Exhibit 10.10




 




 




ASSET PURCHASE AND SALE AGREEMENT




 




 




Dated January 15, 2003




 




 




 




By and between Carbon Energy Corporation

(USA), formerly


known as Bonneville Fuels Corporation, as Seller and


Fasken Acquisitions 02, Ltd., as Buyer




 





























 




TABLE OF CONTENTS




 




	

  ARTICLE 1


  	

   


  
	

  Certain Definitions


  
	

  Section 1.1


  	

  Certain Defined Terms.


  
	

  ARTICLE 2


  	

   


  
	

  Sale and Purchase of Assets


  
	

  Section 2.1


  	

  Sale and Purchase.


  
	

  Section 2.2


  	

  Reserved Interests.


  
	

  Section 2.3


  	

  Effective Date.


  
	

  Section 2.4


  	

  Ownership Rights.


  
	

  Section 2.5


  	

  Risk of Loss.


  
	

  ARTICLE 3


  	

   


  
	

  Purchase Price


  	

   


  
	

  Section 3.1


  	

  Purchase Price.


  
	

  Section 3.2


  	

  Deposit.


  
	

  Section 3.3


  	

  Adjustments to Purchase Price.


  
	

  ARTICLE 4


  	

   


  
	

  Representations and Warranties


  
	

  Section 4.1


  	

  Representations and Warranties of Seller.


  
	

  Section 4.2


  	

  Scope of Representations of Seller.


  
	

  Section 4.3


  	

  Representations and Warranties of Buyer.


  
	

  ARTICLE 5


  	

   


  
	

  Access to Information; Environmental

  Matters; Etc.  


  
	

  Section 5.1


  	

  General Access.


  
	

  Section 5.2


  	

  Confidential Information.


  
	

  Section 5.3


  	

  No Warranty or Representation.


  
	

  Section 5.4


  	

  Environmental Review and Audit.


  
	

  Section 5.5


  	

  Environmental Defects.


  
	

  ARTICLE 6


  	

   


  
	

  Title Adjustments


  
	

  Section 6.1


  	

  No Title Warranty or Representation.


  
	

  Section 6.2


  	

  Buyer’s Title Review.


  
	

  Section 6.3


  	

  Determination of Title Defects.


  
	

  Section 6.4


  	

  Seller Title Credit.


  
	

  Section 6.5


  	

  Deferred Claims and Disputes.


  
	

  ARTICLE 7


  	

   


  
	

  Certain Agreements of Seller and Buyer


  
	

  Section 7.1


  	

  Maintenance of Assets.


  
	

  Section 7.2


  	

  Qualifications on Conduct.


  
	

  Section 7.3


  	

  Public Announcements.


  
	

  Section 7.4


  	

  Actions by Parties.


  
	

  Section 7.5


  	

  Further Assurances.


  
	

  Section 7.6


  	

  Records.


  
	

  Section 7.7


  	

  Like-Kind Exchange.


  





 




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  ARTICLE 8


  
	

  Closing Conditions


  
	

  Section 8.1


  	

  Seller’s Closing Conditions.


  
	

  Section 8.2


  	

  Buyer’s Closing Conditions.


  
	

  Section 8.3


  	

  Deferred Adjustment Claims Extension.


  
	

  ARTICLE 9


  	

   


  
	

  Closing


  	

   


  
	

  Section 9.1


  	

  Closing.


  
	

  ARTICLE 10


  	

   


  
	

  Post Closing Matters


  
	

  Section 10.1


  	

  Final Settlement Statement.


  
	

  Section 10.2


  	

  Unpaid Third Party Funds.


  
	

  Section 10.3


  	

  Survival.


  
	

  ARTICLE 11


  	

   


  
	

  Limitations


  	

   


  
	

  Section 11.1


  	

  Disclaimer of Warranties.


  
	

  Section 11.2


  	

  Damages.


  
	

  Section 11.3


  	

  Plugging and Abandonment.


  
	

  Section 11.4


  	

  Environmental Release.


  
	

  ARTICLE 12


  	

   


  
	

  Preference Rights and Transfer Requirements


  
	

  Section 12.1


  	

  Preference Rights and Requirements.


  
	

  ARTICLE 13


  	

   


  
	

  Indemnification


  
	

  Section 13.1


  	

  Indemnification by Seller.


  
	

  Section 13.2


  	

  Indemnification by Buyer.


  
	

  Section 13.3


  	

  Common Limitations on Indemnities.


  
	

  The following additional limitations on

  indemnity obligations shall apply:


  
	

  Section 13.4


  	

  Notification.


  
	

  ARTICLE 14


  	

   


  
	

  Termination; Remedies; Limitations


  
	

  Section

  14.1


  	

  Termination.


  
	

  Section

  14.2


  	

  Remedies.


  
	

  ARTICLE 15


  	

   


  
	

  Miscellaneous


  	

   


  
	

  Section 15.1


  	

  Counterparts.


  
	

  Section 15.2


  	

  Governing Law; Jurisdiction; Process.


  
	

  Section 15.3


  	

  Entire Agreement.


  
	

  Section 15.4


  	

  Expenses.


  
	

  Section 15.5


  	

  Notices.


  
	

  Section 15.6


  	

  Successors and Assigns.


  
	

  Section 15.7


  	

  Amendments and Waivers.


  
	

  Section 15.8


  	

  Appendices, Schedules and Exhibits.


  
	

  Section 15.9


  	

  References, Gender, Number.


  
	

  Section 15.10


  	

  Interpretation.


  
	

  Section 15.11


  	

  Attorneys’ Fees.


  
	

  Section 15.12


  	

  Severability.


  
	

  Section 15.13


  	

  No Recordation.


  
	

  Section 15.14


  	

  Time of Essence.


  
	

  Section 15.15


  	

  Arbitration.


  





 




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ASSET PURCHASE AND SALE AGREEMENT




 




This Asset Purchase and Sale

Agreement (this “Agreement”), dated January 15, 2003, is by and between Carbon

Energy Corporation (USA), formerly known as Bonneville Fuels Corporation, a

Colorado corporation (“Seller”), and Fasken Acquisitions 02, Ltd., a Texas

limited partnership (“Buyer”).




 




Recitals:




 




A.                                   Seller owns an

interest in the Assets.




 




B.                                     This Agreement

contemplates a transaction in which Buyer will purchase from Seller, and Seller

will sell to Buyer, all of the Seller’s right, title and interest in the Assets

in return for cash.




 




Agreement:




 




NOW, THEREFORE, in

consideration of the premises and mutual promises herein made, and in

consideration of the representations, warranties and covenants herein

contained, the parties agree as follows:




 




Article 1




Certain Definitions




 




Section 1.1             Certain Defined Terms.




 




Unless the context otherwise

requires, the respective terms defined in Appendix A attached hereto and

incorporated herein shall, when used herein, have the respective meanings therein

specified, with each such definition to apply both to the singular and the

plural forms of the term so defined.




 




Article 2




Sale and Purchase of Assets




 




Section 2.1             Sale and Purchase.




 




On the Closing Date, effective

as of the Effective Date, and subject to the terms and conditions of this

Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to

purchase and accept from Seller, all of the following described assets and

interests (the “Assets”):




 




(a)           All of Seller’s

right, title and interest in, to and under the oil, gas and mineral leases

described on Exhibit A-1 (collectively the “Leases”), including, without

limitation, working interests, overriding royalty interests, royalty interests,

fee mineral interests and any other interests of a similar nature affecting the

lands covered by such leases (the “Lands”), together with all the property and

rights incident thereto, to the extent assignable, including permits,

rights-of-way, easements, licenses, and Contract Rights.




 




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(b)           All of Seller’s

right, title and interest in and to the wells located on the Leases and

described on Exhibit A-2 (collectively the “Wells”), together with

corresponding interests in and to all personal property, equipment, fixtures

and improvements located in or on, or incident or attributable to, the Leases,

or used or obtained in connection with the production, treatment, sale or

disposal of hydrocarbons or water produced therefrom (collectively, the

“Equipment”).




 




(c)           To the extent Seller

has the right to transfer same, all files, records, information and data

relating to any of the items described in Sections 2.1(a) and (b) above, which

are in the possession of Seller or reasonably available to it (the “Records”), including,

without limitation:  title records

(including abstracts of title, title opinions, certificates of title and title

curative documents), division orders, correspondence, seismic data, geological

data and information, production records, electric logs, core data, pressure

data, decline curves, graphical production curves, accounting records and all

related documents, in all available formats, whether digital, paper or

otherwise; provided that the Assets shall not include interpretive data and

other proprietary information prepared by or on behalf of Seller and its

agents, employees or consultants.




 




(d)           All of Seller’s

right, title and interest in, to and under all contracts and agreements

relating to the Leases, Lands and the Wells (“Contract Rights”), including

without limitation, unit agreements, pooling agreements, area of mutual

interest agreements, farm-outs and farm-ins, saltwater disposal agreements,

water injections agreements, line well injection agreements, road use

agreements, drilling contracts, operating agreements, well service contracts,

production sales contracts, gas balancing agreements, storage or warehouse

agreements, service contracts, construction agreements, and division and

transfer orders.




 




(e)           To the extent Seller

has the right to transfer same, all of Seller’s right, title and interest in

and to all intangible rights, inchoate rights, choses in action, rights under

warranties made by third parties, and rights accruing under applicable statutes

of limitations or prescription insofar and only insofar as the foregoing items

accrue or are attributable to the Leases, Lands, Wells, Equipment, Records and

Contract Rights.




 




Section 2.2             Reserved Interests.




 




Seller reserves and retains (i)

Seller’s corporate, financial, tax (other than property tax records relating to

the Assets), legal and other business records; (ii) Seller’s management

information systems and other intellectual property rights owned or licensed by

Seller or used by Seller in the management and administration of its business

and properties; (iii) all claims that Seller may have under any policy of

insurance, indemnity or bond maintained by Seller other than claims relating to

property damage or casualty loss affecting the Assets (which claims shall be

included in the Assets); (iv) all accounts receivable, trade credits or notes

receivable accrued before the Effective Date; (v) all files or records that

Seller is contractually or otherwise obligated not to disclose to Buyer; and

(vi) all claims and causes of action arising from acts, omissions or events, or

damage or destruction of property that occurred prior to the Effective Date

except to the extent that such claims or causes of action could be used as an

offset to claims or causes of action made against Buyer or damages awarded

against Buyer (the “Reserved Interests”).




 




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Section 2.3             Effective Date.




 




The purchase and sale of the

Assets shall be effective as of January 1, 2003, at 7:00 a.m., local time

(herein called the “Effective Date”).




 




Section 2.4             Ownership Rights.




 




Subject to the provisions of

this Agreement, should Closing occur, (i) Seller shall be entitled to all of

the rights of ownership (including the right to all production, proceeds of

production and other proceeds) and shall be subject to the duties and

obligations of such ownership, attributable to the Assets for the period of

time prior to the Effective Date, and (ii) Buyer shall be entitled to all of

the rights of ownership (including the right to all production, proceeds of

production and other proceeds) and shall be subject to the duties and

obligation of such ownership, attributable to the Assets for the period of time

from and after the Effective Date.  All

expenses and costs including, without limitation, all ad valorem, property,

production, severance, and similar taxes and assessments based upon or measured

by the ownership of the Assets, the production of hydrocarbons, or the receipt

of proceeds therefrom, shall be:  (a)

paid by or allocated to Seller if incurred or accruing with respect to

operations conducted prior to the Effective Date; or (b) paid by or allocated

to Buyer if incurred or accruing with respect to operations conducted after the

Effective Date.  All hydrocarbons in

storage facilities above or upstream from the pipeline connection to such

storage facility, or downstream of delivery point sales meters on gas

pipelines, as of the Effective Date, shall belong to Seller.  All hydrocarbons placed in such storage

facilities or upstream of the aforesaid meters on pipelines after the Effective

Date shall belong to Buyer and shall become a part of the Assets.  To accomplish the foregoing allocation of

production, the parties shall rely upon the records maintained by the operator

of the relevant Asset.




 




Section 2.5             Risk of Loss.




 




Except as otherwise provided in

this Agreement, Seller shall assume all risk of loss with respect to the Assets

prior to the Effective Date and Buyer shall assume all risk of loss from and

after the Effective Date.




 




Article 3




Purchase Price




 




Section 3.1             Purchase Price.




 




The purchase price for the sale

and conveyance of the Assets to Buyer is Fifteen Million, Seven Hundred Fifty

Thousand Dollars and No Cents ($15,750,000.00) (the “Purchase Price”), subject

to adjustment in accordance with Section 3.3. 

The “Adjusted Purchase Price” shall be the Purchase Price, as so

adjusted.




 




Section 3.2             Deposit.




 




Contemporaneously with the

execution of this Agreement, Buyer, Seller and [Welborn Sullivan Meck &

Tooley, P.C.] (the “Escrow Agent”) have entered into an Escrow Agreement (the

“Escrow Agreement”), a copy of which is attached hereto as Schedule 3.2.  Contemporaneously with execution of this

Agreement and the Escrow Agreement, Buyer shall




 




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deliver to the Escrow Agent an

amount equal to ten percent (10%) of the Purchase Price ($1,575,000.00) as a

deposit hereunder (the “Deposit”).  At

Closing, the Deposit shall be a credit against the Purchase Price.  If this Agreement is terminated without a

Closing, the provisions of Section 14.2 shall govern the Deposit hereof.




 




Section 3.3             Adjustments to Purchase Price.




 




At Closing,

the Purchase Price shall be adjusted as follows:




 




(a)           The

Purchase Price shall be adjusted upward by the following:




 




(i)            The amount of all actual operating or capital

expenditures or prepaid expenses paid by or on behalf of Seller in connection

with operations and, according to generally accepted accounting principles,

attributable to the period of time between the Effective Date and the Closing

Date, including, without limitation, royalties, rentals and other charges; ad

valorem, property, excise, and other taxes based upon or measured by the

ownership of the Assets, the production of hydrocarbons or the receipt of

proceeds therefrom; and expenses payable to a third person under applicable

joint operating agreements, including overhead charges and royalty disbursement

fees, or, in the absence of any joint operating agreement, those items

customarily billed under such an agreement.




 




(ii)           Any other amounts agreed upon by Seller and Buyer.




 




(b)           The Purchase Price

shall be adjusted downward by the following:




 




(i)            The amount of the Deposit paid pursuant to Section 3.2




 




(ii)           Reductions due to Title Defects as provided in Article 6.




 




(iii)          Reductions due to the Environmental Defects as provided in

Article 5.




 




(iv)          The gross proceeds actually received by Seller, net of

applicable severance and production taxes and compression charges, derived from

the sale of hydrocarbons attributable to the Assets from and after the

Effective Date.




 




(v)           An amount equal to all unpaid ad valorem, property,

production, severance and similar taxes and assessments (but not including

income taxes) based upon or measured by the ownership of the Assets, the

production of hydrocarbons, or the receipt of proceeds therefrom, which taxes

or assessments were due and payable or accrued (but were not yet due and

payable) prior to the Effective Date, which amount shall, where possible, be

computed based upon the tax rate and values applicable to the tax period in

question; otherwise based upon such taxes assessed against the applicable

portion of the Assets for the immediately preceding tax period.




 




(vi)          Any other amounts agreed upon by Seller and Buyer.




 




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(c)           Schedule 3.3(c)

attached hereto sets forth Seller’s best estimate of gas imbalances affecting

the Assets as of the Effective Date. 

The Purchase Price shall be:




 




(i)            reduced by the product obtained by multiplying the

aggregate amount of Unscheduled (Negative) Imbalances by $3.27 per Mcf; and




 




(ii)           increased by the product obtained by multiplying the

aggregate amount of Unscheduled (Positive) Imbalances by $3.27 per Mcf;




 




provided,

however, that there shall be no adjustment for Unscheduled (Negative)

Imbalances or for Unscheduled (Positive) Balances if the aggregate amount of

net adjustments under this clause (c) is less than $10,000.00.




 




Article 4




Representations and Warranties




 




Section 4.1             Representations and Warranties

of Seller.




 




Seller represents and warrants

to Buyer as follows:




 




(a)           Organization and

Qualification.  Seller is a

corporation duly organized, validly existing and in good standing under the

laws of its state of incorporation and is duly qualified to carry on its

business and is in good standing under the laws of the state in which the

Assets are located.




 




(b)           Power and

Authority.  Seller has all requisite

power and authority to carry on its business as presently conducted, and to

enter into this Agreement and perform its obligations hereunder.  The execution, delivery and performance of

this Agreement and the transactions contemplated herein have been duly and

validly authorized by all requisite action on the part of Seller.




 




(c)           Due Execution.  This Agreement has been duly executed and

delivered on behalf of Seller, and all documents and instruments required

hereunder to be executed and delivered by Seller at or prior to Closing shall

have been duly executed and delivered.




 




(d)           Enforceability.  This Agreement constitutes a valid and

binding agreement of Seller enforceable against Seller in accordance with its

terms, subject to (i) applicable bankruptcy, insolvency, reorganization,

moratorium and other similar laws of general application with respect to

creditors, (ii) general principles of equity, and (iii) the power of a court to

deny enforcement of remedies generally based upon public policy.




 




(e)           No Conflict or

Violation.  Except as shown on

Schedule 4.1(e), neither the execution and delivery of this Agreement nor the

consummation of the transactions and performance of the terms and conditions

contemplated hereby by Seller will (i) conflict with or result in a violation

or breach of any provision of the certificate of incorporation, bylaws or other

similar governing documents of Seller or any material agreement, indenture or

other instrument under which Seller is bound; or (ii) violate or conflict with

any law applicable to Seller or the properties or assets of Seller.




 




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(f)            Consents.  No consent, approval, authorization or

permit of, or filing with or notification to, any person is required for or in

connection with the execution and delivery of this Agreement by Seller or for

or in connection with the consummation and performance of the transactions

contemplated hereby by Seller, except as shown on Schedule 4.1(f) and such

consents, approvals, authorizations, permits, filings and notifications the

failure of which to obtain or make are not reasonably likely to have a material

adverse effect on the ability of Seller to consummate and perform the

transactions contemplated by this Agreement. 

The foregoing notwithstanding, all Preference Rights and Transfer

Requirements, including those disclosed in Schedule 4.1(f), shall be resolved

in accordance with Section 12.1 of this Agreement and shall not be the basis

for Buyer claiming a breach of this Section 4.1(f).




 




(g)           Compliance With

Laws.  Except as shown on Schedule

4.1(g), Seller is in material compliance with all Laws and other requirements

of Governmental Authorities applicable to the operation of the Assets that are

operated by Seller, and, to the knowledge of Seller, there are no (i) material

violations of any such Laws or requirements applicable to the operation of the

Assets that are operated by third parties, and (ii) Existing P & A

Obligations.




 




(h)           Actions.  Except as set forth on Schedule 4.1(h), no

action, suit, claim or legal, administrative or arbitral proceeding or

investigation (whether or not the defense thereof is covered by insurance) is

pending or, to the knowledge of Seller, threatened against Seller or the Assets

other than Actions which are not reasonably likely to have a material adverse

effect on the ability of Seller to consummate and perform the transactions

contemplated by this Agreement or on the development and operation of the

Assets after the Closing.




 




(i)            Material

Contracts.  Schedule 4.1(i) sets

forth a list of the Contracts which are material to the Assets and which will

be binding on the Assets after the Closing Date (“Material Contracts”).  The Material Contracts are in full force and

effect and, except as set forth in Schedule 4.1(i), neither Seller nor, to the

knowledge of Seller, any other party to any Material Contract (i) is in breach

of or default with respect to any of its obligations thereunder or (ii) has

given or threatened to give notice of any default under or inquiry into any

possible default under, any Material Contract.




 




(j)            Taxes.  To the knowledge of Seller, all Taxes

levied, assessed or imposed upon or against the Assets have been duly paid or

adequately provided for or are being timely and properly contested, and all Tax

reports or other reports required by law or regulation have been duly filed or extensions

have been duly obtained.




 




(k)           AFE’s.  With respect to the joint, unit or other

operating agreements relating to the Assets, and except as set forth in

Schedule 4.1(k), there are no material outstanding calls or payments under

authorities for expenditures for payments relating to the Assets which are due

or which Seller has committed to make which have not been made.




 




(l)            Contractual

Restrictions.  Except to the extent

otherwise permitted by this Agreement and except as set forth on Schedule

4.1(l), Seller has not entered into any contracts for or received prepayments,

take-or-pay arrangements, buydowns, buyouts for oil and gas, or storage of the

same relating to the Assets which Buyer shall be obligated to honor and make

deliveries of oil and gas or pay refunds of amounts previously paid under such

contracts or arrangements.




 




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(m)          Permits.  With respect to Assets for which Seller is

the operator, Seller (i) has acquired all material permits, licenses, approvals

and consents from appropriate Governmental Authorities to conduct operations on

the Assets in compliance with applicable Laws, and (ii) is in material

compliance with all such permits, licenses, approvals and consents.




 




(n)           Advisors’ and

Brokers’ Fees.  Seller has not

retained any advisor or broker in respect of the transactions contemplated by

this Agreement for which Buyer shall incur any liability.




 




(o)           Bankruptcy.  No bankruptcy or reorganization proceedings

are pending against or contemplated by Seller, and, to the knowledge of Seller,

no such proceedings are threatened against Seller.




 




(p)           Royalties.  All royalties and other payments required

with respect to oil and/or gas production from the Leases and Lands have been

properly and timely paid.




 




Section 4.2             Scope of Representations of

Seller.




 




(a)           Information About

the Assets.  Except as expressly set

forth in this Agreement, Seller disclaims all liability and responsibility for

any representation, warranty, statement or communication (oral or in writing)

to Buyer, including any information contained in any opinion, information or

advice that may have been provided to Buyer by any employee, officer, director,

agent, consultant, engineer or engineering firm, trustee, representative,

partner, member, beneficiary, stockholder or contractor of Seller wherever and

however made, including those made in any data room or internet site and any

supplements or amendments thereto or during any negotiations with respect to

this Agreement or any confidentiality agreement previously executed by the

parties with respect to the Assets. EXCEPT AS SET FORTH IN THIS ARTICLE 4,

SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS

TO: (i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY DATA, INFORMATION OR

RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE ASSETS OR OTHERWISE

CONSTITUTING A PORTION OF THE ASSETS, INCLUDING WITHOUT LIMITATION, SEISMIC

DATA AND SELLER’S INTERPRETATION AND OTHER ANALYSIS THEREOF; (ii) THE PRESENCE,

QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE

ASSETS; (iii) THE ABILITY OF THE ASSETS TO PRODUCE HYDROCARBONS, INCLUDING

WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION

OPPORTUNITIES; (iv) IMBALANCE OR PAYOUT ACCOUNT INFORMATION, ALLOWABLES, OR

OTHER REGULATORY MATTERS; (v) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED

INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE ASSETS; (vi) THE

ENVIRONMENTAL CONDITION OF THE ASSETS; (vii) ANY PROJECTIONS AS TO EVENTS THAT

COULD OR COULD NOT OCCUR WITH RESPECT TO THE ASSETS; (viii) THE TAX ATTRIBUTES

OF ANY ASSETS; (ix) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY

INFORMATION OR MATERIAL FURNISHED TO BUYER BY SELLER OR OTHERWISE CONSTITUTING

A PORTION OF THE ASSETS; AND (x) THE COMPLETENESS OR ACCURACY OF THE

INFORMATION CONTAINED IN ANY EXHIBIT HERETO. 

ANY DATA, INFORMATION OR OTHER




 




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RECORDS FURNISHED BY SELLER ARE

PROVIDED TO BUYER AS CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF THE SAME IS

AT BUYER’S SOLE RISK.




 




(b)           Independent

Investigation.  Buyer has, or by

Closing will have, made its own independent investigation, analysis and

evaluation of the Assets (including Buyer’s own estimate and appraisal of the

extent and value of Seller’s oil and gas reserves attributable to the Assets

and an independent assessment and appraisal of the environmental risks and

liabilities associated with the acquisition of the Assets).  Buyer has had, or will have prior to

Closing, access to all information necessary to perform its investigation and

has not, or will not have, relied on any representations by Seller, it’s

employees, agents or representatives other than those expressly set forth in

this Agreement.




 




(c)           Seller’s

Knowledge.  In those instances where

Seller’s representations are “to the knowledge of Seller,” such representations

are made on the basis of the actual knowledge of Seller’s personnel at or above

the supervisory level, without any investigation.




 




Section 4.3             Representations and Warranties

of Buyer.




 




Buyer represents and warrants

to Seller as follows:




 




(a)           Organization and

Qualification.  Buyer is a limited

partnership, duly organized, validly existing and in good standing under the

laws of its state of formation, and is, or will be by Closing, duly qualified

to carry on its business and in good standing under the laws of the state in

which the Assets are located.




 




(b)           Authority.  Buyer has all requisite power and authority

to carry on its business as presently conducted and to enter into this

Agreement and perform its obligations hereunder.  The execution, delivery and performance of this Agreement and the

transactions contemplated hereby have been duly and validly authorized by all

requisite action on the part of Buyer.




 




(c)           Due Execution.  This Agreement has been duly executed and

delivered on behalf of Buyer, and all documents and instruments required

hereunder to be executed and delivered by Buyer at or prior to Closing shall

have been duly executed and delivered.




 




(d)           Enforceability.

This Agreement constitutes a valid and binding agreement of Buyer enforceable

against Buyer in accordance with its terms, subject to (i) applicable

bankruptcy, insolvency, reorganization, moratorium and other similar laws of

general application with respect to creditors, (ii) general principles of

equity, and (iii) the power of a court to deny enforcement of remedies

generally based upon public policy.




 




(e)           No Conflict or

Violation.  Neither the execution

and delivery of this Agreement nor the consummation of the transactions and

performance of the terms and conditions contemplated hereby by Buyer will (i)

conflict with or result in a violation or breach of any provision of the

certificate of limited partnership, limited partnership agreement or other

similar governing documents of Buyer or any material agreement, indenture or

other instrument under which Buyer is bound, or (ii) violate or conflict with

any law applicable to Buyer or the properties or assets of Buyer.




 




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(f)            Consents.  No consent, approval, authorization or

permit of, or filing with or notification to, any person is required for or in

connection with the execution and delivery of this Agreement by Buyer or for or

in connection with the consummation and performance of the transactions

contemplated hereby by Buyer, except for the consents shown on Schedule 4.1(f)

and such consents, approvals, authorizations, permits, filings and

notifications the failure of which to obtain or make are not reasonably likely

to affect the ability of Buyer to consummate and perform the transactions

contemplated by this Agreement.




 




(g)           Actions.  No action is pending or, to the knowledge of

Buyer, threatened against Buyer, which would be likely to affect the ability of

Buyer to consummate and perform the transactions contemplated by this

Agreement.




 




(h)           Advisors’ and

Brokers’ Fees.  Buyer has not

retained any advisor or broker in respect of the transactions contemplated by

this Agreement for which Seller shall incur any liability.




 




(i)            Qualified Owner.  The consummation of the transactions

contemplated hereby will not cause Buyer to be disqualified as an owner of any

federal or state oil, gas and mineral lease or to exceed any acreage limitation

imposed by any statute, rule, regulation or order of governmental authority.




 




(j)            Funds.  Buyer has, and all times prior to Closing

will have, sufficient funds available to enable Buyer to consummate the

transactions contemplated hereby and to pay the Adjusted Purchase Price and all

related fees and expenses of Buyer.




 




Article 5




Access to Information; Environmental Matters; Etc.




 




Section 5.1             General Access.




 




Following the execution of this

Agreement, Seller shall (a) permit Buyer and its representatives to have access

at reasonable times in Seller’s offices and, in a manner so as not to interfere

unduly with the business operations of Seller, to the Records insofar as Seller

may do so (i) without violating legal constraints or any legal obligation or

waiving any attorney/client work product or like privilege, and (ii) subject to

any required consent of any third person and; (b) permit Buyer and its

representatives at reasonable times and at Buyer’s sole risk, cost and expense

to conduct an inspection of the Assets; provided, however, Buyer shall repair

any damage to the Assets resulting from such inspection and Buyer does hereby

indemnify and hold harmless, release and agree to defend Seller from and

against any and all losses, costs, damages, obligations, claims, liabilities,

expenses and causes of action to the extent arising from Buyer’s inspection of

the Assets, including, without limitation, claims for personal injuries,

property damage and reasonable attorneys’ fees and expenses, regardless of the

form of claim and whether at common law, strict liability negligence or under

any statute or regulation.




 




Section 5.2             Confidential Information.




 




Unless and until Closing occurs

and subject to Section 5.5(d), Buyer agrees to maintain all information made

available to it pursuant to this Agreement confidential and to cause its

officers, employees, representatives, consultants and advisors to maintain all

information made




 




9





























 




available to them pursuant to

this Agreement confidential.  Buyer and

Seller have entered into that certain Confidentiality Agreement dated October

23, 2002, the terms of which are incorporated by reference and made a part of

this Agreement to the extent such terms are not inconsistent with the terms of

this Agreement.




 




Section 5.3             No Warranty or Representation.




 




Seller makes no warranty or

representation, express or implied, statutory or otherwise, with respect to any

Environmental Matters (including any Environmental Condition or Environmental

Claim) and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for

any Environmental Matter (including without limitation any Environmental

Defect, Environmental Condition or Environmental Claim) with respect to any of

the Assets shall be pursuant to the procedures set forth in Sections 5.4 and

5.5 hereof.  Notwithstanding the above,

Seller agrees to indemnify Buyer with regard to any Offsite Environmental

Matter as set forth in Section 13.1.




 




Section 5.4             Environmental Review and Audit.




 




(a)           Environmental

Access.  During the Examination

Period and subject to the restrictions contained in this Agreement and any

required consent or waiver of any third person, Seller shall  (i) permit Buyer and its representatives to

have access in Seller’s offices, in a manner so as not to interfere unduly with

the business operations of Seller, to Seller’s environmental files and the

Records in Seller’s possession relating to the Assets insofar as Seller may do

so without waiving any attorney/client, work product or like privilege and

subject to any confidentiality restrictions; and (ii) permit Buyer and its

representatives or consultants to have reasonable access to the Assets for the

purpose of allowing Buyer and its representatives or consultants to inspect

and/or audit the Assets for any Environmental Defects (collectively, “Buyer’s

Environmental Review”), all at Buyer’s sole risk, cost and expense.




 




(b)           Conduct of Review.  Prior to conducting Buyer’s Environmental

Review, Buyer shall furnish Seller or its representatives with a proposed scope

of Buyer’s Environmental Review, including a description of the activities to

be conducted and the locations of such activities.  Seller or its representatives shall have the right to be present

during any inspection of the Assets and shall have the right, at its option and

expense, to split samples with Buyer.




 




(c)           Buyer’s

Responsibility for Review.  In

connection with Buyer’s Environmental Review, Buyer agrees that Buyer and its

representatives or consultants shall comply with all laws and shall exercise

due care with respect to the Assets and their condition, taking into

consideration the characteristics of any wastes or substances found thereon,

and in light of all relevant facts and circumstances.  Promptly after completing Buyer’s Environmental Review, Buyer

shall, at its sole cost and expense, restore the Assets to substantially the

same condition the Assets were in at the time of Buyer’s entry thereon, in

accordance with good engineering practice, if changed due to Buyer’s Environmental

Review.  Buyer shall maintain and shall

cause its representatives or consultant to maintain all information obtained by

Buyer pursuant to the Buyer’s Environmental Review as strictly confidential and

shall not disclose same to any third party without the prior written consent of

Seller which shall not be unreasonably withheld, except to the extent required

by law.  Buyer shall provide Seller or

its representatives with copies of any final written reports prepared and

analytical tests results




 




10





























 




received by Buyer promptly

following Buyer’s or its representatives’ or consultants’ preparation or

receipt of same.  Buyer does hereby

indemnify and hold harmless, release and agree to defend Seller from and

against any and all losses, costs, damages, obligations, claims, liabilities,

expenses and causes of action, including all Environmental Liabilities, to the

extent arising out of any violation by Buyer or Buyer’s representatives or

consultants of the provisions of this subsection or from the inspection or

testing of the Assets conducted by or on behalf of Buyer, including, without

limitation, claims for personal injuries, property damage and reasonable

attorneys’ fees and expenses, regardless of the form of claim and whether at

common law, strict liability, negligence or under any statute or

regulation.  However, except to the

extent such inspections or testings cause or create a material Environmental

Defect, such indemnification shall not extend to any Environmental Defect

discovered in the course of such inspections and testings, shall expire upon

the Closing and shall not in any way affect or limit the responsibilities of

the parties with respect to any Environmental Defect.




 




Section 5.5             Environmental Defects.




 




(a)           Buyer’s

Assertions of Environmental Defects. 

As promptly as reasonably practicable during the Examination Period and,

in any event, prior to the expiration thereof, Buyer shall notify Seller in

writing (the “Environmental Defect Notice”) of any matters, which, in Buyer’s

reasonable opinion, constitute Environmental Defects.  Except with regard to an Offsite Environmental Matter, Buyer

shall be deemed to have waived any Environmental Defect, which Buyer fails to

assert as an Environmental Defect in the Environmental Defect Notice given to

Seller on or before the expiration of the Examination Period.  With respect to each Environmental Defect

asserted, Buyer’s Environmental Defect Notice shall include: (i) a specific

description of each Asset (or portion thereof) that is affected by the alleged

Environmental Defect or a description of each Asset (or portion thereof) that

Buyer reasonably believes could be affected by the alleged Environmental

Defect; (ii) a description of the alleged Environmental Defect and the facts

and circumstances giving rise thereto, including all evidence compiled by Buyer

which supports the existence of such alleged Environmental Defect; and (iii) a

calculation of the Remediation Amount (itemized in reasonable detail if such

remediation is susceptible to itemizing in detail) that Buyer asserts is

attributable to such Environmental Defect. 

Buyer’s calculation of the Remediation Amount must describe as

accurately as possible the Remediation proposed for the Environmental Condition

that gives rise to the asserted Environmental Defect and identify all material

assumptions used by the Buyer in calculating the Remediation Amount, including

the standards the Buyer asserts must be met to comply with Environmental Laws.




 




(b)           Seller’s and

Buyer’s Rights and Elections.  If

Buyer timely notifies Seller of an Environmental Defect as required by Section

5.5(a), Seller may elect, at or prior to the Closing and subject to Section

5.5(d) below, one of the following options with respect to the Asset affected

by the alleged Environmental Defect (the “Environmental Defect Property”):




 




(i)            leave such Environmental Defect Property in the Assets

and assume responsibility for the Remediation of such Environmental Defect,

provided that all costs for such Remediation shall first be borne by Buyer to

the extent Seller elects to apply any of the Environmental Defect Deductible to

such costs; or




 




11





























 




(ii)           leave such Environmental Defect Property in the Assets and

reduce the Purchase Price by the Environmental Defect Amount with respect to

such Environmental Defect (taking into account any application of the

Environmental Defect Deductible which Seller elects to make with respect

thereto).




 




If Seller

elects the option set forth in clause (ii) above, Buyer shall be deemed to have

assumed responsibility for Remediation of such Environmental Defects and, upon

Closing, the responsibility for such matters shall be an Assumed Liability.  If Seller elects the option set forth in

clause (i) above, Seller shall use commercially reasonable efforts to implement

such Remediation in a manner that is consistent with the requirements of

Environmental Laws and the provisions of any applicable Lease, and Seller shall

have access to the Environmental Defect Property after the Closing Date to

implement and complete such Remediation in accordance with this Section.  Seller will be deemed to have adequately

completed the Remediation required in the immediately preceding paragraph:




 




(A)          either (i) upon receipt of a

certificate or approval from the applicable state or federal authority that the

Remediation has been implemented to the extent necessary to comply with

existing regulatory requirements; or (ii) upon receipt of a certificate from a

licensed professional engineer, chosen 

jointly by Seller and Buyer, if the approval or certification specified

in (i) above cannot be obtained because provision for such approval or

certification is not provided under federal or state law (the fees of such

licensed professional engineer shall be paid by Seller) or if the approval or

certification specified in (i) above has not been obtained within six months

after the Closing Date; and




 




(B)           to the extent express approval from

the lessor is required under any applicable Lease, upon receipt of such

approval.




 




(c)           Environmental Defect Amount.  Subject to the provisions of Section 5.5(d)

below, if Seller elects the option set forth in Section 5.5(b)(ii) with respect

to one or more Environmental Defects, then, as Buyer’s sole and exclusive

remedy with respect to such Environmental Defects, Buyer shall be entitled to

reduce the Purchase Price by the amount (the “Environmental Defect Amount”), if

any, by which the aggregate Remediation Amount with respect to the

Environmental Conditions giving rise to such Environmental Defects exceeds

$100,000 (the “Environmental Defect Deductible”).  Seller may also apply any part of the Environmental Defect

Deductible to the cost of any Remediation undertaken by Seller pursuant to the

option set forth in Section 5.5(b)(i). 

Any Remediation costs to which Seller elects to apply the Environmental

Defect Deductible shall be borne by Buyer. 

It is expressly understood and agreed that the Environmental Defect

Deductible represents an aggregate deductible for Environmental Defects, which

may be apportioned as provided in this Section 5.5(c) rather than as a separate

deductible for each individual Environmental Claim.




 




(d)           Deferred Assets.  If Buyer timely notifies Seller of any Environmental

Defect under Section 5.5(a) with respect to which either (i) the Remediation

Amount specified in the Environmental Defect Notice exceeds $500,000 or (ii)

the Allocated Values attributable to the Assets affected by the alleged

Environmental Defect exceed $500,000, then subject to Section 8.1(d) and

Section 8.2(d) and except as provided in Section 5.5(e) below, Closing shall

proceed in accordance with the terms of this Agreement with respect to the

Assets other than the




 




12





























 




Assets affected by such

Environmental Defect (the “Deferred Assets”), and the Purchase Price shall be

reduced by the allocated values attributable to the Deferred Assets.  Seller and Buyer shall have a period of six

(6) months from the Closing Date to negotiate a mutually satisfactory agreement

regarding the Deferred Assets and the terms under which the Deferred Assets

will be purchased by Buyer.  If a

mutually satisfactory agreement regarding such purchase of the Deferred Assets

is reached within such six (6) month period, then the parties shall proceed and

close such sale in accordance with such agreement.  If no such mutually satisfactory agreement has been reached

within such six (6) month period then the Deferred Assets shall be excluded

from this transaction and retained by Seller. 

Nothing contained herein shall be construed to obligate either party to

reach an agreement regarding the purchase and sale of the Deferred Assets under

this Section 5.5(d).  Further, the

parties agree that all negotiations, as well as the circumstances and details

regarding the alleged Environmental Defect affecting the Deferred Assets shall

be kept and remain confidential in accordance with Section 5.2 following

Closing.




 




(e)           Seller’s Right to Terminate.  Seller shall have the right to terminate

this Agreement if Buyer notifies Seller of any Environmental Defect under

Section 5.5(a) with respect to which either (i) the Remediation Amount

specified in the Environmental Defect Notice exceeds $1,000,000 or (ii) the

Allocated Values attributable to the Assets affected by the alleged

Environmental Defect exceed $1,000,000. 

Such termination right shall be exercised by Seller giving written

notice of termination to Buyer within five (5) Business Days of receipt of

Buyer’s Environmental Defect Notice.




 




Article 6




Title Adjustments




 




Section 6.1             No Title Warranty or

Representation.




 




Without limiting Buyer’s right

to adjust the Purchase Price by operation of Section 6.2, Seller makes no

warranty or representation, express, implied, statutory or otherwise, with

respect to Seller’s title to any of the Assets, and Buyer hereby acknowledges

and agrees that Buyer’s sole remedy for any defect of title, including any

Title Defect, with respect to any of the Assets shall be pursuant to the

procedures set forth in this Article 6. 

Notwithstanding the foregoing, the Assignment, Conveyance, and Bill of

Sale to be delivered by Seller at Closing shall contain a special warranty of

title and a pass-through warranty provision as set forth on Exhibit C attached

hereto.




 




Section 6.2             Buyer’s Title Review.




 




(a)           Buyer’s Assertion

of Title Defects.  As promptly as

reasonably practicable during the Examination Period and, in any event, prior

to the expiration thereof, Buyer shall furnish Seller written notice meeting

the requirements of this Section 6.2(a) (a “Title Defect Notice”) setting forth

any matters which, in Buyer’s reasonable opinion, constitute Title Defects and

which Buyer asserts as Title Defects with respect to any of the Assets pursuant

to this Article 6.  Except to the extent

covered by the warranties set forth in the Assignment attached hereto as

Exhibit C, Buyer shall be deemed to have waived any Title Defect that Buyer

fails to assert as a Title Defect in a Title Defect Notice given to Seller

prior to the expiration of the Examination Period.  To be effective, Buyer’s Title Defect Notice of a Title Defect

must include (i) a brief description of the matter constituting the asserted

Title Defect, (ii) the claimed Title Defect 




 




13





























 




Amount attributable thereto,

and (iii) supporting documents reasonably necessary for Seller (as well as any

title attorney or examiner hired by Seller) to verify the existence of such

asserted Title Defect.




 




(b)           Purchase Price

Allocations.  The Purchase Price has

been allocated to the Assets in accordance with the respective values set forth

in Exhibit “B” attached hereto (the “Allocated Values”).  Such allocations shall be used in

determining Title Defect Amounts pursuant to Section 6.2(d) hereof.  If any adjustment is made to the Purchase

Price pursuant to this Section 6.2 or Section 5.5, a corresponding adjustment

shall be made to the portion of the Purchase Price allocated to the affected

Asset.




 




(c)           Seller’s Right

and Opportunity to Cure.  If Buyer

timely gives Seller Title Defect Notice(s) of one or more Title Defects, Seller

shall have the right to then or thereafter dispute the existence of such Title

Defect and/or the alleged Title Defect Amount asserted with respect thereto in

accordance with the provisions of Section 6.5 of this Agreement.  In addition, the following terms and

conditions shall apply with respect to Title Defects asserted by Buyer in a

timely Title Defect Notice:




 




(i)            Seller shall have until five (5) Business Days prior to

the Closing Date, at its cost and expense, if it so elects but without

obligation, to cure all or a portion of such asserted Title Defects.  Any asserted Title Defect that is waived by

Buyer within such time shall be deemed a “Permitted Encumbrance” hereunder.

Subject to Sections 6.2(c)(ii) and 6.2(c)(iii) and Seller’s continuing right to

dispute the existence of a Title Defect and/or the Title Defect Amount asserted

with respect thereto under Section 6.5, if Seller within such time fails to

cure any Title Defect of which Buyer has given timely written notice as

required above, and Buyer has not and does not waive same on or before the day

immediately preceding the Closing Date, the Assets affected by such uncured and

unwaived Title Defect shall be “Title Defect Property.”




 




(ii)           If Buyer furnishes to Seller timely Title Defect Notice(s)

of one or more Title Defects and the same are not waived or cured as provided

in Section 6.2(c)(i), Seller may elect to delay Closing for a period of up to

thirty (30) calendar days to afford Seller the opportunity, if it so elects, to

attempt to cure any properly asserted Title Defect prior to Closing.  Subject to Section 6.2(c)(iii), and Seller’s

continuing right to dispute the existence of a Title Defect and/or the Title

Defect Amount asserted with respect thereto under Section 6.5, if Seller within

such period fails or refuses to cure any Title Defect and Buyer has not waived

and does not waive the same before the delayed Closing, the Assets affected by

such uncured and unwaived Title Defect shall be a “Title Defect Property.”




 




(iii)          If Buyer furnishes to Seller timely Title Defect Notice(s)

of one or more Title Defects and the same are not waived or cured as provided

in Section 6.2(c)(i) or Section 6.2(c)(ii), as applicable, Seller may elect to

close the transactions contemplated hereby and retain the right to cure any

such Title Defect after Closing (whether or not Seller elects to delay Closing

pursuant to Section 6.2(c)(ii) above). 

In such event, but subject to Seller’s continuing right to dispute the

existence of a Title Defect and/or the Title Defect Amount asserted




 




14





























 




with respect thereto under Section 6.5, the

Purchase Price shall be subject to reduction pursuant to Section 6.2(d) taking

into account all Title Defect Amounts attributable to the Title Defect

Properties affected by the Title Defects which Seller may elect to cure after

Closing.  Seller shall have ninety (90)

calendar days after the Closing Date (as may be delayed pursuant to Section

6.2(c)(ii) above) in which to attempt to cure any such Title Defect.  If Seller cures any such Title Defect, then

Buyer shall promptly pay Seller the Title Defect Amount with respect to the

Title Defect that is so cured, but not exceeding the aggregate amount of the

reductions in the Purchase Price that Buyer received as a result of any Title

Defects.




 




The Title

Defect Deductible under Section 6.2(d) below, including any increase therein

attributable to Seller Title Credits under Section 6.4 below, shall be restored

to the extent any portion thereof is applied against a Title Defect Amount

attributable to a Title Defect that is subsequently cured by Seller or

determined not to constitute a Title Defect.




 




(d)           Buyer’s Title

Adjustments.  Except to the extent

covered by the special warranty provision contained in the Assignment attached

hereto as Exhibit “C”, as Buyer’s sole and exclusive remedy with respect to

Title Defects, Buyer shall be entitled to reduce the Purchase Price by the

amount, if any, by which the aggregate amount of Title Defect Amounts with

respect to all Title Defect Properties exceeds $100,000.00 (the “Title Defect

Deductible”).  “Title Defect Amount”

shall mean, with respect to a Title Defect Property, the amount by which the

value of such Title Defect Property is impaired as a result of the existence of

one or more uncured and unwaived Title Defects, which amount shall be

determined as follows and subject to the following conditions:




 




(i)            If the Title Defect results from Seller having a lesser

Net Revenue Interest in such Title Defect Property than the Net Revenue

Interest specified therefor in Exhibit “A-2,” the Title Defect Amount shall be

equal to the product obtained by multiplying the portion of the Purchase Price

allocated to such Title Defect Property in Exhibit “B” by a fraction, the

numerator of which is the reduction in the Net Revenue Interest and the

denominator of which is the Net Revenue Interest specified for such Title

Defect Property in Exhibit “A-2.”




 




(ii)           If the Title Defect results from Seller having a greater

Working Interest in a Title Defect Property than the Working Interest specified

therefor in Exhibit “A-2,” the Title Defect Amount shall be equal to the

product obtained by multiplying the portion of the Purchase Price allocated to

such Title Defect Property in Exhibit “B” by a fraction, the numerator of which

is the increase in the Working Interest and the denominator of which is the Working

Interest specified for such Title Defect Property in Exhibit “A-2.”




 




(iii)          If the Title Defect results from the existence of a lien,

mortgage or similar encumbrance, the Title Defect Amount shall be an amount

sufficient to discharge such lien, mortgage or encumbrance.




 




(iv)          If the Title Defect results from any matter not described

in paragraphs (i), (ii) or (iii) above, the Title Defect Amount shall be an

amount




 




15





























 




equal to the difference between the value of

the Title Defect Property affected by such Title Defect with such Title Defect

and the value of such Title Defect Property without such Title Defect (taking

into account the portion of the Purchase Price allocated in Exhibit “B” to such

Title Defect Property); provided, that if such Title Defect is reasonably

susceptible of being cured, the Title Defect Amount shall be the reasonable

cost and expense of curing such Title Defect, if less.




 




(v)           If a Title Defect is not effective or does not affect a

Title Defect Property throughout the entire productive life of such Title

Defect Property, such fact shall be taken into account in determining the Title

Defect Amount.




 




(vi)          The Title Defect Amount attributable to a Title Defect

Property shall not exceed the portion of the Purchase Price allocated to such

Title Defect Property in Exhibit “B.”




 




(vii)         No Title Defect Amount shall be allowed on account of and to

the extent that an increase in Seller’s Working Interest in a Well has the

effect of proportionately increasing Seller’s Net Revenue Interest in such

Well.




 




(viii)        Notwithstanding the foregoing, if the Title Defect Amount

determined pursuant to the foregoing with respect to a Title Defect Property is

equal to or less than $10,000.00, after taking into account any curative work

performed by or on behalf of Seller, then the Title Defect Amount with respect

to such Title Defect Property shall be deemed to be zero.




 




Section 6.3             Determination of Title Defects.




 




An Asset shall not be deemed to

have a “Title Defect” if the following statements are true in all material

respects with respect to such Asset as of the Closing Date:




 




(i)            Seller has Defensible Title thereto.




 




(ii)           All rentals, Pugh clause payments, shut-in gas payments

and other similar payments (including royalties, overriding royalties and other

similar payments on production) due with respect to such Asset have been

properly and timely paid.




 




(iii)          Seller is not in default under the material terms of any

Lease, farmout agreement or other contract or agreement with respect to such

Asset that could (a) prevent Seller from receiving the proceeds of production

attributable to Seller’s interest therein, or (b) result in cancellation of

Seller’s interest therein.




 




Notwithstanding any other

provision in this Agreement to the contrary, the following matters shall not be

asserted as, and shall not constitute, Title Defects:




 




(a)           defects in the chain of title such as

minor name discrepancies, the mere failure to recite marital status in a

document, or omissions of successions of heirship




 




16





























 




proceedings, unless Buyer

provides affirmative evidence that such failure or omission results in another

party’s superior claim of title to the relevant Asset portion thereof;




 




(b)           defects arising out of lack of

survey;




 




(c)           defects arising out

of a lack of corporate authorization, unless Buyer provides affirmative

evidence that such lack of authorization results in another party’s superior

claim of title to the relevant Assets or portion thereof;




 




(d)           the failure to

obtain or absence of any federal patent or conveyance with respect to any lands

over which any state has claimed ownership and which have been covered by a

state lease for more than (10) ten years;




 




(e)           defects that have

been cured by possession under the applicable statutes of limitations or

statutes for prescription; and




 




(f)            other defects of a

type expected to be encountered in the area involved and customarily acceptable

to prudent operators and interest owners.




 




If a Title Defect results from any matter that could also result in the

breach of any representation or warranty of Seller set forth in Section 4.1,

then Buyer shall only be entitled to assert such matter as a Title Defect

pursuant to this Article 6 and shall be precluded from also asserting such

matter as the basis of the breach of any such representation or warranty.  However, Buyer shall not be precluded from

asserting such matter as a breach of the special warranty provision included in

the Assignment attached hereto as Exhibit C.




 




In determining the existence of

a Title Defect, due consideration shall be given to the length of time

hydrocarbons have been produced from the affected property in an undisputed

“pay status” without any adverse claim, even though such period may be less

than the period of possession or use required under applicable limitations or

prescription statutes.  (As used herein,

“pay status” shall mean payment is being made by a third party for production

from the affected Asset without indemnity from Seller except such indemnities

as are customarily included in division orders, transfer orders, product

purchase agreements and similar documents commonly used in connection with the

payment of proceeds from production.)




 




Section 6.4             Seller Title Credit.




 




A “Seller Title Credit” shall

mean, with respect to an Asset, the amount by which the value of such Asset is

enhanced by virtue of (a) Seller having a greater Net Revenue Interest in such

Asset than the Net Revenue Interest specified therefor in Exhibit “A-2”; or (b)

Seller having a lesser Working Interest in such Asset than the Working Interest

specified therefor in Exhibit “A-2”, which amount shall be determined as

follows:




 




(i)            If the Seller Title Credit results from Seller having a

greater Net Revenue Interest in such Asset than the Net Revenue Interest

specified therefor in Exhibit “A-2,” the Seller Title Credit shall be equal to

the product obtained by multiplying the portion of the Purchase Price allocated

to such Asset in Exhibit “B” by a fraction, the numerator of which is the

increase in the Net Revenue




 




17





























 




Interest and the denominator of which is the

Net Revenue Interest specified for such Asset in Exhibit “A-2.”




 




(ii)           If the Seller Title Credit results from Seller having a

lesser Working Interest in an Asset than the Working Interest specified

therefor in Exhibit “A-2,” the Seller Title Credit shall be equal to the

product obtained by multiplying the portion of the Purchase Price allocated to

such Asset in Exhibit “B” by a fraction, the numerator of which is the decrease

in the Working Interest and the denominator of which is the Working Interest

specified for such Asset in Exhibit “A-2.”




 




(iii)          No Seller Title Credit shall be allowed on account of and

to the extent that a decrease in the Company’s Working Interest in an Asset has

the effect of proportionately decreasing Seller’s Net Revenue Interest in such

Asset.




 




(iv)          Notwithstanding the foregoing, if the Seller Title Credit

determined pursuant to the foregoing with respect to any Asset is $10,000 or

less, then the Seller Title Credit with respect thereto shall be deemed zero.




 




The Title

Defect Deductible under Section 6.2(d) above shall be increased dollar for

dollar by the aggregate amount of all Seller Title Credits.  Seller Title Credits shall not be used to

increase the Purchase Price




 




Section 6.5             Deferred Claims and Disputes.




 




In the event

that Buyer and Seller have not agreed upon (i) the existence of one or more

Title Defects or Seller Title Credits or one or more adjustments, credits or

offsets claimed by Buyer or Seller pursuant to and in accordance with the

requirements of this Article 6, or (ii) the existence of one or more

Environmental Defects and if the Asset in question has not been excluded from

this transaction under the terms of Section 5.5(d) of this Agreement, any such

dispute or claim (a “Deferred Adjustment Claim”) shall be settled pursuant to

this Section 6.5 and, except as provided in Sections 8.1(d) or 8.2(d), shall

not prevent or delay Closing.




 




With respect to each potential

Deferred Adjustment Claim, Buyer and Seller shall deliver to the other a

written notice describing each such potential Deferred Adjustment Claim, the

amount in dispute and a statement setting forth the facts and circumstances

that support such party’s position with respect to such Deferred Adjustment

Claim.  At Closing, the Purchase Price

shall not be adjusted on account of, and no effect shall be given to, the

Deferred Adjustment Claim.  On or prior

to the thirtieth (30th) consecutive calendar day following the

Closing Date (the “Deferred Matters Date”), Seller and Buyer shall attempt in

good faith to reach agreement on the Deferred Adjustment Claims and,

ultimately, to resolve by written agreement all disputes regarding the Deferred

Adjustment Claims.  Any Deferred

Adjustment Claims that is not so resolved on or before the Deferred Matters

Date may be submitted by either party to final and binding arbitration in

accordance with Section 15.15 hereof. 

The amount of any reduction in the Purchase Price to which Buyer becomes

entitled under the final and binding written decision of the Tribunal shall be

promptly refunded by Seller to Buyer.




 




18





























 




Article 7




Certain Agreements of Seller and Buyer




 




Section 7.1             Maintenance of Assets.




 




From the Effective Date until

Closing, Seller agrees that it shall:




 




(a)           Administer and

operate the Wells in accordance with the applicable operating agreements.




 




(b)           Not introduce any

new methods of management, operation or accounting with respect to any or all

of the Assets.




 




(c)           Use commercially

reasonable efforts to maintain and keep the Assets in full force and effect;

and fulfill all contractual or other covenants, obligations and conditions

imposed upon Seller with respect to the Assets, including, but not limited to,

payment of royalties, delay rentals, shut-in gas royalties and other required

payments.




 




(d)           Not, except to the

extent necessary or advisable to avoid forfeiture or penalties, enter into

agreements to drill new wells or to rework, plug back, deepen, plug or abandon

any Well, nor commence any drilling, reworking or completing or other

operations on the Leases which requires expenditures exceeding Twenty Thousand

Dollars ($20,000) for each operation (except for emergency operations and

operations required under presently existing contractual obligations) without

obtaining the prior written consent of Buyer (which consent shall not be

unreasonably withheld, delayed or conditioned); provided that the terms of this

paragraph shall not apply to any expenditures of Seller which will not be

charged to Buyer.




 




(e)           Not voluntarily

relinquish its position as operator to anyone other than Buyer with respect to

any of the Wells or voluntarily abandon any of the Wells other than as required

pursuant to the terms of a Lease or by regulation.




 




(f)            Not, without the

prior written consent of Buyer (which consent shall not be unreasonably

withheld, delayed or conditioned), (i) enter into any agreement or arrangement

(other than one constituting a Permitted Encumbrance) transferring, selling or

encumbering any of the Assets (other than in the ordinary course of business,

including ordinary course sales of production, inventory or salvage or pursuant

to any agreements existing on the date hereof); (ii) grant any preferential or

other right to purchase or agree to require the consent of any party not

otherwise required to consent to the transfer and assignment of the Assets to Buyer;

(iii) enter into any new sales contracts or supply contracts which cannot be

cancelled upon thirty (30) days prior notice; or (iv) incur or agree to incur

any contractual obligation or liability (absolute or contingent) with respect

to the Assets except as otherwise provided herein (including ordinary course

sales of production, inventory or salvage or pursuant to any disclosed AFE’s

covering the Assets).




 




(g)           To the extent known

to Seller, provide Buyer with written notice of (i) any claims, demands, suits

or actions made against Seller which materially affect the Assets; or (ii) any

proposal from a third party to engage in any material transaction (e.g., a farmout) with respect to the

Assets.




 




19





























 




(h)           Continue to pay

invoices with respect to the Assets and operations thereon in a timely manner.




 




Section 7.2             Qualifications on Conduct.




 




(a)           Emergencies;

Legal Requirements.  Seller may take

(or not take, as the case may be) any of the actions mentioned in Section 7.1

above if Seller determines that such actions (i) are reasonably necessary to

safeguard life, property, and the environment in case of an actual or

imminently threatened blow-out, explosion, accident, fire, flood, storm,

hurricane, catastrophe, or other emergency, or (ii) are reasonably required by

law, regulation, order, or permit condition or by a governmental authority

having jurisdiction.  In such event,

Seller shall promptly notify Buyer of its determination and of the action

taken.




 




(b)           Non-Operated

Properties.  If Seller is not the

operator of a particular Asset, the obligations of Seller in Section 7.1 above

with respect to such Asset which have reference to operations that are normally

performed by the operator, shall be construed to require only that Seller use

reasonable diligence (without being obligated to incur any expense or institute

any cause of action) to cause the operator of such Asset to take such actions

or render such performance within the constraints of the applicable operating

agreements and other applicable agreements.




 




Section 7.3             Public Announcements.




 




Neither party

will issue any press release or otherwise make any public statements with

respect to this Agreement and the transactions contemplated hereby without the

prior consent of the other party, which consent shall not be unreasonably

withheld.  If a party is required by law

to make any such disclosure, it must first provide to the other party the

content of the proposed disclosure, the reasons that such disclosure is

required by law and the time and place that the disclosure will be made and

afford such other party a reasonable opportunity to comment upon and request

changes in the disclosure. 

Notwithstanding the foregoing, Seller or Seller’s Affiliates shall be

permitted in the context of public financing or otherwise to disclose the

details of and information regarding the transaction contemplated by this

Agreement to Canadian and U.S. securities regulators, stock exchanges, its

advisors (including, but not limited to, underwriters and their counsel),

potential investors or the investing public, whether by way of prospectus,

information memorandum, filing with securities regulatory authorities or

otherwise.




 




Section 7.4             Actions by Parties.




 




Each of the parties agrees to

use reasonable diligence to satisfy the conditions to Closing set forth in

Article 8 and to refrain from taking any action within its control which would

cause a breach by such party of a representation or warranty set forth herein.




 




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Section 7.5             Further Assurances.




 




Seller and

Buyer each agree that, from time to time prior to and after the Closing Date,

they will execute and deliver such further documents and instruments, and take

or cause to be taken, such other actions, as may be necessary to effect the

transactions under and carry out the purposes and intents of this Agreement.




 




Section 7.6             Records.




 




Buyer agrees to maintain the

Records until the seventh (7th) anniversary of the Closing Date (or

for such longer period of time as Seller shall advise Buyer is necessary in

order to have the Records available with respect to open years for tax audit

purposes), or, if any of the Records pertain to any claim or dispute pending on

the seventh (7th) anniversary of the Closing Date, Buyer shall

maintain any of the Records designated by Seller until such claim or dispute is

finally resolved and the time for all appeals has been exhausted.  Buyer shall provide Seller and its

representatives reasonable access at reasonable times to and the right to copy

all or any portion of the Records.




 




Section 7.7             Like-Kind Exchange.




 




Seller shall

have the right, at its option, to dispose of the Assets, or any portion

thereof, through a transaction that is structured to qualify as a like-kind

exchange of property within the meaning of Section 1031 of the Internal Revenue

Code of 1986, as amended (the “Code”). 

Buyer agrees to cooperate with Seller in effecting a qualifying

like-kind exchange through a trust, escrow, or other means as determined by

Seller.  Seller shall have the right to

assign its rights, but not its obligations, under this Agreement, in whole or

in part, to a “qualified intermediary” (as defined under the Code) or as

otherwise necessary or appropriate to effectuate a like-kind exchange and Buyer

agrees to recognize said qualified intermediary.  Seller represents that any such like-kind exchange will not

violate any agreements to which Seller is subject.  Buyer does not represent to Seller that any particular tax

treatment will be given to Seller as a result of any such like-kind

exchange.  Seller will be responsible

for all costs and obligations directly or indirectly associated with Seller’s

election to accomplish a like-kind exchange. 

If Seller elects to consummate the sale as a like-kind exchange, Seller

agrees to hold harmless and indemnify Buyer from and against all claims, losses

and liabilities, if any, resulting from the like-kind exchange.  Notwithstanding anything contained to the

contrary in this Section 7.7, the conveyance to Buyer of the Assets shall be

directly from Seller, and Buyer shall not take title at any time to any

like-kind exchange property.




 




Article 8




Closing Conditions




 




Section 8.1             Seller’s Closing Conditions.




 




The obligation of Seller to

proceed with the Closing contemplated hereby is subject, at the option of

Seller, to the satisfaction on or prior to the Closing Date of all of the

following conditions:




 




(a)           Representations, Warranties and

Covenants.  (1) The representations

and warranties of Buyer contained in this Agreement shall be true and correct

in all material respects




 




21





























 




on and as of the Closing Date

as though made as of the Closing Date; and (2) the covenants and agreements of

Buyer to be performed on or before the Closing Date in accordance with this

Agreement shall have been duly performed in all material respects.




 




(b)           Closing Documents.  On or prior to the Closing Date, Buyer shall

have delivered, or be standing ready to deliver at Closing, all agreements,

instruments and other documents required to be delivered by Buyer pursuant to

Section 9.1.




 




(c)           No Action.  On the Closing Date, no suit, action or

other proceeding (excluding any such matter initiated by Seller) shall be

pending or threatened before any court or governmental agency of competent

jurisdiction seeking to enjoin or restrain the consummation of the Closing or

recover damages from Seller resulting therefrom.




 




(d)           Adjustments.  The reductions in the Purchase Price on

account of the aggregate (net) amount of all Environmental Defect Amounts and

Title Defect Amounts (including any such amounts claimed by Buyer with respect

to unresolved Deferred Adjustment Claims) shall not exceed ten percent (10%) of

the Purchase Price.




 




Section 8.2             Buyer’s Closing Conditions.




 




The obligations of Buyer to

proceed with the Closing contemplated hereby is subject, at the option of

Buyer, to the satisfaction on or prior to the Closing Date of all of the

following conditions:




 




(a)           Representations, Warranties and

Covenants.  (1) The representations

and warranties of Seller contained in this Agreement shall be true and correct

in all material respects on and as of the Closing Date as though made as of the

Closing Date; and (2) the covenants and agreements of Seller to be performed on

or before the Closing Date in accordance with this Agreement shall have been

duly performed in all material respects.




 




(b)           Closing Documents.  On or prior to the Closing Date, Seller

shall have delivered, or be standing ready to deliver at the Closing, all

agreements, instruments and documents required to be delivered by Seller

pursuant to Section 9.1.




 




(c)           No Action.  On the Closing Date, no suit, action or

other proceeding (excluding any such matter initiated by Buyer) shall be

pending or threatened before any court or governmental agency of competent

jurisdiction seeking to enjoin or restrain the consummation of the Closing or

recover damages from Buyer or resulting therefrom.




 




(d)           Adjustments.  The reductions in the Purchase Price on

account of the aggregate (net) amount of all Environmental Defect Amounts and

Title Defect Amounts (including any such amounts claimed by Buyer with respect

to unresolved Deferred Adjustment Claims) shall not exceed ten percent (10%) of

the Purchase Price.




 




Section 8.3             Deferred Adjustment Claims

Extension.




 




Notwithstanding Section 8.2(d),

if Buyer elects not to proceed with the Closing as a result of the

non-satisfaction of the condition set forth in Section 8.2(d) and such condition

would have been satisfied but for the amount of Environmental Defect Amounts

and Title Defect Amounts




 




22





























 




claimed by Buyer with respect

to unresolved Deferred Adjustment Claims, Seller may elect to delay the Closing

until the tenth (10th) Business Day following the date when a

sufficient amount of such Deferred Adjustment Claims have been resolved

pursuant to Section 6.5 to determine that such condition has been satisfied or

has not been satisfied.  A Deferred

Adjustment Claim will be deemed resolved pursuant to Section 6.5 when a final

and binding written decision of the Tribunal is made with respect thereto in

accordance with Section 15.15 hereof.




 




Article 9




Closing




 




Section 9.1             Closing.




 




The Closing

shall be held on or before March 18, 2003 (the “Closing Date”), at 10:00 a.m.,

Mountain Daylight Time, at the offices of Seller in Denver, Colorado, or on

such other date, time and place as Seller and Buyer may otherwise agree to in

writing.  At Closing, the Parties shall

execute and deliver, or cause to be executed and delivered, the following:




 




(a)           Seller shall execute and deliver (i)

an Assignment, Conveyance and Bill of Sale in the form attached as Exhibit “C”

(in sufficient counterparts to facilitate recording) conveying the Assets,

subject to the Permitted Encumbrances; (ii) a non-foreign affidavit, as such

affidavit is referred to in Section 1445(b)(2) of the Code, dated as of the

Closing Date, and (iii) such other instruments as may reasonably be required to

convey the Assets to Buyer and otherwise effectuate the transactions

contemplated by this Agreement.




 




(b)           Seller and Buyer shall execute and

deliver a preliminary settlement statement (the “Preliminary Settlement

Statement”) prepared by Seller and confirmed by Buyer, setting forth the

Adjusted Purchase Price and the calculation of each adjustment used to

determine the Adjusted Purchase Price as provided in Section 3.3.  Seller shall prepare the Preliminary Settlement

Statement and furnish same to Buyer at least two (2) business days prior to the

Closing Date.




 




(c)           Buyer shall deliver to Seller or to

Seller’s account (at such place as may be designated by Seller in a written

notice delivered to Buyer not less than two (2) Business Days prior to Closing

Date) the Adjusted Purchase Price in immediately available funds (wire transfer

or certified check).




 




(d)           Seller shall deliver on forms

supplied by Buyer transfer orders or letters in lieu thereof, directing the

operator and/or purchaser of production to make payment of proceeds

attributable to production from the Assets after the Effective Date to Buyer.




 




(e)           With respect to any of the Assets for

which Seller serves as Operator, Seller shall cooperate fully within the

limitations of the applicable operating agreements to cause Buyer to succeed

Seller as operator.




 




(f)            Seller shall deliver to Buyer the

Records (originals to the extent available) provided that Seller may, at its

expense, make and retain copies thereof. 

All such Records shall be delivered not later than two (2) weeks after

the Closing Date.




 




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Article 10




Post Closing Matters




 




Section 10.1           Final Settlement Statement.




 




As soon as

practicable after the Closing, but in no event later than sixty (60) days after

Closing, Seller shall prepare and deliver to Buyer, in accordance with this

Agreement and generally accepted accounting principles, a statement (“Final

Settlement Statement”) setting forth each adjustment, (other than adjustments

for unresolved Deferred Adjustment Claims) finally determined as of Closing and

showing the calculation of such adjustments. 

Within thirty (30) days after receipt of the Final Settlement Statement,

Buyer shall deliver to Seller a written report containing any changes that

Buyer proposes be made in good faith to resolve any questions with respect to

the amounts due pursuant to such Final Settlement Statement no later than

ninety (90) days after the Closing. 

Within 10 days following agreement of the parties as to the Final

Settlement Statement the net amount due to either Seller or Buyer shall be

paid.




 




Section 10.2           Unpaid Third Party Funds.




 




At such time as Buyer and

Seller agree on a Final Settlement Statement, Seller will transfer to Buyer all

funds held by Seller which are owed to a third party owner of royalty,

overriding royalty, working interests, mineral interests or other similar

interests, attributable to the Assets, and will deliver all records in Seller’s

possession which may be useful to determine proper disbursement.  Buyer shall thereafter be responsible for

determining the proper payment of such amounts and shall indemnify and hold

harmless Seller from and against any and all cost, loss or expense of whatever kind,

including attorney’s fees, arising from or in connection with the claim of any

person with respect to the funds transferred to Buyer pursuant to this Section

10.2, but only to the extent of such funds.




 




Section 10.3           Survival.




 




Except as provided in this

Section 10.3, no representations, warranties, covenants and agreements made

herein shall survive the Closing.  Each

representation, warranty, covenant and agreement made herein shall terminate

and cease to be of further force and effect as of the Closing or such later

date after Closing as is expressly stipulated in this Section 10.3 for the

survival thereof.  Following the Closing

or such later date stipulated in this Section 10.3 for the survival thereof,

such representation, warranty, covenant or agreement shall not form the basis

for or give rise to any claim, demand, cause of action, counterclaim, defense,

damage, indemnity, obligation or liability which is asserted, claimed, made or

filed following the Closing or such later date stipulated for survival.  It is expressly agreed that the terms and

provisions of Sections 4.1(a) through (p), 4.3(a) through (j), 5.3, 5.5,

Articles 6, 7, 10, 11, 12, 13, 14 and 15 and Buyer’s indemnity under Sections

5.1 and 5.4 shall survive the Closing indefinitely or for such shorter period

of time as may be stipulated in such provisions or elsewhere herein.  In addition, the definitions set forth in

Appendix A to this Agreement shall survive the Closing to the extent necessary

to give operative effect to the representations, warranties, covenants and

agreements that survive Closing.




 




24





























 




Article 11




Limitations




 




Section 11.1           Disclaimer of Warranties.




 




NOTWITHSTANDING

ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, IT

IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS NOT MAKING ANY

REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR

OTHERWISE, BEYOND THOSE REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN THIS

AGREEMENT, AND IT IS UNDERSTOOD THAT, SUBJECT TO SUCH EXPRESS REPRESENTATIONS

AND WARRANTIES, BUYER TAKES THE ASSETS “AS IS” AND “WHERE IS.”  WITHOUT LIMITING THE GENERALITY OF THE

IMMEDIATELY PRECEDING SENTENCE, SELLER HEREBY (i) EXPRESSLY DISCLAIMS AND

NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW, BY

STATUTE OR OTHERWISE, RELATING TO (a) THE CONDITION OF THE ASSETS (INCLUDING,

WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS 

WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF

CONFORMITY TO MODELS OR SAMPLES OF MATERIAL, OR THE PRESENCE OR ABSENCE OF ANY

HAZARDOUS MATERIAL IN OR ON, OR DISPOSED OF OR DISCHARGED FROM, THE ASSETS), or

(b) ANY INFRINGEMENT BY SELLER OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD

PARTY, and (ii) NEGATE ANY RIGHTS OF BUYER UNDER STATUTES TO CLAIM DIMINUTION

OF CONSIDERATION AND CLAIMS BY BUYER FOR DAMAGES BECAUSE OF REDHIBITORY VICES

OR DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF THE PARTIES

THAT THE ASSETS ARE TO BE ACCEPTED BY BUYER IN THEIR PRESENT CONDITION AND STATE

OF REPAIR.




 




Section 11.2           Damages.




 




NOTWITHSTANDING

ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT,

SELLER AND BUYER AGREE THAT THE RECOVERY OF ANY DAMAGES SUFFERED OR INCURRED AS

A RESULT OF ANY BREACH BY EITHER PARTY OF ANY OF ITS REPRESENTATIONS,

WARRANTIES OR OBLIGATIONS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL

DAMAGES SUFFERED OR INCURRED AS A RESULT OF THE BREACH BY THE BREACHING PARTY

OF ITS REPRESENTATIONS, WARRANTIES OR OBLGIATIONS HEREUNDER AND IN NO EVENT

SHALL THE BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR ANY

INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING,

WITHOUT LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR

LOST OR DELAYED PRODUCTION) SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS

A RESULT OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS,

WARRANTIES OR OBLIGATIONS HEREUNDER. 

PROVIDED, HOWEVER, IF AS A RESULT OF THE BREACH BY A PARTY OF ITS

REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER, INDIRECT, CONSEQUENTIAL,

SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES ARE AWARDED AGAINST OR PAID BY THE

NON-BREACHING PARTY TO ANY THIRD PARTY, THEN 




 




25





























 




IF OTHERWISE ENTITLED TO INDEMNITY

HEREUNDER, SUCH NON-BREACHING PARTY SHALL BE ENTITLED TO BE INDEMNIFIED FOR ALL

DAMAGES PAYABLE TO THE THIRD PARTY, INCLUDING ALL ACTUAL AND ANY INDIRECT,

CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES AWARDED AGAINST OR PAID

BY THE NON-BREACHING PARTY.




 




Section 11.3           Plugging and Abandonment.




 




NOTWITHSTANDING ANYTHING

CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, IT IS

EXPRESSLY AGREED FOR ALL PURPOSES OF THIS AGREEMENT THAT (i) NEITHER EXISTING P

& A OBLIGATIONS NOR PLUGGING AND ABANDONMENT OBLIGATIONS SHALL CONSTITUTE

ENVIRONMENTAL CONDITIONS, ENVIRONMENTAL CLAIMS, ENVIRONMENTAL LIABILITIES,

ENVIRONMENTAL DEFECTS, OR ENVIRONMENTAL MATTERS, (ii) EXCEPT AS PROVIDED IN

SECTION 4.1(g), SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,

WITH RESPECT TO EXISTING P & A OBLIGATIONS OR PLUGGING AND ABANDONMENT

OBLIGATIONS, (iii) SELLER SHALL HAVE NO LIABILITIES OR OBLIGATIONS WITH RESPECT

TO THE PLUGGING AND ABANDONMENT OBLIGATIONS AND ALL SUCH OBLIGATIONS SHALL BE ASSUMED

OBLIGATIONS EFFECTIVE AS OF THE EFFECTIVE DATE UPON CLOSING, and (iv) SELLER

SHALL HAVE NO LIABILITIES OR OBLIGATIONS WITH RESPECT TO EXISTING P & A

OBLIGATIONS EXCEPT AS PROVIDED IN SECTIONS 13.1(a) AND 13.1(d).




 




Section 11.4           Environmental Release.




 




Except for an Offsite

Environmental Matter, from and after Closing, Buyer shall have no rights to

recovery or indemnification for Environmental Liabilities or any Environmental

Matters under this Agreement or law, and all rights or remedies which Buyer may

have at or under law with respect to any Environmental Liabilities or

Environmental Matters are expressly waived. 

EXCEPT FOR AN OFFSITE ENVIRONMENTAL MATTER, FROM AND AFTER CLOSING,

BUYER HEREBY AGREES, WARRANTS AND CONVENANTS TO RELEASE, ACQUIT AND FOREVER

DISCHARGE SELLER FROM ANY AND ALL CLAIMS, DEMANDS AND CAUSES OF ACTION OF

WHATSOEVER NATURE, INCLUDING, WITHOUT LIMITATION, ALL CLAIMS, DEMANDS AND

CAUSES OF ACTION FOR CONTRIBUTION AND INDEMNITY UNDER STATUTE OR COMMON LAW,

WHICH COULD BE ASSERTED NOW OR IN THE FUTURE AND THAT RELATE TO OR IN ANY WAY

ARISE OUT OF ENVIRONMENTAL LIABILTIES OR ENVIRONMENTAL MATTERS.  EXCEPT FOR AN OFFSITE ENVIRONMENTAL MATTER,

FROM AND AFTER CLOSING, BUYER WARRANTS, AGREES AND COVENANTS NOT TO SUE OR

INSTITUTE ARBITRATION AGAINST SELLER UPON ANY CLAIM, DEMAND OR CAUSE OF ACTION

FOR INDEMNITY AND CONTRIBUTION THAT HAVE BEEN ASSERTED OR COULD BE ASSERTED FOR

ANY ENVIRONMENTAL LIABILITIES OR ENVIRONMENTAL MATTERS.




 




26





























 




Article 12




Preference Rights and Transfer Requirements




 




Section 12.1           Preference Rights and Requirements.




 




Buyer shall notify Seller if it

discovers that any Assets are subject to Preference Rights or Transfer

Requirements (other than those set forth on Schedule 4.1(f)), and Seller shall

make a good-faith effort to obtain waivers of any such Preference Rights and

Transfer Requirements that are not ordinarily obtained after Closing.  If a Preference Right is exercised prior to

Closing, the Purchase Price shall be adjusted downward in an amount equal to

the price paid to Seller for the Asset with respect to which the Preference

Right has been exercised (based on the Allocated Value for the affected Asset

on Exhibit “B”) and such Asset shall be deleted from this Agreement.  As to any Asset with respect to which a

Transfer Requirement has not been obtained prior to Closing, Buyer may waive

such Transfer Requirement and accept an assignment covering such Asset.  If Buyer does not waive the Transfer

Requirement, an adjustment shall be made to the Purchase Price based upon the

Allocated Value of the Asset so affected and, if the Transfer Requirement is

obtained after Closing, Buyer shall pay Seller such Allocated Value and receive

an assignment of such Asset from Seller pursuant to this Agreement.  If a Preference Right burdening an Asset has

not been exercised or waived by Closing, Buyer shall pay for and accept an

assignment covering such Asset and, if the Preference Right is exercised after

Closing, Buyer shall be entitled to all proceeds paid for such interest by the

third party exercising such Preference Right. 

Buyer shall be responsible for conveying title to the Asset affected by

said Preference Right to the party exercising the same and shall indemnify and

hold Seller harmless from and against any claim or liability for Buyer’s

failure to make such conveyance.




 




Article 13




Indemnification




 




Section 13.1           Indemnification by Seller.




 




Upon Closing, Seller shall to

the fullest extent permitted by law, release, defend, indemnify and hold

harmless Buyer, its Affiliates and their respective directors, officers,

employees, agents and other representatives from and against the following:




 




(a)           All claims, demands, liabilities,

judgments, losses and reasonable costs, expenses and attorneys’ fees

(individually a “Loss” and collectively, the “Losses”) arising from the breach

by Seller of any representation or warranty set forth in this Agreement that

survives Closing;




 




(b)           All Losses arising from the breach by

Seller of any covenant set forth in this Agreement; and




 




(c)           All Losses arising from the ownership

and operation of the Assets prior to the Effective Date directly associated

with the following matters:




 




(i)            Damages to persons;




 




(ii)           Damages to property;




 




27





























 




(iii)          The violation by Seller of any law or regulation or the

terms of any agreement binding upon Seller;




 




(iv)          Claims of Seller’s co-owners, partners, joint venturers and

other participants in the Wells; and




 




(v)           Offsite Environmental

Matters.




 




(d)           Notwithstanding the above, the

following limitations shall apply to Seller’s indemnification obligations:




 




(i)            Except as set forth in Section 13.1(d)(ii), Seller shall

not be obligated to indemnify Buyer for any Loss unless Buyer has delivered a

written notice of such Loss within one (1) year after Closing.  Except as to Losses relating to matters

under Section 13.1(c)(i) and Section 13.1(c)(v), any Loss for which Seller does

not receive written notice before the end of one (1) year after Closing shall

be deemed to be an Assumed Liability.




 




(ii)           As to the indemnities under Section 13.1(c)(i) and Section

13.1(c)(v), Seller shall not be obligated to indemnify Buyer for any Loss

unless Buyer has delivered a written notice of such Loss within three (3) years

after Closing.  Any Loss relating to

matters under Section 13.1(c)(i) and Section 13.1(c)(v) for which Seller does

not receive written notice before the end of three (3) years after Closing shall

be deemed to be an Assumed Liability.




 




(iii)          Except as otherwise provided in this Section 13.1, Seller’s

indemnification obligations shall not cover Losses relating to (a) the Plugging

and Abandonment Obligations; (b) Environmental Liabilities which shall be

governed by Article 5 hereof; or (c) Title Defects which shall be governed by

Article 6 hereof.




 




(iv)          Buyer acknowledges and agrees that the claim procedures set

forth in Articles 5 and 6, the indemnification provisions in this Article 13

and the termination rights in Article 14, shall be the exclusive remedies of

Buyer with respect to the transactions contemplated by this Agreement;

provided, however, Buyer shall not be precluded from asserting its rights under

the special warranty provision contained in the Assignment attached hereto as Exhibit

“C”.




 




Section 13.2           Indemnification by Buyer.




 




Upon Closing, Buyer shall to

the fullest extent permitted by law, release, defend, indemnify, and hold

harmless Seller, its Affiliates and their respective directors, officers,

employees, agents and other representatives from and against the following:




 




(a)           All Losses arising from the breach by

Buyer of any representation or warranty set forth in this Agreement that

survives Closing;




 




(b)           All Losses arising from the breach by

Buyer of any covenant set forth in this Agreement;




 




28





























 




(c)           All Losses arising from the Assumed

Liabilities; and




 




(d)           All Losses arising from the ownership

and operation of the Assets after the Effective Date, provided that Buyer shall

not indemnify Seller with respect to any Loss attributable to or arising out of

(i) any breach by Seller of any covenant provided for in Article 7 of this

Agreement or (ii) Seller’s gross negligence or willful misconduct.




 




Section 13.3           Common Limitations on Indemnities.




 




The following

additional limitations on indemnity obligations shall apply:




 




(a)           The parties’ indemnification

obligations under this Agreement shall be subject to the limitations set forth

in Section 11.2 of this Agreement regarding damages.




 




(b)           Any Losses required to be paid as

indemnity under this Article 13 shall be reduced to the extent of any amounts

actually received by the indemnified party under the terms of insurance

policies covering such claim.




 




Section 13.4           Notification.




 




As soon as reasonably

practical, an indemnified party shall notify the indemnifying party of any

claim or demand which the indemnified party has determined has given or could

give rise to a claim for indemnification under this Article 13.  Such notice shall specify the agreement,

representation or warranty with respect to which the claim is made, the facts

giving rise to the claim and the alleged basis therefor, and the amount (to the

extent then determinable) of liability for which indemnity is asserted.  If any action, suit or proceeding is brought

with respect to which a party may be liable under this Article 13, the defense

of the action, suit or proceeding (including settlement negotiations, appeals,

and other proceedings) shall be at the discretion of and conducted by the

indemnifying party.  If an indemnified

party shall settle any such action, suit or proceeding without the written

consent of the indemnifying party (which consent shall not be unreasonably

withheld), the right of the indemnified party to make any claim against the

indemnifying party on account of such settlement shall be deemed conclusively

denied. An indemnified party shall have the right to be represented by its own

counsel at its own expense in any such action, suit or proceeding, and if an

indemnified party is named as the defendant in any action, suit or proceedings,

it shall be entitled to have its own counsel and defend such action, suit or

proceeding with respect to itself at its own expense.  Subject to the foregoing, neither party shall, without the other

party’s written consent, settle, compromise, confess judgment or permit

judgment by default in any action, suit or proceeding if such action would

create or attach any liability or obligation to the other party.  The parties agree to make available to each

other, and to their respective counsel and accountants, all information and

documents reasonably available to them which relate to any action, suit or

proceeding, and the parties agree to render to each other such assistance as they

may reasonably require of each other in order to ensure the proper and adequate

defense of any such action, suit or proceeding.




 




29





























 




Article 14




Termination;

Remedies; Limitations




 




Section 14.1           Termination.




 




(a)           Termination of Agreement.  This Agreement and the transactions

contemplated hereby may be terminated at any time at or prior to the Closing:




 




(i)            by mutual written consent of Seller and Buyer;




 




(ii)           by Seller if any condition specified in Section 8.1 has

not been satisfied on or before Closing and shall not have been waived by

Seller;




 




(iii)          by Seller’s election to terminate under Section 5.5(e); or




 




(iv)          by Buyer if any condition specified in Section 8.2 has not

been satisfied on or before Closing and shall not have been waived by Buyer.




 




(b)           Effect of Termination.  Without limiting Seller’s and Buyer’s

respective remedies and rights with respect to the Deposit under Section 14.2,

in the event of termination of this Agreement pursuant to Section 14.1(a),

written notice thereof shall forthwith be given by the terminating party to the

other party hereto and to Escrow Agent, and this Agreement shall thereupon

terminate; provided, however, that following such termination Buyer will

continue to be bound by its obligations set forth in Section 5.2.  If this Agreement is terminated as provided

herein all filing, applications and other submissions made to any governmental

authority shall, to the extent practicable, be withdrawn from the governmental

authority to which they were made.




 




Section

14.2           Remedies.




 




(a)           Seller’s Remedies.  Notwithstanding anything herein provided to

the contrary, upon the failure by Buyer to satisfy the conditions to Closing or

the Closing obligations, as the case may be, on account of breaches of any of

the representations and warranties made by Buyer in this Agreement, or the

failure to comply with the covenants or other obligations of Buyer set forth

herein, Seller, at its sole option, may: (i) enforce specific performance of

this Agreement; or (ii) terminate this Agreement and, without waiving or

releasing Buyer’s obligations under Section 5.2, retain the Deposit together

with interest earned thereon as liquidated damages, as Seller’s sole and

exclusive remedy for such failure, all other remedies being expressly

waived.  The  parties agree upon the amount of the Deposit, together with

interest earned thereon, as liquidated damages due to the difficulty and

inconvenience of measuring actual damages and the uncertainty thereof, and the

parties further agree that such amount is a reasonable estimate of Seller’s

loss in the event of any such failure by Buyer.




 




(b)           Buyer’s Remedies.  Notwithstanding anything herein provided to

the contrary, upon failure of Seller to satisfy the conditions to Closing or

the Closing obligations, as the case may be, on account of breaches of any of

the representations and warranties made by Seller in this Agreement, or the

failure by Seller to comply with the covenants or other obligations of Seller

set forth herein, Buyer, at its sole option, may (i) enforce specific

performance of this Agreement, or (ii) terminate this Agreement and receive

back the Deposit, together with interest earned thereon, as Buyer’s sole and

exclusive remedy for such failure, all




 




30





























 




other remedies being expressly

waived by Buyer.  If this Agreement is

terminated pursuant to Section 14.1(a)(i) or Section 14.1(a)(iii), or as a

result of a condition to Closing under Section 8.1(d) or Section 8.2(d) not

being satisfied, Buyer shall receive back the Deposit together with interest

earned thereon.




 




Article 15




Miscellaneous




 




Section 15.1           Counterparts.




 




This Agreement and any document

or other instrument delivered hereunder may be executed in counterparts, each

of which shall be deemed an original instrument, but which together shall

constitute but one and the same instrument. 

Any counterpart of this Agreement or any document or other instrument

delivered hereunder may be delivered by facsimile. Any facsimile signature

shall be replaced with an original signature as promptly as practical.




 




Section 15.2           Governing Law; Jurisdiction;

Process.




 




(a)           THIS AGREEMENT AND THE TRANSACTIONS

CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE

LAWS OF THE STATE OF NEW MEXICO WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF

RELATING TO CONFLICTS OF LAW RULES THAT WOULD DIRECT THE APPLICATION OF THE

LAWS OF ANOTHER JURISDICTION; PROVIDED THAT THE LAWS OF THE JURISDICTION WHERE

THE LANDS ARE LOCATED SHALL GOVERN WITH RESPECT TO TITLE MATTERS OR MATTERS

RELATING TO THE LANDS, WELLS OR LEASES.




 




(b)           BUYER AND SELLER CONSENT TO PERSONAL

JURISDICTION IN ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS

AGREEMENT IN ANY COURT, FEDERAL OR STATE, WITHIN THE CITY AND COUNTY OF SANTA

FE, NEW MEXICO, HAVING SUBJECT MATTER JURISDICTION AND WITH RESPECT TO ANY SUCH

CLAIM, BUYER AND SELLER IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY

LAW, ANY CLAIM, OR ANY OBJECTION THAT BUYER OR SELLER MAY NOW OR HEREAFTER

HAVE, THAT VENUE OR JURISDICTION IS NOT PROPER WITH RESPECT TO ANY SUCH LEGAL

ACTION, SUIT OR PROCEEDING BROUGHT IN SUCH COURT IN THE CITY AND COUNTY OF

SANTA FE, NEW MEXICO, INCLUDING ANY CLAIM THAT SUCH LEGAL ACTION, SUIT OR PROCEEDING

BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND ANY CLAIM

THAT BUYER OR SELLER IS NOT SUBJECT TO PERSONAL JURISDICTION OR SERVICE OF

PROCESS IN SUCH CITY AND COUNTY OF SANTA FE, NEW MEXICO, FORUM.




 




Section 15.3           Entire Agreement.




 




This Agreement (including the

Confidentiality Agreement) and the Appendices, Schedules and Exhibits hereto

contain the entire agreement between the parties with respect to the subject

matter hereof and there are no agreements, understandings, representations or

warranties between the parties other than those set forth or referred to

herein.




 




31





























 




Section 15.4           Expenses.




 




Buyer shall be

responsible for all recording, filing or registration fees for any assignment

or conveyance delivered to Buyer under or pursuant to this Agreement, and Buyer

shall reimburse Seller for costs incurred in copying documents requested by

Buyer in connection with its due diligence under Articles 5 and 6.  All other costs and expenses incurred by

either party hereto in connection with all things required to be done by it

hereunder, including attorneys’ fees, accountant fees and the expense of

environmental and title examination, shall be borne by the party incurring

same.




 




Section 15.5           Notices.




 




All notices

hereunder shall be sufficiently given for all purposes hereunder if in writing

and delivered personally, sent by documented overnight delivery service or, to

the extent receipt is confirmed, by United States mail, telecopy, telefax or

other electronic transmission service to the appropriate address or number as

set forth below.




 




To Seller:              Carbon Energy Corporation

(USA)




1700 Broadway, Suite 1150




Denver, Colorado 80290




Attention: 

Ronald A. Bookman




Telephone:  (303) 863-1555, extension 226




Fax:  (303) 863-1558




 




To Buyer:              Fasken Acquisitions 02, Ltd., a

Texas limited partnership




303 W. Wall Street, Suite 1800




Midland, Texas 79701




Attention: 

Sally Kvasnicka




Telephone:  (915) 687-1777




Fax:  (915) 687-0669




 




Or at such

other address and to the attention of such other person as a party may

designate by written notice to the other party.




 




Section 15.6           Successors and Assigns.




 




This Agreement

shall be binding upon and inure to the benefit of the parties hereto and their

respective successors and permitted assigns. 

This Agreement may not be assigned by any party hereto except with the

prior written consent of the other party hereto, which consent shall not be

unreasonably withheld or delayed, and any such assignment made without

obtaining the written consent of the other party shall be void and of no force

or effect.




 




Section 15.7           Amendments and Waivers.




 




This Agreement may not be

modified or amended except by an instrument or instruments in writing signed by

the party against whom enforcement of any such modification or amendment is

sought.  Any party hereto may, only by

an instrument in writing, waive compliance by another party hereto with any

term or provision of this Agreement on the part of such other party hereto to

be performed or complied with.  The

waiver by any party hereto of a




 




32





























 




breach of any term or provision

of this Agreement shall not be construed as a waiver of any subsequent breach.




 




Section 15.8           Appendices, Schedules and Exhibits.




 




All Appendices, Schedules and

Exhibits hereto which are referred to herein are hereby made a part hereof and

incorporated herein by such reference.




 




Section 15.9           References, Gender, Number.




 




All references

in this Agreement to an “Article,” “Section,” or “subsection” shall be to an

Article, Section, or subsection of this Agreement, unless the context requires

otherwise.  Unless the context otherwise

requires, the words “this Agreement, “hereof,” “hereunder,” “herein,” “hereby,”

or words of similar import shall refer to this Agreement as a whole and not to

a particular Article, Section, subsection, clause or other subdivision

hereof.  Whenever the context requires,

the words used herein shall include the masculine, feminine and neuter gender,

and the singular and the plural.




 




Section 15.10         Interpretation.




 




It is expressly agreed that

this Agreement shall not be construed against any party, and no consideration

shall be given or presumption made, on the basis of who drafted this Agreement

or any particular provision hereof or who supplied the form of Agreement.  Each party agrees that it has been

purposefully drawn and correctly reflects their understanding of the

transactions that it contemplates.  In

construing this Agreement:




 




(a)           examples shall not be construed to

limit, expressly or by implication, the matter they illustrate;




 




(b)           the word “includes” and its

derivatives means “includes, but is not limited to” and corresponding

derivative expressions;




 




(c)           a defined term has its defined

meaning throughout this Agreement and each Appendix, Exhibit and Schedule to

this Agreement, regardless of whether it appears before of after the place

where it is defined;




 




(d)           each Exhibit and Schedule to this

Agreement is a part of this Agreement, but if there is any conflict or

inconsistency between the main body of this Agreement (including Appendices

which shall be considered part of the main body of this Agreement) and any

Exhibit or Schedule, the provisions of the main body of this Agreement shall

prevail, and




 




(e)           the headings and titles herein are

for convenience only and shall have no significance in the interpretation

hereof.




 




33





























 




Section 15.11         Attorneys’ Fees.




 




The prevailing

party in any legal or other proceeding brought under or to enforce this

Agreement shall be additionally entitled to recover court costs and reasonable

attorneys’ fees from the nonprevailing party.




 




Section 15.12         Severability.




 




If any term or other provision

of this Agreement is invalid, illegal or incapable of being enforced by any

rule of law or public policy, all other conditions and provisions of this

Agreement shall nevertheless remain in full force and effect so long as the

economic or legal substance of the transactions contemplated hereby is not

affected in any adverse manner to any party. 

Upon such determination that any term or other provision is invalid,

illegal or incapable of being enforced, the parties shall negotiate in good

faith to modify this Agreement so as to effect the original intent of the

parties as closely as possible in an acceptable manner to the end that the

transactions contemplated hereby are fulfilled to the extent possible.




 




Section 15.13         No Recordation.




 




Without limiting any party’s

right to file suit to enforce its rights under this Agreement, Buyer and Seller

expressly covenant and agree not to record or place of record this Agreement or

any copy or memorandum hereof.




 




Section 15.14         Time of Essence.




 




Time is of the essence in this

Agreement.  If the date specified in

this Agreement for giving any notice or taking any action is not a Business Day

(or if the period during which any notice is required to be given or any action

taken expires on a date which is not a Business Day), then the date for giving

such notice or taking such action (and the expiration date of such period

during which notice is required to be given or action taken) shall be the next

day which is a Business Day.




 




Section 15.15         Arbitration.




 




Any dispute, controversy, or

claim (a “Dispute”) arising out of or in connection with this Agreement shall

be referred to and determined by a binding arbitration, as the sole and

exclusive remedy of the parties as to the Dispute, conducted in accordance with

the American Arbitration Association (“AAA”) arbitration rules for commercial

disputes (the “Rules”), which are deemed to be incorporated by reference,

except that in the event of any conflict between those Rules and the

arbitration provisions set forth below, the provisions set forth below shall

govern and control.  The arbitral

tribunal (“Tribunal”) shall apply the law referred to in Section 15.2 in

resolving the Dispute.  The Tribunal

shall be composed of three (3) arbitrators, with Buyer and Seller each

appointing one arbitrator, and the two (2) arbitrators so appointed appointing

the third arbitrator who shall act as a Chairman of the Tribunal.  Should any arbitrator fail to be appointed

as aforesaid, then such arbitrator shall be appointed by the AAA in accordance

with the Rules.  The arbitration shall

be held in Santa Fe, New Mexico, and the proceedings shall be conducted and

concluded as soon as reasonably practicable, based upon the schedule

established by the Tribunal, but in any event the decision of the Tribunal

shall be rendered within ninety (90) days following the selection of the

Chairman of the Tribunal.  The decision

of the Tribunal shall be




 




34





























 




final and binding upon the

parties.  Judgment upon the award

rendered by the Tribunal may be entered in, and enforced by, any court of

competent jurisdiction.  If the

arbitration involves the Final Settlement Statement, the parties shall each

bear their own expenses including attorneys’ fees and share the fees of the

Chairman of the Tribunal.  If the arbitration

concerns any other disputes then the prevailing party(s) shall be awarded its

expenses, including attorneys’ fees.




 




IN WITNESS

WHEREOF, this Agreement has been signed by or on behalf of each of the parties

as of the day first above written.




 




	

   


  	

  SELLER:


  
	

   


  	

   


  
	

   


  	

  CARBON ENERGY

  CORPORATION (USA)


  f/k/a Bonneville Fuels Corporation


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  By:


  	

   


  
	

   


  	

   


  	

  Patrick R.

  McDonald, President


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  BUYER:


  
	

   


  	

   


  
	

   


  	

  FASKEN

  ACQUISITIONS 02, LTD.


  
	

   


  	

  By: 

  Fasken Management, LLC, its General Partner


  
	

   


  	

   


  
	

   


  	

  By:


  	

   


  
	

   


  	

   


  	

  Benjamin L.

  Blake, Vice President


  





 




35





























 




APPENDIX A


TO


ASSET PURCHASE AND SALE AGREEMENT




 




DEFINITIONS




 




“Adjusted Purchase Price” is

defined in Section 3.1.




 




“Affiliate” means, as to the

party specified, any entity controlling, controlled by or under common control

with such specified party.  Control,

controlling or controlled as used herein means the possession, direct or

indirect, of the power to direct or cause the direction of the management and

policies of another, whether through the ownership of voting securities, by

contract or otherwise.




 




“Agreement” means the Asset

Purchase and Sale Agreement to which this Appendix A is attached.




 




“Allocated Values” is defined

in Section 6.2(b).




 




“Assets” is defined in Section

2.1




 




“Assumed Liability” means any

Liability for which Buyer is responsible under the Agreement upon Closing or

upon a certain period of time after Closing as provided in Section 13.1(d).




 




“Business Day” means any day

which is not a Saturday, Sunday or legal holiday recognized in Santa Fe, New

Mexico.




 




“Buyer’s Environmental Review”

is defined in Section 5.4.




 




“Closing” is the consummation

of the transaction contemplated by Article 9.




 




“Closing Date” is defined in

Section 9.1.




 




“Code” is defined in Section

7.7.




 




“Contract Rights” is defined in

Section 2.1(d).




 




“Defensible Title” means,

respectively as to each Lease or Well, such title held by Seller that (i)

entitles Seller to receive not less than the applicable Net Revenue Interest or

Net Revenue Interests specified for such Lease or Well in Exhibit “A-2”; (ii)

obligates Seller to bear the costs and expenses attributable to the

maintenance, development, and operation of such Lease or Well in an amount not

greater than the applicable Working Interest or Working Interests specified for

such Lease or Well; and, (iii) except for Permitted Encumbrances, is free and

clear of all liens and encumbrances.




 




“Deferred Adjustment Claim” is

defined in Section 6.5.




 




1





























 




“Deferred Assets” is defined in

Section 5.5(d).




 




“Deferred Matters Date” is

defined in Section 6.5.




 




“Deposit” is defined in Section

3.2.




 




“Dispute” is defined in Section

15.15.




 




“Effective Date” is defined in

Section 2.3.




 




“Environmental Claim” means any

action or written notice threatening same by any third party alleging potential

liability of Seller arising out of or resulting from any actual or alleged

violation of, or liability under, or any remedial obligation under, any

Environmental Law as a result of an Environmental Condition with respect to the

Assets.




 




“Environmental Condition” means

a condition or circumstance existing at the Effective Date (or prior to the

Closing Date as a result of a breach by Seller of Section 7.1) with respect to

the air, soil, subsurface, surface waters, groundwaters, and/or sediments that

causes (i) an Asset or Seller not to be in compliance with any Environmental

Law, including any permits issued thereunder, in all material respects, or (ii)

an Asset to be required to be remediated (or other corrective action taken with

respect to such Asset) under any Environmental Law.




 




“Environmental Defect” means an

Environmental Condition with respect to the Assets; provided that if, after

taking into account any Remediation performed by or on behalf of Seller, the

reasonably anticipated Remediation Amount with respect to such Environmental

Condition (or all Environmental Conditions with respect to an Asset) is not in

excess of $5,000, such Environmental Conditional shall not constitute an Environmental

Defect.




 




“Environmental Defect Amount”

is defined in Section 5.5(c).




 




“Environmental Defect

Deductible” is defined in Section 5.5(c).




 




“Environmental Defect Notice”

is defined is Section 5.5(a).




 




“Environmental Defect Property”

is defined in Section 5.5(b).




 




“Environmental Laws” means all

Laws relating to (a) the control of any potential pollutant, or protection of

the air, water, land, wetlands, natural resources, wildlife and endangered

species, (b) solid, gaseous or liquid waste generation, handling, treatment,

storage, disposal or transportation, and (c) exposure to hazardous, toxic,

radioactive or other substances alleged to be harmful.  “Environmental Laws” shall include, but are

not limited to, the Clean Air Act, the Clean Water Act, the Resource

Conservation Recovery Act, the Superfund Amendments and Reauthorization Act,

the Toxic Substances Control Act, the Safe Drinking Water Act, and CERCLA and

shall also include all state, local and municipal Laws dealing with the subject

matter of the above listed Federal statutes or promulgated by any governmental

or quasigovernmental agency thereunder in order to carry out the purposes of

any Federal, state, local or municipal Law.




 




2





























 




“Environmental Liabilities”

means any and all costs (including costs of Remediation), damages, settlements,

expenses, penalties, fines, taxes, prejudgment and post-judgment interest,

court costs and attorneys’ fees incurred or imposed (i) pursuant to any order,

notice of responsibility, directive (including requirements embodied in

Environmental Laws), injunction, judgment or similar act (including

settlements) by any Governmental Authority to the extent arising out of or

under Environmental Laws or (ii) pursuant to any claim or cause of action by a

Governmental Authority or third party for personal injury, property damage,

damage to natural resources, remediation or response costs to the extent

arising out of or attributable to any violation of, or any remedial obligation

under, any Environmental Law.




 




“Environmental Matters” means

(i) any order, notice of responsibility, directive (including requirements

embodied in Environmental Laws), injunction, judgment or similar act (including

settlements) by any Governmental Authority arising out of or under any

Environmental Laws or (ii) pursuant to any claim or cause of action by a

Governmental Authority or third party for personal injury, property damage,

damage to natural resources, remediation or response costs arising out of or attributable

to any Hazardous Materials or any violation of, or any remedial obligation

under, any Environmental Law.




 




“Equipment” is defined in

Section 2.1(b).




 




“Examination Period” means that

period of time commencing with the execution of this Agreement and terminating

at 5:00 p.m., Mountain Daylight Time, on March 3, 2003.




 




“Existing P & A

Obligations” means (i) obligations arising out of the failure to plug

and abandon a well located on the Leases and Lands in accordance with

applicable Laws where Seller owned a working interest in such well at the time

it was plugged and abandoned, and (ii) obligations arising out of Seller’s

failure to plug and abandon any Well located on the Leases or Lands where, on

or before the Effective Date, Seller received notice from a Governmental

Authority or an AFE requiring that such Well be plugged and abandoned in

accordance with applicable Laws.




 




“Final Settlement Statement” is

defined in Section 10.1.




 




“Governmental Authority” means

(i) the United States of America, (ii) any state, county, municipality or other

governmental subdivision within the United States of America, and (iii) any

court or any governmental department, commission, board, bureau, agency or

other instrumentality of the United States of America or of any state, county,

municipality or other governmental subdivision within the United States of

America.




 




“Hazardous Materials” means any

explosives, radioactive materials, asbestos material, urea formaldehyde,

hydrocarbon contaminants, underground tanks, pollutants, contaminants,

hazardous, corrosive or toxic substances, special waste or waste of any kind,

including compounds known as chlorobiophenyls and any material or substance the

storage, manufacture, disposal, treatment, generation, use, transport, mediation

or release into the environment of which is prohibited, controlled, regulated

or licensed under Environmental Laws, including, but not limited to, (i) all

“hazardous substances” as that term is defined in Section 101(14) of the

Comprehensive Environmental Response, Compensation and Liability Act, as

amended, and (ii) petroleum and petroleum products.




 




3





























 




“Lands” is defined in Section

2.1(a).




 




“Law” means any applicable

statute, law (including common law), ordinance, regulation, rule, ruling,

order, writ, injunction, decree or other official act of or by any Governmental

Authority.




 




“Leases” is defined in Section

2.1(a).




 




“Liabilities” means (i) the

Plugging and Abandonment Obligations, and (ii) any and all debts, losses,

liabilities, duties, claims, ad valorem taxes, severance taxes and other

production related taxes, costs and expenses (including, without limitation,

any attorneys’ fees and any and all expenses whatsoever incurred in connection

therewith), absolute or contingent, accrued or unaccrued, liquidated or

unliquidated, known or unknown arising out of or attributable to the ownership,

use, construction, maintenance or operation of any of the Assets, including,

without limitation, any and all Environmental Liabilities arising out of or

attributable to any Environmental Matter.




 




“Losses” is defined in Section

13.1(a).




 




“Material Contracts” is defined

in Section 4.1(i).




 




“Net Revenue Interest” shall

mean an interest (expressed as a percentage or decimal fraction) in and to all

oil and gas produced and saved from or attributable to a Lease or Well.




 




“Offsite Environmental Matter”

means any Environmental Condition resulting from Hazardous Materials

originating from the Assets that have been transported for disposal,

reclamation or recycling from the Assets prior to the Effective Date (or prior

to the Closing Date as a result of a breach by Seller of Section 7.1) to

properties owned by third parties.




 




“Permitted Encumbrances” means

any of the following matters:




 




(a)                                  all agreements,

instruments, documents, liens, encumbrances, and other matters which are

described in any Schedule or Exhibit to the Agreement;




 




(b)                                 any (i) undetermined

or inchoate liens or charges constituting or securing the payment of expenses

which were incurred incidental to maintenance, development, production or

operation of the Assets or for the purpose of developing, producing or

processing oil, gas or other hydrocarbons therefrom or therein and (ii)

materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’ or

other similar liens, security interests or charges for liquidated amounts

arising in the ordinary course of business incidental to construction,

maintenance, development, production or operation of the Assets or the

production or processing of oil, gas or other hydrocarbons therefrom, that are

not delinquent and that will be paid in the ordinary course of business or, if

delinquent, that are being contested in good faith;




 




(c)                                  any liens for ad

valorem taxes, severance taxes and other production related taxes not yet

delinquent or, if delinquent, that are being contested in good faith in the

ordinary course of business;




 




4





























 




(d)                                 any liens or security

interests created by Law or reserved in oil, gas and/or mineral leases for

royalty, bonus or rental or for compliance with the terms of the Leases other

material contracts related to the Assets;




 




(e)                                  all Preference Rights

and Transfer Requirements with respect to which (i) waivers or consents are

obtained from the appropriate parties, or (ii) the appropriate time period for

asserting such rights has expired without an exercise of such rights;




 




(f)                                    any easements,

rights-of-way, servitudes, permits, licenses, surface leases and other rights

with respect to surface operations to the extent such matters do not interfere

in any material respect with the operation of the portion of the Assets

burdened thereby;




 




(g)                                 all agreements and

obligations relating to (i) imbalances with respect to the production,

transportation or processing of gas, (ii) calls or purchase options on oil, gas

or other minerals exercisable only at current fair market prices or the posted

prices of such purchaser, or (iii) processing rights or commitments;




 




(h)                                 all royalties,

overriding royalties, net profits interests, carried interests, reversionary

interests and other burdens to the extent that the net cumulative effect of

such burdens, as to a particular Lease or Well, does not operate to reduce the

Net Revenue Interest of the Seller in such Lease or Well as specified in

Exhibit “A-2”;




 




(i)                                     all liens,

charges, encumbrances, contracts, agreements, instruments, obligations,

defects, irregularities and other matters affecting any Asset which

individually or in the aggregate are not such as to interfere materially with

the operation, value or use of such Asset;




 




(j)                                     any encumbrance,

title defect or other matter (whether or not constituting a Title Defect)

waived or deemed waived by Buyer pursuant to Article 6;




 




(k)                                  rights reserved to or

vested in any Governmental Authority to control or regulate any of the Wells

included in the Assets and all applicable Law, rules, regulations and orders of

such authorities so long as the same have not been applied to decrease Seller’s

Net Revenue Interest below the Net Revenue Interest shown in Exhibit “A-2”;




 




(l)                                     rights of

reassignment requiring notice and/or the reassignment (or granting an

opportunity to receive a reassignment) of a leasehold interest to the holders

of such reassignment rights prior to surrendering or releasing such leasehold

interest; and




 




(m)                               any liens and other

encumbrances securing indebtedness to the extent such indebtedness will be

released or removed at or prior to Closing.




 




“Plugging and

Abandonment Obligations” means any obligation to plug or abandon any well

located on the Leases or Lands other than Existing P & A Obligations.




 




5





























 




“Preference Right” means any

right or agreement that enables or may enable any third party to purchase or

acquire any Asset or any interest therein or portion thereof as a result of or

in connection with the sale to Buyer of such Asset.




 




“Preliminary Settlement

Statement” is defined in Section 9.1(b).




 




“Purchase Price” is defined in Section

3.1.




 




“Records” is defined in Section

2.1(c).




 




“Remediation” means, with

respect to an Environmental Condition, the implementation and completion of any

actions required under Environmental Laws to correct or remove such

Environmental Condition.




 




“Remediation Amount” means,

with respect to an Environmental Condition, the present value as of the Closing

Date (using an annual discount rate of 10%) of the cost of the most cost

effective Remediation of such Environmental Condition which is reasonable under

the circumstances.




 




“Reserved Interests” is defined

in Section 2.2.




 




“Seller Title Credit” is

defined in Section 6.4.




 




“Taxes” means any federal,

state, local or foreign income, gross receipts, license, excise, severance,

franchise, real property, personal property, sales, use, alternative or add-on

minimum, estimated tax or other tax of any kind whatsoever, including any

interest, fines, penalty or other like assessment or addition thereto, whether

disputed or not, including such item for which a liability arises as a

transferee or successor-in-interest.




 




“Title Defect” is defined in

Section 6.3.




 




“Title Defect Amount” is

defined in Section 6.2(d).




 




“Title Defect Deductible” is

defined in Section 6.2(d).




 




“Title Defect Notice” is

defined in Section 6.2(a).




 




“Title Defect Property” is

defined in Section 6.2(c).




 




“Transfer Requirement” means

any consent, approval, authorization or permit of, or filing with or

notification to, any third party which is required to be obtained, made or

complied with for or in connection with the sale of the Assets to Buyer as

contemplated by this Agreement.




 




“Tribunal” is defined in

Section 15.15.




 




“Unscheduled (Negative)

Imbalance” means, respectively as to each Well and without duplication, the sum

(expressed in Mcf) of (i) the aggregate make-up, prepaid or other volumes of

natural gas, not described on Schedule 3.3(c), that Seller was obligated as of

the Effective Date, on account of prepayment, advance payment, take-or-pay, gas

balancing or similar obligations, to deliver from such Well or Unit after the

Effective Date without then or thereafter




 




6





























 




being entitled to receive full

payment therefor and (ii) the aggregate pipeline or processing plant imbalances

or overdeliveries for which Seller is obligated to pay or deliver natural gas

or cash to any pipeline, gatherer, transporter, processor, co-owner or

purchaser in connection with any other natural gas attributable to the Assets.




 




“Unscheduled (Positive)

Imbalance” shall mean, respectively as to each Well and without duplication,

the sum (expressed in Mcf) of (i) the aggregate make-up, prepaid or other

volumes of natural gas, not described on Schedule 3.3(c), that Seller was

entitled as of the Effective Date, on account of prepayment, advance payment,

take-or-pay, gas balancing or similar obligations, to receive from such Well or

Unit after the Effective Date and (ii) the aggregate pipeline or processing

plant imbalances or underdeliveries for which Seller is entitled to receive

natural gas or cash from any pipeline, gatherer, transporter, processor,

co-owner or purchaser in connection with any natural gas attributable to the

Assets.




 




“Well” means each well, well

completion, multiple well completion, unit or other subdivision of property

described in Exhibit “A-2.”




 




“Working Interest” shall mean

the percentage of costs and expenses attributable to the maintenance,

development and operation of a Well.




 




7