Exhibit 10.1

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (the “Agreement”) is entered into by and among
Big Horn Oil LLC, a Texas limited liability company (“Buyer”), Energytec, Inc.,
a Nevada corporation (“Energytec”), and Big Horn Ventures, Inc., a Wyoming
corporation (“BHV”) and a wholly owned subsidiary of Energytec (Energytec and
BHV are sometimes collectively referred to herein as “Seller”). Seller and Buyer
are sometimes referred to herein collectively as the “Parties” or individually
as a “Party.”

RECITALS

Energytec is the originator and bonded operator of an oil and gas project known
as the Wyoming Thermal Recovery Project/Big Horn Oil Field (the “Big Horn
Project”) consisting of approximately 46,772 acres in Big Horn County, Wyoming
and two oil wells drilled and completed on portions of said acreage; and

Seller owns certain working interests in the name of Energytec and in the name
of BHV, and additional working interests which are held in the name of Stone and
Wolf and which interests were recently acquired by Energytec but not yet
transferred into the name of Energytec (the property interests of of the Big
Horn Project are identified in Exhibit “A” hereto; and

In connection with originating and operating the Big Horn Project, Energytec
owns the Data, as defined hereinafter, which it desires to sell to Buyer, and
which Buyer desires to purchase from Seller, pursuant to the terms of this
Agreement; and

In connection with the working interests of the Big Horn Project, Seller owns
44% of the working interests, as hereinafter defined, and Seller has the
exclusive right to negotiate the terms of sale to Buyer of the remaining 56% of
the working interests (the “56% WI”) owned by various third parties, as
hereinafter defined, and 15.25% of certain overriding royalty interests (the
“ORR”) of various third parties as set forth in Exhibit “B” hereto (such third
parties who execute and deliver a written ratification of this Agreement prior
to Closing are herein collectively referred to as the “Third Party Owners”); and

Seller desires to tender and convey to Buyer all of the foregoing working
interests and overriding royalty interests, and Buyer desires to purchase such
interests and related assets from Seller and the Third Party Owners, pursuant to
the terms of this Agreement; and

Seller and Buyer have heretofore entered into that certain Letter of Intent
dated August 1, 2006 (the “Letter of Intent”), and confirm and agree that the
Letter of Intent is hereby superseded by this Agreement; and

The purpose of this Agreement is to set forth the undertakings and agreements of
the Parties as herein set forth.

 

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NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, the benefits to be derived by each Party hereunder, and other value
received, Seller and Buyer contract and agree as follows:

ARTICLE 1.

DEFINITIONS AND INTERPRETATION

1.1 Defined Terms. In addition to the terms defined elsewhere in this Agreement,
the following expressions and terms shall have the meanings below set forth:

“Affiliate” shall mean, when used with respect to any Party, any other Person
(a) which directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, such Party, or (b) which
beneficially owns or holds more than 50% of any class of voting stock (or in the
case of a Person which is not a corporation, more than 50% of any class of
equity interest) of such Party, or (c) more than 50% of any class of whose
voting stock (or in the case of a Person which is not a corporation, more than
50% of any class of whose equity interest) is beneficially owned or held by such
Party and its Affiliates. The term “control” (including the terms “controlled
by” and “under common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting stock or any
equity interest, by contract or otherwise. It is understood that BHV is an
Affiliate of Energytec.

“Allocated Value” shall mean the amounts set forth on Exhibit “C” hereto under
the column “Allocated Value” for each of same.

“Applicable Contracts” shall mean all of the instruments and agreements that
pertain to the Assets and all contractually binding arrangements to which the
Assets may be subject and which will be binding on the Assets or Buyer after the
Closing, including, without limitation, the Outstanding Contracts and
Assignments, surface leases, easements and rights-of-way, pooling declarations,
pooling and unitization agreements, joint operating agreements, division orders,
transfer orders, assignments, conveyances, farmout agreements, and other similar
contracts, agreements, and rights owned by Seller, but specifically excluding
the Leases.

“Assignments” shall mean the Assignments and Assignments and Bills of Sale from
Seller to Buyer attached as Exhibit “D” hereto.

“Business Day” shall mean any day other than a Saturday, a Sunday, or a holiday
on which banks in the State of Texas generally are closed.

“Capital Expenditure(s)” shall mean all costs and expenses which are considered
to be capital expenditures under the Code.

 

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“Casualty” shall mean, with respect to any of the Assets, any loss or
destruction by fire, explosion, accident, earthquake, act of the public enemy,
act of God, or other similar casualty event.

“Closing Date” shall mean Wednesday, November 15, 2006, at 10:00 A.M. Central
Standard Time or on such other earlier date and time that Buyer and Seller may
hereafter mutually agree in writing.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto, together with all regulations promulgated thereunder.

“Data” means (a) all files, records, reports, logs, core analysis, engineering
reports, Geologist reports, technical reports, leases records, correspondence
with the Bureau of Land Management (the “BLM”) and the state of Wyoming Oil and
Gas Conservation Commission, (b) market analyses, operating plans, equipment
inventories and any other written records pertaining to the Big Horn Project,
(c) copy of all Leases and a schedule of the delay rentals applicable thereto,
(d) all title opinions, lease and land files, filings with and reports to
regulatory authorities or agencies, gas and sales contract files, division order
files, surveys, all processed tapes, field tapes, other tapes and support data,
files, films, microfilms, mylar, black liner, sections, shot point base maps,
x-y coordinates and derivatives related to such surveys and any copies of same,
and (e) all other books, files and records to the extent that they are directly
related to the Properties, and the transfer thereof is not prohibited by
existing contractual obligations set forth in any of the Outstanding Contracts
and Assignments.

“Defensible Title” shall mean, as to the Purchased Percentage of the particular
Property, such good and defensible, record title that: (a) entitles Seller to
receive not less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property in Exhibit “F” hereto, (b) obligates
Seller to bear the costs and expenses attributable to the maintenance,
development and operation of such Property in an amount not greater than the
applicable Working Interest or Working Interests specified for such Property in
Exhibit “E” hereto (unless there is a corresponding increase in the net revenue
interest attributable thereto), and (c) except for Permitted Encumbrances, is
free and clear of all Encumbrances.

“Effective Time” shall mean at 7:00 p.m., Central Standard Time on the Closing
Date.

“Encumbrance” shall mean any lien, security interest, pledge, charge,
encumbrance, claim or Property Defect, except for any Permitted Encumbrance as
defined herein.

“Lease Operating Expense(s)” shall mean all expenditures of funds in connection
with the Leases which are deductible under the Code, except those expenditures
which are Capital Expenditures.

“Leases” shall mean those oil, gas and mineral leases enumerated in Exhibit “A”
hereto.

 

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“Liabilities” shall mean any and all payments, charges, judgments, assessments,
liabilities, damages, penalties, fines or costs and expenses paid or incurred,
including any legal or other expenses reasonably incurred in connection
therewith.

“Net Revenue Interest” shall mean an interest (expressed as a percentage or
decimal fraction) in and to all oil, gas and other hydrocarbons produced and
saved from or attributable to a Property Subdivision.

“Operator” shall mean the person or entity named in any applicable joint
operating agreement and/or field wide operating agreement as Operator and/or
designated as Operator of any of the Leases on applicable filings made with the
state regulatory agency having jurisdiction over operation of, and production
from, the Leases.

“Outstanding Contracts and Assignments” shall mean all of the contracts,
agreements, assignments and other instruments listed on Exhibit “F” hereto.

“Overriding Royalty Interest” shall mean a non-operating, non-expense-bearing
overriding royalty interest in the nature of an interest in real property, free
of all cost, risk and expense of production and operations and delivery
including all drilling, developing, and operating costs and expenses.

“Permits” shall mean all licenses, permits, certificates, orders, approvals and
authorizations of governmental authorities necessary to own and operate the
Assets.

“Permitted Encumbrances” shall mean:

(a) Oil, gas and/or mineral leases, division orders, transfer orders, farmout
agreements, and sales contracts containing customary terms and provisions
covering oil, gas or associated liquefied or gaseous hydrocarbons, reversionary
interests, and similar burdens, to the extent such leases, agreements, contracts
and other instruments which do not decrease any of Seller’s Net Revenue
Interests, or increase any of Seller’s Working Interests, as set forth for any
Properties and described in Exhibit “E” hereto; and

(b) Preferential rights to purchase and required third party consents to
assignments and similar agreements with respect to which, prior to Closing,
(i) waivers or consents acceptable to Buyer are obtained from the appropriate
parties, or (ii) the appropriate time period for asserting such rights has
expired without an exercise of such rights; provided, further, such preferential
rights to purchase shall not continue to encumber the Assets after Closing or
continue to burden the interests retained by Seller in the Properties after
Closing; and

(c) Liens for taxes or assessments not yet due or delinquent or, if delinquent,
that are being contested in good faith in the normal course of business; and

 

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(d) Such Property Defects as Buyer may have waived in writing; and

(e) Easements, conditions, covenants, restrictions, servitudes, permits,
rights-of-way, surface leases and other rights affecting the Assets for the
purpose of surface operations, roads, alleys, highways, railways, pipelines,
transmission lines, transportation lines, distribution lines, power lines,
telephone lines, and removal of timber, grazing, logging operations, canals,
ditches, reservoirs, and other like purposes, or for the joint or common use of
real estate, rights-of-way, facilities, and equipment; provided the same do not
materially impair or interfere with the rights to be held by Buyer (including
the right to conduct geophysical or other operations) or materially reduce the
value of the portion of the Assets burdened thereby; and

(f) The terms and provisions of all of the Outstanding Contracts and
Assignments.

“Person” shall mean any individual, firm, corporation, limited liability
company, trust, partnership, joint venture, unincorporated organization,
governmental authority, or other entity or organization.

“Preference Right” shall mean any right or agreement that enables or may enable
any Person to purchase or acquire any Asset or any interest therein or portion
thereof as a result of or in connection with (a) the past, present or future
sale, assignment, encumbrance or other transfer of any Asset or any interest
therein or portion thereof, or any agreement to sell, assign or encumber same,
by Seller or any Affiliate, or (b) the execution or delivery of this Agreement
or any Assignment pursuant to this Agreement or the consummation or performance
of the terms and conditions contemplated by this Agreement.

“Property Subdivision” shall mean each well location, well, well completion,
multiple well completion, unit, Lease or other subdivision of Properties in
Exhibit “G” hereto. The Property Subdivision with respect to any well, well
location, well completion, or multiple well completion of those Properties in
Exhibit “G” hereto shall include the spacing unit for such well, well location,
well completion or multiple well completion.

“Taxes” shall mean all federal, state and local taxes or similar assessments or
fees, together with all interests, fines, penalties and additions thereto.

“Working Interest” shall mean the percentage of costs and expenses attributable
to the maintenance, development and operation of a Property Subdivision.

1.2 Articles and Sections. This Agreement, for convenience only, has been
divided into articles and sections. The rights and other legal relations of the
parties hereto shall be determined from this Agreement as an entirety and
without regard to the aforesaid division into articles and sections and without
regard to headings prefixed to such articles and sections.

 

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1.3 References, Number and Gender. Whenever the context requires, reference
herein made to a single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative. Definitions of terms defined in
the singular or plural shall be equally applicable to the plural or singular, as
appropriate, unless otherwise indicated. All references in this Agreement to an
“Article,” “Section,” or “subsection” shall be to an Article, Section or
subsection of this Agreement, unless the context requires otherwise. Unless the
context otherwise requires, the words “this Agreement,” “hereof,” “hereunder,”
“herein,” “hereby,” or words of similar import shall refer to this Agreement as
a whole and not to a particular Article, Section, subsection, clause or other
subdivision hereof. The word “including” means “including without limitation”.

ARTICLE 2.

PURCHASE AND SALE

2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement,
Seller agrees to sell and convey to Buyer, or to cause to be sold and conveyed
to Buyer, and Buyer agrees to purchase from Seller and from Third Party Owners,
and pay for, effective as of the Effective Time, all of the Data, all of the
interests of Seller and the Third Party Owners (such interests are hereinafter
collectively referred to as the “Purchased Percentage”) in and to all of the
following rights, interests, and properties (the Purchased Percentage in such
rights, interests and properties, subject to the Permitted Encumbrances, being
herein collectively referred to as the “Assets”):

(a) All of (i) the Working Interests and Overriding Royalty Interests described
in Exhibit “E” hereto, (ii) any other non-royalty or overriding royalty
interests of Seller and the Third Party Owners in production and/or revenue in
and attributable to the Leases and related contractual rights and associated
personal property and equipment, including all wells (whether producing,
non-producing, shut-in and properly plugged and abandoned wells, inactive or
temporarily abandoned wells, salt water disposal wells, injection wells and/or
water wells) associated therewith and situated thereon. It is the Parties’
intention that all of Seller’s specified interests in the oil and gas field
areas covered by the Leases, including all of Seller’s interests in any and all
other contract rights, facilities or other properties necessary for the
continued operation of the Properties, be included herein whether or not such
interests are specifically enumerated in the Exhibits attached hereto and the
related rights to the production of oil, gas and other minerals or the proceeds
therefrom or the value thereof, together with any and all other related rights,
titles, and interests of Seller in and to all rights of ingress and egress and
any and all pooled and/or unitized units and rights and interests therein are
derived from, royalty interests, overriding royalty interests, production
payments, net profits interests, and mineral fee interests (all of such rights
and interests being herein referred to as the “Properties”).

(b) All rights, titles and interests of Seller in and to the Leases.

 

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(c) All rights, titles and interests of Seller in and to all other rights,
privileges, benefits and powers conferred upon the owner of the Properties.

(d) All rights, titles, and interests of Seller in and to all of the permits,
licenses, servitudes, easements, rights-of-way, orders, farmout agreements,
pooling agreements, unitization agreements, and other contracts, agreements, and
rights owned by Seller, in whole or in part, to the extent that they are
appurtenant to or affect the Properties or are used or held for use in
connection with the ownership thereof.

(e) All rights, titles, and interests of Seller in and to all contract rights,
intangible rights, inchoate rights, choses in action, rights under warranties
made by prior owners and other third parties, and rights accruing under
applicable statutes of limitation or prescription, insofar only as the foregoing
items accrue or are attributable to the Properties.

(f) All rights, titles, and interests of Seller in and to all facilities,
buildings, improvements, fixtures, inventory, gathering lines, flow lines,
injection lines, salt water disposal systems, and pipelines and appurtenances
located on the real property, or which are subservient to, the Properties.

(g) All rights, titles, and interests of Seller in and to all surface and
down-hole equipment, fixtures, inventory and personal property associated with
producing, non-producing, shut-in and properly plugged and abandoned wells,
inactive and temporarily abandoned wells, salt water disposal wells, injection
wells and water wells located on the Properties.

(h) All rights, titles, and interests of Seller in and to the Data and all
licenses and permits to use and/or obtain any seismic and/or geophysical data
and information relating to the Properties including but not limited to the
geophysical data described in Exhibit “H”.

(i) Subject to Seller’s ability to do so under licenses and similar agreements,
all rights, titles, and interests of Seller in and to all information and data
in any way relating or appurtenant to the Properties including, but not limited
to, plans, specifications, reports, maps, drawings, seismic data, seismic
analysis, operating records, design rights, business prospects, software, well
logs, contract documents, financial data and other information whether in
written or electronic form relating to the historical, current and planned
business activities of Seller with respect to the Assets.

(j) All rights, titles and interests of Seller in and to all oil, gas and other
hydrocarbons or the proceeds from the sale produced from or attributable to the
Assets with respect to all periods subsequent to the Effective Time of such oil,
gas and other hydrocarbons.

 

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(k) All rights, titles and interests of Seller in and to all oil, condensate or
natural gas wells located on the Properties, whether producing, operating,
shut-in, temporarily abandoned, abandoned, and standing or otherwise, including,
without limitation, the wells listed on Exhibit “A” hereto.

(l) All rights, titles and interests of Seller in and to all severed crude oil,
natural gas, casing head gas, drip gasoline, natural gasoline, petroleum,
natural gas liquids, condensate, products, liquids and other hydrocarbons and
other minerals or materials of every kind and description produced from the
Properties and either (a) in storage tanks on the Effective Date, or (b) sold on
or after the Effective Date (the “Substances”).

(m) All rights, titles and interests of Seller in and to all platforms, wellhead
equipment, gathering systems and lines, flow lines and other fixtures or
physical facilities and equipment of every type and description located on the
Properties or use solely in connection with the operation thereof.

(n) All rights, titles and interests of Seller in and to all contracts,
agreements and arrangement that directly related to the Properties and the
production, storage, treatments, transportation, processing, purchase, sales,
disposal or other disposition of substances there from and any and all
amendments, ratifications or extensions of the Applicable Contracts.

(o) All rights, titles and interests of Seller in and to all franchises,
licenses, permits, approvals, consents, certificates and other authorizations
and other rights granted by governmental authorities and all certificates of
convenience or necessity, immunities, privileges, grants and other rights, that
relate to the Properties or the ownership or operation of any thereof.

2.2 Ownership of the Assets. Subject to the provisions hereof, Seller and Third
Party Owners shall remain entitled to all of the rights of ownership (including,
without limitation, the right to all production, proceeds or value of
production, and other proceeds) and shall remain subject to the duties and
obligations of such ownership, in each case attributable to the Properties for
the period of time prior to the Effective Time. Subject to the provisions
hereof, and subject to the occurrence of the Closing, Seller and Third Party
Owners shall be entitled to all Excluded Assets, in the proportions listed
below, and shall be subject to the duties and obligations of such ownership, in
each case attributable to the Excluded Assets for the period of time from and
after the Effective Time. Excluded Assets means (a) all trade credits and all
accounts, instruments and general intangibles (as such terms are defined in the
Uniform Commercial Code) attributable to the Properties with respect to any
period of time prior to the Effective Time, (b) all claims and causes of action
of Seller and Third Party Owners (i) arising from acts, omissions or events, or
damage to or destruction of property, occurring prior to the Effective Time, or
(ii) with respect to any of the Excluded Assets, (c) all rights and interests of
Seller and Third Party Owners (i) under any policy or agreement of insurance or
indemnity, (ii) under any bond, or (iii) to any insurance or condemnation
proceeds or awards arising, in each case, from acts, omissions or events, or
damage to or destruction of property, occurring prior to the Effective Time,
(d) all substances produced

 

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from the Properties with respect to all periods prior to the Effective Time,
together with all proceeds from or of such substances, (e) all claims of Seller
and Third Party Owners for refunds of or any loss carry forwards with respect to
(i) production or any other taxes attributable to any period prior to the
Effective Time, (ii) income of franchise taxes, or (iii) any taxes attributable
to the Excluded Assets, (f) all amounts due or payable to Seller and Third Party
Owners as adjustments to insurance premiums related to Properties with respect
to any period prior to the Effective Time, (g) all oil and/or condensate
produced and in the tanks prior to the Effective Time, (h) all proceeds, income
or revenues (and any security or other deposits made) attributable to (i) all
Properties for any period prior to the Effective Time, or (ii) any Excluded
Assets, (i) all data which cannot be disclosed or assigned to Buyer as a result
of confidentiality arrangements under agreements with persons unaffiliated with
Seller as identified in Exhibit “H” to this Agreement.

ARTICLE 3.

PURCHASE PRICE

3.1 Purchase Price. The purchase price (the “Data Purchase Price”) for the Data
is Twenty Million Dollars ($20,000,000) and the purchase price for the Assets,
except for the Data (the “Properties Purchase Price”) is Eighty Million and
Dollars ($80,000,000). The Data Purchase Price and the Properties Purchase Price
are hereinafter sometimes referred to collectively as the “Total Purchase
Price”. The recipients of the Data Purchase Price and the Properties Purchase
Price are as set forth in Schedule 3.1 to this Agreement.

The Parties agree the Properties Purchase Price shall be adjusted (a) at
Closing, with such adjustments to be reflected in the Preliminary Settlement
Statement to be delivered at Closing, and (b) within the time prescribed in
Section 9.1 below, with such adjustments to be reflected in the Final Settlement
Statement (the Properties Purchase Price as adjusted is herein sometimes
refrrred to as the “Adjusted Properties Purchase Price”. Any such adjustment
made to the Properties Purchase Price shall be made in conformity with
Section 3.2 below. The Data Purchase Price and the Adjusted Properties Purchase
Price (which two prices, when added together, are hereinafter sometimes referred
to as the “Adjusted Total Purchase Price) set forth in the Preliminary
Settlement Statement shall be paid at Closing in cash or by direct bank or wire
transfer in same day funds. Buyer shall have discharged its obligation to Seller
concerning the payment of the Adjusted Total Purchase Price upon its
disbursement thereof to Seller in accordance with instructions set forth in the
Preliminary Settlement Statement, and Buyer shall have no obligation or
liability concerning the further distribution of the Adjusted Total Purchase
Price beyond Seller.

The Parties further agree and understand that payment of the full amount of the
Data Purchase Price is subject to the following conditions: (i) Buyer shall not
be obligated to delver full amount of the Data Purchase Price to Seller at the
time of Closing unless and until Buyer receives title to all of the 56% WI and
of the ORR involved, (ii) if and to the extent that Buyer does not receive at
Closing title to all of the 56% WI and of the ORR involved, at the time of
Closing, a portion of the Data Purchase Price (as herein determined) shall be
deposited with LaSalle Bank

 

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National Association, a national banking association duly organized and existing
under the laws of the United States of America, with its principal office in
Chicago, Illinois (the “Escrow Agent”) pursuant to an Escrow Agreement in the
form as attached hereto as Schedule 3.1A, (iii) the portion of the Data Purchase
Price to be placed into escrow with the Escrow Agent (the “Escrow Amount”) shall
be a percentage amount of the Data Purchase Price as shall be equal to the
percentage amount of the 56% WI and the ORR not acquired by Buyer at Closing
based upon the allocation schedule included as part of Exhibit “C” hereto (for
example: if the Properties Purchase Price for the entire amount of the 56% WI
and of the ORR involved equals $50,000,000, and if only $25,000,000 thereof is
actually payable to Third Party Owners at Closing, then and in such event the
percentage amount of the Data Purchase Price to be placed into escrow with the
Escrow Agent shall be fifty percent (50%), and thus the Escrow Amount would be
$10,0000,000; 50% of $20,000,0000), (iv) if and to the extent that Buyer
succeeds in purchasing, subsequent to Closing, any of 56% WI or ORR involved,
the premium paid to the owners of the 56% WI or ORR purchased [the premium is
the amount in excess of the portion of the Properties Purchase Price herein
allocated to the Assets (except for the Data) being purchased] shall be deducted
from the Escrow Amount and shall be promptly paid by the Escrow Agent to Buyer,
and (v) at such time as Buyer acquires title to all of the 56% WI and ORR
involved, the balance of the Escrow Amount shall then be promptly paid by the
Escrow Agent to Seller.

3.2 Adjustments to Properties Purchase Price. The Properties Purchase Price
shall be adjusted as follows, and the resulting amount shall be herein called
the “Adjusted Properties Purchase Price”:

 

  (a) The Properties Purchase Price shall be adjusted upward by the following:

(i) The amount of all Lease Operating Expenses and Capital Expenditures
attributable to the Assets (except for the Data) incurred and actually paid by
or on behalf of Seller and Third Party Owners and that are, in accordance with
generally accepted accounting principles, attributable to the period from the
Effective Time to the Closing Date, including without limitation, ad valorem,
property, excise, severance and production taxes and any other taxes (exclusive
of income taxes) based upon or measured by the ownership of the Assets (except
for the Data), the production of hydrocarbons, or the receipt of proceeds
therefrom, as agreed and verified by Buyer.

(ii) Any other amount attributable to the Assets (except for the Data) that is
provided for elsewhere in this Agreement to be treated as an upward adjustment
to the Properties Purchase Price or otherwise mutually agreed upon in writing by
Seller and Buyer.

Notwithstanding anything in subsection (a)(ii) to the contrary, Seller and Third
Party Owners shall not make any single expenditure attributable to the Assets
(except for the Data) in excess of Twenty Thousand Dollars ($20,000) unless the
written permission of Buyer is first obtained, which will not be unreasonably
withheld, provided however, Buyer’s permission shall not be required in the
event any expenditure is made to address an emergency situation constituting a
substantial and material risk to life or property.

 

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  (b) The Properties Purchase Price shall be adjusted downward by the following:

(i) An amount equal to all sums, if any, received by Seller and Third Party
Owners subsequent to the Effective Time constituting revenue from production of
oil, gas and associated hydrocarbons from the Properties as well as any other
revenues received by Seller subsequent to the Effective Time attributable to the
Properties and that are in accordance with generally accepted accounting
principles, and attributable to the period from the Effective Time to Closing
Date.

(ii) Any other amount that is provided for elsewhere in this Agreement to be
treated as a downward adjustment to the Properties Purchase Price or otherwise
mutually agreed upon in writing by Seller and Buyer.

The Adjusted Properties Purchase Price shall initially be determined and set out
in the Preliminary Settlement Statement and shall be finally determined as set
out in the Final Settlement Statement.

3.3 Allocated Values. Seller and Buyer agree and stipulate that the Allocated
Values set forth for the various portions of the Assets in Exhibit “C” hereto
have been established for use in calculating adjustments to the Properties
Purchase Price as provided herein. Seller and Buyer agree that such schedule of
Allocated Values shall also be used for federal and state income tax purposes
and neither Party shall take a federal or state income tax reporting position
inconsistent with the allocations set forth in Exhibit “C” hereto. The Parties
further agree that the allocations set forth in Exhibit “C” hereto represent
reasonable estimates of the fair market values of the Properties described
therein.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

4.1 Representations and Warranties of Seller. Each of the Sellers represents and
warrant to Buyer, jointly and severally, as follows:

(a) Energytec is a Nevada corporation duly organized, validly existing and in
good standing under the laws of the state of Nevada, is qualified to conduct
business in the states of Texas, Wyoming and all other states where the Big Horn
Project operates, and has all requisite corporate power and authority to own and
administer Energytec’s interest in the Assets prior to Closing and to carry on
their business as now conducted; and BHV is in good standing in the state of
Wyoming and all other states where the Big Horn Project operates, and has all
requisite corporate power and authority as required by this provision.

 

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(b) Each Seller has full capacity, power, and authority to enter into and
perform this Agreement and the transactions contemplated herein. The execution,
delivery, and performance by each Seller of this Agreement have been duly and
validly authorized and approved by all necessary corporate action on the part of
each Seller. This Agreement is, and upon its execution and delivery will be, the
valid and binding obligation of each Seller and enforceable against each Seller
in accordance with its terms, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar laws, as well as to principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

(c) The execution, delivery, and performance of this Agreement by each Seller,
and the consummation of the transactions contemplated herein, will not
(i) conflict with or result in a breach of any provisions of the articles,
bylaws or certificate of incorporation of either Seller, (ii) result in a
material default or the creation of any lien or encumbrance or give rise to any
right of termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any Applicable Contract, note, bond, mortgage,
indenture, license, or other agreement to which Seller is a party or by which
either Seller or any of the Assets may be bound, or (iii) violate any order,
writ, injunction, judgment, decree, statute, rule, or regulation applicable to
Seller or any of the Assets.

(d) No authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any governmental authority or any other Person is
required to authorize, or is otherwise required in connection with, the valid
execution and delivery by either Seller of this Agreement or the performance by
either Seller of its obligations hereunder, other than those constituting
Permitted Encumbrances hereunder.

(e) To the best of the knowledge of each Seller, there is no suit, action,
legal, administrative or arbitration proceeding, claim, investigation, or
inquiry by any Person or by any administrative agency or governmental body
(including, without limitation, expropriation or forfeiture proceedings),
pending, except for suits filed and not yet served on either Seller, or to
Seller’s knowledge, threatened against either Seller, or to which either Seller
is a party, that relates to the Assets or that reasonably may be expected to
have a materially adverse effect upon the ability of either Seller to consummate
the transactions contemplated in this Agreement or which would have any material
adverse affect upon the ownership and title to or operation of any of the
Properties and Assets, except those specifically enumerated in Exhibit “I”
hereto.

(f) To the best of the knowledge of each Seller, all environmental damage with
respect to the Leases and/or Properties which requires remediation and which
violate applicable federal or state law, rule or order relating to environmental
protection, including, but not limited to those pertaining to air and water
quality and/or hazardous wastes and substances, are enumerated in Exhibit “I”
hereto.

(g) During the period of Seller’s ownership of operated Assets, all rentals,
royalties, overriding royalty and other payments out of or on account of
production due under the

 

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terms of the Leases, as well as all monetary and other obligations under all
Applicable Contracts have been fully paid and/or performed and each Seller has
paid its share of such payments and all development and operating expenses
except for any that are currently in the process of being paid in the normal
course of business and are not delinquent, and additionally, to the best of
Seller’s knowledge, neither Seller is in breach or default with respect to its
obligations under any Applicable Contracts. The Applicable Contracts are in full
force and effect and, to the best of Seller’s knowledge, there are no violations
or breaches thereof by any other parties to such contracts, and no notice has
been received by either Seller that any party thereto intends not to honor its
obligations thereunder.

(h) No gas production, processing or pipeline imbalances exist with respect to
any of the Leases constituting a part of the Properties and neither Seller is
obligated under any contract of sale of hydrocarbons which contains a “take or
pay” or similar provision or a production payment or any other arrangement to
deliver hydrocarbons produced from the Properties at some future time without
then or thereafter receiving full payment therefor.

(i) During the period of Seller’s ownership, with respect to the Properties,
Seller is receiving on a current basis the payments required under the terms of
all applicable gas purchase and/or gas processing contracts.

(j) To the best of the knowledge of each Seller, with respect to the Properties,
Seller is receiving on a current basis the payments required under the terms of
all applicable purchase contracts existing as of the Effective Time.

(k) Neither Seller is a public-utility company or a “holding company,” or a
“Subsidiary Company” of a “holding company,” or an “affiliate” of a “holding
company” within the meaning of the Public Utility Holding Company Act of 1935,
as amended, nor is Seller otherwise subject to regulation under or the
restrictions of such act. Neither Seller is an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940, as amended, nor is Seller otherwise subject to regulation
under or the restrictions of such act.

(l) To the best of the knowledge of each Seller, each Seller has complied with
the provisions and requirements of all statutes, orders, laws, ordinances,
restrictions, requirements, writs, injunctions, decrees, regulations and rules
promulgated by governmental authorities having jurisdiction with respect to the
Assets and the Assets are being operated and maintained in compliance therewith.

(m) There are no calls on any production from the Leases in favor of third
parties nor are there any restraints on assignment of any of Seller’s interests
in the Assets except as set forth in Exhibit “J” attached hereto and made a part
hereof.

(n) The only liens and encumbrances constituting a burden upon the Assets, to
the s knowledge of each Seller and not recorded, other than the Permitted
Encumbrances are those liens and encumbrances described in Exhibit “K” hereto
(“Existing Encumbrances”) and all of such Existing Encumbrances shall be
released at Closing insofar as they constitute a burden on the Assets.

 

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(o) The only Authorizations for Expenditure or other existing commitments for
expenditure of funds in excess of Ten Thousand Dollars ($10,000.00) relating to
the Assets are those enumerated in Exhibit “L” attached hereto and made a part
hereof.

(p) Seller agrees to indemnify and hold Buyer harmless from any liability for
any brokers’ or finders’ fees claimed by Persons claiming through or under
Seller or any Affiliate of Seller.

(q) The Assets are not subject to any tax partnership agreement or provisions
requiring a partnership income tax return to be filed under Subchapter K of
Chapter 1 of Subtitle A of the Code.

(r) To the best of Seller’s knowledge, during the period of Seller’s ownership,
all currently existing wells attributable to the Property Subdivisions have been
drilled and completed within the limits permitted by contract, pooling or unit
agreement, and by law; and all drilling and completion of such wells and all
related development and operations have been conducted in compliance with all
applicable laws. As to wells drilled and completed prior to Seller’s ownership
of the Properties, Seller has received no notice that any such wells completed
have not been drilled and completed. To the best of Seller’s knowledge, other
than within the limits permitted by contract, pooling or unit agreement, and by
law, no such well is subject to penalties on allowables after the Effective Time
because of any overproduction or any other violation of law.

(s) To the best of the knowledge of each Seller or as set forth in Exhibit “M”
hereto, there are no wells included in the Assets or located on the lands
affected thereby that (i) either Seller is obligated by law or contract to
currently plug and abandon or (ii) are subject to exceptions to a requirement to
plug and abandon issued by a governmental authority. To the best of Seller’s
knowledge, during the period of Seller’s ownership, all wells, pits, tanks, salt
water disposal facilities, pipelines, compressor units and pits, and other
facilities located on the lands affected by the Assets and no longer used in
connection with the ownership or operation of the Assets have been filled,
plugged, removed and/or abandoned in full compliance with all applicable laws.
To the best of Seller’s knowledge, there are no underground storage tanks or
unlined pits in, on or underlying any of the Assets.

(t) There are no bankruptcy, reorganization or arrangement proceedings pending
against, being contemplated by, or to the best of Seller’s knowledge, and
threatened against either Seller.

(u) Except as set forth in Exhibit “N” hereto, the Assets are not subject to and
no Seller is not bound by any Preference Rights.

 

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(v) To the best of the knowledge of each Seller, each Seller has all Permits and
all of the Permits are in full force and effect and all fees and charges
relating thereto have been paid and all applications for renewal of the Permits
have been timely filed and no modification of any Permit or application for
renewal of any Permit is required for each Seller to hold such Permits. To the
best of Seller’s knowledge, all filings and notices required to be made with any
governmental authority with respect to the Assets have been made or given as
required by law and are current, in full force and effect and are not in
default.

(w) To the best of the knowledge of each Seller, each Seller has paid all Taxes
on or relating to the Assets, or any production or revenue attributable thereto,
which are currently due and payable as required by law prior to delinquency.

(x) None of the owners of any of the 56% WI or ORR involved have any claims,
written or unwritten, with respect to the Data. All of the Data was acquired or
developed by Seller prior to any assignments of interests by Seller to any one
of more of the owners of the 56% WI or ORR involved. Exhibit “O” hereto contains
a complete list of all persons who have received, have or have had access to the
Data; the date and term of any agreement between each Seller and such persons,
including the date of any supplements thereto; and a description of any rights
of such persons to select additional data, assign such agreements or designate
other recipients or licensees of Data.

(y) Except for the Leases, the Permitted Encumbrances and the Applicable
Contracts, there are no outstanding rebates or other obligations existing under
any contracts, whereby the Buyer may be or become obligated to make payments to
other persons.

(z) Each Seller has fulfilled all of its obligations under all seismic survey
agreements, and there are no further costs of seismic data acquisition required
to be paid by the Seller to own the Data.

Seller shall immediately notify Buyer in writing in the event Seller should
discover prior to Closing that any of the representations and warranties of
Seller set forth above in this Section are untrue or inaccurate.

4.2 Representations and Warranties of Buyer. Buyer represents and warrants to
Seller as follows:

(a) Buyer is a limited liability company duly organized, validly existing, and
in good standing under the laws of the States of Texas and has all requisite
limited liability power and authority to own and operate its property and to
carry on its business as now conducted.

(b) Buyer has full capacity, power, and authority to enter into and perform this
Agreement and the transactions contemplated herein. The execution, delivery, and
performance by Buyer of this Agreement have been duly and validly authorized and

 

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approved by all necessary corporate action on the part of Buyer, and this
Agreement is, and upon its execution and delivery will be, the valid and binding
obligation of Buyer and enforceable against Buyer in accordance with its terms,
subject to the effects of bankruptcy, insolvency, reorganization, moratorium,
and similar laws, as well as to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

(c) The execution, delivery, and performance by Buyer of this Agreement and the
consummation of the transactions contemplated herein will not (i) conflict with
or result in a breach of any provisions of the certificate of partnership and
partnership agreement of Buyer, (ii) result in a default or give rise to any
right of termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license, or
other agreement to which Buyer is a party or by which Buyer or any of its
property may be bound, or (iii) violate any order, writ, injunction, judgment,
decree, statute, rule, or regulation applicable to Buyer or any of its property.

(d) There is no suit, action, legal, administrative or arbitration proceeding,
claim, investigation, or inquiry by any Person or by any administrative agency
or governmental body (including, without limitation, expropriation or forfeiture
proceedings), pending except for suits filed and not yet served on Buyer, or to
Buyer’s knowledge, threatened against Buyer, or to which Buyer is a party, that
reasonably may be expected to have a materially adverse effect upon the ability
of Buyer to consummate the transactions contemplated in this Agreement.

(e) No authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any governmental authority or any other Person is
required to authorize, or is otherwise required in connection with, the valid
execution and delivery by Buyer of this Agreement or the performance by Buyer of
its obligations hereunder.

(f) Neither Buyer nor any Affiliate of Buyer has incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the
transactions contemplated by this Agreement and Buyer agrees to indemnify and
hold Seller harmless from any liability for any such fees claimed by Persons
claiming through or under Buyer.

Buyer shall immediately notify Seller in writing in the event Buyer should
discover prior to Closing that any of the representations and warranties of
Buyer set forth above in this Section are untrue or inaccurate.

4.3 Disclaimers. The express representation and warranties of Seller contained
in this Agreement are exclusive and are in lieu of all other representations and
warranties, either statutory, express or implied, AND ARE ALL MADE WITHOUT
WARRANTY OF TITLE, EITHER STATUTORY, EXPRESS OR IMPLIED. BUYER ACKNOWLEDGES THAT
SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND
BUYER HEREBY EXPRESSLY WAIVES ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED,
AT COMMON LAW, BY STATUTE OR OTHERWISE

 

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RELATING TO (a) THE ACCURACY, COMPLETENESS OR MATERIALITY OR ANY INFORMATION,
DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED
TO BUYER BY OR ON BEHALF OF SELLER, (b) THE ENVIRONMENTAL CONDITION OF THE
ASSETS, (c) THE ABILITY OF THE ASSETS TO PRODUCE HYDROCARBONS, (d) ANY IMPLIED
OR EXPRESS WARRANTY OF MERCHANTABILITY, (e) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (f) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS AND (g) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW. IT IS THE EXPRESS INTENTION OF THE
PARTIES THAT THE ASSEST, INCLUDING PERSONAL PROPERTY, EQUIPMENT AND FIXTURES ARE
BEING SOLD TO BUYER IN THEIR PRESENT CONDITION AND STATE OF REPAIR “AS IS” AND
“WHERE IS” AND “WITH ALL FAULTS”, THAT WITH RESPECT TO SUCH MATTERS BUYER IS
RELYING SOLELY UPON ITS OWN INVESTIGATION AND THAT AT CLOSING BUYER WILL HAVE
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS NECESSARY, ADVISABLE
OR APPROPRIATE. THE PARTIES AGREE THAT THIS PROVISION HAS BEEN NEGOTIATED AT
ARMS LENGTH AND THAT THE TOTAL PURCHASE PRICE REFLECTS THE INCLUSION OF THIS
PROVISION. THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO
BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED HEREIN ARE
“CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.

ARTICLE 5.

CERTAIN AGREEMENTS OF BUYER AND SELLER

5.1 Access. Seller hereby gives to Buyer and its representatives (including
Buyer’s employees, consultants, independent contractors, attorneys, accountants,
and other advisors of Buyer) continuing reasonable access during normal business
hours to all of the Properties, Assets and Records in Seller’s possession or
control. Buyer shall have the right to photocopy any portion of the Records at
Buyer’s expense. Upon Buyer’s written request to review additional files or data
not included in the Records, Seller shall provide access to such additional
files or data as are reasonably available to Seller; provided, that Seller has
no obligation to provide access to, and Buyer waives all claims to inspect or
review, any interpretive, predictive, confidential, private, proprietary or
privileged information of Seller or its Affiliates, or information whose
dissemination is in Seller’s opinion restricted by agreements between Seller and
third parties. Seller may request information from other operators, lessees, and
third parties, but Buyer expressly acknowledges that such other parties are not
obligated to make any information available to Buyer and that Seller may have no
right to require them to do so. Immediately following the execution of this
Agreement, and subject to any required consent of any third Person, Seller shall
grant to Buyer and its representatives the right to observe all operations on or
with respect to the Properties, to inspect any and all equipment, improvements
and fixtures located thereon or included therein, and the right to conduct
environmental audits, inspections and investigations thereon.

 

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5.2 Assumption of Obligations. At Closing, Buyer shall assume the obligations of
Seller pertaining to all costs, obligations and liabilities arising out of or
attributable to the Assets which arise from or relate to events occurring or
conditions existing on or after the Effective Time or accruing after the
Effective Time, excepting however, acts of gross negligence by Seller and/or
obligations of Seller as Operator under any applicable operating agreement;
however, Seller shall remain responsible for any obligations of Seller
pertaining to all costs, obligations and liabilities arising out of or
attributable to the Assets which arise from or relate to events occurring or
conditions existing before the Effective Time or accruing before the Effective
Time.

5.3 Cooperation. Buyer and Seller shall cooperate diligently and in good faith
in carrying out the terms of this Agreement.

5.4 Legal Existence. Buyer and Seller, respectively, shall each maintain its
legal status, and shall assure that as of the Closing Date, the Parties will not
be under any material legal or contractual restriction that would prohibit or
delay the timely consummation of the transactions contemplated herein.

5.5 Risk of Loss. Subject to the following provisions of this Section, unless
this Agreement is terminated in accordance with the terms and conditions herein
contained, the risk of loss, or damage to, or destruction of, the Assets will
pass from Seller to Buyer at the time of the Closing. If after the execution
hereof and prior to Closing any portion or portions of the Assets shall be
destroyed by Casualty or taken in condemnation or under the right of eminent
domain or if proceedings for such purpose shall be pending or threatened, Buyer
shall have the right to elect to terminate this Agreement on or before the
Closing Date if the value of all Assets affected by any one or more Casualties,
takings or proceedings or threats thereof exceeds $20,000.00 in the aggregate.
In the event of such termination, the Parties shall be released from any further
liability under this Agreement. If this Agreement is not so terminated by Buyer,
to the extent insurance proceeds, condemnation awards or other payments are not
committed, used or applied by Seller prior to the Closing Date to repair,
restore or replace such damaged or taken Assets, Seller shall at the Closing pay
to Buyer all sums paid to Seller by reason of such destruction or taking less
(i) any reasonable costs and expenses incurred by Seller in collecting same and
(ii) the portion applicable to the Excluded Assets.

5.6 Notification of Additional Proceedings. Each Party hereby covenants and
agrees that such Party shall, after the execution hereof, promptly notify the
other Party of any new suits, actions, or other proceedings of which such Party
becomes aware before any court, arbitrator or governmental agency that relate to
the Assets, that could reasonably be expected to impair the value of the Assets
and/or could or would have an effect upon such Party’s ability to perform its
obligations under the terms of this Agreement.

5.7 Operation of Assets Pending Closing. Subject to the constraints of
applicable operating agreements, from the date hereof through the Closing,
except as otherwise consented to or approved by Buyer in writing, Seller

 

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(a) Shall continue to (i) operate the Assets in the ordinary course of business,
in accordance with all applicable laws, rules and regulations, and (ii) maintain
insurance now in force with respect to the Assets.

(b) Shall not sell, transfer, assign, convey, farmout, release, abandon or
otherwise dispose of any Assets, or enter into any transaction the effect of
which would be to cause Seller’s ownership interest in any of the Assets to be
altered from Seller’s ownership interest as of the date of this Agreement, other
than (i) oil, gas and other hydrocarbons produced, saved and sold in the
ordinary course of business, and (ii) personal property and equipment which is
replaced with personal property and equipment of comparable or better value and
utility in the ordinary and routine maintenance and operation of the Assets.

(c) Shall not create or permit the creation of any lien, security interest or
encumbrance on any Assets.

(d) Shall not enter into any oil, gas or other hydrocarbon sales, supply,
exchange, processing or transportation contract with respect to the Assets which
is not terminable without penalty or detriment on notice of sixty (60) days or
less.

(e) Shall not voluntarily relinquish any Seller’s position as operator with
respect to the Assets.

5.8 Termination of Letter of Intent. Upon execution of this Agreement by both of
the Parties, the Letter of Intent shall be deemed for all purposes to be
terminated and no longer in force or effect.

ARTICLE 6.

BUYER’S CONDITIONS TO CLOSING

The obligations of Buyer to consummate the transactions provided for herein are
subject, at the option of Buyer, to the fulfillment on or prior to Closing of
each of the following conditions (except as expressly provided):

6.1 Representations. The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects on the Closing
Date as though made on and as of that date.

6.2 Performance. Seller shall have performed or complied in all material
respects with the obligations, agreements, and covenants contained in this
Agreement as to which performance or compliance by Seller is required prior to
or at the Closing Date. Specifically, Seller shall have remediated to Buyer’s
sole satisfaction all environmental issues set out on Exhibit “I” hereto.

 

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6.3 No Legal Proceedings. No suit, action, or other proceeding shall be pending
before any court or governmental agency seeking to restrain, prohibit, enjoin,
or declare illegal, or seeking substantial damages in connection with, the
purchase and sale contemplated by this Agreement.

6.4 Authorizations. Seller and Buyer, as the case may be, shall have received
all written consents, authorizations, and approvals, if any, required by any
applicable laws, rules, or regulations of any federal or state governmental or
administrative body concerning the transactions contemplated herein, which the
failure to obtain will or could prohibit or impair (i) the consummation of any
transaction contemplated by this Agreement, (ii) Buyer’s ownership or operation
of any or all of the Assets, or (iii) have a material adverse effect on the
Assets.

6.5 Certificate. Buyer shall have received from Seller a certificate dated and
effective as of the Closing Date, executed by duly authorized representatives of
each Seller, certifying to Buyer that each Seller has met the conditions
contained in Sections 6.1, 6.2, and 6.4. Such certificate shall be accompanied
by a copy of the resolutions of the Board of Directors of each corporate Seller
pertaining to the transactions contemplated in this Agreement.

6.6 Upward Purchase Price Adjustments. Upward adjustments to the Purchase Price
(if any) pursuant to this Agreement do not exceed five percent (5%) of the Total
Purchase Price.

6.7 Affidavit of Non-Foreign Status. Buyer shall have received an Affidavit of
Non-foreign Status, substantially in the form attached hereto as Exhibit “P”
hereto, which has been properly executed by or on behalf of Seller.

6.8 Casualty or Condemnation. Buyer shall not have elected to terminate this
Agreement pursuant to Section 5.5.

6.9 Release of Liens. Seller shall have delivered to Buyer a Release or Partial
Release in recordable form acceptable to Buyer and its counsel of the liens and
encumbrances enumerated in Exhibit “K” attached hereto and made a part hereof
insofar as same constitute a burden upon the Assets or any part thereof. With
respect to each such Release or Partial Release, in the event that same is not
executed by all of the lenders/mortgagees, then Seller shall deliver to Buyer an
opinion of counsel in form acceptable to Buyer from the lead lender’s counsel
evidencing the authority of the lead lender to execute the Release or Partial
Release on behalf of all of the lenders.

6.10 Funding. Prior to the Closing, Buyers shall secure funding in an amount and
on terms that are acceptable to Buyer to enable Buyer to pay the Total Purchase
Price.

6.11 Minimum Interests. Buyer shall not be obligated to consummate the
transactions contemplated by this Agreement unless Buyer is satisfied that it
will receive title to the Properties owned by the Third Party Owners as follows:
(a) at least eighty percent (80%) of the Working Interests owned by the Third
Party Owners, and (b) at eighty percent (80%) of the Overriding Royalty
Interests owned by the Third Party Owners.

 

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6.12 Ratification Agreement. Each Third Party Owner shall execute an instrument,
in form and content reasonably acceptable to Buyer, ratifying the terms and
conditions of this Agreement, confirming ownership of the portion of the Assets
owned by such Third Party Owner, and waiving any interest in or to any part of
the Data Purchase Price.

ARTICLE 7.

SELLER’S CONDITIONS TO CLOSING

The obligations of Seller to consummate the transactions provided for herein are
subject, at the option of Seller, to the fulfillment on or prior to Closing of
each of the following conditions (except as expressly provided):

7.1 Representations. The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects on the Closing
Date as though made on and as of that date.

7.2 Performance. Buyer shall have performed or complied in all material respects
with all obligations, agreements, and covenants contained in this Agreement as
to which performance or compliance by Buyer is required prior to or at the
Closing Date.

7.3 No Legal Proceedings. No suit, action, or other proceeding shall be pending
before any court or governmental agency seeking to restrain, prohibit, or
declare illegal, or seeking substantial damages in connection with, the purchase
and sale contemplated by this Agreement.

7.4 Authorizations. Seller shall have received and may not waive the right to
receive for the purposes of Closing all written consents, authorizations, and
approvals, if any, required by any applicable laws, rules, or regulations of any
federal or state governmental or administrative body concerning the transactions
contemplated herein, which the failure to obtain will, or could, prohibit or
impair Buyer’s ownership or operation of any or all of the Assets or have a
material adverse effect on the Assets. Seller shall have received and may not
waive the right to receive for the purposes of Closing all written consents,
authorizations, and approvals, if any, required by any third party having any
rights and/or interests in the Assets concerning the transactions contemplated
herein, which the failure to obtain will, or could, prohibit or impair Buyer’s
ownership or operation of any or all of the Assets or have a material adverse
effect on the Assets.

7.5 Certificate. Seller shall have received from Buyer a certificate, dated and
effective as of the Closing Date, executed by a duly authorized officer of
Buyer, certifying to Seller that Buyer has met the conditions contained in
Sections 7.1, 7.2 and 7.4. Such certificate shall be accompanied by a copy of
the resolutions of the Board of Managers of Buyer pertaining to the transactions
contemplated in this Agreement.

 

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7.6 Downward Properties Purchase Price Adjustments. Downward adjustments to the
Properties Purchase Price (if any) pursuant to this Agreement shall not exceed
five percent (5%) of the Adjusted Properties Purchase Price.

In the event that any of the conditions set forth above in this Article are not
fulfilled prior to Closing, then in that event, Seller, in its sole and absolute
discretion, may terminate this Agreement, and same shall be deemed to be null
and void and the Confidentiality Agreement referenced in Section 5.8 shall
continue to be in force and effect.

ARTICLE 8.

CLOSING

8.1 Date of Closing. Subject to the conditions stated in this Agreement, the
sale and purchase of the Data and the Assets pursuant to this Agreement (the
“Closing”) shall occur on the Closing Date.

8.2 Place of Closing. The Closing shall be held at the offices of Buyer’s
counsel, Glast, Phillips & Murray, P.C., 13355 Noel Road, Suite 2200, Dallas,
Texas 75240.

8.3 Preliminary Settlement Statement. Not less than five (5) Business Days prior
to the Closing, Seller shall prepare and submit to Buyer for review a draft
settlement statement (the “Preliminary Settlement Statement”) that shall set
forth an estimate of the Adjusted Purchase Price, reflecting each adjustment
made in accordance with Section 3.2 of this Agreement as of the date of
preparation of such Preliminary Settlement Statement and the calculation of the
adjustments used to determine such amount, together with the designation of
Seller’s accounts for the wire transfers of funds as herein provided.

8.4 Failure to Close. If the conditions specified in Articles 6 and 7 have been
satisfied or waived by the applicable Parties on or before the Closing Date, and
either Party fails to close the transactions contemplated herein on the Closing
Date, the Party failing to close shall be deemed to have breached the
obligations such Party has undertaken hereunder to perform at the Closing, and
any Party desiring to close the transactions contemplated hereunder shall have
the right to pursue any legal and/or equitable remedy available against the
Party refusing to close the transactions contemplated hereunder, including, but
not limited to, specific performance. Any Party found to have wrongfully refused
to close the transactions contemplated hereunder shall be liable for all costs
and reasonable attorney’s fees of the other Party in enforcing the terms of this
Agreement.

8.5 Closing Obligation. At the Closing, the following documents shall be
delivered and the following events shall occur, the execution of each document
and the occurrence of each event being a condition precedent to the others and
each being deemed to have occurred simultaneously with the others:

(a) Seller shall deliver to Buyer the original executed Assignments and Seller
shall execute and deliver to Buyer such other instruments as may be required to
convey the Properties to Buyer in accordance with this Agreement.

 

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(b) Seller shall deliver or make arrangements to be delivered to Buyer all of
Seller’s right, title and interest in and to the Data, and (b) all documents,
records, maps, seismic interpretations and data, logs, scout tickets,
engineering data, will files, land, accounting and marketing contracts, files
and records (the “Records”) that relate to, describe or affect the Assets.

(c) Seller and Buyer shall execute and deliver the Preliminary Settlement
Statement setting out all adjustments to the Properties Purchase Price as of the
Closing Date.

(d) Buyer shall deliver to Seller or to the lienholder as agreed between the
Parties, to the accounts and in the amounts designated by Seller in the
Preliminary Settlement Statement, by direct bank or wire transfer in same day
funds, the Adjusted Total Purchase Price reflected in the Preliminary Settlement
Statement agreed upon by the Parties.

(e) Seller shall deliver to Buyer the certificates referred to in Section 6.5.

(f) Seller shall deliver to Buyer the items referred to in Section 6.9.

(g) Seller shall deliver on forms supplied by Buyer transfer orders or letters
in lieu thereof directing all purchasers of production to make payment to Buyer
of proceeds attributable to production from the Assets after the Closing Date.

(h) Buyer shall deliver to Seller the certificate referred to in Section 7.5.

(i) Energytec shall provide Buyer with executed change of operator forms on all
wells (active or inactive) operated by Energytec on the Properties as required
by applicable law in the jurisdiction where the Property is located, to effect a
change of operator for the Properties, subject to any applicable operating
agreement with non-selling co-owners.

(j) Immediately after the Closing, Buyer shall notify all non-operators, oil and
gas buyers, governmental agencies and royalty owners that it has purchased the
Properties and Seller and Buyer shall execute any necessary transfer orders.

(k) Third Party Owners shall delver to Buyer such documents and assignments as
Buyer shall reasonably request.

(l) The Escrow Agreement, if required pursuant to the terms of this Agreement,
shall be executed by the Parties and delivered to the Escrow Agent.

8.6 Termination. This Agreement and the transactions contemplated by this
Agreement may be terminated in the following instances:

(a) By either Buyer or Seller if any condition set forth above shall not be
satisfied at the Closing.

 

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(b) By the mutual written agreement of Buyer and Seller.

8.7 Return of Information. If this Agreement is terminated, Buyer shall return
to Seller all information and material delivered to Buyer by Seller pursuant to
the terms of this Agreement.

ARTICLE 9.

POST-CLOSING MATTERS

9.1 Final Settlement Statement. As soon as practicable following Closing, but in
no event later than ninety (90) days after Closing, a final accounting statement
will be prepared by Seller, subject to verification by Buyer, based on actual
income and expenses between the Effective Time and the Closing Date and which
takes into account all final adjustments made to the Properties Purchase Price
(the “Final Settlement Statement”). The Final Settlement Statement shall set
forth the actual proration of the amounts as required by this Agreement.
Notwithstanding the foregoing, failure to agree to such Final Settlement
Statement shall not absolve either party from liability should such accounting
and adjustment not be timely made and agreed to. The Final Settlement Statement
shall set out the Adjusted Total Purchase Price as redetermined by making the
final adjustments to the Total Purchase Price as required in Section 3.2 above,
expressly excluding, however, the effect of any income and/or franchise taxes.
If the amount paid at Closing exceeds the Adjusted Total Purchase Price as
reflected in the Final Settlement Statement, then the excess amount shall be
paid by Seller to Buyer within twenty (20) Business Days of execution of the
Final Settlement Statement by the Parties. If the amount paid at Closing is less
than the Adjusted Total Purchase Price as reflected in the Final Settlement
Statement, then the deficiency shall be paid by Buyer to Seller within twenty
(20) Business Days of execution of the Final Settlement Statement by the
Parties. Any sum shown by the Final Settlement Statement to be due shall be paid
within the specified time in cash or by direct bank or wire transfer in same day
funds with interest thereon from the date due at 6% per annum until paid. The
Party shown to owe any sum in the Final Settlement Statement shall have
discharged its obligation to the other party concerning the payment of sums due
upon its disbursement thereof in accordance with instructions set forth in the
Final Settlement Statement; provided however, the Parties shall expressly
reserve the right to audit (a) all costs, expenses and revenues taken into
account in determining any difference between the Total Purchase Price and the
Adjusted Total Purchase Price at any time same is adjusted pursuant to the terms
hereof and (b) all cost, expense and/or revenue items paid or accrued by either
Party attributable to the Assets after the Effective Time. The Parties right to
audit as set forth in this subsection shall remain in force for a period of five
(5) months after the Final Settlement Statement is delivered.

9.2 Further Cooperation. After the Closing, Buyer and Seller shall execute and
deliver, or shall cause to be executed and delivered from time to time, such
further instruments of

 

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conveyance and transfer, and shall take such other actions as any Party may
reasonably request, to convey and deliver the Assets to Buyer, to perfect
Buyer’s title thereto, and to accomplish the orderly transfer of the Assets to
Buyer in the manner contemplated by this Agreement. If any Party hereto receives
monies belonging to the other, such amount shall immediately be paid over to the
proper Party. If an invoice or other evidence of an obligation is received by a
Party, which is partially an obligation of both Seller and Buyer, then the
Parties shall consult with each other, and each shall promptly pay its portion
of such obligation to the obligee.

ARTICLE 10.

TITLE MATTERS

10.1 Existing Property Defects. For purposes of this Agreement, the term
“Property Defect” means any lien, security interest, pledge, collateral
assignment, charge, contract, agreement, option, irregularity, Preference Right,
call, obligation, restriction, condition, reservation encroachment, default,
deficiency, defect or other encumbrance or defect or irregularity of title
(other than and except for the Permitted Encumbrances) that would cause title to
any portion of the Purchased Percentage of any of the Properties or any Property
Subdivision thereof not to be a Defensible Title. The only currently existing
Property Defects of which the Parties are aware at the time of execution of this
Agreement are enumerated in Exhibit “Q” attached hereto.

10.2 Property Defects and Related Adjustments. From time to time on or before
the Closing Date, but in no event later than one year after Closing, Buyer may
give Seller written notice of any additional claimed Property Defect. Each such
Property Defect shall set forth (a) a brief description of the matter
constituting the claimed Property Defect and the Asset affected thereby, (b) the
title opinions, other reports of experts or other documentation on which Buyer’s
assertion of a Property Defect is based and (iii) such supporting documents
reasonably necessary for Seller (or a title attorney or other expert retained by
Seller) to verify the existence of any such Property Defect. All additional
Property Defects with respect to which Buyer fails to so give Seller notice will
be deemed waived for all purposes of this Article X. Seller shall endeavor in
good faith to cure each such Property Defect prior to the Closing if the cost to
cure such reasonably shall exceed the negative value of Property Defect.

ARTICLE 11.

ARBITRATION

Any disagreement, difference, or dispute between the Parties arising under or by
reason of this Agreement shall be resolved by arbitration in accordance with
this Article. If either Party determines that arbitration is necessary, Seller
and Buyer jointly shall select as an arbitrator an individual who is
acknowledged by both Parties to be an expert with respect to oil and gas land
and legal issues and who has at least ten (10) years experience in the oil and
gas industry; provided that, with respect to any such matter involving Final
Settlement Statement disagreements, such arbitrator shall be an individual who
is also acknowledged by both Parties to

 

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be knowledgeable with respect to oil and gas accounting related matters. Such
individual shall be the sole arbitrator to hear and decide the matters that are
in dispute under this Agreement. If Seller and Buyer are unable mutually to
agree upon such an individual within seven (7) business days following delivery
by either Party to the other of written notice of intent to submit any such
dispute to arbitration, then either Seller or Buyer, or both of such Parties,
may in writing request that the United States District Court for the Northern
District of Texas appoint the arbitrator. If any arbitrator selected under this
Article should die, resign, or otherwise be unable to perform his duties
hereunder, a successor arbitrator shall be selected pursuant to the procedures
set forth in this Article. The decision of the arbitrator shall be binding on
the Parties and, if necessary, may be enforced in any court of competent
jurisdiction. The charges and expenses of the arbitrator shall be shared equally
by Seller and Buyer. Any arbitration hearing shall be held in Dallas, Texas. The
arbitration hearing shall commence no later than ten (10) days after the
selection of the arbitrator. In fulfilling his duties, the arbitrator shall be
bound by the terms and provisions of this Agreement including, without
limitation, the manner of calculating Property Defect amounts set forth herein,
but may also consider such other matters as, in the opinion of the arbitrator,
are necessary or helpful to make a proper determination. In addition, the
arbitrator may consult with and engage, at the joint expense of Seller and
Buyer, disinterested third parties (including, without limitation, petroleum
engineers and consultants) to advise the arbitrator. The arbitrator shall not
have any authority to award indirect, consequential, exemplary or punitive
damages. The arbitrator shall issue his final determination of all issues no
later than ten (10) days after the conclusion of the arbitration hearing.
Matters not specifically provided for in this Article shall be governed by the
Commercial Arbitration Rules of the American Arbitration Association.

ARTICLE 12.

SURVIVAL: INDEMNIFICATION

12.1 Survival. Except as otherwise provided herein, the liability of Buyer and
Seller under each of their respective representations, warranties, indemnities
and covenants shall survive the Closing and shall remain effective for a period
of four (4) years from the Closing Date.

12.2 Indemnities of Seller. After the Closing, Seller shall be responsible for,
shall pay on a current basis, and shall indemnify, save and hold harmless,
discharge and release Buyer and its partners, directors, officers, employees,
agents and representatives (collectively, “Buyer Indemnified Parties”) from and
against any and all Liabilities, arising from, based upon, related to or
associated with:

(a) Any breach of any representation or warranty of Seller set forth in this
Agreement; and

(b) Any acts, omissions, claims, causes of action and/or judgments arising prior
to the Effective Time not expressly assumed by Buyer; and

 

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(c) Any failure of Seller to duly perform or comply with any material agreement
or condition set forth in this Agreement to be performed or complied with by
Seller; and

(d) Any fees or commissions of brokers or finders retained or engaged by Seller
relating to the transactions contemplated in this Agreement.

12.3 Indemnities of Buyer. After the Closing, Buyer shall assume, be responsible
for, shall pay on a current basis, and shall indemnify, save and hold harmless,
discharge and release Seller and its respective partners/stockholders,
directors, officers, employees, agents and representatives (collectively,
“Seller Indemnified Parties”) from and against any and all Liabilities arising
from, based upon, related to or associated with:

(a) Any breach of any representation, warranty or agreement of Buyer under this
Agreement; and

(b) Any liabilities or obligations assumed by Buyer pursuant to this Agreement
from and after the Effective Time; and

(c) Any failure of Buyer to duly perform or comply with any material agreement
or condition set forth in this Agreement to be performed or complied with by
Buyer including any and all claims, costs, damages and liabilities arising under
applicable state, federal securities laws in connection with such acts or
omissions; and

(d) Any fees or commissions of brokers or finders retained or engaged by Buyer
relating to the transactions contemplated in this Agreement; and

(e) The duty or obligation to pay and deliver royalties, overriding royalties
and other interests burdening the Assets from and after the Closing Date; and

(f) The duty or obligation of gas balancing (by mcf, by mmbtu or by cash) of
over production or under production from and/or attributable to the Assets from
and after the Closing Date; and

(g) The costs and expenses incurred in the ordinary course of the operation of
the Assets from and after the Closing Date pursuant to the terms and provisions
of any and all of the Leases, the Outstanding Contracts and Assignments and the
Applicable Contracts, together with other commitments to which the Assets are
subject; and

(h) The costs and expenses of any and all recording fees and similar costs
incurred and/or imposed upon, or with respect to the Assignments; and

(i) The obligation to comply with all laws and all governmental rules, orders
and regulations with respect to operations of the Assets, including, without
limitation, to the

 

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abandonment of all wells and/or the abandonment of equipment, including, were
applicable, the plugging of wells, the compliance with all laws, rules or
regulations regarding inactive or unplugged wells, including bonding
requirements, and cleaning up the surface to return lands as nearly as possible
to their pre-leased condition and including, without limitation, to all
applicable federal and state laws pertaining to environmental matters in effect
from and after the Closing Date,

all of the foregoing covenants, duties, obligations and responsibilities
described and/or referred to in subparagraphs (a). through (h)., inclusive,
above, being hereinafter referred to collectively as “Buyer’s Obligations”. In
connection with the performance of Buyer’s Obligations, BUYER, ITS SUCCESSORS
AND ASSIGNS, SHALL, TO THE FULLEST EXTENT PERMITTED BY LAW, AT THE SOLE COST,
RISK AND EXPENSE OF BUYER, ITS SUCCESSORS AND ASSIGNS, PROTECT, DEFEND,
INDEMNIFY AND HOLD SELLER INDEMNIFIED PARTIES, THEIR RESPECTIVE HEIRS OR
OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS, REPRESENTATIVES, PARENTS,
SUBSIDIARIES, AFFILIATED COMPANIES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS
AND ASSIGNS, HARMLESS FROM AND AGAINST (AND TO REIMBURSE IN CASH TO SELLER
INDEMNIFIED PARTIES, THEIR RESPECTIVE HEIRS OR SUCCESSORS AND ASSIGNS, WITH
RESPECT TO) ANY AND ALL COSTS, EXPENSES, COSTS OF CLEAN UP, COSTS OF REMOVAL OR
MODIFICATION OF FACILITIES, COSTS OF PLUGGING WELLS, LOSSES, LIABILITIES,
DAMAGES, FINES, PENALTIES, CHARGES, CLAIMS, DEMANDS, LAWSUITS, CAUSES OF ACTION,
APPEALS, JUDGMENTS AND DIMINUTIONS IN VALUE, OF ANY AND EVERY KIND, NATURE
AND/OR CHARACTER, INCLUDING COURT COSTS, ATTORNEYS’ FEES AND OTHER COSTS AND
EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING AND/OR DEFENDING SAME,
WHETHER OR NOT RESULTING IN ANY LIABILITY, KNOWN OR UNKNOWN, FIXED OR
CONTINGENT, ASSERTED AGAINST OR INCURRED BY SELLER INDEMNIFIED PARTIES, OR THEIR
RESPECTIVE HEIRS OR SUCCESSORS OR ASSIGNS, EITHER DIRECTLY OR INDIRECTLY, WHICH
ARE AND/OR WHICH MAY BE BROUGHT BY ANY AND ALL PERSONS AND/OR PARTIES
(INCLUDING, WITHOUT LIMITATION, TO SELLER INDEMNIFIED PARTIES’ AND BUYER’S
RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES AND ANY AND ALL PRIVATE
CITIZENS, PERSONS, ORGANIZATIONS, AND ANY AGENCY, BRANCH OR REPRESENTATIVE OF
FEDERAL, STATE OR LOCAL GOVERNMENT) ON ACCOUNT OF ANY PERSONAL INJURY, DEATH,
DAMAGE, DESTRUCTION, LOSS OF PROPERTY OR CONTAMINATION OF NATURAL RESOURCE
(INCLUDING, WITHOUT LIMITATION, SOIL, AIR, SURFACE WATER OR GROUND WATER)
RESULTING FROM, ARISING OUT OF, CAUSED BY OR CONNECTED WITH ANY ACTS, OMISSIONS,
EVENTS OR CIRCUMSTANCES OCCURRING FROM AND AFTER THE Closing Date, INCLUDING,
WITHOUT LIMITATION, TO THE PRESENCE, DISPOSAL OR RELEASE OF ANY MATERIAL OF ANY
KIND IN, ON OR UNDER THE PROPERTIES OR OTHER PROPERTY (WHETHER NEIGHBORING OR
OTHERWISE) AT ANY TIME, OR FROM TIME TO TIME, BY REASON OF OR ARISING OUT OF THE
BREACH OF (WHETHER MATERIAL OR NOT) OF ANY OF BUYER’S OBLIGATIONS, AS TO ACTS,
OMISSIONS, EVENTS OR CIRCUMSTANCES OCCURRING FROM AND AFTER THE

 

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CLOSING DATE. BUYER’S INDEMNIFICATION OBLIGATIONS WHICH ARE CONTAINED IN THIS
PARAGRAPH SHALL EXTEND TO AND INCLUDE, BUT NOT BE LIMITED TO, (i) THE NEGLIGENCE
OF BUYER AND ALL OTHER THIRD PARTIES, WHETHER SUCH NEGLIGENCE IS ACTIVE OR
PASSIVE, JOINT, SOLE OR CONCURRENT, (ii) STRICT LIABILITY AND (iii) LIABILITIES
OR OBLIGATIONS UNDER ANY APPLICABLE FEDERAL OR STATE LAW.

12.4 Notice of Claims, Defense: Settlement. Upon the discovery by any Party
entitled to indemnification under this Article of facts giving rise to a claim
for indemnification hereunder, including the receipt by any such Party of notice
of any claim, demand, action, cause of action, suit, or controversy, judicial or
otherwise, by any third party, the Party entitled to indemnification shall give
prompt written notice of any such claim to the other Party. For purposes of this
Article, the Party giving notice of a claim and requesting indemnification shall
be referred to as the “Indemnified Party” and the other Party receiving notice
of a claim and from which indemnification is sought, shall be referred to as the
“Indemnifying Party.” Each such notice shall set forth the facts known to the
Indemnified Party pertaining to the claim and shall specify the manner in which
the Indemnified Party proposes to respond to the claim. Within ten (10) days of
the receipt by the Indemnifying Party of such notice, the Indemnifying Party
shall state in writing to the Indemnified Party: (a) whether the Indemnified
Party may proceed to respond to the claim in the manner set forth in its notice,
or (b) whether the Indemnifying Party shall assume responsibility for and
conduct the negotiation, defense, or settlement of the claim, and if so, the
specific manner in which the Indemnifying Party proposes to proceed. If the
Indemnifying Party assumes control of the claim, the Indemnified Party shall at
all times have the right to participate in the defense thereof and to be
represented, at its sole expense, by counsel selected by it. No such claim shall
be compromised or settled by either the Indemnifying Party or the Indemnified
Party, as applicable, in any manner that might adversely affect the interest of
the other Party without the prior written consent of such other Party; provided
that, the Indemnified Party shall have the right to pay or settle any such claim
by a third Person provided, further, that in such event the Indemnified Party
shall waive any right to indemnity therefor by the Indemnifying Party for such
claim. As a condition precedent to indemnification under this Article, up to the
amount of indemnification, the Indemnified Party shall assign to the
Indemnifying Party, and the Indemnifying Party shall become subrogated to, all
rights, claims, and causes of action of the Indemnified Party against third
Persons arising out of or pertaining to the matters for which the Indemnifying
Party shall provide indemnification. The amount of the Indemnified Party’s claim
for indemnification shall be reduced by the amount of any insurance
reimbursement paid to the Indemnified Party pertaining to the claim.

12.5 The Deductible. No Indemnified Party shall be entitled to assert any right
to indemnification hereunder or to otherwise seek any damages or other remedies
for or in connection with (a) the inaccuracy of any representations of the
Indemnifying Party contained in this Agreement or in any other agreement,
instrument, document or certificate executed or delivered in connection with
this Agreement; (b) the breach of, or failure to perform or satisfy any of the
covenants of the Indemnifying Party set forth in this Agreement or in any other
agreement, instrument document or certificate executed or delivered in
connection with this Agreement; or (c) any liabilities otherwise arising in
connection with or with respect to the transactions

 

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contemplated in this Agreement until the aggregate amount of the Liabilities for
such breaches actually suffered by the Indemnified Party exceeds $10,000.00 per
item, and then only to the extent of such excess, up to but not exceeding
$25,000.00.

12.6 No Action Clause. No Indemnified Party shall settle, compromise or take any
other action with respect to any claim, demand, assertion of liability or legal
proceeding that could prejudice or otherwise adversely impact the ability of the
Indemnifying Party to defend or otherwise settle or compromise with respect to
such claim, demand, assertion of liability or legal proceeding.

12.7 Mitigation Obligation. Each Indemnified Party shall take all reasonable
steps to mitigate all losses, costs, expenses and damages after becoming aware
of any event which could reasonably be expected to give rise to any losses,
costs, expenses and damages that are indemnifiable or recoverable hereunder or
in connection wherewith.

12.8 Waiver of Representations and Consumer Rights. THE EXPRESS REPRESENTATIONS
AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND THE DOCUMENTS TO BE
EXECUTED BY SELLER AT CLOSING ARE EXCLUSIVE AND ARE IN LIEU OF, AND SELLER
EXPRESSLY DISCLAIMS AND NEGATES AND BUYER HEREBY WAIVES, ANY OTHER
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, UNDER TEXAS LAW, WITH RESPECT TO
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER
HYDROCARBONS IN OR UNDER THE ASSETS. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT, AND THE DOCUMENTS TO BE
EXECUTED BY SELLER AT CLOSING SELLER DOES NOT MAKE OR PROVIDE, AND BUYER HEREBY
WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, UNDER TEXAS LAW, AS
TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO
SAMPLES, OR CONDITIONS OF ANY OF THE ASSETS. SELLER DISCLAIMS AND NEGATES, AND
BUYER HEREBY WAIVES, ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR
IMPLIED, BY STATUTE OR OTHERWISE, OR FOR CLAIMS BY BUYER FOR DAMAGES BECAUSE OF
DEFECTS, WHETHER KNOWN OR UNKNOWN. ANY ITEMS OF PERSONAL PROPERTY, EQUIPMENT,
IMPROVEMENTS, FIXTURES OR APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD,
AND BUYER ACCEPTS SUCH ITEMS, “AS IS, WITH ALL FAULTS”. THERE ARE NO WARRANTIES
THAT EXTEND BEYOND THE FACE OF THIS AGREEMENT AND THE DOCUMENTS TO BE EXECUTED
BY SELLER AT CLOSING PURSUANT TO THIS AGREEMENT. Buyer HEREBY EXPRESSLY WAIVES
THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER E, SECTION 17.41 THROUGH 17.63,
INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT WAIVED), VERNON’S TEXAS CODE
ANNOTATED BUSINESS AND COMMERCE CODE, AND Buyer REPRESENTS TO Seller THAT BUYER
WILL PRESENT AT CLOSING THE NECESSARY AND LEGALLY SUFFICIENT WRITTEN WAIVER AND
AUTHORITY FROM Buyer’s ATTORNEY(S) TO EFFECTUATE SUCH WAIVER, the form of which
waiver is set forth on Schedule 12.8 hereto.

 

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12.9 Waiver of Right to Rescission. Except as otherwise provided in this
Agreement, Seller and Buyer acknowledge that the payment of money, as limited by
the terms of this Agreement, shall be adequate compensation for breach of any
representation, warranty, covenant or agreement contained herein or for any
other claim arising in connection with or with respect to the transactions
contemplated in this Agreement. As the payment of money shall be adequate
compensation, Buyer and Seller waive any right to rescind this Agreement after
the Closing Date or any of the transactions contemplated hereby.

12.10 Notifications. Seller will notify Buyer promptly after the discovery by
Seller that any representation or warranty of either Buyer or Seller contained
in this Agreement is, becomes or will be untrue in any material respect on the
Closing Date. Buyer will notify Seller promptly after the discovery by Buyer
that any representation or warranty of either Buyer or Seller contained in this
Agreement is, becomes or will be untrue in any material respect on the Closing
Date.

ARTICLE 13.

MISCELLANEOUS

13.1 Exhibits. All of the Exhibits and Schedules referred to in this Agreement
are hereby incorporated into this Agreement by reference and constitute a part
of this Agreement. Each Party to this Agreement has received a complete set of
Exhibits and Schedules prior to and as of the execution of this Agreement.

13.2 Taxes and Expenses. Except as otherwise specifically provided, all fees,
costs and expenses incurred by Buyer or Seller in negotiating this Agreement or
in consummating the transactions contemplated by this Agreement shall be paid by
the Party incurring the same, including, without limitation, legal and
accounting fees, costs and expenses. All required documentary, filing and
recording fees and expenses in connection with the filing and recording of the
assignments, conveyances or other instruments required to convey title to the
Assets to Buyer shall be borne by Buyer, except that Seller shall be responsible
for any such fees and expenses incurred by Seller in connection with title
curative efforts of Seller. Seller shall assume responsibility for, and shall
bear and pay, all federal income taxes, state income taxes, and other similar
taxes (including any applicable interest or penalties) incurred by or imposed on
Seller with respect to the transactions described in this Agreement. Buyer shall
assume responsibility for, and shall bear and pay, all state sales and use taxes
(including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Agreement. Seller shall assume
responsibility for, and shall bear and pay, all ad valorem, property, severance,
production, excise, and similar taxes and assessments based upon or measured by
the ownership of the Assets, the production of hydrocarbons, or the receipt of
proceeds therefrom, but exclusive of income taxes (including any applicable
penalties and interest), and assessed against the Assets by any taxing authority
relating to the period of time prior to the Effective Time, and Buyer shall be
responsible for, and shall bear and pay, all such taxes and assessments assessed
against the Assets by any taxing authority relating to any period of time
beginning on or after the Effective Time. The foregoing proration of ad valorem
and other property taxes shall be accomplished at the Closing.

 

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13.3 Preparation of Agreement. Seller and Buyer and their respective counsel
participated in the preparation of this Agreement. In the event of any ambiguity
in this Agreement, no presumption shall arise based on the identity of the
draftsman of this Agreement.

13.4 Publicity. Seller and Buyer shall consult with each other with regard to
all press releases or other public or private announcements issued or made at or
prior to the Closing concerning this Agreement or the transactions contemplated
herein, neither Buyer nor Seller shall issue any such press release or other
publicity without the prior written consent of the other party, which shall not
be unreasonably withheld. Notwithstanding the foregoing, however, in the event
either Party is required to issue a press release or other public announcement,
such Party may do so without consultation with, or the written consent of the
other Party but only if (i) such consultation or prior written consent is not
reasonably possible; and (ii) immediately after such release or announcement,
the releasing or announcing Party supplies to the other Party a copy of such
release or announcement, if written, or if oral, a summary thereof.

13.5 Notices. All notices and communications required or permitted to be given
hereunder shall be in writing and shall be delivered personally, or sent by
bonded overnight courier, or mailed by U.S. Express Mail, or sent by facsimile
transmission (provided any such facsimile transmission is confirmed either
orally or by written confirmation), addressed to the appropriate Party at the
address for such Party shown below or at such other address as such Party shall
have theretofore designated by written notice delivered to the Party giving such
notice:

 

  (a) If to Seller:

Energytec, Inc. and Big Horn Ventures, Inc.

14785 Preston Road, Suite 550

Dallas, Texas 75254

Attn: Don Lambert, President

Telephone: 972-789-5138

Facsimile: 972-789-5138

 

  (b) If to Buyer:

Big Horn Oil LLC

c/o Jarrell B.Ormand

Registered Agent

13355 Noel Road, Suite 2200

Dallas, Texas 75240

Any notice given in accordance herewith shall be deemed to have been given when
delivered to the addressee in person, or if transmitted by facsimile
transmission, upon receipt of

 

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the oral or written confirmation of receipt. The Parties hereto may change the
address, telephone numbers, and facsimile numbers to which such communications
are to be addressed by giving written notice to the other Party in the manner
provided in this Section.

13.6 Entire Agreement; Conflicts. THIS AGREEMENT AND THE EXHIBITS HERETO, AS
WELL AS THE OTHER DOCUMENTS REFERRED TO HEREIN AND EXECUTED CONTEMPORANEOUSLY
HEREWITH COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG SELLER AND BUYER
PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS,
UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE
PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. IN THE EVENT OF A CONFLICT
BETWEEN THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS
OF ANY EXHIBIT HERETO, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN
AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS HERETO
OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A
CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND
EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION.

13.7 Parties in Interest. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of Seller and Buyer and their respective
legal representatives, successors, and assigns. Except as otherwise specified in
this Agreement, no other Person shall have any right, benefit, priority, or
interest hereunder or as a result hereof or have standing to require
satisfaction of the provisions hereof in accordance with their terms.

13.8 Amendment. This Agreement may be amended only by an instrument in writing
executed by the Parties hereto.

13.9 Waiver: Rights Cumulative. Any of the terms, covenants, representations,
warranties, or conditions hereof may be waived only by a written instrument
executed by or on behalf of the Party hereto waiving compliance. No course of
dealing on the part of Seller or Buyer, or their respective officers, employees,
agents, or representatives, nor any failure by Seller or Buyer to exercise any
of its rights under this Agreement shall operate as a waiver thereof or affect
in any way the right of such Party at a later time to enforce the performance of
such provision. No waiver by any Party of any condition, or any breach of any
term, covenant, representation, or warranty contained in this Agreement, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of any breach of any other term, covenant, representation, or
warranty. The rights of Seller and Buyer under this Agreement shall be
cumulative, and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right.

13.10 Governing Law. EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS AGREEMENT AND THE
LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE CONFLICT OF LAW
PRINCIPLES

 

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THEREOF. NOTWITSTANDING THE FOREGOING, THE PARTIES AGREE THAT ALL MATTERS
INVOVLING TITLE AND TRANSFER OF TITLE WITH RESPECT TO THE ASSETS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WYOMING.

13.11 Severability. If any term or other provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
Party. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

13.12 Damages. Neither Party shall be entitled to recover any consequential,
including lost profits, damages from any breach arising out of this Agreement.

(SIGNATURE PAGE FOLLOWS)

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement effective as
of October     , 2006.

 

BUYER:      SELLER: BIG HORN OIL, LLC.      ENERGYTEC, INC. By:   

 

     By:  

 

   R.M. Barnes    Managing Director        Don Lambert, President         BIG
HORN VENTURES, INC.         By:  

 

          Don Lambert, President

 

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EXHIBITS AND SCHEDULES

Exhibit “A” – The Leases

Exhibit “B” – Third Party Owners

Exhibit “C” – Allocated Values

Exhibit “D” – The Assignments

Exhibit “E” – Purchased Percentages

Exhibit “F” – Outstanding Contracts and Assignments

Exhibit “G” – Property Subdivision

Exhibit “H” – Data and Agreements with Confidentiality Arrangements

Exhibit “I” – Pending Claims

 

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Exhibit “J” – Calls on Production

Exhibit “K” – Existing Encumbrances

Exhibit “L” – Authorizations for Expenditures

Exhibit “M” – Plugging Demands

Exhibit “N” – Preference Rights

Exhibit “O” – Identity of Persons Having Access to Data

Exhibit P – Affidavit of Non-Foreign Status

Exhibit Q - Existing Property Defects

Schedule 3.1 – Recipients of the Adjusted Purchase Price

Schedule 3.1A – Escrow Agreement

Schedule 12.8 – Waiver of Texas Deceptive Trade Practices Act

 

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