**Exhibit 2.5**

**STOCK PURCHASE AGREEMENT,**

**dated as of September 21, 2005**

**among**

**JON L. GLASS,**

**CRAIG D. POLLARD,**

**LEIGH T. PRIETO,**

**YORKTOWN ENERGY PARTNERS V, L.P., AND**

**YORKTOWN ENERGY PARTNERS VI, L.P.,**

**As Sellers;**

**CINCO ENERGY CORPORATION**

**Asthe Company;**

**AND**

**EDGE PETROLEUM EXPLORATION COMPANY**

**As Buyer**

**AND**

**EDGE PETROLEUM CORPORATION**

**As Guarantor**

** **

** **

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**TABLE OF CONTENTS**
| ARTICLE I  DEFINITIONS                                            | 1                                           |
|-------------------------------------------------------------------|---------------------------------------------|
|                                                              |
| ARTICLE II EFFECTIVE DATE;  CLOSING                               | 9                                           |
| 2.1                                                               | Effective Date; Closing                     | 9 |
| 2.2                                                               | Proceedings at Closing                      | 9 |
|                                                              |                                        |
| ARTICLE III SALE AND  PURCHASE OF SHARES; CONSIDERATION           | 9                                           |
| 3.1                                                               | Sale and Purchase of Shares                 | 9 |
| 3.2                                                               | Amount and Form of  Consideration           | 9 |
| 3.3                                                               | Payment of Consideration                    | 10 |
| 3.4                                                               | Price Adjustments                           | 10 |
| 3.5                                                               | Excluded Items                              | 11 |
| 3.6                                                               | Employee Stock Options                      | 11 |
| 3.7                                                               | Payment of Seller Debt                      | 12 |
| 3.8                                                               | Incremental Purchase Price                  | 12 |
|                                                              |                                        |
| ARTICLE IV DEPOSIT                                                | 11                                          |
|                                                              |                                        |
| ARTICLE V REPRESENTATIONS  AND WARRANTIES RELATING TO THE COMPANY | 11                                          |
| 5.1                                                               | Organization and Power                      | 13 |
| 5.2                                                               | Authorizations; Execution  and Validity     | 13 |
| 5.3                                                               | Capitalization                              | 13 |
| 5.4                                                               | Financial Statements; Other  Financial Data | 14 |
| 5.5                                                               | Consents                                    | 14 |
| 5.6                                                               | No Defaults or Conflicts                    | 14 |
| 5.7                                                               | Agreements, Contracts and  Commitments      | 15 |
| 5.8                                                               | Litigation                                  | 15 |
| 5.9                                                               | Labor Matters                               | 15 |
| 5.10                                                              | Employee Matters                            | 15 |
| 5.11                                                              | Taxes                                       | 15 |
| 5.12                                                              | Fees                                        | 17 |
| 5.13                                                              | Absence of Certain Changes  or Events       | 17 |
| 5.14                                                              | Compliance with Laws                        | 17 |
| 5.15                                                              | Transactions with Related  Parties          | 17 |
| 5.16                                                              | Agents                                      | 18 |
| 5.17                                                              | Commission Contracts                        | 18 |
| 5.18                                                              | Books and Records                           | 18 |
| 5.19                                                              | Information Furnished                       | 18 |
| 5.20                                                              | Directors and Officers                      | 18 |
| 5.21                                                              | Bank Accounts                               | 18 |
| 5.22                                                              | Owned Real Property                         | 19 |
| 5.23                                                              | Leased Real Property                        | 19 |
| 5.24                                                              | Insurance                                   | 19 |
| 5.25                                                              | Title to Oil and Gas  Properties            | 19 |
| 5.26                                                              | Environmental Matters                       | 19 |

 

 

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| 5.27                                                             | Forward  Sales                                                                      | 20 |
|------------------------------------------------------------------|-------------------------------------------------------------------------------------|----|
| 5.28                                                             | Properties                                                                          | 20 |
| 5.29                                                             | Wells  to Be Plugged and Abandoned                                                  | 20 |
| 5.30                                                             | Intellectual  Property                                                              | 21 |
| 5.31                                                             | No  Undisclosed Liabilities                                                         | 21 |
|                                                             |                                                                                |
| ARTICLE VI REPRESENTATIONS  AND WARRANTIES REGARDING THE SELLERS | 21                                                                                  |
| 6.1                                                              | Organization  and Good Standing                                                     | 21 |
| 6.2                                                              | Authorization  of Agreement                                                         | 21 |
| 6.3                                                              | Conflicts,  Consents of Third Parties                                               | 21 |
| 6.4                                                              | Brokers                                                                             | 22 |
| 6.5                                                              | Litigation                                                                          | 22 |
| 6.6                                                              | Ownership  of Stock                                                                 | 22 |
| 6.7                                                              | Marketable  Title                                                                   | 22 |
|                                                             |                                                                                |
| ARTICLE VII REPRESENTATIONS  AND WARRANTIES OF BUYER             | 22                                                                                  |
| 7.1                                                              | Organization  and Good Standing                                                     | 22 |
| 7.2                                                              | Authorization  of Agreement                                                         | 22 |
| 7.3                                                              | Conflicts,  Consents of Third Parties                                               | 23 |
| 7.4                                                              | No  Default                                                                         | 23 |
| 7.5                                                              | Litigation                                                                          | 23 |
| 7.6                                                              | Investment  Intent                                                                  | 23 |
| 7.7                                                              | Disclosure  of Information                                                          | 23 |
| 7.8                                                              | Funding                                                                             | 23 |
| 7.9                                                              | Brokers                                                                             | 23 |
|                                                             |                                                                                |
| ARTICLE VIII ADDITIONAL  AGREEMENTS                              | 23                                                                                  |
| 8.1                                                              | Further  Actions                                                                    | 23 |
| 8.2                                                              | Conduct  of Business Pending Closing                                                | 24 |
| 8.3                                                              | Title Defects                                                                       | 25 |
| 8.4                                                              | Environmental  Defects                                                              | 27 |
| 8.5                                                              | Gas  Imbalances                                                                     | 29 |
| 8.6                                                              | Access  to Information                                                              | 30 |
| 8.7                                                              | Regulatory  Approvals                                                               | 30 |
| 8.8                                                              | Agreement  to Defend                                                                | 30 |
| 8.9                                                              | Certain  Consents by Sellers                                                        | 31 |
| 8.10                                                             | Other  Actions                                                                      | 31 |
| 8.11                                                             | LIMITATION  AND DISCLAIMER OF IMPLIED REPRESENTATIONS AND WARRANTIES OF THE COMPANY | 31 |
| 8.12                                                             | Change  of Company Name                                                             | 31 |
| 8.13                                                             | Relationship  Among Sellers                                                         | 31 |
| 8.14                                                             | Continuation  of the Company’s Existing Indemnification Obligations.           | 32 |
| 8.15                                                             | Stockholders  Agreement.                                                            | 32 |
| 8.16                                                             | Participation  in Leases                                                            | 32 |
|                                                             |                                                                                |
| ARTICLE IX CONDITIONS TO CLOSING                                 | 33                                                                                  |
| 9.1                                                              | Buyer’s  Conditions                                                            | 33 |

 

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| 9.2                             | Sellers’ Conditions                                      | 34 |
|---------------------------------|---------------------------------------------------------------|----|
| 9.3                             | Closing Payment and  Post-Closing Purchase Price Adjustments. | 34 |
|                            |                                                          |
| ARTICLE X DELIVERIES AT CLOSING | 35                                                            |
| 10.1                            | Deliveries by Seller to  Buyer                                | 35 |
| 10.2                            | Deliveries by Buyer to  Seller                                | 36 |
|                            |                                                          |
| ARTICLE XI TERMINATION          | 37                                                            |
| 11.1                            | Termination                                                   | 37 |
| 11.2                            | Effect of Termination                                         | 37 |
|                            |                                                          |
| ARTICLE XII INDEMNIFICATION     | 38                                                            |
| 12.1                            | Seller Indemnification                                        | 38 |
| 12.2                            | Buyer Indemnification                                         | 38 |
| 12.3                            | Indemnification Procedures                                    | 38 |
| 12.4                            | Limits on Indemnification                                     | 39 |
|                            |                                                          |
| ARTICLE XIII TAXES              | 40                                                            |
| 13.1                            | Tax Returns and Payments                                      | 40 |
| 13.2                            | Cooperation                                                   | 40 |
| 13.3                            | Sales and Use Taxes;  Property Taxes                          | 41 |
|                            |                                                          |
| ARTICLE XIV GENERAL             | 41                                                            |
| 14.1                            | Arbitration                                                   | 41 |
| 14.2                            | Amendments                                                    | 42 |
| 14.3                            | Waivers                                                       | 42 |
| 14.4                            | Notices                                                       | 42 |
| 14.5                            | Successor and Assigns,  Parties in Interest                   | 43 |
| 14.6                            | Severability                                                  | 43 |
| 14.7                            | Entire Agreement                                              | 43 |
| 14.8                            | Schedules                                                     | 43 |
| 14.9                            | Governing Law                                                 | 43 |
| 14.10                           | Remedies                                                      | 44 |
| 14.11                           | Expenses                                                      | 44 |
| 14.12                           | Release of Information;  Confidentiality                      | 44 |
| 14.13                           | Certain Construction Rules                                    | 44 |
| 14.14                           | Counterparts                                                  | 45 |
| 14.15                           | Limitation on Damages                                         | 45 |
| 14.16                           | No Third-Party Beneficiaries                                  | 45 |
| 14.17                           | Time of the Essence                                           | 45 |
| 14.18                           | Guarantee                                                     | 45 |

** **

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**Index of Exhibits:**
| EXHIBIT               |   | DESCRIPTION            |
|-----------------------|--------|------------------------|
|                  |   |                   |
| Exhibit “A” |   | Oil and Gas Properties |
|                  |   |                   |
| Exhibit “B” |   | Allocated Values       |
|                  |   |                   |
| Exhibit “C” |   | Spousal Joinder        |

 

 

 

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**STOCK PURCHASEAGREEMENT**

This Stock Purchase Agreement dated as of September 21, 2005 (this“Agreement”) is entered into by and among Edge Petroleum Exploration Company, aDelaware corporation (“Buyer”), and solely for the purposes of Section 14.18hereto, Edge Petroleum Corporation, a Delaware corporation (“Guarantor”), CincoEnergy Corporation, a Delaware corporation (the “Company”), and each of Jon L.Glass, Craig D. Pollard, Leigh T. Prieto, Yorktown Energy Partners V, L.P.and Yorktown Energy Partners VI, L.P. (each a “Seller” or collectively referredto herein as “Sellers”) pertaining to the purchase and sale of the Shares(defined below).

WHEREAS, the Sellers own all the outstanding shares of capital stock(the “Shares”) of the Company; and

WHEREAS, Buyer desires to purchase from Sellers and Sellers desire tosell to Buyer all of the Shares on the terms and subject to the conditions setforth in this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements,representations, warranties and subject to the conditions contained herein, theparties hereto hereby agree as follows:

# **ARTICLE IDEFINITIONS**

As used in this Agreement:

“Additional Excluded Items” has the meaning specified in Section3.5(b).

“Affiliate” means, as to any Person which, directly or indirectly,controls, is controlled by, or is under common control with such Person.

“Agreement” has the meaning specified in the preamble hereof.

“Allocated Values” means the allocation of values of the Oil and GasProperties included in the Ownership Interests set forth on Exhibit “B”attached hereto.  The Allocated Valuesfor each Oil and Gas Property has been agreed to by Buyer and Seller andrepresents a good faith allocation of value of the Oil and Gas Properties.

“Audited Financial Statements” has the meaning specified in Section 5.4.

“Base Purchase Price” has the meaning specified in Section 3.2.

“Basket Amount” has the meaning specified in Section 12.4(a).

“Break-Up Fee” shall mean five percent (5%) of the Base Purchase Price.

 

 

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“Brokerage Fee” means the fees and expenses of Richardson Barr &Co. in connection with its services as financial advisor to the Company inconnection with the transactions contemplated by this Agreement.

“Buyer” has the meaning specified in the preamble hereof.

“CERCLA” has the meaning specified in the definition of “EnvironmentalLaws.”

“CERCLIS” means the Comprehensive Environmental Response, Compensationand Liability Information System List.

“Closing” has the meaning specified in Section 2.1.

“Closing Date” has the meaning specified in Section 2.1.

“Closing Payment” has the meaning specified in Section 9.3.

“Code” means the Internal Revenue Code of 1986, as amended.

“Common Stock” means the common stock, par value $.01 per share, of theCompany.

“Company” has the meaning specified in the preamble hereof.

“Company’s Knowledge” means actual knowledge of any officer, director,employee, agent or attorney of the Company.

“Confidentiality Agreement” means that certain ConfidentialityAgreement by and between the Company and Buyer dated as of August 16, 2005.

“Consulting Fee” means the fees and expenses of Matthew Gallagher orany entity affiliated with Matthew Gallagher in connection with his or itsservices as a consultant to the Company in connection with the transactionscontemplated by this Agreement.

“Contract” means any contract, agreement, indenture, note, bond, loan,instrument, lease, conditional sale contract, mortgage, license, franchise,insurance policy or commitment, whether written or oral.

“Current Assets” means as reflected in accordance with GAAP on theconsolidated balance sheet for the Company as of the applicable date, the sum,without duplication, of all amounts and provisions that are included andclassified as current assets, excluding however, the Seller Debt, the ExcludedItems, the Additional Excluded Items and any payment due to the Company as determinedpursuant to Section 8.5.

“Defensible Title” means such right, title and interest that is (a)with respect to Ownership Interests of record, evidenced by an instrument orinstruments filed of record in accordance with the conveyance and recordinglaws of the applicable jurisdiction to the extent necessary to give the Companyand Buyer, through its ownership of the Common Stock, the right to enjoy thebenefits of possession of the Ownership Interests reflected on Exhibit “A”,and,

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with respect to Ownership Interests not yet earnedunder a farmout agreement, is described in and subject to a farmout agreementcontaining terms and provisions reasonably consistent with terms and provisionsgenerally used in the domestic oil and gas business and under which thereexists no default by the Company, (b) subject to Permitted Liens, free andclear of all Liens, claims, infringements, and other burdens and (c) sufficientto vest in the Company the net revenue and working interests shown in each Oiland Gas Property in Exhibit “A”.

“Deposit” has the meaning specified in Article IV.

“DGCL” means the Delaware General Corporation Law.

“Effective Date” has the meaning specified in Section 2.1.

“Employee Benefit Plans” means any “employee benefit plan” within themeaning of Section 3(3) of ERISA and any bonus, deferred compensation,incentive compensation, stock ownership, stock purchase, stock option, phantomstock, vacation, severance, disability, death benefit, hospitalization orinsurance plan providing benefits to any present or former employee orcontractor of the Company or any of its subsidiaries.

“Employee Options” shall have the meaning specified in Section 3.6.

“Environmental Defect” has the meaning specified in Section 8.4(b).

“Environmental Law” means the Clean Air Act, as amended, the FederalWater Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, asamended, the Safe Drinking Water Act, as amended, the ComprehensiveEnvironmental Response, Compensation and Liability Act, as amended (“CERCLA”),the Superfund Amendments and Reauthorization Act of 1986, as amended, theResource Conservation and Recovery Act of 1976, as amended, the Hazardous andSolid Waste Amendments Act of 1984, as amended, the Toxic Substances ControlAct, as amended, the Occupational Safety and Health Act, as amended, theHazardous Materials Transportation Act, as amended, and any other federal,state and local law.

“ERISA” means the Employee Retirement Income Security Act, as amended.

“Excluded Items” means the (i) properties and related liabilities ofthe Company sold, transferred and assigned to Cinco Resources, Inc. pursuant tothat certain Assignment and Bill of Sale dated June 30, 2005 (effectiveJune 1, 2005) by and between the Company and Cinco Resources, Inc., and (ii) propertiesand related liabilities of the Company sold, transferred and assigned to CincoNatural Resources Corporation pursuant to that certain Purchase and SaleAgreement dated July 29, 2005 (effective June 1, 2005) by and betweenthe Company and Cinco Natural Resources Corporation.

“Financial Statements” has the meaning specified in Section 5.4.

“GAAP” means accounting principles generally accepted in the UnitedStates of America as in effect from time to time and applied on a basisconsistent with the preparation of the Financial Statements.

 

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“Governmental Authority” means any federal, state, local or foreigngovernment or governmental regulatory body and any of their respectivesubdivisions, agencies, instrumentalities, authorities, courts or tribunals.

“Hazardous Material” means (a) any “hazardous substance,” as defined byCERCLA; (b) any “hazardous waste” or “solid waste,” in either case as definedby the Resource Conservation and Recovery Act, as amended; (c) any solid,hazardous, dangerous or toxic chemical, material, waste or substance, withinthe meaning of and regulated by any Environmental Law; (d) any asbestoscontaining materials in any form or condition; (e) any polychlorinatedbiphenyls in any form or condition; or (f) any air pollutant which is sodesignated by the U.S. EPA as authorized by the Clean Air Act.

“Hedging Transaction” means any futures, hedge, swap, collar, put,call, floor, cap, option or other contract that is intended to benefit from,relate to or reduce or eliminate the risk of fluctuations in the price ofcommodities, including Hydrocarbons, interest rates, currencies or securities.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended, and the rules and regulations promulgated thereunder.

“Hydrocarbons” means oil, condensate, gas, casinghead gas and otherliquid or gaseous hydrocarbons.

“Incremental Purchase Price” has the meaning specified in Section 3.8.

“Indemnified Party” has the meaning specified in Section 12.3(a).

“Indemnifying Party” has the meaning specified in Section 12.3(a).

“Injunction” means a temporary restraining order, preliminary orpermanent injunction or other order issued by a court of competentjurisdiction, an order of a Governmental Entity having jurisdiction over anyparty hereto, or any legal restraint or prohibition.

“Lands” has the meaning specified in the definition of “Oil and GasProperties.”

“Law” means any federal, state or local law, statute, rule, ordinance,code or regulation.

“Leases” has the meaning specified the definition of “Oil and GasProperties.”

“Legal Proceeding” means any judicial, administrative or arbitralaction, suit, proceeding (public or private), litigation, investigation,complaint, claim or governmental proceeding.

“Liabilities” means as reflected in accordance with GAAP on theconsolidated balance sheet for the Company as of the applicable date, the sum,without duplication, of all amounts and provisions that are included andclassified as liabilities, excluding however, any asset retirement obligations.  For the avoidance of doubt, Taxes whichrelate to the period prior to the Effective Date shall be included as a “Liability”for purposes of the determination of Net Working Capital.

 

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“Lien” means any lien, pledge, mortgage, deed of trust, securityinterest, attachment, right of first refusal, option, easement, covenant,encroachment, hedging transaction, or any other burden or adverse claim whatsoever.

“Litigation” shall mean the Legal Proceedings, Orders and OfficialActions listed on Schedule 5.8.

“Losses” has the meaning specified in Section 12.1.

“Material Adverse Effect” shall mean:

(i)            Asto Buyer, any breach of Buyer’s representations and warranties, whichindividually or in the aggregate would materially impair Buyer’s ability toconsummate the transactions contemplated by this Agreement or prevent theconsummation of any of the transactions contemplated hereby.

(ii)           Asto any Seller, any breach of such Seller’s representations and warranties,which individually or in the aggregate would materially impair such Seller’sability to consummate the transactions contemplated by this Agreement orprevent the consummation of any of the transactions contemplated hereby.

(iii)          Asto the Company, any event, change or effect that, when taken individually ortogether with all other adverse changes and effects, has had or wouldreasonably be expected to have a material adverse effect on the Company’s financialcondition, results of operations, business, assets or liabilities, or wouldmaterially impair such Seller’s ability to consummate the transactionscontemplated by this Agreement or prevent the consummation of any of thetransactions contemplated hereby; provided that matters (such as, withoutlimitation, decreases in the prices received by the Company for natural gas,natural gas liquids, crude oil, condensate or other natural resources) that aregeneral, regional, industry-wide or economy-wide developments shall not betaken into account in determining whether an event, change or effect has aMaterial Adverse Effect; and provided further, that following the Pearl/CibolaClosing, none of the following shall be considered when determining whether aMaterial Adverse Effect has occurred: (i) an event, change or effect that results from a Title Defect,Environmental Defect, or a Well that is to be plugged and abandoned or has beenplugged and abandoned in a manner that does not comply with all applicable requirementsof each Governmental Authority having jurisdiction over the Oil and GasProperties, (ii) an event, change or effect that was caused by any action orinaction of Buyer with respect to the properties acquired under thePearl/Cibola Agreement, or (iii) an event, change or effect that was caused byany action or inaction of the Company if taken in accordance with Buyer’sinstructions pursuant to Section 8.2 of this Agreement.

“Material Contracts” has the meaning specified in Section 5.7.

“Minimal Environmental Defects” has the meaning specified in Section 8.4(d).

“Minimal Title Defects” has the meaning specified in Section 8.3(f).

 

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“Net Working Capital” means, as of the Effective Date, Current Assets lessLiabilities.

“Notification Deadline” has the meaning specified in Section 8.3(a).

“Official Action” shall mean any domestic or foreign decision, order,writ, injunction, decree, judgment, award or any determination, both aspresently existing and effective or presently existing and as may becomeeffective in the future, by any court, administrative body, or other tribunal.

“Oil and Gas Properties” means all right, title, interest and estate,real or personal, recorded or unrecorded, movable or immovable, tangible orintangible, in and to: (i) oil and gas leases, oil, gas and mineralleases, subleases and other leaseholds, royalties, overriding royalties, netprofit interests, mineral fee interests, carried interests and other propertiesand interests (the “Leases”) and the lands covered thereby (“Land(s)”) and anyand all oil, gas, water or injection wells thereon or applicable thereto (the “Wells”);(ii) any pools or units which include all or a part of any Land or includeany Well (the “Units”) and including without limitation all right, title andinterest in production from any such Unit, whether such Unit production comesfrom wells located on or off of the Lands, and all tenements, hereditaments andappurtenances belonging to, used or useful in connection with the Leases, Landsand Units; (iii) interests under or derived from all contracts, agreementsand instruments applicable to or by which such properties are bound or created,to the extent applicable to such properties, including, but not limited to,operating agreements, gathering agreements, marketing agreements,transportation agreements, processing agreements, seismic, geological andgeophysical agreements, unitization, pooling and communitization agreements,declarations and orders, joint venture agreements, and farmin and farmoutagreements; (iv) easements, permits, licenses, servitudes, rights-of-way,surface leases and other surface rights appurtenant to, and used or held foruse to the extent applicable to such properties; and (v) equipment,machinery, fixtures and other tangible personal property and improvementslocated on or used or obtained in connection with such properties.  Attached hereto as Exhibit ”A” isa description of each Lease and the Wells applicable thereto, which Exhibit ”A”shall be a part of the definition of “Oil and Gas Properties.”  The respective “net revenue interest” and “workinginterest” of the Company in the Oil and Gas Properties described on Exhibit ”A”(the “Ownership Interests”) shall be a part of the definition of “Oil and GasProperties.”  The Oil and Gas Propertiesdo not include, and there is excluded from the terms of this Agreement theExcluded Items and Additional Excluded Items as herein defined.

“Option Cancellation Agreement” has the meaning specified in Section 3.6.

“Option Consideration” has the meaning specified in Section 3.6.

“Order” means any order, judgment, Injunction, ruling, writ, award,decree, statute, law, ordinance, rule or regulation.

“Ownership Interests” has the meaning specified in the definition of “Oiland Gas Properties.”

“Pearl/Cibola Agreement” means the Purchase and Sale Agreement dated asof September 21, 2005 by and among Pearl Energy Partners, Ltd., CibolaExploration Partners, L.P., and Buyer.

 

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“Pearl/Cibola Closing” means the closing of the transactionscontemplated by the Pearl/Cibola Agreement.

“Permit” means any permit, license, certificate (including acertificate of occupancy) registration, authorization, application, filing,notice, qualification, waiver of any of the foregoing or approval of aGovernmental Authority.

“Permitted Liens” means:  (a) lessors’royalties and any overriding royalties, reversionary interests and otherburdens (and any liens or security interests created by law or reserved ininstruments creating such interests to secure payment of same) to the extentthat they do not, individually or in the aggregate, reduce the Company’s netrevenue interests in any Well below that shown in Exhibit ”A” orincrease the Company’s working interest above that shown in Exhibit ”A”without a corresponding increase in the net revenue interest; (b) all leases,unit agreements, pooling agreements, operating agreements, production salescontracts, division orders and other contracts, agreements and instrumentsapplicable to the Leases, to the extent that they do not, individually or inthe aggregate, reduce the Company’s net revenue interests in any Well belowthat shown in Exhibit ”A” or increase the Company’s working interestabove that shown in Exhibit ”A” without a corresponding increase inthe net revenue interest; (c) third-party consent requirements, preferentialrights or other rights assertable by third parties with respect to whichwaivers or consents are obtained by the Company from the appropriate thirdparties prior to the Closing Date or the appropriate time period for assertingthe right has expired or which need not be satisfied prior to a transfer; (d)liens for current Taxes or assessments not yet due or delinquent on the ClosingDate or, if delinquent, that are being contested in good faith in the ordinarycourse of business; (e) materialmen’s, mechanic’s, repairman’s, employee’s,contractor’s, operator’s and other similar liens or charges arising in the ordinarycourse of business for amounts not yet delinquent; (f) all rights to consentby, required notices to, filings with, or other actions by GovernmentalAuthorities in connection with the sale or conveyance of oil and gas leases orinterests therein or sale of production therefrom if the same are customarilyobtained subsequent to such sale or conveyance; (g) easements, rights-of-way,servitudes, permits, surface leases, and other rights in respect of surfaceoperations on or over any of the Oil and Gas Properties which do not materiallyinterfere with the current or proposed operations on the Oil and Gas Properties;or (h) any Liens which do not, individually or in the aggregate, materiallydetract from the value of or materially interfere with the use, ownership oroperation of the Oil and Gas Properties subject thereto or affected thereby (ascurrently used, owned or operated) or which would be accepted by a reasonablyprudent purchaser engaged in the business of owning and operating oil and gasproperties in Texas but excluding, in any event, any Liens securingindebtedness for borrowed money; and (i) other liens set forth in Schedule 5.25.

“Per Share Consideration” has the meaning specified in Section 3.6.

“Person” means any natural person, corporation, partnership, limitedliability company, trust, unincorporated organization, Governmental Authority,or other entity.

“Pre-Closing Returns” has the meaning specified in Section 13.1.

“Preferred Stock” means the preferred stock, par value $.01 per share,of the Company.

 

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“Pro Rata Share” means with respect to any Seller a fraction, set forthas a percentage, the numerator of which is the aggregate amount ofconsideration received by a Seller pursuant to this Agreement for all of suchSeller’s Shares and the Seller’s Option Consideration, if applicable, and thedenominator of which is the aggregate consideration received by all Sellerspursuant to this Agreement.

“Purchase Price” has the meaning specified in Section 3.2.

“Related Party” means (i) any Affiliate of the Company, or (ii) exceptfor any non-natural Seller, any grandparent, parent, brother, sister, child orspouse of a Seller.

“Schedule” means a disclosure schedule provided by Seller to Buyerpursuant to this Agreement.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” and “Sellers” have the meaning specified in the preamblehereof.

“Seller Debt” means the principal amount of the promissory notes andother indebtedness owed by Sellers to the Company as shown on Schedule 3.7,plus all accrued interest thereon.

“Sellers’ Representative” shall have the meaning specified in Section 8.13.

“Services Agreement” means the Administrative Services Agreement, datedas of November 23, 2004, between the Company and Cinco Natural ResourcesCorporation.

“Shares” has the meaning specified in the preamble hereof.

“Stockholders Agreement” means that certain Voting and StockholdersAgreement, dated as of November 23, 2004, by and among the Company and eachof the Sellers.

“Subsidiaries” means, with respect to any Person, each entity as towhich such Person (either alone or through or together with any otherSubsidiary) (i) owns beneficially or of record or has the power to vote orcontrol, 50% or more of the voting securities of such entity or of any class ofequity interests of such entity the holders of which are ordinarily entitled tovote for the election of the members of the Board of Directors or other personsperforming similar functions, (ii) in the case of partnerships, serves as ageneral partner, (iii) in the case of a limited liability company, serves as amanaging member or owns a majority of the equity interests or (iv) otherwisehas the ability to elect a majority of the directors, trustees or managingmembers thereof.

“Tax” or “Taxes” means all income, profits, franchise, gross receipts,capital, sales, use, withholding, value added, ad valorem, transfer,employment, social security, disability, occupation, asset, property,severance, documentary, stamp, excise and other taxes, duties and similargovernmental charges or assessments imposed by or on behalf of any GovernmentalAuthority and any interest, fines, penalties or additions relating to any suchtax, duty, charge or assessment.

 

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“Tax Return” means any return, report, information statement, orsimilar statement required to be filed with respect to any Taxes (including anyattached schedules), including, without limitation, any information return,claim for refund, amended return and declaration of estimated Tax.

“Title Defect” has the meaning specified in Section 8.3(a).

“Title Defect Value” means, with respect to each Title Defect, thereduction of the Allocated Value of the affected Ownership Interest as a resultof such Title Defect as determined in Section 8.3.

“Wells” has the meaning specified in the definition of “Oil and GasProperties.”

“Unaudited Financial Statements” has the meaning specified in Section 5.4.

“Units” has the meaning specified in the definition of “Oil and GasProperties.”

# **ARTICLE IIEFFECTIVE DATE; CLOSING**

2.1           Effective Date;Closing.      The effective date ofthe transactions contemplated hereby shall be at 7:00 a.m., Central Time, on September 1,2005 (the “Effective Date”).  The closingof the transactions contemplated hereby (the “Closing”) shall take place at theoffices of Thompson & Knight LLP, 1700 Pacific Avenue, Suite 3300, Dallas,Texas 75201 at 10:00 a.m., Central Time, on November 30, 2005 or suchother place or date as the parties hereto may mutually agree (the “Closing Date”).

2.2           Proceedings atClosing.      All proceedings to betaken and all documents to be executed and delivered by all parties at theClosing shall be deemed to have been taken and executed simultaneously, and noproceedings shall be deemed taken nor any documents executed or delivered untilall have been taken, executed and delivered unless otherwise agreed in writingby the parties to this Agreement.

# **ARTICLE IIISALE AND PURCHASE OF SHARES; CONSIDERATION**

3.1           Sale and Purchaseof Shares.             On the ClosingDate, subject to the terms and conditions set forth herein, the Sellers willsell, transfer, convey, assign and deliver to Buyer, and Buyer will purchasefrom the Sellers, the Shares.

3.2           Amount and Formof Consideration.                Thetotal purchase price to be paid by Buyer to Sellers in consideration of theShares and cancellation of the Employee Options (pursuant to Section 3.6) is Thirty-FiveMillion, Seven Hundred Sixty-Seven Thousand Five Hundred Dollars ($35,767,500.00)(the “Base Purchase Price”), subject to adjustment as provided in Section 3.4and Section 3.8 (the Base Purchase Price, as so adjusted and as may be furtheradjusted by the

 

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Post Closing Adjustment, is the “Purchase Price”).  For the avoidance of doubt, (i) the Depositshall be applied against the Purchase Price at the Closing and (ii) paymentsmade after the Closing pursuant to Section 3.8, if any, shall be part of thePurchase Price as if such payment had been made prior to the Closing and theBase Purchase Price had been adjusted at the Closing for such payments inaccordance with Section 3.4.  For theavoidance of doubt, and although part of the Purchase Price, the amountdeducted from each Seller’s portion of the Purchase Price in accordance withSection 3.7 shall not be payable by Buyer but rather shall be credited as apayment by such Seller to the Company in exchange for the cancellation of theSeller Debt.

3.3           Payment of Consideration.

### (a)           Inconsideration of the sale, transfer, conveyance, assignment and delivery of theShares and cancellation of the Employee Options, Buyer will:

#### (i)        paythe Sellers and the holders of Employee Options (in each case in accordancewith Section 3.3(b)), an aggregate amount equal to the Purchase Price (aftertaking into account the application of the Deposit to the Purchase Price whichshall also be allocated to the Sellers and the holders of Employee Options inaccordance with Section 3.3(b)) by wire transfer of immediately available fundson the Closing Date;

#### (ii)       assumethe liabilities, if any, for gas production imbalances as further provided inSection 8.5; and

#### (iii)      payor cause to be paid the Brokerage Fee and Consulting Fee.

### (b)           (i) Aproportionate amount of the Purchase Price (and the Deposit which is part ofthe Purchase Price) less the aggregate Option Consideration payable pursuant toSection 3.6 shall be paid to each Seller in accordance with such Seller’sproportionate ownership interests as set forth on Schedule 5.3(a) and(ii) the Option Consideration (which constitutes part of the Purchase Price)shall be payable to the holders of Employee Options in accordance with Section3.6.

### (c)           ThePurchase Price shall be paid by wire transfer of immediately available funds toSellers and the holders of Employee Options (to the accounts thereof specifiedby each Seller and each Employee Option holder (in accordance with Section 3.6))in accordance with the instructions of each Seller and each Employee Optionholder (in accordance with Section 3.6) delivered to Buyer not later than48 hours prior to the Closing).

3.4           PriceAdjustments.              The BasePurchase Price will be adjusted:

### (a)           upwardby the amount of the amount payable, if any, by Buyer to Seller in accordancewith Section 3.8;

### (b)           upwardby the Seller Debt;

### (c)           upwardor downward in accordance with Section 8.3;

 

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### (d)           upwardor downward in accordance with Section 8.5;

### (e)           downward,if at all, in accordance with Section 8.4;

### (f)            downwardby the Brokerage Fee and the Consulting Fee; and

### (g)           upwardor downward by the amount of the Company’s Net Working Capital.

3.5           Excluded Items.

### (a)           Allreferences herein to the Company’s assets, properties (including, withoutlimitation, its Oil and Gas Properties) and liabilities do not include or referto any of the Excluded Items.

### (b)           All(i) the Company’s insurance claims with respect to events affecting the Companyor the Oil and Gas Properties which are made prior to the Effective Date, (ii) claimsfor severance tax refunds relating to production from the Oil and GasProperties prior to the Effective Date and (iii) claims for sales tax refunds relatingto purchases prior to the Effective Date (collectively, the “AdditionalExcluded Items”) shall be excluded from the sale of the Shares to Buyer.  All references herein to the Company’sassets, properties (including, without limitation, its Oil and Gas Properties)and liabilities do not include or refer to the Additional Excluded Items.  Any Additional Excluded Items received by theCompany between the Effective Date and the Closing Date shall be distributed bythe Company to its shareholders or otherwise transferred to the Sellers ortheir nominee.  In the event anyAdditional Excluded Items are received by the Company or Buyer following theClosing Date, Buyer shall or shall cause the Company within ten (10) businessdays of receipt by the Company or Buyer of such Additional Excluded Items topay such Additional Excluded Items to Sellers or their nominees in accordancewith instructions from the Sellers’ Representative.  Buyer shall cooperate with Sellers in effortsto collect the Additional Excluded Items, and Buyer shall provide the Sellers’Representative or its designees with full access to the personnel, books andrecords of Buyer during normal business hours upon reasonable request ofSellers to audit such books and records for compliance with this Section 3.5(b).

3.6           Employee StockOptions.   On or prior to the ClosingDate, the Company will enter into agreements (each, an “Option CancellationAgreement”) with each holder, including each Seller that is a holder, of anoutstanding option to purchase Common Stock (“Employee Options”) granted by theCompany pursuant to stock option agreements, whether or not then vested orexercisable, in a form reasonably acceptable to the Buyer and which such OptionCancellation Agreement shall include a full and final release of any and allclaims that the holder(s) of such Employee Options may have against the Companyor the Buyer and pursuant to which on the Closing Date each Employee Optionoutstanding on the Closing Date and subject to such an Option CancellationAgreement shall be canceled and each holder of a canceled Employee Option shallreceive in cancellation and settlement of the Employee Option, a cash amount(the “Option Consideration”) equal to the product of (i) the number ofshares of Common Stock subject to the Employee Option as of such time,multiplied by (ii) the excess, if

 

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any, of the Per Share Consideration less the exercise price per shareof Common Stock subject to the Employee Option. “Per Share Consideration” shall mean the Purchase Price divided by 241,500.  As of the Closing Date, each holder of anEmployee Option will be entitled to receive only an amount equal to the OptionConsideration and not any shares of Common Stock or other securities.  All amounts payable under this Section 3.6shall be paid by Buyer by wire transfer of immediately available funds to eachholder (to the account or accounts thereof specified by Sellers’Representative) in accordance with the instructions of Sellers’ Representativedelivered to Buyer not later than 48 hours prior to the Closing).  Except as provided herein, the Company shallnot grant or amend any Employee Options or grant any additional employeeoptions and shall not amend or modify the stock option agreements after thedate hereof.

3.7           Payment of SellerDebt.       All outstanding amountsof, including accrued and unpaid interest on, the Seller Debt (as set forth on Schedule 3.7)with respect to a particular Seller shall be deducted from the portion of thePurchase Price payable to such Seller and thereupon such Seller Debt shall be deemedcancelled.

3.8           IncrementalPurchase Price.               Inaddition to the Purchase Price as adjusted pursuant to Section 3.4 hereof,Buyer shall pay Sellers an incremental purchase price of Two Million NineHundred Sixty-Four Thousand Dollars ($2,964,000.00) conditioned upon the Oiland Gas Properties receiving high-cost natural gas certification (ascontemplated by TEX. TAX CODE ANN.201.057 (Vernon Supp. 2000)) so as to qualify the Company’s interest in the Oiland Gas Properties to receive the exemption or tax reduction provided for bythe above referenced law on or before December 31, 2005 (the “IncrementalPurchase Price”).  In the event such certificationis obtained prior to the Closing Date, the Incremental Purchase Price shall beadded to the Base Purchase Price in accordance with Section 3.4.  In the event such certification is obtainedafter the Closing Date, the Incremental Purchase Price shall be (i) allocatedamongst the Sellers and the holders of Employee Options in accordance with Section3.3(b) as if such payment had been received prior to the Closing Date and wereincluded as an adjustment to the Base Purchase Price on the Closing Date and(ii) shall be payable by wire transfer of immediately available funds withinthree (3) business days of Sellers’ notification to Buyer of the receipt ofsuch approval to be accompanied by reasonable documentation thereof all inaccordance with Section 3.3(c).  In theevent the certification has not been received by December 31, 2005, theIncremental Purchase Price shall not be payable by Buyer to Sellers, butnothing in this section shall otherwise affect Sellers’ right to receiveseverance tax refunds with respect to production prior to the Effective Dateirrespective of when obtained.

# **ARTICLE IVDEPOSIT**

Contemporaneous with its execution of this Agreement, Buyer shall payto Sellers’ Representative a deposit (hereinafter called the “Deposit”), in theamount of five percent (5%) of the Base Purchase Price.  If Buyer and Sellers consummate the transactioncontemplated hereby in accordance with the terms hereof, the Deposit shall beapplied to the Purchase Price but shall otherwise be non-refundable except asprovided below.  If Buyer and Sellers donot consummate the transaction contemplated hereby because (i) of atermination of this Agreement by either party in accordance with Section11.1(a), (b), (d), or (e) or (ii) Sellers or Buyer terminate this

 

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Agreement in accordance with Section 11.1(c) and atthe time of such termination the Sellers have not fulfilled all of theirobligations under this Agreement such that Buyer would not then be obligated toeffect the Closing under this Agreement, then Sellers shall immediately returnthe Deposit to Buyer; provided that, if this Agreement is terminated by Buyerpursuant to Section 11.1(e), upon written notice to Sellers, Buyer may elect toallow the Sellers to retain the Deposit in lieu of Buyer paying the Break-UpFee pursuant to Section 11.1(e).  For theavoidance of doubt, Sellers may retain the Deposit if this Agreement isterminated pursuant to Section 11.1(c) and if at the time of such terminationthe Sellers have fulfilled all of their obligations under this Agreement suchthat Buyer would then be obligated to effect the Closing.

# **ARTICLE VREPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY**

The Company hereby represents and warrants to Buyer as of the datehereof and as of the Closing Date as follows:

5.1           Organization andPower.     The Company is a corporationduly incorporated, validly existing and in good standing under the laws of theState of Delaware and is qualified and in good standing to transact business ineach jurisdiction in which such qualification is required by Law, except wherethe failure to be so qualified would not have a Material Adverse Effect.  TheCompany has all requisite corporate power and authority to execute, deliver andperform its obligations under this Agreement and to consummate the transactionscontemplated hereby.  The Companyhas heretofore delivered to Buyer complete and correct copies of itscertificate of incorporation and bylaws, each as amended to date.

5.2           Authorizations;Execution and Validity.          Theexecution and delivery of this Agreement by the Company, the performance ofthis Agreement by the Company and the consummation by the Company of thetransactions contemplated hereby and thereby to be consummated by it, have beenduly authorized by all necessary corporate action and no other corporate actionon the part of the Company is necessary with respect thereto.  This Agreement has been duly executed anddelivered by the Company and, when duly and validly executed and delivered,will constitute a valid and binding obligation of the Company, as applicable,and is enforceable against the Company in accordance with its terms, except assuch enforceability may be limited by bankruptcy, insolvency, reorganizationand similar laws affecting creditors generally and by the availability ofequitable remedies.

5.3           Capitalization.       The authorized capital stock of theCompany consists solely of 1,000,000 shares of Common Stock and 100,000 sharesof Preferred Stock.  There are anaggregate of 220,000 shares of Common Stock issued and outstanding, all ofwhich Shares are owned of record and beneficially, free and clear of any Liens(other than pledges in connection with indebtedness in favor of the Company andpursuant to applicable securities laws), by Sellers with each Seller owning thenumber of Shares shown on Schedule 5.3(a), and have been duly authorizedand validly issued, and are fully paid and non-assessable.  No shares of Preferred Stock are issued andoutstanding.  As of the Effective Date,the Company had outstanding options which had been issued to the individualsand entities listed on Schedule 5.3(b) totaling 21,500 Shares.  As of the Effective Date and as of theClosing Date, the issued and outstanding 

 

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amount of the Company’s Common Stock on a fully diluted basis is andwill be 241,500 Shares.  As of theClosing Date, there shall be no outstanding options, subscriptions, warrants,calls, commitments, pre-emptive rights or other rights obligating the Companyto issue or sell any shares of its capital stock or any securities convertibleinto or exercisable for any shares of its capital stock, or otherwise requiringSellers or the Company to give any Person the right to receive any benefits orrights similar to any rights enjoyed by or accruing to the holders of shares ofcapital stock of Sellers or the Company or any rights to participate in theequity or net income of Sellers or the Company. All of the issued shares of the Company’s capital stock were issued, andto the extent purchased or transferred, have been so purchased or transferred,in compliance with all applicable Laws, including federal and state securitieslaws, and any preemptive rights and any other statutory or contractual rightsof any Seller.

The Company has no Subsidiaries and does not own, directly or indirectly,any capital of or other equity interest in or have any other investment in oroutstanding loans to any corporation, partnership or other entity ororganization.  Except for theStockholders Agreement and as otherwise set forth on Schedule 5.3(c),there are no stockholders’ agreements, voting trusts or other agreements orunderstandings between or among Sellers or to which the Company is a party orby which it is bound with respect to the transfer or voting of any capitalstock of the Company, none of which (including the Stockholders Agreement andany agreements set forth on Schedule 5.3(c)) shall be in effectfollowing the Closing.

5.4           FinancialStatements; Other Financial Data.    Attachedhereto on Schedule 5.4 are correct and complete copies of the auditedconsolidated balance sheet of the Company and its former Subsidiaries as ofDecember 31, 2004 with the related statements of income and retainedearnings and of cash flows for the year ended (the “Audited FinancialStatements”) and the accrual basis unaudited consolidated balance sheet of theCompany and its former Subsidiaries as of June 30, 2005, and the related accrualbasis unaudited consolidated statements of income and retained earnings and ofcash flows for the six months then ended (the “Unaudited Financial Statements”and, together with the Audited Financial Statements, the “Financial Statements”).  The Financial Statements present fairly inall material respects the financial position of the Company as of the datesindicated, and the results of its operations for the respective periodsindicated.  The Audited FinancialStatements are in conformity with GAAP, consistently applied.  The Unaudited Financial Statements areunaudited and, therefore, are subject to normal recurring year-end adjustmentsand the absence of footnotes.

5.5           Consents.              Neither the execution and deliveryby the Company of this Agreement nor the consummation or performance by theCompany of the transactions contemplated by this Agreement to be consummated orperformed by it will require (on the part of the Company) any consent from,authorization or approval or other action by, notice to or declaration, filingor a registration with, any Governmental Authority or any other third party,except, if required, to comply with the HSR Act or as specified in Schedule 5.5.

5.6           No Defaults orConflicts.    Neither the executionand delivery by the Company of this Agreement nor the consummation orperformance by the Company of the transactions contemplated by this Agreementto be consummated or performed by it (i) results or will result in anyviolation of the certificate of incorporation or bylaws of the Company;(ii) violates or conflicts with, or constitutes a breach of any of theterms or provisions of or a default under, or

 

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results in the creation or imposition of any Lien upon any property orasset of the Company, the trigger of any charge, payment or requirement ofconsent, or the acceleration or increase of the maturity of any payment dateunder: (A) any Contract or (B) any applicable Law or Order to which the Companyor any of their respective properties is subject.

5.7           Agreements,Contracts and Commitments.     Exceptfor the Oil and Gas Properties, the Company has listed in Schedule 5.7all leases, con­tracts, agreements and instruments to which it is a party as ofthe date hereof involving payment by or to the Company of more than $500,000 or that extend for a term ofmore than six months from the date of this Agreement and are not terminablewithout payment or penalty upon less than 60 days’ notice (true and correctcopies of each such document have been previously delivered or made availableto Buyer) (the “Material Contracts”). Except as set forth in Schedule 5.7, the Company has notbreached, nor to the Company’s Knowledge is there any claim or any legal basisfor a claim that the Company or any third party has breached, any of the termsor conditions of any Material Contract if any such breach, whether consideredindividually or in the aggregate, could result in the imposition of damages orthe loss of benefits in an amount or of a kind material to the Company.

5.8           Litigation.              Schedule 5.8 lists allLegal Proceedings pending or, to the Company’s Knowledge, threatened against oraffecting the Company or any of its assets. Except as disclosed on Schedule 5.8, the Company is not subjectto any Order or Official Action.  Thereare no Legal Proceedings pending against or, to the Company’s Knowledge,threatened against, the Company that questions the validity or legality of anyof this Agreement or any action taken or to be taken by the Company inconnection herewith or therewith.

5.9           Labor Matters.      There is no collective bargaining or otherlabor union agreement applicable to any of the employees of the Company.  No organized work stoppage, labor strike,labor dispute, or slowdown against the Company is pending or, to the Company’sKnowledge, threatened against or involving the Company.  The Company has not received written noticeof any unfair labor practice and no such complaints are pending before theNational Labor Relations Board or other similar governmental authority.  To the Company’s Knowledge, the Company isnot engaged in any unfair labor practice. No grievance or other labor dispute or proceeding or any arbitrationproceeding arising out of or under any collective bargaining or other employeeagreement is pending or, to the Company’s Knowledge, threatened against theCompany.

5.10         Employee Matters.               The Company has no employees.  The Company does not sponsor, maintain orcontribute to any Employee Benefit Plan other than the Cinco Energy Corporation2004 Stock Option Plan, which plan will be terminated at or prior to Closing.

5.11         Taxes.     Except as disclosed on Schedule 5.11:

### (a)           Allmaterial Tax Returns required to be filed on or before the Closing Date by oron behalf of the Company have been or will be filed within the time prescribedby Law (including extensions of time permitted by Law) and to the Company’sKnowledge, all such Tax Returns are true and complete in all material respects.

 

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### (b)           TheCompany has or will have paid, on a timely basis, all Taxes of the Company thatare due on or before the Closing Date or has reserved for such Taxes in theFinancial Statements.  There does notexist any actual or proposed additional Tax assessment against the Company.

### (c)           Thereare no Liens for Taxes upon any of the properties or assets of the Company(except for Permitted Liens).

### (d)           Thereare no pending Orders, audits, actions, proceedings, investigations, disputesor claims instigated by any Governmental Authority with respect to any Taxespayable by or asserted against the Company. The Company has not received notice from any taxing authority of itsintent to examine or audit any of its Tax Returns.  All deficiencies asserted as a result of anyexamination of any Tax Return of the Company have been paid in full.

### (e)           TheCompany is not and has not been subject to tax or done business in any countryother than the United States.

### (f)            Noagreements relating to allocation or sharing of, or liability orindemnification for, Taxes exist between the Company and any other Person.  Any internal tax allocation agreement shallterminate at the Closing.

### (g)           Tothe Company’s Knowledge, all Taxes required to be withheld, collected ordeposited by the Company (including, but not limited to, amounts required to bewithheld, collected or deposited with respect to amounts paid or owing to anyemployee, creditor, independent contractor or other Person) have been timelywithheld, collected or deposited and, to the extent required, have been timelypaid to the relevant taxing authority. All persons characterized as independent contractors, and not as employees,were properly so characterized for all purposes under all applicable laws(including, without limitation), their characterization as independentcontractors for income and employment tax withholdings and payments.

### (h)           TheCompany has not made any payments, is not obligated to make any payments, andis not a party to any agreement that could obligate it to make any paymentsthat will not be deductible under Section 280G of the Code.

### (i)            Thereare no outstanding agreements or waivers that would extend the statutory periodin which a taxing authority may assess or collect a Tax against the Company norhave any such agreements or waivers been requested by any taxing authority.

### (j)            TheCompany has not participated in any reportable transactions within the meaningof Treasury Regulations Section 1.6011-4 and has not been a material advisor toany such transactions as determined under Section 6111 of the Code and theTreasury Regulations thereunder.

### (k)           TheCompany has never been a member of an affiliated, combined, consolidated orunitary Tax group for purposes of filing any Tax Return.

 

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5.12         Fees.       Except for the Brokerage Fee and theConsulting Fee and as otherwise listed on Schedule 5.12, theCompany has not paid or become obligated to pay any fee or commission to anybroker, finder or intermediary in connection with the transactions contemplatedhereby for which the Company or Buyer shall have liability following theClosing.

5.13         Absence of CertainChanges or Events.          Except asset forth on Schedule 5.13, since June 30, 2005, there has not beenany transaction or occurrence in which the Company has:

### (a)           sufferedany material adverse change nor has there been any event which has had or mayreasonably be expected to have a Material Adverse Effect on the Company;

### (b)           declared,set aside or paid any dividend or other distribution (whether in cash, stock orproperty) with respect to any of its outstanding capital stock, or made anyredemption, purchase or other acquisition of any of its equity securities;

### (c)           cancelledany debts or waived any receivables, claims or rights in excess of $100,000individually;

### (d)           sufferedany uninsured casualty loss or damage in excess of $100,000 individually;

### (e)           amendedany material term of any equity security of the Company;

### (f)            madeany change in its accounting methods, principles or practices; or

### (g)           takenany action which would have been prohibited by Section 8.2 if that Section hadbeen in effect since the Effective Date.

5.14         Compliance withLaws.       The Company holds allmaterial Permits necessary for the lawful conduct of its business and is incompliance in all material respects, with all Laws and Orders applicable to itsbusiness and has filed with the proper authorities all statements and reportsrequired by the Laws and Orders to which the Company or any of its propertiesor operations are subject.  No claim hasbeen made by any Governmental Authority (and, to the Company’s Knowledge, nosuch claim is anticipated) to the effect that the business conducted by theCompany fails to comply, in any respect, with any Law.

5.15         Transactions withRelated Parties.    Except for theStockholders Agreement, the Seller Debt, the Services Agreement and asotherwise set forth on Schedule 5.15:

### (a)           Otherthan the Excluded Items and the Additional Excluded Items, no Related Party ofthe Company has entered into, or has had any direct or indirect financialinterest in, any Material Contract, transaction or business dealings involvingthe Company.

### (b)           NoRelated Party of the Company owns or has any interest in, directly orindirectly, in whole or in part, any tangible or intangible property used inthe conduct of the business of the Company;

###  

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### (c)           NoRelated Party of the Company owes any money to, nor is any such Related Partyowed any money by, the Company; and

### (d)           TheCompany has not, directly or indirectly, guaranteed or assumed any indebtednessfor borrowed money or otherwise for the benefit of any Affiliate of theCompany.

5.16         Agents.  Except as set forth on Schedule 5.16,the Company has not designated or appointed any person or other entity to actfor it or on its behalf pursuant to any power of attorney or any agency whichis presently in effect (other than such of the Company’s directors, officersand employees to whom the Company has given the authority to act for theCompany in the ordinary course of its business) or shall continue after theClosing Date.

5.17         CommissionContracts.       The Company does notemploy or have any relationship with any individual, corporation, partnership,or other entity whose compensation from the Company is in whole or in partdetermined on a commission basis and for which the Company shall have anyliability from and after the Closing.

5.18         Books and Records.            The minute books and records of theCompany are current as of the date hereof (and shall be current as of theClosing) with respect to all undertakings and authorizations, and contain atrue, complete and correct record of all actions taken at all meetings and byall written consents in lieu of meetings of the Company’s board of directors,or any committees thereof, and Sellers of the Company.  To the Company’s Knowledge, the stock ledgerand related stock transfer records of the Company contain a true, complete andcorrect record of the original issuance, transfer and other capitalizationmatters of the capital stock of the Company. The accounting, financial reporting, tax and business books and recordsof the Company accurately and fairly reflect in all material respects thebusiness and condition of the Company and the transactions and the assets andliabilities of the Company with respect thereto.  Without limiting the generality of theforegoing, the Company has not engaged in any transaction with respect to itsbusiness or operations, maintained any bank account therefor or used any fundsof the Company in the conduct thereof except for transactions, bank accountsand funds that have been and are reflected in the normally maintained books andrecords of the business.

5.19         InformationFurnished.       The Company has madeavailable to Buyer and its directors, officers, employees, counsel,representatives, financing sources, customers, creditors, accountants and auditors,true and correct copies of all agreements, documents, and other items listed onthe Schedules to this Agreement and all books and records of the Company.

5.20         Directors andOfficers.        Schedule 5.20lists all of the directors and officers of the Company as of the Closing Date.

5.21         Bank Accounts.   Attached hereto as Schedule 5.21is a list of all banks or other financial institutions with which the Companyhas an account, showing the type and account number of each such account, andthe names of the persons authorized as signatories thereon or to act or deal inconnection therewith.

 

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5.22         Owned RealProperty.         Other than the Oiland Gas Properties, the Company does not own any real property.

5.23         Leased RealProperty.         Other than the Oiland Gas Properties the Company does not lease any real property.

5.24         Insurance.             Schedule 5.24 containsa true and complete list of all insurance policies, directors and officersliability policies, and formal self-insurance programs, and other forms ofinsurance and all fidelity bonds held by or applicable to the Company and itsowned or leased properties.  Allinsurance policies listed on Schedule 5.24 have been made availableto Buyer and are subject to the deductibles or retentions referenced on Schedule5.24.  The Company is not in defaultwith respect to any provision in any current policy maintained for its benefit,and all such insurance is in full force and effect.  The Company has not received, nor is thereany Company Knowledge of, any notice of cancellation or nonrenewal of any suchinsurance policy.  The Company has notfailed to give any notice or present any claim for more than $100,000 under anyof the policies for the benefit of the Company in due and timely fashion.  The Company has not been refused anyinsurance with respect to its assets, properties or businesses, nor has anysuch coverage been materially limited by any insurance carrier to which theCompany has applied for any such insurance or with which the Company hascarried insurance during the past three (3) years. Other than as described on Schedule 5.24,no further payments of premiums will be due following the Closing Date by theCompany with respect to insurance coverages prior to the Closing Date.

5.25         Title to Oil andGas Properties.          The Companyhas Defensible Title to all Oil and Gas Properties included in the OwnershipInterests.  Each Oil and Gas Propertyincluded or reflected in the Ownership Interests entitles the Company toreceive not less than the undivided net revenue interest set forth in (orderived from) the Ownership Interests of all Hydrocarbons produced, saved andsold from or attributable to such Oil and Gas Property, and the portion of thecosts and expenses of operation and development of such Oil and Gas Propertythat is borne or to be borne by the Company is not greater than the undivided workinginterest set forth in the Ownership Interests. All proceeds from the sale of the Company’s share of the Hydrocarbonsbeing produced from its Oil and Gas Properties are currently being paid in fullto the Company by the operator thereof on a timely basis, and none of suchproceeds are currently being held in suspense by such purchaser or any otherparty, except as set forth in Schedule 5.25.

5.26         EnvironmentalMatters.      Except as set forth in Schedule5.26:

### (a)           tothe Company’s Knowledge, it has conducted its business and operated its assets,and is conducting its business and operating its assets, in material compliancewith all Environmental Laws;

### (b)           theCompany has not been notified by any Governmental Authority or other thirdparty that any of the operations or assets of the Company are the subject ofany investigation or inquiry by any Governmental Authority or other third partyevaluating whether any material remedial action is needed to respond to arelease or threatened release of any Hazardous Material or to the improperstorage or disposal

###  

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### (including storage or disposalat offsite locations) of any Hazardous Material where investigation or inquiryremains unresolved as of the date hereof;

### (c)           neitherthe Company nor, to the Company’s Knowledge, any other Person has filed anynotice under any federal, state or local law indicating that (i) the Company isresponsible for the improper release into the environment, or the improperstorage or disposal, of any Hazardous Material, or (ii) any Hazardous Materialis improperly stored or disposed of upon any property of the Company; and

### (d)           tothe Company’s Knowledge, it does not have any material contingent liability inconnection with (i) the release or threatened release into the environment at,beneath or on any property now or previously owned or leased by the Company, or(ii) the storage or disposal of any Hazardous Material thereon.

5.27         Forward Sales.      The Company is not obligated by virtue of atake-or-pay payment, advance payment or other similar payment (other thanroyalties, overriding royalties and similar arrangements reflected on Exhibit A),to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to theLeases at some future time without receiving payment therefor at or within 60days after the time of delivery.

5.28         Properties.

(a)           To the Company’s Knowledge, and exceptas set forth in Schedule 5.28 (a) and except for Hydrocarbonsales contracts with a term not greater than ninety (90) days, no Hydrocarbonsproduced from the Oil and Gas Properties are subject to a sales contract orother agreement relating to the marketing of Hydrocarbons, and no Person hasany call upon, option to purchase or similar rights with respect to such Oiland Gas Properties or the rights therefrom, except for third party operatorrights under operating agreements covering the Oil and Gas Properties.

(b)           With respect to the Oil and GasProperties, to the Company’s Knowledge the third-party operator of the Oil andGas Properties has the ability and right to obtain access to, produce, treat,transport, process, or otherwise market Hydrocarbons from the Wells, Units, andLeases without the need for any additional agreements.

(c)           As of the Effective Date, the Companyhas no gas, pipeline or other production imbalances with any Person related tothe Oil and Gas Properties.

5.29         Wells to BePlugged and Abandoned.             Except as set forth in Schedule 5.29, to theCompany’s Knowledge there are no Wells that: (i) the Company is currentlyobligated by applicable Law, in effect as of the Effective Date, or contract toplug and abandon because they are incapable of producing; (ii) the Companywould be obligated by Law or contract to plug and abandon with the lapse oftime or upon notice or both because such Wells are not currently capable ofproducing; or (iii) have been plugged and abandoned in a manner that doesnot comply with all applicable requirements of each Governmental Authorityhaving jurisdiction over the Oil and Gas Properties.

 

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5.30         IntellectualProperty.           Except as disclosed on Schedule 5.30, the Companydoes not own or use any copyrights, patents, trademarks, or trade names in theownership and operation of the Oil and Gas Properties.  The Company has received no written notice,and has no Knowledge of, any infringements or unauthorized or unlawful use ofany intellectual property by the Company or any allegation that the Company’suse of such intellectual property has infringed similar properties of others.

5.31         No UndisclosedLiabilities.                TheCompany does not have any liabilities that are of a nature required under GAAPto be disclosed, reflected or reserved against on the financial statements ofthe Company except, (a) liabilities disclosed, reflected or reserved against onthe Financial Statements or (b) liabilities set forth on Schedule 5.31 or (c)liabilities that are taken into account in determining the Net Working Capital.

# **ARTICLE VIREPRESENTATIONS AND WARRANTIES REGARDING THE SELLERS**

Each of the Sellers hereby severally (but only in proportion to theirrespective Pro Rata Share) and not jointly represents and warrants to Buyer andto each other Seller as follows:

6.1           Organization andGood Standing.     Such Seller (ifSeller is not a natural Person) is a limited partnership duly organized and validlyexisting under the laws of the jurisdiction in which it is organized and hasall requisite power and authority and, if such Seller is a natural Person,capacity, to execute, deliver and perform its obligations under this Agreementand to consummate the transactions contemplated hereby and thereby to beconsummated by it.  Such Seller is not a “foreignperson” within the meaning of Section 1445 of the Code.

6.2           Authorization ofAgreement.             The executionand delivery of this Agreement by such Seller and the performance of thetransactions contemplated herein by such Seller (if such Seller is not anatural Person) have been duly authorized by all necessary action, and no otheraction on the part of such Seller is necessary to authorize this Agreement orconsummate the transactions contemplated hereby.  This Agreement has been duly and validlyexecuted and delivered by such Seller and constitutes a valid and bindingobligation of such Seller and is enforceable against such Seller in accordancewith its terms, except as such enforceability may be limited by bankruptcy,insolvency, reorganization and similar laws affecting creditors generally andby the availability of equitable remedies.

6.3           Conflicts,Consents of Third Parties.               Neither the execution and delivery by such Seller of this Agreement norconsummation or performance by such Seller of the transactions contemplatedhereby to be consummated or performed by such Seller will: (a) violate any Law,(b) violate the certificate of limited partnership or agreement of limitedpartnership of such Seller, (c) violate any Order to which such Seller is aparty or by which such Seller is bound or (d) require any consent from,authorization or approval or other action by, and no notice to or declaration,filing or registration with any Governmental Authority, except to comply ifnecessary with the HSR Act.

 

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6.4           Brokers.                 SuchSeller has not paid or become obligated to pay any fee or commission to anybroker, finder or intermediary in connection with the transactions contemplatedhereby for which the Buyer shall have any liability following the Closing.

6.5           Litigation.              As of the date of this Agreementthere is no suit, action or proceeding pending, or, to the knowledge of suchSeller, threatened against or affecting such Seller that is reasonably likelyto have a Material Adverse Effect on such Seller or the transactionscontemplated in this Agreement, nor is there any judgment, decree, injunction,rule or order of any Governmental Entity or arbitrator outstanding against suchSeller that is reasonably likely to have a Material Adverse Effect on suchSeller.

6.6           Ownership ofStock.            Such Seller is therecord and beneficial owner of the number of Shares of the Company’s CommonStock set forth opposite that Seller’s name in Schedule 5.3(a), andthose Shares are owned by such Seller free and clear of all Liens, (other thanpledges in connection with indebtedness in favor of the Company and pursuant toapplicable securities laws), including, without limitation, voting trusts orstockholders agreements.  Such Seller hasfull authority to transfer pursuant to this Agreement all of the Shares of theCompany’s Common Stock owned by such Seller free and clear of all Liens (otherthan pledges in connection with indebtedness in favor of the Company andpursuant to applicable securities laws), including, without limitation, votingtrusts or stockholders agreements.

6.7           Marketable Title.  The delivery by Sellers to Buyer at theClosing of the certificates representing the Shares, duly endorsed in blank oraccompanied by stock powers endorsed in blank will vest Buyer on the ClosingDate with good and marketable title to all of the Shares, free and clear of allLiens (other than restrictions on transfer pursuant to applicable securitieslaws).

# **ARTICLE VIIREPRESENTATIONS AND WARRANTIES OF BUYER**

Buyer hereby represents and warrants to Sellers as follows:

7.1           Organization andGood Standing.      Buyer is a Delawarecorporation duly organized, validly existing and in good standing under thelaws of the State of Delaware.  Buyer hasall requisite power and authority to execute, deliver and perform itsobligations under this Agreement and to consummate the transactionscontemplated hereby and thereby to be consummated by it.

7.2           Authorization ofAgreement.             The executionand delivery of this Agreement by Buyer and the performance of the transactionscontemplated herein by the Buyer have been duly authorized by all necessaryaction by the Buyer, and no other action on the part of Buyer is necessary toauthorize this Agreement or to consummate the transactions contemplatedhereby.  This Agreement has been duly andvalidly executed and delivered by Buyer and constitutes a valid and bindingobligation of Buyer and is enforceable against Buyer in accordance with itsterms, except as such enforceability may be limited by bankruptcy, insolvency,reorganization,

 

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moratorium and similar laws affecting creditors generally and by theavailability of equitable remedies.

7.3           Conflicts,Consents of Third Parties.                Neitherthe execution and delivery by Buyer of this Agreement nor consummation orperformance by Buyer of the transactions contemplated hereby to be consummatedor performed by Buyer will: (a) violate any Law, (b) violate thecertificate of incorporation or bylaws of Buyer, (c) violate any Order towhich Buyer is a party or by which Buyer is bound, or (d) require any consentfrom, authorization or approval or other action by, and no notice to ordeclaration, filing or registration with any Governmental Authority, except tocomply if necessary with the HSR Act.

7.4           No Default.            Except as would not reasonably beexpected to have a Material Adverse Effect on Buyer, Buyer is not in default orviolation of any term, condition or provision of (a) the certificate ofincorporation or bylaws of Buyer, (b) any loan or credit agreement, note, bond,mortgage, indenture, lease or other agreement, instrument, permit, concession,franchise or license to which Buyer is now a party or by which Buyer or any oftheir properties or assets is bound, or (c) any Order applicable to Buyer.

7.5           Litigation.              As of the date of this Agreementthere is no suit, action or proceeding pending, or, to the knowledge of Buyer,threatened against or affecting Buyer that is reasonably likely to have aMaterial Adverse Effect on Buyer, nor is there any judgment, decree,injunction, rule or order of any Governmental Entity or arbitrator outstandingagainst Buyer that is reasonably likely to have a Material Adverse Effect onBuyer.

7.6           InvestmentIntent.               Buyer isacquiring the Shares for its own account and not with a view towardsdistribution within the meaning of Section 2(11) of the Securities Act.

7.7           Disclosure ofInformation.  Buyer represents that ithas had an opportunity to ask questions of and receive answers from the Companyregarding the Company and its business, assets, results of operation, andfinancial condition.

7.8           Funding.                                Buyer will haveadequate funds available to it as are necessary to pay the Closing Payment infull at the Closing.

7.9           Brokers.                 Buyer has not paid or becomeobligated to pay any fee or commission to any broker, finder or intermediary inconnection with the transactions contemplated hereby for which the Sellersshall have any liability following the Closing.

# **ARTICLE VIIIADDITIONAL AGREEMENTS**

8.1           Further Actions.   At any time from and after the Closing, atthe request of a party and without further consideration, each other partyshall promptly execute and deliver such further agreements, certificates,instruments and documents and perform such other actions as the requestingparty may reasonably request in order to fully consummate the transactionscontemplated hereby and carry out the purposes and intent of this Agreement.

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8.2           Conduct ofBusiness Pending Closing.           Priorto the Closing Date, the Company will (except as consented to in writing byBuyer or otherwise permitted under this Agreement):

### (a)           carryon its business only in the ordinary course of business and in a mannerconsistent with past practice;

### (b)           maintainits properties and facilities, including those held under leases, in as goodworking order and condition as at present, ordinary wear and tear excepted;

### (c)           notacquire or agree to acquire by merging or consolidating with, or by purchasingan equity interest in or a portion of the assets of, or by any other manner,any business or any corporation, partnership, association or other businessorganization or division thereof or otherwise acquire or agree to acquire anyassets other than for which the aggregate acquisition purchase price incurredby the Company does not exceed $50,000.00;

### (d)           notsell, lease, encumber or otherwise dispose of, or agree to sell, lease (whethersuch lease is an operating or capital lease), encumber or otherwise dispose ofany portion of its assets, other than the Excluded Items and the AdditionalExcluded Items or assets as to which the aggregate sales price paid to theCompany does not exceed $50,000 or in the case of sales of production in the ordinarycourse consistent with past practice;

### (e)           (i) exceptas set forth on Schedule 8.2, not increase or agree to increase thecompensation payable or to become payable to any of its officers, directors oremployees; (ii) not grant any severance or termination pay to, or enterinto any employment or severance agreement with any executive officer,director, or employee; (iii) not enter into any collective bargainingagreement; or (iv) not establish, adopt, enter into or amend any EmployeeBenefit Plan;

### (f)            keepin full force and effect present insurance policies or other comparableinsurance coverage;

### (g)           useall commercially reasonable efforts to maintain and preserve its businessorganization intact, retain its present officers and key employees and maintainits relationships with suppliers, vendors, customers, creditors and othershaving business relations with it;

### (h)           exceptfor the transfer of the Excluded Items and Additional Excluded Items by theCompany to Cinco Natural Resources Corporation, Cinco Resources, Inc., theSellers or their nominee, and entering into the Option Cancellation Agreementswith the holders of Employee Options as contemplated by this Agreement, notdeclare, set aside or pay any dividend or other distribution (whether in stockor property) with respect to any of its outstanding capital stock, or make anyredemption, purchase or other acquisition of any of its equity securities; and

### (i)            notpropose or commit to participate in any operation on the Oil and Gas Propertiesestimated to exceed $100,000.00 without first consulting with Buyer in good

###  

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### faith and after first furnishingBuyer with technical, economical and other factual support for the Company’srecommendation and attempting to reach an agreement as to the election to bemade which is in the best interest of Buyer, the Company and Sellers.  The Company shall not act unreasonably inrefusing to accept Buyer’s recommendation; however, in the event that Buyerdesires to non-consent a proposed operation in which the Company or Sellersdesire to participate, Sellers may participate in such operation at their solerisk and cost, and if the operation results in production, Buyer shall releasefrom this Agreement and permit the Company to assign to Sellers or theirnominee the wellbore of the affected well and all production therefrom for solong as the non-consent penalty is in effect and thereafter such wellbore willbelong to the Company.  Buyer recognizesthat time is of the essence in making its recommendation.

8.3           Title Defects.

### (a)           Buyermust deliver to the Company in writing on or before the earlier of (a) fifteen(15) business days before the Closing or (b) five (5) business days before the Pearl/CibolaClosing (the “Notification Deadline”) a written notice specifying each defectassociated with the Ownership Interests in the Oil and Gas Properties that itasserts constitutes an objection to real property title, excluding PermittedLiens, that renders the Company’s title less than Defensible Title or aviolation of the representations set forth in Section 5.25 (a “Title Defect”),a description of each such Title Defect and Buyer’s proposed Title Defect Valuefor such Title Defect.  No fact,circumstance or condition of the title to an Oil and Gas Property shall beconsidered to effect a reduction in the value thereof, unless due considerationhas been given by Buyer to whether any such fact, circumstance or condition isof the type that can generally be expected to be encountered in the areainvolved and is usually and customarily acceptable to reasonable and prudentoperators, interest owners and purchasers engaged in the business of theownership, development and operation of oil and gas properties. If such noticeis not timely submitted, Buyer will be deemed to have waived any basis for anadjustment based on a violation of the representations set forth in Section 5.25,as well as waived its basis for any claim or other assertion of rights ordamages based on a breach of such representations.  Notwithstanding anything to the contrary inthis Agreement, Buyer may not assert any additional Title Defects following thePearl/Cibola Closing.

### (b)           Buyermay request an adjustment to the Base Purchase Price at any time on or before the Notification Deadline, if the adjustment is based on a TitleDefect.  Sellers’ Representative mayrequest an upward adjustment to the Base Purchase Price at any time before the Notification Deadline, if the Company’s net revenue interest for theOwnership Interest is greater than that shown on Exhibit “A.”  A notice requesting an adjustment must be made in accordance with Section 8.3(a).  If either Buyer or Sellers’ Representativegives notice under the previous section, the parties will meet and use theirbest efforts to agree on the validity of the claim and, if applicable, theamount of the adjustment, using the following criteria:

#### (i)        Ifthe claim is based on the Company owning a different net revenue interest (witha proportionate corresponding change in the cost bearing

####  

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#### working interest) than that shown on Exhibit “A”, then theadjustment will be the absolute value of the number determined by the followingformula:

Adjustment = A x (1-[B/C])

A  =    Allocated Value for the affected OwnershipInterest

B  =    Correct net revenue interest for theaffected Ownership Interest

C  =    Net revenue interest for the affectedOwnership Interest as shown on Exhibit “A”

#### (ii)       Ifthe claim is based on an obligation or burden that is liquidated, theadjustment will be the sum necessary to remove the obligation or burden fromthe affected Ownership Interest.

#### (iii)      Ifthe claim is based on an obligation or burden that is not liquidated, but canbe estimated with reasonable certainty, including, without limitation, in theevent the Company’s cost bearing working interest is greater than thatreflected on Exhibit “A”, without a proportionate corresponding increase in theCompany’s net revenue interest, or if the Company’s net revenue interest isless than that reflected in Exhibit “A”, without a proportionate correspondingdecrease in the Company’s cost bearing working interest, the adjustment will bethe sum necessary to compensate Buyer for the adverse economic effect on theaffected Oil and Gas Property.

### (c)           Ifthe amount of the adjustment for each Title Defect cannot be determined basedon the above criteria, and if Buyer, Sellers and the Company cannot otherwiseagree on the amount of an adjustment or the parties are unable to agree uponwhether a Title Defect exists, then unless Buyer elects to waive the applicableTitle Defect(s) and accept title as is to the affected Oil and Gas Propertywithin one business day following receipt of notice by Sellers’ Representativeof its election under subsection (i) or (ii) below, Sellers’ Representativemay, at its sole option and upon written notice to Buyer, either:

#### (i)        removethe affected Oil and Gas Property from this Agreement (including any requiredreassignment) and adjust the Base Purchase Price by the Allocated Value forthat Oil and Gas Property; or

#### (ii)       electto resolve the dispute under the following arbitration provisions:

### (d)           Sellersand Buyer shall attempt to agree on all Title Defect Amounts no later than five(5) Business Days prior to the Closing Date. If Sellers and Buyer are unable to agree by that date, the Title Defect Valuein dispute shall be exclusively and finally resolved by arbitration pursuant tothis Section 8.3(d).  During the 10-dayperiod following the Closing Date, Title Defect adjustments in dispute shall besubmitted to an attorney licensed in the State of Texas and with at least 10years’ recent experience in oil

###  

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### and gas titles as selected by(i) mutual agreement of Buyer and Sellers or (ii) absent such agreement duringthe 10-day period, by the Senior Chaired Professor of Oil and Gas Law at theUniversity of Texas School of Law or the next most Senior Chaired Professor ofOil and Gas Law at the University of Texas School of Law in the event that themost Senior Chaired Professor is unable or unwilling to so serve (the “TitleArbitrator”).  The Title Arbitrator shallnot have had an affiliation with any party or their Affiliates within the seven(7) year period preceding the arbitration, or have any financial interest inthe dispute, controversy, or claim.  Thearbitration proceeding shall be held in Dallas, Dallas County, Texas, and shallbe conducted in accordance with the arbitration procedures set forth in Title7, Chapter 171 of the Texas Civil Practice and Remedies Code, to the extentsuch rules do not conflict with the terms of this Section.  The Title Arbitrator’s determination shall bemade within 30 days after submission of the matters in dispute and shall befinal and binding upon both Parties, without right of appeal.  In making his determination, the TitleArbitrator shall be bound by the rules set forth in Section 8.3(b) and mayconsider such other matters as in the opinion of the Title Arbitrator arenecessary or helpful to make a proper determination.  Additionally, the Title Arbitrator mayconsult with and engage disinterested third parties to advise the arbitratorincluding, without limitation, title attorneys from other states and petroleumengineers.  The Title Arbitrator shallact as an expert for the limited purpose of determining the specific disputedTitle Defect Value and may not award damages, interest or penalties to eitherparty with respect to any matter. Sellers and Buyer shall each bear its own legal fees and other costs ofpresenting its case.  Each Party shallbear one-half of the costs and expenses of the Title Arbitrator.

### (e)           Inan event the Title Defect dispute is submitted to arbitration, there shall beno immediate adjustment to the Base Purchase Price for such defect, but theamount of any adjustment due by Sellers to Buyer as ultimately determined shallbe paid as a part of the Post Closing Adjustment.

### (f)            TitleDefects with an agreed individual value of less than $50,000 shall beconsidered “Minimal Title Defects” and shall not form the basis for anadjustment to the Base Purchase Price

### (g)           Sellers’Representative may, at its sole option, notify Buyer on or before the Closingthat it elects to cure some or all of the Title Defects.  No price adjustment will be made for TitleDefects that the Sellers’ Representative elects to cure unless such defectremains uncured to Buyer’s satisfaction (exercised in good faith) as of thedate of the Post Closing Adjustment.

### (h)           Notwithstanding  anything to the contrary in this Section 8.3,the adjustments attributable to the effects of all Title Defects upon any Oiland Gas Property shall not exceed the Allocated Value of such particular Oiland Gas Property.

8.4           Environmental Defects.

### (a)           Buyershall have the right to conduct an environmental assessment of the Oil and GasProperties during the period beginning on the date of this Agreement and

###  

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### ending at the close of businesson the Notification Deadline.  Theconfidentiality obligations of the Confidentiality Agreement shall beapplicable to all information acquired by Buyer in the course of its environmentalassessment.  During normal business hoursand after providing the Company and Sellers’ Representative and the operator ofthe Oil and Gas Properties reasonable prior notice of any such activities, theCompany and Sellers’ Representative shall use all commercially reasonableefforts to cause the operator to permit Buyer and its representatives to enterupon the Oil and Gas Properties and all improvements thereon, inspect thesame,  review files and generally conductsuch tests, examinations, and investigations as are consistent with theAmerican Society for Testing and Materials standard Phase I environmentalaudit.  Sellers’ Representative will havethe right to (i) witness such investigation and (ii) promptly receive a copy ofall results, analyses and reviews.

### (b)           Buyerwill notify Seller on or before the Notification Deadline of (i) the existenceof any environmental condition on the Oil and Gas Properties that Buyerreasonably believes constitutes a breach of the Company’s representations andwarranties set forth in Section 5.26 (“Environmental Defect”), and (ii) theestimated cost to remediate or cure such condition on each individual Oil andGas Property, determined utilizingthe most cost effective and appropriate method of cure or remediation availableunder the circumstances.  Notwithstandinganything to the contrary in this Agreement, Buyer may not assert any additionalEnvironmental Defects following the Pearl/Cibola Closing.  With respect to any Environmental Defect:

#### (i)        Sellers’Representative shall have the right, but not the obligation, to undertake suchremedial action as may be required by applicable Environmental Law as currentlyapplied to cure such Environmental Defect by sending written notice of itsbinding commitment to effectuate such cure and the details and timing of suchcurative action, and if such commitment is reasonably satisfactory to Buyer,the Base Purchase Price would not be reduced on account of such EnvironmentalDefect.

#### (ii)       Buyerand Sellers’ Representative may also, upon their mutual agreement, set thecosts to cure the Environmental Defect and the Base Purchase Price shall bereduced by such agreed costs.  In suchcase, the Buyer shall continue to own such Oil and Gas Property and beresponsible for any cure; and

#### (iii)      IfBuyer and Sellers’ Representative cannot reach mutual agreement as contemplatedin Section 8.4(b)(i) or (ii) above or on whether an Environmental Defect existswithin fifteen (15) days following the notice of an Environmental Defect as toany Oil and Gas Property, then unless Buyer elects to waive the applicableEnvironmental Defect(s) and accept the condition of the affected Oil and GasProperty as is within one business day following notice by Sellers’Representative of its election under subsection (1) or (2) below, Sellers’Representative may, at its sole option, and upon written notice to Buyer:

 

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##### (1)           remove the affected Oil and GasProperty from this Agreement (including any required reassignment) and adjustthe Base Purchase Price by the Allocated Value for that Oil and Gas Property;or

##### (2)           elect to resolve the dispute underthe arbitration provisions in this Agreement.

### (c)           Inthe event the Environmental Defect dispute is submitted to arbitration, thereshall be no immediate adjustment to the Base Purchase Price for such defect,but the amount of any adjustment due by Sellers to Buyer as ultimatelydetermined shall be paid as part of the Post Closing Adjustment.

### (d)           EnvironmentalDefects with an agreed individual value of less than $50,000 shall beconsidered “Minimal Environmental Defects” and shall not form the basis for anadjustment to the Base Purchase Price.

### (e)           Notwithstanding  anything to the contrary in this Section 8.4,the adjustments attributable to the effects of all Environmental Defects uponany Oil and Gas Property shall not exceed the Allocated Value of suchparticular Oil and Gas Property.

### (f)            BUYERAGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE COMPANY, SELLERS, THEIRAFFILIATES, OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVESFROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, COSTS AND EXPENSES(INCLUDING LITIGATION COSTS AND REASONABLE ATTORNEYS’ FEES), INCLUDING CLAIMS,LIABILITIES, LOSSES, COSTS AND EXPENSES ATTRIBUTABLE TO PERSONAL INJURIES,DEATH, OR PROPERTY DAMAGE, ARISING OUT OF OR RELATING TO ACCESS TO THE OIL ANDGAS PROPERTIES PRIOR TO THE CLOSING BY BUYER, ITS AFFILIATES, OR ITS OR THEIRDIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, BUT EXCLUDING CLAIMSRESULTING, IN WHOLE OR IN PART, FROM SELLERS’ GROSS NEGLIGENCE OR WILLFULMISCONDUCT.

8.5           Gas Imbalances.   On or before the Closing Date, Sellers’Representative and Buyer shall, based upon data available at that time,determine (a) the total amount of overproduction of gas attributable to andaccounted for under the name of the Company and related to the Oil and GasProperties (*e.g.*, volumes of gas taken from theLeases, or on lands unitized therewith, by the Company in excess of thosevolumes which the Company would be entitled to receive) and (b) the totalamount of underproduction of gas attributable to and accounted for under thename of the Company and related to the Oil and Gas Properties (*e.g.*, volumes of gas not taken from the Leases, or on landsunitized therewith, despite the Company’s Ownership Interest in and right toreceive such volumes).  If the totalamount of overproduction (as so determined) exceeds the total amount ofunderproduction (as so determined) the Base Purchase Price shall be adjusteddownward in an amount equal to the price per Mcf received by the Company forgas sales during the month of August, 2005 times such excess (in Mcf). If thetotal amount of underproduction (as so determined) exceeds the total amount ofoverproduction (as so determined) the Base Purchase Price shall be adjustedupward in an amount equal to the

 

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average price per Mcf received by the Company for gas deliveries duringthe month of August, 2005 times such excess (in Mcf).  On the Closing Date and as of the EffectiveDate, Buyer shall assume any liability for gas production imbalances (whetherover or under) attributable to the Oil and Gas Properties.  Notwithstanding the foregoing, onlyimbalances subject to legally enforceable rights of recovery will be subject tothe determination hereunder.

8.6           Access toInformation.       Upon reasonablenotice, the Company shall afford to Buyer’s officers, employees, accountants,counsel and other representatives access, from time to time, from the datehereof until the Closing Date, to all its properties, books, contracts,commitments, files and records, as well as to its officers and employees and,during such period, the Company shall furnish to Buyer (a) a copy of eachreport, schedule and other document, (b) all other information concerning itsbusiness, properties and personnel as such other party may reasonably requestand (c) access to the Oil and Gas Properties. Sellers shall cooperate withBuyer to obtain information necessary for Buyer to comply with any securitiesor other regulatory filings required to be made by Buyer, including using itsbest efforts to secure the cooperation of Ernst & Young for purposes ofBuyer’s preparation of pro forma financial statements.  Buyer agrees that it will not, and will causeits respective representatives not to, use any information obtained pursuant tothis Section 8.6 for any purpose unrelated to the transactions contemplated bythis Agreement.  The ConfidentialityAgreement shall apply with respect to the information furnished thereunder andhereunder and any other activities contemplated thereby.  Upon Closing occurring, the ConfidentialityAgreement will be deemed to be terminated and the preceding two sentences shallno longer apply as if such sentences had never been part of this Agreement;provided, however, that Buyer will continue to be bound by the confidentialityprovisions as contemplated by that certain waiver received from Westport Oiland Gas Company, L.P. dated July 19, 2005.

8.7           RegulatoryApprovals.       Each party heretoshall cooperate and use its reasonable best efforts to promptly prepare andfile all necessary documentation to effect all necessary applications, notices,petitions, filings and other documents, and use all commercially reasonableefforts to obtain (and will cooperate with each other in obtaining) anyconsent, acquiescence, authorization, order or approval of, and any exemptionor nonopposition by, any Governmental Entity required to be obtained or made byCompany, the Sellers or Buyer or any of their respective Affiliates inconnection with the transactions contemplated hereby or the taking of anyaction contemplated thereby or by this Agreement, provided however, that Buyer shall not be required to agreeto any divestiture of any properties, assets or businesses by Buyer or any ofits Affiliates of any business, assets or property of Buyer or any of itsAffiliates, or the imposition of any limitation on the ability of any of theforegoing to conduct their respective businesses or to own or exercise controlof their respective assets and properties.

8.8           Agreement toDefend.         In the event anyclaim, action, suit, investigation or other proceeding by any governmental bodyor other Person or other legal or administrative proceeding is commenced thatquestions the validity or legality of the transactions contemplated hereby orseeks damages in connection therewith, the parties hereby agree to cooperateand use their commercially reasonable efforts to defend against and respondthereto.

 

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8.9           Certain Consentsby Sellers.              Each Sellerhereby consents to the sale to Buyer of the Shares owned by each other Selleron the terms and conditions set forth in this Agreement for all purposes,including, but not limited to, pursuant to the Stockholders Agreement.

8.10         Other Actions.      Except as contemplated by this Agreement,neither the Company, the Sellers nor Buyer shall, nor permit any of itsAffiliates to, take or agree or commit to take any action that is reasonablylikely to result in any of its respective representations or warrantieshereunder being untrue in any material respect or in any of the conditions tothe transactions contemplated hereby set forth in Article VIII not being satisfied.  Each of the parties agrees to use itsreasonable best efforts to satisfy the conditions to Closing set forth in thisAgreement.

8.11         LIMITATION ANDDISCLAIMER OF IMPLIED REPRESENTATIONS AND WARRANTIES OF THE COMPANY.     THE EXPRESS REPRESENTATIONS AND WARRANTIESOF THE COMPANY CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALLOTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OROTHERWISE.  AT OR PRIOR TO CLOSING, BUYERSHALL HAVE CONDUCTED SUCH INSPECTIONS OF THE COMPANY AND ITS ASSETS AS BUYERDEEMS NECESSARY AND SHALL HAVE SATISFIED ITSELF AS TO THE CONDITION OF THECOMPANY AND ITS ASSETS.  EXCEPT ASOTHERWISE PROVIDED IN THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THISAGREEMENT, THE COMPANY MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE ORHEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES BY THECOMPANY OR BY THE COMPANY’S AGENTS OR REPRESENTATIVES; EXCEPT AS OTHERWISEPROVIDED HEREIN, ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,INFORMATION AND OTHER MATERIALS FURNISHED BY THE COMPANY OR BY THE COMPANY’SAGENTS OR REPRESENTATIVES OR OTHERWISE MADE AVAILABLE TO BUYER OR BUYER’SREPRESENTATIVES ARE PROVIDED TO OR FOR THE BENEFIT OF BUYER AS A CONVENIENCE,AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST THE COMPANY,ANY SELLER OR THE AGENTS OR REPRESENTATIVES OF THE COMPANY OR ANY SELLER; ANDANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK.

8.12         Change of CompanyName.                Each of Buyer andthe Company undertakes and agrees that promptly after the Closing, it will takeall actions necessary to change the name of the Company to delete theuse of the name “Cinco Energy Corporation”, any derivative thereof and/or anylogos or trademarks related thereto, and Buyer shall transfer the rights tosuch names, logos and trademarks to Cinco Natural Resources Corporation orCinco Resources, Inc. by December 31, 2005.

8.13         Relationship AmongSellers.              Each Sellerhereby appoints Cinco Natural Resources Corporation as the sole representative(the “Sellers’ Representative”) of such Seller to act as the agent and onbehalf of such Seller for all purposes under this Agreement, including for thepurposes of:  (i) determining anyadjustments to the Purchase Price in accordance with

 

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Section 3.4; (ii) instructing Buyer with respect to thedistribution of Additional Excluded Items in accordance with Section 3.5(b)and, if applicable, conducting any audits pursuant to Section 3.5(b);(iii) determining whether the conditions to closing in Article IXhave been satisfied and supervising the Closing, including waiving any suchcondition if Sellers’ Representative, in its sole discretion, determines thatsuch waiver is appropriate; (iv) taking any action that may be necessaryor desirable, as determined by Sellers’ Representative in its sole discretion,in connection with the termination of this Agreement in accordance with ArticleXI; (v) taking any and all actions that may be necessary or desirable, asdetermined by Sellers’ Representative in its sole discretion, in connectionwith the amendment of this Agreement or waivers of any term of this Agreementin accordance with Sections 14.2 and 14.3; (vi) accepting notices onbehalf of such Seller in accordance with Section 14.4; (vii) takingany and all actions that may be necessary or desirable, as determined bySellers’ Representative in its sole discretion, in connection with the paymentof the costs and expenses incurred with respect to the Company or such Sellerin connection with the transactions contemplated by this Agreement; (viii) grantingany consent or approval on behalf of such Seller under this Agreement; and (ix) takingany and all other actions and doing any and all other things provided in orcontemplated by this Agreement to be performed by Sellers’ Representative onbehalf of any Seller.  As therepresentative of Sellers, Sellers’ Representative shall act as the agent forall such persons, shall have authority to bind each such person in accordancewith this Agreement, and Buyer may rely on such appointment and authority untilthe receipt of notice from Sellers owning at least a majority of the Shares ofthe appointment of a successor upon 30 days’ prior written notice toBuyer.  Neither Seller’s Representativenor any Seller shall have any liability to Buyer for any default under thisAgreement by any other Seller.  EachSeller shall, however, be responsible to each other Seller for any defaultunder this Agreement.

8.14         Continuation ofthe Company’s Existing Indemnification Obligations.**     **From and after the Closing, theCompany or its successor shall indemnify and hold harmless each Person who hasbeen at any time prior to the Closing, an officer, director or shareholder ofthe Company (collectively, the “Existing Indemnified Parties”) but only to theextent that such Indemnified Party was entitled to indemnification from theCompany immediately prior to the date hereof under applicable law, the articlesof incorporation and bylaws of the Company or under contracts between suchIndemnified Party and the Company, regardless of whether such contracts areterminated on or after the Closing.  Theprocedures associated with such indemnification shall be the same as thoseassociated with the Existing Indemnified Parties’ indemnification from theCompany immediately prior to the date hereof.  The provisions of this Section 8.14 areintended to be for the benefit of, and shall be enforceable by, the partieshereto and each Indemnified Party and their respective heirs andrepresentatives and shall be binding on all successors and assigns of the Company.

8.15         StockholdersAgreement.**  **Sellershereby waive any transfer restrictions on the Shares pursuant to theStockholders Agreement with respect to the transactions contemplated by thisAgreement and hereby agree that the Stockholders Agreement shall be terminatedas of (but only in the event of) the Closing.

8.16         Participation inLeases.       The Company shall,unless otherwise instructed by Buyer, elect to acquire its proportionateinterest in all new oil and gas leases that cover the lands described underSection 5 “all remaining lands” set forth in Exhibit “A” hereto which may be

 

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offered to Company and the Company agrees to give the Buyer notice ofany such offer within five business days of the Company’s receipt of such offer.

# **ARTICLE IXCONDITIONS TO CLOSING**

9.1           Buyer’sConditions.            Unlessotherwise waived in writing prior to the Closing, the obligation of Buyer tocomplete the Closing is subject to fulfillment prior to or at the Closing ofeach of the following conditions:

### (a)           NoLegal Proceeding.  At the Closing, no Legal Proceeding shall bepending or threatened seeking to enjoin or prevent, nor shall an Injunction,Order or Official Action have been issued prohibiting consummation of thetransactions contemplated hereby.

### (b)           BankAccounts.  Sellers shall have caused the Company tochange the names of the accounts and the names of the respective officers,employees, agents or other similar representatives of the Company, asdesignated by Buyer at or prior to the Closing, who thereafter shall beauthorized to transact business with respect to the accounts, safe depositboxes, lock boxes or other relationships with the banks, trust companies,securities brokers and other financial institutions set forth in Schedule 5.21.

### (c)           Fulfillmentof Obligations.  Sellers and the Company shall have dulyperformed or complied with all of the obligations and covenants to be performedor to which compliance by them is required under the terms of this Agreement ator prior to the Closing Date.

### (d)           Accuracyof Representations and Warranties.  The representations and warranties of theCompany and Sellers set forth herein shall be true and correct in all respectsas of the date of this Agreement and true and correct in all material respects(each considered without regard to materiality qualifiers such as “material”, “inall material respects” and “material adverse effect” set forth therein) as ofthe Closing Date as though made on and as of the Closing Date; provided, however,that if the Pearl/Cibola Closing occurs prior to the Closing Date, therepresentations and warranties referred to in this Section 9.1(d) shall thereafternot refer to the representations and warranties contained in Sections 5.25, 5.26and 5.29 of this Agreement unless prior to the time of the Pearl/CibolaClosing, the Buyer has notified the Sellers’ Representative of a breach of suchrepresentation and warranty of the Company contained in this Agreement in whichcase this Section 9.1(d) shall continue to refer to such representation andwarranty, and further provided that following the Pearl/Cibola Closing, Buyermay not make any additional claims for a breach of a representation of warrantythat (i) results from a Title Defect, Environmental Defect, or a Well that isto be plugged and abandoned or has been plugged and abandoned in a manner thatdoes not comply with all applicable requirements of each Governmental Authorityhaving jurisdiction over the Oil and Gas Properties, (ii) was caused by any actionor inaction of Buyer with respect to the properties acquired under thePearl/Cibola Agreement, or (iii) was caused by any action

###  

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### or inaction of the Company iftaken in accordance with Buyer’s instructions pursuant to Section 8.2 of thisAgreement.

### (e)           ClosingDeliveries.  Sellers or the Company as is appropriateshall have delivered at or before Closing all of the items listed inSection 10.1.

### (f)            Limitation on Title and EnvironmentalDefects.  The aggregate of all Title Defects andEnvironmental Defects asserted by Buyer and not waived shall not exceed ThreeMillion Dollars ($3,000,000.00).

### (g)           SpousalJoinders.  Sellers have delivered to Buyer the joindersof the spouses of each Seller that is an individual person in the form attachedhereto as Exhibit C within five business days following the date of thisAgreement.

9.2           Sellers’Conditions.             Unlessotherwise waived in writing prior to Closing, the obligation of Sellers tocomplete the Closing is subject to fulfillment prior to or at Closing of eachof the following conditions.

### (a)           LegalProceeding.  At the Closing, no Legal Proceeding shall bepending or threatened seeking to enjoin or prevent, nor shall an Injunction,Order or Official Action have been issued prohibiting consummation of thetransactions contemplated hereby.

### (b)           Accuracyof Representations and Warranties.  The representations and warranties of Buyerset forth herein shall be true and correct in all respects as of the date ofthis Agreement and true and correct in all material respects (each consideredwithout regard to materiality qualifiers such as “material”, “in all materialrespects” and “material adverse effect” set forth therein) as of the ClosingDate as though made on and as of the Closing Date.

### (c)           Limitationon Title and Environmental Defects.  The aggregate of all Title Defects andEnvironmental Defects asserted by Buyer and not waived shall not exceed ThreeMillion Dollars ($3,000,000.00).

### (d)           ClosingDeliveries.  Buyer shall have delivered at or beforeClosing all of the items listed in Section 10.2.

9.3           Closing Paymentand Post-Closing Purchase Price Adjustments.

### (a)           Notlater than five (5) Business Days prior to the Closing Date, SellersRepresentative shall prepare and deliver to Buyer, using and based upon thebest information reasonably available to Sellers Representative, a preliminarysettlement statement estimating the amount due by Buyer at Closing after givingeffect to all Purchase Price adjustments set forth in Article III.  Buyer shall have two (2) business days toreview the preliminary settlement statement. On the business day following expiration of the two (2) business-dayreview period, Buyer shall submit a written report containing any changes Buyerproposes to be made to the preliminary settlement statement. The parties shallattempt to agree on the final preliminary settlement statement

###  

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### no later than one (1) businessday prior to the Closing.  If the partiesare unable to agree by that date, subject to any adjustment underSection 9.3(b) the estimate delivered by Sellers Representative inaccordance with this Section 9.3 shall constitute the dollar amount to bepaid by Buyer to Sellers at the Closing (the “Closing Payment”).

### (b)           Assoon as reasonably practicable after the Closing but not later than the 90thday following the Closing Date, Sellers Representative shall prepare anddeliver to Buyer a statement setting forth the final calculation of thePurchase Price and showing the calculation of each adjustment, based, to theextent possible on actual credits, charges, receipts and other items before andafter the Effective Date.  SellersRepresentative shall supply reasonable documentation available to support anycredit, charge, receipt or other item. As soon as reasonably practicable but not later than the 30th dayfollowing receipt of Sellers Representative’s statement hereunder, Buyer shalldeliver to Sellers Representative a written report containing any changes thatBuyer proposes be made to such statement. The Parties shall undertake to agree on the final statement of thePurchase Price no later than 150 days after the Closing Date (the “FinalSettlement Date”).  If Sellers Representativeand Buyer have not so agreed on or before the Final Settlement Date, thematters that remain in dispute shall be submitted to an arbitrator (the “Accountant”)for review and resolution.  TheAccountant shall be Grant Thornton LLP or another nationally recognizedindependent public accounting firm as shall be agreed upon by Buyer and SellersRepresentative in writing.  TheAccountant shall render a decision resolving the matters in dispute, in amanner consistent with the provisions of Section 3.4 and the other provisionsof this Agreement, within 30 days following their submission to theAccountant.  The determination of theAccountant shall be final and binding on the parties.  The cost of any arbitration (including thefees and expenses of the Accountant) pursuant to this Section 9.3 shall beborne one-half by Buyer and one-half by Sellers.  If the Purchase Price as adjusted in thefinal settlement statement exceeds the Closing Payment (i.e., the “Post ClosingAdjustment”), Buyer shall pay to Sellers and the Employee Option holders thedifference within 10 days after the Final Settlement Date.  If the Closing Payment exceeds the PurchasePrice as adjusted in the final settlement statement, Sellers will pay to Buyerthe Post Closing Adjustment within 10 days after the Final Settlement Date.

# **ARTICLE X**DELIVERIESAT CLOSING

10.1         Deliveries bySeller to Buyer.             At theClosing, Sellers or the Company as is appropriate shall deliver, or shall causeto be delivered, to Buyer the following:

### (a)           thecertificates evidencing the Shares, and such instruments or documentsevidencing the sale, assignment, transfer and conveyance by the Sellers toBuyer of the Shares in accordance with the terms hereof;

### (b)           acertificate of the Company, dated as of the Closing Date, setting forthresolutions of the board of directors of the Company authorizing theconsummation of the

###  

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### transactions contemplatedhereby, and certifying that such resolutions were duly adopted and have notbeen rescinded or amended as of the Closing Date;

### (c)           acertificate of the Company attesting as to the incumbency and signature of eachofficer of the Company, as applicable, who shall execute this Agreement and anyother agreement in connection therewith on behalf of the Company, andcertifying as being complete and correct the copies attached to suchcertificate of the articles of incorporation and bylaws of the Company, each asin effect on such date;

### (d)           acertificate of existence of the Company from the Secretary of State of theState of Delaware and a certificate of the good standing of the Company fromState of Delaware, and a certificate of qualification of the Company as aforeign entity authorized to do business in each state in which they are soqualified, in each case dated as of a date not earlier than 2 business daysprior to the Closing Date;

### (e)           theoriginals of all minute books, stock transfer records, electronic data andcorporate and all other records of the Company, including but not limited to,all land, geological, engineering and geophysical work files relating to theCompany’s Oil and Gas Properties;

### (f)            theresignation of each of the present directors and officers of the Company;

### (g)           allconsents or waivers referenced on Schedule 5.5;

### (h)           thetermination of the Services Agreement, except for the continuingindemnification obligation thereunder in favor of the Company;

### (i)            theOption Cancellation Agreements; and

### (j)            asubstitute Form W-9 or other certification from each of Sellers that suchSeller is not subject to back-up withholding.

 

10.2         Deliveries byBuyer to Seller.             At theClosing, in addition to making the payments described in Article III, Buyershall deliver to each Seller the following:

### (a)           acertificate of a duly authorized representative of Buyer, dated the ClosingDate, authorizing the execution and delivery of this Agreement and theconsummation of the transactions contemplated hereby, and certifying that suchauthorizations are in full force and effect and have not been rescinded oramended as of the Closing Date; and

### (b)           acertificate of a duly authorized representative of Buyer attesting as to theincumbency and signature of each person who shall execute this Agreement or anyother material document related to this transaction.

 

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# **ARTICLE XITERMINATION**

11.1         Termination.          This Agreement may be terminated andthe transactions contemplated hereby may be abandoned at any time prior to theClosing Date:

### (a)           bymutual written consent of the Sellers’ Representative and Buyer;

### (b)           byeither of the Sellers’ Representative or Buyer if any Governmental Entity shallhave issued any Injunction or taken any other action permanently restraining,enjoining or otherwise prohibiting the consummation of the transactionscontemplated hereby and such Injunction or other action shall have become finaland nonappealable;

### (c)           byeither of the Sellers’ Representative or Buyer if the other shall have failedor refused to close the transaction hereby on or before November 30, 2005 orsuch later date as mutually agreed; provided that, the party seeking toterminate this Agreement under this clause (c) is not then in material breachof this Agreement and providedfurther that the right toterminate this Agreement under this clause (c) shall not be available to anyparty whose failure to fulfill any obligation under this Agreement has been thecause of, or resulted in, the failure of the Closing to occur on or before suchdate; or

### (d)           bySellers’ Representative or Buyer if the total amount of uncured and unwaivedTitle Defects and/or Environmental Defects exceeds Three Million Dollars ($3,000,000.00).

### (e)           by(i) Sellers’ Representative upon the return of the Deposit to Buyer and thepayment to the Buyer of the Break-Up Fee and (ii) by Buyer upon either thepayment of the Break-Up Fee to Seller or upon written notice to the Sellers’Representative of their election to allow Sellers to retain the Deposit in lieuof payment of the Break-Up Fee by Buyer in accordance with Article IV.

11.2         Effect ofTermination.          In the event oftermination of this Agreement by any party hereto as provided in Section 11.1,this Agreement shall forthwith become void and there shall be no liability orobligation on the part of any party hereto except (i) under theConfidentiality Agreement, (ii) with respect to this Section 11.2, the thirdand fourth sentences of Section 8.6, and Section 14.10, and (iii) to theextent that such termination (other than a termination pursuant to Section11.1(e)) results from the willful breach by a party hereto of any of itsrepresentations and warranties or of any of its covenants or agreementscontained in this Agreement.  Theprovisions of Article IV and Sections 8.4(f), 14.9 and 14.11 shallsurvive the termination of this Agreement. For the avoidance of doubt, upon the termination of this Agreementpursuant to Section 11.1(e) and the payment of the Break-Up Fee, neither partyshall have any liability or obligation with respect to the other party pursuantto this Agreement.  For further avoidanceof doubt, neither Sellers nor Buyer shall be obligated for payment of aBreak-Up Fee except upon their voluntary election to terminate this Agreementunder Section 11.1(e).

# ** **

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# **ARTICLE XII**INDEMNIFICATION

12.1         SellerIndemnification.         Subject tothe limitations set forth in Section 12.4 hereof, the Sellers, severally (butonly in proportion to their respective Pro Rata Share) and not jointly, herebyagree to indemnify and hold Buyer and each of their Affiliates, and theofficers, directors, employees and agents thereof, harmless from and againstany and all claims, judgments, causes of action, liabilities, obligations,guarantees, damages, losses, deficiencies, costs, penalties, interest andexpenses, including without limitation, cost of investigation and defense, andreasonable attorneys’ fees and expenses, net of any collected insuranceproceeds (collectively, “Losses”), arising out of, based upon, attributable toor resulting from (i) any breach of any representation, warranty,agreement or covenant solely on the part of the such Seller contained in orpursuant to this Agreement, (ii) any breach of any covenant of the Companycontained in this Agreement, (iii) the Excluded Items or the AdditionalExcluded Items, and (iv) any breach of the representation and warranty of theCompany contained in Section 5.3.

12.2         BuyerIndemnification.        Buyer herebyagrees to indemnify and hold Sellers harmless from and against any and allLosses arising out of, based upon, attributable to or resulting from any breachof any representation, warranty, agreement or covenant on the part of Buyercontained in or made pursuant to this Agreement or any of the transactionscontemplated herein.

12.3         IndemnificationProcedures.

### (a)           Ifany third party asserts any claim against a party to this Agreement which, ifsuccessful, would entitle the party to indemnification under this Article XII(the “Indemnified Party”), it shall give notice of such claim to the party fromwhom it intends to seek indemnification (the “Indemnifying Party”) and theIndemnifying Party shall have the right to assume the defense and, subject toSection 12.3(b), settlement of such claim at its expense by representatives ofits own choosing acceptable to the Indemnified Party (which acceptance shallnot be unreasonably withheld).  Thefailure of the Indemnified Party to notify the Indemnifying Party of such claimshall not relieve the Indemnifying Party of any liability that the IndemnifyingParty may have with respect to such claim, except to the extent that thedefense is materially prejudiced by such failure.  The Indemnified Party shall have the right toparticipate in the defense of such claim at its expense (which expense shallnot be deemed to be a Loss), in which case the Indemnifying Party shallcooperate in providing information to and consulting with the Indemnified Partyabout the claim.  If the IndemnifyingParty fails or does not assume the defense of any such claim within 15 daysafter written notice of such claim has been given by the Indemnified Party tothe Indemnifying Party, the Indemnified Party may defend against or, subject toSection 12.3(b), settle such claim with counsel of its own choosing at theexpense (to the extent reasonable under the circumstances) of the IndemnifyingParty.

### (b)           Ifthe Indemnifying Party does not assume the defense of a claim involving theasserted liability of the Indemnified Party under this Article XII, no

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### settlement of such claim shallbe made by the Indemnified Party without the prior written consent of theIndemnifying Party, which consent shall not be unreasonably withheld ordelayed.  If the Indemnifying Party assumesthe defense of such a claim, (i) no settlement thereof may be effected by theIndemnifying Party without the Indemnified Party’s consent unless (A) there isno finding or admission of any violation of Law or any violation of the rightsof any Person and no effect on any other claim that may be made against theIndemnified Party, (B) the sole relief provided is monetary damages that havebeen paid in full by the Indemnifying Party, and (C) the settlement includes,as an unconditional term thereof, the giving by the claimant or the plaintiffto the Indemnified Party of a release in form and substance reasonablysatisfactory to the Indemnified Party, from all liability in respect of suchclaim, and (ii) the Indemnified Party shall have no liability with respect toany compromise or settlement thereof effected without its consent.  Notwithstanding anything in this Agreement tothe contrary, the Litigation shall not be settled or compromised on any termsand conditions without the prior written consent of Seller’s Representative.

12.4         Limits on Indemnification.  Notwithstanding anything to the contrarycontained in this Agreement:

### (a)           Exceptwith respect to breaches of the representations and warranties contained inSections 5.3, 6.4, 6.6 and 6.7 and breaches of any covenant of Sellers or theCompany contained in this Agreement, Sellers shall not have any obligation toprovide indemnification for Losses with respect to any specific occurrence,event or circumstance giving rise to a right to be indemnified pursuant toSection 12.1 unless the amount of the claim giving rise to the right to beindemnified with respect to such specific occurrence, event or circumstanceexceeds, or the Indemnified Party in good faith reasonably believes it exceeds,$150,000 (the “Basket Amount”).  Themaximum aggregate amount for which Sellers may be liable under thisArticle XII shall be limited to Three Million Dollars ($3,000,000.00)except with respect to breaches of the representations and warranties containedin Sections 5.3, 6.4, 6.6 and 6.7 and breaches of any covenant of Sellers orthe Company contained in this Agreement for which the maximum aggregate amountfor which Sellers may be liable under this Article XII shall be limited to thePurchase Price.

### (b)           Buyershall not have any obligation to provide indemnification for Losses withrespect to any specific occurrence, event or circumstance giving rise to aright to be indemnified pursuant to Section 12.2 unless the amount of theclaim giving right to the right to be indemnified with respect to such specificoccurrence, event or circumstance exceeds, or the Indemnified Party in goodfaith reasonably believes it exceeds, the Basket Amount in which case Buyershall be only liable to Sellers for the amount of such Losses that exceed theBasket Amount.  The maximum aggregateamount for which Buyer may be liable under this Article XII shall be limited toThree Million Dollars ($3,000,000.00) except with respect to breaches of therepresentations and warranties contained in Section 7.9 or breaches of anycovenant or agreement of Buyer contained in this Agreement for which themaximum aggregate amount for which Buyer may be liable under this Article XIIshall be limited to the Purchase Price.

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### (c)           Exceptfor the representations and warranties of (i) the Company contained inSection 5.3, (ii) Sellers contained in Article VI, and (iii) Buyercontained in Article VII, which representations and warranties shall survivethe Closing, the respective representations of the Company, Sellers and Buyercontained in this Agreement shall not survive the Closing, and thereafter noneof the Company, any Seller, Buyer, or any officer, director, employee,Affiliate or Related Party of the Company, any Seller or Buyer shall have anyliability whatsoever (whether pursuant to this Agreement or otherwise) withrespect to such representation or warranty. This Section 12.4(c) shall have no effect upon any other obligations ofthe parties hereto under this Agreement, whether to be performed before, at orafter the Closing, which shall survive until fulfilled or the expiration of thetime thereof in accordance with their terms.

### (d)           Any payments made to Sellers, the Company or theBuyer pursuant to this Article XII shall constitute an adjustment of the PurchasePrice for Tax purposes and shall be treated as such by the Buyer and Sellers ontheir Tax Returns.

### (e)           AnIndemnifying Party shall not be liable under this Article XII for Lossesresulting from any event relating to a breach of a representation or warrantyif the Indemnifying Party can establish that the Indemnified Party had actualKnowledge on or before the Closing Date of such event or if such event resultedfrom the gross negligence or willful misconduct of the Indemnified Party.

### (f)            Notwithstandinganything in this Agreement to the contrary, neither Buyer nor Seller shall haveany obligation to indemnify the other for any claim of Loss that is notasserted in writing to the Indemnifying Party on or before two (2) yearsfollowing the Closing Date with the exception of the representations andwarranties contained in Sections 5.3, 6.2, 6.6 and 6.7 which shall surviveindefinitely.

# **ARTICLE XIIITAXES**

13.1         Tax Returns andPayments.                Buyer shallcontrol the preparation of all Tax Returns of the Company from and after theClosing Date, provided, however, that Sellers shall have the right to reviewand comment on any Tax Return covering a period (or portion thereof) ending onor before December 31, 2005 (“Pre-Closing Returns”) and Buyer shall consider allsuch comments in good faith.  Buyer shallprepare such Pre-Closing Returns in a manner consistent with pastpractice.  Buyer shall not amend anyPre-Closing Returns without the written consent of the Sellers, which consentshall not be unreasonably withheld.

13.2         Cooperation.         Each party shall provide the otherparty with such cooperation and information as it reasonably may request withrespect to the Company in filing any Tax Return, amended Tax Return or claimfor refund, determining a liability for Taxes or a right to a refund of Taxesor participating in or conducting any audit or other proceeding in respect ofTaxes.  Each party shall bear its ownexpenses in complying with the foregoing provisions.

 

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13.3         Sales and UseTaxes; Property Taxes.              Sellersshall be responsible for the payment of any sales or use, transfer orother Taxes due as a result of the transactions contemplated in thisAgreement.  The parties will cooperate inobtaining any exemptions from any sales or use or other transfer Taxes that maybe due as a result of the transactions contemplated in this Agreement.

# **ARTICLE XIVGENERAL**

14.1         Arbitration.

### (a)           Exceptfor (a) the right to apply to a court of competent jurisdiction for a temporaryrestraining order, a preliminary injunction, or other equitable relief topreserve the status quo or prevent irreparable harm, (b) disputes concerningTitle Defect Values, for which the procedures set forth in Section 8.3 shallcontrol, and (c) a dispute concerning the Post Closing Adjustment, for whichthe procedures set forth in Section 9.3(b) shall control, any controversyor failure to agree arising under this Agreement and not resolved by agreementshall be determined by a board of arbitration upon notice of submission givenby Buyer to the Company and Sellers’ Representative, or vice versa, whichnotice shall name a qualified, impartial, and independent arbitrator.  Within ten (10) days after the receipt ofsuch notice, the other party or parties shall name a second qualified,impartial and independent arbitrator, or failing to do so, the party givingnotice shall name the second arbitrator. Within twenty-five (25) days after sending the original notice of submissionthe two arbitrators so appointed shall name the third qualified, independentarbitrator, or failing to do so, the third arbitrator may be appointed by the AmericanArbitration Association (or, if such association has ceased to exist, theprincipal successor thereto).

### (b)           Thearbitrators selected to act hereunder shall be qualified by education andexperience to pass on the particular question in dispute.  The arbitrators shall promptly hear anddetermine (after due notice of hearing and giving the parties a reasonableopportunity to be heard) the questions submitted, and shall render theirdecision within sixty (60) days after appointment of the third arbitrator.  If within said period a decision is notrendered by the board, or majority thereof, new arbitrators may be named andshall act hereunder at the election of either Buyer or Seller in like manner asif none has been previously named.

### (c)           Thearbitration proceeding shall be held in Dallas, Texas and shall be conducted inaccordance with the TEXAS GENERAL ARBITRATION ACT, TEXAS CIVIL PRACTICE ANDREMEDIES CODE, §§ 171.001 et seq., to the extent such rules do not conflictwith this Section 14.1.

### (d)           Thedecision of the arbitrators, or the majority thereof, made in writing shall befinal, binding and non-appealable upon the parties hereto as to the questionssubmitted, and Buyer and Sellers will abide by and comply with suchdecision.  The expenses of arbitration,including reasonable compensation of the arbitrators, shall be

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### borne equally by the partieshereto, except that each party shall bear the compensation and expenses of itsown counsel, witnesses, and employees.

14.2         Amendments.       This Agreement may only be amended by aninstrument in writing executed by Buyer and Sellers.

14.3         Waivers.                Theobservance of any term of this Agreement may be waived (either generally or ina particular instance and either retroactively or prospectively) by the partyentitled to enforce such term, but such waiver shall be effective only if it isin a writing signed by the party entitled to enforce such term and againstwhich such waiver is to be asserted. Unless otherwise expressly provided in this Agreement, no delay oromission on the part of any party in exercising any right or privilege underthis Agreement shall operate as a waiver thereof, nor shall any waiver on thepart of any party of any right or privilege under this Agreement operate as awaiver of any other right or privilege under this Agreement nor shall anysingle or partial exercise of any right or privilege preclude any other orfurther exercise thereof or the exercise of any other right or privilege underthis Agreement.

14.4         Notices.                 Any notice or othercommunications required or permitted hereunder shall be in writing and shall besufficiently given (and shall be deemed to have been duly given upon receipt)if sent by overnight mail, registered mail or certified mail, postage prepaid,or by hand, to the parties at the following addresses (or at such other addressfor a party as shall be specified by like notice):

### (a)           Ifto Buyer, to:

Edge PetroleumExploration Company

1301 TravisStreet, Suite 2000

Houston, Texas77072Attn: C.W. MacLeod

 

With a copy to:

 

Locke Liddell& Sapp L.L.P.

600 Travis Street,Suite 3400

Houston, Texas77002

Attn: David Elder

 

### (b)           Ifto the Sellers, to the Sellers’ Representative, to:

Cinco Natural Resources Corporation 3500 Maple Avenue, Suite 1465Dallas, Texas  75219 Attn:  Jon L. Glass

With a copy to:

Thompson & Knight LLP1700 Pacific Avenue, Suite 3300Dallas, TX 75201Attn: Jeffrey A. Zlotky, Esq.

 

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14.5         Successor andAssigns, Parties in Interest.    ThisAgreement shall be binding upon and shall inure solely to the benefit of theparties hereto and their respective successors, legal representatives andpermitted assigns.  Neither thisAgreement nor any rights or obligations hereunder may be assigned without thewritten consent of the other parties. Nothing in this Agreement, express or implied, is intended to or shallconfer upon any Person, other than the parties hereto and their respectivesuccessors, legal representatives and permitted assigns, any rights, benefitsor remedies of any nature whatsoever under or by reason of this Agreement, andno Person shall be deemed a third party beneficiary under or by reason of thisAgreement.

14.6         Severability.          If any provision of this Agreement orthe application of any such provision to any Person or circumstance, shall bedeclared judicially to be invalid, unenforceable or void, such decision shallnot have the effect of invalidating or voiding the remainder of this Agreement,it being the intent and agreement of the parties that this Agreement shall bedeemed amended by modifying such provision to the extent necessary to render itvalid, legal and enforceable while preserving its intent or, if suchmodification is not possible, by substituting therefor another provision thatis valid, legal and enforceable and that achieves the same objective.

14.7         Entire Agreement.                This Agreement (including theConfidentiality Agreement, the Exhibits and Schedules hereto, and thedocuments and instruments executed and delivered in connection herewith)constitutes the entire agreement among the parties with respect to the subjectmatter hereof and supersedes all prior and contemporaneous agreements andunderstandings, whether written or oral, among the parties or any of them withrespect to the subject matter hereof, and there are no representations,understandings or agreements relating to the subject matter hereof that are notfully expressed in this Agreement and the documents and instruments executedand delivered in connection herewith. All Exhibits and Schedules attached to this Agreement are expressly madea part of, and incorporated by reference into, this Agreement.

14.8         Schedules.             Nothing in the Schedules isintended to broaden the scope of any representation or warranty contained inthe Agreement or to create any covenant unless clearly specified to thecontrary herein.  Any disclosure on oneSchedule shall not be deemed to be disclosed on any other Schedules or underthe Agreement unless an appropriate cross reference is made thereon.  Inclusion of any item in the Schedules (a)does not represent a determination that such item is material nor shall it bedeemed to establish a standard of materiality, (b) does not represent adetermination that such item did not arise in the ordinary course of business,(c) does not represent a determination that the transactions contemplated bythe Agreement require the consent of third parties and (d) shall notconstitute, or be deemed to be, an admission to any third party concerning suchitem.  The Schedules include descriptionsof instruments or brief summaries of certain aspects of the Company and itsbusiness and operations.

14.9         Governing Law.    This Agreement shall be governed by andconstrued in accordance with the laws of the State of Delaware, without givingeffect to any choice-of-law

 

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rulesthat may require the application of the laws of another jurisdiction.  Venue for any proceeding hereunder shall bein the District Court of Dallas County, Texas.

14.10       Remedies.              Each of the parties heretoacknowledges and agrees that (i) the provisions of this Agreement arereasonable and necessary to protect the proper and legitimate interests of theother parties hereto, and (ii) the other parties hereto would be irreparablydamaged in the event any of the provisions of this Agreement were not performedin accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the partieshereto shall be entitled to preliminary and permanent injunctive relief toprevent breaches of the provisions of this Agreement by other parties heretowithout the necessity of proving actual damages upon posting of a suitablebond, and to enforce specifically the terms and provisions hereof and thereof,which rights shall be cumulative and in addition to any other remedy to whichthe parties hereto may be entitled hereunder or at law or equity.

14.11       Expenses.              The Sellers and Buyer shall eachbear their own expenses (including, without limitation, fees and disbursementsof counsel, accountants and other experts) incurred by it in connection with thepreparation, negotiation, execution, delivery and performance of thisAgreement, each of the other documents and instruments executed in connectionwith or contemplated by this Agreement and the consummation of the transactionscontemplated hereby and thereby.  TheSellers shall, prior to closing, pay or reimburse the Company for all of itsexpenses in connection with the negotiation, preparation, execution anddelivery of this Agreement it being understood that expenses incurred by theCompany in connection with this Agreement are being incurred for the benefit ofthe Sellers and accordingly represent the Sellers’ own expenses.

14.12       Release ofInformation; Confidentiality.          Theparties shall cooperate with each other in releasing information concerning thisAgreement and the transactions contemplated hereby.  Prior to the Closing, no press releases orother public announcements concerning the transactions contemplated by thisAgreement shall be made by any party without prior consultation with andwritten consent of each other party, except for any legally requiredcommunication by any party and including any disclosure required by any rule orregulation of any stock exchange or as required under the federal securitieslaws.

14.13       CertainConstruction Rules.               Thearticle and section headings and the table of contents contained in thisAgreement are for convenience of reference only and shall in no way define,limit, extend or describe the scope or intent of any provisions of thisAgreement.  Whenever the context mayrequire, any pronoun used in this Agreement shall include the correspondingmasculine, feminine or neuter forms, and the singular form of nouns, pronounsand verbs shall include the plural and vice versa.  In addition, as used in this Agreement, unlessotherwise provided to the contrary, (a) all references to days, months or yearsshall be deemed references to calendar days, months or years and (b) anyreference to a “Section,” “Article,” or “Schedule” shall be deemed to refer toa section or article of this Agreement or an Exhibit or Schedule attached tothis Agreement.  The words “hereof”, “herein”,and “hereunder” and words of similar import referring to this Agreement referto this Agreement as a whole and not to any particular provision of thisAgreement.  Unless otherwise specificallyprovided for herein, the term “or” shall not be deemed to be exclusive.

 

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14.14       Counterparts.        This Agreement may be executed (includingby facsimile transmission) in multiple counterparts, each of which shall bedeemed an original and all of which taken together shall constitute oneinstrument binding on all the parties, notwithstanding that all the parties arenot signatories to the original or the same counterpart.

14.15       Limitation onDamages.      No party to thisAgreement shall ever be liable to the other for any special damages or any punitiveor exemplary damages, whether such damages are claimed under breach ofcontract, breach of warranty, tort or other theory or cause of action at law orin equity, anything herein to the contrary notwithstanding, except to theextent that another party is required to pay any such damages to a third partyin connection with a claim for which such other party is indemnified hereunder.

14.16       No Third-PartyBeneficiaries.             Thisagreement is not intended for the benefit of any third parties.

14.17       Time of theEssence.           With regard to alldates and time periods set forth or referred to in this Agreement, time is ofthe essence.

14.18       Guarantee.             Guarantor hereby agrees to fullyand unconditionally guarantee the obligations of Buyer hereunder subject to anydefenses available to Buyer hereunder which guarantee shall terminateimmediately following the date of conclusion of the Post Closing Adjustment, ifany.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed as of thedate first above written.
|                                                           | BUYER:  EDGE PETROLEUM EXPLORATION COMPANY, a Delaware corporation |
|----------------------------------------------------------------|--------------------------------------------------------------------|
| By:                                                            | /S/    C.W. MACLEOD                                 |
| Name:                                                          | C.W. MacLeod                                                       |
| Title:                                                         |  Sr. V.P. Business Development  & Planning                |
|                                                           |                                                               |
| GUARANTOR:  EDGE PETROLEUM CORPORATION, a Delaware corporation |
|                                                           | By:                                                                | /S/ C.W. MACLEOD |
|                                                           | Name:                                                              | C.W. MacLeod |
|                                                           | Title:                                                             | Sr. V.P. Business Development & Planning |
|                                                           |                                                               |   |
|                                                           | COMPANY:  CINCO ENERGY CORPORATION, a Delaware corporation         |
|                                                           | By:                                                                | /S/ JON L. GLASS |
|                                                           | Name:                                                              | Jon L. Glass |
|                                                           | Title:                                                             | President |
|                                                           |                                                               |   |
|                                                           | SELLERS:                                                           |
|                                                           | /S/ JON L. GLASS                                                   |
|                                                           |  JON L. GLASS, an individual                                  |
|                                                           |                                                               |   |
|                                                           | /S/ CRAIG D. POLLARD                                               |
|                                                           | CRAIG D. POLLARD, an individual                                    |
|                                                           |                                                               |
|                                                           | /S/ LEIGH T. PRIETO                                                |
|                                                           | LEIGH T. PRIETO, an individual                                     |

 

 

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|   | YORKTOWN ENERGY PARTNERS V, L.P., a Delaware limited partnership  |
|--------|-------------------------------------------------------------------|
|   |                                                              |
|   | By:  Yorktown V Company LLC,  its general partner            |
|   |                                                              |   |
|   | By:                                                               | /S/ PETER A. LEIDEL |
|   | Name:                                                             | Peter A. Leidel |
|   | Title:                                                            | Member |
|   |                                                              |   |
|   | YORKTOWN ENERGY PARTNERS VI, L.P., a Delaware limited partnership |
|   |                                                              |   |
|   | By:                                                               | Yorktown VI Company LP, its general          partner |
|   |                                                              |   |
|   | By:                                                               | Yorktown VI Associates, LLC, its general partner |
|   |                                                              |   |
|   | By:                                                               | /S/ PETER A. LEIDEL |
|   | Name:                                                             | Peter A. Leidel |
|   | Title:                                                            | Member |

 

 

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**EXHIBIT A**

**Oiland Gas Properties**

** **

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**EXHIBIT B**

** **

**AllocatedValues By Lease**

**The following described tracts of landsituated in and being a part of the Laureles Farm Tracts, El Rincon de CorpusChristi, A-411, Nueces County, Texas:**
| Area 1 |   | S/2 Sec 37  All Sec 48  W/2 SW/4 Sec 49  W/2 NW/4 Sec 71  E/2 NE/4 Sec 72 | $ | 34,171,150.00 |
|--------|--------|---------------------------------------------------------------------------|---|---------------|
| Area 2 |   | W/2 SE/4 Sec 26                                                           | $ | 228,050.00    |
| Area 3 |   | W/2 NE/4 Sec 37                                                           | $ | 342,075.00    |
| Area 4 |   | SW/4 Sec 36  N/2 NW/4 Sec 49                                              | $ | 456,100.00    |
| Area 5 |   | S/2 NW/4 Sec 49                                                           | $ | 342,075.00    |
| Area 6 |   | E/2 SW/4 Sec 49                                                           | $ | 228,050.00    |

 

Note:  As the Company acquires its proportionateinterest in any of the oil and gas leases that cover the lands described belowin Areas 7 and 8 the Purchase Price allocated to such oil and gas leases onthis Exhibit B shall be reallocated as shown below with a correspondingreduction in the values allocated to Area 1.
| Area 7 |   | NW/4 & W/2 NE/4 Sec 72  E/2 NW/4 Sec 71 | $ | 1,710,375.00 |
|--------|--------|---------------------------------------------|---|--------------|
| Area 8 |   | NW/4 Sec 36                                 | $ | 85,518.75    |

 

** **

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**EXHIBIT C**

**SpousalJoinder**

 

THEUNDERSIGNED, being the spouse of [          NAME          ], hereby joins in theexecution of this Agreement to reflect the undersigned’s understanding andagreement to the terms herein contained, and to consent to the transactionscontemplated by this Agreement including the sale of the entire interest ofthat Seller in the Shares (including any community interest the undersigned mayhave in those Shares) on the terms and for the consideration herein expressed.
|   |   |                                                                                                                                                                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | [               NAME              ] |