
Termination Agreement shall close simultaneously in accordance with the terms
and conditions set forth herein and therein.
7
AGREEMENTS

In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

ARTICLE I.

DEFINITIONS

1.1 DEFINITIONS. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms shall have the
following respective meanings when used in this Agreement:

"AFFILIATE" as applied to any specified Person means any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. The
term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of 10% or more of the voting power (or in the case of a Person which
is not a corporation, 10% or more of the ownership interest,
beneficial or otherwise) of such Person or the power otherwise to
direct or cause the direction of the management and policies of that
Person, whether through voting, by contract or otherwise. For
purposes of this paragraph, "voting power" of any Person means the
total number of votes which may be cast by the holders of the total
number of outstanding shares of equity of any class or classes of such
Person in any election of directors (or Persons performing similar
functions) of such Person. For purposes of this Agreement (i) all
executive officers and directors of a Person shall be deemed to be
Affiliates of such Person, (ii) for avoidance of doubt, Enron Corp.
and its Affiliates shall be deemed to be Affiliates of JEDI I
Partnership, (iii) Sheridan and its Subsidiaries shall not be
considered Affiliates of JEDI I Partnership or its Affiliates, and
(iv) JEDI I Partnership and its Affiliates shall not be considered
Affiliates of Sheridan and its Subsidiaries.

"ASSIGNMENT" means the Assignment and Xxxx of Sale in the form
of Exhibit B hereto.

"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on Sheridan's or any of its Subsidiary's balance
sheet or for which the amount of the asset and liability thereunder as
if so capitalized should, in accordance with GAAP, be disclosed in a
note to such balance sheet.

"CHARTER" means, for any Person, such Person's certificate of
incorporation, articles of incorporation or other organizational
documents, as the same may be amended.

"CLAIMS" shall have the meaning assigned to such term in
Section 7.5(b).

-2-
8
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.

"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2.

"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.

"COMMISSION" shall have the meaning assigned to such term in
Section 3.6.

"COMMON STOCK" means the common stock, par value $.01 per
share, of Sheridan.

"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.

"ECT" means Enron Capital & Trade Resources Corp.

"ECT PURCHASE AGREEMENT" means that Stock Purchase Agreement
dated November 28, 1997, between Sheridan and ECT, as amended.

"EFFECTIVE DATE" means September 1, 1997.

"ENVIRONMENTAL LAWS" means any and all laws, statutes,
ordinances, rules, regulations, orders or determinations of any
Governmental Authority pertaining to health or the environment in
effect in any and all jurisdictions in which the Person identified
conducts business or at any time has conducted business, or where any
of its properties or operations are located, including without
limitation, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended,
the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous and Solid Waste Amendments Act
of 1984, as amended, the Hazardous Materials Transportation Act, as
amended, the Outer Continental Shelf Lands Act, as amended, the
Coastal Zone Management Act, as amended, and other environmental
conservation or protection laws. The terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that to the
extent the laws of the state in which any property or operation is
located has established a meaning for "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.

-3-
9
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with Sheridan or a Subsidiary of Sheridan
would be deemed to be a "single employer" within the meaning of
Section 4001 of ERISA.

"EXCHANGE ACT" shall have the meaning assigned to such term in
Section 3.6.

"EXISTING LAWSUIT" means the pending cause of action described
in Section 4.6 of the JEDI I Partnership Disclosure Letter.

"FARMOUT AGREEMENT" means that certain letter agreement, dated
September 19, 1997, among JEDI, JEDI I Partnership and GGP.

"GAAP" means generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied.

"GGP" shall have the meaning assigned to such term in the
recitals.

"GGP/JEDI I PARTNERSHIP TERMINATION AGREEMENT" shall have the
meaning assigned to such term in the recitals.

"GGP/JEDI TERMINATION AGREEMENT" shall have the meaning
assigned to such term in the recitals.

"GGP/SHERIDAN PURCHASE AGREEMENT" shall have the meaning
assigned to such term in the recitals.

"GOOD TITLE" means that, subject to and except for the JEDI I
Encumbrances:

(a) JEDI I Partnership is (i) entitled to receive not
less than the percentage set forth in Schedule II hereto as the "Net
Revenue Interest" of all hydrocarbons produced, saved and marketed
from the JEDI I Well listed in Schedule II to which such interest
corresponds, all without reduction throughout the duration of the life
of such well, except as specifically set forth in Schedule II, and
(ii) obligated to bear the percentage of the costs and expenses
relating to the maintenance, development and operation of such well,
not greater than the "Working Interest" shown in Schedule II with
respect to such well, without increase throughout the duration of the
life of such well, except as specifically set forth in Schedule II;
and

(b) the title of JEDI I Partnership is free and clear of
all liens, encumbrances and material defects.

"GOVERNMENTAL AUTHORITY" means any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.

-4-
10
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other
direction or requirement (including but not limited to any of the
foregoing which relate to Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority.

"INDEBTEDNESS" means, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person
guaranteed, directly or indirectly, in any manner by such Person,
including, without limitation, through an agreement, contingent or
otherwise, (i) to purchase or pay any such indebtedness, (ii) to
advance or supply funds for the purchase or payment of such
indebtedness, (iii) to purchase and pay for property if not delivered
or pay for services if not performed, primarily for the purpose of
enabling such other Person to make payment of such indebtedness or to
assure the owners of the indebtedness against loss, or (iv) to
maintain working capital, equity capital or other financial condition
of such other Person so as to enable it to pay such indebtedness; (c)
all indebtedness secured by any Lien upon property owned by such
Person, even though such Person has not in any manner become liable
for the payment of such indebtedness; (d) all indebtedness of such
Person created or arising under any conditional sale, lease (intended
primarily as a financing device) or other title retention or security
agreement with respect to property acquired by such Person even though
the rights and remedies of Sheridan, lessor or lender under such
agreement or lease in the event of default may be limited to
repossession or sale of such property; (e) all obligations of such
Person issued or assumed for the deferred purchase price of property
or services, including all trade credit, to the extent such
obligations have remained outstanding in excess of sixty days; (f)
Capitalized Lease Obligations and the present value of all future
lease payments under a lease other than Capitalized Lease Obligations;
(g) all unfunded post-retirement and post-employment benefits
including, without limitation, unfunded pension liabilities; (h)
mandatory redemption or mandatory dividend rights on ordinary shares
(or other equity); (i) obligations of discontinued businesses that are
subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale, and (j) all obligations
of such Person under or with respect to letters of credit.

"INTERIM BALANCE SHEET" shall have the meaning assigned to
such term in Section 3.6(a).

"INTERMEDIARY" shall have the meaning assigned to such term in
Section 7.1.

"JEDI I ENCUMBRANCES" means any of the following matters:

(a) the terms, conditions, restrictions, exceptions,
reservations, limitations and other matters contained in the recorded
agreements, instruments and documents that create or reserve to JEDI I
Partnership its interests in any of the JEDI I Properties;

(b) any (i) undetermined or inchoate Liens constituting
or securing the payment of expenses that were incurred incidental to
maintenance, development, production or

-5-
11
operation of the JEDI I Properties or for the purpose of developing,
producing or processing oil, gas or other hydrocarbons therefrom or
therein, excluding any Liens for borrowed money, and (ii) statutory
Liens (including materialman's, mechanics', repairman's, mineral
contractor's, mineral subcontractor's and similar Liens), to the
extent not shown in the applicable public records, and operators'
Liens, in each case arising in the ordinary course of business (x)
that JEDI I Partnership has agreed to assume or pay pursuant to the
terms hereof, (y) for which JEDI I Partnership is responsible for
paying or releasing at Closing, or (z) for which Sheridan has agreed
to assume or pay pursuant to the terms hereof;

(d) any Liens created by law or reserved in oil and gas
leases for royalty, bonus or rental, or created to secure compliance
with the terms of the agreements, instruments and documents that
create or reserve to JEDI I Partnership its interests in the JEDI I
Properties;

(e) any obligations or duties affecting the JEDI I
Properties to any municipality or public authority with respect to any
franchise, grant, license or permit, and all applicable laws, rules,
regulations and orders of any Governmental Authority;

(f) any (i) easements, rights-of-way, servitudes,
permits, licenses, surface leases and other rights in respect of
surface operations, pipelines, grazing, hunting, lodging, canals,
ditches, reservoirs or the like, and (ii) easements for streets,
alleys, highways, pipelines, telephone lines, power lines, railways
and other similar rights-of-way, on, over or in respect of property
owned or leased by JEDI I Partnership or over which JEDI I Partnership
owns rights-of-way, easements, permits or licenses;

(g) all lessors' royalties, overriding royalties, carried
interests, production payments, reversionary interests and other
burdens on or deductions from the proceeds of production created or in
existence as of the date hereof that do not operate to reduce the Net
Revenue Interests of JEDI I Partnership in the JEDI I Xxxxx described
in Schedule II;

(h) preferential rights to purchase or similar
agreements;

(i) required third party consents to assignments or
similar agreements;

(j) all rights to consent by, required notices to,
filings with, or other actions by any Governmental Authority in
connection with the sale or conveyance of oil and gas leases or
interests therein;

(k) production sales contracts; division orders;
contracts for sale, purchase, exchange, refining or processing of
hydrocarbons; unitization and pooling designations, declarations,
orders and agreements; operating agreements; agreements of
development; area of mutual interest agreements; gas balancing or
deferred production agreements (but only to the extent Sheridan and
JEDI Partnership have agreed on, and balanced up, any imbalances
existing on the Closing Date, pursuant thereto); processing
agreements; plant agreements; pipeline, gathering and transportation
agreements; injection, repressuring and recycling

-6-
12
agreements; carbon dioxide purchase or sale agreements; salt water or
other disposal agreements; seismic or geophysical permits or
agreements; tax partnership agreements (but only if there is
currently, and at the Closing Date, no capital account deficit which
would be required to be made up, in whole or in part, upon liquidation
or termination); and any and all other agreements that are ordinary
and customary in the oil, gas, sulphur and other mineral exploration,
development or extraction business, or in the business of processing
of gas and gas condensate production for the extraction of products
therefrom; and

(l) all defects and irregularities affecting the JEDI I
Properties which individually or in the aggregate do not operate to
reduce the Net Revenue Interests of JEDI I Partnership in the JEDI I
Xxxxx described in Schedule II, increase the proportionate share of
costs and expenses of leasehold operations attributable to or to be
borne by the Working Interests of JEDI I Partnership in the JEDI I
Xxxxx described in Schedule II, or otherwise interfere materially with
the operation, value or use of the JEDI I Properties, taken as a
whole.

"JEDI I LEASES" shall have the meaning assigned to such term
in the recitals.

"JEDI I PARTNERSHIP DISCLOSURE LETTER" means that certain
disclosure letter of even date herewith delivered to Sheridan by JEDI
I Partnership relating to JEDI I Partnership's disclosures in
connection with its representations and warranties hereunder.

"JEDI I PARTNERSHIP MATERIAL ADVERSE EFFECT" means any change
or event that, individually or in the aggregate, would or could
reasonably be expected to have a material adverse effect on (a) the
JEDI I Properties, taken as a whole, (b) the ability of JEDI I
Partnership to meet its obligations under this Agreement or the
Operative Documents to which JEDI I Partnership is a party, or (c) the
consummation of the transactions contemplated hereby; provided,
however, that any change or event resulting from (i) changes in the
prices of oil, gas, natural gas liquids or other hydrocarbon products,
(ii) changes in general economic conditions, including general stock
market conditions and interest rate changes or (iii) the adverse
determination of any pending litigation disclosed in the JEDI I
Partnership Disclosure Letter shall not constitute a JEDI I
Partnership Material Adverse Effect.

"JEDI I PROPERTIES" shall have the meaning assigned to such
term in the recitals.

"JEDI I XXXXX" means the xxxxx located on the JEDI I Leases
described in Schedule II.

"KNOWLEDGE" or "KNOWN" means with respect to Sheridan, those
individuals listed in Section 1.1 of the Sheridan Disclosure Letter
and with respect to the JEDI I Partnership, those individuals listed
in Section 1.1 of the JEDI I Partnership Disclosure Letter, in each
case, individually or collectively, have conducted such investigations
and inquiries as they reasonably believe to be most likely to confirm
the truth and accuracy of the matter being represented and warranted
(or have caused such investigations and inquiries to be made under
their supervision) and, after evaluating the findings of such
investigation and inquiries either (a) know that the matter being
represented and warranted is true and accurate or

-7-
13
(b) have no reason to believe that the matter being represented and
warranted is not true and accurate.

"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.

"OPERATIVE DOCUMENTS" means this Agreement, the Warrant
Agreement, the Warrant Certificate, the Assignment, the GGP/Sheridan
Purchase Agreement (including the warrant agreement and warrant
certificates referred to therein), the GGP/JEDI I Partnership
Termination Agreement, the GGP/JEDI Termination Agreement, and the
Registration Rights Agreement.

"PARTICIPATION AGREEMENT" means that certain Participation
Agreement, dated February 27, 1995, between GGP and JEDI I
Partnership, as amended by that certain First Amendment to
Participation Agreement, dated January 1, 1996, between GGP and JEDI I
Partnership.

"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities
necessary for the conduct of the business of such Person as currently
conducted and as proposed to be conducted after the Closing.

"PERMITTED LIENS" means (a) Liens for taxes not yet due and
payable, (b) statutory Liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar Liens) and operators'
Liens, in each case arising in connection with the ordinary course of
business securing payments not yet due and payable, (c) Liens created
pursuant to or under the Sheridan Senior Credit Facility and (d) such
imperfections or irregularities of title, if any, as (i) are not
substantial in character, amount, or extent and do not materially
detract from the value of the property subject thereto, (ii) do not
and will not materially interfere with either the present or intended
use of such property, and (iii) do not and will not, individually or
in the aggregate, materially interfere with the conduct of Sheridan's
or its Subsidiaries current or proposed operations.

"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.

"PLAN" shall have the meaning assigned to such term in Section
3.12(a)(i).

"PROPERTIES EXPENSES" means all costs and expenses (including
royalties, production taxes, capital expenditures, lease operating
expenses and overhead) paid by JEDI I Partnership that are (x)
attributable to the JEDI I Properties, and (y) attributable to the

-8-
14
period of time from and after the Effective Date including one-third
of the ad valorem taxes for 1997.

"PROPERTIES REVENUES" means the amount of all proceeds
actually received by JEDI I Partnership that are (x) attributable to
the JEDI I Properties, and (y) attributable to the period of time from
and after the Effective Time.

"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of Exhibit C hereto.

"SEC DOCUMENTS" shall have the meaning assigned to such term
in Section 3.6.

"SECURITIES ACT" shall have the meaning assigned to such term
in Section 3.6.

"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of Sheridan issued to ECT pursuant to the ECT Purchase Agreement.

"SHARES" shall have the meaning assigned to such term in
Section 2.1.

"SHERIDAN DISCLOSURE LETTER" means that certain disclosure
letter of even date herewith delivered to JEDI I Partnership by
Sheridan relating to Sheridan's disclosures in connection with its
representations and warranties hereunder.

"SHERIDAN MATERIAL ADVERSE EFFECT" means any change or event
that, individually or in the aggregate, would or could reasonably be
expected to have a material adverse effect on (a) the assets,
liabilities, condition (financial or otherwise), business, results of
operations or prospects of Sheridan and its Subsidiaries on a
Consolidated basis, (b) the ability of Sheridan to meet its
obligations under this Agreement or the Operative Documents to which
Sheridan is a party, or (c) the consummation of the transactions
contemplated hereby; provided, however, that any change or event
resulting from (i) changes in the prices of oil, gas, natural gas
liquids or other hydrocarbon products, (ii) changes in general
economic conditions, including general stock market conditions and
interest rate changes or (iii) the adverse determination of any
pending litigation disclosed in the Sheridan Disclosure Letter shall
not constitute a Sheridan Material Adverse Effect.

"SHERIDAN SENIOR CREDIT FACILITY" means that certain First
Amended and Restated Credit Agreement dated as of September 30, 1997
by Sheridan, as the borrower and Bank One Texas, N.A., as the lender.

"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of
such entity, and any partnership, limited liability company or joint
venture if more than

-9-
15
a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries.

"WARRANT AGREEMENT" means the Warrant Agreement to be executed
by Sheridan and JEDI I Partnership, in the form of Exhibit A hereto,
as the same may be amended, supplemented, or otherwise modified from
time to time.

"WARRANT CERTIFICATE" means the certificate evidencing
Warrants, in the form of Exhibit A to the Warrant Agreement, as the
same may be amended, supplemented, or otherwise modified from time to
time.

"WARRANTS" means the Common Stock purchase warrants described
in the Warrant Agreement.

"WARRANT SHARES" means the shares of Common Stock issued or
issuable upon the exercise of the Warrants.

ARTICLE II.

SALE AND PURCHASE; CLOSING

2.1 SALE AND PURCHASE. Subject to the satisfaction of the terms
and conditions herein set forth and in reliance upon the respective
representations, warranties, and covenants of the parties set forth herein or
in any document delivered pursuant hereto, at the Closing (i) Sheridan agrees
to deliver to JEDI I Partnership, and JEDI I Partnership agrees to accept,
382,500 shares of Common Stock (the "Shares") and, pursuant to the terms of the
Warrant Agreement, Warrants to purchase 67,500 shares of Common Stock for $5.50
per share, and (ii) JEDI I Partnership agrees to deliver to Sheridan, and
Sheridan agrees to accept, all of JEDI I Partnership's right, title and
interest in and to the JEDI I Properties.

2.2 CLOSING. The closing of the exchange of the Shares and the
Warrants for the JEDI I Properties by the parties (the "Closing") will occur on
or before December 31, 1997, or on such other date as may be agreed by the
parties (the "Closing Date"), at the offices of Xxxxxx & Xxxxxx L.L.P. At the
Closing, (i) Sheridan will deliver to JEDI I Partnership (or its designee) the
Shares, duly executed and registered in the name of JEDI I Partnership or its
designee (such shares bearing an appropriate legend agreed to by the parties),
and the Warrant Agreement and the Warrant Certificates, (ii) JEDI I Partnership
will deliver to Sheridan the Assignment covering the JEDI I Properties, (iii)
each of Sheridan and JEDI I Partnership shall execute and deliver (and JEDI I
Partnership shall cause its Affiliate, ECT, to execute and deliver) the
Registration Rights Agreement, and (iv) JEDI I Partnership shall deliver such
letters in lieu or similar documents as Sheridan shall reasonably request in
order to evidence the transfer of the JEDI I Properties from JEDI I Partnership
to Sheridan.

2.3 OWNERSHIP, REVENUES AND EXPENSES OF JEDI I PROPERTIES. (a)
Subject to the other provisions of this Agreement, including without limitation
the indemnification provisions hereof, JEDI I Partnership shall be entitled to
all of the rights of ownership (including, without limitation,

-10-
16
the right to all production, proceeds of production and other proceeds), and
shall be responsible for costs and expenses, attributable to the period of time
prior to the Effective Date with respect to the JEDI I Properties. Subject to
the other provisions of this Agreement, Sheridan shall be entitled to all of
the rights of ownership (including, without limitation, the right to all
production, proceeds of production and other proceeds), and shall be
responsible for costs and expenses, attributable to the period of time from and
after the Effective Date with respect to the JEDI I Properties, except as set
forth in Sections 2.3(b)(i), (ii) and (iii) below.

(b) Notwithstanding anything herein to the contrary, including the
provisions of Section 2.3(a) hereof, (i) JEDI I Partnership shall pay to
Sheridan an amount equal to $9,641.61, being 50% of all delay rentals
attributable to the JEDI I Leases for the period of September 1, 1997 through
December 31, 1997, (ii) JEDI I Partnership shall pay to Sheridan an amount
equal to$83,192.70 for plugging and abandonment costs attributable to the
Georgia-Pacific Well #1, the Xxxxxx Well #A-1, and the Xxxxxxx Well #1 in
consideration of Sheridan's assumption of (and Sheridan hereby assumes) all
other plugging and abandonment costs attributable to such xxxxx and any other
JEDI I Well, and (iii) JEDI I Partnership shall pay to Sheridan an amount equal
to $6,000.00 for certain damages relating to pipeline rights-of way on those
JEDI I Leases under which either Xxxx Xxxxxx, Sr., et al. or Ridge Road Land
Company Ltd., et al. is the lessor thereunder in consideration of Sheridan's
assumption of (and Sheridan hereby assumes) any additional damages associated
therewith.

(c) At Closing, JEDI I Partnership shall prepare, and shall
furnish to Sheridan, an accounting statement setting forth an estimate of the
Properties Revenues, the Properties Expenses and the actual amounts that JEDI I
Partnership has agreed to pay to Sheridan pursuant to Section 2.2(b) (the
"Other JEDI I Costs") as of the Closing Date. To the extent that the sum of
the Properties Revenues and the Other JEDI I Costs exceed the Properties
Expenses, JEDI I Partnership shall pay to Sheridan such excess amount at the
Closing. To the extent that the Properties Expenses exceed the sum of the
Properties Revenues and the Other JEDI I Costs, Sheridan shall pay to JEDI I
Partnership such excess amount at the Closing.

(d) Promptly after the Closing Date (but not later than 120 days
thereafter), Sheridan shall prepare, and shall furnish to JEDI I Partnership, a
final accounting statement setting forth the actual amounts provided in Section
2.3(a). As soon as reasonably practicable thereafter (but not later than 30
days thereafter), JEDI I Partnership shall deliver to Sheridan a written report
containing any changes that JEDI I Partnership proposes be made to such
statement. The parties shall undertake to agree on the final adjustment
amount, and such final adjustment amount shall be paid by JEDI I Partnership or
Sheridan, as appropriate, not later than 180 days after the Closing Date.
During said 180 day period, either party may at its own expense audit the other
party's books, accounts and records relating to production proceeds, operating
expenses and taxes paid that may have been adjusted on account of this
transaction. Such audit shall be conducted so as to cause a minimum of
inconvenience to the audited party.

2.4 CERTAIN REASSIGNMENTS. If the consent described in Section
4.5 of the JEDI I Partnership Disclosure Letter with respect to the Xxxxxx X.
Xxxxxx lease has not been received by August 1, 1998, Sheridan may require,
upon written notice to JEDI I Partnership, a reassignment by JEDI I Partnership
of 38,250 Shares and 6,750 Warrants. Upon receipt of such notice, JEDI I
Partnership shall assign to Sheridan 38,250 Shares endorsed in blank or
accompanied by duly

-11-
17
executed assignment documents and 6,750 Warrants accompanied by duly executed
assignment documents and Sheridan shall reassign to JEDI I Partnership the JEDI
I Lease affected by such consent. Such assignments must be made not later than
November 1, 1998. In the event that the stock certificates representing the
Shares contain a restrictive legend referring to this Section 2.4, then upon
the request of JEDI I Partnership after the receipt of the consent referenced
in this Section 2.4 or the execution and delivery of assignments referred to
herein (whichever is earlier), Sheridan agrees to cause new stock
certificate(s) evidencing the Shares (less any Shares reassigned to Sheridan
pursuant to this Section 2.4) to be issued to JEDI I Partnership or its
designee without such restrictive legend.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF XXXXXXXX

Xxxxxxxx represents and warrants to JEDI I Partnership as follows:

3.1 CORPORATE EXISTENCE. Sheridan is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sheridan has full corporate power and authority to conduct its
business as it is now being conducted and to own, operate and lease the
properties and assets it currently owns, operates and holds under lease.
Sheridan is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business activities or its ownership or
leasing of property makes such qualification necessary, except where the
failure to be so qualified would not have a Sheridan Material Adverse Effect.
On or before the date hereof, Sheridan has delivered to JEDI I Partnership's
counsel true and complete copies of Sheridan's Certificate of Incorporation and
bylaws, together with all amendments thereto. No other amendments to
Sheridan's Certificate of Incorporation have been approved by the Board of
Directors or stockholders of the Corporation or filed with the Delaware
Secretary of State.

3.2 CORPORATE POWER AND AUTHORIZATION. Sheridan is duly
authorized and empowered to issue the Shares, the Warrants and the Warrant
Shares, and to execute, deliver, and perform this Agreement and to consummate
the transactions contemplated hereby and thereby. All action on Sheridan's
part requisite for the due issuance of the Shares and the Warrants and for the
due execution, delivery, and performance of this Agreement and the other
Operative Documents to which Sheridan is a party has been duly and effectively
taken. The execution and delivery of this Agreement and the other Operative
Documents to which Sheridan is a party and the consummation of the transactions
to be performed by Sheridan hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Board of Directors of
Sheridan, and no other corporate proceedings are necessary to authorize the
execution and delivery of this Agreement or the other Operative Documents to
which Sheridan is a party by Sheridan or to consummate the transactions to be
performed by Sheridan hereby and thereby.

3.3 BINDING OBLIGATIONS. This Agreement and the other Operative
Documents to which Sheridan is a party, when executed and delivered, shall each
constitute a legal, valid and binding obligation of Sheridan enforceable in
accordance with its respective terms, except insofar as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by

-12-
18
general principles of equity. When issued to JEDI I Partnership at the Closing
upon Sheridan's receipt of the Assignment, (i) the Shares will be validly
issued, fully paid and nonassessable and free and clear of any Liens, and (ii)
the Warrants will be validly issued and free and clear of any Liens. When
issued and paid for in accordance with the terms of the Warrant Agreement, the
Warrant Shares will be validly issued, fully paid and nonassessable and free
and clear of any Liens.

3.4 NO VIOLATION. The execution and delivery of this Agreement or
any of the other Operative Documents to which Sheridan is a party, the
consummation of the transactions provided for herein and therein and
contemplated hereby and thereby, and the fulfillment by Sheridan of the terms
hereof and thereof, will not (a) conflict with or result in a breach of any
provision of the Charter or bylaws or other organizational document of Sheridan
or any of its Subsidiaries, (b) except for consents described in Section 3.5 of
the Sheridan Disclosure Letter, result in any default or in any material
modification of the terms of any material contract, agreement, obligation,
commitment applicable to Sheridan or its Subsidiaries, or the creation of any
Lien upon any of the properties or assets owned by Sheridan or any of its
Subsidiaries, (c) except for consents described in Section 3.5 of the Sheridan
Disclosure Letter, require any consent or approval (which has not been obtained
or waived) under any Permit or any note, bond, mortgage, indenture, loan,
distribution agreement, license, agreement, lease or material instrument or
material obligation to which Sheridan or any of its Subsidiaries is a party or
by which Sheridan or any of its Subsidiaries may be bound, or (d) violate any
Governmental Requirement or Permit applicable to Sheridan or any of its
Subsidiaries, except in the case of subparagraphs (b), (c) and (d) above where
any such default, modification, consent, approval or violation that would not
have a Sheridan Material Adverse Effect.

3.5 CONSENTS. Except as set forth in Section 3.5 of the Sheridan
Disclosure Letter, all consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all
consents under any contracts, agreements, or instruments by which Sheridan or
any of its Subsidiaries is bound or to which it or any of its Subsidiaries is
subject, and required in connection with Sheridan's valid execution, delivery,
or performance of this Agreement and the other Operative Documents to which
Sheridan is a party, and the consummation of the transactions contemplated
hereby and thereby has been obtained or made, except where the failure to have
obtained or made such consents, approvals, qualifications, orders,
authorizations or filings would not have a Sheridan Material Adverse Effect.

3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Sheridan and its
predecessor, TGX Corporation ("TGX"), have filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules,
statements and other documents required to be filed by them since January 1,
1994 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or the Securities Act of 1933, as amended (the "Securities Act") (such
documents, as supplemented and amended since the time of filing, collectively,
the "SEC Documents"). The SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed (and, in
the case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively) (a) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of Sheridan and

-13-
19
TGX included in the SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission), and fairly present
(subject in the case of unaudited statements to normal, recurring audit
adjustments) the Consolidated financial position of Sheridan or TGX, as the
case may be, as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. The Consolidated balance
sheet for Sheridan included in its quarterly report on Form 10-Q dated
September 30, 1997 is referred to herein as the "Interim Balance Sheet".

(b) Since September 30, 1997, there has been no Sheridan Material
Adverse Effect with respect to Sheridan.

3.7 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in
the ordinary course of business and that would not, individually or in the
aggregate, have a Sheridan Material Adverse Effect, Sheridan and its
Subsidiaries do not have liabilities, direct or contingent (including but not
limited to liability with respect to any Plan or, to Sheridan's knowledge, any
Environmental Law) other than (i) those provided for in the Interim Balance
Sheet or disclosed in Section 3.7 of the Sheridan Disclosure Letter, (ii) the
borrowings under the Sheridan Senior Credit Facility or (iii) in connection
with the Series A Preferred Stock. Except as would not have a Sheridan
Material Adverse Effect, Sheridan and its Subsidiaries have no Indebtedness
other than (a) the Series A Preferred Stock, (b) the Indebtedness disclosed in
Section 3.7 of the Sheridan Disclosure Letter and (c) the borrowings under the
Sheridan Senior Credit Facility.

3.8 LITIGATION. Except as disclosed in Section 3.8 of the
Sheridan Disclosure Letter, there is no action, suit or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of Sheridan, threatened against Sheridan or any of its Subsidiaries
or any material property of Sheridan or any Subsidiary thereof before any
Governmental Authority (i) which challenges the validity of this Agreement or
any of the Operative Documents to which Sheridan is a party, or (ii) which, if
adversely determined, would have a Sheridan Material Adverse Effect.

3.9 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set
forth in Section 3.9 of the Sheridan Disclosure Letter or as would not have a
Sheridan Material Adverse Effect, Sheridan or its Subsidiaries has defensible
title to (i) all of its properties and assets (real and personal, tangible and
intangible) reflected on the Interim Balance Sheet, and (ii) as of the Closing
Date, all properties acquired by Sheridan or its Subsidiaries after December 1,
1997, in each case free and clear of all liens except the Permitted Liens. All
equipment owned by Sheridan or its Subsidiaries which is necessary to the
business of Sheridan or its Subsidiaries is in good condition and repair
(ordinary wear and tear excepted), except where the failure to be in good
condition and repair would not have a Sheridan Material Adverse Effect.

(b) Except as set forth in Section 3.9 of the Sheridan Disclosure
Letter, the oil and gas leases in which Sheridan or its Subsidiaries own an
interest (i) have been maintained according to

-14-
20
their terms and in compliance with all material agreements to which such oil
and gas leases are subject, except where the failure to be so maintained or any
noncompliance therewith would not have a Sheridan Material Adverse Effect, and
(ii) are in full force and effect, except where the failure to be in full force
and effect would not have a Sheridan Material Adverse Effect.

(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the oil and gas properties of Sheridan
and its Subsidiaries have been properly and correctly paid, except where the
failure to make such payment would not have a Sheridan Material Adverse Effect.

3.10 COMPLIANCE WITH THE LAW. Except with respect to environmental
matters (which are exclusively covered by Section 3.18), neither Sheridan nor
any of its Subsidiaries (i) is in violation of any Governmental Requirement or
(ii) has failed to obtain any Permit, necessary to the ownership of any of
their respective properties or the conduct of their respective business, except
where a violation or failure would not have a Sheridan Material Adverse Effect.

3.11 TAXES. Sheridan and its Subsidiaries (i) have filed all tax
returns and reports ("Tax Returns") required to be filed by or with respect to
Sheridan or any of its Subsidiaries, (ii) have included all items of income,
gain, loss, deduction and credit or other items required to be included in each
such Tax Return, and (iii) have paid all taxes, assessments, fees, imposts,
duties or other charges, including any interest and penalties, (all
collectively referred to herein as "Taxes") due with respect to such Tax
Returns. There is no claim against Sheridan or any of its Subsidiaries for any
Taxes, and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to Sheridan or any
of its Subsidiaries which would have a Sheridan Material Adverse Effect.

3.12 EMPLOYEE BENEFIT MATTERS. (a) Definitions. Where the
following words and phrases appear in this Agreement, they shall have the
respective meanings set forth below, unless the context clearly indicates to
the contrary:

(i) Plan: Each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of ERISA, which is sponsored, maintained, or contributed to
by Sheridan or any of its Subsidiaries for the benefit of the
employees, former employees, independent contractors, or agents of
Sheridan or any of its Subsidiaries, or has been so sponsored,
maintained or contributed to since 1974.

(ii) Benefit Program or Agreement: Each personnel policy,
stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and each
other employee benefit plan, agreement, arrangement, program, practice
or understanding, which is not described in Section 3.12(a)(i) and
which is sponsored, maintained, or contributed to by Sheridan or any
of its Subsidiaries for the benefit of the

-15-
21
employees, former employees, independent contractors, or agents of
Sheridan or any of its Subsidiaries, or has been so sponsored,
maintained, or contributed to since 1974.

(iii) Benefit Plans: Collectively, the Plans and Benefit
Programs or Agreements.

(b) Employee Benefit Plan Compliance.

(i) Neither Sheridan nor any corporation, trade,
business, or entity under common control with Sheridan, within the
meaning of Section 414(b), (c), (m), or (o) of the Code or Section
4001 of ERISA, ("Commonly Controlled Entity") contributes to or has an
obligation to contribute to, nor has Sheridan or any Commonly
Controlled Entity at any time within six years prior to the Closing
Date contributed to or had an obligation to contribute to, a
multiemployer plan within the meaning of Section 3(37) of ERISA or any
plan subject to Title IV of ERISA; and

(ii) All obligations, whether arising by operation of law
or by contract, required to be performed in connection with the
Benefit Plans have been performed, and there have been no defaults,
omissions, or violations by any party with respect to any Benefit Plan
or law applicable thereto.

(iii) Each Plan that is intended to be qualified under
Section 401(a) of the Code (A) satisfies the requirements of such
Section, (b) has received a favorable determination letter from the
Internal Revenue Service ("IRS") regarding such qualified status and
covering amendments required under the Tax Reform Act of 1986 ("TRA
'86"), the Unemployment Compensation Amendments of 1992, the Omnibus
Reconciliation Act of 1993, the final nondiscrimination regulations
under Section 401(a)(4) of the Code, and all other amendments required
to be filed within the TRA '86 remedial amendment period described in
Internal Revenue Procedure 95-12 (the "TRA '86 Amendments") (or the
TRA '86 Amendments to such Plans have been timely made and filed with
the IRS for such a determination letter), and (C) has not, since
receipt of the most recent favorable determination letter, been
amended or operated in a way that would adversely affect such
qualified status.

(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not (A) require Sheridan or any of its Subsidiaries to
make a larger contribution to, or pay greater benefits under, any Benefit Plan
than it otherwise would or (B) create or give rise to any additional vested
rights or service credits under any Benefit Plan.

(d) NO ADDITIONAL SEVERANCE. Except as set forth in Section
3.12(d) of the Sheridan Disclosure Letter, neither Sheridan nor any of its
Subsidiaries is a party to any agreement, nor has Sheridan or any of its
Subsidiaries established any policy or practice requiring it to make a payment
or provide any other form of compensation or benefit to any person performing
services for Sheridan upon termination of such services that would not be
payable or provided in the absence of the consummation of the transactions
contemplated by this Agreement.

-16-
22
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the
consummation of the transaction contemplated by this Agreement, no payments
have or will be made under the Benefit Plans which, in the aggregate, would
result in imposition of the sanctions imposed under Section 280G or Section
4999 of the Code.

3.13 INVESTMENT COMPANY ACT. Neither Sheridan nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

3.14 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Sheridan nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.

3.15 NO RESTRICTIONS ON AFFILIATES. Except for any existing
agreement between Sheridan (or a Subsidiary of Sheridan) and an Affiliate of
JEDI I Partnership that imposes restrictions or limitations on such Affiliate
of JEDI I Partnership, neither Sheridan nor any of its Subsidiaries is a party
to any agreement that would purport to impose restrictions or limitations on
JEDI I Partnership or any of its Affiliates.

3.16 CAPITALIZATION. The authorized capital stock of Sheridan
consists of (i) 20,000,000 shares of Common Stock, of which 5,881,471 shares
are issued and outstanding and an additional 450,000 shares are reserved for
issuance under the Sheridan 1997 Flexible Incentive Plan and (ii) 5,000,000
shares of preferred stock, par value $0.01 per share, of which 1,000,000 shares
of Series A Preferred Stock are issued and outstanding and an additional
900,000 shares of Series A Preferred Stock are reserved for issuance as
dividends to holders of Series A Preferred Stock. Section 3.16 of the Sheridan
Disclosure Letter sets forth the name and address of each person known to
Sheridan to be the beneficial owner of 5% or more of the outstanding shares of
Common Stock. Except as set forth in Section 3.16 of the Sheridan Disclosure
Letter and except for up to 450,000 shares of Common Stock reserved for
issuance upon purchases of shares of Common Stock under the Sheridan 1997
Flexible Incentive Plan, there are no outstanding subscriptions, warrants,
options, calls, commitments or other rights to purchase or acquire, or
securities convertible into or exchangeable for, any capital stock of Sheridan
or its Subsidiaries. All of the outstanding shares of Common Stock are validly
issued, fully paid, and nonassessable.

3.17 SUBSIDIARIES. (a) Section 3.17 of the Sheridan Disclosure
Letter contains (except as noted therein) a complete and correct list of
Sheridan's Subsidiaries and joint ventures, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the percentage
of shares of each class of its capital stock or similar equity interests
outstanding owned by Sheridan and each other Subsidiary. Except for the
Subsidiaries, Sheridan does not own, directly or indirectly, any interest or
investment in any corporation, association, joint venture, partnership, limited
liability company or other business organization, firm or enterprise of any
character, other than interests under any joint operating agreement of oil and
gas property that expressly provides the relationship of the parties created by
such agreement is not intended to render the parties thereto liable as
partners. Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has full corporate power and

-17-
23
authority to conduct its business as it is now being conducted and to own,
operate or lease the properties and assets it currently owns, operates or holds
under lease. Each Subsidiary is duly qualified to do business and is in good
standing in each jurisdiction where the character of its business or the nature
of its properties makes such qualification necessary.

(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Section 3.17 of the Sheridan
Disclosure Letter as being owned by Sheridan and its Subsidiaries have been
validly issued, are fully paid and nonassessable, and are owned by Sheridan or
such other Subsidiaries free and clear of any Liens (except as otherwise
disclosed in Section 3.17 of the Sheridan Disclosure Letter).

(c) No Subsidiary of Sheridan is a party to, or otherwise subject
to any legal restriction or any agreement (other than this Agreement and
customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to Sheridan or any of its Subsidiaries that
owns outstanding shares of capital stock or similar equity interests of such
Subsidiary.

3.18 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.18 of
the Sheridan Disclosure Letter:

(a) to the knowledge of Sheridan and its Subsidiaries, the
properties and operations of Sheridan and its Subsidiaries are not in violation
of any Environmental Laws or any order or requirement of any court or
Governmental Authority to the extent pertaining to health or the environment,
except where a violation would not have a Sheridan Material Adverse Effect, nor
are there any conditions existing on such property or resulting from operations
thereon that may give rise to any on-site or off-site remedial obligations
under any Environmental Law, except for any condition that would not have a
Sheridan Material Adverse Effect;

(b) without limitation of Section 3.18(a) above, Sheridan and its
Subsidiaries are not subject to any pending or, to the knowledge of Sheridan,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority under any Environmental Law;

(c) except as would not have a Sheridan Material Adverse Effect,
to the knowledge of Sheridan all notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by Sheridan and its
Subsidiaries under any Environmental Law, including without limitation those
relating to the treatment, storage, disposal or release of a hazardous
substance or solid waste into the environment, have been duly obtained or
filed, and Sheridan and its Subsidiaries are in compliance with the terms and
conditions of all such notices, permits, licenses and similar authorizations;

(d) except as would not have a Sheridan Material Adverse Effect,
all hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Sheridan and its Subsidiaries and requiring
disposal have been transported only by carriers maintaining valid
authorizations under applicable Environmental Laws and treated and disposed of
only at treatment, storage and disposal facilities maintaining valid
authorizations under applicable Environmental

-18-
24
Laws, and, to the knowledge of Sheridan, such carriers and facilities have been
and are operating in compliance with such authorizations and are not the
subject of any pending or threatened action, investigation or inquiry by any
Governmental Authority in connection with any Environmental Laws;

(e) except as would not have a Sheridan Material Adverse Effect,
to the knowledge of Sheridan there are no asbestos-containing materials on or
in any property owned or used by Sheridan and its Subsidiaries, and there are
no storage tanks or similar containers exceeding 55 gallons in size on or under
any such properties from which hazardous substances, petroleum products or
other contaminants may be released into the surrounding environment;

(f) without limiting the foregoing, to the knowledge of Sheridan
there is no material liability (accrued or contingent) to any non-governmental
third party in tort or under common law in connection with any release or
threatened release of any hazardous substances, solid wastes, petroleum,
petroleum products, and oil and gas exploration and production wastes into the
environment as a result of operations conducted on its properties; and

(g) Section 3.18 of the Sheridan Disclosure Letter also separately
lists for Sheridan and each Subsidiary any and all Claims against or affecting
it and relating to the release, discharge or emission of any hazardous
substance, or to the generation, treatment, storage or disposal of any wastes,
or otherwise relating to the protection of the environment or to the
non-compliance with any notices, permits, licenses, consent decrees or other
authorization and the disposition of each such Claim. With respect to each
such pending or prior matter, Section 3.18 of the Sheridan Disclosure Letter
hereto lists the date of the Claim, the claimant or investigating agency, the
nature and a brief description of the matter, the damages claimed or relief
sought, and the status or outcome of the matter. Except as set forth on
Section 3.18 of the Sheridan Disclosure Letter, neither Sheridan nor any
Subsidiary has received any written notice that it is a potentially responsible
party under any Environmental Laws.

3.19 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Sheridan
and its Subsidiaries (i) own or have the right to use, free and clear of all
Liens, all patents, trademarks, service marks, trade names, and copyrights, and
all applications, licenses, and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information
(collectively, "Intellectual Property") used and sufficient for use in the
conduct of its business, without infringing upon or violating any right, Lien,
or claim of others, and (ii) except as described in Section 3.19 of the
Sheridan Disclosure Letter, is not obligated or under any liability whatsoever
to make any payments by way of royalties, fees, or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service xxxx, trade
name, copyright, or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise.

3.20 NO PUBLIC OFFER. Neither Sheridan nor anyone acting on its
behalf has offered to any Person securities of Sheridan, nor any part thereof,
nor any instruments convertible, exercisable, or exchangeable into such
securities, or has solicited from any Person any offer to acquire the same, in
a manner so as to make the transactions contemplated by this Agreement not
exempt from the registration requirements of Section 5 of the Securities Act.

-19-
25
3.21 INSURANCE. Sheridan has previously provided to JEDI I
Partnership true and complete copies of all of Sheridan's and its Subsidiaries'
insurance policies. Sheridan has given in a timely manner to its insurers all
notices required to be given under such insurance policies with respect to all
claims and actions covered by insurance, and no insurer has denied coverage of
any such claims or actions or reserved its rights in respect of or rejected any
of such claims. Sheridan has not received any notice or other communication
from any such insurer canceling or materially amending any of such insurance
policies, and no such cancellation is pending or threatened.

3.22 CERTAIN TRANSACTIONS. Except for the Series A Preferred Stock
and except as set forth on Section 3.22 of the Sheridan Disclosure Letter, (a)
neither Sheridan nor any of its Subsidiaries is indebted directly or indirectly
to any of its officers, directors or stockholders or to their respective
spouses or children in any amount whatsoever, (b) none of such officers,
directors or stockholders, or any members of their immediate families, are
indebted to Sheridan or any of its Subsidiaries, and (c) no officer, director
or stockholder, or any member of his immediate family, has a direct or indirect
financial interest in any material contract with Sheridan or any of its
Subsidiaries.

3.23 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.23 of the Sheridan Disclosure Letter or as would not have a Sheridan
Material Adverse Effect, there is no well located upon any property owned by
Sheridan or its Subsidiaries that Sheridan or its Subsidiaries is currently
obligated by law or contract to plug and abandon.

3.24 NO MATERIAL MISSTATEMENTS OR OMISSIONS. Neither this
Agreement nor any certificates or documents made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made.

3.25 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth
in Section 3.25 of the Sheridan Disclosure Letter, Sheridan and its
Subsidiaries have no (i) employment or consulting contracts involving annual
payments by Sheridan or its Subsidiaries in excess of $100,000 and not
cancelable without liability on sixty days' notice or less; (ii) capital
redemption or purchase agreements other than in connection with the Series A
Preferred Stock; (iii) agreements providing for the indemnification of other
parties for such parties' negligence or other fault (except for such
obligations incurred in the ordinary course of business as an operator of oil
and gas properties, including obligations under master service agreements,
drilling contracts and similar agreements) or the sharing of the tax liability
of other parties; (iv) collective bargaining agreements; (v) gas sales or
purchase contract, gas marketing agreement or transportation agreement under
which Sheridan or its Subsidiaries is the seller, which contract or agreement
is for a term of greater than one year and provides for a fixed price; (vi)
agreement for capital expenditures, the acquisition of commodities, equipment
or material or the construction of fixed assets which requires aggregate future
payments by Sheridan or its Subsidiaries in excess of $250,000; (vii) agreement
for, or that contemplates, the sale of any interest in oil or gas leases which
involves payment (including property received in exchange or other non-cash
consideration) to Sheridan or its Subsidiaries in excess of $500,000; (viii)
agreement which requires future payments by Sheridan or its Subsidiaries in
excess of $500,000 which is not otherwise specifically disclosed herein; (ix)
agreements containing covenants limiting or restricting the freedom of Sheridan
or its Subsidiaries to compete in any line of business or territory or with any
person or entity; (x) area of mutual interest agreements binding Sheridan or

-20-
26
its Subsidiaries, (xi) futures, hedge, swaps, collars, puts, calls, floors,
caps, options or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
hydrocarbons, or (xii) indentures, mortgages, promissory notes, loan
agreements, guaranties or other agreements or commitments for the borrowing of
money or any related security agreements (other than relating to the Sheridan
Senior Credit Facility or the Indebtedness described on Section 3.7 of the
Sheridan Disclosure Letter) (collectively, "Sheridan Material Contracts").
None of the Sheridan Material Contracts have been amended or modified except as
set forth in Section 3.25 of the Sheridan Disclosure Letter or as would not
have a Sheridan Material Adverse Effect.

(b) All of the Sheridan Material Contracts are in full force and
effect and constitute legal, valid and binding obligations of Sheridan or its
Subsidiaries, as applicable, and, to the knowledge of Sheridan, the other
parties thereto, enforceable in accordance with their respective terms, except
insofar as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and except where the failure to be in full force and effect would not have a
Sheridan Material Adverse Effect. Neither Sheridan (or Sheridan's
Subsidiaries, if applicable) nor, to the knowledge of Sheridan, any other party
to any Sheridan Material Contract, is in default in complying with any
provisions thereof, and no condition or event or fact exists which, with
notice, lapse of time or both would constitute a default thereunder on the part
of Sheridan (or Sheridan's Subsidiaries, if applicable) or, to the knowledge of
Sheridan, any other party thereto, except for any such default, condition,
event or fact that, individually or in the aggregate, would not have a Sheridan
Material Adverse Effect.

Sheridan has provided counsel to JEDI I Partnership with a true and
complete copy of each contract, agreement and instrument listed in Section 3.25
of the Sheridan Disclosure Letter or has otherwise made such documents
available for JEDI I Partnership to review.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF JEDI I PARTNERSHIP

JEDI I Partnership represents and warrants to Sheridan as follows:

4.1 EXISTENCE. JEDI I Partnership is a limited partnership duly
formed and validly existing under the laws of the State of Delaware. JEDI I
Partnership has full power and authority to conduct its business as it is now
being conducted and to own, operate and lease the JEDI I Properties. JEDI I
Partnership is duly qualified to do business in each jurisdiction in which the
JEDI I Properties are located, except where the failure to be so qualified
would not have a JEDI I Partnership Material Adverse Effect.

4.2 POWER AND AUTHORIZATION. JEDI I Partnership is duly
authorized to execute, deliver and perform this Agreement and the Operative
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. All action on JEDI I Partnership's part
requisite for the due execution, delivery, and performance of this Agreement
and the other Operative Documents to which it is a party has been duly and
effectively taken.

-21-
27

4.3 BINDING OBLIGATIONS. This Agreement and the other Operative
Documents to which it is a party, when executed and delivered, shall each
constitute a legal, valid and binding obligation of JEDI I Partnership
enforceable in accordance with its respective terms, except insofar as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.

4.4 NO VIOLATION. The execution and delivery of this Agreement or
any of the other Operative Documents to which it is a party, the consummation
of the transactions provided for herein and therein and contemplated hereby and
thereby, and the fulfillment by JEDI I Partnership of the terms hereof and
thereof, will not (a) conflict with or result in a breach of any provision of
the organizational document of JEDI I Partnership, (b) except for the consents
described in Section 4.5 of the JEDI I Partnership Disclosure Letter, result in
any default or in any material modification of the terms of any material
contract, agreement, obligation, commitment applicable to JEDI I Partnership,
(c) except as set forth in Section 4.5 of the JEDI I Partnership Disclosure
Letter, require any consent or approval (which has not been obtained or waived)
under any Permit or any note, bond, mortgage, indenture, loan, distribution
agreement, license, agreement, lease or material instrument or material
obligation to which JEDI I Partnership is a party or by which JEDI I
Partnership may be bound with respect to the JEDI I Properties, or (d) violate
any Governmental Requirement applicable to JEDI I Partnership with respect to
the JEDI I Properties, except in the case of subparagraphs (b), (c) and (d)
above, where any such default, modification consent, approval or violation
would not have a JEDI I Partnership Material Adverse Effect.

4.5 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. Except as set
forth in Section 4.5 of the JEDI I Partnership Disclosure Letter, all consents,
approvals, qualifications, orders or authorizations of, or filings with, any
Governmental Authority, and all consents or waivers of preferential purchase
rights under any contracts, agreements, or instruments by which JEDI I
Partnership is bound with respect to the JEDI I Properties, and required in
connection with JEDI I Partnership's valid execution, delivery, or performance
of this Agreement and the other Operative Documents to which it is a party, and
the consummation of the transactions contemplated hereby and thereby has been
obtained or made, except where the failure to have so obtained or made such
consents, approvals, qualifications, orders, authorizations, filings or
waivers, would not have a JEDI I Partnership Material Adverse Effect.

4.6 LITIGATION. Except as disclosed in Section 4.6 of the JEDI I
Partnership Disclosure Letter, there is no action, suit or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of JEDI I Partnership, threatened against JEDI I Partnership or any
of the JEDI I Properties before any Governmental Authority (i) which challenges
the validity of this Agreement or any of the Operative Documents to which it is
a party, or (ii) which, if adversely determined, would have a JEDI I
Partnership Material Adverse Effect.

4.7 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except (i) as
set forth in Section 4.7 of the JEDI I Partnership Disclosure Letter, (ii) for
the Participation Agreement and Farmout Agreement to be terminated pursuant to
the GGP/JEDI I Partnership Termination Agreement, (iii) releases of
non-productive acreage in accordance with terms of the applicable JEDI I Leases
or

-22-
28
(iv) as would not have a JEDI I Partnership Material Adverse Effect, JEDI I
Partnership has Good Title to all of the JEDI I Leases. All equipment owned by
JEDI I Partnership and included in the JEDI I Properties which is necessary to
the ownership and operation of the JEDI I Properties is in satisfactory
condition and repair (ordinary wear and tear excepted), except where the
failure to be in satisfactory condition and repair would not have a JEDI I
Partnership Material Adverse Effect.

(b) Except as set forth in Section 4.7 of the JEDI I Partnership
Disclosure Letter, the producing oil and gas leases included in the JEDI I
Properties in which JEDI I Partnership own an interest (i) have been maintained
by the operator thereof according to their terms and in compliance with all
material agreements to which such oil and gas leases are subject, except where
the failure to be so maintained or any noncompliance therewith would not have a
JEDI I Partnership Material Adverse Effect, and (ii) are in full force and
effect, except where the failure to be in full force and effect would not have
a JEDI I Partnership Material Adverse Effect.

(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the JEDI I Leases has been properly and
correctly paid by the operator of the JEDI I Leases, except where the failure
to make such payment would not have a JEDI I Partnership Material Adverse
Effect.

4.8 COMPLIANCE WITH THE LAW. Except with respect to
environmental matters (which are exclusively covered in Section 4.9), JEDI I
Partnership (i) is not in violation of any Governmental Requirement with
respect to the JEDI I Properties and (ii) has not failed to obtain any Permit
necessary to the ownership of the JEDI I Properties, except where a violation
or failure would not have a JEDI I Partnership Material Adverse Effect.

4.9 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.9 of
the JEDI I Partnership Disclosure Letter:

(a) to the knowledge of JEDI I Partnership, the JEDI I Properties
and the operations of JEDI I Partnership thereon are not in violation of any
Environmental Laws or any order or requirement of any court or Governmental
Authority to the extent pertaining to health or the environment, except where a
violation would not have a JEDI I Partnership Material Adverse Effect, nor are
there any conditions existing on such properties or resulting from its
operations thereon that may give rise to any on-site or off-site remedial
obligations under any Environmental Law, except for any condition that would
not have a JEDI I Partnership Material Adverse Effect;

(b) without limitation of Section 4.9(a) above, JEDI I Partnership
is not subject to any pending or, to the knowledge of JEDI I Partnership,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority under any Environmental Law;

(c) except as would not have a JEDI I Partnership Material Adverse
Effect, to the knowledge of JEDI I Partnership all notices, permits, licenses
or similar authorizations, if any, required to be obtained or filed by JEDI I
Partnership under any Environmental Law with respect to the JEDI I Properties,
including without limitation those relating to the treatment, storage, disposal
or release of a hazardous substance or solid waste into the environment, have
been duly obtained or

-23-
29
filed, and JEDI I Partnership are in compliance with the terms and conditions
of all such notices, permits, licenses and similar authorizations;

(d) except as would not have a JEDI I Partnership Material Adverse
Effect, all hazardous substances or solid wastes generated by or as a result of
its operations on the JEDI I Properties and requiring disposal have been
transported only by carriers maintaining valid authorizations under applicable
Environmental Laws and treated and disposed of only at treatment, storage and
disposal facilities maintaining valid authorizations under applicable
Environmental Laws, and, to the knowledge of JEDI I Partnership, such carriers
and facilities have been and are operating in compliance with such
authorizations and are not the subject of any pending or threatened action,
investigation or inquiry by any Governmental Authority in connection with any
Environmental Laws;

(e) except as would not have a JEDI I Partnership Material Adverse
Effect, to the knowledge of JEDI I Partnership there are no asbestos-containing
materials on or in any JEDI I Property, and there are no storage tanks or
similar containers exceeding 55 gallons in size on or under any such properties
from which hazardous substances, petroleum products or other contaminants may
be released into the surrounding environment;

(f) without limiting the foregoing, to the knowledge of JEDI I
Partnership there is (there will be) no material liability (accrued or
contingent) to any non-governmental third party in tort or under common law in
connection with any release or threatened release of any hazardous substances,
solid wastes, petroleum, petroleum products, and oil and gas exploration and
production wastes into the environment as a result of operations conducted on
the JEDI I Properties; and

(g) Section 4.9 of the JEDI I Partnership Disclosure Letter also
separately lists for JEDI I Partnership any and all Claims against or affecting
it and relating to the release, discharge or emission of any hazardous
substance, or to the generation, treatment, storage or disposal of any wastes,
or otherwise relating to the protection of the environment or to the
non-compliance with any notices, permits, licenses, consent decrees or other
authorization and the disposition of each such Claim. With respect to each
such pending or prior matter, Section 4.9 of the JEDI I Partnership Disclosure
Letter hereto lists the date of the Claim, the claimant or investigating
agency, the nature and a brief description of the matter, the damages claimed
or relief sought, and the status or outcome of the matter. Except as set forth
on Section 4.9 of the JEDI I Partnership Disclosure Letter, JEDI I Partnership
has not received any written notice that it is a potentially responsible party
under any Environmental Laws.

4.10 PURCHASE FOR INVESTMENT. JEDI I Partnership is acquiring the
Shares and the Warrants for its own accounts and not with a view to the public
resale of all or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act. JEDI I Partnership
acknowledges that the Shares and Warrants have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available.

4.11 FEES AND COMMISSIONS. JEDI I Partnership has not retained any
Intermediary in connection with the transactions contemplated by this Agreement
and the Operative Documents.

-24-
30
4.12 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth
in Section 4.12 of the JEDI I Partnership Disclosure Letter, JEDI I Partnership
has no (i) agreements included in or encumbering the JEDI I Properties
providing for the indemnification of other parties for such parties' negligence
or other fault (except for such obligations incurred in the ordinary course of
business as an owner or operator of oil and gas properties, including
obligations under master service agreements, drilling contracts and similar
agreements) or the sharing of the tax liability of other parties; (ii) gas
sales or purchase contract, gas marketing agreement or transportation agreement
included in or encumbering the JEDI I Properties, which contract or agreement
is for a term of greater than one year and provides for a fixed price; (iii)
agreement for capital expenditures, the acquisition of commodities, equipment
or material or the construction of fixed assets with respect to the JEDI I
Properties which requires aggregate future payments by JEDI I Partnership in
excess of $50,000; (iv) agreement included in or encumbering the JEDI I
Properties or that contemplates, the sale of any interest in oil or gas leases
included in the JEDI I Properties which involves payment (including property
received in exchange or other non-cash consideration) to JEDI I Partnership in
excess of $50,000; (v) agreement included in or encumbering the JEDI I
Properties which requires future payments by JEDI I Partnership in excess of
$50,000 which is not otherwise specifically disclosed herein; (vi) area of
mutual interest agreements binding the JEDI I Properties; and (vii) futures,
hedge, swaps, collars, puts, calls, floors, caps, options or other contracts
included in or encumbering the JEDI I Properties that are intended to benefit
from or reduce or eliminate the risk of fluctuations in the price of
commodities, including hydrocarbons, that are not terminated at Closing
(collectively, "JEDI I Material Contracts"). None of the JEDI I Material
Contracts have been amended or modified except as set forth in Section 4.12 of
the JEDI I Partnership Disclosure Letter or as would not have a JEDI I
Partnership Material Adverse Effect.

(b) All of the JEDI I Material Contracts are in full force and
effect and constitute legal, valid and binding obligations of JEDI I
Partnership, as applicable, and, to the knowledge of JEDI I Partnership, the
other parties thereto, enforceable in accordance with their respective terms,
except insofar as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity and except where the failure to be in full force and
effect would not have a JEDI I Partnership Material Adverse Effect. Neither
JEDI I Partnership nor, to the knowledge of JEDI I Partnership or any other
party to any JEDI I Material Contract is in default in complying with any
provisions thereof, and no condition or event or fact exists which, with
notice, lapse of time or both would constitute a default thereunder on the part
of JEDI I Partnership or, to the knowledge of JEDI I Partnership, any other
party thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a JEDI I Partnership Material
Adverse Effect.

JEDI I Partnership has provided counsel to Sheridan with a true and
complete copy of each contract, agreement and instrument listed in Section 4.12
of the JEDI I Partnership Disclosure Letter or has otherwise made such
documents available for Sheridan to review.

4.13 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 4.13 of the JEDI I Partnership Disclosure Letter or as would not have a
JEDI I Partnership Material Adverse Effect, there is no well located upon any
JEDI I Lease that JEDI I Partnership is currently obligated by law or contract
to plug and abandon.

-25-
31
ARTICLE V.

COVENANTS

The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:

5.1 GENERAL. Each of the parties will use all reasonable efforts
to take all action and to do all things necessary, proper, or advisable in
order to consummate and to make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Article VI).

5.2 NOTICES AND CONSENTS. Each of Sheridan and JEDI I Partnership
will give any notices to third parties, and will use all reasonable efforts to
obtain all third party consents and waivers of preferential rights, that are
required for the consummation of the transactions contemplated hereby by such a
party (except for governmental consents customarily obtained after Closing).

5.3 OPERATION OF BUSINESS BY SHERIDAN. Sheridan covenants and
agrees that, unless otherwise expressly contemplated by this Agreement or
consented to in writing by JEDI I Partnership, (x) Sheridan will:

(a) operate its business only in the usual and ordinary
course consistent with past practices;

(b) preserve its business and properties, including its
present operations, leases, working conditions and relationships with
lessors, licensors, suppliers, customers and employees;

(c) maintain and keep its properties and assets in as
good repair and condition as at present, ordinary wear and tear
excepted; and

(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;

and (y) Sheridan will not:

(a) make any declaration for setting aside or payment of
dividends or distributions in respect of shares of Common Stock or any
redemption, purchase or other acquisition of any of its securities;

(b) make any capital expenditures, or commit to make any
capital expenditures, other than in the ordinary course of business;

-26-
32
(c) except for borrowings under the Sheridan Senior
Credit Facility or the incurrence of other obligations in the ordinary
course of business (other than debt for borrowed money), incur any
Indebtedness; and

(d) amend or modify its Charter or, without the written
consent of JEDI I Partnership, the GGP/Sheridan Purchase Agreement.

5.4 OPERATION OF JEDI I PROPERTIES BY JEDI I PARTNERSHIP. JEDI I
Partnership covenants and agrees that, unless otherwise expressly contemplated
by this Agreement or consented to in writing by Sheridan, JEDI I Partnership
will use its reasonable efforts to cause the operator of the JEDI I Properties
to:

(a) operate the JEDI I Properties only in the usual and
ordinary course consistent with past practices;

(b) preserve the JEDI I Properties, including its present
operations, leases, working conditions and relationships with lessors,
licensors, suppliers, customers and employees with respect to such
properties;

(c) maintain and keep the JEDI I Properties in as good
repair and condition as at present, ordinary wear and tear excepted;

(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;

(e) submit to Sheridan for prior written approval, all
requests for operating or capital expenditures to be incurred after
the date hereof and all proposed contracts and agreements to be
entered into by JEDI I Partnership after the date hereof, in each case
relating to the JEDI I Leases and that involve individual commitments
of more than $5,000 or $10,000 in the aggregate; and

(f) obtain Sheridan's written approval prior to voting
under any operating, joint venture, partnership or similar agreement.

Sheridan acknowledges that JEDI I Partnership owns an undivided interest in the
JEDI I Properties, and Sheridan agrees that the acts or omissions of the other
working interests owners shall not constitute a violation of the provisions of
this Section 5.4, nor shall any action required by a vote of working interest
owners constitute such a violation so long as JEDI I Partnership has voted its
interest in a manner that complies with the provisions of this Section 5.4. To
the extent that JEDI I Partnership is not the operator of any of the JEDI I
Leases, the obligations of JEDI I Partnership in this Section 5.4 shall be
construed to require that JEDI I Partnership use reasonable efforts (without
being obligated to incur any expense or institute any cause of action) to cause
the operator of such leases to take such actions or render such performance
within the constraints of the applicable operating agreements and other
applicable agreements.

-27-
33
5.5 FULL ACCESS. (a) Sheridan will permit representatives of JEDI
I Partnership to have full access at reasonable times during normal business
hours, in a manner that will not interfere with the normal business operations
of Sheridan, to all premises, properties, personnel, books, records (including
tax records), contracts and documents of or pertaining to Sheridan. JEDI I
PARTNERSHIP HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD
HARMLESS SHERIDAN AND ITS OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS
AND ADVISORS FROM AND AGAINST ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO
THE ACCESS TO THE PROPERTY OF SHERIDAN PURSUANT TO THIS SECTION 5.5(a) AND ANY
OTHER DUE DILIGENCE ACTIVITY CONDUCTED BY JEDI I PARTNERSHIP OR ANY OF ITS
OFFICERS, EMPLOYEES, AGENTS OR ADVISORS, INCLUDING WITHOUT LIMITATION ANY
CLAIMS RESULTING, IN WHOLE OR IN PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE
OR STRICT LIABILITY OF SHERIDAN OR ITS OFFICERS, DIRECTORS, AFFILIATES,
EMPLOYEES, AGENTS OR ADVISORS. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.

(b) JEDI I Partnership will permit representatives of Sheridan to
have full access at reasonable times during normal business hours, in a manner
that will not interfere with the normal business operations of JEDI I
Partnership, to all personnel, books, records (including tax records),
contracts and documents of or pertaining to JEDI I Properties in JEDI I
Partnership's possession. SHERIDAN HEREBY AGREES TO DEFEND, INDEMNIFY,
RELEASE, PROTECT, SAVE AND HOLD HARMLESS JEDI I PARTNERSHIP AND ITS OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS AND ADVISORS FROM AND AGAINST ANY AND
ALL CLAIMS ARISING OUT OF OR RELATING TO THE ACCESS TO THE PROPERTY OF JEDI I
PARTNERSHIP PURSUANT TO THIS SECTION 5.5(b) AND ANY OTHER DUE DILIGENCE
ACTIVITY CONDUCTED BY SHERIDAN OR ANY OF ITS OFFICERS, EMPLOYEES, AGENTS OR
ADVISORS, INCLUDING WITHOUT LIMITATION ANY CLAIMS RESULTING, IN WHOLE OR IN
PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF JEDI I
PARTNERSHIP OR ITS OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS OR
ADVISORS. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS
LEGEND.

(c) Except as required by law and except for information that is
public, all information relating to the JEDI I Properties obtained by or on
behalf of Sheridan in connection with its evaluation of the JEDI I Properties
under Section 5.5(b) shall be kept confidential and shall not be disclosed by
Sheridan or any of Sheridan's employees, agents, representatives or advisors
(collectively, "Sheridan Representatives") in any manner whatsoever, in whole
or in part, unless and until the Closing occurs. Sheridan shall indemnify,
defend and hold harmless JEDI I Partnership, its officers, partners,
Affiliates, employees, agents and advisors from any Claims incurred as the
result of the use of such information by Sheridan or the Sheridan
Representatives in contravention of the terms of this Agreement or the breach
by Sheridan or the Sheridan Representatives of the covenant contained in the
preceding sentence.

(d) Except as required by law and except for information that is
public, all information relating to the Sheridan's assets obtained by or on
behalf of JEDI I Partnership in connection with its evaluation of the Sheridan
under Section 5.5(a) shall be kept confidential and shall not be disclosed by
JEDI I Partnership or any of JEDI I Partnership's employees, agents,
representatives or advisors (collectively, "JEDI I Partnership
Representatives") in any manner whatsoever, in whole or in part, unless and
until the Closing occurs. JEDI I Partnership shall indemnify, defend and hold
harmless Sheridan, its officers, partners, Subsidiaries, employees, agents and
advisors from any

-28-
34
Claims incurred as the result of the use of such information by JEDI I
Partnership or the JEDI I Partnership Representatives in contravention of the
terms of this Agreement or the breach by JEDI I Partnership or the JEDI I
Partnership Representatives of the covenant contained in the preceding
sentence.

5.6 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its representations and warranties under this Agreement.

ARTICLE VI.

CLOSING CONDITIONS

6.1 CONDITIONS TO OBLIGATION OF JEDI I PARTNERSHIP. The
obligation of JEDI I Partnership to consummate the transactions contemplated
hereby is subject to satisfaction of the following conditions:

(a) the representations and warranties contained in
Article III, to the extent qualified as to materiality shall be
accurate in all respects, and, to the extent not so qualified, shall
be accurate in all material respects, as of the Closing Date as though
such representations and warranties had been made at and as of that
time;

(b) Sheridan shall have performed and complied with all
of the covenants and agreements hereunder in all material respects
through the Closing;

(c) no action suit, or proceeding shall be pending before
any Governmental Authority wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation
of any of the transactions contemplated by this Agreement; and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect;

(d) Sheridan shall have delivered to JEDI I Partnership
a certificate from an officer of Sheridan to the effect that each of
the conditions specified above in Section 6.1(a)-(c) is satisfied in
all respects;

(e) the conditions to the closing of the transactions
contemplated by the GGP/Sheridan Purchase Agreement shall have been
satisfied and such transaction shall have been consummated;

(f) the transaction contemplated by the GGP/JEDI
Termination Agreement shall have been consummated;

(g) GGP shall have executed and delivered to Sheridan the
Registration Rights Agreement in connection with the consummation of
the transactions under the GGP/Sheridan Purchase Agreement;

-29-
35
(h) GGP shall have executed and delivered to JEDI I
Partnership the GGP/JEDI I Partnership Termination Agreement; and

(i) JEDI I Partnership shall have received an opinion of
Xxxxxxxx Xxxxxxxx & Xxxxxx P.C., dated as of the Closing Date, that
addresses the matters set forth in Sections 3.1, 3.2, 3.3, 3.13, 3.14,
the first sentence in 3.16 and 3.20 hereof, including such exceptions
and assumptions as are customary in such opinions, in form and
substance reasonably acceptable to JEDI I Partnership.

6.2 CONDITIONS TO OBLIGATION OF SHERIDAN. The obligations of
Sheridan to consummate the transactions contemplated hereby is subject to
satisfaction of the following conditions:

(a) the representations and warranties contained in
Article IV, to the extent qualified as to materiality shall be
accurate in all respects, and, to the extent not so qualified, shall
be accurate in all material respects, as of the Closing Date as though
such representations and warranties had been made at and as of that
time;

(b) JEDI I Partnership shall have performed and complied
with all of the covenants and agreements hereunder in all material
respects through the Closing;

(c) no action, suit, or proceeding shall be pending
before any Governmental Authority wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation
of any of the transactions contemplated by this Agreement, and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect;

(d) JEDI I Partnership shall have delivered to Sheridan a
certificate to the effect that each of the conditions specified above
in Section 6.2(a)-(c) is satisfied in all respects;

(e) the conditions to the closing of the transactions
contemplated by the GGP/Sheridan Purchase Agreement shall have been
satisfied and such transaction shall have been consummated; and

(f) Sheridan shall have received an opinion of (i) Xxxxx
Xxxxxx Xxxxxx, General Counsel of JEDI I Partnership, addressing the
matters set forth in Section 4.1 and 4.2, and (ii) Xxxxxx & Xxxxxx
L.L.P. addressing the matters set forth in Section 4.3, in each case,
dated as of the Closing Date and including such exceptions and
assumptions as are customary in such opinions, in form and substance
reasonably acceptable to Sheridan.

ARTICLE VII.

OTHER PROVISIONS

7.1 FEES AND COMMISSIONS. Sheridan agrees to pay, and to
indemnify and hold harmless JEDI I Partnership from and against liability for,
any compensation to any finder, broker, agent, financial advisor, or other
intermediary (collectively, an "Intermediary") that it has retained in
connection with the transactions contemplated by this Agreement , and the fees
and expenses of

-30-
36
defending against such liability or alleged liability. Each party shall be
responsible for all expenses, including due diligence expenses, incurred by it
in connection with the consummation of the transactions contemplated by this
Agreement.

7.2 NO RESTRICTIONS ON AFFILIATES. As long as JEDI I Partnership
or any of its Affiliates hold any shares of Common Stock, neither Sheridan nor
any of its Subsidiaries will enter into any agreement that would purport to
impose restrictions or limitations on the business, operations or assets of
JEDI I Partnership or its Affiliates.

7.3 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated
herein, Sheridan will not take any action that would be inconsistent with the
representations contained in Sections 3.14 and 3.15 hereof so long as the JEDI
I Partnership or its Affiliates holds any shares of Common Stock.

7.4 BUSINESS OPPORTUNITY MATTERS. (a) Sheridan and JEDI I
Partnership acknowledge and agree that neither JEDI I Partnership nor any of
its Affiliates shall be expressly or implicitly restricted or proscribed
pursuant to this Agreement, the relationship that exists between JEDI I
Partnership and Sheridan or otherwise, from engaging in any type of business
activity or owning an interest in any type of business entity, regardless of
whether such business activity is (or such business entity engages in
businesses that are) in direct or indirect competition with the businesses or
activities of Sheridan or any of its Affiliates. Without limiting the
foregoing, JEDI I Partnership and Sheridan acknowledge and agree that (i)
neither Sheridan nor its Affiliates nor any other Person shall have any rights,
by virtue of this Agreement, the relationship that exists between JEDI I
Partnership and Sheridan or otherwise, in any business venture or business
opportunity of JEDI I Partnership or any of its Affiliates, and neither JEDI I
Partnership nor its Affiliates shall have any obligation to offer any interest
in any such business venture or business opportunity to Sheridan, any Affiliate
of Sheridan or any other Person, or otherwise account to any of such Persons in
respect of any such business ventures, (ii) the activities of JEDI I
Partnership or any of its Affiliates that are in direct or indirect competition
with the activities of Sheridan or any of its Affiliates are hereby approved by
Sheridan, and (iii) it shall be deemed not to be a breach of any fiduciary or
other duties, if any and whether express or implied, that may be owed by JEDI I
Partnership or its Affiliates to Sheridan or its Affiliates for JEDI I
Partnership to permit itself or one of its Affiliates to engage in a business
opportunity in preference or to the exclusion of Sheridan, its Affiliates or
any other Person.

(b) Neither Sheridan or its Affiliates shall enter into any "area
of mutual interest" agreement of similar agreement that could or would have the
effect of binding JEDI I Partnership or any of its Affiliates or their
respective properties.

(c) Except for duties and obligations (i) owed by a corporation to
its stockholders pursuant to applicable law and (ii) owed by Sheridan to JEDI I
Partnership or any of its Affiliates pursuant to this Agreement, any of the
Operative Documents to which JEDI I Partnership or any of its Affiliates is a
party, or any other existing or prospective contract or agreement between
Sheridan and JEDI I Partnership or any of its Affiliates, nothing in the
relationship between Sheridan and JEDI I Partnership and its Affiliates created
by this Agreement shall be deemed to create any duty or obligation of Sheridan
to offer any interest in any business venture or business opportunity to JEDI I
Partnership or its Affiliates.

-31-
37

7.5 INDEMNIFICATION. Subject to Sheridan's rights hereunder with
respect to a Claim made under the indemnity of JEDI I Partnership set forth in
Section 7.5(c) hereof, as of the Closing, Sheridan hereby assumes (i) all
obligations to properly plug and abandon all xxxxx and remove all related
equipment now located on the JEDI I Properties or hereafter placed on the JEDI
I Properties by Sheridan, its successors and assigns, and cleanup and restore
the lands related to such JEDI I Properties, and (ii) except with respect to
the Existing Lawsuit, all other liabilities attributable to the JEDI I
Properties, including liabilities arising from, attributable to, or alleged to
be arising from or attributable to, personal injury or property damage and any
violation of, or the failure to perform any obligation imposed by, any
Environmental Laws (in each case the assumption by Sheridan is made regardless
of whether any such obligation or liability is attributable to events or
periods of time prior to or after the Effective Date) (such assumed obligations
and liabilities being hereinafter collectively referred to as the "Assumed
Obligations").

(b) Sheridan agrees to indemnify, release, defend, and hold
harmless JEDI I Partnership, its partners, and Affiliates, and their respective
officers, directors, employees and agents from, against, and in respect of any
and all claims, demands, losses, reasonable costs and expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and reasonable attorneys' fees (collectively, "Claims"), that JEDI I
Partnership shall incur or suffer, which arise, result from, or relate to (i)
any breach of, or failure by Sheridan or any of its Subsidiaries to perform,
any of its representations, warranties, covenants, or agreements in this
Agreement or in any schedule, certificate, exhibit, or other instrument
furnished or to be furnished by Sheridan or any of its Subsidiaries in
connection with the transactions contemplated by this Agreement, or (ii) the
Assumed Obligations.

(c) JEDI I Partnership agrees to indemnify, release, defend, and
hold harmless Sheridan and its Subsidiaries and their respective officers,
directors, employees and agents from, against, and in respect of any and all
Claims, that Sheridan shall incur or suffer, which arise, result from, or
relate to (i) other than with respect to its covenant under Section 7.5(c)(iii)
hereof, any breach of, or failure by JEDI I Partnership to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by JEDI I Partnership in connection with the transactions
contemplated by this Agreement, (ii) the Existing Lawsuit or (iii) the
ownership or operation of the JEDI I Properties prior to the Effective Date.

(d) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION
AND EXCULPATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED OR
RELEASED PARTY SHALL BE ENTITLED TO INDEMNIFICATION OR EXCULPATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW
OF OR BY SUCH INDEMNIFIED OR RELEASED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.

(e) With respect to the representations, warranties, covenants and
agreements that survive the Closing pursuant to Section 7.6, in no event shall
any amounts be recovered from the indemnifying party under this Section 7.5 or
otherwise for any matter for which a written notice of

-32-
38
claim specifying in reasonable detail the specific nature of the claim ("Claim
Notice") is not delivered to the indemnifying party prior to the time provided
in Section 7.6; provided, however, that such indemnities shall survive with
respect only to the specific matter that is the subject of any Claim Notice
delivered in good faith in compliance with the requirements of this Section
7.5(e) until the earlier to occur of (A) the date on which a final
nonappealable resolution of the matter described in such Claim Notice has been
reached or (B) the date on which the matter described in such Claim Notice has
otherwise reached final resolution. The indemnifications provided by Sections
7.5(b) and 7.5(c) of this Agreement are expressly subject to the following: in
case any legal proceeding or claim, including any investigatory proceeding, is
brought or made against a party (the "Indemnified Party") in a matter for which
indemnification may be provided under Sections 7.5(b) and 7.5(c), the
Indemnified Party shall within 20 business days notify the other party (the
"Indemnifying Party") with the delivery of the Claim Notice. The Indemnifying
Party shall have the right to control and assume the defense of any such legal
proceeding or claim, including the employment of counsel satisfactory to the
Indemnifying Party. If the Indemnifying Party controls and assumes the defense
of any proceeding or claim, the Indemnified Party shall have the right to
employ separate counsel, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Party unless the representation of both parties
by the same counsel would be inappropriate due to any actual or potential
conflicts of interest as determined by counsel to the Indemnifying Party. The
Indemnifying Party shall not be liable for the fees and expenses of more than
one separate firm of attorneys at any one time for the Indemnified Party in
connection with any one legal proceeding or claim or substantially similar
related proceedings and claims. The indemnification obligations of this
Section 7.5 shall not apply to any settlements effected without the consent of
the Indemnifying Party. The indemnification obligations of this Section 7.5
shall not be deemed to create any rights of subrogation or other rights in any
insurer or third party.

(f) Except for the parties' rights pursuant to the Registration
Rights Agreement, the Warrant Agreement and the Assignment, each of the parties
hereto acknowledges and agrees that its sole and exclusive remedy with respect
to any and all Claims relating to this Agreement or the transactions
contemplated hereby shall be limited to the indemnification provisions set
forth in this Agreement, and, in furtherance of the forgoing, each party hereby
waives, to the fullest extent permitted under any applicable law, any and all
other rights, claims and causes of action it may have against the other party
with respect to this Agreement or the transactions contemplated hereby.

(g) NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN CONNECTION
WITH ANY CLAIM MADE BY A PARTY AGAINST ANOTHER PARTY HEREUNDER, THE CLAIMING
PARTY SHALL NOT BE ENTITLED TO RECOVER ANY PUNITIVE, CONSEQUENTIAL, SPECIAL,
INCIDENTAL OR INDIRECT DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY EXEMPLARY
DAMAGES, TREBLE DAMAGES, PENALTIES, OR LOSS OF PROFITS OR INCOME), WHETHER
BASED ON STATUTE, IN TORT, CONTRACT OR OTHERWISE, REGARDLESS OF WHETHER SUCH
DAMAGES MAY BE AVAILABLE UNDER APPLICABLE LAW OR OTHERWISE, AND WHETHER OR NOT
ARISING FROM A PARTY'S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY
OR OTHER FAULT, THE PARTIES HERETO HEREBY WAIVING THEIR RIGHT, IF ANY, TO
RECOVER SUCH DAMAGES IN CONNECTION WITH ANY CLAIMS HEREUNDER.

(h) Notwithstanding anything herein to the contrary and except for
the matters set forth in Section 7.5(c)(ii), (i) neither Sheridan nor JEDI I
Partnership shall be required to indemnify the

-33-
39
other party hereto (or such party's related indemnified parties) unless the
total amount of all payments required to be made by such party pursuant to the
indemnification provisions hereof exceeds, in the aggregate, $100,000, in which
event the party required to indemnify the other party shall be liable under
such indemnification provisions for the entire amount and not merely the excess
over $100,000, and (ii) neither Sheridan nor JEDI I Partnership shall be
required to indemnify the other party hereto (or such party's related
indemnified parties) under this Agreement in any amount exceeding in the
aggregate $2,250,000.

(i) Notwithstanding anything herein to the contrary, JEDI I
Partnership shall not be obligated to indemnify Sheridan (or such party's
related indemnified parties) pursuant to the provisions of Section 7.5(c)(iii)
unless (i) the Claim by Sheridan for indemnification under Section 7.5(c)(iii)
is made as a result of a Claim brought against Sheridan by a Person that is not
an Affiliate of Sheridan, or (ii) the Claim by Sheridan for indemnification
under Section 7.5(c)(iii) is made on account of the JEDI I Properties being in
violation of a Governmental Requirement.

7.6 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, indemnities, and covenants contained herein or made in writing by
any party in connection herewith will survive the execution and delivery of
this Agreement and any investigation made at any time by or on behalf of
Sheridan and JEDI I Partnership; provided, however, that any Claim with respect
to the breach thereof may be made only if the party claiming such breach shall
have delivered a Claim Notice to the responsible party hereunder (a) in the
case of the representations, warranties and covenants of Sheridan contained in
Sections 2.3 and 2.4 and Articles 3 and 5 and of JEDI I Partnership contained
in Sections 2.3 and 2.4 and Articles 4 and 5, on or before first anniversary of
the Closing Date, (b) in the case of the covenant by JEDI I contained in
Section 7.5(c)(iii), on or before the third anniversary date of the Closing
Date, and (c) at any time, in the case of all other provisions.
Notwithstanding anything herein to the contrary, in the event the Closing has
not occurred on or before January 15, 1998, because one or more conditions set
forth in Section 6.1 has not been satisfied, Sheridan or JEDI I Partnership may
terminate its obligations under this Agreement by written notice to the other
party; provided, however, that the provisions of Sections 7.1 and 7.6 shall
survive any such termination.

7.7 DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES. The express
representations and warranties of the parties contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied or statutory. SHERIDAN ACKNOWLEDGES THAT JEDI I PARTNERSHIP HAS NOT
MADE, AND JEDI I PARTNERSHIP HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND
SHERIDAN HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS,
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (A) PRODUCTION
RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING INFORMATION OR
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY,
ATTRIBUTABLE TO THE JEDI I PROPERTIES, AND (B) THE ACCURACY, COMPLETENESS OR
MATERIALITY OR ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW,
HERETOFORE OR HEREAFTER FURNISHED TO SHERIDAN BY OR ON BEHALF OF JEDI I
PARTNERSHIP. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, JEDI
I PARTNERSHIP EXPRESSLY DISCLAIMS AND NEGATES, AND SHERIDAN HEREBY WAIVES, AS
TO PERSONAL PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE JEDI I
PROPERTIES (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II) ANY
IMPLIED

-34-
40
OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY IMPLIED OR
EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (IV) ANY
RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (V) ANY CLAIMS BY SHERIDAN FOR DAMAGES BECAUSE OF REDHIBITORY
VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN AS OF THE
EFFECTIVE DATE OR THE CLOSING DATE, AND (VI) ANY AND ALL IMPLIED WARRANTIES
EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION OF BOTH SHERIDAN
AND JEDI I PARTNERSHIP THAT THE PERSONAL PROPERTY, EQUIPMENT AND FIXTURES
INCLUDED WITHIN THE JEDI I PROPERTIES ARE HEREBY CONVEYED TO SHERIDAN IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS,
AND THAT SHERIDAN HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS XXXXXXXX
XXXXX APPROPRIATE. JEDI I PARTNERSHIP AND SHERIDAN AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN
WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE
PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.

7.8 TRANSFER TAXES AND RECORDING FEES. All sales, use or other
taxes (other than taxes on gross income, net income or gross receipts) and
duties, levies or other governmental charges incurred by or imposed with
respect to the property transfers undertaken pursuant to this Agreement and all
costs of recording the Assignment shall be the responsibility of, and shall be
paid by Sheridan.

7.9 STANDSTILL. JEDI I Partnership acknowledges that it is
subject to the provisions of Section 8.5 of the ECT Purchase Agreement.

7.10 ACTIONS BY SHERIDAN. Notwithstanding anything herein to the
contrary, JEDI I Partnership shall not be liable for, or in breach of its
representations or covenants hereunder on account of, any actions taken by
Sheridan on or with respect to the JEDI I Properties prior to the Closing Date.

ARTICLE VIII.

MISCELLANEOUS

8.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by Sheridan or JEDI I
Partnership therefrom, shall in any event be effective unless the same shall be
in writing and signed by the parties hereto, and then such waiver or consent
shall be effective only in the specific instance or for the specific purpose
for which given.

8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors of the parties hereto, whether so expressed or not
and the permitted assigns of the parties hereto including, without limitation
and without need of any express assignment. This Agreement and the rights and
obligations of Sheridan shall not be assigned without the prior written consent
of JEDI I Partnership. JEDI I Partnership may not assign or transfer any or
all of its rights and obligations under this Agreement without the

-35-
41
consent of Sheridan except (i) prior to the Closing, to an Affiliate with
respect to which it has the power to direct or cause the direction of the
management and policies of such Affiliate (whether through voting, by contract
or otherwise), and (ii) following the Closing, to an Affiliate.

8.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement unless the consummation of the transaction
contemplated hereby is materially and adversely affected thereby.

8.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.

8.5 GOVERNING LAW. Each of the parties hereto hereby consents and
agrees that this Agreement shall be deemed a contract and instrument made under
the laws of the State of Texas and shall be construed and enforced in
accordance with and governed by the laws of the State of Texas, without regard
to principles of conflicts of law.

8.6 ENTIRE AGREEMENT. This Agreement, the Operative Documents and
each of the disclosure letters delivered by the parties hereto constitutes the
entire agreement between Sheridan and JEDI I Partnership concerning the matters
referred to herein and therein, and, supersede all prior agreements and
understandings among Sheridan and JEDI I Partnership relating to the subject
matter hereof and thereof. There are no unwritten oral agreements between the
parties.

8.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.

8.8 FURTHER COOPERATION. At any time and from time to time, and
at its own expense, each party shall promptly execute and deliver all such
documents and instruments, and do all such acts and things, as the other party
may reasonably request in order to further effect the purposes of this
Agreement.

8.9 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given
to such party at its address or telecopy number set forth on the signature
pages hereof or such other address or telecopy number as such party may
hereafter specify by notice to the other parties.

8.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any party hereto in exercising any right or remedy under this
Agreement and no course of dealing among the parties hereto shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
under this Agreement preclude any other or further exercise thereof or the
exercise of any other right or remedy under this Agreement. No notice to or
demand on any party hereto not otherwise required by this Agreement shall
entitle such party to any other or further notice or demand

-36-
42
in similar or other circumstances or constitute a waiver of the rights of such
party to any other or further action in any circumstances without notice or
demand.

8.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER. (a) The
exhibits attached to this Agreement and the Sheridan Disclosure Letter and the
JEDI I Partnership Disclosure Letter are incorporated herein and shall be
considered to be a part of this Agreement for the purposes stated herein,
except that in the event of any conflict between any of the provisions of such
exhibits or schedules and the provisions of this Agreement, the provisions of
this Agreement shall prevail.

(b) Each of Sheridan and JEDI I Partnership may, from time to
time, prior to the Closing, by written notice to the other party, supplement or
amend such party's disclosure letter delivered hereunder to correct any matter
that would constitute a breach of any representation or warranty of such party
herein contained; provided, however, except as provided in the following
sentence, no such supplement or amendment will affect the rights or obligations
of the parties to this Agreement (including without limitation hereof) until
after the Closing Date. Notwithstanding any other provision hereof, if the
Closing occurs, any such supplement or amendment of such Disclosure Letter will
be effective to cure and correct for indemnification purposes (but only for
such purposes) any breach of any representation, warranty or covenant that
would have existed by reason of not having made such supplement or amendment.

8.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim
arising out of or relating to this Agreement or the transactions contemplated
hereby (a "Dispute") shall be submitted to non-binding mediation upon the
request of Sheridan or JEDI I Partnership on the following terms. Upon the
request of either party, a neutral mediator acceptable to both parties (the
"Mediator") shall be appointed within fifteen (15) days. The Mediator shall
attempt, through negotiations in any manner deemed reasonably appropriate by
the Mediator, in which the parties shall participate, to resolve the Dispute.
The Mediator shall be compensated at a rate agreeable to Sheridan, JEDI I
Partnership and the Mediator, and each of Sheridan and JEDI I Partnership shall
pay one-half of such compensation and other expenses of the mediation.

(b) In the event that the Dispute has not been resolved within 30
days after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 8.12, the Commercial Arbitration
Rules of the AAA, and, to the maximum extent applicable, the United States
Arbitration Act. Judgment on any matter rendered by arbitrators may be entered
in any court having jurisdiction. Any arbitration shall be conducted before
three arbitrators. The arbitrators shall be individuals knowledgeable in the
subject matter of the Dispute. Each party shall select one arbitrator and the
two arbitrators so selected shall select the third arbitrator. If, within 10
days after notice, a party fails to select an arbitrator, the party's
arbitrator shall be selected by the AAA pursuant to Rule 14 of the Commercial
Arbitration Rules. If the third arbitrator is not selected within thirty (30)
days after the request for an arbitration, then any party may request the AAA
to select the third arbitrator. The arbitrators may engage engineers,
accountants or other consultants they deem necessary to render a conclusion in
the arbitration proceeding. To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in Houston,
Texas. Arbitrators shall be

-37-
43
empowered to impose sanctions and to take such other actions as the arbitrators
deem necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. At the conclusion of any arbitration proceeding, the arbitrators shall
make specific written findings of fact and conclusions of law. The arbitrators
shall have the power to award recovery of all costs and fees to the prevailing
party. All fees of the arbitrators and any engineer, accountant or other
consultant engaged by the arbitrators, shall be shared equally unless otherwise
awarded by the arbitrators.

(c) Nothing in this Section 8.12 shall limit or delay the right of
JEDI I Partnership to exercise the remedies available to it under the Warrant
Agreement or the Registration Rights Agreement.

-38-
44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.

SHERIDAN ENERGY, INC.

By: /s/ X. X. XXXXXXXX
--------------------------------------
X. X. Xxxxxxxx, President

Address for Notice:

0000 Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: X.X. Xxxxxxxx
Telecopy:
--------------------------------

JEDI HYDROCARBON INVESTMENTS I
LIMITED PARTNERSHIP,
a Delaware limited partnership,
by its General Partner, JEDI Capital L.L.C.

By: /s/ XXXXX X. XxXXXXX
--------------------------------------
Name: Xxxxx X. XxXxxxx
------------------------------------
Title: Agent and Attorney-in-Fact
-----------------------------------

Address for Notice:

-----------------------------------------
Attn:
------------------------------------

-----------------------------------------

-----------------------------------------
Phone:
-----------------------------------
Fax:
-------------------------------------

-39-
45
EXHIBIT A

FORM OF WARRANT

EXHIBIT A
Page 1
46
EXHIBIT B

FORM OF ASSIGNMENT AND XXXX OF SALE

EXHIBIT B
Page 1

Document Metadata

Table of Contents

1 EXHIBIT 10 PURCHASE AGREEMENT

Document Metadata