EX-10.1 Asset  Purchase and Sale Agreement



 







EXHIBIT 10.1




ASSET PURCHASE AND SALE AGREEMENT




     This Asset Purchase and Sale Agreement, dated as of January 17, 2006, is by and among
NGAS Gathering, LLC, a Kentucky limited liability company (“Buyer”), Duke Energy Gas Services, LLC,
a Delaware limited liability company (“Seller”) and Daugherty Petroleum, Inc., a Kentucky
corporation (“Guarantor”), as Buyer’s Guarantor. Buyer and Seller are sometimes individually
referred to as a “Party” and sometimes collectively referred to as the “Parties.”



RECITALS




     WHEREAS, Seller desires to transfer to Buyer certain properties and assets and certain of the
liabilities and obligations related thereto, and Buyer desires to acquire such properties and
assets and assume such liabilities and obligations, all upon the terms and subject to the
conditions set forth herein.



AGREEMENT




     NOW, THEREFORE, in consideration of the mutual covenants and agreements in this Agreement, the
Parties and Guarantor, intending to be legally bound, agree as follows:



ARTICLE 1

DEFINITIONS AND CONSTRUCTION




     1.01
Definitions. As used in this Agreement, the following defined terms have the meanings
indicated below:



     “$” or “Dollars” means the lawful currency of the United States of America.



     “Affiliate” means any Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled By or is Under Common Control With the Person specified at the relevant
time.



     “Agreement” means this Asset Purchase and Sale Agreement.



     “Assumed Liabilities” means (a) any and all historical environmental liabilities arising out
of the operation and performance of the Purchased Assets prior to the Closing Date; and (b) any and
all obligations arising out of the operation of the Purchased Assets and performance of the
Purchased Contracts after the Closing Date.



     “Beech Grove Trap Site” means the location of the JT device and equipment, which is adjacent
to the Rogersville equipment.



     “Business Day” means a day other than Saturday, Sunday or any day on which banks located in
Houston, Texas, are authorized or obligated to close.



     “Buyer” has the meaning set forth in the preamble to this Agreement.



     “Claim” means any filing, investigation, Proceeding, written claim or written demand.



     “Closing” means the consummation of the transactions contemplated by Section 2.01.



     “Closing Date” means the date on which Closing occurs.



     “Code” means the Internal Revenue Code of 1986.



 









 





     “Control” of a Person means the possession, direct or indirect, of the power to elect a
majority of such Person’s board of directors or similar governing body, or to direct or cause the
direction of the management, business and policies of such Person, whether through ownership of
voting securities, by contract or otherwise (and the terms “Controlled By” and “Under Common
Control With” have correlative meanings).



     “CNR” means Columbia Natural Resources, LLC.



     “Deductible” has the meaning set forth in Section 9.02.



     “Dispute” has the meaning set forth in Section 11.15.



     “East Tennessee” means East Tennessee Natural Gas, LLC.



     “East Tennessee Purchased Assets” means that portion of the Stone Mountain Gathering System
consisting of the 10 inch gathering line commencing at the Relocation Point and continuing
southward to the remainder of the line to the interconnect with the East Tennessee System at
Rogersville, as set out on the indicative diagram attached hereto as Exhibit A.



     “East Tennessee System” means that gathering and transmission system owned by East Tennessee.



     “Excluded Assets” means any and all of the following: (a) all cash or cash equivalents; (b)
all accounts payable or accounts receivable or other working capital items; (c) any indebtedness
owed to or by Seller; (d) the East Tennessee Purchased Assets; (e) all claims of Seller, if any,
against third parties based on facts or events occurring prior to the Closing Date (excluding any
claims, counterclaims or defenses related to Assumed Liabilities); (f) all insurance policies and
rights thereunder, including rights to any cancellation value as of the Closing Date; (g) all
corporate, financial, tax and legal (other than title) records of Seller that do not constitute
Records; (h) all proprietary or confidential business or technical information, intellectual
property, records and policies which relate to Seller and its lines of business other than the
Purchased Assets; (i) all marks of Seller, including any and all trademarks or service marks, trade
names, slogans or other like property relating to or including the name “Duke” or and any
derivatives or variations thereof, and any Duke logos; and (j) all refunds of costs or expenses
borne by Seller prior to the Closing Date.



     “FERC” means the Federal Energy Regulatory Commission.



     “GAAP” means accounting principles generally accepted in the United States, consistently
applied throughout the specified period.



     “Governmental Authority” means any court, tribunal, arbitrator, arbitration panel, authority,
agency, commission, official or other instrumentality of the United States, any foreign country,
any domestic or foreign province, state, county, city or other political subdivision or any Native
American tribal council or similar governing entity.



     “Guarantor” has the meaning set forth in the preamble to this Agreement.



     “Guaranty Agreement” means a guaranty executed by Guarantor substantially in the form of
Exhibit G attached hereto.



     “Interconnect Agreement” means an agreement executed by Buyer substantially in the form of
Exhibit H attached hereto and including a requirement that Buyer inspect, verify and
provide to East Tennessee documentation on the pressure set point, capacity and mechanical
operability of the overpressure protection equipment utilized to protect the Stone Mountain
Gathering System.



     “JT
Plant Site ” means the Rogersville JT booster and plant site.



     “Knowledge” means, with regard to Seller, the actual knowledge of Patrick T. Gibson, Randy J.
Riha and Gary E. Dial.



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     “Laws” means all laws, Orders, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law of the United States, any foreign country, any domestic or
foreign province, state, county, city or other political subdivision or of any Governmental
Authority and all common law.



     “Letter of Credit” means an irrevocable standby letter of credit in the amount of Two Million
Dollars ($2,000,000.00), issued by Key Bank or another bank acceptable to Seller, effective from
the Closing Date until the second anniversary of the Closing Date, and substantially in the form of
Exhibit J attached hereto.



     “Liability Cap” means an amount equal to 50% of the Purchase Price.



     “Liens” means any mortgage, pledge, assessment, security interest or other similar lien.



     “Liquidated
Damages” has the meaning set forth in Section 5.02(e)




     “Losses” means any and all judgments, losses, liabilities, damages, fines, penalties,
deficiencies and reasonable costs and expenses (including interest, court costs and reasonable fees
of attorneys, accountants and other experts).



     “Meters” means the five customer delivery meters as more particularly described on Exhibit
B attached hereto.



     “Natural Gas Act” means that certain federal statute codified in the United States Code at 15
U.S.C. Sections 717 through 717(w), regulating the transportation and sale of natural gas in
interstate commerce.



     “Neutral Party” means any Person that is not an Affiliate of and who has not previously been
employed by any Party and does not have a direct or indirect interest in any Party or in any Person
having an ownership interest in any Party or in the subject matter of the arbitration.



     “Notice of Arbitration” has the meaning set forth in Section 11.15.



     “Operating Agreement” means the agreement between Seller and Buyer, in effect immediately
prior to Closing, detailing the responsibilities and obligations of Buyer as operator of assets in
the Stone Mountain Gathering System.



     “Order” means any order, judgment, injunction, edict, decree, ruling, pronouncement,
determination, decision, opinion, verdict, sentence, writ or award issued, made, entered, rendered
or otherwise put into effect by or under the authority of any Governmental Authority.



     “Ordinary Course of Business” means the ordinary course of business substantially consistent
with relevant past practices.



     “Party” and “Parties” have the respective meanings set forth in the preamble of this
Agreement.



     “Permits” means the permits and authorizations listed on Exhibit D attached hereto
required to operate the Purchased Assets.



     “Permitted Liens” means (a) liens for Taxes or assessments not yet due and payable; (b) terms
and conditions of any leases that have been disclosed to Buyer on an appropriate schedule to this
Agreement; (c) such liens, imperfections in title, charges, easements, restrictions, encumbrances
or other matters that are due to zoning or subdivision laws or regulations that do not materially
and adversely affect the specific Purchased Asset to which they relate for the use to which they
are put; (d) such other liens, imperfections in title, charges, easements, restrictions,
encumbrances or other matters that do not materially and adversely affect the specific Purchased
Asset to which they relate for the use to which they are put; and (e) any Liens created by Buyer or
its Affiliates.



     “Person” means any natural person, corporation, general partnership, limited partnership,
limited liability company, proprietorship, other business organization, trust, union, association
or Governmental Authority.



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     “Prior Notice Filing with FERC” means the filing with FERC that East Tennessee submits in
accordance with Section 157.205 of FERC’s regulations regarding East Tennessee’s acquisition of the
East Tennessee Purchased Assets.



     “Proceeding” means any action, suit, litigation, arbitration, proceeding (including any civil,
criminal, administrative, investigative or appellate proceeding and any informal proceeding),
prosecution, contest, hearing, inquest, audit or investigation commenced, brought, conducted or
heard by or before any Governmental Authority.



     “Purchase Price” means an amount equal to Eighteen Million Dollars ($18,000,000.00).



     “Purchased Assets” means all of Seller’s right, title and interest in and to (a) the Purchased
System, (b) the JT Plant Site, (c) the Rogersville Equipment, (d) the ROWS, (e) the Meters and (f)
the Purchased Contracts.



     “Purchased Contracts” means the contacts relating to the Purchased Assets listed on
Exhibit C attached hereto.



     “Purchased System” means that portion of the Stone Mountain Gathering System consisting of (a)
the 10 inch gathering line commencing at the Relocation Point and continuing northward for the
remainder of the line, (b) the entire eight inch “Claiborne County Utility District line”, the
entire six inch “Amvest line”, the entire six inch “Hickory Flats Prison line”, the four inch and
larger gathering lines located in Lee County, Virginia and all of the production lines upstream of
the Relocation Point as set out on the indicative diagram attached hereto as Exhibit A, (c)
the Rose Hill Compressor, the Martins Fork Compressor and the Amvest Compressor as set forth on the
indicative diagram attached hereto as Exhibit A, and (d) the pipeline facilities, trap
sites, delivery meters and regulator stations associated with these lines.



     “Records” means (a) all of Seller’s right, title and interest in and to all existing contract,
land, title, engineering, environmental, operating, accounting, business, marketing, and other data
(whether electronic or hard copy), files, documents, instruments, notes, papers, ledgers, journals,
reports, abstracts, surveys, keys, lock combinations, computer access codes and similar
information, maps, books, records, and studies relating exclusively to the Purchased Assets, but
excluding records or portions of records (i) related to any Excluded Assets, (ii) prepared in
connection with the sale of the Purchased Assets, (iii) related to consolidated and consolidating
financial, accounting or tax information of Seller and its Affiliates other than such information
that relates solely to the Purchased Assets, or (iv) related to any current employees, and (b) all
of Buyer’s right, title and interest in and to all existing contract, land, title, engineering,
environmental, operating, accounting, business, marketing, and other data (whether electronic or
hard copy), files, documents, instruments, notes, papers, ledgers, journals, reports, abstracts,
surveys, keys, lock combinations, computer access codes and similar information, maps, books,
records, and studies relating exclusively to the East Tennessee Purchased Assets.



     “Relocation Activities” has the meaning set forth in Section 5.02(c).



     “Relocation Assets” has the meaning set forth in Section 5.02(a).



     “Relocation Deadline” has the meaning set forth in Section 5.02(a).



     “Relocation Point” means the mutually agreed upon point for the relocation of the Rogersville
Equipment, such point located at N 3640.9646, W 8320.1077, Rose Hill, Lee County, Virginia.



     “Relocation Standards” has the meaning set forth in Section 5.02(d).



     “Representatives” means, with respect to any Person, the officers, directors, employees,
representatives and agents of such Person.



     “Rogersville Equipment” has the meaning set forth in Section 5.02(a).



     “Rose Hill Input” has the meaning set forth in Section 5.02(a).



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     “ROWS” means all of the rights-of-way associated with the Purchased Assets that are granted to
or held by Seller.



     “Seller” has the meaning set forth in the preamble of this Agreement.



     “Seller’s Remedial Right” has the meaning set forth in Section 5.02(c).



     “Stone Mountain Gathering System” means that gathering system located in Hawkins, Hancock and
Claiborne Counties, Tennessee, Lee County, Virginia and Harlan and Bell Counties, Kentucky, which
includes the Purchased System as well as the East Tennessee Purchased Assets.



     “Tax” includes any taxes, duties, fees, premiums, assessments, imposts, levies and other
charges of any kind whatsoever imposed by any Governmental Authority, including all interest,
penalties, fines, additions to tax or other additional amounts imposed by any Governmental
Authority in respect thereof, and including those levied on, or measured by, or referred to as,
income, gross receipts, profits, capital, transfer, land transfer, sales, goods and services,
harmonized sales, use, value-added, excise, stamp, withholding, business, franchising, property,
development, occupancy, employer health, payroll, employment, health, social services, education
and social security taxes, all surtaxes, all customs duties and import and export taxes,
countervail and anti-dumping, all license, franchise and registration fees and all employment
insurance, health insurance and government pension plan premiums or contributions.



     “Tax Return” means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.



     “USA Compression” has the meaning set forth in Section 5.02(b).



     1.02
Construction of Certain Terms and Phrases. Unless the context of this Agreement otherwise
requires: (a) words of any gender include each other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms “hereof,” “herein,”
“hereby” and derivative or similar words refer to this entire Agreement; (d) the terms “Article” or
“Section” refer to the specified Article or Section of this Agreement; (e) the terms “include” or
“including” mean including without limiting the generality of any description preceding such term;
(f) any reference to a Law shall include any amendment thereof or any successor thereto and any
rules and regulations promulgated thereunder; and (g) references to corporate stockholders,
directors and officers shall include members, managers and officers of a limited liability company,
and Persons occupying positions with equivalent functions in any other entity. Whenever this
Agreement refers to a number of days, such number shall refer to calendar days unless Business Days
are specified. All accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.



ARTICLE 2

PURCHASE AND SALE OF PURCHASED ASSETS




     2.01
Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement:
(a) Seller shall sell, transfer, assign and deliver to Buyer the Purchased Assets; (b) Buyer shall
purchase and accept the Purchased Assets in exchange for the Purchase Price; and (c) Buyer shall
assume and agree to pay, perform, discharge and indemnify Seller for the Assumed Liabilities. For
purposes of greater certainty, the Purchased Assets shall not include, and Buyer shall not obtain
any rights whatsoever in, the Excluded Assets.



     2.02
Closing. The Closing will take place at the offices of Vinson & Elkins L.L.P., 1001 Fannin
Street, Houston, Texas, 77002, at 10:00 A.M. local time in Houston, Texas, on the later to occur of
(a) March 31, 2006 and (b) the fifth Business Day after satisfaction or waiver of the conditions
set forth in Articles 6 and 7. Closing shall be deemed effective as of 12:00 A.M. local time in
Houston, Texas, on the Closing Date. At the Closing:



          (a) Buyer shall pay (or cause to be paid) the Purchase Price by wire transfer of immediately
available U.S. funds to such account as Seller may direct by notice delivered to Buyer by Seller at
least three Business Days before the Closing, or, in the absence of such notice, by check.




          (b) Subject in all circumstances to Section 5.08, Seller shall assign and transfer to Buyer
title, free and clear of all Liens, except Permitted Liens, in and to the Purchased Assets, by
delivery of a bill of sale,




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substantially in the form of Exhibit E attached hereto, (i) a
special warranty deed, substantially in the form of Exhibit F attached hereto, and (ii) all
other instruments of transfer, assignment and conveyance, as shall be necessary to vest in Buyer
all the right, title and interest of Seller in and to the Purchased Assets.




          (c) Buyer shall accept title to the Purchased Assets and shall deliver to Seller an executed
bill of sale, substantially in the form of Exhibit E attached hereto.




          (d) Seller and Buyer shall deliver the certificates and other contracts, documents,
instruments and items required to be delivered hereunder pursuant to Articles 6 and 7.




          (e) Seller shall obtain from the counter party to each Purchased Contract an assignment and
release agreement.




          (f) Buyer shall deliver the Letter of Credit.




          (g) Buyer shall deliver the Interconnect Agreement.




ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER




     Seller hereby represents and warrants to Buyer that the statements contained in this Article 3
are correct on the date hereof as follows:



     3.01
Organization. Seller is a limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization.



     3.02
Authority. Seller has all requisite corporate power and authority to execute and deliver this
Agreement and any other documents or instruments delivered by Seller pursuant hereto, to perform
its obligations hereunder and to consummate the transactions contemplated hereby. The execution
and delivery by Seller of this Agreement and the performance by Seller of its obligations hereunder
have been duly and validly authorized by all necessary corporate action on behalf of Seller. This
Agreement has been duly and validly executed and delivered by Seller and, assuming due and valid
execution and delivery by Buyer of this Agreement, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms.



     3.03
No Conflicts. The execution and delivery by Seller of this Agreement, the performance by
Seller of its obligations hereunder and the consummation of the transactions contemplated hereby by
Seller, do not:



          (a) conflict with or result in a violation or breach of any of the terms, conditions or
provisions of the articles of incorporation, bylaws or any other organizational document of Seller;




          (b) cause a violation of or result in a default (or give rise to any right of purchase,
termination, cancellation or acceleration) under any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Seller is a party, which violation or default
(or right of purchase, termination, cancellation or acceleration) would impair or delay the
consummation of the transactions contemplated hereby; or




          (c) assuming that the FERC proceeding initiated by the Prior Notice Filing with FERC results
in East Tennessee having all requisite authorization under the Natural Gas Act to acquire the East
Tennessee Purchased Assets, conflict with or result in a violation or breach of any term or
provision of any Law applicable to Seller or the Purchased Assets, which conflict, violation or
breach would impair or delay the consummation of the transactions contemplated hereby.




     3.04
Ownership of Purchased Assets. Seller, in its own name or as successor to Duke Energy Gas
Services Corporation, holds title to the Purchased Assets free and clear of any Liens except
Permitted Liens.



     3.05
Governmental Approvals and Filings. Except for the approval contemplated by the Prior Notice
Filing with FERC, no waiting period, consent, approval or action of, or filing on the part of
Seller with or notice to



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any Governmental Authority is required in connection with the execution,
delivery and performance of this Agreement or the consummation of the transactions contemplated
hereby.




     3.06
Legal Proceedings. There are no Claims pending or, to the knowledge of Seller, threatened
against Seller that would result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal any of the transactions contemplated by this Agreement.



     3.07
Compliance with Laws. Seller is in compliance with all Laws applicable to it, except to the
extent that noncompliance would not restrain, enjoin or otherwise prohibit or make illegal any of
the transactions contemplated by this Agreement. To Seller’s Knowledge, no written notices of
violation, correction orders, cessation orders, notices of penalty, notices of proposed assessment
or other written notices (which remains outstanding or unabated) have been issued by any
Governmental Authority or third party that any operations under the Permits are not in compliance
with any applicable Laws. To Seller’s Knowledge, Seller has not entered into or agreed to any
Order and is not subject to any Order relating to compliance with any applicable Laws pertaining to
the operation of the Purchased Assets.



ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER




     Buyer hereby represents and warrants to Seller that the statements contained in this Article 4
are correct on the date hereof as follows:



     4.01
Organization. Buyer is a limited liability company duly organized, validly existing and in
good standing under the laws of the Commonwealth of Kentucky.



     4.02
Authority. Buyer has all requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the transactions contemplated
hereby, including purchasing the Purchased Assets. The execution and delivery by Buyer of this
Agreement and the performance by Buyer of its obligations hereunder have been duly and validly
authorized by all necessary corporate action on behalf of Buyer. This Agreement has been duly and
validly executed and delivered by Buyer and, assuming due and valid execution and delivery by
Seller of this Agreement, constitutes the legal, valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms.



     4.03
No Conflicts. The execution and delivery by Buyer of this Agreement, the performance by Buyer
of its obligations hereunder, and the consummation of the transactions contemplated hereby, do not:



          (a) conflict with or result in a violation or breach of any of the terms, conditions or
provisions of the articles of formation, limited liability company agreement or any other
organizational document of Buyer;




          (b) cause a violation of or result in a default (or give rise to any right of purchase,
termination, cancellation or acceleration) under any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Buyer is a party, which violation or default
(or right of purchase, termination, cancellation or acceleration) would impair or delay the
consummation of the transactions contemplated hereby; or




          (c) conflict with, or result in a violation or breach of any term or provision of any Law
applicable to Buyer, which conflict, violation or breach would impair or delay the consummation of
the transactions contemplated hereby.




     4.04
Governmental Approvals and Filings. No waiting period, consent, approval or action of, filing
on the part of Buyer with or notice to any Governmental Authority is required in connection with
the execution, delivery and performance of this Agreement or the consummation of the transactions
contemplated hereby.



     4.05
Legal Proceedings. There are no Claims pending or, to the knowledge of Buyer, threatened
against Buyer that would result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal any of the transactions contemplated by this Agreement.



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     4.06 Compliance with Laws. Buyer is in compliance with all Laws applicable to it, except to the
extent that noncompliance would not restrain, enjoin or otherwise prohibit or make illegal any of
the transactions contemplated by this Agreement.



ARTICLE 5

COVENANTS, WAIVERS AND CONSENTS




     5.01 Regulatory Approvals. (a) Commencing promptly following the date hereof, each Party shall use
commercially reasonable efforts, each at its own cost and expense, to (i) obtain as promptly as
practicable all consents, approvals or actions of, make all filings with, and give all notices to,
Governmental Authorities required in respect of such Party or its Affiliates to consummate the
transactions contemplated hereby, including the approval contemplated by the Prior Notice Filing
with FERC, (ii) provide such other information and communications to such Governmental Authorities
and otherwise cooperate as such Governmental Authorities may reasonably request in connection
therewith and (iii) provide reasonable cooperation to the other Party in obtaining other consents,
approvals or actions of, making all filings with and giving all notices to Governmental Authorities
required to consummate the transactions contemplated hereby.



          (b) Each of the Parties shall (and/or shall cause its Affiliates to) pay such filing fees as
are required of it in connection with such filings. Without limiting the generality of the
foregoing, each Party hereby covenants and agrees that it shall (and it shall cause its Affiliates
to) (i) request expedited treatment of such filings and (ii) not retract, withdraw, cancel or
otherwise terminate any such filing without the prior written consent of the other Party.




          (c) For purposes of Section 5.01(a), “commercially reasonable efforts” means making the
requisite filings and responding promptly to requests from Governmental Authorities with respect
thereto but shall not imply a duty to take unreasonable measures, incur significant expenses (other
than expenses of preparing filings with Governmental Authorities and required filing fees) or
divest any assets.




     5.02 Rogersville Equipment Relocation



          (a) Promptly following the Closing Date, but prior to the six month anniversary of the Closing
Date (the “Relocation Deadline”), Buyer shall, at Buyer’s sole cost and expense:




               (i) relocate all of the equipment from the Rogersville compression station and the Beech Grove
Trap Site, such equipment more specifically described on Schedule 5.02(a), Part I (the
’Rogersville Equipment”), to the Relocation Point, but Buyer shall not relocate any of the
equipment listed on Schedule 5.02(a), Part II (the “Excluded Rogersville Equipment”);



               (ii) relocate the 10 inch receiver barrel at the Rogersville Compression Station to the
southwest corner of the Rogersville compression station property (where the incoming 10 inch
mainline crosses the fence line) and install piping tying in the inlet and outlet sides of the
Rogersville compression station as well as tying the launcher and two inch receiver barrel drain
lines to the pipeline liquids tank;



               (iii) excluding the rainwater tank dike and truck loading pad, remove from the Rogersville
compression station all unnecessary piers, pipe supports and dikes, and all unutilized underground
and above ground piping;



               (iv) at the Beech Grove Trap Site, install, without a valve, a continuous run of 10 inch pipe
where the trap site is cut from the main line;



               (v) remove from the Beech Grove Trap Site all piers, pipe supports, foundations and unutilized
underground and above ground piping;



               (vi) restore both the Rogersville compression station site and the Beech Grove Trap Site to
their original condition, including graveling both sites; and



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               (vii) relocate the input from the gathering system upstream of the Rose Hill compressor, (the
“Rose Hill Input” and, together with the Rogersville Equipment, the “Relocation Assets”), to
upstream of the Relocation Point.



          (b) Buyer shall, prior to the removal and restoration activities described in Section
5.02(a)(i) through 5.02(a)(vii) (the “Relocation Activities”), obtain, in a form reasonably
satisfactory to Seller, the consent and waiver of all third parties necessary for the relocation of
the Relocation Assets, including the consent and waiver of USA Compression Partners, LP (“USA
Compression”). The consent and waiver obtained by Buyer from USA Compression shall include a
waiver of the removal restriction contained in Section 8 of USA Compression’s Master Rental
Agreement and shall allow for removal and relocation of (i) the Equipment, as such term is defined
in the Gas Compressor Proposal Agreement for the Rogersville project, executed June 28, 2001, by
USA Compression and Evan Energy Company, as predecessor in interest to Buyer, and (ii) the
Equipment, as such term is defined in the Compression Proposal and Agreement for the Rogersville JT
Plant Site, executed April 28, 2004, by USA Compression and Seller. Seller shall provide
reasonable cooperation to Buyer in obtaining such consent and waiver.




          (c) From the Closing Date until the completion of the relocation, Buyer shall, with regard to
the Relocation Activities, comply with the obligations, policies, and procedures, including all
environmental, health and safety policies and procedures, contained in the Gathering System
Operating and Maintenance Agreement, dated December 1, 2004, between Seller and Daugherty
Petroleum, Inc., the parent corporation of Buyer. From the Closing Date, Buyer shall also be
solely responsible for all costs and expenses, obligations and liabilities arising out of the
Relocation Activities.




          (d) Buyer’s Relocation Activities shall meet each of the following standards (the “Relocation
Standards”):




               (i) such Relocation Activities performed by Buyer or Buyer’s personnel, contractors or
subcontractors on Seller’s property shall be accomplished by the Relocation Deadline in accordance
with all Laws applicable to the Relocation Activities and the Relocation Assets;



               (ii) such Relocation Activities performed by Buyer or Buyer’s personnel, contractors or
subcontractors on Seller’s property shall be accomplished in accordance with all Laws, regulations
relating to health and safety and any health and safety procedures required by Seller, including
health and safety training for all Buyer personnel, contractors and subcontractors and initiation
and maintenance of all necessary safety precautions and programs designed to prevent injury to
persons or damage to property;



               (iii) Buyer shall be solely responsible for the safety of all Persons employed by Buyer or
Buyer’s personnel, contractors or subcontractors and any other Person on the site for any purpose
relating to the Relocation Activities performed by Buyer on Seller’s property;



               (iv) Buyer shall promptly inform Seller of all actions to be taken with regard to the
Relocation Activities and shall provide Seller with access rights;



               (v) Buyer shall immediately report to Seller any incident relating to health and safety, in
accordance with good industry practice, arising from the Relocation Activities by Buyer or Buyer’s
personnel, contractors or subcontractors on Seller’s property and involving Buyer personnel,
contractors, subcontractors, the public, or Seller’s property, and Buyer shall, within 24 hours,
provide to Seller a written initial report of Buyer’s investigation of the incident, such report
including a schedule for completion of the investigation and followed up with a final report
showing the cause of the incident and any corrective action;



               (vi) Buyer shall, in all contracts or agreements entered into by Buyer to effect the
Relocation Activities, ensure that Seller also has the right to enforce such contracts or
agreements;



               (vii) Buyer shall be responsible for and agrees to protect, indemnify and save Seller harmless
from and against any and all Losses, claims, demands and causes of action of every kind and
character arising from any injury of or death to any Person, whether contractual, in tort, or a
matter of strict liability or liability imposed by Law, caused by the Relocation Activities
performed by Buyer or Buyer’s personnel, contractors or subcontractors on Seller’s property;



9









 





               (viii) Buyer shall use reasonable commercial efforts to ensure that the Relocation Activities
performed by Buyer on Seller’s property shall be accomplished in a manner that minimizes any
interruption on and avoids any damage to the Stone Mountain Gathering System, the East Tennessee
System and any assets of Seller relating to the Stone Mountain Gathering System;



               (ix) Buyer shall use reasonable commercial efforts to ensure that, upon the Relocation
Deadline, the Stone Mountain Gathering System, including the Excluded Assets relating to the Stone
Mountain Gathering System, and any ancillary assets associated therewith, shall be, in the
reasonable opinion of Seller after an inspection by Seller, completely operational and shall be in
a condition equivalent to the condition prior to the relocation and maintained in accordance with
good industry practice; and



               (x) all Relocation Activities shall be completed in accordance with good industry practice to
Seller’s reasonable satisfaction.



          (e) If Buyer does not, in the reasonable opinion of Seller, (i) comply with its obligations
under Section 5.02(c) and (ii) complete the Relocation Activities by the Relocation Deadline and in
such a manner that the Relocation Assets, the Stone Mountain Gathering System, including the
Excluded Assets relating to the Stone Mountain Gathering System, and any ancillary assets
associated therewith, are relocated in compliance with and are, upon the Relocation Deadline,
completely operational and in a condition in compliance with the Relocation Standards, then Seller
shall have the right (“Seller’s Remedial Right”), upon the Relocation Deadline and upon notice to
Buyer to cause the relocation work to be performed in a timely manner and in compliance with the
requirements of Section 5.02, including taking any of the following actions:




               (A) effect the relocation of the Relocation Assets or completion of any of the Relocation
Activities;



               (B) remove the Relocation Assets from the Stone Mountain Gathering System to any other
location;



               (C) bypass the Relocation Assets so that they have no access to and may not operate on the
Stone Mountain Gathering System;



               (D) terminate any agreements under which the Relocation Assets are provided or leased and
allow the other party under such agreements to reclaim the Relocation Assets;



               (E) compensate itself for any Losses arising from more than minimal interruption on the Stone
Mountain Gathering System, to the Excluded Assets relating to the Stone Mountain Gathering System,
or to any ancillary assets associated therewith, such interruption arising from the Relocation
Activities; and



               (F) either repair or compensate itself for any Losses arising from damage to the Relocation
Assets, the Stone Mountain Gathering System, the Excluded Assets relating to the Stone Mountain
Gathering System, or to any ancillary assets associated therewith, to the extent such damage arises
from the Relocation Activities.



     All, any or none of the Seller actions contemplated by this Section 5.02(e) may be effected,
at Seller’s sole discretion, in any manner Seller deems appropriate and without any liability to
Seller.



          (f) (i) Seller may, by providing to both Buyer and the issuing bank notice that Seller is
entitled to draw on the Letter of Credit, draw on the Letter of Credit to reimburse Seller for any
amounts incurred by Seller in connection with Seller’s Remedial Right. Notwithstanding the
foregoing sentence, any such amounts drawn by Seller and not used by Seller in connection with
Seller’s Remedial Right (including reimbursement of amounts previously spent by Seller) shall,
within a reasonable period after completion of the relocation work, be reimbursed to Buyer along
with two and one-half percent interest per annum on such amounts.




               (ii) Should Seller invoke Seller’s Remedial Right, Buyer further agrees to assist Seller in
effecting such relocation work, including taking any action reasonably requested by Seller, such as
providing Seller any requested agency rights and powers of attorney.



10









 





               (iii) Buyer shall be responsible for and agrees to protect, indemnify and save Seller harmless
from and against any and all Losses, claims, demands and causes of action of every kind and
character arising from any injury or death to any Person, whether contractual, in tort, or a matter
of strict liability or liability imposed by Law, caused by any actions taken pursuant to Seller’s
Remedial Right. The foregoing indemnity shall not apply in any incident, occurrence or claim
caused by the gross negligence of Seller.



          (g) Notwithstanding the foregoing, the Parties may, by mutual agreement and with just cause,
extend the Relocation Deadline by 30 days without penalty to Buyer. If the parties mutually agree
to such extension and (i) Buyer does not, in the reasonable opinion of Seller, comply with its
obligations under Section 5.02(e)(i) and (ii) by the end of the additional 30-day period, then
Seller may enforce Seller’s Remedial Right and Buyer shall be subject to all liabilities under
Section 5.02(f).




          (h) If Seller takes the action contemplated by Section 5.02(e)(D), Buyer shall, upon request
of Seller, assign to Seller all of Buyer’s right, title and interest in and to the Relocation
Assets affected thereby.




     5.03
Execution of Guaranty Agreement. Concurrent with the execution of this Agreement, Buyer shall
execute and deliver to Seller the Guaranty Agreement.



     5.04
Operation of Purchased Assets. From the date of this Agreement until the earlier of the
Closing Date or the termination of this Agreement:



          (a) Neither Seller nor Buyer will, without the prior written consent of the other Party (which
consent shall not be unreasonably withheld or delayed), (i) sell, lease or otherwise dispose of any
Purchased Assets or East Tennessee Purchased Assets, other than sales of goods or services in the
Ordinary Course of Business; (ii) amend in any material respect any of the Purchased Contracts or
terminate any of the Purchased Contracts before the expiration of the term thereof, other than to
the extent any such Purchased Contract terminates or is terminable pursuant to its terms in the
Ordinary Course of Business; (iii) execute any new contract that (y) relates solely to the
Purchased Assets and (z) will need to be assigned to Buyer at Closing; provided, however, Seller
may, without obtaining the prior written consent of Buyer, enter into a contract with CNR, such
contract with CNR substantially in the form of the draft provided by Seller to Buyer on January 16,
2006, except that such contract with CNR may not have an MDQ (as defined therein) of greater than
3,700; or (iv) except as provided in this Article, commit the other party to make capital
expenditures relating solely to the Purchased Assets after the Closing Date or the termination of
this Agreement.




          (b) Seller and Buyer will continue to operate the Purchased Assets and the East Tennessee
Purchased Assets in the Ordinary Course of Business and will make no capital expenditures outside
of the Ordinary Course of Business; and




          (c) Seller and Buyer will perform all of their material obligations under the Purchased
Contracts.




     5.05
Access of Parties. Seller or Buyer shall provide the other Party and its respective
Representatives with reasonable access, upon reasonable prior notice and during normal business
hours, at the sole cost and expense of the other Party, to the personnel of Seller or Buyer, who
have material responsibility relating to the Records to the extent such Records are only in
Seller’s or Buyer’s possession.



     5.06
Delivery and Retention of Records. On or before 60 days after the Closing Date, Seller will
deliver or cause to be delivered to Buyer, at Buyer’s request, and Buyer will deliver or cause to
be delivered to Seller, at Seller’s request, the Records. Buyer and Seller agree to hold the
Records and not to destroy or dispose of any portion thereof for a period of 10 years from the
Closing Date or such longer time as may be required by Law, provided that, if either Buyer or
Seller desire to destroy or dispose of such Records during such period, it will first offer in
writing at least 60 days before such destruction or disposition to surrender them to the other
Party and if the other Party does not accept such offer within 20 days after receipt of such offer,
it may take such action and following the Closing Date to afford the other Party, its accountants,
and counsel, during normal business hours, upon reasonable request, at any time, full access to the
Records and to its employees at no cost to the other Party (other than for reasonable out-of-pocket
expenses); provided that such access will not be construed to require the disclosure of Records
that would cause the waiver of any attorney-client, work product or like privilege; provided,



11









 



further, that in the event of any litigation nothing herein shall limit any Party’s rights of
discovery under applicable Law. Buyer and Seller agree to provide the other Party and the other
Party’s Affiliates reasonable access to the Records after the Closing Date in order for the other
Party to comply with its obligations under this Agreement (including the preparation of any
required tax returns in accordance with this Agreement and to comply with any indemnity
obligations).




     5.07
Termination of Operating Agreement. At Closing, Buyer shall execute and deliver to Seller and
Seller shall execute and deliver to Buyer an agreement terminating the Operating Agreement, along
with all rights and obligations of Buyer and Seller under the Operating Agreement; provided,
however, if the Operating Agreement is determined to be necessary after Closing for the operation
of the Rogersville Equipment, execution of an agreement terminating the Operating Agreement shall
not be required and the Operating Agreement will remain in effect. The determination of whether
the Operating
Agreement is necessary after Closing for the operation of the Rogersville Equipment shall be made
by Seller and Seller shall notify Buyer of such determination three days prior to Closing.



     5.08
Assignment of Purchased Contracts, ROWS and Permits. At Closing, Seller shall assign to
Buyer, to the extent assignable, all of Seller’s right, title and interest in and to the Purchased
Contracts, the ROWS and any other agreements relating to the Purchased Assets and requested by
Buyer, and to the Permits. To the extent any of the Purchased Contracts, the ROWS, any other
agreements relating to the Purchased Assets, and the Permits are not assignable or transferable to
Buyer, Seller shall reasonably cooperate with and assist Buyer, for up to six months after Closing,
in obtaining assignment or transfer of such agreements. If Buyer has not obtained assignment or
transfer of such agreements by the end of the six month period, Seller may terminate any and all of
such agreements. Buyer shall indemnify Seller for the cost of maintaining any of the Purchased
Contracts, the ROWS, other agreements relating to the Purchased Assets and the Permits.



     5.09
Removal of Logos and Signs. Within 30 days after the Closing Date, Buyer shall remove from
all of the Purchased Assets any logo or sign indicating that such assets are owned or operated by
Seller or any of its Affiliates (including signs displaying Seller’s or its Affiliate’s emergency
contact telephone number or otherwise using or displaying the name “Duke”, in whole or in part). As
promptly as practical after the Closing Date, Buyer shall post Buyer’s emergency contact telephone
numbers in place of any of Seller’s or its Affiliate’s emergency contact telephone numbers.



     5.10
Recording. Buyer shall be solely responsible for promptly recording all instruments related
to the conveyance of the Purchased Assets, and shall promptly furnish Seller with the recording
information. Buyer shall be responsible for all filings with state and federal agencies for change
of owner or operator and shall promptly provide Seller with the copies of all such filings when
made and confirmation thereof when received. All recording and filing fees shall be paid by Buyer
and, where paid by Seller, reimbursed by Buyer to Seller promptly after receipt of an invoice.



     5.11
Transfer Taxes. Buyer shall pay all transfer Taxes (including sales, real property, use,
excise, stock, stamp, documentary, filing, recording, permit, license, authorization and similar
Taxes, filing fees and similar charges) resulting from the sale of the Purchased Assets. Buyer
shall prepare and timely file all Tax Returns or other documentation relating to such transfer
Taxes; provided, however, that to the extent required by applicable Laws, Seller will join in the
execution of any such Tax Returns or other documents relating to such Taxes.



     5.12
Certificate of Non-Foreign Status. On the Closing Date, Seller shall deliver to Buyer a
certificate of non-foreign status substantially in the form of in Exhibit I attached
hereto.



     5.13
Purchase Consideration Allocation for Tax Purposes. Seller and Buyer agree, for the purpose
of making the requisite filings under Section 1060 of the Code and the regulations thereunder, to
allocate the Purchase Price among the Purchased Assets in accordance with Schedule 5.13.
Seller and Buyer each agree to report the federal, state and local income and other tax
consequences of the transactions contemplated herein, and in particular to report the information
required by Section 1060(b) of the Code, in a manner consistent with such allocation.



     5.14
Prorations of Property Taxes. Any property Tax assessed against or pertaining to the
Purchased Assets for the taxable period that includes the Closing Date shall be prorated between
Buyer and Seller as of the Closing Date, and Buyer shall be responsible for filing all required
reports and paying all such taxes due with



12









 




respect to the tax period within which the Closing Date
occurs. In the event the amount of any such property Tax cannot be ascertained as of the Closing
Date, then prorations shall be made on the basis of the preceding year. Buyer shall receive a
credit against the Purchase Price on the Closing Date for Seller’s pro rata portion of such
property Taxes, and all prorations shall be deemed to be final as of the Closing Date.




ARTICLE 6

CONDITIONS TO OBLIGATIONS OF BUYER




     The obligation of Buyer to consummate the transactions contemplated by Section 2.01 is subject
to the fulfillment, at or before the Closing, of each of the following conditions (all or any of
which may be waived in whole or in part by Buyer in its sole discretion):



     6.01 Representations and Warranties. The representations and warranties made by Seller in Article
3 shall be correct, in all material respects, on and as of the Closing Date as though made on and
as of the Closing Date, other than any such representation or warranty that is expressly made as of
an earlier date (provided that such representation or warranty was correct as of such earlier
date).



     6.02 Performance. Seller shall have performed and complied with, in all material respects, the
agreements, covenants and obligations under this Agreement required to be so performed or complied
with by Seller prior to or at Closing.



     6.03 Officer’s Certificates. Seller shall have delivered to Buyer a certificate, dated the Closing
Date and executed by the President or a Vice President of Seller, reasonably satisfactory in form
and substance to Buyer, as to the matters set forth in Sections 6.01 and 6.02 with respect to
Seller.



     6.04 Orders and Laws. There shall not be in effect, pending or threatened on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal, or any pending
Proceeding (filed by a Person other than Buyer or any of its Affiliates) threatening to restrain,
enjoin or otherwise prohibit or make illegal, the consummation of the transactions contemplated by
this Agreement.



ARTICLE 7

CONDITIONS TO OBLIGATIONS OF SELLER




     The obligation of Seller to consummate the transactions contemplated by Section 2.01 is
subject to the fulfillment, at or before the Closing, of each of the following conditions (all or
any of which may be waived in whole or in part by Seller in its sole discretion):



     7.01 Representations and Warranties. The representations and warranties made by Buyer in Article 4
shall be correct, in all material respects, on and as of the Closing Date as though made on and as
of the Closing Date, other than any such representation or warranty that is expressly made as of an
earlier date (provided that such representation or warranty was correct as of such earlier date).



     7.02
Performance. Buyer shall have performed and complied with, in all material respects, the
agreements, covenants and obligations under this Agreement required to be so performed or complied
with by Buyer prior to or at Closing.



     7.03 Officer’s Certificates. Buyer shall have delivered to Seller a certificate, dated the Closing
Date and executed by the President or a Vice President of Buyer, reasonably satisfactory in form
and substance to Seller, as to the matters set forth in Sections 7.01 and 7.02 with respect to
Buyer.



     7.04 Orders and Laws. There shall not be in effect, pending or threatened on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal, or any pending
Proceeding (filed by a Person other than Seller or any of its Affiliates) threatening to restrain,
enjoin or otherwise prohibit or make illegal, the consummation of the transactions contemplated by
this Agreement.



     7.05 Prior Notice Filing with FERC. The FERC proceeding initiated by the Prior Notice Filing with
FERC shall have terminated with East Tennessee having the necessary authorization to acquire the
East Tennessee



13









 




Purchased Assets either because (a) no Person shall have filed a protest with FERC
regarding the Prior Notice Filing with FERC or any protest filed was withdrawn or dismissed in
accordance with Section 157.205(g) of FERC’s regulations, or (b) FERC shall have treated the Prior
Notice Filing with FERC as an application under Section 7 of the Natural Gas Act and FERC shall
have issued a final, non-appealable order granting East Tennessee authorization to acquire the East
Tennessee Purchased Assets.




ARTICLE 8

SURVIVAL; NO OTHER REPRESENTATIONS




     8.01 Survival. The representations and warranties of the Parties contained in this Agreement shall
survive the Closing, and all such representations and warranties shall terminate on the date that
is 365 days after the Closing Date. No Party shall have any liability with respect to any
representation and warranty once such representation and warranty has terminated unless, and only
to the extent that, a Claim with respect thereto has been initiated on or before such date.



     8.02 NO OTHER REPRESENTATIONS THE PURCHASED ASSETS ARE SOLD “AS IS, WHERE IS” AND SELLER MAKES NO
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED REPRESENTATION OR
WARRANTY AS TO CONDITION, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
WITH RESPECT TO THE PURCHASED ASSETS OR ANY PART THEREOF, EXCEPT THOSE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT AND ANY OFFICER’S CERTIFICATE DELIVERED AT THE CLOSING IN
CONNECTION HEREWITH.



ARTICLE 9

INDEMNIFICATION; LIMITATIONS ON DAMAGES




     9.01
Indemnification.



          (a) Seller hereby agrees that if Buyer (i) complies with its obligations under Section 5.02(c)
and (ii) effects the Relocation Activities by the Relocation Deadline, as it may be extended in
accordance with Section 5.02(g) hereof, and in compliance with the Relocation Standards, then
Seller shall indemnify and hold Buyer harmless from any and all claims brought by any third party
who is a party to a gas transportation contract with Seller for damages under such contract caused
by the Relocation Activities. This indemnity shall apply for any such claim only until the end of
the statute of limitations period applicable to such claim under such third party’s gas
transportation contract with Seller. Seller shall advise Buyer of all third party gas
transportation contracts that may be affected by the Relocation Activities and shall represent that
Seller has provided all third parties with proper notice of said relocation, so as to not be in
violation of any third party gas transportation contracts. If Buyer does not (A) comply with its
obligations under Section 5.02(c) or (B) effect the Relocation Activities by the Relocation
Deadline and in compliance with the Relocation Standards, then the foregoing indemnity obligation
shall not arise or apply to Seller.




          (b) Seller’s aggregate liability under this Section 9.01 shall not exceed Five Hundred
Thousand Dollars ($500,000.00).




          (c) Upon notice to Buyer from any third party of any matter that may give rise to claims for
which Seller may be held liable under this Section 9.01, Buyer shall promptly (and in any event
within two Business Days after receiving such notice) notify Seller thereof in writing. Seller
shall have the right to assume and thereafter conduct the defense of such matter with counsel of
its choice; provided, however, that Seller will not consent to the entry of any judgment or enter
into any settlement with respect to the matter without the prior written consent of Buyer (not to
be withheld unreasonably) unless the judgment or proposed settlement of the matter involves only
the payment of money damages and does not impose an injunction or other equitable relief upon
Buyer. Unless and until Seller assumes the defense of the matter, Buyer may take reasonable
actions to defend against the matter.




     9.02 Limitation of Liability. Notwithstanding any provision hereof to the contrary, except in
Section 9.01 in no event shall Seller be liable for any damages whether based on contract, tort,
statute, strict liability, common law or otherwise, (a) unless and until the aggregate amount of
Losses with respect to all breaches of this



14









 




Agreement exceeds One Million Dollars ($1,000,000.00)
(the “Deductible”) and (b) then only (i) for the amount of such damages in excess of the Deductible
and (ii) to a maximum of an amount equal to the Liability Cap.




ARTICLE 10

TERMINATION




     10.01
Termination. This Agreement may be terminated, and the transactions contemplated hereby may
be abandoned, at any time before Closing by notice thereof by the terminating Party to the other
Party as follows:



          (a) by mutual written agreement of Seller and Buyer;




          (b) at any time after the four-month anniversary of this Agreement, by Seller, by notice of
termination given to Buyer, or by Buyer, by notice of termination given to Seller; or




          (c) if a Party is in breach of the terms of this Agreement and fails to cure such breach
within 30 days after notice from the other Party, by notice of termination from the other Party.




     10.02
Effect of Termination. Except as provided in the following sentence, if this Agreement is
terminated pursuant to Section 10.01 there will be no liability or obligation on the part of either
Party or Guarantor with respect to the transactions contemplated by this Agreement. If this
Agreement is terminated pursuant to Section 10.01, then any Party may pursue any rights and
remedies available at Law or in equity subject to the limitations set forth in Article 9 and
Section 11.09. Notwithstanding the foregoing, the provisions of Articles 1, 5, 8, 9, 10 and 11
shall continue to survive following any termination of this Agreement.



ARTICLE 11

OTHER PROVISIONS




     11.01
Notices. Notices, where required herein, shall be in writing and shall be sufficiently given
if delivered personally, by prepaid acknowledgement receipt, by registered mail, by a recognized
overnight delivery service or by fax or other electronic means directed as follows:



          In the event of notice to Buyer:



NGAS Gathering, LLC

120 Prosperous Place, Suite 201

Lexington, KY 40509

Attention: William G. Barr III, Chief Executive Officer

Fax: (859) 263-4228




          With a copy to:



NGAS Gathering, LLC

120 Prosperous Place, Suite 201

Lexington, KY 40509

Attention: Stephen P. Carson, Senior Corporate Counsel

Fax: (859) 263-4228




15









 








          In the event of notice to Guarantor:



Daugherty Petroleum, Inc.

120 Prosperous Place, Suite 201

Lexington, KY 40509

Attention: William G. Barr III, Chief Executive Officer

Fax: (859) 263-4228




          In the event of notice to Seller:



Duke Energy Gas Transmission, LLC

5400 Westheimer Court

Houston, Texas 77056-5310

Attention: Managing Director, Strategic Planning and Development

Fax: (713) 627-4652




          With a copy to:



Duke Energy Gas Transmission

5400 Westheimer Court

Houston, Texas 77056-5310

Attention: Associate General Counsel

Fax: (713) 386-4694



Each such notice shall be deemed to have been received upon the earliest to occur of (i) actual
delivery, (ii) in the case of prepaid acknowledgment receipt notices or registered mail, five days
after being deposited in the mail addressed as aforesaid, (iii) in the case of notices sent by fax
or other electronic means, on the next Business Day following the date of transmission (provided
that the original of such notice is promptly sent by prepaid acknowledgement receipt, registered
mail or overnight delivery service as aforesaid) and (iv) in the case of notice by overnight
delivery service, two days after being sent addressed as aforesaid. Any Party may change its
address or fax number hereunder from time to time by giving notice of such to each of the other
parties.




     11.02
Entire Agreement. This Agreement, together with the Schedules and Exhibits hereto,
supersedes all prior discussions and agreements, whether written or oral, between the Parties with
respect to the subject matter hereof, and contains the sole and entire agreement among the Parties
with respect to the subject matter hereof.



     11.03
Expenses. Except as otherwise expressly provided in this Agreement, whether or not the
transactions contemplated hereby are consummated, each Party shall pay its own costs and expenses
incurred in connection with the negotiation and execution of this Agreement and the consummation of
the transactions contemplated hereby.



     11.04
Press Releases; Disclosure. Neither Party nor Guarantor shall issue any press release or
make any public announcement relating to the subject matter of this Agreement without the prior
written approval of the other Party, which approval shall not be unreasonably withheld or delayed;
provided that either Party or Guarantor may make any public disclosure it believes in good faith is
required by applicable Law or any listing or trading agreement concerning its publicly traded
securities (in which case the disclosing Party or Guarantor will advise the other Party before
making the disclosure).



     11.05
Waiver. Any term or condition of this Agreement may be waived at any time by the Party that
is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a
written instrument duly executed by or on behalf of the Party waiving such term or condition. No
waiver by a Party of any term or condition of this Agreement, in any one or more instances, shall
be deemed to be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or by Law (except as
limited by this Agreement), are cumulative and not alternative.



16









 





     11.06
Amendment. This Agreement may be amended, supplemented or modified only by a written
instrument duly executed by or on behalf of each of the Parties.



     11.07
No Third Party Beneficiary. Except as otherwise expressly provided in Article 10, the terms
and provisions of this Agreement are intended solely for the benefit of each Party and their
respective successors and permitted assigns, and it is not the intention of the Parties to confer
third-party beneficiary rights upon any other Person.



     11.08
Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation
hereunder may be assigned or delegated by any Party without the prior written consent of the other
Party; provided, however, that under no circumstances will any such consent be conditioned upon the
receipt of additional consideration. Subject to the preceding sentence, this Agreement is binding
upon, inures to the benefit of and is enforceable by the Parties and their respective successors
and permitted assigns. Any assignment or delegation in violation of this Section 11.08 shall be
null and void and without any force or effect.



     11.09
No Consequential, Incidental or Punitive Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY
IN THIS AGREEMENT, NEITHER PARTY NOR GUARANTOR SHALL BE LIABLE TO ANY OTHER PERSON FOR
CONSEQUENTIAL, INCIDENTAL, SPECIAL, INDIRECT OR PUNITIVE DAMAGES, OR LOST REVENUES OR PROFITS,
INCLUDING DECLINE IN MARKET CAPITALIZATION, OR INCREASED COST OF CAPITAL OR BORROWING, FOR
ANY REASON WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, WHETHER BASED
ON STATUTE, CONTRACT, TORT, STRICT LIABILITY, COMMON LAW OR OTHERWISE, AND WHETHER OR NOT ARISING
FROM THE OTHER PARTY’S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT. THE
PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT, AS TO ANY MATTER FOR WHICH A PARTY HAS RECOURSE
HEREUNDER, ANY DAMAGES SUCH PARTY OR GUARANTOR MAY OWE A THIRD PARTY AS A RESULT OF SUCH MATTER
SHALL BE DIRECT DAMAGES FOR ALL PURPOSES OF THIS SECTION 11.09.



     11.10
Headings. The headings used in this Agreement have been inserted for convenience of
reference only and do not define or limit the provisions hereof.



     11.11
Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future Law, and if the rights or obligations of either Party or
Guarantor under this Agreement will not be materially and adversely affected thereby, (a) such
provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never constituted a part hereof, (c) the remaining
provisions of this Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.



     11.12
Governing Law. The Laws of the State of Delaware applicable to contracts made and to be
performed entirely within the State of Delaware govern all matters arising out of or relating to
this Agreement and the transactions contemplated hereby, including its interpretation,
construction, performance and enforcement, without regard to any choice of law or other principle
that would require application of another Law.



     11.13
Counterparts. This Agreement may be executed in any number of counterparts, each of which
when executed and delivered shall be deemed to be an original, but all of which together shall
constitute one and the same instrument. The signatures of both Parties and Guarantor need not
appear on the same counterpart, and delivery of an executed counterpart signature page by facsimile
is as effective as executing and delivering this Agreement in the presence of the other Party and
Guarantor to this Agreement.



     11.14
Further Assurances. Each Party and Guarantor agree, upon the request of the other Party from
time to time before and after the Closing Date, to do, execute, acknowledge and deliver such other
acts, consents, instruments, documents and other assurances as may be reasonably necessary to carry
out and perform the transactions contemplated by this Agreement.



17









 





     11.15
Arbitration. Any Claim, counterclaim, demand, cause of action, dispute and controversy
arising out of or relating to this Agreement (or any agreement delivered in connection with this
Agreement) or in any way relating to the subject matter of this Agreement involving the Parties,
Guarantor or their Representatives (each, a “Dispute”), even if such Dispute allegedly is
extra-contractual in nature, sounds in statute, contract, tort, strict liability, common law or
otherwise or arises under federal, foreign, provincial or state Law, shall be resolved by final and
binding arbitration; provided that the foregoing shall not preclude equitable or other judicial
relief to enforce the provisions of this Section 11.15 or to preserve the status quo pending
resolution of Disputes by final and binding arbitration as provided in this Section 11.15.
Arbitration shall be conducted in English in accordance with the International
Arbitration Rules of the American Arbitration Association, but only to the extent that such rules
are not in conflict with this Agreement. Arbitration may be initiated by one Party serving notice
of arbitration (“Notice of Arbitration”) on the other Party or Guarantor. The validity,
construction and interpretation of this agreement to arbitrate, and all other procedural aspects of
the arbitration conducted pursuant hereto shall be decided by the arbitrators. In deciding the
substance of any Dispute, the arbitrators shall refer first to the provisions of this Agreement and
then to the governing Law. The arbitrators shall have no authority to award any type of damages
that are prohibited in Section 11.09 under any circumstances, regardless of whether such damages
may be available under federal, foreign, provincial or state Law, or under the International
Arbitration Rules of the American Arbitration Association, and the Parties and Guarantor hereby
waive their right, if any, to recover any such damages. The Parties and Guarantor hereby waive to
the maximum extent permitted any right they may have to appeal or object to the enforcement of any
decision or award by the arbitrators. Each Party and Guarantor agree that any arbitration award
against it may be enforced in any jurisdiction in which such Party or Guarantor holds or keeps
assets or in which such Party or Guarantor is subject to jurisdiction, and that judgment on any
arbitration award may be entered by any court having jurisdiction. The agreement to arbitrate in
this Section 11.15 and any arbitration award shall be binding on the Parties, Guarantor and their
subsidiaries and their respective successors and assignees. The arbitration proceeding shall be
conducted in Wilmington, Delaware. Within 30 days of the Notice of Arbitration, Seller and Buyer
shall each select one arbitrator. The two arbitrators shall select a third arbitrator, who shall
be the presiding arbitrator. All three arbitrators shall be independent Neutral Parties. If the
two Party-appointed arbitrators are unable to agree on a third arbitrator within 60 days from
initiation of arbitration, then a third arbitrator shall be selected by the American Arbitration
Association office in New York, New York, with input from the Parties and the two Party-appointed
arbitrators. To the fullest extent permitted by Law, any arbitration proceeding and the
arbitrators award shall be maintained in confidence by the Parties. The arbitrators shall be
instructed to conclude the matter within one year and to render a reasoned opinion setting forth
the basis for their decision. The Parties shall initially split the costs of the arbitrators and
the proceedings, but the arbitrators may assess the costs of the arbitration and the legal costs of
the Parties against the non-prevailing Party, as they deem appropriate. Any award shall provide
for interest from the date of breach to the date of payment. Each Party and Guarantor hereby
irrevocably submit to the non-exclusive jurisdiction of the courts of the State of Delaware, County
of New Castle, and of the United States of America for the District of Delaware for the purpose of
enforcing any award under this Section 11.15. This Section 11.15 shall survive the Closing and the
termination of this Agreement.



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     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by a duly authorized
officer of each party hereto as of the date first above written.



	 	 	 	 	 	 	 	 	 
	 	 	NGAS GATHERING, LLC, a Kentucky limited liability

company	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	DAUGHERTY PETROLEUM, INC.,	 	 
	 	 	 	 	Managing Member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ William G Barr, III	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	William G Barr, III,	 	 
	 

	 	 	 	 	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	DAUGHERTY PETROLEUM, INC., a Kentucky corporation	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ William G Barr, III	 	 
	 	 	 	 	 	 	 
	 	 	 	 	William G Barr, III,	 	 
	 	 	 	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	DUKE ENERGY GAS SERVICES, LLC, a Delaware limited
liability company	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 	 	 	 	 	 	 






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