exv10w9



 





Exhibit 10.9




ASSET PURCHASE AGREEMENT 






THIS ASSET PURCHASE AGREEMENT (this “Agreement”) made as of the 21st day
of September, 2006.


BETWEEN:





SKH Management L.P., a Delaware limited partnership having an office
at 7700 San Felipe — 5th Floor Houston, Texas 77063
(hereinafter collectively referred to as the “Vendor A”)



— and —





SKH Management II L.P., a Delaware limited partnership having an
office at 7700 San Felipe — 5th Floor Houston, Texas
77063 (hereinafter collectively referred to as the “Vendor A-2”)



— and —





SKH Management III LLC, a Delaware limited liability company having
an office at 7700 San Felipe — 5th Floor Houston, Texas
77063 (hereinafter collectively referred to as the “Vendor A-3”)



— and —





SKH Energy Fund, L.P., a Delaware limited partnership having an
office at 7700 San Felipe — 5th Floor Houston, Texas
77063 (hereinafter collectively referred to as the “Vendor B”)



— and —





Antares Exploration Fund, L.P., a Delaware limited partnership
having an office at 7700 San Felipe — 5th Floor Houston,
Texas 77063 (hereinafter collectively referred to as the “Vendor C”)




(Vendor A, Vendor A-2, Vendor A-3, Vendor B and Vendor C, each a
“Vendor” and collectively, the “Vendors”)



— and —





AUSAM ENERGY CORPORATION, a body corporate incorporated
pursuant to the laws of the Province of Alberta and having an
office in the City of Calgary, in the Province of Alberta
(hereinafter referred to as the “Purchaser”)



     WHEREAS the Vendors wish to sell and the Purchaser wishes to purchase the interests of the
Vendors in and to the Assets, subject to and in accordance with the terms and conditions hereof;



 









 





     NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Parties have agreed as follows:



ARTICLE 1

INTERPRETATION





	1.1	 	Definitions






	 	 	In this Agreement, unless the context otherwise requires:






	 	(a)	 	“Affiliate” shall mean any Person that, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control with,
another Person. The term “control” and its derivatives with respect to any
Person means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
	 
	 	(b)	 	“Assets” means all of each of the Vendors’ right, title and interests in and to
the following:






	 	(i)	 	all oil, gas or mineral leases, leasehold estates, operating
rights and other rights authorizing the owner thereof to explore or drill for
and produce Hydrocarbons and other minerals, contractual rights to acquire any
such of the foregoing interests which have been earned by performance, and fee
mineral, royalty and overriding royalty interests, net profits interests,
production payments and other interests payable out of Hydrocarbon production,
in each case, described in Schedule A (it being understood that, prior to
Closing, the Vendors may substitute one or more prospects of equal value for a
Prospect designated on Schedule A with the consent of the Purchaser), together
with any Additional Leases acquired as contemplated by Section 2.3(d)
(collectively, the “Leases”);
	 
	 	(ii)	 	all of the rights-of-way, easements, leases, fee estates,
servitudes, permits, and licenses of any of the Vendors that are necessary or
useful for the location, operation, maintenance, repair, replacement, use or
ownership of the Leases or processing, storing, gathering, transporting or
marketing of Hydrocarbons therefrom (collectively, the Easements”);
	 
	 	(iii)	 	to the extent transferable without payment of any fees or
penalty (unless the Purchaser expressly agrees to pay such fees), all
contracts and agreements relating to the Leases or the processing, storing,
gathering, transporting or marketing of Hydrocarbons therefrom, including
seismic licenses (collectively, the “Contracts”); and
	 
	 	(iv)	 	all original files, records, data, information and
documentation of the Vendors (or if originals are not available, copies of
such items) pertaining to or evidencing any of the Vendors’ use, ownership or
operation of any of the foregoing Assets, including, without limitation, lease
files, land files, division order files, title opinions and abstracts, legal
records (excluding any records or information the disclosure of which would
result in the waiver of an attorney-client privilege), tax records (other than
income tax of the Vendors), governmental, tribal and




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	 	 	 	regulatory filings and permits, environmental records, geological and geophysical
data, seismic records, maps, and computer software (subject to the Vendors’
licensing obligations) (collectively, the “Records”).






	 	(c)	 	“Business Day” means a day other than a Saturday, a Sunday or a statutory holiday in Calgary, Alberta;
	 
	 	(d)	 	“Closing” means the closing of the purchase and sale herein provided for;
	 
	 	(e)	 	“Closing Date” means the third Business Day subsequent to the day on which all of the
conditions stated in Article 3 hereof are satisfied or waived, or such other date as may be
agreed upon in writing by the Vendors and the Purchaser, but in no event later than
December 31, 2006;
	 
	 	(f)	 	“Closing Place” means the offices of the Purchaser, or such other place as may be agreed
upon in writing by the Vendors and the Purchaser;
	 
	 	(g)	 	“Closing Time” means 10:00 am Mountain Time on the Closing Date or such other time
as may be agreed upon in writing by the Vendors and the Purchaser;
	 
	 	(h)	 	“Conveyance” means the form of Conveyance attached hereto as Schedule “B”;
	 
	 	(i)	 	“Environmental Liabilities” means all Losses and Liabilities pertaining to the Assets in
respect of the environment, whether or not caused by a breach of the Regulations and whether
or not resulting from operations conducted with respect to the Assets, including Losses and
Liabilities related to:






	 	(i)	 	the transportation, storage, use or disposal of toxic or hazardous
substances or hazardous, dangerous or non-dangerous oilfield substances or waste;
	 
	 	(ii)	 	the release, spill, escape or emission of toxic or hazardous substances;
	 
	 	(iii)	 	any other pollution or contamination of the surface, substrate, soil,
air, ground water, surface water or marine environments; and
	 
	 	(iv)	 	any obligations imposed by the Regulations to protect the environment
or to rectify environmental problems;






	 	(j)	 	“Financing” has the meaning ascribed to it in Section 3.1(c).
	 
	 	(k)	 	“Governmental Authority” shall mean any federal, state, local, municipal, tribal or other
government; any governmental, regulatory or administrative agency, commission, body or other
authority exercising or entitle to exercise any administrative, executive, judicial,
legislative, belief, regulatory or taxing authority or power; and any court or governmental
tribunal, including any tribal authority having or asserting jurisdiction.
	 
	 	(1)	 	“Hydrocarbons” means oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons, or any of them or any combination thereof, and all products and substances
produced therewith, extracted, separated, processed and produced therefrom.




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	 	(m)	 	“Information Circular” means the information circular to be mailed by the Purchaser to
its shareholders in connection with the annual and special general meeting of the
shareholders of the Purchaser called for the purpose of, among other things, obtaining
approval of the shareholders of the Purchaser to the issue of the Shares to the Vendors;
	 
	 	(n)	 	“Joint Operating Agreement” means an operating agreement governing the conduct of operations
on each Prospect after an assignment by the Purchaser to the Vendors of an interest in the
Prospect which shall be substantially in the form attached to this Agreement as Schedule “G.”
	 
	 	(o)	 	“Leases” has the meaning ascribed to it in the definition of Assets.
	 
	 	(p)	 	“Losses and Liabilities” means all claims, liabilities, actions, proceedings, demands,
losses, costs, penalties, fines, damages and expenses which may be sustained or incurred by
any of a Party, its directors, officers, agents and employees, including reasonable legal
fees and disbursements;
	 
	 	(q)	 	“Party” means a party to this Agreement;
	 
	 	(r)	 	“Permitted Encumbrances” means:






	 	(i)	 	liens for taxes, assessments and governmental charges which are not due or
contested in good faith;
	 
	 	(ii)	 	vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, workmen’s,
materialmen’s, construction or other like liens arising by operation of law in the
ordinary course of business or incident to the construction or improvement of any
property in respect of obligations which are not yet due or which are being contested
in good faith by appropriate proceedings by or on behalf of any Vendor;
	 
	 	(iii)	 	easements, rights of way, servitudes and other similar rights in land
(including without limitation rights of way and servitudes for highways and other
roads, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric
light, power, telephone, telegraph and cable television conduits, poles, wires and
cables) which do not materially impair the use of the Assets affected thereby;
	 
	 	(iv)	 	the right reserved to or vested in any Governmental Authority to control or
regulate any of the Assets, including all rights to consent by, required notices to,
filings with, or other actions by Governmental Authorities in connection with the
sale or conveyance of oil and gas leases or interests therein, if the same are
customarily obtained subsequent to such sale or conveyance;
	 
	 	(v)	 	any security held by any Third Party encumbering the Vendors’ interest in
and to the Assets or any part or portion thereof, in respect of which the Vendors
deliver a release thereof to the Purchaser at or prior to Closing; and
	 
	 	(vi)	 	all royalty burdens, liens, adverse claims, penalties, reductions in
interests and other encumbrances set out in Schedule “A” under “Encumbrances”;




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	 	(vii)	 	preferential rights to purchase and required Third Party consents to
assignments and similar agreements with respect to, each of which, prior to
Closing, (i) waivers or consents are obtained from the appropriate parties, (ii)
the appropriate time period for asserting such rights has expired without an
exercise of such rights,;
	 
	 	(viii)	 	conventional rights of reassignment requiring less than ninety (90) days’ notice to
the holders of such rights;
	 
	 	(ix)	 	such title or other property defects as the Purchaser may have waived in
writing; and
	 
	 	(x)	 	rights of a common owner of any interest in rights-of-way or easements
currently held by any Vendor and such common owner as tenant in common or through
common ownership;






	 	(s)	 	“Person” shall mean any individual, firm, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization, Governmental
Authority or any other entity.
	 
	 	(t)	 	“Prime Rate” means the annual rate of interest equal to the annual rate of interest
announced from time to time by the Royal Bank in the City of Calgary as the reference rate
then in effect for determining interest rates on Canadian dollar commercial loans in Canada;
	 
	 	(u)	 	“Prospect” means an area in which there is expected to occur, based upon the information
developed as a result of the interpretation of the geological and geophysical data, one or
more commercial accumulations of oil and/or gas in one or more specific structural or
stratigraphic traps and the requisite acreage covering said structural or stratigraphic traps
to control the testing and development of the same for the production of oil and/or gas. Each
Prospect is further described in Schedule A. Each Prospect shall be deemed protected by a
Prospect AMI established pursuant to the terms of the Participation and Right of First
Refusal Agreement;
	 
	 	(v)	 	“Regulations” means all statutes, laws, rules, orders, directives and regulations in effect
from time to time and made by governments or governmental agencies having jurisdiction over
the Assets or the Parties;
	 
	 	(w)	 	“Shares” means common shares in the capital of the Purchaser;
	 
	 	(x)	 	“Third Party” means any individual or entity other than the Vendors and the Purchaser,
including without limitation any partnership, corporation, trust, unincorporated
organization, union, government and any department and agency thereof and any heir, executor,
administrator or other legal representative of an individual;
	 
	 	(y)	 	“this Agreement”, “herein”, “hereto”, “hereof and similar expressions mean and refer to this
Asset Purchase Agreement;
	 
	 	(z)	 	“TSXV” means the TSX Venture Exchange.




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	1.2	 	Headings
	 
	 	 	The expressions “Article”, “section”, “subsection”, “clause”, “subclause”, “paragraph” and
“Schedule” followed by a number or letter or combination thereof mean and refer to the
specified article, section, subsection, clause, subclause, paragraph and schedule of or to
this Agreement.
	 
	1.3	 	Interpretation Not Affected by Headings
	 
	 	 	The division of this Agreement into Articles, sections, subsections, clauses, subclauses
and paragraphs and the provision of headings for all or any thereof are for convenience and
reference only and shall not affect the construction or interpretation of this Agreement.
	 
	1.4	 	Included Words
	 
	 	 	When the context reasonably permits, words suggesting the singular shall be construed as
suggesting the plural and vice versa, and words suggesting gender or gender neutrality
shall be construed as suggesting the masculine, feminine and neutral genders.
	 
	1.5	 	Schedules
	 
	 	 	There are appended to this Agreement the following schedules pertaining to the following
matters:





	 	 	 	 	 	 	 
	 

	 	Schedule “A”
	 	—
	 	Leases
	 

	 	Schedule “B”
	 	—
	 	Form of Conveyance
	 

	 	Schedule “C”
	 	 	 	Value Allocation
	 

	 	Schedule “D”
	 	 	 	Disclosure Schedules
	 

	 	Schedule “E”
	 	 	 	Interim Report — Current Lease Obligations and Commitments
	 

	 	Schedule “F”
	 	 	 	Participation and Right of First Refusal Agreement
	 

	 	Schedule “G”
	 	 	 	Form of Joint Operating Agreement
	 

	 	Schedule “H”
	 	 	 	Form of Accredited Investor Certificate








	 	 	Such schedules are incorporated herein by reference as though contained in the body hereof.
Wherever any term or condition of such schedules conflicts or is at variance with any term
or condition in the body of this Agreement, such term or condition in the body of this
Agreement shall prevail.
	 
	1.6	 	Knowledge
	 
	 	 	In this Agreement, references to a Party’s knowledge or awareness and similar references
mean the knowledge of the current officers of such Party after reasonable inquiry.






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ARTICLE 2

PURCHASE AND SALE AND CLOSING





	2.1	 	Purchase and Sale
	 
	 	 	The Vendors hereby agree to assign, sell, transfer, convey and set over to the Purchaser,
and the Purchaser hereby agrees to purchase from the Vendors, the Assets subject to and in
accordance with the terms of this Agreement.
	 
	2.2	 	Closing
	 
	 	 	Closing shall take place at the Closing Place at the Closing Time. Subject to all other
provisions of this Agreement, possession, risk and beneficial ownership of the Vendors’
interest in and to the Assets shall pass from the Vendors to the Purchaser at the Closing
Time.
	 
	2.3	 	Consideration






	 	(a)	 	The consideration (the “Consideration”) to be paid by the Purchaser to the
Vendors for
the Vendors’ interest in and to the Assets shall be the issuance and delivery of an
aggregate of 63,417,143 Shares plus an aggregate amount of cash equal to $13,419,558
USD to the Vendors as follows plus any Post Execution GG&L (as defined below):






	 	(i)	 	Vendor A, Zero Shares plus $ -0- USD in cash;
	 
	 	(ii)	 	Vendor A-2, 2,846,451 Shares plus $602,331USD in cash;
	 
	 	(iii)	 	Vendor A-3, 16,299,778 Shares plus $3,449,159 USD in cash;
	 
	 	(iv)	 	Vendor B, 11,630,140 Shares plus $2,461,028 USD in cash; and
	 
	 	(v)	 	Vendor C, 32,640,775 Shares plus $6,907,041 USD in cash.
	 
	 	(vi)	 	The allocation of the Consideration among the Vendors will be
adjusted as of the Closing Time based upon the relative increase in value of
the Assets attributed to any Post Execution GG&L.






	 	(b)	 	At Closing, the Purchaser shall cause to be delivered to each of the Vendors a
share
certificate in the name of such Vendor representing the number of the Shares to be
issued
to such Vendor and the Purchaser shall cause each of the Vendors to be recorded and
registered in the share register of the Purchaser as the registered holder of such
number of
the Shares.
	 
	 	(c)	 	The value of the Consideration shall be allocated among the Assets as set forth
in
Schedule “C” and any Post Execution GG&L will be allocated to the Prospects on which
such costs are expended. The value of the Shares shall be deemed to be CA $0.35 per
Share.
	 
	 	(d)	 	The cash portion of the Consideration is intended to allow the Vendors to
recover the
expenditures made by them pertaining to the acquisition, ownership, and maintenance
of
the Leases included in each of the Prospects, together with the costs and expenses
incurred and paid by the Vendors in connection with the geological and geophysical




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	 	 	 	analysis and development of the Prospects included in the Assets incurred prior to the
date of this Agreement (such cash amount is referred to herein as “GG&L” and is
allocated among the Prospects on Schedule “C”). Following the date of this Agreement
until the Closing Date, the Vendors may continue to acquire Leases on lands included
within the area covered by one or more Prospects (the “Additional Leases”), and to the
 extent that the Vendors continue to incur and pay costs and expenses in connection
with the acquisition of Additional Leases and the maintenance of Leases already held
by the Vendors, the Vendors are entitled to reimbursement of all of such costs and
expenses so incurred and paid as a part of the Consideration contemplated in this
Section 2.3; provided, however, that following the date of the this Agreement until
the Closing Date, the Vendors cannot incur such costs in excess of $2,000,000 in the
aggregate or $200,000 in any individual incurrence without the prior consent of AEC.
Such additional costs and expenses related are referred to herein as the “Post
Execution GG&L.” The cash portion of the Consideration shall be allocated among the
respective Vendors in the proportion that the aggregate GG&L of the Prospects
contributed by each of the Vendors bears to the aggregate GG&L of all of the Prospects
as set forth on Schedule “C.”






	2.4	 	Deliveries at Closing






	 	(a)	 	At Closing, the Vendors shall deliver the following:






	 	(i)	 	Conveyances for the Assets in the form set forth in Schedule
“B” hereto, duly executed by the appropriate Vendors in sufficient
counterparts for filing in the counties and parishes where the Assets are
located;
	 
	 	(ii)	 	duly executed counterparts of the Participation Agreement in
the form set forth as Schedule F hereto;
	 
	 	(iii)	 	such other items, including executed general conveyance
documents sufficient to transfer the Assets not conveyed by the Conveyances,
as may be specifically required by this Agreement.






	 	(b)	 	At Closing, the Purchaser shall deliver the following:






	 	(i)	 	share certificates in the name of each of the Vendors as set
forth in Section 2.3 hereof;
	 
	 	(ii)	 	cash in the amounts specified in Section 2.3(a) by wire
transfer of immediately available funds;
	 
	 	(iii)	 	duly executed counterparts of the Participation Agreement in
the form set forth as Schedule “F” hereto; which may be executed by a
wholly-owned subsidiary of Purchaser to which Purchaser has assigned its
interest in the Assets pursuant to Section 11.4; and
	 
	 	(iv)	 	such other items as may be specifically required by this Agreement.




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	2.5	 	Post Closing Deliveries
	 
	 	 	In addition to the deliveries made under Section 2.4 hereof, at any time within 15 business
days of the Closing pursuant to the Purchaser’s reasonable request, the Vendors shall
deliver to the Purchaser possession of the Records.





ARTICLE 3

CONDITIONS OF CLOSING





	3.1	 	Purchaser’s Conditions of Closing
	 
	 	 	The purchase of the Assets by the Purchaser is subject to the following conditions precedent
for the exclusive benefit of the Purchaser, which may be waived in whole or in part by the
Purchaser by written notice to the Vendors at or prior to Closing:






	 	(a)	 	all necessary shareholder and regulatory approval for the purchase of the
Assets by the
Purchaser shall have been obtained including, without limitation, TSXV and
shareholder
approval, and such further approvals as may be necessary or required by law or
contract
to consummate the transaction contemplated by this Agreement;
	 
	 	(b)	 	the representations and warranties of the Vendors set forth in this agreement
shall be true
and correct in all material respects on and as of the Closing Time, with the same
force
and effect as though such representations and warranties had been made or given at
and
as of the Closing Date;
	 
	 	(c)	 	the Vendors shall have materially performed or complied with all obligations,
agreements
and covenants contained in this Agreement as to which performance or compliance by
the Vendors is required prior to or at the Closing Date;
	 
	 	(d)	 	no material suit, action, or other proceeding shall be pending before any
Governmental
Authority seeking to restrain, prohibit, enjoin, or declare illegal, or seeking
substantial
damages in connection with, the transactions contemplated by this Agreement;
	 
	 	(e)	 	the Purchaser shall have completed a due diligence review of the Assets and
shall have
obtained satisfactory results therefrom as determined by the Purchaser in its sole
discretion; and
	 
	 	(f)	 	the Purchaser shall have obtained binding commitments from investors to
purchase
securities of the Purchaser on or before the Closing Time such that the Purchaser
will
realize gross proceeds of at least USD $45 million (the “Financing”). To the
extent
applicable, the price per security will be determined in accordance with the
policies of the
TSXV and will be acceptable to the Purchaser, acting reasonably.






	 	 	If any of the foregoing conditions has not been complied with, or waived by the Purchaser
at or before the Closing Time the Purchaser may, in addition to any other remedies which it
may have available to it, terminate its obligations to purchase the Assets by written
notice to the Vendors at or prior to the Closing Time specifying the conditions which have
not been satisfied and, in such event, the Purchaser shall be released and discharged from
all further obligations hereunder, other than those contained in Section 10.1 and Article
11.




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	3.2	 	Vendors’ Conditions on Closing
	 
	 	 	The sale of the Assets by the Vendors is subject to the condition precedent, for the
exclusive benefit of the Vendors, that the Vendors shall have completed a due diligence
review of the Purchaser and shall have concluded that no adverse material fact exists
concerning the business or affairs of the Purchaser that has not been publicly disclosed, or
disclosed to the Vendor in writing, prior to the date of the Information Circular. The
Vendors may waive this condition in whole or in part by written notice to the Purchaser at
or prior to October 15, 2006.
	 
	 	 	If the foregoing condition has not been complied with or waived by the Vendors by October
15, 2006, the Vendors may, in addition to any other remedies which they may have available
to them, terminate their obligations to sell the Assets by written notice to the Purchaser
at or prior to the close of the Business Day on October 15, 2006, specifying what
conditions have not been satisfied and, in such event, the Vendors shall be released and
discharged from all further obligations hereunder, other than those contained in Section
10.1 and Article 11.
	 
	 	 	The sale of the Assets by the Vendors is subject to the condition precedent, for the
exclusive benefit of the Vendors, that the Purchaser shall have obtained binding
commitments from investors with respect to the Financing.
	 
	 	 	The sale of the Assets by the Vendors is also subject to the following conditions precedent
for the exclusive benefit of the Vendors and which may be waived in whole or in part by the
Vendors by written notice to the Purchaser at or prior to Closing:






	 	(a)	 	the representations and warranties of the Purchaser set forth in this agreement
shall be
true and correct in all material respects on and as of the Closing Time, with the
same
force and effect as though such representations and warranties had been made or
given an
and as of the Closing Date;
	 
	 	(b)	 	the Purchaser shall have materially performed or complied with all
obligations,
agreements and covenants contained in this Agreement as to which performance or
compliance by the Purchaser is required prior to or at the Closing Date; and
	 
	 	(c)	 	no material suit, action, or other proceeding shall be pending before any
Governmental
Authority seeking to restrain, prohibit, enjoin, or declare illegal, or seeking
substantial
damages in connection with, the transactions contemplated by this Agreement.





ARTICLE 4

REPRESENTATIONS AND WARRANTIES





	4.1	 	Representations and Warranties of Vendor
	 
	 	 	Each of the Vendors jointly and severally makes the following representations and
warranties to the Purchaser, no claim in respect of which shall be made or be enforceable
by the Purchaser unless written notice of such claim, with reasonable particulars, is given
by the Purchaser to the Vendors within a period of twenty-four (24) months from the Closing
Time:






	 	(a)	 	each Vendor is duly organized and validly existing under the laws of its
jurisdiction of organization, is authorized to carry on business in the jurisdiction in
which the Lands are located, and now has good right, full power and absolute authority
to sell, assign,




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	 	 	 	transfer, convey and set over the interest of such Vendor in and to the Assets according to
the true intent and meaning of this Agreement;
	 
	 	(b)	 	the execution, delivery and performance of this Agreement has been duly and validly
authorized by any and all requisite corporate, partnership, shareholders’ and directors’
actions with respect to each Vendor and will not result in any violation of, be in conflict
with or constitute a default under any articles, charter, bylaw or other governing
document to which such Vendor is bound;
	 
	 	(c)	 	the execution, delivery and performance of this Agreement will not result in any violation
of, be in conflict with or constitute a default under any term or provision of any
agreement or document to which the Vendors are party, by which the Vendors are bound
or to which the Assets are subject, nor under any judgment, decree, order, statute,
regulation, rule or license applicable to the Vendors;
	 
	 	(d)	 	this Agreement and any other agreements delivered in connection herewith constitute
valid and binding obligations of each Vendor enforceable against each Vendor in
accordance with their 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);
	 
	 	(e)	 	no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body exercising jurisdiction over the Assets is
required for the due execution, delivery and performance by the Vendors of this
Agreement, other than authorizations, approvals or exemptions from requirements
therefor, previously obtained and currently in force;
	 
	 	(f)	 	none of the Vendors have incurred any obligation or liability, contingent or otherwise, for
brokers’ or finders’ fees in respect of this Agreement or the transaction to be effected by
it
for which the Purchaser shall have any obligation or liability;
	 
	 	(g)	 	except for the Permitted Encumbrances, the Assets are free and clear of all liens,
mortgages, royalties, encumbrances, net profits interests, options, security interests or
other burdens or adverse claims created by, through or under the Vendors and, to the
knowledge of the Vendors, by Third Parties;
	 
	 	(h)	 	there are no judgments and no claims, proceedings, actions or lawsuits in existence or, to
the Vendors’ knowledge, contemplated or threatened against or with respect to the Assets;
	 
	 	(i)	 	the sale of the Assets pursuant hereto is not subject to (i) any rights of first refusal
which have not been waived by the holder thereof, or similar pre-emptive rights created by,
through or under the Vendors or (ii) any other transfer restriction;
	 
	 	(j)	 	as of the Closing Time, there are no AFEs, unit budget or similar financial commitments
which have not already been disclosed and as are included in Schedule “E”, pursuant to
which expenditures by the Purchaser in respect of the Assets are or may be required after
the Closing Time; .




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	 	(k)	 	to the Vendors’ knowledge, each of the Vendors has given the Purchaser access to all
written information in its possession relating to Environmental Liabilities and Abandonment
and Reclamation Obligations;
	 
	 	(1)	 	none of the Vendors have received actual notice, written or oral, of:






	 	(A)	 	any material non-compliance in relation to the Assets with any law; or
	 
	 	(B)	 	any claim in relation to the Assets by any Third Party of material
Environmental
Liabilities (including pollution) or material Abandonment and Reclamation
Obligations;






	 	(m)	 	the Leases, Easements and Contracts are in full force and effect, and none of the Vendors
is, and to the Vendors’ knowledge no other party is, in breach of any Lease Easement or
Contract and to the Vendors’ knowledge no default exists thereunder;
	 
	 	(n)	 	(i) none of the Leases contain royalty provisions (other than those allowing a lessor the
right to take in kind and other than royalties due to governmental entities) requiring the
payment of royalty on any basis other than proceeds actually received by the lessee, (ii)
there are no Leases that are subject to a fixed term of duration, (iii) there are no
unfulfilled drilling obligations affecting the Leasehold Interests, other than provisions
requiring optional drilling as a condition of maintaining or earning all or a portion of a
Lease, (iv) all royalties, rentals and other payments due in respect of the Leases have been
timely paid and all other conditions necessary to keep such properties and interests in full
force and effect during their primary term, and thereafter if commercial production has been
established thereon or on lands pooled therewith, have been fully performed; (v) except as
otherwise noted on Schedule D, there are no limitations as to the depths covered or minerals
to which the Leases to apply; and (vi) except as otherwise noted on Schedule D, there are no
restrictions on the Purchaser’s ability to utilize the surface of the Leases, to conduct
operations on the Leases, or to have access to the Leases that would have an adverse effect,
individually or in the aggregate on the value of any of the Assets or on the Purchaser’s
ownership or operation thereof;
	 
	 	(o)	 	(i) None of the Contracts subject all or any portion of the Assets to any tax partnership or
to any obligation requiring a partnership income tax return to be filed under the application
of Subchapter K of Chapter 1 of Subtitle A of the Code, or any similar state statute; (ii)
none of the Contracts will subject the Purchaser to any area of mutual interest, non
competition or similar provision restricting the Purchaser from independently conducting
operations in any geographic area; and (iii) the Contracts include all contracts and
agreement that are material to the ownership and operation of the Assets, as currently owned
and operated;
	 
	 	(p)	 	the Vendors have obtained all governmental permits, licenses and other authorizations
required to own and operate the Assets; all such authorizations are in full force and effect;
and to the Vendors’ knowledge no violations exist thereunder;
	 
	 	(q)	 	all ad valorem, property, production, severance, sales, use, windfall profits and similar
taxes and assessments based on or measured by the ownership of the Assets or the production
of Hydrocarbons or the receipt of proceeds therefrom that have become due and payable with
respect to the Assets have been, or will be, paid timely and all tax and




12









 












	 	 	 	information returns to tax authorities required to be filed with respect to the Assets
have been, or will be, filed timely;
	 
	 	(r)	 	the Vendors own and have the right to use without any limitations or restrictions (including
without limitation restrictions related to transfers to, or use by, third parties), all
technology, processes, maps, seismic records, shot points, field notes, interpretations and
programs, geological and geophysical information and libraries included as part of the Assets
and the consummation of the transactions contemplated by this Agreement will not alter or
impair any such rights or breach any agreements with Third Party vendors or require payments
of additional sums to such persons;
	 
	 	(s)	 	none of the Vendors, their Affiliates nor anyone acting on their behalf has issued, sold or
offered any security of the Purchaser to any person under circumstances that would cause the
sale of the Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”);
	 
	 	(t)	 	each of the Vendors understands that the offering and sale of the Shares pursuant to this
Agreement has not been registered under and is intended to be exempt from registration under
the Securities Act pursuant to Section 4(2) thereof and Regulation D thereunder and each
Vendor acknowledges that each certificate representing the Shares shall bear a legend
substantially in the following form:
	 
	 	 	 	THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AND MAY NOT BE SOLD TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
	 
	 	 	 	UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL
NOT TRADE THE SECURITIES BEFORE                                         .
	 
	 	 	 	WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE
AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR
THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR
OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN
RESIDENT UNTIL                                         .
	 
	 	(u)	 	each of the Vendors is an “accredited investor” (as defined in Regulation D under the
Securities Act) and has truthfully and accurately completed the certificate attached hereto
as Schedule “G” indicating the basis on which it is representing its status as an “accredited
investor;”
	 
	 	(v)	 	each of the Vendors is acquiring the Shares to be acquired hereunder for its own account,
for investment and not with a view to the public resale or distribution thereof in violation
of any securities law; and




13









 












	 	(w)	 	each Vendor (A) has been furnished with or has had full access to all of the
information that it considers necessary or appropriate to make an informed
investment decision with respect to the Shares, (B) has had an opportunity to
discuss with management of the Purchaser the intended business and financial
affairs of the Purchaser and to obtain information (to the extent the Purchaser
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to him or to which he had
access, (C) can bear the economic risk of (I) an investment in the Shares
indefinitely and (II) a total loss in respect of such investment and (D) has such
knowledge and experience in business and financial matters so as to enable it to
understand and evaluate the risks of and form an investment decision with respect
to its investment in the Shares and to protect its own interest in connection with
such investment.






	4.2	 	Representations and Warranties of the Purchaser
	 
	 	 	The Purchaser makes the following representations and warranties to the Vendors, no claim in
respect of which shall be made or be enforceable by the Vendors unless written notice of
such claim, with reasonable particulars, is given by the Vendors to the Purchaser within a
period of twenty-four (24) months from the Closing Time:






	 	(a)	 	The Purchaser is a corporation duly formed and validly existing under the laws
of the
jurisdiction of organization of the Purchaser, as of Closing will be authorized to
carry on
business in the jurisdiction in which the Assets are located, and, subject to
obtaining all
necessary shareholder and regulatory approval, now has good right, full power and
absolute authority to purchase the interest of the Vendors in and to the Assets
according
to the true intent and meaning of this Agreement;
	 
	 	(b)	 	the execution and delivery of this Agreement has been duly and validly
authorized by any
and all requisite corporate and directors’ actions and, following shareholder
approval
thereof, will not result in any violation of, be in conflict with or constitute a
default under
any articles, charter, bylaw or other constating document to which the Purchaser is
bound;
	 
	 	(c)	 	the execution, delivery and performance of this Agreement will not result in
any violation
of, be in conflict with or constitute a default under any term or provision of any
agreement or document to which the Purchaser is party or by which the Purchaser is
bound, nor under any judgment, decree, order, statute, Regulation, rule or license
applicable to the Purchaser;
	 
	 	(d)	 	this Agreement and any other agreements delivered in connection herewith
constitute
valid and binding obligations of the Purchaser enforceable against the Purchaser in
accordance with their 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).;
	 
	 	(e)	 	subject to shareholder and regulatory approval, the Purchaser is authorized to
issue and
deliver the Shares to the Vendors, the rights, privileges, restrictions and
conditions of
which are defined in the articles of incorporation of the Purchaser;




14









 












	 	(f)	 	the Purchaser (A) has been furnished with or has had full access to all of the
information
that it considers necessary or appropriate to make an informed investment decision
with
respect to the Assets, (B) has had an opportunity to discuss with management of the
Vendors the financial status of the Assets and to obtain information (to the extent
the
Vendors possessed such information or could acquire it without unreasonable effort
or
expense) necessary to verify any information furnished to the Purchase or to which
it had
access, (C) can bear the economic risk of (I) an investment in the Assets
indefinitely and
(II) a total loss in respect of such investment and (D) has such knowledge and
experience
in oil and gas exploration, drilling and development matters so as to enable it to
understand and evaluate the risks of and form an investment decision with respect to
its
investment in the Assets and to protect its own interest in connection with such
investment. In addition, by the Purchaser’s having had full access to all data in
the
possession of the Vendors regarding the Assets, the Purchaser exercising its own
judgment has made its own evaluation and decisions regarding the Assets and has not
relied upon the analyses performed by the Vendors in making its decision to acquire
the
Assets; provided that nothing in this paragraph shall operate to relieve the Vendors
from
their obligations under this Agreement or any liability they may have for any breach
of a
representation or warranty made by the Vendors in this Agreement;
	 
	 	(g)	 	no authorization or approval or other action by, and no notice to or filing
with, any
governmental authority or regulatory body exercising jurisdiction over the Assets is
required for the due execution, delivery and performance by the Purchaser of this
Agreement, other than authorizations, approvals or exemptions from requirements
therefor, previously obtained and currently in force; and
	 
	 	(h)	 	the Shares issued to each of the Vendors pursuant to the terms of this
Agreement shall be issued as fully paid and non-assessable shares of the Purchaser.





ARTICLE
5

INDEMNITIES FOR REPRESENTATIONS AND WARRANTIES





	5.1	 	The Vendors’ Indemnities for Representations and Warranties
	 
	 	 	The Vendors shall be jointly and severally liable to the Purchaser for and shall, in
addition, indemnify the Purchaser, its Affiliates, and all of its and their respective
shareholders, partners, members, directors, officers, managers, employees, agents and
representatives (the “Purchaser Indemnified Parties”) from and against all Losses and
Liabilities arising out of, relating to or resulting from any breach by any of the Vendors
of any of the representations and warranties contained in section 4.1 or any covenant or
agreement of any Vendor contained in this Agreement.
	 
	5.2	 	Purchaser’s Indemnities for Representations and Warranties
	 
	 	 	The Purchaser shall be liable to the Vendors for and shall, in addition, indemnify the
Vendors, their Affiliates, and all of their respective shareholders, partners, members,
directors, officers, managers, employees, agents and representatives (the “Vendor
Indemnified Parties”) from and against all Losses and Liabilities arising out of, relating
to or resulting from any breach by any of the Purchaser of any of the representations and
warranties contained in section 4.2 or any covenant or agreement of the Purchaser contained
in this Agreement.




15









 












	5.3	 	Time Limitation
	 
	 	 	No claim under this Article 5 shall be made or be enforceable by a Party unless written
notice of such claim, with reasonable particulars, is given by such Party to the Party
against whom the claim is made within a period of twenty-four (24) months from the Closing
Time.





ARTICLE 6

PURCHASER’S INDEMNITIES





	6.1	 	General Indemnity
	 
	 	 	The Purchaser shall be liable to the Vendors for and shall, in addition, indemnify the
Vendors from and against all Losses and Liabilities suffered, sustained, paid or incurred
by the Vendors which arise out of any matter or thing occurring or arising from and after
the Closing Time and which relates to the Assets (other than any interest in the Assets
assigned to the Vendors following Closing), provided that the Purchaser shall not be liable
to the Vendors under this Section 6.1 in respect of Losses and Liabilities for which the
Vendors have agreed to indemnify the Purchaser Indemnified Parties under Section 5.1
hereof.
	 
	6.2	 	Environmental Matters
	 
	 	 	The Purchaser shall be liable to the Vendors for and shall, in addition, indemnify the
Vendors from and against all Losses and Liabilities suffered, sustained, paid or incurred
by the Vendors which pertain to Environmental Liabilities pertaining to or caused by the
Assets or operations thereon or related thereto (other than any interest in the Assets
assigned to the Vendors following Closing), however and by whomsoever caused, and whether
such Environmental Liabilities occur or arise in whole or in part, from and after the
Closing Time; provided that the Purchaser shall not be liable to the Vendors under this
Section 6.2 in respect of Losses and Liabilities for which the Vendors have agreed to
indemnify the Purchaser Indemnified Parties under Section 5.1 hereof.





ARTICLE 7

STATEMENT OF OBLIGATIONS/COMMITMENTS





	7.1	 	Conduct of Business Prior to Closing






	 	(a)	 	Each Vendor agrees that from and after the date hereof until Closing, except
as expressly contemplated by this Agreement or as expressly consented to in writing by
the Purchaser, to:






	 	(i)	 	operate and maintain the Assets in the usual, regular and
ordinary manner consistent with past practice;
	 
	 	(ii)	 	maintain the books of account and records relating to the
Assets in the usual, regular and ordinary manner, in accordance with the usual
practices of each such Vendor;
	 
	 	(iii)	 	not enter into any contract or agreement related to the
Assets that if entered into prior to the date of this Agreement, would be
required to be listed in a schedule




16









 












	 	 	 	attached to this Agreement, or materially amend or change the terms of any
of the Contracts; and
	 
	 	(iv)	 	not transfer, sell, mortgage, pledge or dispose of any
material portion of the Assets.






	 	(b)	 	Each Vendor will notify the Purchaser promptly after the discovery by such
Vendor that
any representation or warranty of such Vendor contained in this Agreement is,
becomes
or will be untrue in any material respect on or before the Closing Date.
	 
	 	(c)	 	From and after the date hereof and through the Closing Date, each Vendor will
provide
the Purchaser and its representatives reasonable access during normal business hours
to
the Assets and the books and records relating to the Assets for review by the
Purchaser.






	7.2	 	Adjustments






	 	(a)	 	Except as otherwise provided in this Article 7 and subject to all other
provisions of this
Agreement, the Parties will adjust and apportion expenditures and revenues of every
kind
and nature incurred, payable or paid in respect of the Assets including royalties,
property
taxes, and taxes and assessments (other than income taxes), as at the Closing Time.
	 
	 	(b)	 	The Vendors are entitled to the revenues and benefits from the ownership and
operation
of the Assets accrued prior to the Closing Time and are responsible for and will pay
for
the expenditures pertaining to the ownership, operation and development of the
Assets
incurred prior to the Closing Time; provided, however, that following the date of
this
Agreement until the Closing Date, the Vendors may continue to acquire Leases on
lands
included within the area covered by one or more Prospects, and to the extent that
the
Vendors continue to incur and pay costs and expenses in connection with the
acquisition
of Additional Leases and the maintenance of Leases already held by the Vendors (both
of
which are contemplated to occur), the Vendors shall be entitled to reimbursement as
provided in Section 2.3; provided that the Vendors shall not incur such cost in
excess of
$2,000,000 in the aggregate or $200,000 in any individual incurrence without the
prior
consent of the Purchaser.
	 
	 	(c)	 	The Purchaser is entitled to the revenues and benefits from the ownership and
operation
of the Assets accrued from and after the Closing Time and is responsible for and
will pay
for the expenditures pertaining to the ownership, operation and development of the
Assets incurred from and after the Closing Time, subject to the Participation
Agreement.
	 
	 	(d)	 	To the extent that any of the Leases in a Prospect terminates, for any reason,
prior to the
Closing, there shall be a downward adjustment of the cash consideration payable to
the
Vendors based upon the acquisition and maintenance costs attributable to the
terminated
Lease; provided, however, that if the downward adjustment is less than $20,000,
there
shall be no downward adjustment, anything in the foregoing to the
contrary
notwithstanding. Prior to the Closing Time, each of the Vendors shall deliver to
the
Purchaser a written interim statement of obligations and commitments, including all
applicable taxes, surface and mineral lease bonus, rentals and any similar payments
made
or required to be made by any of the Vendors to purchase or to preserve any of the
Leases
or any Easement, under this Agreement, including lease brokers’ expenses, legal fees
and
other related costs, and each of the Vendors will make available to representatives
of the
Purchaser all information necessary for the Purchaser to confirm the calculations in
the




17









 












	 	 	 	statement as included in Schedule “E”. The Parties will cooperate in settling the
adjustments and payment to be made on an interim basis, and the amount so agreed
will be employed for the purposes of the Closing and completion of the transactions
contemplated by this Agreement.
	 
	 	(e)	 	Within 60 days following the Closing Time, the Parties will cooperate in
preparing a final
statement of all obligations, commitments and payments to be made pursuant to this
Agreement. Upon agreement as to all adjustments and payments to be made, the net
amount will be remitted by the Party who in the net result is obliged to make
payment.
	 
	 	(f)	 	Notwithstanding the preceding subsection, each Party will have the right,
within the later
of three months following the distribution of the final statement of adjustments by
the
Vendors or six months following the Closing Time, to examine, copy and audit the
records of the other relative to the Assets for the purpose of effecting or
verifying
adjustments required under this Article. The auditing Party will, upon reasonable
notice,
conduct that audit at its sole expense during normal business hours at the offices
of the
audited Party or at such other premises where those records are maintained. Any
material
claims of discrepancies disclosed by that audit will be made in writing to the
audited
Party within two months following the completion of that audit. That Party will
respond
in writing to any such claims within three months of the receipt of notice of those
claims.
	 
	 	(g)	 	All payments made after the Closing Time are to be paid within 30 days after
the amount
is determined and, if not paid within the 30 days, will thereafter bear interest
until paid at
a rate of interest equal to the Prime Rate plus 1% compounded annually.
	 
	 	(h)	 	Notwithstanding when Closing occurs, the Vendors shall perform the accounting
and continue to collect, prepare, file and complete the information, reports, forms
and documents normally required to be collected, prepared, filed and completed in the
ordinary course of business for the entire month in which Closing occurs.





ARTICLE 8

POST-CLOSING OBLIGATIONS





	8.1	 	Post-Closing
	 
	 	 	In the event that for any reason, the Parties are unable on the Closing Date to cause the
Purchaser to become the recognized holder of any of the Assets in the place and stead of
the Vendors, then the Vendors shall:






	 	(a)	 	Standard of Care: hold and stand possessed of such Assets fully on
behalf of the
Purchaser, as bare trustee, and receive and hold all proceeds, benefits and
advantages
accruing in respect of the Assets fully for the benefit, use and ownership of the
Purchaser,
and cause such proceeds to be delivered to the Purchaser as soon as reasonably
possible;
	 
	 	(b)	 	Notices from Third Parties: in a timely manner, deliver to the
Purchaser all third party
notices and communications received by it in respect of such Assets;
	 
	 	(c)	 	Notices to Third Parties: in a timely manner, deliver to third parties
all such notices and
communications as the Purchaser may reasonably request and all such
monies and other
items as the Purchaser may reasonably provide in respect of such Assets;






18











 






	 	(d)	 	General: as agent of the Purchaser, do and perform all such acts and
things and execute and deliver all such agreements, notices and other documents and
instruments, as the Purchaser may reasonably request in writing for purposes of
facilitating the exercise of rights incidental to the ownership of such Assets or
required by any government or regulatory agency of appropriate authority having
jurisdiction.






	 	 	The Purchaser shall pay all invoices, cash calls and bills forwarded to it by the Vendors
which pertain to the Assets in respect of any period after the Closing Time.
	 
	8.2	 	Liability
	 
	 	 	The Vendors shall not be liable to the Purchaser for any loss or damages suffered,
sustained, paid or incurred by the Purchaser in connection with the arrangements
established by section 8.1, except to the extent that the loss or damage is caused by the
Vendors’ gross negligence or its willful misconduct. The Purchaser shall:






	 	(a)	 	be liable to the Vendors for all losses whatsoever which the Vendors may
suffer, sustain, pay or incur; and
	 
	 	(b)	 	indemnify and save harmless the Vendors and each of their directors, officers,
servants, agents, consultants and employees from and against any claims and losses
whatsoever which may be brought against or suffered by any of them or which they may
sustain, pay or incur arising out of the non-performance by the Purchaser of its
obligations under section 8.1. An action or omission of the Vendors or any of their
directors, officers, servants, agents or employees shall not be regarded as gross
negligence or willful misconduct, however, to the extent it was done or omitted to be
done in accordance with the instructions of or with the concurrence of the Purchaser.
Nothing in this section 8.2 shall be construed as extending or restricting or limiting
in any manner any of the other covenants, warranties, representations or other
obligations of the Parties under this Agreement.





ARTICLE 9
 TERMINATION





	9.1	 	Right of Termination
	 
	 	 	This Agreement and the transactions contemplated herein may be terminated at any time at or
prior to Closing:






	 	(a)	 	by Purchaser, at Purchaser’s option, if any of the conditions set forth in
Section 3.1 have not been satisfied on or before December 31, 2006 (the “Termination
Date”);
	 
	 	(b)	 	by the Vendors, at the Vendors’ option, if any of the conditions set forth in
Section 3.2 have not been satisfied on or before the Termination Date;






provided, however, that no party shall have the right to terminate this Agreement pursuant
to clause (a) or (b) above if such party or its Affiliates are at such time in material
breach of any provision of this Agreement.



19









 






	9.2	 	Effect of Termination
	 
	 	 	If the obligation to close the transactions contemplated by this Agreement is terminated
pursuant to any provision of Section 9.1 hereof, then, except as provided in this Section
9.2, Section 10.1 and Article 11, this Agreement shall forthwith become void and the Parties
shall have no liability or obligation hereunder except and to the extent such termination
results from the willful breach by a Party of any of its covenants or agreements hereunder;
provided that if Purchaser is entitled to receive the Termination Fee as liquidated damages
pursuant to Section 9.2(b), then such retention shall constitute full and complete
satisfaction of any and all damages Purchaser may have against the Vendors.





ARTICLE 10
 CONFIDENTIALITY





	10.1	 	Confidentiality
	 
	 	 	Further to recent discussions between the Vendors and the Purchaser regarding the Assets,
the Parties have or will be supplying each other with information which includes, but is
not limited to, financial, geological, geophysical, engineering, environmental and land
data concerning the Assets or the Purchaser, as applicable, which is either non-public,
confidential, or proprietary in nature (referred to hereinafter as the “Confidential
Information”). As used herein, the term “Receiving Party” refers to the Party receiving
Confidential Information and the term “Disclosing Party” refers to the Party disclosing
Confidential Information. Confidential Information may be in any form whatsoever,
including, without limitation, writings, computer code or programs, logic diagrams,
component specifications, drawings, or other media, and may be in writing, oral, tangible
or intangible and includes all notes, analyses, summaries or studies prepared by the
receiving party from the disclosed information.
	 
	 	 	In consideration of the mutual exchange of Confidential Information between the Vendors and
the Purchaser, and in consideration of the Parties’ desire to be assured that
confidentiality shall be maintained subsequent to the Closing, each of the Parties hereby
agrees on behalf of itself and its employees, directors, consultants and advisors, as
follows:






	 	(a)	 	the Confidential Information shall be kept in strict confidence and shall be
used only for the purpose of evaluating the technical and financial aspects of the
Assets or the Purchaser, as applicable. The Confidential Information shall not be
disclosed to any person other than such of the Parties’ directors, employees,
consultants and advisors who are directly involved with and require access to such
information in connection with the proposed acquisition. If the Confidential
Information is disclosed to any of the Parties’ directors, employees, consultants or
advisors, such persons shall be informed of the confidential nature of the information
and agree to be bound by this Agreement prior to disclosure of the confidential
information unless as otherwise agreed and which agreement shall not be unreasonably
withheld. The Receiving Party shall be directly responsible to the Disclosing Party for
the compliance of its representatives hereunder and shall be responsible for any breach
of any of the terms or conditions hereof by such representatives;
	 
	 	(b)	 	the Parties agree that all rights to Confidential Information disclosed
pursuant to this Agreement are reserved to the Disclosing Party and no license or
conveyance of any intellectual property rights is granted or implied by the Disclosing
Party to the Receiving Party;




20









 












	 	(c)	 	the restrictions set forth in paragraph (a) shall not apply to any part of the
Confidential Information which:






	 	(i)	 	was, at the time of disclosure generally available to the public other than
as a result of disclosure by the Receiving Party in breach of this Agreement; or
	 
	 	(ii)	 	was, at the time of disclosure, as shown by the Receiving Party’s records,
already in such Party’s possession on a lawful basis;






	 	(d)	 	prior to the Closing, the Vendors shall not, and shall direct such of its directors,
employees, consultants and advisors who have access to the Confidential Information, to not,
disclose to any person any of the terms, conditions or other facts with respect to any
possible transaction concerning the Assets.
	 
	 	(e)	 	at any time, upon the request of the Purchaser, the Vendors shall return the Confidential
Information to the Purchaser, and shall not retain any copies, extracts or other reproductions
nor any materials derived from such Confidential Information.
	 
	 	(f)	 	following the Closing, the Vendors shall keep the Confidential Information provided to the
Purchaser and all other information regarding the Assets in strict confidence and shall not
disclose such information to any other person;
	 
	 	(g)	 	the Parties shall be entitled to disclose Confidential Information to the extent required by
an order issued by a court, or regulatory body or competent jurisdiction, provided that the
Receiving Party shall;






	 	(i)	 	provide to the Disclosing Party reasonable advance written notice of any
such requirement for disclosure so that the Disclosing Party may seek a protective
order or other appropriate remedy;
	 
	 	(ii)	 	consult with the Disclosing Party, if requested, on the advisability of
taking legally available steps to resist or narrow such order; and
	 
	 	(iii)	 	take such steps as are reasonably necessary and available to maintain
confidentiality with the court, stock exchange or regulatory body;






	 	(h)	 	each of the Parties acknowledge and agree that a Disclosing Party will be irreparably
injured by a breach of obligations contained in this Article 10, which could not be
adequately compensated for by damages. The Disclosing Party shall be entitled to equitable
relief, including injunctive relief and specific performance, in the event of any breach of
the provisions of this Article 10. Such remedies shall not be deemed to be exclusive remedies
but shall be in addition to all other remedies available at law or at equity; and
	 
	 	(i)	 	following the Closing, the Purchaser shall not be subject to this Section 10.1 with respect
to the Assets acquired at Closing.






	10.2	 	Non-Competition.
	 
	 	 	The Purchaser agrees that if the transaction contemplated by this Agreement
does not close for any reason, for a period to two (2) years following the termination of the
Agreement the Purchaser shall not engage in any competition with any of the Vendors with







21









 






respect to the acquisition of leases within any Prospect AMI, and this covenant shall
survive the termination of this Agreement for such two year term.



ARTICLE 11
GENERAL





	11.1	 	Further Assurances
	 
	 	 	Each Party will, from time to time and at all times after Closing, without further
consideration, do such further acts and deliver all such further assurances, deeds and
documents as shall be reasonably required in order to fully perform and carry out the terms
of this Agreement.






	11.2	 	No Merger
	 
	 	 	The covenants, representations, warranties and indemnities contained in this Agreement
shall be deemed to be restated in any and all assignments, conveyances, transfers and other
documents conveying the interests of the Vendors in and to the Assets to the Purchaser,
subject to any and all time and other limitations contained in this Agreement. There shall
not be any merger of any covenant, representation, warranty or indemnity in such
assignments, conveyances, transfers and other documents notwithstanding any rule of law,
equity or statute to the contrary and such rules are hereby waived.
	 
	11.3	 	Entire Agreement
	 
	 	 	The provisions contained in any and all documents and agreements collateral hereto shall at
all times be read subject to the provisions of this Agreement and, in the event of
conflict, the provisions of this Agreement shall prevail. No amendments shall be made to
this Agreement unless in writing, executed by the Parties. This Agreement supersedes all
other agreements, documents, writings and verbal understandings among the Parties relating
to the subject matter hereof and expresses the entire agreement of the Parties with respect
to the subject matter hereof.
	 
	11.4	 	Assignment of Assets
	 
	 	 	Each of the Vendors hereby acknowledges that the Purchaser may wish to assign its interest
in the Assets to a wholly-owned subsidiary of the Purchaser, and each of the Vendors hereby
consents to such assignment. If the Purchaser determines to make such assignment prior to
the Closing Time, the Vendors shall transfer title to the Assets into the name of the
Purchaser’s assignee.
	 
	11.5	 	Governing Law
	 
	 	 	This Agreement shall, in all respects, be subject to, interpreted, construed and enforced
in accordance with and under the laws of the Province of Alberta and applicable laws of
Canada and shall, in all respects, be treated as a contract made in the Province of
Alberta. The Parties irrevocably attorn and submit to the jurisdiction of the courts of the
Province of Alberta and courts of appeal therefrom in respect of all matters arising out of
or in connection with this Agreement.




22









 












	11.6	 	Expenses
	 
	 	 	Except as otherwise specifically provided herein, all fees, costs and expenses incurred by
the Vendors or the Purchaser 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.
	 
	11.7	 	Assignment
	 
	 	 	Except as contemplated by Section 11.4, this Agreement may not be assigned by a Party
without the prior written consent of the other Party, which consent may be unreasonably and
arbitrarily withheld. This Agreement shall be binding upon and shall inure to the benefit of
the Parties and their respective administrators, trustees, receivers, successors and
permitted assigns.
	 
	11.8	 	Publicity
	 
	 	 	The Parties 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, and, except as may be required by
applicable laws or the applicable rules and regulations of any governmental agency or stock
exchange, no Party shall issue any such press release or other publicity without the prior
written consent of the other Parties, which shall not be unreasonably withheld.
	 
	11.9	 	Time of Essence
	 
	 	 	Time shall be of the essence in this Agreement.
	 
	11.10	 	Notices
	 
	 	 	The addresses for service and the fax numbers of the Parties shall be as follows:





	 	 	 	 	 
	 

	 	Vendor -
	 	SKH Management L.P.

SKH Management II, L.P., and 

SKHManagement III, L.L.C.

Suite 500, 7700 San Felipe Drive

Houston, Texas 77063

	 
	 	 	 	 
	 

	 	 	 	Attention: Paul J. Sigmund, President

Fax:            +1.713.782.1485 and

                   +1.713.785.6591
	 
	 	 	 	 
	 

	 	Vendor-
	 	SKH Energy Fund L.P.

Suite 500, 7700 San Felipe Drive

Houston, Texas 77063
	 
	 	 	 	 
	 

	 	 	 	Attention: Paul J. Sigmund, President

Fax:             +1.713.782.1485 and

                   +1.713.785.6591






23









 






	 	 	 	 	 
	 

	 	Vendor-
	 	Antares Exploration Fund L.P.

Suite 500, 7700 San Felipe Drive

Houston, Texas 77063

	 
	 	 	 	 
	 

	 	 	 	Attention: Paul J. Sigmund, President

Fax:              +1.713.782.1485 and

                     +1.713.785.6591
	 
	 

	 	Purchaser -
	 	Ausam Energy Corporation

Suite 1430, 1122 Fourth Street S.W.

Calgary, Alberta T2R 1M1
	 
	 	 	 	 
	 

	 	 	 	Attention: Mark Avery,
Chairman, President and CEO

 Fax:             +1.403.206.1457







	 	 	All notices, communications and statements required, permitted or contemplated hereunder
shall be in writing, and shall be delivered as follows:






	 	(a)	 	by personal service on a Party at the address of such Party set out above, in
which case the item so served shall be deemed to have been received by that Party when
personally served;
	 
	 	(b)	 	by facsimile transmission to a Party to the fax number of such Party set out
above, in which case the item so transmitted shall be deemed to have been received by
that Party when transmitted; or
	 
	 	(c)	 	except in the event of an actual or threatened postal strike or other labour
disruption that may affect mail service, by mailing first class registered post,
postage prepaid, to a Party at the address of such Party set out above, in which case
the item so mailed shall be deemed to have been received by that Party on the third
Business Day following the date of mailing.






	 	 	A Party may from time to time change its address for service or its fax number or both by
giving written notice of such change to the other Party.
	 
	11.11	 	Invalidity of Provisions
	 
	 	 	In case any of the provisions of this Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality or enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
	 
	11.12	 	Waiver
	 
	 	 	No failure on the part of any Party in exercising any right or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise thereof or the exercise of any right or
remedy in law or in equity or by statute or otherwise conferred. No waiver of any provision
of this Agreement, including without limitation, this section, shall be effective otherwise
than by an instrument in writing dated






24











 






	 	 	subsequent to the date hereof, executed by a duly authorized representative of the Party
making such waiver.
	 
	11.13	 	Amendment
	 
	 	 	Subject to all required approval therefore, this Agreement shall not be varied in its terms
or amended by oral agreement or by representations or otherwise other than by an instrument
in writing dated subsequent to the date hereof, executed by a duly authorized representative
of each Party.
	 
	11.14	 	Counterpart Execution
	 
	 	 	This Agreement may be executed in counterpart, no one copy of which need be executed by the
Vendors and the Purchaser. A valid and binding contract shall arise if and when counterpart
execution pages are executed and delivered by the Vendors and the Purchaser.




IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above
written.




	 	 	 	 	 	 	 	 	 	 	 
	THE VENDORS	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	SKH Management, L.P.	 	 	 	SKH Management II, L.P.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Per:

	 	/s/ Paul J. Sigmund	 	 	 	Per:	 	/s/ Paul J. Sigmund	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	SKH Management III, L.L.C.	 	 	 	SKH Energy Fund, L.P.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Per:

	 	/s/ Paul J. Sigmund	 	 	 	Per:	 	/s/ Paul J. Sigmund	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Antares Exploration Fund, L.P.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Per:
	 	/s/ Paul J. Sigmund	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	THE PURCHASER:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	AUSAM ENERGY CORPORATION	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Per:
	 	/s/ Mark G. Avery	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	Chairman President CEO	 	 	 	 	 	 	 	 






25









 





SCHEDULE “A”



ATTACHED TO AND FORMING PART OF AN ASSET PURCHASE AGREEMENT DATED THE 15th DAY OF SEPTEMBER •, 2006



BETWEEN SKH MANAGEMENT
L.P. ET AL., AS VENDORS AND AUSAM ENERGY CORPORATION, AS PURCHASER 




LANDS AND PETROLEUM AND NATURAL GAS RIGHTS

 





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prospect.	 	Propect	 	Gross Lease	 	Net Lease	 	Lease	 	Target Objective
	Number	 	Name	 	Acreage	 	Acreage	 	Description	 	(Estimated TD)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	•1

	 	• Iola
	 	 	13,093	 	 	 	12,433	 	 	• Grimes County, TX
18 lessors
	 	CV Bossier
 (20,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	•2

	 	Nolte Marsh•
	 	 	320	 	 	 	190	 	 	Liberty County, TX •
3 lessors
	 	Yegua
 Cook Mountain
 (14,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3

	 	Wetherford
	 	 	1,008	 	 	 	251	 	 	Liberty County, TX 
10 lessors
	 	Yegua
 Cook Mountain
 (14,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4

	 	Wiseman
	 	 	360	 	 	 	154	 	 	Liberty County, TX 
??????????
	 	Yegua
 Cook Mountain
 (14,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5, 6, 7

	 	Patch I, II, III
	 	 	8,893	 	 	 	4,714	 	 	Starr- County, TX
 72 lessors
	 	Reklaw (Wilcox)
 (9,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	8

	 	East Maben
	 	 	471	 	 	 	528	(???)	 	Oktibbeha County, MS 
12 lessors
	 	Upper Knox
 (15,100-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	9

	 	Bideman Gully
	 	 	2,122	 	 	 	2,097	 	 	Acadia Parish, LA
 94 lessors
	 	Upper Wilcox
 (19,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	10

	 	Constitution
	 	 	1,339	 	 	 	1,313	 	 	Jefferson County, TX
 29 lessors
	 	Deep Yegua
 (16,000-ft)






 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prospect.	 	Propect	 	Gross Lease	 	Net Lease	 	Lease	 	Target Objective
	Number	 	Name	 	Acreage	 	Acreage	 	Description	 	(Estimated TD)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	11

	 	Z Sand
	 	 	210	 	 	 	210	 	 	Duval County, TX 
2 lessors
	 	Wilcox “Z” Sand
 (17,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	12

	 	Rosita
	 	 	456	 	 	 	456	 	 	Duval County, TX 
12 lessors
	 	Wilcox “S” Sand
(15,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	13

	 	Saudi
	 	 	7,738	 	 	 	7,738	 	 	Perry County, MS
130 lessors
	 	Norphlet
 (23,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	14

	 	Plantation
	 	 	9,307	 	 	 	6,813	 	 	Lowndes County, MS
76 lessors
	 	Ordovican
 (13,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	15

	 	Sugar Grove
	 	 	6,917	 	 	 	5,976	 	 	Logan County, AR
 93 lessors
	 	Arbuckle
 (17,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	16

	 	Hoffman Creek
	 	 	975	 	 	 	975	 	 	Duval County, TX 
8 lessors
	 	Wilcox 
(18,000-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	17

	 	Womack Hills
	 	 	1,733	 	 	 	1,469	 	 	Clarke County, AL
51 lessors
	 	Smackover
(12,500-ft)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	18

	 	Oak Grove
	 	 	2,161	 	 	 	2,121	 	 	Bienville Parish, LA
 9 lessors
	 	Bossier
 (17,000-ft)







2









 




SCHEDULE “B” ATTACHED TO AND FORMING PART OF AN ASSET PURCHASE
AGREEMENT DATED THE 15th DAY OF SEPTEMBER •, 2006 BETWEEN SKH MANAGEMENT
L.P. ET AL., AS VENDORS AND AUSAM ENERGY CORPORATION, AS PURCHASER 





FORM OF CONVEYANCE




CONVEYANCE




 

as Assignor




AND




as Assignee




 









 





CONVEYANCE




     THIS CONVEYANCE (this “Conveyance”), effective as of
                      (the
“Effective Time”), is made by                     , a                      and                     , a          
         (collectively, “Assignor”), whose address for notice purposes is
                     to                     , a                      (“Assignee”), whose address for notice purposes is       
                               .



ARTICLE I

Granting and Habendum





     For ten dollars ($10.00) and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Assignor does hereby grant,
bargain, sell, transfer, convey, set over, assign and deliver unto Assignee, its
successors and assigns, effective for all purposes as of the Effective Time and
subject to the matters set forth herein, the Assets. The term “Assets” shall mean
all of Assignor’s right, title and interest in and to the following:




     [Insert
Description of Assets.]



     TO HAVE AND TO HOLD the Assets, together with all and singular the rights, privileges,
contracts and appurtenances, in any way appertaining or belonging thereto, unto Assignee and to
its successors and assigns, forever, subject to the matters set forth herein.



ARTICLE II

No Warranty and Disclaimers




     Section 2.01 No Warranty of Title. This Conveyance is made without warranty of title of any
kind whatsoever, express, implied or statutory, and without recourse, even as to the return of the
purchase price or other consideration, except for claims by, through or under Assignor or its
affiliates and subject to the Permitted Encumbrances. This Conveyance is made by Assignor with full
substitution and subrogation of Assignee, and all persons claiming by, through and under Assignee,
to the extent assignable, in and to all covenants and warranties by Assignor’s predecessors in
title and with full subrogation of all rights accruing under the statutes of limitation or
prescription under the laws of various states in which each Asset is located. This Conveyance is
subject to that certain Asset Purchase Agreement dated September 15, 2006, by and between Assignor
and Assignee (the “Purchase Agreement”). Capitalized terms used herein and not otherwise defined
shall have the meanings given such terms in the Purchase Agreement.



     Section 2.02 Disclaimer. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
ASSIGNOR MADE IN THE PURCHASE AGREEMENT, ASSIGNEE ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND
ASSIGNOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO
(a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS



 









 







BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY,
ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA
OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO ASSIGNEE BY OR ON
BEHALF OF ASSIGNOR, EXCEPT AS SPECIFICALLY REPRESENTED BY ASSIGNOR IN THE PURCHASE AGREEMENT, AND
(c) THE ENVIRONMENTAL CONDITION OF THE ASSETS. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF THE ASSIGNOR MADE IN THE PURCHASE AGREEMENT, ASSIGNOR EXPRESSLY DISCLAIMS AND
NEGATES, AND ASSIGNEE HEREBY WAIVES, AS TO PERSONAL PROPERTY CONSTITUTING A PART OF THE ASSETS (IF
ANY) (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY
OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM DEFECTS, WHETHER KNOWN OR UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER
APPLICABLE LAW, AND (vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE
OF MATERIALS INTO THE ENVIRONMENT, OR PROTECTION OF THE ENVIRONMENT OR HEALTH, IT BEING THE EXPRESS
INTENTION OF ASSIGNEE AND ASSIGNOR THAT THE PERSONAL PROPERTY INCLUDED IN THE ASSETS (IF ANY) SHALL
BE CONVEYED TO ASSIGNEE, AND ASSIGNEE SHALL ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN
THEIR PRESENT CONDITION AND STATE OF REPAIR, AND ASSIGNEE REPRESENTS TO ASSIGNOR THAT ASSIGNEE HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH PERSONAL PROPERTY AS ASSIGNEE DEEMS
APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE
EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE “CONSPICUOUS”
DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.



ARTICLE III

Miscellaneous




     Section 3.01 Construction. The captions in this Conveyance are for convenience only and shall
not be considered a part of or affect the construction or interpretation of any provision of this
Conveyance. Assignor and Assignee acknowledge that they have participated jointly in the
negotiation and drafting of this Conveyance and as such they agree that if an ambiguity or
question of intent or interpretation arises hereunder, this Conveyance shall not be construed more
strictly against one party than another on the grounds of authorship.



-2-









 





     Section 3.02 Assignment. The rights and interest of any party to this Conveyance may be
assigned in whole or in part. This Conveyance shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns and legal representatives.



     Section 3.03
Governing Law. This Conveyance, other documents delivered pursuant hereto and
the legal relations between the parties hereto shall be governed and construed in accordance
with the laws of the State of                     , without regard to the principles of
conflicts of laws, except to the extent that it is mandatory that the law of some other
jurisdiction, wherein the Properties are located, shall apply.



     Section 3.04 Counterpart Execution. This Conveyance may be executed in any number of
counterparts, and each counterpart hereof shall be effective as to each party that executes the
same whether or not all of such parties execute the same counterpart. If counterparts of this
Conveyance are executed, the signature pages from various counterparts may be combined into one
composite instrument for all purposes. All counterparts together shall constitute only one
Conveyance, but each counterpart shall be considered an original.



     Section 3.05 Recording. To facilitate the recording or filing of this Conveyance, the
counterpart to be recorded in a given county may contain only that, portion of the exhibits that
describes Assets located in that county. In addition to filing this Conveyance, the parties hereto
shall execute and file with the appropriate authorities, whether federal, state or local, all
forms or instruments required by applicable law to effectuate the conveyance contemplated hereby.
Said instruments shall be deemed to contain all of the exceptions, reservations, rights, titles
and privileges set forth herein as fully as though the same were set forth in each such instrument
and to the extent that any such instrument conflicts with the terms hereof, the terms and
provisions of this Conveyance shall control. The interests conveyed by such separate assignments
are the same, and not in addition to the Assets conveyed herein.



     Section 3.06 Further Cooperation. After the Effective Time, Assignor agrees to execute and
deliver, or cause to be executed and delivered, from time to time and without additional
consideration, such further assignments or other instruments of conveyance as may be necessary to
evidence the transfer of the Assets to Assignee in the manner contemplated by this Conveyance.



-3-









 





     IN WITNESS WHEREOF, this instrument is executed by the parties on the date of their respective
acknowledgments below, but shall be effective for all purposes as of the Effective Time.



	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	ASSIGNOR:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Witnesses:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	ASSIGNOR:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Witnesses:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	ASSIGNEE:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Witnesses:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 






-4-











 





	 	 	 
	STATE OF                     

	 	§
	 

	 	§
	COUNTY OF                     

	 	§






     BE IT REMEMBERED, THAT I, the undersigned authority, a notary public duly
qualified, commissioned, sworn and acting in and for                     , and being authorized in
such county and state to take acknowledgments, hereby certify that, on this                           day of
                    , there personally appeared before me                     ,                      of
                    , a                     , known to me to be such agent and attorney-in-fact, such
corporation being a party to the foregoing instrument, and I hereby further certify as follows:



	 	 	 
	LOUISIANA

	 	On this date before me, the undersigned authority, personally came and
appeared                     ,                      of                     ,
a                     , who signed said document before me in
the presence of the two witnesses, whose names are thereto subscribed as
such, being competent witnesses, and who acknowledged, in my presence and
in the presence of said witnesses, that he signed the above and foregoing
document as his own free act and deed on behalf of such
corporation by authority of its                      and as the free act and
deed of such                      and for the uses and purposes therein set forth.
	 
	 	 
	TEXAS

	 	This instrument was acknowledged before me on this day, by
                    ,
                    
of                     , a
                    ,
on behalf of said                     .
	 
	 	 
	ALABAMA

	 	I, the undersigned notary in and for the said county and state, hereby
certify that                     , whose name as the                     
of                     , a                     , is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day
that, being informed of the contents of the instrument, he, as such agent
and attorney-in-fact and with full authority, executed the same
voluntarily,
for and as the act of said                     .
	 
	 	 
	MISSISSIPPI

	 	Personally appeared before me, the undersigned authority in and for the
said county and state, on this day within my jurisdiction, the within named
                    , who acknowledged that he is
                    
of
                    , a                     , and that for and on behalf of the
corporation, and as its act and deed he executed the above and foregoing
instrument, after first having been duly authorized by the                      so
to do.
	 
	 	 
	ARKANSAS

	 	I, the undersigned notary in and for the said county and state, hereby
certify that                     , whose name as the
                    
of                     , a                     , is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day
that, being informed of the contents of the instrument, he, as such agent






 









 






	 	 	 
	 

	 	and attorney-in-fact and with full authority, executed the same
voluntarily,
for and as the act of said                     .
	 
	 	 
	MICHIGAN

	 	I, the undersigned notary in and for the said county and state, hereby
certify that                     , whose name as the
                    
of                     , a                     , is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day
that, being informed of the contents of the instrument, he, as such agent
and attorney-in-fact and with full authority, executed the same voluntarily,
for and as the act of said                     .






     IN WITNESS WHEREOF, I have hereunto set my hand and official seal in
                    ,                     , on the day and year first above written.



                                                                   
                    

Notary Public in and for the State of                        

Printed name of Notary:                                              

Date commission expires:                                            




 









 





SCHEDULE “F”



 


ATTACHED TO AND FORMING PART OF AN ASSET PURCHSASE AGREEMENT DATED THE 15th DAY OF
SEPTEMBER, 2006, BETWEEN SKH MANAGEMENT L.P. ET AL., AS VENDORS AND AUSAM ENERGY CORPORATION, AS
PURCHASER 





FORM OF PARTICIPATION AGREEMENT 
[attached]




 









 








PARTICIPATION AND RIGHT OF FIRST REFUSAL AGREEMENT

 





     THIS PARTICIPATION AND RIGHT OF FIRST REFUSAL AGREEMENT
(this “Agreement”) is made and delivered effective as of                     , 2006, by and
among Ausam Energy Corporation, a body corporate incorporated pursuant to the laws of the Province
of Alberta (“AEC”), SKH Management L.P., a Delaware limited partnership (“SKH Management”), SKH
Management II L.P., a Delaware limited partnership (“SKH
Management II), SKH Management III L.L.C.,
a Delaware limited liability company (“SKH Management III), SKH Energy Fund, L.P., a Delaware
limited partnership (“SKH Energy”) and Antares Exploration Fund, L.P., a Delaware limited
partnership (“Antares” and, together with SKH Management, SKH Management II and III and SKH Energy,
collectively, the “Vendors”). Capitalized terms that are not otherwise defined in this Agreement
shall have the meanings given to them in that certain Asset Purchase Agreement of even date
herewith, by and among AEC and the Vendors (the “Purchase Agreement”).



RECITALS




     WHEREAS, Pursuant to the Purchase Agreement, the Vendors have agreed to sell to AEC the
Assets, subject to the terms and conditions set forth in the Purchase Agreement; and



     WHEREAS, the execution of this Agreement is a condition precedent to the closing of the
transactions contemplated by the Purchase Agreement; and



     WHEREAS, the parties hereto desire to set forth herein their agreement and understanding
regarding the Assets following the consummation of the transactions contemplated by the Purchase
Agreement;



     NOW THEREFORE, in consideration of the mutual covenants and obligations herein contained, the
parties hereby agree as follows:



I. AEC Obligations



1.1 Acknowledgment of Obligations. The parties hereto acknowledge that the Assets have been
conveyed to AEC in accordance with the Purchase Agreement and that AEC has entered into a Contract
Operating Agreement with Zackson Resources, Inc., for the purpose of developing the Assets. The
parties further acknowledge and agree that subject to the obligations of Article III below, but
without other obligation as to the timing thereof, AEC shall undertake the drilling of a well on
each Prospect (each such well a “Test Well”) to the objective depth or a depth adequate to test the
formation established by the parties for that Prospect as set forth in Schedule A to the Purchase
Agreement (the “Objective Depth”). AEC shall bear 100% of the cost, risk and expense of each Test
Well and, with respect to any Test Well on which AEC elects to undertake


 









 






an attempt to complete the well, AEC shall bear all of the cost, risk and expense of completing,
equipping and connecting the well to the tanks or to the pipeline of the purchaser of production.
In the event that a Test Well fails to achieve the Objective Depth, AEC may (but shall not be
obligated to) drill a substitute well therefor and bear 100% of the cost, risk and expense thereof,
and any substitute well shall be deemed to be the Test Well for the Prospect upon the well’s
achieving the Objective Depth. A failed Test Well may be subject to one or more substitute wells
until one of the same reaches the Objective Depth for the Prospect on which the Test Well is
located.



1.2 Assignment Obligation. Subject to the terms and conditions of this Agreement,
the Purchaser is obligated to deliver to the Vendor which originally contributed the
Prospect, as set forth on Schedule C of the Purchase Agreement, two assignments, each
to be made at a different time: (A) a back-in interest in the initial Test Well on each
Prospect (the “Test Well Back-in”), together with a like interest in Leases insofar as they
cover the production unit or pooled unit allocated to the initial Test Well (the “Test Well
Unit’), and (B) a conveyance of an interest in the balance of the Leases (excluding the
Test Well Unit) included in the Prospect on which AEC undertakes the initial Test Well
(the “Outside Acreage Conveyance”). The magnitude of the interests to be conveyed is
described below in Sections 2.2 and 2.3.



1.3 Allocation of Assigned Interests. When assigned in accordance with this
Agreement, the Test Well Back-in, as to both the Test Well and the Test Well Unit on a
Prospect, on one hand, and the Outside Acreage Conveyance as to the balance of the
Leases in a Prospect, on the other, are to be allocated to the respective Vendor which
contributed the Prospect as set forth in Schedule C to the Purchase Agreement.



1.4 AEC controls Test Well. The parties acknowledge that the timing, procedures,
operations, budget and all other aspects of undertaking a Test Well on any Prospect in
order to initiate development of the Assets are in the sole control and discretion of AEC.



1.5 Maintenance of Ownership. Notwithstanding the preceding section, AEC
hereby agrees, in order to protect the interests in the Leases to which the Vendors may be
entitled under the terms of this Agreement (in their respective allocations according to
their contributions of the Prospects as set forth in Schedule C thereof), (i) it will continue
to maintain each Lease acquired by it pursuant to the Purchase Agreement in full force
and effect until the earlier of (x) Payout, (y) sale of such Lease by AEC to a third party
or (z) 36 months from and after the Closing; (ii) it will maintain ownership of at least
25% of the interest in each of the Leases conveyed to AEC pursuant to the Purchase
Agreement free and clear of any lien, encumbrance or burden measured by or payable out
of production incurred or imposed by AEC subsequent to its purchase of the same, except
Permitted Encumbrances, and (iii) in the event that it sells or otherwise disposes of any of
its interest in the Leases, any such sale or other disposition of all or any portion of the
interest in each of the Leases conveyed to AEC pursuant to the Purchase Agreement shall
be made subject to the rights of the Vendors as set forth in the Purchase Agreement and
this Agreement.



 









 







II. Assignment of Interests



2.1 Assignments. With respect to each Prospect upon which AEC undertakes a
Test Well, AEC shall be obligated to make two (2) assignments in accordance with
Sections 2.2 and 2.3, respectively: First, the Outside Acreage Conveyance; and
Second,
an assignment of the Test Well Back-in. Each Outside Acreage Conveyance and each
assignment of any Test Well Back-in in each case shall be subject to and the Vendors
agree to be bound by a joint operating agreement substantially in the form of that which
is attached to the Purchase Agreement as Schedule “G” with respect to each Prospect (the
“Joint Operating Agreement”) designating AEC as “Operator,” and all operations
conducted on each of the Prospects, after assignment of the Outside Acreage
Conveyance, shall be governed by the applicable Joint Operating Agreement. The
Operator designated in the Joint Operating Agreement for a particular Prospect may be
amended in order to name as Operator a party other than AEC. The Joint Operating
Agreement shall become effective as of the Closing Date.



2.2 Outside Acreage Conveyance. Within seven (7) days following spudding in
of a Test Well, AEC shall assign to the Vendor who originally assigned the Prospect to
AEC pursuant to the Purchase Agreement the Outside Acreage Conveyance consisting of
an undivided twenty-five per cent (25.0%) of the interest acquired by AEC in each of the
Leases in the Prospect on which operations on the Test Well have commenced, except to
the extent such Leases are included in the Test Well Unit. Thereafter, the Vendor who
receives the Outside Acreage Conveyance in and to the Leases in the Prospect shall be
responsible for all costs and expenses attributable to its interest therein subject to the
provision of Section 2.5 below if a second well is proposed prior to Payout of the Test
Well.



2.3 Test Well Back-in. When a Test Well achieves First Payout, as defined
below, AEC shall execute and deliver to the Vendor which originally assigned the
Prospect to AEC pursuant to the Purchase Agreement an assignment of an undivided
twenty per cent (20.0%) interest in such Test Well and the Test Well Unit, together with a
like interest in all of AEC’s interest in the Assets related to the Leases included in the
Test Well Unit. The assignment shall provide that upon the occurrence of the Second
Payout, as defined below, the interest in the Prospect to which the Vendor shall be
entitled shall increase from an undivided twenty per cent (20.0%) to an undivided twenty-five per cent (25%).



2.4 Definitions and Payout Calculations. As used in this Agreement, the following
terms shall be defined as follows:





	 	(i)	 	“Payout” shall occur, with respect to any Test Well, in two phases. The
“First Payout”, which shall trigger the obligation of AEC to assign the initial 20%
Test Well Back-in to the Vendors, shall be deemed to occur on the first day of the
calendar month following the month during which the cumulative Production Income from
the Test Well (and, if applicable, the second well undertaken on the Prospect on
which the Test Well is located, as set forth in Section 2.5 below) equals the
cumulative Exploration and




 









 






	 	 	 	Development Costs of such Test Well. The “Second Payout” shall be deemed to occur on the
first day of the calendar month following the month during which the cumulative
Production Income allocated to AEC from the Test Well and, if applicable, the second well
undertaken on the Prospect on which the Test Well is located as set forth in Section 2.5,
following the First Payout equals the Stock Value of the Prospect on which the Test Well
is located.
	 
	 	(ii)	 	“Production Income” from any well shall mean the total proceeds realized from the sale of
production from such well after excluding Existing Leasehold Burdens encumbering the
production from the well.
	 
	 	(iii)	 	“Existing Leasehold Burdens” as to any well shall mean all royalties, overriding royalties,
net profit interests, production or severance taxes and other burdens measured by or payable
out of production from the well.
	 
	 	(iv)	 	“Exploration and Development Costs” of any Test Well shall include all of the actual (w)
Drilling Costs, (x) Completion Costs, and (y) Operating Costs plus (z) the aggregate GG&L
attributed in the Purchase Agreement to the Prospect on which the Test Well is located,
together with the Post Execution GG&L attributable to the same Prospect as contemplated in
the Purchase Agreement.
	 
	 	(v)	 	“Drilling Costs” with respect to a Test Well shall mean the costs of drilling up to the
casing point and all pre-drilling activities associated therewith (including, without
limitation, the costs of seismic data, preparing the location, title opinions as well as all
other typical pre-drilling costs incurred by operators in similar circumstances).
	 
	 	(vi)	 	“Completion Costs” with respect to a Test Well shall mean the costs incurred after a well
has been logged and a decision has been made to attempt a completion through the actual
completion of the Test Well so that it is capable of producing oil and/or gas at the surface,
including surface facilities located on the drill site of the Test Well and connection to the
tanks or to the inlet flange of the gathering line located on the drill site (but not
including any pipelines or other facilities located off of the drill site.
	 
	 	(vii)	 	“Operating Costs” of any Test Well shall include all costs incurred during the drilling,
testing and completion of such well until it is capable of producing at the surface
including, but not limited to:






     (1) labor and other services necessary for the drilling, testing and completion
of such well;



 









 






     (2) materials, supplies, transportation, repairs, and replacements used in the drilling, testing and completion of such well; and




     (3) that portion allocated to such well in accordance with the
usual and customary accounting practices of all other costs (including, but
not limited to, overhead costs) which, pursuant to such accounting
practices, is determined to be costs allocable to a drilling well (including a
well undergoing completion).




	 	(viii)	 	“Stock Value” means the value of the AEC stock issued to the Vendors with respect
to a Prospect, as set forth on Schedule C of the Purchase Agreement, to which
reference is here made for all purposes. To the extent that AEC disposes of any
interest in a Prospect to a third party, the Stock Value set forth on Schedule C
shall be deemed to be proportionately reduced by the fractional reduction of AEC’s
interest in the Prospect.




2.5 Second Well Prior to Payout. If AEC undertakes a second well on a Prospect prior to
Payout of the Test Well on the Prospect, the following shall apply:





	 	(i)	 	AEC shall bear all of the cost, risk and expense of the second well
notwithstanding the Outside Acreage Conveyance to the Vendors, and if the same is
completed as a well capable of producing hydrocarbons, all Production Income from the
second well on the Prospect shall be allocated to AEC until Payout shall have occurred
as to the Test Well {not payout of the second well), at which point the Vendors who
contributed the Prospect shall be entitled (A) to the assignments of the Test Well
Back-in as provided in Section 2.3 , and (B) to have the option, but not the
obligation, to pay to AEC their working interest share of the costs incurred and paid
by AEC in the drilling, completion, testing and equipping of the second well, and
connecting the same to the tanks or the pipeline of the purchaser of production, upon
payment of which the Vendors shall be entitled to their proportionate working interest
share in all production from the second well accruing from and after Payout of the
Test Well on the Prospect. At Payout of the Test Well on a Prospect, if AEC has
undertaken the drilling of a second well on the same Prospect, it shall invoice the
Vendors who own an interest in the Prospect for the costs of the second well, as
provided above, and the Vendors receiving such invoice shall have thirty (30) days
after receipt thereof within which to pay the same, after payment of which the Vendors
shall be entitled to their share of production from the second well on the Prospect
undertaken by AEC effective as of and from Payout of the Test Well on the Prospect
(and failure to pay the invoice in a timely manner will result in the Vendors’ not
being entitled to share in the production from the second well on the Prospect, but
without effect on the Vendor’s right to share in production from the Test Well or to
participate in a third well on the Prospect if one is proposed). Accordingly, in the
event that the Vendors fail to pay such




 









 






	 	 	 	invoice in a timely manner, the Vendors will promptly assign their interests in
such second well and the Leases relating thereto insofar as they cover the
associated production unit for such well to AEC. The election by the Vendors
pursuant to this Section 2.5 shall govern and control over any right of the
Vendors to participate in the second well proposed by AEC prior to Payout of the
Test Well on the Prospect, or elect to go non-consent therein, under the
applicable Joint Operating Agreement.
	 
	 	(ii)	 	The Parties shall make the tax election provided in the attached Annex A,
which shall be appropriately completed and attached to and made a part of the
applicable Joint Operating Agreement as Exhibit G thereto and referenced in Article II
thereof, and Article IX thereof shall be stricken (provided, however, that if no
second well is undertaken prior to Payout, the parties may make the election
contemplated in Article IX of the Joint Operating Agreement and forego the tax
election described above).




2.6 Shallow Completion Well. If AEC undertakes the drilling of a Test Well but elects to complete
the same in a zone or formation which is shallower than the Objective Depth (a “Shallow Completion
Well”), then:





	 	(i)	 	AEC shall have the right for a period of time ending 36 months after Closing
to undertake a substitute well for the Shallow Completion Well as the Test Well and
endeavor to drill the same to the Objective Depth. If the substitute well achieves
the Objective Depth, then the obligation of AEC to test the Prospect by drilling a
well to the Objective Depth will have been satisfied and such substitute well will be
considered a Test Well for purposes of this Agreement.
	 
	 	(ii)	 	Upon the expiration of the 36 month period after Closing, if AEC has elected
not to drill a substitute well for the Shallow Completion Well in an effort to drill
the substitute well to the Objective Depth, then for purposes of this Agreement, the
Shallow Completion Well shall be deemed a completed Test Well; provided that AEC
shall retain all rights in the Prospect on which a Shallow Completion Well is deemed
to be a completed Test Well from the surface to 100 feet below the base of the
producing formation in the Shallow Completion Well, subject to the Test Well Back-in
and subject to the obligation to convey to the Vendor which contributed the same as
set forth on Schedule C to the Purchase Agreement an undivided 25% working interest
in the Shallow Completion Well and the Leases relating thereto insofar as they cover
the associate production unit pursuant to Section 2.3 above. If the Shallow
Completion Well shall have achieved Payout before the end of the 36 month period
after Closing, all Production Income allocable to the after Payout interest of the
Vendors shall be paid over to them, and all costs allocable to the Vendors as if such
Shallow Completion Well were subject to the Joint Operating Agreement following such
Payout shall be paid by the Vendors




 









 






	 	 	 	to AEC, within thirty days following the termination of the 36 month period after
Closing; and
	 
	 	(iii)	 	With respect to all depths 100 feet below the base of the producing
formation in the Shallow Completion Well (the “Prospect Deep Rights”) the same shall
be deemed to be an UnTested Prospect, as defined below, and the obligations of
Section 3.1 below shall apply to the Prospect Deep Rights.




2.7 Shallow Completion Well as Second Well. If a Test Well is drilled to the
Objective Depth and subsequently completed as a commercially productive well subject
to the Payout calculation provided for herein, and if there is already a Shallow
Completion Well on the same Prospect, the Shallow Completion Well shall be deemed to
be the second well undertaken on the Prospect and shall be given the same treatment with
respect to the allocation of Production Income therefrom as provided above with respect
to a second well drilled prior to Payout of the Test Well on the Prospect.



2.8 Accounting. On or before sixty (60) days after completion of a Test Well, AEC
shall furnish the Vendors a statement of all Exploration and Development Costs with
respect to such well. Monthly thereafter, on or before the 20th day of each month, AEC
shall furnish the Vendors a statement showing (1) the cumulative amount of production
sold from each Prospect on which there is a completed Test Well, (2) the taxes paid
thereon, (3) the Production Income attributable to each Prospect on which there is a
completed Test Well or the production therefrom, and (4) the status of Payout of each
Test Well. Within thirty (30) days after each Test Well achieves Payout, AEC shall
notify the Vendors by certified mail or facsimile transmission or email of the date of
Payout. Exploration and Development Costs with respect to each Test Well shall be
calculated in accordance with the terms and provisions of the accounting procedure
included in the operating agreement applicable to the Prospect.




III. Reversion of Interest



3.1 Assignment of UnTested Prospects. In the event that AEC has not commenced
actual drilling operations on a Test Well on one or more of the Prospects conveyed to
AEC pursuant to the Purchase Agreement within 36 months after the Closing, AEC shall
assign, without consideration, the Leases constituting such Prospect to the Vendors who
contributed the Prospect under the Purchase Agreement together with such Assets that
relate to such Leases (the “UnTested Prospects”); povided however , that if the Leases
in a Prospect are due to expire prior to the expiration of the period of 36 months after Closing,
six months prior to the commencement of such lease expirations, AEC shall use its commercially
reasonable efforts to renew and extend the expiring Leases for terms at least co-extensive with
the 36 month date and then to commence the drilling of a Test Well thereon within 36 months after
Closing or reconvey the Prospect to the Vendors for no consideration. The parties agree that this
Section 3.1 sets forth the sole remedies of the Vendors with respect to the failure of AEC to
drill a Test Well on each Prospect within 36 months after Closing.




 









 








IV. Right of First Offer



4.1 UnTested Prospects. None of the Vendors shall sell, transfer, assign, exchange,
voluntarily surrender or otherwise dispose of to any Person, or by merger, business
combination, transfer of securities or otherwise, or any sale or transfer of any entity
owning an interest therein (all of such disposition transactions being referred to herein as
a “Subject Transfer”) of any UnTested Prospect assigned to them pursuant to Section
3.1, or any part thereof, other than to a Permitted Transferee, except after strict
compliance with the First Offer Procedure set forth in Article V below. As used herein, a
“Permitted Transferee” shall be any Affiliate of a Vendor or a Limited Partner of a
Vendor pursuant to certain rights granted to such Limited Partner by the Vendor prior to
the date hereof.



4.2 Vendor’s Interests in Prospects. None of the Vendors shall effect a Subject
Transfer of any Test Well Back-in or any Outside Acreage Conveyance as to any
Prospect, or any part thereof, other than to a Permitted Transferee, except after strict
compliance with the First Offer Procedure set forth below.



4.3 New Prospects. If a Vendor should develop a “New Prospect” (defined as a
100% working interest owned prospect (excluding other ownership interests such as
royalties) generated by a Vendor within 36 months of the Closing and intended to be
offered for sale as a drilling prospect), which it intends to sell to the industry or other
Person (other than a Permitted Transferee), whether by assignment, sale, or other
conveyance, such sale shall be subject to the First Offer Procedure set forth in Article V.




V. First Offer Procedure




     Before any Subject Transfer of any interest described in Sections 4.1, 4.2 or 4.3 can be made
to a third party (other than a Permitted Transferee) by a Vendor, the Vendor must follow the
following procedure (the “First Offer Procedure”):


5.1 Transfer Notice. The Vendor shall send AEC a written notice of its intention
containing full information concerning the Subject Transfer of any interest described in
Sections 4.1, 4.2 or 4.3, including the purchase price and all other material terms on
which such Vendor proposes to make the Subject Transfer (the “Transfer Notice”).



5.2 AEC Response. AEC will have 15 days from the date of its receipt of the Transfer
Notice (A) to accept the terms pertaining to a Subject Transfer or (B) to deliver to the
Vendor which sent the Transfer Notice a binding counteroffer (the “Counteroffer”) to
acquire the interest subject to a Subject Transfer. If made by AEC, the Counteroffer shall
include (i) the cash price, (ii) the estimated closing date, and (iii) any other significant
terms of the proposed purchase by AEC.



5.3 Vendor’s election. If the Vendor accepts the Counteroffer, AEC and the Vendor
will have 30 days in which to negotiate in good faith and execute a mutually acceptable


 









 






purchase agreement. If the Vendor rejects the Counteroffer, the Vendor shall be entitled for a
period of one year, to sell or otherwise dispose of the Subject Transfer to a third party. The
terms and conditions of such transfer to a third party must be equal or more favorable to more
favorable to the Vendor, as determined by the Vendor in its sole discretion, than the terms and
conditions proposed by AEC in the Counteroffer.



5.4 Priority of Rights of Permitted Transferees. AEC acknowledges that its rights under Articles 3,
4 and 5 of this Agreement are subject to, and inferior to, those of Permitted Transferees. Such
Permitted Transferees have existing rights of first refusal and first offer with respect to sale of
certain assets owned by the Vendors and when offered for sale by them.




VI. Prospect Areas of Mutual Interest



6.1 Area of Mutual Interest. Each Prospect originally acquired by AEC pursuant to the Purchase
Agreement (the individual Prospects being designated on Schedule A of the Purchase Agreement)
shall be deemed to be subject to an Area of Mutual Interest, the boundaries of which and the lands
covered thereby shall be deemed to be one-half mile outside of the perimeter boundaries of the
Leases included in the Prospect (the “Prospect AMF”). To the extent that AEC acquires any new lease
which is within a Prospect AMI, the lease shall be deemed covered by this Agreement. In the event
that any of the Vendors acquires any new lease within a Prospect AMI, it shall offer the same to
AEC at its cost therefor. If AEC elects to acquire the interest in the lease, it shall do so
within thirty (30) days of the offer by the Vendor. If AEC elects not to acquire the interest from
the Vendor, then the Vendor shall be entitled to retain the same free and clear of any obligations
to the Vendors. The Prospect AMI for each Prospect shall be deemed to continue in force and effect
for a term of five years from the date of this Agreement.




VII. Miscellaneous



7.1 Notices. All notices, proposals, requests, consents, communication, reports, bills,
calls or demands for payment or other document required or permitted hereunder shall be
made in accordance with the notice provisions of the Purchase Agreement.



7.2 Entire Agreement/Amendments. This Agreement, together with the
assignments delivered hereunder, the Purchase Agreement and the Joint Operating
Agreement pertaining to each of the Prospects, constitutes the entire agreement between
the parties with respect to the subject matter discussed herein and supersedes any and all
other written or oral agreements or understandings between the parties concerning the
subject matter hereof. No modification or amendment of the terms and provisions of this
Agreement shall be effective unless in writing and signed by the party against whom
enforcement is sought.



7.3 Conflicts. In the event of any conflict between this Agreement and any Joint
Operating Agreement pertaining to any of the Prospects, the terms and provisions of this Agreement shall be deemed to govern and control.





 











 




7.4 Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when so executed, shall be deemed an original, and such counterparts,
when taken together, shall constitute one and the same instrument.



7.5 Assignments. No party may convey, assign, transfer, sell or encumber its rights
or obligations under this Agreement without the prior written consent of the other parties,
which consent such parties are under no obligation to grant.



7.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF TEXAS WITHOUT REGARD TO THE
APPLICATION OF THE PRINCIPLES OF CONFLICTS OF LAWS OF SUCH
STATE.



7.7 No Partnership. The parties acknowledge that this Agreement, and the activities
which may be conducted under or pursuant hereto, are not intended, and shall not be
construed to, create a partnership, joint venture, agency relationship, or other fiduciary
relationship among the parties hereto within the meaning of the federal common law nor
under the applicable laws of any state nor under the laws of the state which either party is
incorporated, organized or conducting business.



7.8 Binding Agreement. Subject to the other provisions of this Agreement, all of the
terms and provisions hereof shall be binding upon and inure to the use and benefit of the
parties and their respective successors and assigns.




[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]




 









 





     Witness the execution hereof this, the         day of September, 2006, but
effective as of the 15th day of September, 2006.



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	AUSAM ENERGY CORPORATION	 	 	 	SKH MANAGEMENT III, L.L.C.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 	 	 	 	Name:	 	 	 	 
	 

	 	Title:
	 	 

	 	 	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SKH MANAGEMENT L.P.	 	 	 	SKH ENERGY FUND, L.P.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 	 	 	 	Name:	 	 	 	 
	 

	 	Title:
	 	 

	 	 	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SKH MANAGEMENT II, L.P.	 	 	 	ANTARES EXPLORATION FUND,
L.P.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 	 	 	 	Name:	 	 	 	 
	 

	 	Title:
	 	 

	 	 	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 	 	 	 	 	 	 

	 	 







 









 








ANNEX A




Exhibit G to

(insert identifying reference to underlying operating agreement)




 

TAX PARTNERSHIP PROVISIONS



OF THE             
                                                           
         



PARTNERSHIP



(For Name of Tax Reporting Partner and Special Elections, See Sees. 8 and 9)




Table of Contents




	 	 	 	 	 	 	 	 	 	 	 
	1.      General Provisions	 	 	2	 
	 

	 	 	1.1	 	 	Designation Of Documents
	 	 	2	 
	 

	 	 	1.2	 	 	Relationship of the Parties
	 	 	2	 
	 

	 	 	1.3	 	 	Priority Of Provisions Of This Exhibit
	 	 	2	 
	 

	 	 	1.4	 	 	Survivorship
	 	 	2	 
	2.      Tax Reporting Partner and Tax Matters Partner	 	 	2	 
	 

	 	 	2.1	 	 	Tax Reporting Partner
	 	 	2	 
	 

	 	 	2.2	 	 	If Small Partnership Exception From TEFRA Not Applicable
	 	 	2	 
	3.      Income Tax Compliance and Capital Accounts	 	 	3	 
	 

	 	 	3.1	 	 	Tax Returns
	 	 	3	 
	 

	 	 	3.2	 	 	Fair Market Value Capital Accounts
	 	 	3	 
	 

	 	 	3.3	 	 	Information Requests
	 	 	3	 
	 

	 	 	3.4	 	 	Best Efforts Without Liability
	 	 	4	 
	4.      TAX and FMV Capital Account Elections	 	 	4	 
	 

	 	 	4.1	 	 	General Elections
	 	 	4	 
	 

	 	 	4.2	 	 	Depletion
	 	 	4	 
	 

	 	 	4.3	 	 	Election Out Under Code §761(a)
	 	 	4	 
	 

	 	 	4.4	 	 	Consent Requirements For Subsequent Tax Or FMV
Capital Account
Elections
	 	 	4	 
	5.      Capital Contributions and FMV Capital Accounts	 	 	4	 
	 

	 		5.1		 	Capital Contributions
	 	 	4	 
	 

	 	 	5.2	 	 	FMV Capital Accounts
	 	 	5	 
	6.      Partnership Allocations	 	 	5	 
	 

	 		6.1		 	FMV Capital Account Allocations
	 	 	5	 
	 

	 	 	6.2	 	 	Tax Return and Tax Basis Capital Account Allocations
	 	 	6	 
	7.      Termination and Liquidating Distribution	 	 	6	 
	 

	 	 	7.1	 	 	Termination of the Partnership
	 	 	6	 
	 

	 	 	7.2	 	 	Balancing of FMV Capital Accounts
	 	 	7	 
	 

	 	 	7.3	 	 	Deemed Sale Gain/Loss Charge Back
	 	 	7	 
	 

	 	 	7.4	 	 	Deficit Make-Up Obligation and Balancing Cash Contributions
	 	 	7	 
	 

	 	 	7.5	 	 	Distribution to balance capital accounts
	 	 	7	 
	 

	 	 	7.6	 	 	FMV determination
	 	 	7	 
	 

	 	 	7.7	 	 	Final Distribution
	 	 	7	 
	8.      Transfers Indemnification and Correspondence	 	 	7	 
	 

	 	 	8.1	 	 	Transfer of Partnership Interests
	 	 	7	 
	 

	 	 	8.2	 	 	Correspondence
	 	 	8	 
	9.      Elections and Changes to above Provisions	 	 	8	 
	 

	 	 	9.1	 	 	Operator not the TRP
	 	 	8	 
	 

	 	 	9.2	 	 	Special Tax Elections
	 	 	8	 
	 

	 	 	9.3	 	 	Change of Majority for Other Tax Elections
	 	 	8	 







 











 





1. General Provisions




1.1 Designation Of Documents.



This exhibit is referred to in, and is part of, that Agreement identified above and, if so
provided, a part of any agreement to which the Agreement is an exhibit. Such agreement(s)
(including all exhibits thereto, other than this exhibit) shall be hereinafter referred to as the
“Agreement;” and this exhibit is hereinafter referred to as the “Exhibit” or the “Tax Partnership
Provisions” (the “TPPs”). Except as may be otherwise provided in this Exhibit, terms defined and
used in the Agreement shall have the same meaning when used herein.




1.2 Relationship of the Parties.



The parties to the Agreement shall be hereinafter referred to as “Party” or “Parties.” The Parties
understand and agree that the arrangement and undertakings evidenced by the Agreement result in a
partnership for purposes of Federal income taxation and certain State income tax laws which
incorporate or follow Federal income tax principles as to tax partnerships. Such partnership for
tax purposes is hereinafter referred to as the “Partnership.” For every other purpose of the
Agreement the Parties understand and agree that their legal relationship to each other under
applicable State law with respect to all property subject to the Agreement is one of tenants in
common, or undivided interest owners, or lessee(s)-sublessee(s) and not a partnership; that the
liabilities of the Parties shall be several and not joint or collective; and that each Party shall
be responsible solely for its own obligations.




1.3 Priority Of Provisions Of This Exhibit.



If there is a conflict or inconsistency, whether direct or indirect, actual or apparent, between
the terms and conditions of this Exhibit and the terms and conditions of the Agreement, or any
other exhibit or any part thereof, the terms and conditions of this Exhibit shall govern and
control.




1.4 Survivorship.



1.4.1 Any termination of the Agreement shall not affect the continuing application of the TPPs
for the termination and liquidation.



1.4.2 Any termination of the Agreement shall not affect the continuing application of the TPPs
for the resolution of all matters regarding Federal and State income reporting.



1.4.3 These TPPs shall inure to the benefit of, and be binding upon, the Parties hereto and
their successors and assigns.



1.4.4 The effective date of the Agreement shall be the effective date of these TPPs. The
Partnership shall continue in full force and effect from, and after such date, until termination
and
liquidation.




2. Tax Reporting Partner and Tax Matters Partner




2.1 Tax Reporting Partner.



The Operator (or the Party listed in Sec. 0) as the Tax Reporting Partner (“TRP”) is responsible
for compliance with all tax reporting obligations of the Partnership, see Sec. 3.1, below. In the
event of any change in the TRP, the Party serving as TRP at the beginning of a given taxable
year shall continue as TRP with respect to all matters concerning such year.




2.2 If Small Partnership Exception From TEFRA Not Applicable.



If the Partnership does not qualify for the “small partnership exception” from, or
if the Partnership elects (see infra Elections at Sees. 0 and 0) to be subject to,
§§6221 et seq., Subchapter C of Chapter 53 of Subtitle A (the “TEFRA rules”) of the
Internal Revenue Code (the “Code”) the TRP shall also be the Tax Matters Partner as defined
in Code §6231 (a) (the “TMP”) and references to the TRP shall then include references to
the TMP and vice versa.



2.2.1 The TMP shall not be required to incur any expenses for the preparation for, or
pursuance of, administrative or judicial proceedings, unless the Parties agree on a method
for sharing such expenses.




 









 







2.2.2 The Parties shall furnish the TMP, within two weeks from the receipt of the
request, the information the TMP may reasonably request to comply with the
requirements on furnishing information to the Internal Revenue Service.



2.2.3 The TMP shall not agree to any extension of the statute of limitations for making
assessments on behalf of the Partnership without first obtaining the written consent of all
Parties. The TMP shall not bind any other Party to a settlement agreement in tax audits
without obtaining the written concurrence of any such Party.



2.2.4 Any other Party who enters in a settlement agreement with the Secretary of the
Treasury with respect to any partnership items, as defined in Code §6231 (a)(3), shall
notify the other Parties of the terms within ninety (90) days from the date of such
settlement.



2.2.5 If any Party intends to file a notice of inconsistent treatment under Code
§6222(b), such Party shall, prior to the filing of such notice, notify the TMP of the
(actual
or potential) inconsistency of the Party’s intended treatment of a partnership item with
the
treatment of that item by the Partnership. Within one week of receipt the TMP shall remit
copies of such notification to the other Parties. If an inconsistency notice is filed
solely
because a Party has not received a Schedule K-1 in time for filing of its income tax
return, the TMP need not be notified.



2.2.6 No Party shall file pursuant to Code §6227 a request for an administrative
adjustment of partnership items (the “RFAA”) without first notifying all other Parties. If
all
other Parties agree with the requested adjustment, the TMP shall file the RFAA on behalf
of the Partnership. If unanimous consent is not obtained within thirty (30) days from such
notice, or within the period required to timely file the RFAA, if shorter, any Party,
including
the TMP, may file a RFAA on its own behalf.



2.2.7 Any Party intending to file with respect to any partnership item, or any other tax
matter involving the Partnership, a petition under Code §§6226, 6228, or any other
provision, shall notify the other Parties prior to such filing of the nature of the
contemplated proceeding. In the case where the TMP is the Party intending to file such
petition, such notice shall be given within a reasonable time to allow the other Parties to
participate in the choice of the forum for such petition. If the Parties do not agree on
the
appropriate forum, then the forum shall be chosen by majority vote. Each Party shall
have a vote in accordance with its percentage interest in the Partnership for the year
under audit. If a majority cannot agree, the TMP shall choose the forum. If a Party
intends to seek review of any court decision rendered as a result of such proceeding, the
Party shall notify the other Parties prior to seeking such review.




3. Income Tax Compliance and Capital Accounts




3.1 Tax Returns.



The TRP shall prepare and file all required Federal and State partnership income tax returns. Not
less than thirty (30) days prior to the return due date (including extensions), the TRP shall
submit to each Party for review a copy of the return as proposed.




3.2 Fair Market Value Capital Accounts.



The TRP shall establish and maintain for each Party fair market value (“FMV”) capital accounts
and tax basis capital accounts. Upon request, the TRP shall submit to each Party along with a
copy of any proposed partnership income tax return an accounting of such Party’s FMV capital
accounts as of the end of the return period.




3.3 Information Requests.



In addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to the TRP not later
than sixty (60) days before the return due date (including extensions) such information relating to
the operations conducted under the Agreement as may be required for the proper preparation of such
returns. Similarly, each Party agrees to furnish timely to the TRP, as requested, any the




 









 





information and data necessary for the preparation and/or filing of other required reports and
notifications, and for the computation of the capital accounts. As provided in Code §6050K(c), a
Party transferring its interest must notify the TRP to allow compliance with Code §6050K(a) (see
also Sec. 0).




3.4 Best Efforts Without Liability.



The TRP and the other Party(ies) shall use its/their best efforts to comply with responsibilities
outlined in this Section, and with respect to the service as TMP as outlined Sec. 0, and in doing
so shall incur no liability to any other Party.




4. Tax and FMV Capital Account Elections




4.1 General Elections.



For both income tax return and capital account purposes, the Partnership shall elect:



a) to deduct when incurred intangible drilling and development costs (“IDC”);



b) to use the maximum allowable accelerated tax method and the shortest permissible tax life for
depreciation;



c) the accrual method of accounting;



d) to report income on a calendar year basis;
and the Partnership shall also make any elections as specially noted in Sec. 0, below.




4.2 Depletion.



Solely for FMV capital account purposes, depletion shall be calculated by using simulated cost
depletion within the meaning of Treas. Reg.§1.704-1 (b)(2)(iv)(k)(2), unless the use of simulated
percentage depletion is elected in Sec. 0, below. The simulated cost depletion allowance shall be
determined under the principles of Code §612 and be based on the FMV capital account basis of each
Lease. Solely for purposes of this calculation, remaining reserves shall be determined consistently
by the TRP.




4.3 Election Out Under Code $761(a).



4.3.1 The TRP shall notify all Parties of an intended election to be excluded from the
application of Subchapter K of Chapter 1 of the Code not later than sixty (60) days prior to the
filing date or the due date (including extensions) for the Federal partnership income tax return,
whichever comes earlier. Any Party that does not consent must provide the TRP with written
objection within thirty (30) days of such notice. Even after an effective election-out the TRP’s
rights and obligations, other than the relief from tax return filing obligations of the
partnership,
continue.



4.3.2 After an election-out, to avoid an unintended impairment of the election-out: The Parties
will avoid, without prior coordination, any operational changes which would terminate the
qualification for the election-out status; all Parties will monitor the continuing qualification of
the
Partnership for the election-out status and will notify the other Parties if, in their opinion, a
change
in operations will jeopardize the election-out; and, all Parties will use, unless agreed to by them
otherwise, the cumulative gas balancing method as described in Treas. Reg. §1.761-2(d)(2).




4.4 Consent Requirements For Subsequent Tax Or FMV Capital Account
Elections.



Unless stipulated differently in Sec. 0, future elections, in addition to or in amendment of those
in this agreement, must be approved by the affirmative vote of two (2) or more Parties owning a
majority of the working interest based upon post-Payout ownership.




5. Capital Contributions and FMV Capital Accounts



The provisions of this Sec. 5 and any other provisions of the TPPs relating to the maintenance of
the capital accounts are intended to comply with Treas. Reg. §1.704-1(b) and shall be interpreted
and applied in a manner consistent with such regulations.




5.1 Capital Contributions.



The respective capital contributions of each Party to the Partnership shall be (a) each Party’s
interest in the oil and gas lease(s), including all associated lease and well equipment, committed
to the Partnership, and (b) all amounts of money paid by each Party in connection with the
acquisition, exploration, development, and operation of the lease(s), and all other costs
characterized as contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership shall be made by




 









 







each Party’s agreement to hold legal title to its interest in such leases or other property as
nominee of the Partnership.




5.2 FMV Capital Accounts.



The FMV capital accounts shall be increased and decreased as follows:



5.2.1 The FMV capital account of a Party shall be increased by:



(i) the amount of money and the FMV (as of the date of contribution) of any property contributed
by such Party to the Partnership (net of liabilities assumed by the Partnership or to which the
contributed property is subject);



(ii) that Party’s share of Partnership items of income or gain, allocated in accordance with Sec.
0;
and



(iii) that Party’s share of any Code §705(a)(1)(B)item.



5.2.2 The FMV capital account of a Party shall be decreased by:



(i) the amount of money and the FMV of property distributed to a Party (net of liabilities
assumed by such Party or to which the property is subject);



(ii) that Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or items thereof;
and,



(iii) that Party’s share of any Code §705(a)(2)(B) item.



5.2.3 “FMV” when it applies to property contributed by a Party to the Partnership shall be
assumed, for purposes of 0, to equal the adjusted tax basis, as defined in Code §1011, of that
property unless the Parties agree otherwise as indicated in Sec. 0.



5.2.4 As provided in Treas. Reg. §1.704-1 (b)(2)(iv)(e), upon distribution of Partnership property
to a Party the capital accounts will be adjusted to reflect the manner in which the unrealized
income, gain, loss and deduction inherent in distributed property (not previously reflected in the
capital accounts) would be allocated among the Parties if there were a disposition of such
property at its FMV as of the time of distribution. Furthermore, if so agreed to in Sec. 0, under
the rules of Treas. Reg. § 1.704-1 (b)(2)(iv)(f), the FMV capital accounts shall be revalued at
certain times to reflect value changes of the Partnership property.




6. Partnership Allocations




6.1 FMV Capital Account Allocations.



Each item of income, gain, loss, or deduction shall be allocated to each Party as
follows:



6.1.1 Actual or deemed income from the sale, exchange, distribution or other disposition of
production shall be allocated to the Party entitled to such production or the proceeds from the
sale of such production. The amount received from the sale of production and the amount of the
FMV of production taken in kind by the Parties are deemed to be identical; accordingly, such
items may be omitted from the adjustments made to the Parties’ FMV capital accounts.



6.1.2 Exploration cost, IDC, operating and maintenance cost shall be allocated to each Party in
accordance with its respective contribution, or obligation to contribute, to such cost.



6.1.3 Depreciation shall be allocated to each Party in accordance with its contribution, or
obligation to contribute, to the cost of the underlying asset.



6.1.4 Simulated depletion shall be allocated to each Party in accordance with its FMV capital
account adjusted basis in each oil and gas property of the Partnership.



6.1.5 Loss (or simulated loss) upon the sale, exchange, distribution, abandonment or other
disposition of depreciable or depletable property shall be allocated to the Parties in the ratio of
their respective FMV capital account adjusted bases in the depreciable or depletable property.



6.1.6 Gain (or simulated gain) upon the sale, exchange, distribution, or other disposition of




 









 





depreciable or depletable property shall be allocated to the Parties so that the FMV capital ¦
account balances of the Parties will most closely reflect their respective percentage or fractional
interests under the Agreement.



6.1.7 Costs or expenses of any other kind shall be allocated to each Party in accordance with
its respective contribution, or obligation to contribute, to such costs or expense.



6.1.8 Any other income item shall be allocated to the Parties in accordance with the manner in
which such income is realized by each Party.




6.2 Tax Return and Tax Basis Capital Account Allocations.



6.2.1 Unless otherwise expressly provided in this Sec. 6.2, the allocations of the Partnership’s
items of income, gain, loss, or deduction for tax return and tax basis capital account purposes
shall follow the principles of the allocations under Sec. 6.1. However, the Partnership’s gain or
loss on the taxable disposition of a Partnership property in excess of the gain or loss under
Sec.
6.1, if any, is allocated to the contributing Party to the extent of such Party’s
pre-contribution gain
or loss.



6.2.2 The Parties recognize that under Code §613A(c)(7)(D) the depletion allowance is to be
computed separately by each Party. For this purpose, each Party’s share of the adjusted tax
basis in each oil and gas property shall be equal to its contribution to the adjusted tax basis
of
such property.



6.2.3 Under Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas property is to
be computed separately by each Party. According to Treas. Reg. §1.704-1 (b)(4)(v), the amount
realized shall be allocated as follows: (i) An amount that represents recovery of adjusted
simulated depletion basis is allocated (without being credited to the capital accounts) to the
Parties in the same proportion as the aggregate simulated depletion basis was allocated to such
Parties under Sec. 5.2; and (ii) any remaining realization is allocated in accordance with Sec.
6.1.6.



6.2.4 Depreciation shall be allocated to each Party in accordance with its contribution to the
adjusted tax basis of the depreciable asset.



6.2.5 In accordance with Treas. Reg. §1.1245-1 (e), depreciation recapture shall be allocated,
to the extent possible, among the Parties to reflect their prior sharing of the depreciation.



6.2.6 In accordance with the principles of Treas. Reg. §1.1254-5, any recapture of IDC is
determined and reported by each Party separately. Similarly, any recapture of depletion shall be
computed separately by each Party, in accordance with its depletion allowance computed
pursuant to Sec. 6.2.2.



6.2.7 For Partnership properties with FMV capital account values different from their adjusted
tax bases the Parties intend that the allocations described in this Section 6.2 constitute a
“reasonable method” of allocating gain or loss under Treas. Reg. §1.704-3(a)(1).



6.2.8 Take-in-kind.



If checked “Yes” in Sec. 0, below, each Party has the right to determine the market for its
proportionate share of production. All items of income, deductions, and credits arising from such
marketing of production shall be recognized by the Partnership and shall be allocated to the
Party whose production is so marketed.




7. Termination and Liquidating Distribution




7.1 Termination of the Partnership.



7.1.1 Upon termination, as provided in Code §708(b)(1)(A), the business shall be wound-up


 









 






and concluded, and the assets shall be distributed to the Parties as described below by the end of
such calendar year (or, if later, within ninety (90) days after the date of such termination). The
assets shall be valued and distributed to the Parties in the order provided in Secs. 0, 0, and 0



7.1.2 First, all cash representing unexpended contributions by any Party and any property in
which no interest has been earned by any other Party under the Agreement shall be returned to the
contributor.




7.2 Balancing of FMV Capital Accounts.



Second, the FMV capital accounts of the Parties shall be determined as described hereafter. The TRP
shall take the actions specified under Secs. 0 through 7.5 in order to cause the ratios of the
Parties’ FMV capital accounts to reflect as closely as possible their interests under the
Agreement. The ratio of a Party’s FMV capital account is represented by a fraction, the numerator
of which is the Party’s FMV capital account balance and the denominator of which is the sum of all
Parties’ FMV capital account balances. This is hereafter referred to as the “balancing of the FMV
capital accounts” and, when completed, the FMV capital accounts of the Parties shall be referred to
as “balanced.”





7.3 Deemed Sale Gain/Loss Charge Back.



The FMV of all Partnership properties shall be determined and the gain or loss for each property,
which would have resulted if sold at such FMV, shall be allocated in accordance with Secs. 6.1.5
and 6.1.6.




7.4 Deficit Make-Up Obligation and Balancing Cash Contributions.



If hereafter a Party has a negative FMV capital account balance, that is a balance of less than
zero, in accordance with of Treas. Reg. §1.704-1 (b)(2)(ii)(b)[3) such Party is obligated to
contribute, by the end of the taxable year or, if later, within 90 days from the Partnership’s
liquidation, an amount of money to the Partnership sufficient to achieve a zero balance FMV capital
account (the “Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of cash to
the Partnership to facilitate the balancing of the FMV capital accounts. If after these adjustments
the FMV capital accounts are not balanced, Secs. 0 shall apply.




7.5 Distribution to balance capital accounts.



7.5.1 If all Parties agree, any cash or an undivided interest in certain selected properties shall
be distributed to one or more Parties as necessary for the purpose of balancing the FMV capital
accounts.



7.5.2 Distribution of undivided interests.



Unless Sec.0 applies, an undivided interest in each and every property shall be distributed to one
or more Parties in accordance with the ratios of their FMV capital accounts.




7.6 FMV DETERMINATION.



If a property is to be valued for purposes of balancing the capital accounts and making a
distributions under this Sec. 0, the Parties must first attempt to agree on the FMV of the
property; failing such an agreement, the TRP shall cause a nationally recognized independent
engineering firm to prepare an appraisal of the FMV of such property.




7.7 Final Distribution.



After the FMV capital accounts of the Parties have been adjusted pursuant to Secs. 0 to 0, all
remaining property and interests then held by the Partnership shall be distributed to the Parties
in accordance with their positive FMV capital account balances.



8. Transfers, Indemnification, and Correspondence



8.1 Transfer of Partnership Interests.


Transfers of Partnership interests shall be governed by the Agreement. A Party transferring its
interest, or any part thereof, shall notify the TRP in writing within two weeks after such
transfer.




 











 





8.2 Correspondence.




All correspondence relating to the preparation and filing of the Partnership’s income tax returns
and capital accounts shall be sent to:




(Attach separate list, if necessary)




	 	 	 
	TRP

	 	“Att to:” reference






Other Parties:




9. Elections and Changes to above Provisions




9.1 Operator not the TRP.



With respect to Sec. 0, (insert name of Party to be TRP instead of Operator, or
indicate “N/A”)
                      
                      
is designated as TRP.




9.2
Special Tax
Elections.



With respect to Sec. 0, the Parties agree (if not applicable insert “N/A” or strike):




	 	 	 	 	 
	 	 	Yes
	e) that the Partnership shall elect to account for dispositions of depreciable assets under the
general
asset method to the extent permitted by Code §168(i)(4);

	 

	f) that the Partnership shall elect under Code §754 to adjust the basis of Partnership property,
with the
adjustments provided in Code §734 for a distribution of property and in Code §743 for a transfer of
a
partnership interest. In case of distribution of property the TRP shall adjust all tax basis
capital
accounts. In the case of a transfer of a partnership interest the acquiring party(ies) shall
establish and
maintain its (their) tax basis capital account(s);

	 

	g) that the Partnership shall elect under Code §6231 to be subject to the TEFRA rules.

	 

	With respect to Sec. 0, Depletion the Parties agree that the Partnership shall use simulated
percentage
depletion instead of simulated cost depletion.

	 

	With respect to Sec.0, under the rules of Treas. Reg. § 1.704-1 (b)(2)(iv)(f) the Parties
agree that the FMV capital accounts shall be revalued to reflect value changes of the
Partnership property upon the
occurrence of the events specified in (5)(i) through (iii) of said -1 (b)(2)(iv)(f) regulations.

	 

	With respect to Sec. 0, the income attributable to take-in-kind production will be reflected on the tax
return.






With respect to Sec. 0 the FMV for the listed properties are determined as follows (mark as “N/A”
if not applicable; use separate sheet if necessary)




	 	 	 
	Property Description	 	FMV






9.3 Change of Majority for Other Tax Elections.



Instead of the Sec. 0 majority for other tax elections, a majority shall be considered
if consisting of
(specify or line out blanks)                                                                           
                          .




THE END




 









 








SCHEDULE “G”



 


ATTACHED TO AND FORMING PART OF AN ASSET PURCHSASE AGREEMENT DATED THE 15th DAY OF
SEPTEMBER, 2006, BETWEEN SKH MANAGEMENT L.P. ET AL., AS VENDORS AND AUSAM ENERGY CORPORATION, AS
PURCHASER



 


FORM OF JOINT OPERATING AGREEMENT

[attached]




 









 








SCHEDULE
“H”





ATTACHED TO AND FORMING PART OF AN ASSET PURCHSASE AGREEMENT







FORM OF ACCREDITED INVESTOR CERTIFICATE



CERTIFICATE OF ACCREDITED INVESTOR STATUS




     Except as may be indicated by the undersigned below, the undersigned is an “accredited
investor,” as that term is defined in Regulation D under the Securities Act of 1933, as amended
(the “Securities Act”). The undersigned has checked the box below indicating the basis
on which he is representing his status as an “accredited investor”:




	o	 	a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan
association or
other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”); an insurance
company as defined in Section 2(13) of the Securities Act; an investment company registered
under the Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; a small business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business Investment Act of
1958; a plan established and maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the benefit of its employees, and such
plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the employee benefit plan
has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are “accredited investors”;
	 
	o	 	a private business development company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940;
	 
	o	 	an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or partnership, not formed for the specific purpose
of
acquiring the securities offered, with total assets in excess of $5,000,000;
	 
	o	 	a natural person whose individual net worth, or joint net worth with the undersigned’s
spouse, at
the time of this purchase exceeds $1,000,000;
	 
	o	 	a natural person who had an individual income in excess of $200,000 in each of the two most
recent years or joint income with the undersigned’s spouse in excess of $300,000 in each of
those
years and has a reasonable expectation of reaching the same income level in the current
year;
	 
	o	 	a trust with total assets in excess of $5,000,000, not formed for the specific purpose of
acquiring
the securities offered, whose purchase is directed by a person who has such knowledge and
experience in financial and business matters that he is capable of evaluating the merits and
risks
of the prospective investment; or
	 
	o	 	an entity in which all of the equity holders are “accredited investors” by virtue of their
meeting
one or more of the above standards.
	 
	o	 	an individual who is a director or executive officer of Ausam Energy Corporation.




 









 











     IN WITNESS WHEREOF, the undersigned has executed this Certificate of Accredited Investor
Status effective as of                     , 2005.



	 	 	 	 	 
	 
	 	 
Name of Investor

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title: