EXHIBIT 10.1

 

ASSET PURCHASE AGREEMENT

 

by and among

 

CONTANGO STEP, L.P.,

 

CONTANGO OIL & GAS COMPANY,

 

EDGE PETROLEUM EXPLORATION COMPANY

 

and

 

EDGE PETROLEUM CORPORATION

 

Dated as of October 7, 2004

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ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) dated as of October 7, 2004
(the “Execution Date”) is entered into by and among CONTANGO STEP, L.P., a Texas
limited partnership (the “Seller”) and an indirect wholly owned subsidiary of
CONTANGO OIL & GAS COMPANY, a Delaware corporation (the “Parent”), and EDGE
PETROLEUM EXPLORATION COMPANY, a Delaware corporation (the “Buyer”) and a direct
wholly owned subsidiary of EDGE PETROLEUM CORPORATION (“Edge”) (Seller, Parent,
Buyer and Edge sometimes individually a “Party” and collectively the “Parties”).
Capitalized terms used but not otherwise defined herein have the meanings given
in Section 9.2.

 

RECITALS

 

A. Parent is the sole shareholder of Contango Step I, Inc., a Delaware
corporation (the “General Partner”) and the sole general partner of Seller.
Parent is also the sole shareholder of Contango Step II, Inc., a Delaware
corporation (the “Limited Partner”) and the sole limited partner of Seller.

 

B. Parent, as the ultimate corporate parent of Seller, and Edge, as the ultimate
corporate parent of Buyer, are Parties to this Agreement to, among other things,
make various of the representations and warranties set forth herein and for
purposes of giving and receiving various of the indemnities set forth herein.

 

C. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
all of Seller’s non-operating oil and gas interests and related assets
identified in Section 1.1 and the attached Exhibit A and Exhibit B all on the
terms and conditions set forth herein.

 

STATEMENT OF AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual promises and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

 

ARTICLE I

 

PURCHASE AND SALE OF ASSETS

 

Section 1.1 Assets. On the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 6.1) Seller agrees to sell,
transfer and assign to Buyer, and Buyer shall purchase and receive, all of
Seller’s right, title and interest in and to the following (the “Assets”):

 

  (a) Leases. The oil and gas leases described in Exhibit A (each a “Lease” and
sometimes, collectively, the “Leases”);

 

  (b) Wells. All oil and/or gas wells, whether producing, operating, shut-in or
temporarily abandoned, located on the lands covered by the Leases or pooled
therewith, including, without limitation, those described in Exhibit B (each a
“Well” and sometimes, collectively, the “Wells”);

 

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  (c) Equipment. All equipment, fixtures, machinery, tanks, pipelines, gathering
lines, flow lines, saltwater and other disposal wells, and other appurtenances
and all other personal property or fixtures that are located on the lands
covered by the Leases or pooled therewith and used in connection with the
ownership or operation thereof and the production of oil and/or gas therefrom
(collectively, the “Equipment”); and

 

  (d) Contracts. All contracts, agreements, leases, rights-of-way, easements,
servitudes, surface leases, title instruments and other similar rights, only to
the extent attributable to and affecting, the Leases, Wells and Equipment,
including all hydrocarbon sales, purchase, gathering, transportation, treating,
storage, compression, marketing, exchange, processing and fractionating
contracts or agreements, division orders and joint operating agreements (each a
“Contract” and, collectively, the “Contracts”).

 

  (e) Seismic and Other Data. To the extent assignable without payment of fees
or charges, any seismic data (and proceeds from the sale thereof), together with
any related data, studies, compilations, reserve reports, engineering data or
other information, covering the Leases or surrounding lands, other than the
Excluded Seismic Rights (as defined in Section 1.2).

 

Section 1.2 Excluded Assets. The Assets do not include, and Seller shall not
sell, transfer or assign to Buyer, and Buyer shall not acquire, or make any
payments or otherwise discharge any liability or obligation of Seller relating
to, any of the following (the “Excluded Assets”):

 

  (a) accounts receivable relating to any operation or ownership of the Assets
for periods prior to the Effective Time (as defined in Section 6.2);

 

  (b) fifty percent (50%) of Seller’s right to receive proceeds from the sale of
seismic data covering the Borregos Lease or surrounding lands, if and to the
extent a sale of such seismic data is consummated prior to Closing (the
“Excluded Seismic Rights”);

 

  (c) oil and liquid hydrocarbon inventories in tanks above the pipeline
connections as of the Effective Time; and

 

  (d) gas produced through designated sales meters prior to the Effective Time.

 

Section 1.3 Purchase Price. As consideration for the sale of the Assets, the
aggregate purchase price to be paid by Buyer to Seller shall be Fifty Million
and No/100 Dollars ($50,000,000.00) (the “Purchase Price”), and subject to
adjustment as set forth herein, payable by wire transfer of immediately
available funds in accordance with the wire transfer instructions attached as
Exhibit C.

 

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Section 1.4 Allocated Values. The Purchase Price shall be allocated to the Wells
in accordance with the values set forth in Exhibit B attached hereto and made a
part hereof, subject to reduction and increase of such values pursuant to
Article VII and Article VIII. Such values (singularly, the “Allocated Value,”
and collectively, the “Allocated Values”) shall be binding for purposes of
adjusting the Purchase Price pursuant to Article VII and Article VIII.

 

Section 1.5 Adjustments to Purchase Price. Notice of any adjustments to the
Purchase Price otherwise payable at Closing shall be delivered, as between the
Parties, no later than two Business Days prior to the Closing in order to be
considered at the Closing. The Purchase Price shall be adjusted as follows:

 

  (a) The Purchase Price shall be increased by the following:

 

  (1) an amount equal to any ad valorem, property, production, excise, severance
and similar taxes and assessments based upon or measured by the ownership of the
Assets paid by or on behalf of Seller that are attributable to periods of time
from and after the Effective Time, which amounts shall, to the extent not
actually assessed, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of Seller’s and
Buyer’s ownership before and from and after the Effective Time);

 

  (2) an amount equal to any Texas Severance Tax Incentive rebates attributable
to the Assets, paid to Buyer, that are attributable to periods of time prior to
the Effective Time;

 

  (3) an amount equal to any expenses attributable to the Assets that are paid
by or on behalf of Seller that are, in accordance with GAAP (as defined in
Section 9.2), attributable to the periods from and after the Effective Time; and

 

  (4) the value of any additional interests identified pursuant to Section 7.16.

 

  (b) The Purchase Price shall be reduced by the following:

 

  (1) the amount of any proceeds received by Seller attributable to the Assets
that are, in accordance with GAAP, attributable to the periods of time from and
after the Effective Time;

 

  (2) an amount equal to any ad valorem, property, production, excise, severance
and similar taxes and assessments based upon or measured by the ownership of the
Assets unpaid by or on behalf of Seller that are attributable to periods of time

 

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prior to the Effective Time, which amounts shall, to the extent not actually
assessed, be computed based on such taxes and assessments for the preceding tax
year (such amount to be prorated for the period of Seller’s and Buyer’s
ownership before and after the Effective Time);

 

  (3) an amount equal to any Texas Severance Tax Incentive rebates attributable
to the Assets, paid to Seller, that are attributable to periods of time from and
after the Effective Time;

 

  (4) an amount equal to any and all expenses attributable to the Assets that
are paid by or on behalf of Buyer that are, in accordance with GAAP,
attributable to any periods prior to the Effective Time; and

 

  (5) the value of any Title Defects (as defined in Section 7.7) or
Environmental Defects (as defined in Section 8.2) identified pursuant to and
subject to the limitations described in Article VII and Article VIII.

 

Section 1.6 Termination for Reduction. If net adjustments to the Purchase Price
pursuant to Article VII and Article VIII exceed ten percent (10%) of the
original unadjusted Purchase Price, either Seller or Buyer may terminate this
Agreement by giving written notice to the other Party no later than three
(3)Business Days prior to the Closing Date.

 

Section 1.7 Assumption of Liabilities. As additional consideration for the sale
of the Assets, if the Closing occurs, Buyer shall assume Seller’s proportionate
share of the following obligations and liabilities (“Assumed Liabilities”):

 

  (a) all obligations and liabilities relating to the ownership or use of the
Assets that arise and are attributable to occurrences from and after the
Effective Time (except for (1) any liability or obligation that arises under
contracts or agreements, or that arises from or is the subject of a breach by
Seller of any of its covenants, representations or warranties hereunder, none of
which shall be Assumed Liabilities; and (2) any payment obligation associated
with an agreement for the supply of materials, goods or services, which shall be
an Assumed Liability only to the extent that such materials, goods or services
with respect to which such payment is due is received by Buyer and relates to
operation of the Assets from and after the Effective Time);

 

  (b) all obligations and liabilities relating to the ownership or use of the
Assets that arise from and after the Effective Time, for site reclamation and
plugging and abandonment of all Wells. Buyer recognizes and specifically assumes
the obligation to properly plug and abandon all Wells and remove all personal
property associated with the Assets when appropriate;

 

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  (c) all obligations and liabilities (including, without limitation, all
liabilities and obligations under present and future federal, state and local
laws relating to the protection of health or the environment) in respect of the
condition of the Assets as of the Closing relating to such Assets, other than
any condition that is the subject of a breach by Seller or Parent of any of
their representations and warranties under this Agreement;

 

  (d) any Assumed Title Liabilities (as defined in Section 7.10); and

 

  (e) any Assumed Environmental Liabilities (as defined in Section 8.2).

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT

 

Each of Seller and Parent hereby represents, warrants and covenants to and with
Buyer that:

 

Section 2.1 Organization and Good Standing. Each of Parent, General Partner and
Limited Partner is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Parent is the sole stockholder
of each of General Partner and Limited Partner. General Partner and Limited
Partner are the only partners of Seller. Seller is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Texas. Seller does not have any subsidiaries. Each of Seller and Parent has the
power and authority to own its properties and to carry on its business as now
conducted.

 

Section 2.2 Authorization. This Agreement constitutes the legal, valid and
binding obligation of Seller and Parent, enforceable against Seller and Parent
in accordance with its terms. Subject to Parent’s obtaining the approval
described in Section 6.3(b), each of Seller and Parent has the requisite power
and authority, to execute, deliver and perform its obligations under this
Agreement, and the execution, delivery and performance by Seller and Parent of
this Agreement has been duly authorized by all necessary partnership action of
Seller and corporation action of General Partner and Parent, respectively, and
no other act or proceeding on the part of Seller, General Partner or Parent is
necessary to authorize the execution, delivery or performance by Seller of this
Agreement.

 

Section 2.3 Purchased Assets; Defensible Title. Subject to Section 7.10, Seller
owns Defensible Title (as defined in Section 7.2) to the Leases and Wells.
Notwithstanding anything to the contrary contained herein, after Closing,
Seller’s only warranty of title to the Assets shall be that special warranty
provided in Section 2 of that Assignment and Bill of Sale in the form set forth
in Exhibit D.

 

Section 2.4 Consents and Approvals. Except (a) as set forth in Schedule 2.4 and
(b) as would not be reasonably expected to have a Material Adverse Effect, no
consent, approval or

 

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authorization of, or declaration, filing or registration with, any Person is
required under any Contract in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby. Seller and Parent will use reasonable efforts to obtain all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Person required to be made or obtained by Seller, General
Partner or Parent in connection with the authorization, execution, delivery and
performance by Seller, General Partner or Parent of this Agreement and the
transactions contemplated hereby, subject to the limitations with respect to
consents to assign and preferential rights to purchase set forth in Section
7.17.

 

Section 2.5 No Conflict or Violation. The execution, delivery and performance by
Seller and Parent of this Agreement and the consummation of the transactions
contemplated herein, will not:

 

  (a) result in the breach of any of the terms or conditions of, or constitute a
default under, or in any manner release any party thereto from any obligation
under, any mortgage, note, bond, indenture, contract, agreement, license or
other instrument or obligation of any kind or nature by which Seller may be
bound or affected;

 

  (b) violate any law, order, writ, injunction, rule, regulation, statute or
decree of any Governmental Authority (as defined in Section 9.2);

 

  (c) result in the creation or imposition of any liens, mortgages, charges,
security interests, pledges or other encumbrances or adverse claims (“Liens”)
upon any of the Assets;

 

  (d) except as set forth in Schedule 2.4, trigger (i) the rights of any third
party that would have any Material Adverse Effect on the Assets (other than
consents to assign and preferential rights to purchase covered by Section 7.17)
or (ii) any requirement for the issuance of additional shares of Seller or
Parent; or

 

  (e) violate any provision of the organizational documents of Seller or Parent.

 

Section 2.6 Litigation. To Seller’s and Parent’s Knowledge, there are no, and
neither Seller nor Parent have received written notice of any, claims,
counterclaims, actions, suits, orders, proceedings (arbitration or otherwise) or
investigations pending or threatened against or involving Seller or the Assets,
or relating to the transactions contemplated hereby, at law or in equity in any
court or agency, or before or by any Governmental Authority or arbitral tribunal
that, if granted, could be reasonably expected to have a Material Adverse
Affect.

 

Section 2.7 No Brokers or Finders. Seller has not retained any broker or finder,
made any statement or representation to any Person which would entitle such
Person to, or agreed to pay, any broker’s, finder’s or similar fees or
commissions in connection with the transactions contemplated by this Agreement.

 

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Section 2.8 Contracts; Leases. To Seller’s and Parent’s Knowledge,

 

  (a) Seller is not in, and has not received written notice of any, default
under any order, judgment, contract, lease, license or instrument, which default
or potential default might reasonably be expected to have a Material Adverse
Effect;

 

  (b) with respect to the Contracts and Leases, Seller is not in, and has not
received written notice of any, material default or breach and no event has
occurred which, with the giving of notice or the passage of time or both, would
constitute a material default or breach by Seller under any of the Contracts or
Leases;

 

  (c) with respect to any Contracts and Leases which may not be assigned to
Buyer without the consent, approval, notification or waiver of any Person,
Seller shall use reasonable commercial efforts to obtain such consent, approval
or waiver, or give such notice, as soon as practicable following the Execution
Date, but in any event no later than the Closing Date; and

 

  (d) with respect to any Contracts and Leases which, are subject to a
preferential rights to purchase provisions, Seller shall use reasonable
commercial efforts to obtain any consents, approvals and waivers of the
preferential right to purchase provisions as soon as practicable following the
Execution Date.

 

Section 2.9 Environmental Matters. There are no notices, claims, suits, actions
or proceedings (including government investigations and audits) now pending or
threatened against Seller relating to Environmental Defects with respect to any
of the Assets, and, to Seller’s and Parent’s Knowledge, there is no reasonable
basis for believing that any such claims for Environmental Defects may be
asserted against Seller with respect to the Assets.

 

Section 2.10 Compliance with Laws; Licenses and Permits. To Seller’s and
Parent’s Knowledge, Seller’s business has been conducted in material compliance
with, all applicable laws, rules, regulations, permits and orders of
Governmental Authorities having jurisdiction over the Assets, and no
investigation or review by any Governmental Authority with respect to the Seller
is pending or threatened.

 

Section 2.11 Oil and Gas Agreements. To the Knowledge of Seller and Parent, and
except as would not have a Material Adverse Effect, all Leases and other
Contracts relating to the Assets pursuant to which the Seller has ownership
rights are in good standing, valid and effective, and all royalties, rentals and
other payments and expenses due by Seller or its Affiliates to any lessor of any
such Leases have been timely and properly paid for all periods prior to the
Effective Time.

 

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Section 2.12 Gas Balancing; Forward Sales; Calls on Production. To Seller’s and
Parent’s Knowledge, except as disclosed in Schedule 2.12,

 

  (a) neither Seller nor its Affiliates have any gas, pipeline or other
production imbalances with any Person related to the interest of the Seller in
the Wells and Leases;

 

  (b) Seller has made no so-called “forward sales” of oil or gas production from
the Wells or Leases for which it is obligated to deliver hydrocarbons without
then or within sixty (60) days after such sale is made receiving the contract
price applicable to deliveries at the time of such sales; and

 

  (c) there are no calls or hedges on production or preferential rights to
purchase production from any of the Wells or Leases at a price below market
price.

 

Section 2.13 Payout Balances and Back-In Interests. To the extent there are any
“Payout Balances” (as defined below) with respect to any Well such that,
effective upon payout, Seller’s ownership interest in that Well and any related
Lease will change, Schedule 2.13 sets forth, as of the date set forth for each
Well therein, the Payout Balances for each of the Wells and the changes in
Seller’s interest. Furthermore, other than as provided in Schedule 2.13, no
third party has any back-in interests affecting Seller’s right, title and
interest in the Leases. “Payout Balances” means the status, as of the date of
the Seller’s calculations, of the recovery of the applicable amount, as
specified in the contract relating to a Well, out of the revenue from such Well,
where the net revenue interest and/or working interest of the Seller therein
will be reduced or increased when such amount has been recovered.

 

Section 2.14 Transactions with Related Parties. Except as set forth in Schedule
2.14, during the period beginning with the Effective Time, no Affiliate of
Seller or its subsidiaries, or any officer, director or key employee of Seller
or any of its subsidiaries, or any officer or director of any direct or indirect
owner of Seller or its subsidiaries, or any spouse, child, relative, grantor,
trustee or beneficiary of any of such Persons or any other Affiliate of any such
Persons (collectively, “Related Parties”) has, directly or indirectly,
purchased, leased or otherwise acquired any of the Assets or obtained any
services from, or sold, leased or otherwise disposed of any of the Assets or
furnished any services to, or purchased, sold, transferred, or held any direct
or indirect interest in any of the Assets, or otherwise dealt with (except with
respect to remuneration for services rendered as an officer, director or
employee of Seller and its subsidiaries), in the ordinary course of business or
otherwise, Seller or its subsidiaries in connection with any of the Assets.
Seller and its subsidiaries do not owe any amount to, or have any contract with
or commitment to, any Related Parties in respect of the Assets (other than
compensation for current services not yet due and payable and reimbursement of
expenses arising in the ordinary course of business not in excess of Twenty-Five
Thousand and No/100 Dollars ($25,000.00) in the aggregate), and none of such
Persons owe any amount to Seller or any of its subsidiaries in respect of the
Assets.

 

Section 2.15 Non-Operator. Seller, with respect to all of the Leases, Wells and
other Assets, is a non-operator and has limited consent and control in
operational expenditures and activities, limited Knowledge of the condition of
the Assets and access to the lands covered by the Leases or upon which the Wells
are situated, and limited Knowledge of the Contracts

 

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affecting the Leases, Wells and sale of production therefrom. None of Seller’s
employees are employees engaged in any operational expenditures or activities or
supervision of conditions with respect to the Leases, Wells and other Assets.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF BUYER AND EDGE

 

Each of Buyer and Edge hereby represents, warrants and covenants to Seller and
Parent that:

 

Section 3.1 Corporate Organization. Each of Buyer and Edge is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to conduct its business as it
is now conducted.

 

Section 3.2 Authorization. This Agreement constitutes the legal, valid and
binding obligation of Buyer and Edge, enforceable against Buyer and Edge in
accordance with its terms. The execution and delivery of this Agreement, the
performance by each of Buyer and Edge of its obligations hereunder and the
consummation by each of Buyer and Edge of the transactions contemplated hereby
have been duly authorized by all necessary action and no other act or proceeding
on the part of either of Buyer or Edge is necessary. Each of Buyer and Edge has
full power and authority to enter into, execute and deliver this Agreement and
to perform its obligations hereunder.

 

Section 3.3 No Violation. The execution, delivery and performance by each of
Buyer and Edge of this Agreement and the consummation of the transactions
contemplated herein do not and will not: (a) result in the breach of any of the
terms or conditions of, or constitute a default under, or in any manner release
any party thereto from any obligation under, any mortgage, note, bond,
indenture, contract, agreement, license or other instrument or obligation of any
kind or nature by which either of Buyer or Edge may be bound or affected; (b)
violate any law, order, writ, injunction, rule, regulation, statute or decree of
any Governmental Authority; or (c) violate any provision of the certificate of
incorporation or bylaws of Buyer or Edge.

 

Section 3.4 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, any Person is required to be made or
obtained by Buyer or Edge in connection with the execution and delivery of this
Agreement by Buyer and Edge, the performance by Buyer or Edge of its obligations
hereunder, and the consummation by it of the transactions contemplated hereby.

 

Section 3.5 No Brokers or Finders. Buyer has not retained any broker or finder,
made any statement or representation to any Person which would entitle such
Person to, or agreed to pay, any broker’s, finder’s or similar fees or
commissions in connection with transactions contemplated by this Agreement.

 

Section 3.6 Knowledge of the Business; Investment Intent. Buyer is directly and
actively engaged in the business of exploration for and production of oil and
gas. Buyer is a sophisticated investor in oil and gas properties and has
knowledge and expertise in financial and

 

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business matters relating to the evaluation and purchase of producing oil and
gas properties. Buyer is acquiring the Assets to be conveyed herein for its own
account and not for distribution in violation of any applicable securities laws.
Buyer confirms that Seller and Parent have made available to Buyer and its
representatives and agents the opportunity to ask questions of the officers and
management employees of the Seller and Parent and to acquire such additional
information about the Assets as Buyer has requested, and all such information
has been received. Nothing in this Section 3.6 shall affect the liability of
Seller or Parent for a breach of the representations and warranties set forth in
Article II.

 

ARTICLE IV

 

CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND PARENT

 

Seller covenants and agrees with Buyer as follows:

 

Section 4.1 Operations Prior to Closing. Except as otherwise consented to in
writing by Buyer or provided for in this Agreement, from the Execution Date to
the Closing Date, Seller shall

 

  (a) pay or cause to be paid its proportionate share of all costs and expenses
incurred in connection with operation of the Assets in the ordinary course of
business;

 

  (b) notify Buyer of any capital expenditures and authorizations for
expenditure (“AFE”) in excess of One Hundred Thousand and No/100 Dollars
($100,000.00) per activity net to Seller’s interest conducted on the Assets and
not agree to participate in any such activity without Buyer’s prior written
consent;

 

  (c) notify Buyer of any request for capital expenditures and AFEs for the
drilling of any new Well on the lands covered by the Leases or pooled therewith
and not agree to participate in such new Well without Buyer’s prior written
consent;

 

  (d) not abandon any part of the Assets except abandonments of non-producing
wells in the ordinary course of business as recommended by the operator of the
Wells and Leases (the “Operator”);

 

  (e) not convey or dispose of any of the Assets (other than dispositions and
replacement of equipment undertaken by the Operator in the normal course of
business or sales of oil, gas and other liquid products produced from the Assets
in the ordinary course of business) affecting the Assets if the net expense to
Seller’s interest will be in excess of Fifty Thousand and No/100 Dollars
($50,000.00) or enter into any farm-out, farm-in or other similar contract;

 

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  (f) not let lapse any of Seller’s insurance now in force with respect to the
Assets;

 

  (g) not encumber or mortgage the Assets or allow any lien or other encumbrance
to become a burden on the Assets (except liens of contractors arising as a
matter of law in the ordinary course of business for amounts not yet due); or

 

  (h) not materially modify or terminate any of the operating agreements or
other significant contracts governing or pertaining to the Assets or any other
relevant material agreements.

 

If Buyer fails to respond within a period of time reasonably requested by Seller
(taking into account any time limitations imposed on Seller) following delivery
by Seller of a request for approval or consent with respect to any such proposed
action or expenditure, then Buyer shall be deemed to have agreed with Seller’s
election or other determination with respect thereto. Buyer shall not
unreasonably withhold its approval or consent with respect to any such proposed
action or expenditure.

 

Section 4.2 Marketing. Unless Seller obtains the prior written consent of Buyer
to act otherwise, prior to Closing Seller will not alter any existing marketing
contracts or any Contracts currently in existence, or enter into any new
marketing contracts or agreements providing for the sale of hydrocarbons from
the Wells for a term in excess of thirty (30) days or which obligate Seller to
deliver hydrocarbons after the Effective Time without then or within sixty (60)
days thereafter receiving the contract price applicable to deliveries at the
time of such sales, or any other sales of hydrocarbons which are not in the
ordinary course of business. Seller will not enter into any call, option to
purchase or similar right to obtain production from the Wells and Leases other
than rights contained in existing production sales contracts or rights
exercisable at prices at or near the fair market price in the general area
involved at the time sales occur.

 

Section 4.3 Meetings of Stockholders.

 

  (a) Parent shall undertake reasonable efforts to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the adoption
of this Agreement.

 

  (b) Prior to Closing, neither Parent, Seller nor any Affiliate of Seller shall
pursue, solicit or seek to enter into any offer or opportunity, directly or
indirectly, for the sale, trade, exchange, joint venture, lease, farmout or
similar transaction of the Assets to any Person, including without limitation,
any sale, merger or business combination involving the stock of Seller
(collectively, a “Takeover Proposal”). Parent, through its board of directors,
shall recommend approval of this Agreement and the transactions contemplated
hereby and use reasonable efforts to solicit approval by its stockholders in
favor thereof (including, without limitation, the solicitation of proxies and
the taking of all other action

 

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necessary or advisable to secure the vote of its stockholders required by
applicable laws and the American Stock Exchange to obtain such approvals);
provided, however, and notwithstanding the foregoing or any other provision of
this Agreement to the contrary, that the Parent, Seller or any Affiliate of
Seller may at any time prior to the date the condition set forth in Section
6.3(b) is satisfied (the “Cut-Off Date”), (a) in response to an unsolicited
Takeover Proposal (i) furnish information with respect to the Assets and/or
Seller and Parent to any Person pursuant to an executed, customary
confidentiality and “standstill” agreement and (ii) participate in discussion or
negotiations with any Person regarding such Takeover Proposal and (b) upon two
(2) Business Days’ prior written notice to Buyer (i) withdraw, modify or change
any recommendation and declaration regarding such matters or (ii) recommend and
declare advisable any proposal that is superior to the transaction contemplated
by this Agreement (a “Seller Superior Proposal”) if Parent’s board of directors
determines in good faith, after consultation with its outside legal counsel, the
failure to so withdraw, modify or change its recommendation and declaration or
to so recommend and declare advisable any Seller Superior Proposal could be
reasonably likely to be inconsistent with its fiduciary obligations under
applicable law and (iii) in the event of a withdrawal, modification or change in
recommendation or the determination to do so, discontinue the reasonable efforts
referred to in this sentence. In the event of a recommendation and declaration
pursuant to clause (ii) in the preceding sentence, Parent and Seller must have
fully complied with the terms of this Agreement and have provided Buyer with at
least three (3) Business Days’ prior written notice of its intention to enter
into such agreement, the identity of the other party thereto and the material
terms and conditions of the agreement to be entered into with such person and
during such period of three (3) Business Days, considered and caused its
financial and legal advisors to consider, any written counteroffer from Buyer,
and Parent’s board of directors, must have determined in the good faith of its
members and after consultation with its financial and legal advisors that the
terms and conditions of such counteroffer are not at least as favorable to the
stockholders of Parent from a financial point of view, as that proposal. Any
withdrawal, modification or change in the recommendation or the determination to
do so or discontinuance of reasonable efforts of any party in accordance with
this Section 4.3 shall not constitute a breach of such party’s representations,
warranties, covenants or agreements contained in this Agreement. For purposes
hereof, the Cut-Off Date means the date the condition set forth in Section
6.3(b) is satisfied.

 

Section 4.4 Delivery of Financial Statements and Reserve Information.

 

  (a) To the extent requested by Buyer, Parent shall provide to Buyer as
promptly as reasonably practical any financial statements, schedules or

 

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information (including without limitation access to the work papers of Parent’s
accountants related to the financial statements described in this Section 4.4)
relating to the Assets that are required to be included in any registration
statement filed or to be filed by Buyer or any of its affiliates under the
Securities Act of 1933 and any additional financial or operating data relating
to any of the financial statements, schedules or information referred to in this
Section 4.4 or relating to any of the Assets.

 

  (b) Seller shall use reasonable efforts to cause to be delivered to Buyer
“comfort letters” of Parent’s accountants and Parent’s independent reserve
engineers dated as of the Effective Time and the closing dates and addressed to
the underwriters in any offering of securities for which such comfort letters
are required by underwriters with regard to certain financial information
regarding the Assets or the reserves relating to the Assets as the case may be,
in form reasonably satisfactory to Buyer and customary in scope and substance
for “comfort” letters delivered by independent public accountants and reserve
engineers in connection with registration statements similar to Edge’s
registration statement and to use reasonable efforts to cause Parent’s
accountant and Parent’s reserve engineer to consent to inclusion of the
information described in this Section 4.4 and to be named in Edge’s filings with
the SEC as is customary for such consents.

 

  (c) Seller shall use reasonable efforts to provide any relevant historical
accounting or financial information in Seller’s possession, custody or control
related to the Assets that Buyer may reasonably request.

 

  (d) Buyer shall bear all out-of-pocket costs paid to any third party for
preparation of any of the items described in Section 4.4(a), Section 4.4(b) and
Section 4.4(c) above.

 

Section 4.5 Inspection. From the Execution Date until the Closing Date, each of
Seller and Parent shall (and, in the case of access to the premises of the
Leases, use reasonable efforts to cause Operator to) allow, at Buyer’s sole
risk, all designated officers, attorneys, accountants and other representatives
of Buyer reasonable access, at all reasonable times during normal business
hours, upon reasonable notice, to Seller’s records and files relating to
contracts and titles pertaining to the Assets (including without limitation any
correspondence and joint venture audits related to the Assets) and to the
premises of the Leases for inspection of the condition of the Assets; provided
that no due diligence review pursuant to this Section 4.5 shall affect any
representation or warranty, or disclaimer or limitation thereof, given by any
Party hereunder, and provided further that notwithstanding the provisions of
information or due diligence review by any Party, no Party shall be deemed to
make any representation or warranty except as expressly set forth in this
Agreement. Notwithstanding the foregoing, no Party shall be required to provide
any information which it reasonably believes it may not provide to the other
Party by reason of applicable law, rules or regulations, which constitutes
information protected by attorney/client privilege, or which it is required to
keep confidential by reason of contract or

 

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agreement with third parties. The parties hereto shall make reasonable and
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. Buyer agrees that it shall not,
and shall cause its respective representatives not to, use any information
obtained pursuant to this Section 4.5 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. All non-public
information obtained pursuant to this Section 4.5 shall be governed by the
Confidentiality Agreement between Buyer and Seller as defined in Section 9.10
below. All such information is made available to Buyer subject to the disclaimer
set forth in Section 9.18.

 

ARTICLE V

 

INDEMNIFICATION

 

Section 5.1 Indemnification by Seller and Parent. If the Closing occurs, each of
Seller and Parent hereby agrees to indemnify, defend and save Buyer and its
officers, directors, employees, agents and Affiliates (all or each, a “Buyer
Indemnified Party”) harmless from and against any and all liabilities (whether
contingent, fixed or unfixed, liquidated or unliquidated, or otherwise),
obligations, deficiencies, demands, claims, suits, actions, or causes of action,
assessments, losses, costs, expenses, interest, fines, penalties, and damages
(including reasonable fees and expenses of attorneys, accountants and other
experts) (individually and collectively, the “Losses”), other than Assumed
Liabilities, suffered, sustained or incurred by any Buyer Indemnified Party
relating to, resulting from, arising out of or otherwise by virtue of:

 

  (a) any misrepresentation or breach of the representations or warranties of
Seller and Parent contained in this Agreement or in any exhibit or schedule
hereto;

 

  (b) the failure of Seller or Parent to perform any of its covenants or
obligations contained in this Agreement or in any schedule or exhibit hereto;

 

  (c) the liabilities and obligations relating to or arising out of the
ownership of the Assets and attributable to any act, omission, occurrence or
event occurring prior to the Effective Time;

 

  (d) any Title Defects for which Seller retains liability pursuant to Section
7.12(b) or Section 7.15(b);

 

  (e) any consents to assign for which Seller retains liability pursuant to
Section 7.17(b)(i); and

 

  (f) any and all Losses arising directly or indirectly out of the Retained
Remediation Obligations (as defined in Section 8.2).

 

Section 5.2 Indemnification by Buyer. If the Closing occurs, each of Buyer and
Edge agrees to indemnify, defend and save Seller and its Affiliates, and their
respective officers, directors, employees and agents (each, a “Seller
Indemnified Party”) forever harmless from and against any and all Losses
suffered, sustained or incurred by any Seller Indemnified Party relating to,
resulting from, arising out of or otherwise by virtue of:

 

  (a) any misrepresentation in or breach of the representations and warranties
of Buyer and Edge contained in this Agreement or in any schedule or exhibit
hereto;

 

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  (b) the failure of Buyer or Edge to perform any of its covenants or
obligations contained in this Agreement or in any exhibit or schedule hereto;

 

  (c) the liabilities and obligations relating to or arising out of ownership of
the Assets and attributable to any act, omission, occurrence or event occurring
after the Effective Time; and

 

  (d) all Assumed Liabilities.

 

Section 5.3 Indemnification Procedure. Any Person entitled to seek
indemnification pursuant to this Article V shall promptly provide written notice
of any claim to the Person from which it seeks indemnification within a
reasonable period of time. The indemnifying Person, if such Person so elects,
shall assume and control the defense thereof (and shall consult with the
indemnified Person with respect thereto), including the employment of counsel
reasonably satisfactory to the indemnified Person within ten (10) Business Days
after receipt of the notice with respect thereto, and the payment of all
necessary expenses; provided that as a condition precedent to the indemnifying
Person’s right to assume control of such defense, it must first enter into an
agreement with the indemnified Person (in form and substance reasonably
satisfactory to the indemnified Person) pursuant to which the indemnifying
Person agrees to be fully responsible for all losses relating to such claim and
unconditionally guarantees the payment and performance of any liability or
obligation which may arise with respect to such claim or the facts giving rise
to such claim for indemnification; provided further that the indemnifying Person
shall not have the right to assume control of such defense if the claim which
the indemnifying Person seeks to assume control of (a) seeks non-monetary relief
or (b) involves criminal or quasi-criminal allegations; and provided further
that (i) the indemnifying Person shall not consent to the imposition of any
injunction against the indemnified Person without the written consent of the
indemnified Person, (ii) the indemnifying Person shall permit the indemnified
Person to participate in such conduct or settlement through counsel chosen by
the indemnified Person, but the fees and expenses of such counsel shall be borne
by the indemnified Person (except as provided below), and (c) upon a final
determination of such action, suit or proceeding, the indemnifying Person shall
promptly reimburse to the full extent required under this Article V the
indemnified Person for the full amount of any Loss resulting from such action,
suit or proceeding and all reasonable and related expenses incurred by the
indemnified Person, other than fees and expenses of counsel for the indemnified
Person incurred after the assumption of the conduct and control of such action,
suit or proceeding by the indemnifying Person (except as provided below). If the
indemnifying Person is permitted to assume and control the defense and elects to
do so, the indemnified Person shall have the right to employ counsel separate
from counsel employed by the indemnifying Person in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
employed by the indemnified Person shall be

 

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at the expense of the indemnified Person unless (1) the employment thereof has
been specifically authorized by the indemnifying Person in writing, (2) the
indemnifying Person has been advised by counsel that a reasonable likelihood
exists of a conflict of interest between the indemnifying Person and the
indemnified Person, (3) the indemnifying Person has failed to assume the defense
and employ counsel; or (4) the indemnified Person has reasonably determined that
an adverse outcome could have a material adverse effect on its business
reputation or could reasonably be expected to have a material adverse
precedential effect; in which case the fees and expenses of the indemnified
Person’s counsel shall be paid by the indemnifying Person. In the event the
indemnifying Person fails to elect to defend such claim in accordance with the
foregoing, then the indemnified Person may elect, but shall not be required, to
defend against or settle such claim as it sees fit, provided that any settlement
of such claim shall require the consent of the indemnifying Person, which
consent shall not be unreasonably withheld.

 

Section 5.4 Amount Limitations. Seller and Parent shall have no liability for
indemnification with respect to any Losses under Section 5.1(a), Section 5.1(b)
and Section 5.1(c) until the total of such Losses exceeds Five Hundred Thousand
and No/100 Dollars ($500,000.00) and, notwithstanding anything in this Agreement
to the contrary, the maximum aggregate liability of Seller and Parent for any
such Losses shall not exceed Twenty-Five Million and No/100 Dollars
($25,000,000.00). The foregoing threshold and limitation shall not apply to any
indemnification provided by Seller and Parent with respect to any claim under
Section 5.1(d), Section 5.1(e) and Section 5.1(f).

 

Section 5.5 Time Limitation. Notwithstanding anything to the contrary contained
in this Agreement, Seller and Parent shall have no liability for indemnification
with respect to any Losses under Section 5.1(a), Section 5.1(b) and Section
5.1(c) unless on or before the date that is twelve (12) months after the Closing
Date, Buyer notifies Seller and Parent of a claim specifying the factual basis
of the applicable claim in reasonable detail to the extent then known by Buyer.
The foregoing time limitation shall not apply to any indemnification provided by
Seller and Parent with respect to any claim under Section 5.1(d), Section 5.1(e)
and Section 5.1(f).

 

Section 5.6 Sole and Exclusive Remedy. After Closing, the indemnities provided
in this Article V shall constitute the sole and exclusive remedies of the
Parties for all Losses in connection with the types of matters covered by such
indemnities.

 

Section 5.7 Disclaimer. ALL OF THE INDEMNITIES UNDER THIS ARTICLE V SHALL APPLY
REGARDLESS OF WHETHER CAUSED BY, ARISING OUT OF OR ATTRIBUTABLE TO, IN WHOLE OR
IN PART, THE SOLE OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF THE
INDEMNIFIED PERSON OR PERSONS.

 

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ARTICLE VI

 

CLOSING

 

Section 6.1 Closing. The transactions that are the subject of this Agreement
shall be consummated at a closing (the “Closing”), which shall be held at the
offices of Seller in Houston, Texas on a date mutually agreeable to the Parties
on or before December 31, 2004 or, if the SEC gives notice that it will review
the proxy statement prepared by Parent for approval by its stockholders in
connection with this transaction (the “Proxy Statement”), on or before the date
that follows December 31, 2004 by a number of days equal to those elapsed
between the date of the SEC’s notice and the date of the SEC’s approval of the
Proxy Statement; provided, however, in no event shall the Closing occur on a
date later than February 28, 2005 (the date upon which the Closing occurs being
called the “Closing Date”).

 

Section 6.2 Effective Time. Ownership of the Assets shall be transferred from
Seller to Buyer at the Closing, but effective as of 7:00 a.m. Central Time on
July 1, 2004 (the “Effective Time”).

 

Section 6.3 Conditions Precedent to Closing. Closing shall not occur unless the
following conditions precedent are met:

 

  (a) no Party exercises its right to terminate due to reductions in the
Purchase Price pursuant to Section 1.6;

 

  (b) Parent has obtained by the Closing Date the consents and approvals of its
stockholders at a special meeting of its stockholders called for that purpose,
in the percentage required by Parent’s certificate of incorporation or bylaws or
by any law, order, writ, injunction, rule, regulation, statute or decree of any
Governmental Authority or the American Stock Exchange, authorizing the
transactions contemplated by this Agreement; provided, however, that this
condition precedent shall not apply if Seller’s counsel determines that such
consent and approval are not required to be obtained;

 

  (c) Seller has obtained any required consents to assign applicable to, or no
consents to assign are applicable to, Wells which, in the aggregate, have
Allocated Values constituting at least eighty percent (80%) of the Purchase
Price; provided, however, that this condition precedent shall not apply if Buyer
and Seller agree to its waiver;

 

  (d) Seller has obtained waiver of, and no third party has exercised within any
required time period, any preferential rights to purchase applicable to, or no
preferential rights to purchase are applicable to, Wells which, in the
aggregate, have Allocated Values constituting at least eighty percent (80%) of
the Purchase Price; provided, however, that this condition precedent shall not
apply if Buyer agrees to its waiver;

 

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  (e) at any time after the Effective Time of this Agreement, there has not been
any event or occurrence, or series of events or occurrences (specific to the
Assets, and not including changes in the economy or fluctuations in the
commodity markets or other events not uniquely affecting the Assets), that has
had or is reasonably likely to have, individually or in the aggregate with all
other events or occurrences since the Effective Time, a material adverse effect
on any Asset which, in Buyer’s judgment exercised in good faith, causes a
reduction in value of any single Well or group of Wells in an amount in excess
of Five Hundred Thousand and No/100 Dollars ($500,000.00), and which Seller is
unable or unwilling to replace, remediate or compensate Buyer for, and Seller
has received a certificate of Buyer executed on its behalf by any of its
executive officers, dated as of the Closing Date, certifying to such effect;
provided, however, that this condition precedent shall not apply if Buyer agrees
to its waiver;

 

  (f) Seller and Parent have performed their covenants and agreements contained
in this Agreement that are required to be performed on or prior to the Closing
Date, and the representations of Seller and Parent contained in this Agreement
and in any document delivered in connection herewith are in all respects true
and correct as of the Closing Date, and Buyer shall have received certificates
of Seller and Parent executed on their behalf by any of their executive
officers, dated as of the Closing Date, certifying to such effect; provided,
however, that this condition precedent shall not apply if Buyer agrees to its
waiver; and

 

  (g) Buyer and Edge have performed their covenants and agreements contained in
this Agreement that are required to be performed on or prior to the Closing
Date, and the representations of Buyer and Edge contained in this Agreement and
in any document delivered in connection herewith are in all respects true and
correct as of the Closing Date, and Seller shall have received certificates of
Buyer and Edge executed on their behalf by any of their executive officers,
dated as of the Closing Date, certifying to such effect; provided, however, that
this condition precedent shall not apply if Seller agrees to its waiver.

 

  (h) Seller has provided or caused Operator to provide Buyer with access to the
Lease premises in sufficient time to permit Buyer to obtain its Independent
Phase I Environmental Review (as defined in Section 8.2) no later than five (5)
days prior to the Objection Date (as defined in Section 7.9); provided, however,
that this condition precedent shall not apply if Buyer agrees to its waiver.

 

  (i) Seller has provided Buyer with the description of the Borregos Lease in
Exhibit A no later than five (5) days prior to the Objection Date; provided,
however, that this condition precedent shall not apply if Buyer agrees to its
waiver.

 

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Section 6.4 Deliveries by Seller. At the Closing, pursuant to this Agreement,
Seller shall execute and deliver to Buyer, in form and substance reasonably
satisfactory to Buyer:

 

  (a) an Assignment and Bill of Sale (substantially in the form of attached
Exhibit D) transferring to Buyer the Assets;

 

  (b) a certificate, executed and delivered by the Secretary of the General
Partner in form and substance reasonably satisfactory to Buyer and Edge,
attesting and certifying as to:

 

  (1) the Certificate of Limited Partnership of Seller (as also certified as of
a recent date by the Secretary of State of Texas);

 

  (2) the Partnership Agreement of Seller;

 

  (3) resolutions of the (i) Parent and its Board of Directors (individually and
in its capacity as the sole shareholder of General Partner) and (ii) General
Partner and its Board of Directors (as the general partner of Seller),
authorizing the transactions contemplated by this Agreement; and

 

  (4) incumbency and specimen signatures;

 

  (c) a certificate, executed and delivered by the Secretary of Parent in form
and substance reasonably satisfactory to Buyer and Edge, attesting and
certifying as to:

 

  (1) the Certificate of Incorporation of Parent (as also certified as of a
recent date by the Secretary of State of Delaware);

 

  (2) the Bylaws of Parent;

 

  (3) resolutions of the Board of Directors and stockholders of Parent
authorizing the transactions contemplated by this Agreement; and

 

  (4) incumbency and specimen signatures;

 

  (d) any obtained written consents to assign or waivers of preferential rights
to purchase, subject to Section 6.3(c), Section 6.3(d) and Section 7.17;

 

  (e) evidence satisfactory to Buyer and Edge that all liens, claims, pledges,
security interests and other encumbrances on the Assets have been released,
including, without limitation, UCC-3 termination statements;

 

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  (f) certificates of good standing of Seller and Parent, issued not earlier
than ten (10) days prior to the Closing Date by the Secretaries of State of
Texas and Delaware, respectively;

 

  (g) clearance certificates or similar documents required by the Internal
Revenue Service or Texas state taxing authority in order to relieve Buyer of any
obligation to withhold any portion of the Purchase Price;

 

  (h) originals of all Seller’s files and records relating to the Assets;

 

  (i) letters in lieu of transfer order, prepared by Buyer and approved by
Seller, providing for the payment of all proceeds of production from the Wells
on and after July 1, 2004 directly to Buyer; and

 

  (j) such other documents and instruments as Buyer and Edge may reasonably
require in order to effectuate the transactions which are the subject of this
Agreement.

 

Section 6.5 Deliveries by Buyer. At the Closing, pursuant to this Agreement,
Buyer shall deliver to Seller and Parent, in form and substance reasonably
satisfactory to Seller and Parent:

 

  (a) a wire transfer of immediately available funds in an amount equal to the
Purchase Price;

 

  (b) the properly executed and notarized Assignment and Bill of Sale described
in Section 6.4(a);

 

  (c) certificates, executed and delivered by the Secretary of each of Buyer and
Edge in form and substance reasonably satisfactory to Seller and Parent,
attesting and certifying as to:

 

  (1) the Certificates of Incorporation of Buyer and Edge (as also certified as
of a recent date by the Secretary of State of Delaware);

 

  (2) the Bylaws of Buyer and Edge;

 

  (3) resolutions of the Board of Directors and stockholders of Buyer and Edge
authorizing the transactions contemplated by this Agreement; and

 

  (4) incumbency and specimen signatures;

 

  (d) certificates of good standing of Buyer and Edge, issued not earlier than
ten (10) days prior to the Closing Date by the Secretary of State of Delaware;
and

 

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  (e) such other documents and instruments as Seller and Parent may reasonably
require in order to effectuate the transactions which are the subject of this
Agreement.

 

Section 6.6 Further Assurances. From time to time after the Closing and without
further consideration, the Parties shall execute such further documents and
perform such further acts as may be necessary to transfer and convey the Assets
to Buyer, on the terms contained herein, and to otherwise comply with the terms
of this Agreement and consummate the transactions contemplated hereby.

 

Section 6.7 Post-Closing Adjustments.

 

  (a) Initial Adjustment. Contemporaneous with the Closing, Seller and Buyer
shall jointly prepare an accounting statement (the “Initial Post-Closing
Statement”) for the gross revenue, if any, received by Seller for hydrocarbons
and liquid hydrocarbon inventory produced from the Assets from and after the
Effective Time less reasonable and documented expenses incurred by the Seller
for the period of time from and after the Effective Time and attributable to the
operation of the Assets or sale of such hydrocarbons and liquid hydrocarbon
inventory following the Effective Time up to a date that is as close to the
Closing Date as is reasonably practicable (the last day of such period being
known as the “Initial Post-Closing Date”). The Parties shall have thirty (30)
days following completion of the Initial Post-Closing Statement to agree as to
its accuracy. Following such agreement, Seller or Buyer, as the case may be,
shall promptly pay to the other such sum as may be found due by wire transfer of
immediately available funds to an account specified by the agreed recipient of
such sum. In the event the Parties are unable to so agree, the Parties shall
attempt to resolve any disagreement prior to the Final Post-Closing Date
described in Section 6.7(b). In the event the Parties are unable to agree by the
Final Post-Closing Date, they will follow the dispute resolution procedures
described in Section 6.7(b).

 

  (b) Final Adjustment. Within ninety (90) days after the Closing Date, Seller
and Buyer shall jointly prepare a final accounting statement (the “Final Post
Closing Statement”) for the gross revenue, if any, received by Seller for
hydrocarbons and liquid hydrocarbon inventory produced from the Assets from and
after the Initial Post-Closing Date less reasonable and documented expenses
incurred by the Seller for the period of time from and after the Initial
Post-Closing Date and attributable to the operation of the Assets or sale of
such hydrocarbons and liquid hydrocarbon inventory following the Initial
Post-Closing Date. The Parties shall have thirty (30) days following completion
of the Final Post-Closing Statement to agree as to its accuracy (the last day of
such period covered by such statement being known as the “Final Post-Closing
Date”). In the event the Parties are unable to so agree, the Parties shall
submit to binding arbitration to

 

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determine any such amount pursuant to Section 9.16. Following such agreement or
binding arbitration decision, as the case may be, Seller or Buyer, as the case
may be, shall promptly pay to the other such sum as may be found due by wire
transfer of immediately available funds to an account specified by the agreed or
otherwise determined recipient of such sum.

 

Section 6.8 Liquidated Damages. BUYER AND SELLER AGREE THAT IT IS DIFFICULT TO
DETERMINE, WITH ANY DEGREE OF CERTAINTY, THE LOSS SELLER OR BUYER WILL INCUR IF
CLOSING DOES NOT OCCUR BY REASON OF SELLER’S OR BUYER’S FAILURE TO FULFILL, AS
THE CASE MAY BE, ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT. ACCORDINGLY, BUYER
AND SELLER AGREE THAT THE FOLLOWING REPRESENTS A REASONABLE ESTIMATE OF SUCH
LOSS AND IS INTENDED AS A LIQUIDATED DAMAGES PROVISION:

 

  (a) if the conditions precedent set forth in Section 6.3 are met or, as
applicable, waived, and Buyer fails to fulfill any of its obligations under this
Agreement (other than any obligation that is not fulfilled as a result of
Seller’s or Parent’s failure to perform in any material respect its obligations
under this Agreement) necessary for the Closing to occur on or before the last
date permitted to be the Closing Date pursuant to Section 6.1, then Seller may
terminate this Agreement and Buyer shall pay to Seller within five (5) Business
Days of such termination liquidated damages in the amount of Two Million and
No/100 Dollars ($2,000,000.00); and

 

  (b) if (i) the conditions precedent set forth in Section 6.3 are met or, as
applicable, waived, and Seller or Parent fails to fulfill any of its obligations
under this Agreement (other than any obligation that is not fulfilled as a
result of Buyer’s or Edge’s failure to perform in any material respect its
obligations under this Agreement) necessary for the Closing to occur on or
before the last date permitted to be the Closing Date pursuant to Section 6.1,
or (ii) if Seller fails to obtain the consent and approval of its stockholders
as required in Section 6.3(b) or if the Board of Directors of Parent withdraws
or amends the recommendation described in Section 4.3(b), or if Parent or Seller
enters into an agreement contemplated by the first sentence of Section 4.3(b),
then, in the case of (i), Buyer may terminate this Agreement and in the case of
(ii) Buyer or Seller may terminate this Agreement and in any such event, Seller
shall pay to Buyer within five (5) Business Days of such termination liquidated
damages in the amount of Two Million and No/100 Dollars ($2,000,000.00);
provided, however, that, notwithstanding the foregoing, in the case of failure
to obtain the consent and approval of Parent’s stockholders, as required in
Section 6.3(b), the amount shall instead be One Million and No/100 Dollars
($1,000,000.00).

 

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Section 6.9 Failure to Close. If the Closing does not occur on or before the
last date permitted to be the Closing Date pursuant to Section 6.1, for any
reason other than those identified in Section 6.8, any Party may terminate this
Agreement by giving written notice to the other Parties. Thereafter, no Party
shall have any further obligations to any other Party hereunder, other than any
obligations and liabilities arising prior to such termination and those
obligations that by their terms survive the termination of this Agreement.

 

ARTICLE VII

 

TITLE MATTERS

 

Section 7.1 Title Information. Seller shall make all information in Seller’s
possession regarding title to the Assets available to Buyer in Seller’s offices
at reasonable times during Seller’s normal business hours. Seller makes no
representations and warranties, express or implied, as to the accuracy or
completeness of any information furnished to Buyer, all as more particularly
provided in Section 9.18.

 

Section 7.2 Defensible Title. “Defensible Title” means the title of Seller in
and to each Lease and Well that, subject to and except for the Permitted
Encumbrances (as defined in Section 7.6):

 

  (a) Entitles Seller to receive not less than the net revenue interest (“NRI”)
for the hydrocarbons and proceeds thereof produced from each Well set forth in
Exhibit B,

 

  (b) Obligates Seller to bear costs and expenses relating to the maintenance,
development, operation and production of hydrocarbons from each Well, in an
amount not greater than the working interest (“WI”) for Well set forth in
Exhibit B, and

 

  (c) Is free and clear of encumbrances, liens and defects that materially
impair the use and enjoyment of or that constitute a loss of interest in the
Well and the Lease.

 

Section 7.3 Defensible Title: Development Acreage. Seller’s title to any
non-producing acreage (“Development Acreage”) included in the Assets and listed
as a Well shall be presumed to be Defensible Title unless Buyer can show through
actual evidence submitted with a Title Defect Notice (as defined in Section 7.9)
that Seller’s title to such Development Acreage has failed or that the
Development Acreage is subject to a Title Defect, lien or encumbrance (except
for Permitted Encumbrances) that would constitute a material loss of interest in
such Development Acreage. Unless otherwise shown as a Well, non-producing
intervals within producing units shall not be considered Development Acreage.

 

Section 7.4 Title to Non-Well Assets. Exhibit B does not provide the NRI and WI
for any non-producing interval or formation that is not specifically identified
in Exhibit B or for any leasehold interest or acreage. Buyer waives the right to
assert Title Defects as to Seller’s interest, if any, in any Asset or portion
thereof not listed as a Well.

 

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Section 7.5 Allocated Value. If an Allocated Value has not been given for an
Asset or if the Allocated Value for any Well is zero, Seller shall be
conclusively presumed to have Defensible Title to such Asset or Well.

 

Section 7.6 Permitted Encumbrances. “Permitted Encumbrances” shall include the
following (but only to the extent they exist of record and constitute a burden
on the Assets as of the Effective Time):

 

  (a) any royalties, overriding royalties, net profits interests, production
payments, reversionary interests and similar burdens if the net cumulative
effect of such burdens does not reduce the NRI for a Well;

 

  (b) third-party consents to assign and preferential rights to purchase, as
covered exclusively by Section 7.17;

 

  (c) liens for taxes or assessments not yet delinquent, or, if delinquent,
being contested in good faith;

 

  (d) rights to consent by, notices to, filings with or actions by federal,
state, local or tribal authorities in connection with the conveyance of the
Assets if customarily obtained after a conveyance is made;

 

  (e) obligations to reassign upon the surrender or expiration of any Lease;

 

  (f) easements, rights of way, servitudes, permits, surface leases and other
rights with respect to the surface or any restrictions on access to the surface
or subsurface that do not materially interfere with the operation of the Asset;

 

  (g) Title Defects waived by Buyer;

 

  (h) division orders, transfer orders, letters in lieu of transfer orders and
pooling or unitization orders, declarations or agreements;

 

  (i) materialmen’s, mechanics’, repairmen’s, contractors’, or other similar
liens or charges (1) if the amount owed is not yet due and payable, (2) if such
lien or charge has not been filed pursuant to law and the time for filing has
expired, (3) if filed, such lien or charge has not yet become due and payable or
payment is being withheld as provided by law, or (4) if the validity of such
lien or charge is being contested in good faith;

 

  (j) rights reserved to or vested in any governmental authority to control or
regulate any of the Assets in any manner and all applicable laws, rules,
regulations and orders of general applicability in the area;

 

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  (k) liens arising under operating agreements, unitization and pooling
agreements and production sales contracts securing amounts not yet due and
payable or, if due, being contested in good faith; and

 

  (l) calls on or preferential rights to purchase production held by third
parties to purchase production for a price at or above market price.

 

Section 7.7 Title Defect. “Title Defect” means any material encumbrance, defect
in or objection to real property title, excluding Permitted Encumbrances, that
renders Seller’s title less than Defensible Title. Notwithstanding the
foregoing, the following shall not constitute Title Defects:

 

  (a) defects based on lack of information in Seller’s files;

 

  (b) defects based on title irregularities or defects found in the Assets that
are typically accepted as a normal business risk in the area of the applicable
Asset and have not had and are reasonably expected not to have, an adverse
effect on the right to receive revenue from production from the applicable
Asset;

 

  (c) defects in the chain of title consisting of the failure to recite marital
status or omissions of successors or heirship proceedings, unless Buyer provides
affirmative evidence that such failure or omission has resulted in a third
party’s actual and superior claim of title to the Asset, which claim, if
asserted, is likely to prevail;

 

  (d) defects arising out of the lack of a survey;

 

  (e) defects based on the failure to record leases issued by the United States
or any state, local or tribal authority or any assignments of record title or
operating rights in the real property or other county records;

 

  (f) defects asserting a change in NRI or WI based on (1) a change in drilling
and spacing units or tract allocation or changes in participating areas, or (2)
an after-payout decrease in NRI or increase in WI pursuant to a farm-in,
farm-out or other Contract, if the effect of such change is reflected in the NRI
and WI set forth in Exhibit B;

 

  (g) defects related to suspension of revenues due and owing to Seller, if such
suspension is not supported by facts and circumstances that would otherwise be a
Title Defect; and

 

  (h) defects that have been cured or that are not material in light of the
entire chain of title or subsequent agreements.

 

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Section 7.8 Title Defect Value. “Title Defect Value” means the value of the
Title Defect as determined by Buyer in good faith, taking into account all
relevant factors, including but not limited to the following:

 

  (a) the Allocated Value of the Well;

 

  (b) the reduction in the NRI of the Well, or the increase in the WI of the
Well to the extent such increase is not accompanied by a corresponding increase
in the NRI;

 

  (c) if the Title Defect represents only a possibility of title failure, the
probability that such failure will occur;

 

  (d) the legal and practical effect of the Title Defect; and

 

  (e) if the Title Defect is a lien or encumbrance other than a Permitted
Encumbrance, the cost of removing the lien or encumbrance.

 

Only that portion of the Well or the Lease that is materially and adversely
affected by a Title Defect shall be considered for purposes of determining the
Title Defect Value.

 

Section 7.9 Title Defect Notice. Buyer shall give Seller notice (“Title Defect
Notice”) as soon as possible but no later than ten (10) Business Days prior to
the Closing Date (such date being referred to herein as the “Objection Date”).
The Title Defect Notice must include all of the following:

 

  (a) a description of the Title Defect;

 

  (b) a description of the reasonable basis for the Title Defect;

 

  (c) Reasonable Documentation supporting the basis for the Title Defect;

 

  (d) evidence supporting Buyer’s belief that the Title Defect has not been
released or cured and is still enforceable;

 

  (e) the identity and the Allocated Value of the Well; and

 

  (f) the Title Defect Value and the computations upon which Buyer’s belief is
based.

 

Section 7.10 Assumed Title Liabilities. Any notice that is not timely and
properly given or that does not satisfy all of the foregoing shall not be a
valid Title Defect Notice, and any Title Defects not included in a valid Title
Defect Notice shall be deemed to be “Assumed Title Liabilities” and to have been
waived or assumed by Buyer. Except as to any Title Defects subject to Section
7.12(b) or Section 7.15(b) or consents to assign subject to Section 7.17(b),
after Closing, Seller’s only warranty of title to the Assets shall be that
special warranty provided in Section 2 of that Assignment and Bill of Sale in
the form set forth in Exhibit D.

 

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Section 7.11 Reasonable Documentation. “Reasonable Documentation” means a copy
of any available title opinion describing the Title Defect and

 

  (a) a copy of the relevant document, if the basis is a document;

 

  (b) the deed preceding and following a gap in the chain of title or a title
opinion describing the gap in reasonable detail, if the basis is a gap in
Seller’s chain of title;

 

  (c) a copy of the document creating the lien or encumbrance, if the basis is a
lien or encumbrance, together with evidence supporting Buyer’s determination
that the lien or encumbrance has not been released and is still enforceable; or

 

  (d) any other reasonable documentation or explanation supporting the Title
Defect.

 

Section 7.12 Seller’s Options. Seller shall have the right to cure any Title
Defect but shall have no obligation to do so. If Buyer gives a Title Defect
Notice, Seller shall have the option of:

 

  (a) curing the Title Defect before Closing, and, if such Title Defect is not
cured before Closing, Seller shall further elect (b), (c), (d) or (e);

 

  (b) indemnifying Buyer for all liabilities and obligations associated with the
Title Defect, which indemnity shall terminate if Seller later cures the Title
Defect;

 

  (c) contesting the existence of a Title Defect or the Title Defect Value, as
set forth in Section 7.13;

 

  (d) reducing the Purchase Price by the Title Defect Value, subject to the
Title Defect Threshold and Title Defect Deductible described in Section 7.14, in
which event Seller shall be released from and of all further liability or
obligation to Buyer with respect to the Title Defect, and the Title Defect shall
be a Permitted Encumbrance; or

 

  (e) if the Title Defect Value exceeds ten percent (10%) of the Allocated Value
of the Well, excluding the Well from the Assets conveyed to Buyer at the
Closing, subject to Section 7.15, in which event the Purchase Price shall be
reduced by the Allocated Value of the Well.

 

Section 7.13 Contested Title Defects. If Seller contests the existence of a
Title Defect or the Title Defect Value pursuant to Section 7.12(c), Seller shall
notify Buyer within three (3) Business Days after Seller’s receipt of the Title
Defect Notice. The notice shall state the basis for Seller’s contest of the
Title Defect or the Title Defect Value. Within two (2) Business Days

 

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after Buyer’s receipt of the notice, representatives of Seller and Buyer,
knowledgeable in title matters, shall meet and either (a) agree to reject the
Title Defect, in which case Buyer shall waive the Title Defect, or (b) agree on
the validity of the Title Defect and the Title Defect Value, in which case
Seller shall have the options provided in Section 7.12 (except for the right to
contest under Section 7.12(c)). If Seller and Buyer cannot agree on either
option (a) or (b) in the preceding sentence, the dispute concerning the Title
Defect or the Title Defect Value subject to the notice shall be resolved in
accordance with Section 9.16.

 

Section 7.14 Adjustment to Purchase Price; Title Defect Threshold and
Deductible. At Closing, the Purchase Price shall be adjusted for the Title
Defect Values as provided in Section 7.12(d); provided, however, notwithstanding
anything to the contrary herein, there shall be no cure, remedy, deletion or
adjustment to the Purchase Price whatsoever in respect of any Title Defects
unless the aggregate value of all Title Defects equals or exceeds One Million
and No/100 Dollars ($1,000,000.00) (the “Title Defect Threshold Amount”). Once
the Title Defect Threshold has been reached, the amount of reduction in Purchase
Price for Title Defects shall be the sum of Title Defect Values in excess of
Five Hundred Thousand and No/100 ($500,000.00) (the “Title Defect Deductible
Amount”).

 

Section 7.15 Exclusions of Wells. Pursuant to Section 7.12(e), if the Title
Defect Value exceeds ten percent (10%) of the Allocated Value of the Well,
Seller shall have the option to exclude the Well from the Assets conveyed to
Buyer at the Closing by notifying Buyer on or before the Closing, in which event
the Purchase Price shall be reduced by the Allocated Value of the Well. If the
Title Defect Value exceeds ten percent (10%) of the Allocated Value of the Well
and the Well is excluded from the Assets conveyed to Buyer at the Closing,
Seller may elect either of the following:

 

  (a) if Seller cures the Title Defect to Buyer’s reasonable satisfaction before
the Final Post-Closing Date, Seller may convey the Well affected by the Title
Defect to Buyer on the Final Post-Closing Date, subject to all of the terms and
conditions of this Agreement, and Buyer shall pay to Seller the amount by which
the Purchase Price was reduced with respect to the Well; or

 

  (b) if Seller does not cure the Title Defect to Buyer’s reasonable
satisfaction before the Final Post-Closing Date and agrees to indemnify Buyer
from all liabilities and obligations arising out of the Title Defect, Seller may
convey the Well affected by the Title Defect to Buyer on the Final Post-Closing
Date, subject to all of the terms and conditions of this Agreement, in which
event Buyer shall pay to Seller the amount by which the Purchase Price was
reduced with respect to the Well, and Seller shall be released from all further
liability or obligation to Buyer with respect to the Title Defect, and, subject
to the indemnity provided above in this paragraph, the Title Defect shall be a
Permitted Encumbrance.

 

Section 7.16 Additional Interests. As soon as possible and no later than on or
before five (5) Business Days before Closing, Buyer shall in good faith notify
Seller of any interest that

 

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would be an Asset but that is not specifically listed, including but not limited
to additional Wells, or any increase in any NRI or decrease in any WI for a
Well. The value of the additional interest shall be determined by the Parties in
good faith, taking into account all relevant factors (and determining, wherever
appropriate, a value that is based on the Allocated Value for the Well and in
proportion to the increase in the NRI of the Well), and the Purchase Price shall
be increased by such amount.

 

Section 7.17 Preferential Rights to Purchase and Consents to Assign.

 

  (a) Seller shall use reasonable efforts to obtain consents to assign that
Seller identifies before the Closing as contractually required to be obtained
before the Closing and to give notices required in connection with those
preferential rights to purchase that Seller identifies before the Closing and
that are identified in Schedule 2.4. If Buyer discovers additional such consents
to assign or preferential rights to purchase before the Closing, Buyer shall
immediately notify Seller, and Seller shall use reasonable efforts to obtain the
required consent to assign or to give notice required in connection with the
preferential right to purchase before the Closing. Before and after the Closing,
Buyer shall cooperate with Seller in connection with any required consent to
assign and preferential right to purchase, including providing assurances of
financial condition, but neither Seller nor Buyer shall be required to expend
funds or make any other type of financial commitment in connection with such
consent to assign or preferential right to purchase.

 

  (b) If a necessary consent to assign that is contractually required to be
obtained before the Closing is identified before the Closing and has not been
obtained by the Closing, at Seller’s election, either (i) the entire Asset,
including but not limited to that portion of the Asset affected by the consent
to assign, shall be assigned to Buyer at the Closing, and Seller shall defend
and indemnify Buyer against any loss arising out of the failure to obtain the
consent to assign, or (ii) that portion of the Asset affected by the consent to
assign shall be excluded from the Assets conveyed to Buyer at the Closing, and
the Purchase Price shall be reduced by the Allocated Value of the Well
corresponding to that portion of the Assets.

 

  (c) If Seller is able to obtain the consent to assign referred to in Section
7.17(b)(ii) by the Final Post-Closing Date, Seller shall on the Final
Post-Closing Date convey to Buyer that portion of the Asset affected by the
consent to assign, subject to all of the terms of this Agreement, and Buyer
shall pay to Seller the amount by which the Purchase Price was previously
reduced with respect to that portion of the Asset.

 

  (d) If a preferential right to purchase an Asset (i) is exercised before the
Closing, or (ii) provides for a period of time to exercise the preferential

 

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right that has not expired by the Closing and the third party has not waived and
is not deemed to have waived the preferential right, that portion of the Asset
affected by the preferential right shall be excluded from the Assets conveyed to
Buyer at the Closing, and the Purchase Price shall be reduced by the Allocated
Value of the Well corresponding to that portion of the Asset.

 

  (e) If (i) the holder of any preferential right to purchase exercises such
preferential right to purchase described in Section 7.17(d) before or after the
Closing but fails to consummate the transaction before the Final Post-Closing
Date, (ii) the period of time to exercise a preferential right expires after the
Closing but before the Final Post-Closing Date, or (iii) the holder of a
preferential right has waived or is deemed to have waived the preferential right
after the Closing but before the Final Post-Closing Date, Seller shall convey
that portion of the Asset affected by the preferential right to Buyer, subject
to all of the terms of this Agreement, and Buyer shall on the Final Post-Closing
Date pay to Seller the amount by which the Purchase Price previously was reduced
with respect to that portion of the Asset.

 

  (f) If any other preferential right to purchase identified after the Closing
is subsequently exercised, Buyer shall convey the affected Asset to the holder
of the preferential right to purchase and shall receive all amounts paid by the
holder of the preferential right to purchase.

 

  (g) The remedies provided in this Section 7.17 are the exclusive remedies with
respect to consents to assign and preferential rights to purchase that affect
the Assets.

 

ARTICLE VIII

 

ENVIRONMENTAL MATTERS

 

Section 8.1 Inspection of the Assets. From the Execution Date until the
Objection Date, Seller and Parent shall (and shall use reasonable efforts to
cause Operator to) provide Buyer access to the Lease premises, at reasonable
times during normal business hours with reasonable notice, so that Buyer, at its
sole cost and expense, may conduct a Phase I environmental assessment, excluding
any sampling or testing, and, together with Buyer’s agents and contractors, may
conduct the Independent Phase I Environmental Review (as defined in Section
8.2). Buyer and Edge shall defend and indemnify Seller and Parent against all
claims, demands, liabilities, judgments, penalties, causes of action, losses,
damages, costs and expenses (including attorneys; fees, expert fees and court
costs) of every kind or character arising out of the conduct of such assessment
or the entry upon the Assets, EVEN THOUGH CAUSED BY, ARISING OUT OF OR
ATTRIBUTABLE TO, IN WHOLE OR IN PART, THE SOLE OR CONCURRENT NEGLIGENCE, FAULT
OR STRICT LIABILITY OF SELLER. If there is a conflict between the foregoing
sentence and any other provision of this Agreement, the foregoing sentence shall
control. Buyer shall give Seller adequate prior notice of all inspections, and
Seller shall have the right to participate in all inspections.

 

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Section 8.2 Definitions. The following terms shall have the following meanings:

 

“Assumed Environmental Liabilities” means all liabilities and obligations for
environmental matters related to the Assets, whether located on the Assets or
offsite, before and after the Effective Time, except for the Retained
Remediation Obligations.

 

“Environmental Defect Notice” means a notice of an Environmental Defect with
respect to a Well that is given by Buyer to Seller in accordance with the
provisions of Section 8.5. An Environmental Defect Notice must be based on the
condition of the Well as confirmed by the Independent Environmental Review or a
notice of violation of an Environmental Law received from a governmental
authority.

 

“Environmental Defect” means a condition on the Assets that exists before the
Effective Time and that causes a Well or the lands covered by the Leases or upon
which the Well or Wells are situated to be in violation of an Environmental Law.

 

“Environmental Defect Value” means Buyer’s good-faith estimate of the costs and
expenses associated with the remediation of an Environmental Defect with respect
to an individual Well, less Site Costs.

 

“Environmental Law” means any statute, rule, regulation, code or order of any
federal, state or local governmental authority relating to pollution or
protection of the environment, to the extent in effect and consistently enforced
before the Effective Time, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), 42
U.S.C. § 9601-9657, as amended by the Superfund Amendments and Reauthorization
Act of 1986 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. §
6951, et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251, et
seq., the Clean Air Act, 42 U.S.C. § 741, et seq., the Clean Water Act, 33
U.S.C. § 7401, the Toxic Substances Control Act, 15 U.S.C. § 2601-2629, the Safe
Drinking Water Act, 42 U.S.C. §§ 300F-300J, and all similar federal, state and
local environmental statutes, ordinances and the rules, regulations, orders and
decrees now or hereafter promulgated thereunder.

 

“Incident” means a spill, release, discharge or emission of a substance that
occurred or reoccurred in the same area on account of a single cause or course
of conduct.

 

“Independent Phase I Environmental Review” means the Phase I environmental
assessment, excluding any sampling or testing, performed by a qualified
independent third party environmental consultant on behalf of Buyer.

 

“Retained Remediation Obligations” means only the obligation to remediate
certain Environmental Defects identified in an Environmental Defect Notice,
except for Site Costs, which obligation to remediate is retained by Seller
pursuant to Section 8.6(a).

 

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“Site Costs” shall mean all costs of plugging and abandoning the Wells,
disposing of equipment in connection with the Wells and restoring the surface
land in connection with the Wells (with the exception of any Retained
Remediation Obligations) in compliance with any and all applicable laws,
statutes, ordinances, rules, regulations, orders or determinations of any
governmental authority and in compliance with all applicable leases and all
other applicable agreements.

 

Section 8.3 Acknowledgments by Buyer: Representation and Warranty by Seller.
Buyer acknowledges and agrees that Seller does not operate any of the Assets
and, as non-operator, has no knowledge or only limited knowledge of the
environmental condition of the Assets. Buyer acknowledges and agrees that Seller
has made no effort to investigate, does not have the right without obtaining
applicable consents to investigate and does not have the right without obtaining
applicable consents to permit Buyer to investigate the environmental condition
of or on the Assets, and, except as expressly provided in the following
paragraph, makes no representations or warranties as to the condition of the
Assets. Seller represents and warrants to Buyer that, to Seller’s Knowledge,
Seller has not received any written or verbal notice, from any federal, state or
local governmental authority that (a) the Assets do not have a permit required
under Environmental Law, (b) Seller is in violation or potential violation of an
Environmental Law, or (c) Seller is liable or potentially liable for response
costs or other remedial costs under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. §§ 9601, et seq. with respect to the
Assets.

 

Section 8.4 Apportionment of Environmental Liabilities and Obligations.

 

  (a) Buyer’s and Edge’s Assumed Environmental Liabilities. Upon Closing, and
except for Retained Remediation Obligations, Buyer and Edge shall assume and
pay, perform, fulfill and discharge, and release Seller and Parent from and
defend and indemnify Seller against, any and all claims, costs, expenses,
liabilities and obligations relating to (a) the Assumed Environmental
Liabilities, including but not limited to those arising out of events occurring
after the Effective Time that are within the control of Buyer or that are
attributable to the acts of Buyer or its contractors or subcontractors, and (b)
the Site Costs.

 

  (b) Seller’s and Parent’s Retained Remediation Obligations. Upon Closing,
Seller and Parent agree to retain and pay, perform, fulfill and discharge, and
indemnify Buyer and Edge against all claims relating to the Retained Remediation
Obligations, except for those claims relating to the Retained Remediation
Obligations arising out of events occurring after the Effective Time that are
within the control of Buyer or that are attributable to the acts of Buyer or its
contractors or subcontractors.

 

  (c) ALL OF THE INDEMNITIES UNDER THIS SECTION 8.4 SHALL APPLY REGARDLESS OF
WHETHER CAUSED BY, ARISING OUT OF OR ATTRIBUTABLE TO, IN WHOLE OR IN PART, THE
SOLE OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF THE INDEMNIFIED
PERSON OR PERSONS.

 

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Section 8.5 Environmental Defect Notice. An Environmental Defect Notice must be
given to Seller no later than the Objection Date and must include all of the
following:

 

  (a) the name of the affected Well;

 

  (b) a detailed description of the condition on the Well that causes the Well
to be in violation of an Environmental Law;

 

  (c) a copy of the Independent Environmental Review which addresses the
violation of an Environmental Law or a copy of the notice of violation of an
Environmental Law received from a governmental authority; and

 

  (d) the Environmental Defect Value associated with each Well.

 

Any notice that is not timely and properly given or that does not satisfy all of
the foregoing shall not be a valid Environmental Defect Notice. If Seller does
not receive an Environmental Defect Notice as to any Well, Buyer shall be deemed
to have accepted the Well “as is, where is,” with all faults and waived Buyer’s
rights to assert an Environmental Defect with respect to that Well. No
Environmental Defect Notice may be given by Buyer on any Well that is being
operated or that has been operated by Buyer, and Buyer shall accept all such
Wells “as is, where is,” with all faults and shall be deemed to have waived
Buyer’s rights to assert an Environmental Defect with respect to such Wells.

 

Section 8.6 Seller’s Options. If Buyer gives a valid Environmental Defect
Notice, Seller shall have the option of

 

  (a) remediating the Environmental Defect, as set forth in Section 8.7; if not
remediated before Closing, such Environmental Defect shall become, after
Closing, a Retained Remediation Obligation but, if remediated within ninety (90)
days after Closing in accordance with Section 8.7, shall cease to be a Retained
Remediation Obligation;

 

  (b) contesting the existence of an Environmental Defect or the Environmental
Defect Value, as set forth in Section 8.8;

 

  (c) reducing the Purchase Price by the Environmental Defect Value, subject to
the Environmental Defect Threshold and Environmental Defect Deductible described
in Section 8.9, in which event Seller shall be released from and of all further
liability or obligation to Buyer with respect to the Environmental Defect and
the Environmental Defect shall be an Assumed Environmental Liability; or

 

  (d) if the Environmental Defect Value exceeds ten percent (10%) of the
Allocated Value of the Well, excluding the Well from the Assets conveyed to
Buyer at the Closing, in which event the Purchase Price shall be reduced by the
Allocated Value of the Well.

 

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Section 8.7 Implementing Remediation. If Seller elects to remediate an
Environmental Defect pursuant to Section 8.6(a), Seller shall select the means
and methods of effecting the remediation in accordance with applicable
Environmental Law and any applicable agreement, but Seller shall not be required
to perform any activities if the cost thereof would be Site Costs, including
without limitation plugging and abandoning any wells. Seller’s responsibilities
for remediation under this Section 8.7 shall be limited to a standard
appropriate for the use of an asset for oil and gas activities and shall be
subject to Buyer’s reasonable approval and satisfaction.

 

Section 8.8 Contested Environmental Defects. If Seller contests the existence of
an Environmental Defect or the Environmental Defect Value pursuant to Section
8.6(b), Seller shall notify Buyer within three (3) Business Days after Seller’s
receipt of the Environmental Defect Notice. The notice shall state the basis for
Seller’s contest of the Environmental Defect or the Environmental Defect Value.
Within two (2) Business Days after Buyer’s receipt of the notice,
representatives of Seller and Buyer, knowledgeable in environmental matters,
shall meet and either (a) agree to reject the Environmental Defect, in which
case Buyer shall waive the Environmental Defect, or (b) agree on the validity of
the Environmental Defect and the Environmental Defect Value, in which case
Seller shall have the options provided in Section 8.6 (except for the right to
contest under Section 8.6(b)). If Seller and Buyer cannot agree on either option
(a) or (b) in the preceding sentence, the dispute concerning the Environmental
Defect or the Environmental Defect Value subject to the notice shall be resolved
in accordance with Section 9.16.

 

Section 8.9 Adjustment to Purchase Price; Environmental Defect Threshold and
Deductible. At Closing, the Purchase Price shall be adjusted for the
Environmental Defect Values as provided in Section 8.6(c); provided, however,
notwithstanding anything to the contrary herein, there shall be no cure, remedy,
deletion or adjustment to the Purchase Price whatsoever in respect of any
Environmental Defects unless the aggregate value of all Environmental Defects
equals or exceeds One Million and No/100 Dollars ($1,000,000.00) (the
“Environmental Defect Threshold Amount”). Once the Environmental Defect
Threshold has been reached, the amount of reduction in Purchase Price for
Environmental Defects shall be the sum of Environmental Defect Values in excess
of Five Hundred Thousand and No/100 ($500,000.00) (the “Environmental Defect
Deductible Amount”).

 

Section 8.10 Exclusive Remedies. The rights and remedies granted to Buyer and
Edge in this Article VIII are the exclusive rights and remedies relating to any
environmental condition on the Assets, and Seller and Parent shall have no other
liability or obligations with respect to environmental conditions on the Assets.

 

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ARTICLE IX

 

MISCELLANEOUS

 

Section 9.1 Notices. All notices, reports, records or other communications that
are required or permitted to be given to the Parties under this Agreement shall
be sufficient in all respects if given in writing and delivered in person, by
fax, by overnight courier or by registered or certified mail, postage prepaid,
return receipt requested, to the receiving Party at the following address:

 

If to Seller or Parent:   Contango Oil & Gas Company     3700 Buffalo Speedway,
Suite 960     Houston, TX 77098     Attention: Kenneth R. Peak     Fax:
    (713) 960-1065     Phone: (713) 960-1901 If to Buyer or Edge:   Edge
Petroleum Corporation     1301 Travis, Suite 2000     Houston, TX 77002    
Attention: C.W. MacLeod     Sr. Vice President Business Development & Planning  
  Fax:     (713) 654-8910     Phone: (713) 654-8960 With a copy to:   Edge
Petroleum Exploration Company     1301 Travis, Suite 2000     Houston, TX 77002
    Attention: Mark J. Gabrisch, Vice President – Land     Fax:     (713)
654-7722     Phone: (713) 654-8960

 

or such other address as such Party may have given to the other Parties by
notice pursuant to this Section 9.1. Notice shall be deemed given on (i) the
date such notice is personally delivered by hand (costs prepaid), (ii) three (3)
days after the mailing if sent by certified mail, return receipt requested,
(iii) one (1) day after the date of delivery to a nationally recognized
overnight courier service (costs prepaid), or (iv) the next succeeding day after
transmission by facsimile with retained confirmation of transmission by the
transmitting equipment.

 

Section 9.2 General Definitions. For the purposes of this Agreement, the
following terms have the meaning set forth below:

 

“Affiliate” means, with respect to any Party, any Person directly or indirectly
controlling, controlled by, or under common control with such Party, and any
officer, director or executive employee of such Party and includes any past or
present Affiliate of any such Person.

 

35

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“Business Days” means any day other than a Saturday, Sunday, or any day on which
banks in Texas are permitted or required to be closed.

 

“GAAP” means generally accepted accounting principles for financial reporting in
the United States, consistently applied.

 

“Governmental Authority” means the United States of America, any state,
commonwealth, territory or possession thereof and any political subdivision of
any of the foregoing, including but not limited to courts, departments,
commissions, boards, bureaus, agencies or other instrumentalities.

 

“Knowledge” means that an individual will be deemed to have Knowledge of a
particular fact or other matter and a Person other than an individual will be
deemed to have Knowledge of a particular fact or other matter if any individual
serving as an officer, director or employee of such Person or its General
Partner, Parent or any of its wholly owned subsidiaries is actually aware of
that fact or matter.

 

“Material Adverse Effect” means a material adverse effect on the value, use,
operation or ownership of the Assets, taken as a whole. Where initial capital
letters are not used, the words “material adverse effect” have the ordinary
meaning applicable to them in the context in which they are used.

 

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

 

“SEC” means the Securities and Exchange Commission.

 

Section 9.3 Entire Agreement. The Schedules and Exhibits attached to this
Agreement are hereby incorporated into this Agreement and are an integral part
of this Agreement. This Agreement, including the Schedules and Exhibits, sets
forth the complete and exclusive understanding of the Parties with respect to
the subject matter hereof and may be modified only by a written instrument
signed by all of the Parties hereto.

 

Section 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The exchange of copies of
this Agreement and of signature pages by facsimile transmission shall constitute
effective execution and delivery of this Agreement as to the Parties and may be
used in lieu of the original Agreement for all purposes. Signatures of the
Parties transmitted by facsimile shall be deemed to be their original signatures
for all purposes.

 

Section 9.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer any right or remedy under or by reason of this Agreement on
any Person other than the Parties and their respective heirs, representatives,
successors and assigns, nor is anything set forth herein intended to affect or
discharge the obligation or liability of any third Persons to any Party, nor
shall any provision give any third Person any right of subrogation or action
over against any Party.

 

36

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Section 9.6 Expenses. Each of the Parties shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by hereunder,
including, without limitation, legal and accounting fees and expenses.

 

Section 9.7 Waiver. No failure of any Party to exercise any right or remedy
given such Party under this Agreement or otherwise available to such Party or to
insist upon strict compliance by any other Party with its obligations hereunder,
and no custom or practice of the Parties in variance with the terms hereof,
shall constitute a waiver of any Party’s right to demand exact compliance with
the terms hereof, unless such waiver is set forth in writing and executed by
such Party.

 

Section 9.8 Governing Law; Jurisdiction. This Agreement shall be construed and
governed in accordance with the laws of the State of Texas without regard to
conflicts-of-laws principles that would require the application of any other
law. Any action to enforce, or which arises out of or relates in any way to, any
of the provisions of this Agreement shall be brought and prosecuted solely in
the Texas state courts or the Federal district courts located in Harris County,
Texas.

 

Section 9.9 Assignment. No Party may assign its rights or delegate its
obligations hereunder without the consent of the other Parties. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
Parties and their respective heirs, successors and assigns.

 

Section 9.10 Confidentiality. Buyer and Seller acknowledge that all information
furnished or disclosed pursuant hereto is subject to the Confidentiality
Agreement by and between Parent and Buyer, dated as of September 8, 2004 (the
“Confidentiality Agreement”) and such information must remain confidential.
Buyer and Seller shall consult with each other prior to releasing any press
releases. The Confidentiality Agreement is hereby incorporated in this Agreement
and is an integral part of this Agreement, and shall survive any termination
hereof or shall terminate at Closing.

 

Section 9.11 Severability. If any term or other provision of this Agreement is
held invalid, illegal or incapable of being enforced by any court of competent
jurisdiction, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect. Any provision of this Agreement
held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable. Upon any binding
determination that any term or other provision is invalid, illegal or incapable
of being enforced by a court of competent jurisdiction, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible and in an acceptable manner, to the
end that the transaction hereby may be contemplated to the extent possible.

 

37

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Section 9.12 DTPA. Each Party hereby certifies to the other that it is not a
“Consumer” within the meaning of the Texas Deceptive Trade Practices – Consumer
Protection Act, Subchapter E of Chapter 17, Section 17.41, et. Seq. of the Texas
Business and Commerce Code, as amended (the “DTPA”). The Parties covenant, for
themselves and for an on behalf of any successors and assigns, that if the DTPA
is applicable, (a) the Parties are “business consumers” thereunder and (b) each
Party hereby waives and releases all of its rights and remedies thereunder
(other than Section 17.555, Texas Business and Commercial Code) as applicable to
the other Party and its successors and (c) each Party shall defend and indemnify
the other Party from and against any and all claims, demands or causes of action
of or by that Party or any successor or any of its Affiliates based in whole or
in part on the DTPA, arising out of or in connection with the transaction set
forth in this Agreement.

 

Section 9.13 Seller’s Election to Effect IRC Section 1031 Exchange. In the event
Seller so elects, Buyer agrees to accommodate Seller in effecting a tax-deferred
exchange under Internal Revenue Code Section 1031, as amended. Seller shall have
the right to elect this tax-deferred exchange at any time prior to the Closing
Date. If Seller elects to effect a tax-deferred exchange, Buyer agrees to
execute additional documents, agreements, escrow instructions or other
instruments as may be reasonably necessary to effect the exchange, provided that
Buyer shall incur no additional costs, expenses, fees or liabilities as a result
of or connected with the exchange.

 

Section 9.14 Headings. The subject headings of paragraphs and subparagraphs of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.

 

Section 9.15 Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party.

 

Section 9.16 Binding Arbitration.

 

  (a) Disputes. Except as expressly otherwise provided in this Agreement, this
Section 9.16 shall apply to any dispute arising under or related to this
Agreement (whether arising in contract, tort or otherwise, and whether arising
at law or in equity), including

 

  (1) any dispute regarding the construction, interpretation, performance,
validity or enforceability of any provision of this Agreement or whether any
Party is in compliance with, or breach of, any provisions of this Agreement; and

 

  (2) the applicability of this Section 9.16 to a particular dispute (a
“Dispute”). The provisions of this Section 9.16 shall be the exclusive method of
resolving Disputes.

 

38

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  (b) Negotiation to Resolve Disputes. If a Dispute arises, the Parties shall
attempt to resolve such Dispute through the following procedure:

 

  (1) appropriate representatives of each Party shall promptly meet (whether by
phone or in person) in a good-faith attempt to resolve the Dispute; and

 

  (2) if the Dispute is unresolved after ten (10) days following the
commencement of the negotiations described in clause (1) above, then either
Party may submit such Dispute to binding arbitration under this Section 9.16 by
notifying the other Party (an “Arbitration Notice”).

 

  (c) Selection of Arbitrators. Any arbitration conducted under this Article
shall be heard by a panel (the “Arbitral Panel”) of three arbitrators (each an
“Arbitrator”) selected in accordance with the following provisions.

 

  (1) The Party that submits a Dispute to arbitration shall designate an
Arbitrator in its Arbitration Notice. The other Party, by notice to the first
Party, shall designate an Arbitrator on or before the twentieth (20th) day
following receipt of the Arbitration Notice.

 

  (2) The two Arbitrators so designated shall promptly meet and attempt to agree
upon a third Arbitrator (the “Neutral Arbitrator”). If they are unable to do so
within twenty (20) days following their first attempt to do so, the two
Arbitrators shall request the American Arbitration Association (or, if such
Association has ceased to exist, the principal successor thereto) (the “AAA”) to
designate the Neutral Arbitrator.

 

  (3) If any Arbitrator designated by a Party shall die, resign or otherwise
fail or becomes unable to serve as Arbitrator, such Party shall promptly
designate a replacement Arbitrator. If the Neutral Arbitrator shall die, resign
or otherwise fail or becomes unable to serve as the Neutral Arbitrator, the two
Arbitrators designated by the Parties shall promptly meet and attempt to agree
upon a replacement Neutral Arbitrator. If they are unable to do so within ten
(10) days following their first attempt to do so, the two Arbitrators shall
request the AAA to designate the replacement Neutral Arbitrator.

 

  (d) Conduct of Arbitration. The Arbitral Panel shall expeditiously (and, if
reasonably possible, within ninety (90) days after the Neutral Arbitrator’s

 

39

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selection) hear and decide all matters concerning the Dispute. Any arbitration
hearing shall be held in Houston, Texas. The arbitration shall be conducted in
accordance with the then-current Commercial Arbitration Rules of the AAA
(excluding rules governing the payment of arbitration, administrative or other
fees or expenses to the Arbitrator or the AAA) (the “Rules”), to the extent that
such Rules do not conflict with the terms of this Agreement. Except as expressly
provided to the contrary in this Agreement, the Arbitral Panel shall have the
power

 

  (1) to establish rules and procedures for the discovery and production of such
materials, information, testimony and evidence as it deems relevant to the
Dispute before it (and each Party will provide the materials, information,
testimony and evidence requested in accordance with such rules and procedures
and relevant to such Dispute, except that neither Party shall be required to
provide any information so requested that is

 

  (i) proprietary, unless the Arbitral Panel enters a protective order that
limits the use of such information to the arbitral proceedings;

 

  (ii) subject to a third party confidentiality restriction; or

 

  (iii) subject to an attorney-client or other privilege);

 

  (2) to grant injunctive relief, specific performance or any other remedy that
would otherwise be available at law or in equity.

 

Any dispute as to the relevancy of any requested information shall be determined
by the Arbitral Panel. If it deems necessary, the Arbitral Panel may propose to
the Parties that one or more other experts be retained to assist it in resolving
the Dispute. The retention of such other experts shall require the consent of
both Parties, which shall not be unreasonably withheld.

 

  (e) Decision. All decisions of the Arbitral Panel shall be made by a majority
vote of the Arbitrators. The Arbitral Panel’s decision (which shall be rendered
in writing) shall be final, non-appealable and binding upon the Parties and may
be enforced in any court of competent jurisdiction; provided that the Parties
agree that the Arbitral Panel and any court enforcing the award of the Arbitral
Panel shall not have the right or authority to award to any Party exemplary,
punitive, consequential,

 

40

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special, incidental, indirect or other similar damages, including lost profits,
business interruption or loss of opportunity, whether such damages are claimed
under breach of contract, breach of warranty, tort of or any other theory or
cause action at law or in equity, except to the extent that another Party is
required to pay any such damages to a third party in connection with a claim for
which such other Party is indemnified hereunder. No Party may challenge the
decision of the Arbitral Panel on the basis of any “evident partiality” on the
part of the two Arbitrators appointed by the Parties. The responsibility for
paying the costs and expenses of the arbitration, including compensation to the
Arbitral Panel and any experts retained by the Arbitral Panel, shall be
allocated to one Party or both Parties in a manner determined by the Arbitral
Panel to be fair and reasonable under the circumstances. Each Party shall be
responsible for the fees and expenses of its respective counsel, consultants and
witnesses, unless the Arbitral Panel determines that compelling reasons exist
for allocating all or a portion of such costs and expenses to one or more other
Parties.

 

Section 9.17 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.

 

Section 9.18 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER
AND PARENT MAKE NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
REGARD TO THE ASSETS. BUYER AND EDGE ACKNOWLEDGE AND AGREE, AS OF THE CLOSING,
THAT BUYER HAS INSPECTED THE ASSETS AND IS FAMILIAR WITH THE NATURE AND
CONDITION THEREOF AND ACCEPTS SAME “AS IS.” BUYER’S AGREEMENT TO ACCEPT THE
ASSETS “AS IS” CONSTITUTES A MATERIAL INDUCEMENT TO SELLER’S AGREEMENT TO SELL
THE ASSETS TO BUYER FOR THE PURCHASE PRICE. BUYER AND EDGE ACKNOWLEDGE THAT THE
PURCHASE PRICE IS PREDICATED UPON BUYER’S AGREEMENT TO ACCEPT THE ASSETS “AS
IS,” AND THAT SELLER, IN DETERMINING TO PROCEED WITH ENTERING INTO THIS
AGREEMENT, HAS EXPRESSLY RELIED UPON BUYER’S AGREEMENT TO ACCEPT THE ASSETS “AS
IS.”

 

SELLER AND PARENT MAKE NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS
TO THE ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR MATERIALS FURNISHED
OR MADE AVAILABLE TO BUYER, INCLUDING WITHOUT LIMITATION ANY MAPS,
INTERPRETATIONS OF DATA, ECONOMIC PROJECTIONS OR RESERVE FORECASTS PREPARED BY
SELLER OR SELLER’S CONTRACTORS OR AGENTS. ANY SUCH DATA, INFORMATION OR
MATERIALS FURNISHED OR MADE AVAILABLE BY SELLER ARE PROVIDED TO BUYER AS A
CONVENIENCE ONLY AND BUYER SHALL RELY THEREUPON AT BUYER’S SOLE RISK.

 

41

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Section 9.19 Limitation on Liability. No Party shall ever be liable to another
Party for special, consequential, exemplary or punitive damages, lost profits,
lost opportunity or business interruption damages, whether such damages are
claimed under breach of contract, breach of warranty, tort or any other theory
or cause of action at law or in equity, anything to the contrary herein
notwithstanding, except to the extent that another Party is required to pay any
such damages to a third party in connection with a claim for which such other
Party is indemnified hereunder.

 

[THE NEXT PAGE IS THE SIGNATURE PAGE]

 

42

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

 

SELLER:

CONTANGO STEP, L.P., a Texas limited

partnership

By:

 

CONTANGO STEP I, INC., a Delaware

corporation, its sole general partner

By:

 

/s/ KENNETH R. PEAK

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

   

Kenneth R. Peak,

   

Chairman and Chief Executive Officer

PARENT:

CONTANGO OIL & GAS COMPANY,

a Delaware corporation

By:

 

/s/ KENNETH R. PEAK

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

   

Kenneth R. Peak

   

Chairman and Chief Executive Officer

BUYER:

EDGE PETROLEUM EXPLORATION

COMPANY

a Delaware corporation

By:

 

/s/ C.W.. MACLEOD

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

   

C.W. MacLeod

   

Sr. Vice President

   

Business Development & Planning

EDGE:

EDGE PETROLEUM CORPORATION

a Delaware corporation

By:

 

/s/ C.W. MACLEOD

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

   

C.W. MacLeod

   

Sr. Vice President

   

Business Development & Planning

 

43

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Schedule 2.4

 

Consents, Approvals, and Preferential Rights to Purchase

 

All Leases listed in Exhibit A in which any of the following entities is a
lessor:

 

Mesteña Proven, Ltd.

Mesteña Oil and Gas Company

Eshleman Ranches, et al.

 

44

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Schedule 2.12

 

Gas Balancing; Forward Sales; Calls on Production

 

None.

 

45

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Schedule 2.13

 

Payout Balances

 

Pursuant to that certain Letter Agreement dated October 6, 2004 by and between
Contango Oil & Gas Company and Juneau Exploration, LLC:

 

(a) the remaining payout balance to reach an after-payout status on the four
Wells in the Borregos Lease – Charco Nuevo #1, Horse Trap #1, Huisache #1,
Palomas Ranch #1 – (the “Borregos Wells”) as of July 31, 2004 is $3,527,000; and

 

(b) the change in interest before and after payout in the Borregos Wells is set
forth in Exhibit B.

 

46

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Schedule 2.14

 

Transactions with Related Parties

 

None.

 

47

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Exhibit A

 

Leases

 

Cepres:

 

Oil and Gas Lease dated July 28, 2000, between Mesteña Proven, Ltd. et al, as
Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was recorded in Vol.
24, Pg. 211 of the Official Records of Jim Hogg Co., TX, as amended and recorded
in Vol. 26, Pg. 195 of the Official Records of Jim Hogg Co., TX, covering 160
ac., m/l, in the Fowler & Rankin Subdvn. of the “Las Vivoritas” Francisco
Montalvo Grant, A-226 and the Fowler & Rankin Subdvn. of the “El Sordo” Luis
Vela Grant, A-326, Jim Hogg Co., TX

 

Guilita:

 

Oil and Gas Lease dated May 5, 2000, between Mesteña Proven, Ltd. et al, as
Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was in Vol. 21, Pg.
466 of the Official Records of Jim Hogg Co., TX, covering 1593.08 ac., m/l, in
the Jno. Dewees Sy. No. 392, A-96, the Jno. Dewees Sy. No. 388, A-95, the Jno.
Dewees Sy. No. 390, A-93, and the C&MRR Sy. No. 389, A-79, in Jim Hogg Co., TX,
SAVE & EXCEPT depths below 11,000 feet subsurface.

 

INSOFAR & ONLY INSOFAR AS the following leases cover the SW/4 Section 391,
“Palitos Blancos” Grant, Rafael Garza Sais Sy., A-274, Jim Hogg Co.,TX, and ONLY
AS TO the interval between the surface and 11,000 feet subsurface:

 

Oil, Gas and Mineral Lease dated March 14, 1998, between Margaret Mings Bunnell,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded
in Vol. 6, Pg. 662 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 16, 1998, between Stanley G. Marshall,
Jr. et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 120 ac.,
m/l, recorded in Vol. 6, Pg.700 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 23, 1998, between Nancy Bunnell Bentley,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded
in Vol. 6, Pg. 710 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 26, 1998, between David C. Blankenship et
al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l,
recorded in Vol. 6, Pg. 713 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 27, 1998, between Bess Hal Yakey
Murphree, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac.,
m/l, recorded in Vol. 6, Pg. 716 of the Official Records of Jim Hogg Co., TX.

 

A-1

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

Oil, Gas and Mineral Lease dated April 15, 1998, between May Eskridge Kearny, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded in
Vol. 6, Pg. 745 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated May 19, 1998, between Julia M. Wyatt,
Individually and as Independent. Executrix of the Est. of Julia G. Groce, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded in
Vol. 7, Pg. 19, as amended on April 4, 2001, recorded in Vol. 25, Pg. 221,
Official Records, Jim Hogg Co., TX.

 

Oil and Gas Lease dated May 20, 1998, between B. Naylor Morton, Trustee et al,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a
Memorandum of which dated July 2, 1998 was recorded in Vol. 7, Pg. 48, as
amended July 17, 1998, recorded in Vol. 7, Pg. 455, Official Records, Jim Hogg
Co., TX.

 

Oil and Gas Lease dated May 20, 1998, between NationsBank, N.A., Trustee et al,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a
Memorandum of which dated July 2, 1998 was recorded in Vol. 7, Pg. 46, as
amended July 17, 1998, recorded in Vol. 7, Pg. 455, Official Records, Jim Hogg
Co., TX.

 

Oil and Gas Lease dated July 2, 1998, between Stanley N. Morton, as Lessor, and
Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a Memorandum of which
dated July 2, 1998 was recorded in Vol. 7, Pg. 44, as amended on May 17, 2001,
recorded in Vol. 25, Pg. 721, Official Records, Jim Hogg Co., TX.

 

Memorandum of Oil and Gas Lease dated August 14, 1998, between Jamie Michaela
Salinas et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 975
ac., m/l, recorded in Vol. 7, Pg. 60 of the Official Records of Jim Hogg Co.,
TX.

 

Memorandum of Oil and Gas Lease dated August 14, 1998, between San Marcos Ranch
Ltd., as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 975 ac., m/l,
recorded in Vol. 7, Pg. 65 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated October 15, 1998, between Margaret D. Spencer
Trust, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l,
recorded in Vol. 7, Pg. 69 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated November 3, 1998, between Houston C. Munson,
Jr. et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac.,
m/l, recorded in Vol. 7, Pg. 457 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 29, 2000, between Jane Thompson Slocomb
Sec. 5 TR et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360
ac., m/l, recorded in Vol. 19, Pg. 636 of the Official Records of Jim Hogg Co.,
TX.

 

A-2

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

Oil, Gas and Mineral Lease dated April 8, 1998, between Glenda Stowers et al, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 40 ac., m/l, recorded in
Vol. 6, Pg. 736 of the Official Records of Jim Hogg Co., TX.

 

INSOFAR & ONLY INSOFAR AS the following leases cover the N/2 Sec. 388, all Sec.
389, W/2 Sec. 390 and S/2 Sec. 392 of the “Palitos Blancos” Grant Rafael Garza
Sais Sy., A-274, Jim Hogg Co., TX ONLY AS TO the interval between the surface
and 11,000 feet:

 

Oil, Gas and Mineral Lease dated March 14, 1998, between Margaret Mings Bunnell,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded
in Vol. 6, Pg. 662 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 16, 1998, between Stanley G. Marshall,
Jr. et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac.,
m/l, recorded in Vol. 6, Pg. 690 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 16, 1998, between Stanley G. Marshall,
Jr. et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac.,
m/l, recorded in Vol. 6, Pg. 695 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 23, 1998, between Nancy Bunnell Bentley,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded
in Vol. 6, Pg. 710 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 26, 1998, between David C. Blankenship et
al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l,
recorded in Vol. 6, Pg. 713 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 27, 1998, between Bess Hal Yakey
Murphree, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac.,
m/l, recorded in Vol. 6, Pg. 716 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 31, 1998, between Reginald Newton
Harbison et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 430
ac., m/l, recorded in Vol. 6, Pg. 719 of the Official Records of Jim Hogg Co.,
TX.

 

Oil, Gas and Mineral Lease dated April 15, 1998, between May Eskridge Kearny, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded in
Vol. 6, Pg. 745 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated April 15, 1998, between Paul Anthony Schumman
et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l,
recorded in Vol. 6, Pg. 742, and amended on March 27, 2001, recorded in Vol. 25,
Pg. 126, Official Records of Jim Hogg Co., TX.

 

A-3

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

Oil, Gas and Mineral Lease dated April 23, 1998, between Billie Jo McCutcheon et
vir, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l,
recorded in Vol. 6, Pg. 757 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated April 24, 1998, between Geraldine D. McGehee,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 80 ac., m/l, recorded
in Vol. 6, Pg. 760 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated April 24, 1998, between Ronnie J. Dannelley, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 80 ac., m/l, recorded in
Vol. 6, Pg. 763 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated April 27, 1998, between R. K. Wilson, III, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded in
Vol. 6, Pg. 766, and amended on April 20, 2001, recorded in Vol. 25, Pg. 589,
Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated April 27, 1998, between Mary Eleanor Wilson
Small, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l,
recorded in Vol. 6, Pg. 771, and amended on April 20, 2001, recorded in Vol. 25,
Pg. 651, Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated May 6, 1998, between Randolph B. Lee et al, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 60 ac., m/l, recorded in
Vol. 6, Pg. 779, and amended on April 29, 2001, recorded in Vol. 25, Pg. 653,
Official Records of Jim Hogg County, TX.

 

Oil, Gas and Mineral Lease dated May 8, 1998, between Robert L. McFarlin, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l, recorded in
Vol. 7, Pg. 1 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated May 9, 1998, between Jack Holt et ux, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l, recorded in
Vol. 7, Pg. 7 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated May 9, 1998, between Lucian L. Morrison, Jr.,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l, recorded
in Vol. 7, Pg. 4 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated May 19, 1998, between Julia M. Wyatt,
Individually and as Independent Executrix of the Est. of Julia G. Groce, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, recorded in
Vol. 7, Pg. 19, as amended on April 4, 2001, recorded in Volume 25, Page 221,
Official Records of Jim Hogg Co., TX.

 

Oil and Gas Lease dated May 20, 1998, between B. Naylor Morton, Trustee et al,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a
Memorandum of which dated July 2, 1998 was recorded in Vol. 7, Pg. 48, as
amended on July 17, 1998, recorded in Vol. 7, Pg. 455, Official Records of Jim
Hogg Co., TX.

 

A-4

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

Oil and Gas Lease dated May 20, 1998, between NationsBank, N.A., Trustee et al,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a
Memorandum of which dated July 2, 1998 was recorded in Vol. 7, Pg. 46, as
amended on July 17, 1998, recorded in Vol. 7, Pg. 455, Official Records of Jim
Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated June 3, 1998, between Lorine Toepperwein Uedker
et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l,
recorded in Vol. 7, Pg. 29 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated June 3, 1998, between Wayne Udo Toepperwein et
al., as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l,
recorded in Vol. 7, Pg. 32 of the Official Records of Jim Hogg Co., TX.

 

Oil and Gas Lease dated July 2, 1998, between Stanley N. Morton, as Lessor, and
Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l, a Memorandum of which
dated July 2, 1998 was recorded in Vol. 7, Pg. 44, as amended on May 17, 2001,
recorded in Vol. 25, Pg. 721, Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated July 14, 1998, between Ella Mae Caldwell
Mueller, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l,
recorded in Vol. 7, Pg. 51 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated July 24, 1998, between James Ector Gammage,
Jr., as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l,
recorded in Vol. 7, Pg. 57 of the Official Records of Jim Hogg Co., TX.

 

Memorandum of Oil and Gas Lease dated August 14, 1998, between Jamie Michaela
Salinas et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 975
ac., m/l, recorded in Vol. 7, Pg. 60 of the Official Records of Jim Hogg Co.,
TX.

 

Memorandum of Oil and Gas Lease dated August 14, 1998, between San Marcos Ranch
Ltd., as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 975 ac., m/l,
recorded in Vol. 7, Pg. 65 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated October 15, 1998, between Margaret D. Spencer
Trust, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac., m/l,
recorded in Vol. 7, Pg. 69 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated November 3, 1998, between Houston C. Munson,
Jr. et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360 ac.,
m/l, recorded in Vol. 7, Pg. 457 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated March 29, 2000, between Jane Thompson Slocomb
Sec. 5 TR et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 360
ac., m/l, recorded in Vol. 19, Pg. 636 of the Official Records of Jim Hogg Co.,
TX.

 

A-5

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

Oil, Gas and Mineral Lease dated July 11, 2000, between John Charles Garoni, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l, recorded in
Vol. 21, Pg. 109 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated July 22, 2000, between Emily Johnson Cale, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l, recorded in
Vol. 20, Pg. 632 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated July 22, 2000, between Patrick M. Johnson, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l, recorded in
Vol. 21, Pg. 142 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated July 22, 2000, between George Weatherston, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l, recorded in
Vol. 21, Pg. 145 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated August 12, 2000, between Walter F. Johnston,
Jr., as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l,
recorded in Vol. 21, Pg. 112 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated August 21, 2000, between Wells Fargo Bank,
Trustee et al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac.,
m/l, recorded in Vol. 21, Pg. 682 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated August 24, 2000, between Fred W. Shield and
Company, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 20 ac., m/l,
recorded in Vol. 21, Pg. 678 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated October 9, 2000, between Jerrell W. Lambert, as
Lessor, and Jerry L. Keehan, Inc., as Lessee, covering 10 ac., m/l, recorded in
Vol. 22, Pg. 477 of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated December 11, 1997, between Mary A. Markwalter,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering W/2 E/2 SE/4 Sec. 392,
Fowler & Rankin’s Subdvn. of Palitos Blancos Grant, recorded in Vol. 6, Pg. 647
of the Official Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated January 20, 1998, between Burton Seely Morwood,
as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering W/2 E/2 SE/4 Sec. 392,
Fowler & Rankin’s Subdvn. of Palitos Blancos Grant, recorded in Vol. 6, Pg. 653,
as amended on January 12, 2001, recorded in Vol. 23, Pg. 675, Official Records
of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated January 29, 1998, between The Reynolds Trust et
al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering W/2 E/2 SE/4 Sec.
392, Fowler & Rankin’s Subdvn., Palitos Blancos Grant, recorded in Vol. 6, Pg.
656, as amended on December 21, 2000, recorded in Vol. 23, Pg. 398, Official
Records of Jim Hogg Co., TX.

 

A-6

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

Oil, Gas and Mineral Lease dated December 29, 1997, between Lucy Schneeberg
McBride, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering W/2 W/2 SE/4
Sec. 392, Fowler & Rankin’s Subdvn., Palitos Blancos Grant, recorded in Vol. 6,
Pg. 650, as amended on December 18, 2000, recorded in Vol. 23, Pg. 396, Official
Records of Jim Hogg Co., TX.

 

Oil, Gas and Mineral Lease dated February 4, 1998, between Mildred Schneeberg et
al, as Lessor, and Jerry L. Keehan, Inc., as Lessee, covering W/2 W/2 SE/4 Sec.
392, Fowler & Rankin’s Subdvn., Palitos Blancos Grant, recorded in Vol. 6, Pg.
659, as amended on December 11, 2000, recorded in Vol. 23, Pg. 329, Official
Records of Jim Hogg Co., TX.

 

Portero:

 

Oil and Gas Lease dated January 10, 2001, between Mesteña Proven, Ltd. et al, as
Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was recorded in Vol.
24, Pg. 280 of the Official Records of Jim Hogg Co., TX, covering 320 ac., m/l,
“San Antonio Baluarte” Jose Luis Salinas Grant, A-276, Jim Hogg Co., TX.

 

South Coyote:

 

Oil and Gas Lease dated September 26, 2000, by and between Mesteña Proven, Ltd.
et al, as Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was
recorded in Vol. 21, Pg. 470 of the Official Records of Jim Hogg Co., TX,
covering 1280.00 ac., m/l, being 1020.93 ac. out of the “San Antonio De
Baluarte” Jose Luis Salinas Sy., A-276 and 259.07 acres out of the Jno. Dewees
Sy. No. 394, A-97 in Jim Hogg Co., TX.

 

Hermanas:

 

Oil and Gas Lease dated January 12, 2001, between the State of TX, acting
through its agent, Est. of W. W. Jones II, as Lessor, and Mesteña, Inc., as
Lessee, recorded in Vol. 23, Pg. 459 & rerecorded in Vol. 24, Pg. 615, Official
Records of Jim Hogg Co., TX, covering 172.87 ac., m/l, being all of the Ismael
Guerra Sy. 910, A-144, Jim Hogg Co., TX.

 

Hot Wells (C&P Acquisition):

 

Oil and Gas Lease dated June 11, 1984, between Mesteña Oil & Gas Company, as
Lessor, and CPC Exploration, Inc., as Lessee, as recorded in Vol. 104, Pg. 82
and amended & recorded in Vol. 118, Pg. 369 and Vol. 118, Pg. 385, Oil and Gas
Lease Records of Jim Hogg Co., TX, INSOFAR & ONLY INSOFAR AS said lease covers
640 ac., m/l, being the 320-ac. Cox & Perkins Hot Wells No. 1 Gas Unit and the
320-ac. Cox & Perkins Hot Wells No. 2 Gas Unit as further described in Exhibits
“B” & “C,” respectively, to Partial Release of Oil and Gas Lease and Designation
of Units recorded in Vol. 124, Pg. 129, Oil and Gas Lease Records of Jim Hogg
Co., TX.

 

Pump Jack (C&P Acquisition):

 

Oil and Gas Lease dated June 11, 1984, between Mesteña Oil & Gas Company, as
Lessor, and CPC Exploration, Inc., as Lessee, as recorded in Vol. 104, Pg. 89
and amended & recorded in

 

A-7

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

Vol. 115, Pg. 76 and Vol. 115, Pg. 63, Oil and Gas Lease Records of Jim Hogg
Co., TX, INSOFAR & ONLY INSOFAR AS said lease covers 319.96 ac., m/l, being the
Cox & Perkins Pump Jack No. 1 Gas Unit, described in Exhibit “B” to Partial
Release of Oil and Gas Lease and Designation of Unit recorded in Vol. 124, Pg.
152, Oil and Gas Lease Records of Jim Hogg Co., TX.

 

Llano (C&P Acquisition):

 

Oil and Gas Lease dated September 9, 1985, between Mesteña Oil & Gas Company, as
Lessor, and Alta Vista Exploration, Inc., as Lessee, as recorded in Vol. 111,
Pg. 40, Oil and Gas Lease Records of Jim Hogg Co., TX, covering 318.79 ac., m/l,
out of the “Palo Blanco” Grant, Antonio Pena Sy., A-246, Jim Hogg Co., TX.

 

Jaboncillo:

 

Oil and Gas Lease dated December 29, 1976, between Mesteña Oil & Gas Company, as
Lessor, to C&K Petroleum, Inc., as Lessee, recorded in Vol. 73, Pg. 45, Oil and
Gas Lease Records of Jim Hogg Co., TX, INSOFAR & ONLY INSOFAR AS said lease
covers lands and depths earned with the Mesteña Operating—Jaboncillo No. 1 Well
drilled under that certain Farmout Agreement dated November 30, 2001, by and
between Cody Texas, L.P., as Farmor, and Mesteña Operating, Ltd., as Farmee.

 

Leoncito:

 

Oil and Gas Lease dated August 3, 1989, by & between Mesteña Oil & Gas Company,
as Lessor, and The California Company, as Lessee, a Memorandum of which was
recorded in Vol. 130, Pg. 193 of the Oil and Gas Lease Records of Brooks Co.,
TX, as amended by Agreement to Amend Land Description of Oil and Gas Lease dated
September 11, 1990 and recorded in Vol. 133, Pg. 39 of the Oil and Gas Lease
Records of Brooks Co., TX, and as amended by Partial Release of Oil and Gas
Lease dated March 5, 1992 and recorded in Vol. 135, Pg. 723 of the Oil and Gas
Lease Records of Brooks Co., TX, and as amended by Agreement to Amend Land
Description of Oil and Gas Lease dated March 7, 1994 and recorded in Vol. 141,
Pg. 571 of the Oil and Gas Lease Records of Brooks Co., TX, INSOFAR & ONLY
INSOFAR AS said Lease covers the 160-ac. tract around the Leoncito No. 19 Gas
Unit in the “Las Mestenas Y Gonzalena” Rafael Garcia Salinas Sy., A-480, Brooks
Co., TX.

 

Libre:

 

Oil and Gas Lease dated December 7, 2000, between Eshleman Ranches et al, as
Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was recorded in
Volume 23, Page 213, of the Official Records of Jim Hogg County, Texas, as
amended and recorded in Volume 25, Page 100 and Volume 26, Page 259 of the
Official Records of Jim Hogg County, Texas, covering 1920 acres out of the
8,711.35-acre “Morgan Tract” in the Palo Blanco Grant originally granted to
Francisco Pena, A-247 and Antonio Pena, A-246, INSOFAR AND ONLY INSOFAR as the
lease covers the following:

 

320-acre Mesteña-Libre No. 1 Gas Unit, recorded in Volume 34, Page 164 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,538 feet.

 

A-8

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

320-acre Mesteña-Libre No. 2 Gas Unit, recorded in Volume 34, Page 170 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,552 feet.

 

320-acre Mesteña-Libre No. 3 Gas Unit, recorded in Volume 34, Page 176 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,648 feet.

 

320-acre Mesteña-Libre No. 4 Gas Unit, recorded in Volume 34, Page 181 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,524 feet.

 

320-acre Mesteña-Libre No. 6 Gas Unit, recorded in Volume 34, Page 186 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,560 feet.

 

320-acre Mesteña-Libre No. 11 Gas Unit, recorded in Volume 34, Page 191 of the
Official Records of Jim Hogg County, Texas, limited to the interval from the
surface down to 10,546 feet.

 

Llano:

 

Oil and Gas Lease dated May 3, 2001, by and between Mesteña Proven, Ltd. et al,
as Lessor, and Mesteña, Inc., as Lessee, a Memorandum of which was recorded in
Volume 25, Page 591 of the Official Records of Jim Hogg Co., TX, as amended by
that certain Partial Release of Oil and Gas Lease dated February 18, 2002 and
recorded in Volume 32, Page 518 of the Official Records of Jim Hogg Co., TX,
covering 320 acres, m/l, out of the Palo Blanco Antonio Pena Survey, A-246 in
Jim Hogg Co., TX.

 

Mesquite Creek:

 

Oil and Gas Lease dated January 18, 2002, by and between Mesteña Proven, Ltd. et
al, as Lessor, and Mesteña Operating, Ltd., as Lessee, a Memorandum of which was
recorded in Volume 31, Page 5 of the Official Records of Jim Hogg Co., TX,
covering 160 acres, m/l, out of the Palo Blanco Grant, Francisco Pena Survey,
A-247 in Jim Hogg Co., TX.

 

Palitos Blancos:

 

Oil and Gas Lease dated July 3, 2002, between Mesteña Proven, Ltd., as Lessor
and Mesteña Operating, Ltd., as Lessee, a Memorandum of which was recorded in
Volume 33, Page 741 of the Official Records of Jim Hogg Co., TX, covering 320
acres out of Block 10 of the Fowler and Rankin Subdivision as shown on a Map
recorded in Volume 26, Page 350 of the Deed Records of Jim Hogg Co., TX, and
situated in the “Palitos Blancos” Rafael G. Sais Survey, A-274, Jim Hogg Co.,
TX.

 

A-9

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

Borregos:

 

Pursuant to Section 6.3(i), Buyer will provide Seller with a description of the
Borregos Lease no later than five (5) days prior to the Objection Date.

 

A-10

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

Exhibit B

 

Wells

 

CEPRES LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

CEPRES #2

   0.666668    0.500001    $ 1,300,000

GUILITA LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

GUILITA # 1

   0.666668    0.500001    $ 275,000

GUILITA # 2

   0.666668    0.500001    $ 1,900,000

GUILITA # 3

   0.666668    0.500001    $ 875,000

GUILITA # 4

   0.666668    0.500001    $ 4,450,000

GUILITA # 5

   0.666668    0.500001    $ 1,600,000

GUILITA # 6

   0.666668    0.500001    $ 700,000

GUILITA # 7

   0.666668    0.500001    $ 115,000

GUILITA # 9

   0.666667    0.500000    $ 50,000

PORTERO LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

PORTERO #1

   0.666666    0.500001    $ 2,350,000

SOUTH COYOTE LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

SOUTH COYOTE #1

   0.666668    0.500001    $ 900,000

SOUTH COYOTE #2

   0.666668    0.500001    $ 1,000,000

SOUTH COYOTE #3

   0.666668    0.500001    $ 1,325,000

SOUTH COYOTE #4

   0.666668    0.500001    $ 700,000

SOUTH COYOTE #6

   0.666667    0.500000    $ 1,450,000

SOUTH COYOTE #7

   0.666667    0.500000    $ 1,250,000

HERMANAS LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

HERMANAS - STATE #1

   0.750000    0.562500    $ 1,350,000

HOT WELLS LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

HOT WELLS #1

   0.525000    0.367501    $ 140,000

HOT WELLS #2

   0.525000    0.367501    $ 50,000

PUMP JACK LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

PUMP JACK #1

   0.525000    0.367501    $ 50,000

LLANO (C&P) LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

LLANO #1

   0.410417    0.287292    $ 75,000

 

B-1

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

LLANO LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

LLANO #1

   0.750000    0.562500    $ 125,000

JABONCILLO LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

JABONCILLO #1

   0.525528    0.394146    $ 1,300,000

LEONCITO LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

LEONCITO #19

   0.666667    0.500000    $ 0

LIBRE LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

LIBRE # 1

   0.750000    0.562500    $ 2,900,000

LIBRE # 2

   0.750000    0.562500    $ 3,300,000

LIBRE # 4

   0.750000    0.562500    $ 3,600,000

LIBRE # 6

   0.750000    0.562500    $ 2,450,000

LIBRE # 8

   0.750000    0.562500    $ 1,500,000

LIBRE # 9

   0.750000    0.526500    $ 4,450,000

LIBRE # 10

   0.750000    0.562500    $ 2,700,000

LIBRE # 11

   0.750000    0.562500    $ 1,900,000

LIBRE # 12

   0.750000    0.562500    $ 2,700,000

MESQUITE CREEK LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

MESQUITE CREEK #1

   0.750000    0.562500    $ 80,000

PALITOS BLANCOS LEASE

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

   WI

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

   NRI

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

   Allocated Value

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

PALITOS BLANCOS #1

   0.475000    0.340417    $ 50,000

 

B-2

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

BORREGOS LEASE

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

       WI

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

   NRI #1

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

   NRI #21

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

   Allocated Value

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

CHARCO NUEVO #1

   BPO   0.475000    0.340417    0.328542    $ 450,000      APO2   0.356250   
0.255313    0.246406       

HORSE TRAP #1

   BPO   0.475000    0.340417    0.328542    $ 250,000      APO2   0.356250   
0.255313    0.246406       

HUISACHE #1

   BPO   0.475000    0.340417    0.328542    $ 200,000      APO2   0.356250   
0.255313    0.246406       

PALOMAS RANCH #1

   BPO   0.475000    0.364167         $ 140,000      APO2   0.356250    0.273125
           

TOTAL

                      $ 50,000,000

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

1 NRI #2 reflects the automatic increase in royalty reserved under the Jones
Est. lease (from twenty-five percent (25%) to twenty-seven-and-a-half percent
(27.5%) upon expiration of twelve (12) months after its production from depths
above eight thousand (8,000) feet and twenty-four (24) months from first
production from a well producing solely from depths below eight thousand (8,000)
feet.

2 Payout occurs the first day of the month following the date on which Buyer
recovers one hundred percent (100%) of its Borregos Lease costs (3D, leases,
wells, etc.), less and except any dry holes and/or uneconomic wells and all
ancillary or related costs associated therewith (e.g., land, lease and all other
costs allocable to such Wells). Other than the payout referenced above, which is
further described in Schedule 2.13, there are no other back-in interests
associated with this Lease, as referenced in that certain Letter Agreement dated
October 6, 2004 by and between Contango Oil & Gas Company and Juneau
Exploration, LLC.

 

B-3

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

Exhibit C

 

Wire Transfer Instructions

 

Guaranty Bank, FSB

ABA No. 314-970-664

For Credit to: Contango STEP, LP

Account No. 4990004345

 

C-1

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

Exhibit D

 

Form of Assignment and Bill of Sale

 

ASSIGNMENT AND BILL OF SALE

 

STATE OF TEXAS

   §      §

COUNTY OF             

   §

 

This Assignment and Bill of Sale (the “Assignment”), effective as of 7:00 a.m.
Central Time on July 1, 2004, the (the “Effective Time”), is made by CONTANGO
STEP, L.P., a Texas limited Partnership (the “Assignor”), whose address is 7600
West Tidwell, Suite 103, Houston, Texas 77040, to EDGE PETROLEUM EXPLORATION
COMPANY, a Delaware corporation (the “Assignee”), whose address is 1301 Travis
Street, Suite 2000, Houston, TX 77002.

 

NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy and
sufficiency of which is hereby acknowledged by Assignor, Assignor has granted,
sold, bargained, transferred, conveyed, set over and assigned, and by these
presents does hereby grant, bargain, sell, transfer, convey, set over, assign,
and deliver unto Assignee, its successors and assigns, the following properties,
assets, rights, and obligations:

 

(a) All of Assignor’s right, title and interest in the oil and gas leases
described in Exhibit A (each a “Lease” and sometimes, collectively, the
“Leases”);

 

(b) All of Assignor’s right, title and interest in all oil and/or gas wells,
whether producing, operating, shut-in or temporarily abandoned, located on the
lands covered by the Leases or pooled therewith, including, without limitation,
those described in Exhibit B (each a “Well” and sometimes, collectively, the
“Wells”);

 

(c) All of Assignor’s right, title and interest in all equipment, fixtures,
machinery, tanks, pipelines, gathering lines, flow lines, saltwater and other
disposal wells, and other appurtenances and all other personal property located
on the lands covered by the Leases or pooled therewith and used in connection
with the ownership or operation thereof and the production of oil and/or gas
therefrom (collectively, the “Equipment”);

 

(d) All of Assignor’s right, title and interest in all contracts, agreements,
leases and title instruments attributable to and affecting, only to the extent
attributable to and affecting, the Leases, Wells and Equipment, including all
hydrocarbon sales, purchase, gathering, transportation, treating, storage,
compression, marketing, exchange, processing and fractionating contracts, and
joint operating agreements (each a “Contract” and, collectively, the
“Contracts”); and

 

(e) To the extent assignable without payment of fees or charges, any seismic
data (and proceeds from the sale thereof), together with any related data,
studies, compilations, reserve reports, engineering data or other information,
covering the Leases or surrounding lands, other

 

D-1

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than the Excluded Seismic Rights (as defined in Section 1.2 of that certain
Asset Purchase Agreement by and among Assignor, Assignor’s Parent Contango Oil &
Gas Company, Assignee and Assignee’s Parent Edge Petroleum Corporation, dated as
of October 7, 2004 (the “Agreement”)).

 

(all of which is herein called the “Interests”).

 

TO HAVE AND TO HOLD the Interests unto Assignee, its successors and assigns,
forever.

 

This Assignment is made and accepted subject to the following:

 

1. THIS ASSIGNMENT OF THE INTERESTS IS MADE AND ACCEPTED SUBJECT TO ALL
ROYALTIES, OVERRIDING ROYALTIES, BURDENS AND ENCUMBRANCES AFFECTING THE
INTERESTS.

 

2. ASSIGNOR HEREBY BINDS ITSELF AND ITS SUCCESSORS AND ASSIGNS TO WARRANT AND
FOREVER DEFEND ALL AND SINGULAR THE INTERESTS UNTO ASSIGNEE, ITS SUCCESSORS AND
ASSIGNS, AGAINST EVERY PERSON WHOMSOEVER, LAWFULLY CLAIMING OR TO CLAIM THE
SAME, OR ANY PART THEREOF, BY, THROUGH AND UNDER ASSIGNOR, BUT NOT OTHERWISE.

 

3. TO THE EXTENT REQUIRED TO BE OPERATIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES
CONTAINED IN THIS ASSIGNMENT ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSE OF
ANY APPLICABLE LAW, RULE OR ORDER. ASSIGNOR EXPRESSLY DISCLAIMS AND NEGATES AS
TO PERSONAL PROPERTY AND FIXTURES (A) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (B) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, AND (C) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS. ASSIGNEE EXPRESSLY AGREES THAT SUCH PERSONAL PROPERTY WILL
BE ACCEPTED “AS IS, WHERE IS, AND WITH ALL FAULTS,” AND IN ITS PRESENT CONDITION
AND STATE OF REPAIR, ASSIGNOR DISCLAIMS AND MAKES NO OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE INTERESTS, INCLUDING,
WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALIFY,
QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN
OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE INTERESTS. ASSIGNEE
HAS INSPECTED THE INTERESTS FOR ALL PURPOSES AND HAS SATISFIED ITSELF AS TO
THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE.

 

4. Assignor hereby gives and grants to Assignee, its successors and assigns, to
the extent so transferable, full power and right of substitution and subrogation
in and to all covenants and warranties by others heretofore given or made in
respect to the Interests or any part thereof.

 

D-2

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5. This Assignment is made subject to the terms and provisions of the Agreement.
Terms used herein and in Exhibit A and Exhibit B shall have the same definitions
as in said Agreement. In the event of a conflict between the terms and
conditions of the Agreement and this Assignment, the Agreement shall govern and
control.

 

6. The Interests herein assigned are subject to all the terms and provisions of
the Leases, to their proportionate share of all overriding royalty interests,
lessor’s royalties, net profits interests, carried interests, reversionary
interests and other interests, encumbrances, and burdens on the production
therefrom to the extent they are in existence and burden the Interests as of the
Effective Time; to all covenants, conditions, obligations, and conditions in
instruments and assignments in the chain of title to the Leases; and to all
other encumbrances affecting the Interests in existence on the Effective Time.
Assignee hereby assumes and agrees to pay, perform and discharge its
proportionate share of all obligations under the Leases and the agreements
relating to the Leases herein assigned. The references herein to obligations and
encumbrances shall not be deemed to ratify or create any rights in third
parties.

 

7. Reference is here made to the land descriptions contained in the documents of
title recorded as described in Exhibit A. To the extent that any land
descriptions in Exhibit A are incorrect or not legally sufficient, the land
descriptions contained in the documents so recorded are incorporated by this
reference.

 

8. ASSIGNEE SHALL ASSUME ALL OF ASSIGNOR’S PLUGGING, REPLUGGING, ABANDONMENT,
REMOVAL, DISPOSAL AND RESTORATION OBLIGATIONS ASSOCIATED WITH THE INTERESTS,
INCLUDING, BUT NOT LIMITED TO, (I) ALL NECESSARY AND PROPER PLUGGING,
REPLUGGING, ABANDONMENT, REMOVAL AND DISPOSAL OF THE WELLS, STRUCTURES, AND
EQUIPMENT LOCATED ON OR COMPRISING A PART OF THE INTERESTS, (II) THE NECESSARY
AND PROPER CAPPING AND BURYING ALL ASSOCIATED FLOW LINES, (III) THE PROPER
ABANDONMENT AND RESTORATION OF ALL OIL AND GAS LEASEHOLD, FEE, AND OTHER
PROPERTY COMPRISING A PART OF THE INTERESTS, BOTH SURFACE AND SUBSURFACE, AS MAY
BE REQUIRED BY APPLICABLE LAWS, REGULATIONS, OR CONTRACT, AND (IV) ANY NECESSARY
DISPOSAL OF NATURALLY OCCURRING RADIOACTIVE MATERIAL (NORM). ASSIGNEE SHALL BE
RESPONSIBLE FOR THE PLUGGING AND ABANDONMENT OF ANY WELLS DRILLED AND THE
REMOVAL OF ANY STRUCTURES PLACED ON THE INTERESTS BEFORE OR AFTER THE EFFECTIVE
TIME. ALL PLUGGING, REPLUGGING, ABANDONMENT, REMOVAL, DISPOSAL, AND RESTORATION
OPERATIONS SHALL BE IN COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS AND BE
PERFORMED IN A GOOD AND WORKMANLIKE MANNER. ASSIGNEE SHALL INDEMNIFY AND HOLD
ASSIGNOR HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITY, DEMANDS, AND
CAUSES OF ACTION NOW OR HEREAFTER EXISTING FOR THE PLUGGING, REPLUGGING,
ABANDONMENT, REMOVAL, DISPOSAL AND RESTORATION OF THE INTERESTS HEREIN ASSIGNED.
ALL ASSUMPTIONS OF LIABILITY BY ASSIGNEE AND INDEMNIFICATIONS PROVIDED FOR IN
THIS AGREEMENT SHALL APPLY AND BE BINDING UPON ASSIGNEE (WITH THE EXCEPTION OF
ANY RETAINED REMEDIATION

 

D-3

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OBLIGATIONS, AS DEFINED IN THE AGREEMENT). NOTWITHSTANDING THAT THE APPLICABLE
LIABILITY OR OBLIGATION ARISES OUT OF THE SOLE OR CONCURRENT LIABILITY OF
ASSIGNOR, THE STRICT LIABILITY OF ASSIGNOR OR THE CONDITION OF THE PREMISES OF
THE INTERESTS.

 

9. Assignee shall comply with all current and subsequently amended laws,
ordinances, rules, and regulations applicable to the Interests and shall
promptly obtain and maintain all permits and bonds required by governmental
authorities in connection with the Interests and Assignee’s ownership and
operation thereof.

 

10. This Assignment and all of the terms, provisions, covenants, indemnities,
obligations, and conditions herein contained shall be binding upon and inure to
the benefit of and be enforceable by the Assignor, Assignee and their respective
successors, legal representatives, and assigns.

 

EXECUTED on this              day of              200    , but effective for all
purposes as of the Effective Time.

 

ASSIGNOR:

CONTANGO STEP, L.P., a Texas limited

partnership

By:

 

CONTANGO STEP I, INC., a Delaware

corporation, its sole general partner

By:

 

 

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

   

Kenneth R. Peak,

   

Chairman and Chief Executive Officer

ASSIGNEE:

EDGE PETROLEUM EXPLORATION

COMPANY

a Delaware corporation

By:

 

 

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

   

C.W. MacLeod

   

Sr. Vice President

   

Business Development & Planning

 

D-4

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ACKNOWLEDGMENT

 

STATE OF TEXAS

   §      §

COUNTY OF HARRIS

   §

 

This instrument was acknowledged before me on the              day of
             200    , by Kenneth R. Peak, Chairman and Chief Executive Officer
of Contango STEP I, Inc., a Delaware corporation and general partner of Contango
STEP, L.P., a Texas limited partnership, on behalf of said limited partnership.

 

My Commission Expires:

   

 

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

 

 

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

        Notary Public, State of Texas

 

D-5

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ACKNOWLEDGMENT

 

STATE OF TEXAS

   §      §

COUNTY OF HARRIS

   §

 

This instrument was acknowledged before me on the              day of
             200    , by C.W. MacLeod, Sr. Vice President Business Development &
Planning, of Edge Petroleum Exploration Company, a Delaware corporation, on
behalf of said corporation.

 

My Commission Expires:

   

 

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

 

 

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

        Notary Public, State of Texas

 

D-6