PURCHASE AND SALE AGREEMENT



 


Oklahoma Properties

 

 

PURCHASE AND SALE AGREEMENT


BY AND BETWEEN


SOUTHWESTERN ENERGY PRODUCTION COMPANY


AS SELLER


AND


DUTCH PETROLEUM, LLC


AS BUYER







 





INDEX



	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE
	 	 	 	 	 	 	

	ARTICLE 1. DEFINITIONS	 	 	1	 
	ARTICLE 2. SALE AND PURCHASE	 	 	7	 
	ARTICLE 3. PURCHASE PRICE	 	 	7	 
	 	 	
3.1
	 	Purchase Price
	 	 	7	 
	 	 	
3.2
	 	Earnest Money Deposit
	 	 	7	 
	 	 	
3.3
	 	Allocation
	 	 	7	 
	 	 	
3.4
	 	Preferential Rights
	 	 	7	 
	 	 	
3.5
	 	Consents
	 	 	8	 
	ARTICLE 4. REVIEW BY BUYER	 	 	8	 
	 	 	
4.1
	 	Review of Records
	 	 	8	 
	 	 	
4.2
	 	Adjustment of Purchase Price for Title Defects
	 	 	8	 
	 	 	
4.3
	 	Waiver
	 	 	9	 
	ARTICLE 5. INSPECTION OF PROPERTIES	 	 	10	 
	 	 	
5.1
	 	Physical and Environmental Inspection
	 	 	10	 
	 	 	
5.2
	 	Environmental Defects
	 	 	10	 
	ARTICLE 6. ACCOUNTING	 	 	13	 
	 	 	
6.1
	 	Revenues, Expenses and Capital Expenditures
	 	 	13	 
	 	 	
6.2
	 	Taxes
	 	 	13	 
	 	 	
6.3
	 	Obligations and Credits
	 	 	14	 
	 	 	
6.4
	 	Gas Imbalances
	 	 	14	 
	 	 	
6.5
	 	Miscellaneous Accounting
	 	 	14	 
	 	 	
6.6
	 	Final Accounting Settlement
	 	 	14	 
	 	 	
6.7
	 	Post-Final Accounting Settlement
	 	 	15	 
	 	 	
6.8
	 	Audit Rights
	 	 	15	 
	ARTICLE 7. CASUALTY AND CONDEMNATION	 	 	15	 
	ARTICLE 8. INDEMNITIES	 	 	16	 
	 	 	
8.1
	 	Seller’s Indemnity Obligations (excluding Environmental Claims)
	 	 	16	 



 






 




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	PAGE
	 	 	 	 	 	 	 	 	

	 	 	 	
8.2
	 	 	Buyer’s Indemnity Obligations (excluding Environmental Claims)
	 	 	16	 
	 	 	 	
8.3
	 	 	Environmental Claims
	 	 	17	 
	 	 	 	
8.4
	 	 	Asbestos and NORM
	 	 	17	 
	 	 	 	
8.5
	 	 	Notice and Cooperation
	 	 	17	 
	 	 	 	
8.6
	 	 	Defense of Claims
	 	 	18	 
	 	 	 	
8.7
	 	 	Waiver of Certain Damages
	 	 	18	 
	 	 	 	
8.8.
	 	 	Limitation on Indemnities
	 	 	19	 
	ARTICLE 9. WARRANTIES AND DISCLAIMERS	 	 	19	 
	 	 	 	
9.1
	 	 	Special Warranty of Title
	 	 	19	 
	 	 	 	
9.2
	 	 	Disclaimer – Representations and Warranties
	 	 	19	 
	 	 	 	
9.3
	 	 	Disclaimer – Statements and Information
	 	 	19	 
	ARTICLE 10. SELLER’S REPRESENTATIONS	 	 	20	 
	 	 	 	
10.1
	 	 	Organization and Good Standing
	 	 	20	 
	 	 	 	
10.2
	 	 	Corporate Authority; Authorization of Agreement
	 	 	20	 
	 	 	 	
10.3
	 	 	No Violations
	 	 	20	 
	 	 	 	
10.4
	 	 	Absence of Certain Changes
	 	 	21	 
	 	 	 	
10.5
	 	 	Operating Costs
	 	 	21	 
	 	 	 	
10.6
	 	 	Litigation and Other Disputes
	 	 	21	 
	 	 	 	
10.7
	 	 	Bankruptcy
	 	 	21	 
	 	 	 	
10.8
	 	 	Leases
	 	 	21	 
	 	 	 	
10.9
	 	 	Hydrocarbon Sales; Imbalances
	 	 	22	 
	 	 	 	
10.10
	 	 	Existing Commitments
	 	 	22	 
	 	 	 	
10.11
	 	 	Compliance With Law
	 	 	22	 
	 	 	 	
10.12
	 	 	Availability of Records
	 	 	22	 
	 	 	 	
10.13
	 	 	Limitation on Representations
	 	 	22	 
	ARTICLE 11. BUYER’S REPRESENTATIONS	 	 	23	 
	 	 	 	
11.1
	 	 	Organization and Good Standing
	 	 	23	 
	 	 	 	
11.2
	 	 	Corporate Authority; Authorization of Agreement
	 	 	23	 
	 	 	 	
11.3
	 	 	No Violations
	 	 	23	 
	 	 	 	
11.4
	 	 	SEC Disclosure
	 	 	23	 
	 	 	 	
11.5
	 	 	Independent Evaluation
	 	 	24	 
	 	 	 	
11.6
	 	 	Buyer’s Reliance
	 	 	24	 
	 	 	 	
11.7
	 	 	Qualified Buyer
	 	 	24	 
	 	 	 	
11.8
	 	 	Limitation on Representations
	 	 	24	 
	ARTICLE 12. ADDITIONAL AGREEMENTS	 	 	24	 



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	 	 	 	 	 	PAGE
	 	 	 	 	 	

	 	12.1	 	

Covenants of Seller
	 	 	24	 
	 	12.2	 	
Notice of Loss
	 	 	25	 
	 	12.3	 	
Operations Pending Closing
	 	 	25	 
	 	12.4	 	
Subsequent Operations
	 	 	25	 
	 	12.5	 	
Buyer’s Assumption of Obligations
	 	 	25	 
	 	12.6	 	
Records
	 	 	25	 
	ARTICLE 13. ARBITRATION	 	 	26	 
	ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING	 	 	27	 
	 	14.1	 	
Conditions Precedent to Seller’s Obligation to Close
	 	 	27	 
	 	14.2	 	
Conditions Precedent to Buyer’s Obligation to Close
	 	 	27	 
	ARTICLE 15. TERMINATION	 	 	28	 
	 	15.1	 	
Grounds for Termination
	 	 	28	 
	 	15.2	 	
Effect of Termination
	 	 	28	 
	 	15.3	 	
Dispute over Right to Terminate
	 	 	29	 
	 	15.4	 	
Return of Documents
	 	 	29	 
	 	15.5	 	
Confidentiality
	 	 	29	 
	ARTICLE 16. THE CLOSING	 	 	29	 
	 	16.1.	 	
Preliminary Closing Statement
	 	 	29	 
	 	16.2	 	
Obligations of Seller at Closing
	 	 	29	 
	 	16.3	 	
Obligations of Buyer at Closing
	 	 	30	 
	 	16.4	 	
Site of Closing
	 	 	31	 
	ARTICLE 17. MISCELLANEOUS	 	 	31	 
	 	17.1	 	
Notices
	 	 	31	 
	 	17.2	 	
Conveyance Costs
	 	 	31	 
	 	17.3	 	
Brokers’ Fees
	 	 	31	 
	 	17.4	 	
Further Assurances
	 	 	32	 
	 	17.5	 	
Survival of Representations and Warranties
	 	 	32	 
	 	17.6	 	
Amendments and Severability
	 	 	32	 
	 	17.7	 	
Successors and Assigns
	 	 	32	 
	 	17.8	 	
Headings
	 	 	32	 
	 	17.9	 	
Governing Law
	 	 	32	 
	 	17.10	 	
No Partnership Created
	 	 	33	 



-iii-






 



	 	 	 	 	 	 	 
	 	 	 	 	PAGE
	 	 	 	 	

	 	17.11	 	
Public Announcements
	 	33	 
	 	17.12	 	
No Third Party Beneficiaries
	 	33	 
	 	17.13	 	
Deceptive Trade Practices
	 	33	 
	 	17.14	 	
Tax Deferred Exchange Election
	 	33	 
	 	17.15	 	
Not to be Construed Against Drafter
	 	33	 
	 	17.16	 	
Entire Agreement
	 	33	 
	 	17.17	 	
Conspicuousness of Provisions
	 	34	 
	 	17.18	 	
Execution in Counterparts
	 	34	 



EXHIBITS AND SCHEDULES

	 	 	 
	EXHIBIT A	–	
   DESCRIPTION OF PROPERTIES
	EXHIBIT B	–	
   ASSIGNMENT AND BILL OF SALE
	EXHIBIT C	–	
   CERTIFICATE
	EXHIBIT D	–	
   NON–FOREIGN AFFIDAVIT
	EXHIBIT E	–	
   LITIGATION AND CLAIMS
	EXHIBIT F	–	
   ALLOCATION OF PURCHASE PRICE
	EXHIBIT G	–	
   GAS IMBALANCES
	EXHIBIT H	–	
   CAPITAL COMMITMENTS
	EXHIBIT I	–	
   VIOLATIONS OF LAW
	EXHIBIT J	–	
   EXCLUDED PROPERTIES
	EXHIBIT K	–	
   MATERIAL CONTRACTS
	EXHIBIT L	–	
   LIST OF ENVIRONMENTAL ASSESSMENTS
	EXHIBIT M	–	
   AGREED REMEDIATION




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PURCHASE AND SALE AGREEMENT


     THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is dated November 5,
2002, by and between SOUTHWESTERN ENERGY PRODUCTION COMPANY, an Arkansas
corporation, with an office at 2350 N. Sam Houston Parkway East, Suite 300,
Houston, Texas 77032 (hereinafter referred to as “Seller”) and DUTCH PETROLEUM,
LLC, an Oklahoma limited liability company, with an office at 2110 Bank One
Center, 100 North Broadway, Oklahoma City, Oklahoma 73102 (hereinafter referred
to as “Buyer”), and is based on the following premises:


     WHEREAS, Seller desires to sell, assign and convey to Buyer and Buyer
desires to purchase and accept certain oil and gas properties and related
interests; and


     WHEREAS, the parties have reached agreement regarding such sale and
purchase.


     NOW, THEREFORE, for valuable consideration and the mutual covenants and
agreements herein contained, Seller and Buyer agree as follows:


ARTICLE 1. DEFINITIONS


     1.     Definitions: In this Agreement, capitalized terms have the meanings
provided in this Article 1, unless expressly provided otherwise in other
Articles. All defined terms include both the singular and the plural. All
references to Articles or Sections refer to Articles or Sections in this
Agreement, and all references to Exhibits and Schedules refer to the Exhibits
and Schedules attached to this Agreement. The Exhibits and Schedules which
are attached hereto are incorporated in and made a part of this Agreement.


     “Accounting Referee” has the meaning set forth in Section 6.8.


     “Affiliate” means and includes any entity that, directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with the entity specified.


     “Alleged Title Defect” means a Title Defect (as hereinafter defined) which
is asserted by Buyer in accordance with Section 4.2.


     “Assignment and Bill of Sale” means a document in the form of Exhibit B.


     “Assumed Contracts” means all operating agreements, unit agreements, unit
operating agreements, exploration agreements, farmout agreements, farm-in
agreements, Hydrocarbon sales, purchase, gathering, transportation, treating,
marketing, exchange, processing and fractionating agreements, surface leases,
and other contracts and agreements respecting the


1






 




Properties that are either of record in the counties/parishes where the Properties are located or are
reflected or referenced in Seller’s files.


     “Business Day” means a Day (as hereinafter defined) excluding Saturdays,
Sundays and U.S. legal holidays.


     “Casualty Loss” means any loss, damage or reduction in value resulting
from mechanical failure or defects, catastrophic occurrences, acts of God and
any other losses which are not the result of normal wear and tear or of natural
reservoir changes.


     “Certificate” means a document in the form of Exhibit C.


     “Claim” means any and all claims, demands, suits, causes of action,
investigations, administrative proceedings, or other legal proceedings, losses,
damages, liabilities, judgments, assessments, settlements, fines, notices of
violation, penalties, interest, obligations and costs (including attorneys’
fees and costs of litigation) of any kind or character (whether or not asserted
prior to the date hereof, and whether known or unknown, fixed or unfixed,
conditional or unconditional, based on negligence, strict liability or
otherwise, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise) which are brought by or
owed to a Third Party (as hereinafter defined).


     “Close” or “Closing” means the consummation of the transfer of title to
the Properties to Buyer, including execution and delivery of all documents
provided herein.


     “Closing Date” means November 15, 2002, or such other date as may be
mutually agreed upon by the parties on which Closing occurs in accordance with
the terms of this Agreement; provided, however, Buyer shall have the right, at
its option, to extend the date of Closing from November 15, 2002 to November
22, 2002 upon the delivery of written notice thereof to Seller no later than
November 11, 2002.


     “Day” means a calendar day consisting of twenty-four (24) hours from
midnight to midnight.


     “Defensible Title” means, as to the Leases, such title held by Seller
that, subject to and except for the Permitted Encumbrances (as hereinafter
defined):



		
	 	     (a)       Entitles Seller to own and receive payment of revenues for not
less than the “Net Revenue Interests” set forth on Exhibit A of all oil,
gas and associated liquid and gaseous hydrocarbons produced, saved and
marketed from the Leases;
	 
	 	     (b)       Obligates Seller to bear costs and expenses relating to the
ownership, operation, maintenance and repair of the wells and facilities
located on or attributable to 



2






 





		
	 	the Leases in an amount not greater than the “Working Interests” set
forth on Exhibit A, unless there is a corresponding proportionate
increase in the Net Revenue Interests; and
	 
	 	     (c)       Is free and clear of all liens, encumbrances, burdens and
defects against the Leases.



     “Earnest Money Deposit” has the meaning set forth in Section 3.2.


     “Effective Time” means October 1, 2002, at 7:00 a.m., local time where the
Properties are located.


     “Environmental Claims” means all Claims for pollution or environmental
damages of any kind, including without limitation, those relating to: (a)
remediation and/or clean-up thereof, (b) damage to and/or loss of any property
or resource, and/or (c) injury or death of any person(s) whomsoever, including
without limitation Claims relating to breach of Environmental Laws, common law
causes of action such as negligence, gross negligence, strict liability,
nuisance or trespass, or fault imposed by statute, rule, regulation or
otherwise (but specifically excluding any Claims relating to asbestos or NORM
(as hereinafter defined), which are covered by Section 8.4 hereof), and
including all costs associated with remediation and clean up, and fines and
penalties associated with any of the foregoing.


     “Environmental Defect” has the meaning set forth in Section 5.2.2.


     “Environmental Inspection Period” has the meaning set forth in Section
5.2.2.


     “Environmental Laws” means all laws, statutes, ordinances, permits,
orders, judgments, rules or regulations which are promulgated, issued or
enacted by a governmental entity having appropriate jurisdiction that, (a)
relate to the prevention of pollution or environmental damage, (b) the
remediation of pollution or environmental damage, or (c) the protection of the
environment generally; including without limitation, the Clean Air Act, as
amended, the Clean Water Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act
of 1976, as amended, the Safe Drinking Water Act, as amended, the Toxic
Substance and Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous and the Solid Waste
Amendments Act of 1984, as amended, and the Oil Pollution Act of 1990, as
amended.


     “Final Accounting Settlement” has the meaning set forth in Section 6.6.


     “Final Settlement Date” has the meaning set forth in Section 6.6.


     “Hydrocarbons” has the meaning given to such term in the definition of
Properties.


3






 


     “Interest Adjustment” has the meaning set forth in Section 4.2.


     “Laws” means any and all applicable laws, statutes, ordinances, permits,
decrees, orders, judgments, rules or regulations (including, without
limitation, Environmental Laws) which are promulgated, issued or enacted by a
governmental entity having appropriate jurisdiction.


     “Leases” has the meaning given to such term in the definition of
Properties.


     “Material Contracts” shall mean those Assumed Contracts identified on
Exhibit K.


     “Non-Foreign Affidavit” means a document in the form of Exhibit D.


     “NORM” means naturally occurring radioactive materials.


     “Permitted Encumbrances” means:



		
	 	     (a)       Royalties, overriding royalties, production payments,
reversionary interests, convertible interests, net profits interests,
division orders and similar burdens encumbering the Properties as of the
Effective Time to the extent the net cumulative effect of such burdens do
not operate to (i) reduce the net revenue interests of the Properties to
less than the net revenue interests set forth on Exhibit A or (ii) cause
an increase in the working interest in any Property from that shown on
Exhibit A without a proportionate increase in the net revenue interest
for such Property;
	 
	 	     (b)       Preferential purchase rights and consents to assignment and
similar contractual provisions encumbering the Properties with respect to
which, prior to Closing, (i) waivers or consents are obtained from the
appropriate parties, or (ii) the appropriate time period for asserting
such rights have expired without an exercise of such rights;
	 
	 	     (c)       Preferential purchase rights encumbering the Properties which
are exercised by a Third Party, if the affected Properties are withdrawn
from this sale transaction and handled in accordance with Section 3.4;
	 
	 	     (d)       All rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the sale or
conveyance of the Properties, if the same are customarily obtained
subsequent to the transfer of title;
	 
	 	     (e)       Rights reserved to or vested in any governmental entity having
appropriate jurisdiction to control or regulate the Properties in any
manner whatsoever, and all Laws of any such governmental entity;
	 
	 	     (f)       Easements, rights-of-way, servitudes, surface leases,
sub-surface leases, pipelines, platforms, facilities, utility lines,
telephone lines, power lines, and structures



4






 




		
	 	on, over and through the Properties, to the extent such rights, interests or structures do not
materially interfere with the operation of the Properties;
	 
	 	     (g)       Liens for taxes or assessments not yet due or not yet delinquent
or, if delinquent, that are being contested by Seller in good faith in
the normal course of business;
	 
	 	     (h)       Liens of operators relating to obligations not yet due or not
yet delinquent or, if delinquent, that are being contested by Seller in
good faith in the normal course of business;
	 
	 	     (i)       The Material Contracts;
	 
	 	     (j)       Title Defects that Buyer has waived under Section 4.3; and
	 
	 	     (k)       Such encumbrances or burdens on, or defects or irregularities in
the title to, the Properties that do not materially interfere with the
operation, value or use of the Properties affected thereby and that would
be considered not material by a reasonable and prudent person engaged in
the business or ownership, development and operation of oil and gas
properties when applying general industry standards.



     “Properties” means the following properties (real, personal or mixed) and
rights (contractual or otherwise):



		
	 	     (a)       All of Seller’s right, title and interest in, to and under or
derived from the oil and gas leasehold interests, fee interests, mineral
interests and overriding royalty interests described on Exhibit A
(collectively, the “Leases”);
	 
	 	     (b)       All of Seller’s right, title and interest in and to, or derived
from, all of the presently existing and valid unitization and pooling
agreements and units (including all units formed by voluntary agreement
and those formed under the rules, regulations, orders or other official
acts of any governmental entity having appropriate jurisdiction) to the
extent they relate to any of the interests which are expressly described
on Exhibit A;
	 
	 	     (c)       All of Seller’s right, title and interest in and to all oil, gas
and/or other liquid or gaseous hydrocarbons (collectively, the
“Hydrocarbons”) produced from or attributable to Seller’s interest in the
Leases and attributable to the period from and after the Effective Time;
	 
	 	     (d)       All of Seller’s right, title and interest in and to, or derived
from, all of the presently existing and valid oil sales contracts,
casinghead gas sales contracts, gas sales contracts, processing
contracts, gathering contracts, transportation contracts, easements,
rights-of-way, servitudes, surface leases and other contracts (including the Assumed



5






 





		
	 	Contracts), to the extent the same are assignable and relate to any of the interests which are expressly
described on Exhibit A;
	 
	 	     (e)       All of Seller’s right, title and interest in and to all personal
property and improvements (collectively, the “Equipment”), including
without limitation, wells (whether producing, plugged and abandoned,
shut-in, injection, disposal or water supply), tanks, boilers, platforms,
buildings, fixtures, machinery, equipment, pipelines, utility lines,
power lines, telephone lines, telegraph lines and other appurtenances
located on, in, under and about the Leases, to the extent the same are
situated upon and used or held for use by Seller solely in connection
with the ownership, operation, maintenance and repair of the interests
which are expressly described on Exhibit A, subject to the reservations
stated below;
	 
	 	     (f)       All franchises, licenses, permits, approvals, consents,
certificates and other authorizations and other rights granted by
governmental authorities and all certificates of convenience or
necessity, immunities, privileges, grants and other rights that relate to
the Properties or the ownership or operation of any thereof, to the
extent the same are assignable (the “Permits”); and
	 
	 	     (g)       All of Seller’s “Records” (hereinafter defined).



Seller EXCEPTS, RESERVES AND RETAINS unto itself, its successors and assigns,
and specifically excludes from the Properties, those properties (real, personal
or mixed) and rights (contractual or otherwise) more particularly described on
Exhibit J attached hereto.


     “Purchase Price” has the meaning set forth in Section 3.1.


     “Records” means all of Seller’s books, records and files related to the
Properties, including all (i) abstracts, title opinions, title reports,
environmental site assessments, environmental compliance reports, lease and
land files, surveys, analyses, compilations, correspondence, filings with and
reports to regulatory agencies and other documents, contracts, agreements and
instruments that in any manner relate to the Properties, (ii) computer
databases that are owned by or licensed to Seller that relate to the
Properties, (iii) geophysical, geological, engineering, exploration, production
and other technical data, magnetic field recordings, digital processing tapes,
field prints, summaries, reports and maps, whether written or in electronically
reproducible form, that are in the possession of Seller and relate to the
Properties and (iv) all other books, records, files and magnetic tapes
containing title or other information that are in the possession of Seller and
relate to the Properties (the “Data”), but specifically excluding (i) previous
offers and economic analyses associated with the acquisition, sale or exchange
of the Properties, (ii) interpretive information, (iii) personnel information,
(iv) corporate, legal, financial and tax
information, (v) information covered by a non-disclosure obligation, (vi)
information covered by a legal privilege and (vii) any other Data or
information that Seller does not have the right to assign to Buyer.


6






 


     “Title Defect” means any lien, encumbrance, encroachment or defect
associated with Seller’s title to the Properties that would cause Seller not to
have Defensible Title.


     “Third Party” means any person or entity, governmental or otherwise, other
than Seller and Buyer.


ARTICLE 2. SALE AND PURCHASE


     On the Closing Date, effective as of the Effective Time, and upon the
terms and conditions herein set forth, Seller agrees to sell and assign the
Properties to Buyer and Buyer agrees to buy and accept the Properties.


ARTICLE 3. PURCHASE PRICE


     3.1       Purchase Price. Subject to adjustments as set forth herein, the total
purchase price for the Properties shall be Twenty-Six Million Eight Hundred
Fifty Thousand Dollars (US $26,850,000) (the “Purchase Price”), payable in full
at Closing in immediately available funds.


     3.2       Earnest Money Deposit. Upon the execution of this Agreement, Buyer
shall pay to Seller a deposit in the amount of One Million Five Hundred
Thousand Dollars (US $1,500,000) (the “Earnest Money Deposit”). If Closing
occurs, the Purchase Price shall be credited by the amount of the Earnest Money
Deposit. If Closing does not occur, the Earnest Money Deposit shall be
refunded to Buyer, unless (a) Closing does not occur because of Buyer’s failure
or refusal to Close in breach of this Agreement or (b) because the conditions
precedent to Seller’s obligation to Close provided in Section 14.1 are unmet at
the time set for Closing, in which case Seller shall retain the Earnest Money
Deposit as liquidated damages and not as a penalty. If, however, in the case
of either (a) or (b) above, any conditions precedent to Buyer’s obligation to
Close provided in Section 14.2 are unmet at the time set for Closing, Seller
shall not be entitled to retain the Earnest Money Deposit as hereinabove
provided. In the event that Closing occurs after November 22, 2002, through
the fault of Buyer, interest shall be payable on the Purchase Price from
November 22, 2002 through and including the Closing Date at the rate of ten
percent (10%) per annum.


     3.3       Allocation. Attached hereto as Exhibit F is Buyer’s good faith
allocation of the Purchase Price which shall be used in providing any required
preferential purchase right notifications and in determining any Purchase Price
adjustments pursuant to this Agreement.


     3.4       Preferential Rights. If any of the Properties are burdened with
preferential purchase rights, the assignment of the Properties subject to such
preferential rights shall be conditioned upon Seller obtaining the necessary
waiver or expiration of such right, and this Agreement shall not constitute an
assignment or attempted assignment thereof without such


7






 




waiver or expiration. If, prior to Closing, (i) a holder of a preferential purchase right notifies
Seller that it intends to exercise its rights with respect to any of the
Properties to which its preferential purchase right applies, or (ii) the time
for exercising any preferential purchase right has not expired and the holder
thereof has not waived the same prior to the Closing Date, the Properties
covered by said preferential purchase right shall be excluded from the
Properties to be conveyed to Buyer at Closing, and the Purchase Price shall be
reduced by the value allocated to said Properties by Buyer in accordance with
Section 3.3. If (i) the holder of the preferential purchase right fails to
consummate the purchase of the Properties that are the subject of any notice of
an intent to exercise such right received before or after Closing, (ii) the
preferential purchase right expires or (iii) notice of a waiver of the
preferential purchase right is received by Seller, Seller shall promptly notify
Buyer in writing. Within five (5) Business Days after Buyer’s receipt of such
notice or the Closing Date, whichever is later, Seller shall sell to Buyer, and
Buyer shall purchase from Seller, such Properties under the terms of this
Agreement for a price equal to the aforesaid value allocated to such
Properties. Notwithstanding the foregoing, Buyer shall have no obligation to
purchase such Properties if Buyer does not receive such notice within sixty
(60) Days following Closing.


     3.5       Consents. If any of the Leases require the consent of a Third Party
to assign Seller’s interest therein, the assignment of such lease(s) subject to
consent requirements shall be conditioned upon Seller obtaining such consent
prior to Closing (except for consents from governmental bodies customarily
obtained after assignment which shall not be required to be obtained prior to
Closing). Seller shall use all reasonable efforts to obtain all such consents.
With respect to any leasehold interest for which consent is not obtained
prior to Closing, such interest shall not be conveyed to Buyer at Closing and
the Purchase Price shall be reduced to account for exclusion of the affected
Property. If Seller obtains the required consent(s) within sixty (60) days
following Closing, Seller shall sell and Buyer shall purchase the interest(s)
affected thereby under the terms of this Agreement for a price equal to the
Purchase Price adjustment made therefor at Closing. There shall be no
obligations of sale or purchase of the affected interest(s) in the Properties
following sixty (60) days after the Closing Date.


ARTICLE 4. REVIEW BY BUYER


     4.1       Review of Records. Seller shall make available to Buyer after
execution of this Agreement Records in Seller’s possession relating to the
Properties including, without limitation all environmental site assessments and
environmental compliance reports in Seller’s possession relating to the
Properties which are listed on Exhibit L. Buyer shall be entitled to review
said Records during normal business hours or other mutually agreeable time and
shall have a right to request a reasonable number of copies of such Records, at
Buyer’s expense.


     4.2       Adjustment of Purchase Price for Title Defects. As soon as reasonably
practicable after Buyer’s review of the Records in accordance with Section 4.1,
but in no event later than five (5) Business Days prior to the Closing Date,
Buyer shall notify Seller in writing of any Properties which are subject to
Alleged Title Defects and/or whose net revenue interest and/or


8






 




working interest is/are less than or greater than that amount specified on Exhibit A
(collectively, the “Interest Adjustments”). Notice of Title Defects or
Interest Adjustments shall include a description and full explanation of each
Title Defect and Interest Adjustment being claimed and a value which Buyer in
good faith attributes to each. With respect to Alleged Title Defects, Seller
may undertake to satisfy some, all or none of those raised by Buyer, at
Seller’s sole cost and expense. Buyer and Seller shall meet at least three (3)
Business Days prior to the Closing Date in an attempt to mutually agree on a
resolution with respect to any Alleged Title Defects or Interest Adjustments
which by such time have not been agreed between the parties in writing. It is
recognized that good faith differences of opinion may exist between Buyer and
Seller in connection with Alleged Title Defects or Interest Adjustments,
including without limitation, disputes as to (i) whether or not the alleged
defect constitutes a Title Defect within the meaning of this Agreement, (ii)
whether or not the magnitude of such defect is great enough that Buyer is
contractually entitled to assert such Title Defect, (iii) whether or not the
Title Defect was properly and timely asserted by Buyer pursuant to this
Article, and (iv) the appropriate upward or downward adjustment, if any, to be
made to the Purchase Price on account of such Title Defect. In determining
whether a portion of a Property contains a Title Defect, it is the intent of
the parties to include, when possible, only that portion of the Property
adversely affected. If the value properly allocated to a Title Defect cannot
be determined directly from Exhibit F because the Title Defect is included
within, but does not totally comprise, the Property to which the allocated
value relates, Seller and Buyer shall attempt to proportionately reduce the
allocated value on Exhibit F. Closing shall not be delayed, postponed or
canceled because a resolution of a Title Defect or Interest Adjustment is not
agreed prior to the Closing Date, except to the extent that the Alleged Title
Defect being asserted is failure of Seller’s title in whole or in part to any
portion(s) of the Properties (a “Material Defect”). To the extent that any
portion(s) of the Properties are alleged to be affected by a Material Defect
which remains on the scheduled Closing Date uncured or otherwise unresolved by
the parties, such affected portion(s) of the Properties shall be excluded from
the Properties conveyed to Buyer at Closing and the Purchase Price shall be
reduced accordingly. If the parties cannot mutually agree on a Purchase Price
adjustment for a Material Defect, Buyer shall have the right to (i) proceed to
Closing and accept the Property with the Material Defect with no Purchase Price
adjustment or (ii) terminate this Agreement as to the Property affected by the
Material Defect and receive a Purchase Price adjustment for such Property as
set forth on Exhibit F or, where applicable, the proportionate allocated value.
If any difference of opinion regarding an Alleged Title Defect (excluding any
Material Defect) or Interest Adjustment or value of the Title Defect (excluding
any Material Defect) or Interest Adjustment (collectively, the “Title Defect
Dispute”) is not resolved by mutual agreement of Buyer and Seller prior to the
Closing Date, then either party has the right, exercisable within sixty (60)
days after the Closing Date, to refer the same to arbitration in accordance
with Article 13, but using one (1) mutually agreeable arbitrator who is an
attorney licensed in the state in which the Properties are located
and who has at least fifteen (15) years oil and gas title experience in such
state. Subject to the terms of Article 13, the decision of the arbitrator
regarding Title Defect Dispute(s) shall be final as between the parties.


9






 


     Notwithstanding anything herein to the contrary, in no event shall either
party have any obligations hereunder with respect to any Title Defects or
Interest Adjustments except to the extent that (i) each such Title Defect or
Interest Adjustment exceeds One Thousand Dollars ($1,000) and (ii) all such
Title Defects and Interest Adjustments exceed in the aggregate One Hundred
Twenty-Five Thousand Dollars (US $125,000), and each party hereby waives all
upward or downward adjustments to the Purchase Price for Title Defects and/or
Interest Adjustments the individual value of which is $1,000 or less and the
cumulative value of which is $125,000 or less.


     4.3       Waiver. Except for claims Buyer asserts under Seller’s special
warranty of title described in Section 9.1, all Alleged Title Defects and
Interest Adjustments which are not raised by Buyer within the time period
provided in Section 4.2 or which are raised and not thereafter submitted to
arbitration in accordance with such Section shall be deemed waived by Buyer for
all purposes, and Buyer shall have no right to seek an adjustment to the
Purchase Price, make a claim against Seller or seek indemnification from Seller
on account of the same. All upward Interest Adjustments which are not raised
by Seller within the time period provided in Section 4.2 or which are raised
and not thereafter submitted to arbitration in accordance with such Section
shall be deemed waived by Seller for all purposes, and Seller shall have no
right to seek an adjustment to the Purchase Price, make a claim against Buyer
or seek indemnification from Buyer on account of the same.


ARTICLE 5. INSPECTION OF PROPERTIES


     5.1       Physical and Environmental Inspection. After execution of this
Agreement, Seller shall permit Buyer and its authorized representatives
reasonable physical access to the Properties, at times approved by Seller and
at Buyer’s sole cost, risk and expense, for the purposes of inspecting the same
and conducting such tests, examinations, investigations and assessments as may
be reasonable and necessary to evaluate the physical and environmental
condition of the Properties. Buyer shall repair any damage to the Properties
resulting from its inspection and shall defend and indemnify the “Seller Group”
(hereinafter defined) from any and all losses, liabilities, damages, expenses,
costs, obligations and claims of whatsoever nature arising from Buyer
inspecting the Properties, including, without limitation, (i) all claims for
personal injury to or death of employees of Buyer, its agents, contractors,
subcontractors or invitees and/or damage to the property of Buyer or others
acting on behalf of Buyer, except to the extent caused by the negligence of
Seller and regardless of the condition of the Properties, and (ii) all claims
for personal injury to or death of employees of Seller or third parties and damage to the property of
Seller or third parties, to the extent caused by the negligence, gross
negligence or willful misconduct of Buyer.


     5.2      Environmental Defects.



		
	 	     5.2.1      Inspection and Test Results. Buyer agrees to provide Seller
with a copy of any and all environmental inspections and assessments,
including, without limitation, all




10






 




		
	 	written reports, data and conclusions. Buyer and Seller shall keep any and all data or information acquired by
all such examinations and results of all analysis of such data and
information strictly confidential and not disclose same to any person or
agency without the prior written approval of the other party, unless
required to do so by applicable Law or by the order of a court or
regulatory agency. Notwithstanding the foregoing, Buyer may disclose
such data and information to its employees, officers, agents, advisors,
consultants and attorneys and those of any lending institution financing
Buyer’s acquisition of the Properties for the sole purpose of evaluating
the Properties in connection with the transaction contemplated hereby and
only to the extent such disclosure is reasonably necessary for such
purpose. In connection with the foregoing, Buyer shall ensure that all
such persons comply with the restrictions on the disclosure and use of
the data and information set forth herein. The foregoing obligation of
confidentiality shall survive for five (5) years after the Closing;
provided, however, that Buyer may disclose such data and information to
prospective purchasers of interests in the Properties so long as each
such prospective purchaser shall have duly executed a written agreement
in which it undertakes obligations of confidentiality and non-disclosure
with respect to the information and data no less stringent than those
contained herein. The obligations set forth in this Section 5.2.1 that
are imposed on the Buyer shall survive the termination or expiration of
this Agreement without closing.
	 
	 	     5.2.2      Notice of Environmental Defects. Prior to one hundred eighty
(180) days after the Closing Date (the “Environmental Inspection
Period”), Buyer shall review the inspection and testing results of the
Properties and determine if any “Environmental Defect” (hereinafter
defined) exists with respect to the Properties. An “Environmental
Defect” shall mean an Environmental Claim attributable to or arising out
of a violation of any Environmental Law (i) in effect on the Effective
Time and applicable to conditions prior to the Closing Date, (ii) that is
made known to Buyer prior to the expiration of the Environmental
Inspection Period and (iii) to which prompt remedial or corrective action
is required or would be undertaken by a prudent operator of oil and gas
properties. Prior to the expiration of the Environmental Inspection
Period, Buyer shall notify Seller in writing of any Environmental Defects
with respect to the Properties, and the estimated value of any such
Environmental Defects (e.g. the estimated cost of remediating or
correcting such Environmental Defects). In the event such notice is not
timely delivered, all Environmental Defects of which Buyer has notice as
of such date shall be deemed waived for all purposes and Buyer shall
thereafter have no right to claim Environmental Defects pursuant to this
Section 5.2; and in the event the Environmental Defect notice is timely
delivered, all Environmental Defects of which Buyer has notice as of such date and
are not claimed in such notice shall be deemed waived for all purposes,
subject, however, to Section 5.2.6 hereof.
	 
	 	     5.2.3      Rights and Remedies for Environmental Defects Identified Prior
to Closing. (a) With respect to any Environmental Defect affecting the
Properties of which Seller is given notice in writing at least five (5)
days before Closing (the “Pre-Closing



11






 





		
	 	Notification Period”), Buyer may (i) request Seller to cure the Environmental Defect, but Seller shall
have no obligation to cure the Environmental Defect, or (ii) request an
adjustment to the Purchase Price equal to the estimated value of the
Environmental Defect. If Seller and Buyer are unable to agree no later
than three (3) Business Days before Closing on curative measures or an
adjustment to the Purchase Price with respect to any such Environmental
Defect, the parties shall have the rights and remedies set forth in
subpart (b) of this Section 5.2.3.
	 
	 	     (b)       The rights and remedies of the parties with respect to any
Environmental Defects for which the parties cannot agree on curative
measures or a Purchase Price adjustment are as follows:




		
	 	           (i)       If the aggregate value of all Environmental Defects is
less than or equal to One Hundred Twenty-Five Thousand Dollars (US
$125,000), the parties shall be obligated to proceed with Closing
as to all of the Properties without curative action by Seller for
all such Environmental Defects and without an adjustment to the
Purchase Price.
	 
	 	           (ii)       If the aggregate value of the Environmental Defects
exceeds One Hundred Twenty-Five Thousand Dollars (US $125,000), and
the parties agree with respect to the existence of such
Environmental Defects and the value thereof, the Purchase Price
shall be reduced by the positive difference between the agreed upon
value of the Environmental Defects and One Hundred Twenty-Five
Thousand Dollars (US $125,000), and the parties shall be obligated
to proceed with Closing, subject to the termination rights of the
parties under subpart (iv) of this Section 5.2.3(b).
	 
	 	           (iii)       If the aggregate value of all Environmental Defects
exceeds One Hundred Twenty-Five Thousand Dollars (US $125,000) and
the parties cannot agree with respect to the existence of and/or
the value of the Environmental Defects, the parties may refer the
matter to a mutually agreed upon third party expert for
determination of the existence of and/or the value of the
Environmental Defects. The determination of such expert shall be
binding on the parties, and the Purchase Price shall be reduced by
the positive difference between the determined value of the
Environmental Defects and One Hundred Twenty-Five Thousand Dollars
(US $125,000). The parties shall be obligated to proceed with
Closing, subject to the termination rights of the parties under
subpart (iv) of this Section 5.2.3(b).
	 
	 	           (iv)       If the aggregate value of the Environmental Defects
equals or exceeds twenty percent (20%) of the Purchase Price,
either party may terminate this Agreement, and neither party shall
have any further obligation to conclude the transfer of the
Properties under this Agreement. However, the right of termination




12






 

		
	 	under this subpart (iv) must be exercised no later than two (2)
Business Days before Closing, after which both parties shall be
deemed to have waived their termination rights under this subpart
(iv) in connection with Environmental Defects.




		
	 	     5.2.4       Rights and Remedies for Environmental Defects Identified
Post-Closing. With respect to any Environmental Defects affecting the
Properties of which Seller is notified in accordance with Section 5.2.2
hereof after the Pre-Closing Notification Period, but before the
expiration of the Environmental Inspection Period, Seller shall, within
six (6) months after the expiration of the Environmental Inspection
Period, at its election, either:




		
	 	              (a)        Remediate the Environmental Defect or reimburse Buyer for
the agreed cost thereof, but only to the extent the value of all
such Environmental Defects exceeds One Hundred Twenty-Five Thousand
Dollars ($125,000); or
	 
	 	            (b)        Refund the portion of the Purchase Price allocated to the
Property or Properties affected thereby and accept a reconveyance
of such Property or Properties from Buyer by instrument in
substantially the same form as the Assignment and Bill of Sale and
subject only to the Permitted Encumbrances; provided, however,
that, if the aggregate value of all previously identified
Environmental Defects does not exceed One Hundred Twenty-Five
Thousand Dollars ($125,000), the refund to be made by Seller for
the affected Property or Properties under this Subsection 5.2.4(b)
shall be the positive difference, if any, between (i) the sum of
the aggregate value of all previously identified Environmental
Defects and the portion of the Purchase Price allocated to such
Property or Properties on Exhibit F and (ii) One Hundred
Twenty-Five Thousand Dollars.




		
	 	       5.2.5       Agreed Remediation. In addition to the foregoing, Seller
agrees to perform the remediation described on Exhibit M within six (6)
months after the expiration of the Environmental Inspection Period.
	 
	 	       5.2.6       No Waiver. Failure of Buyer to give notice to Seller of an
Environmental Defect within the Environmental Inspection Period shall not
prejudice nor result in a waiver of Buyer’s rights pursuant to Section
8.3.



ARTICLE 6. ACCOUNTING


          6.1   Revenues, Expenses and Capital Expenditures. All Hydrocarbons
produced prior to the Effective Time (irrespective of whether payment for the
same has been made or received) which are attributable to the Properties shall
belong to Seller, and all such Hydrocarbons produced from and after the
Effective Time shall belong to Buyer. Seller shall be entitled to all


13






 



revenues and related accounts receivable attributable to the ownership or operation of
the Properties, and shall be responsible for all costs and expenses and related
accounts payable attributable to the ownership or operation of the Properties,
to the extent they relate to the time prior to the Effective Time. Buyer shall
be entitled to all revenues and related accounts receivable attributable to the
ownership or operation of the Properties, and shall be responsible for all
costs and expenses and related accounts payable attributable to the ownership
or operation of the Properties, to the extent they relate to the time from and
after the Effective Time. The actual amounts or values associated with the
above shall be accounted for in the Final Accounting Settlement. At Closing
Seller shall transfer to Buyer, and Buyer shall assume, Seller’s suspense funds
associated with the acquired Properties as of the Effective Time, and these
funds shall be accounted for in the Final Accounting Settlement.


           6.2       Taxes. All taxes and assessments, including without limitation,
excise, ad valorem, property, production and severance taxes and any other
federal, state and local taxes and assessments attributable to the ownership or
operation of the Properties prior to the Effective Time shall remain Seller’s
responsibility, and all deductions, credits and refunds pertaining to the
aforementioned taxes and assessments, no matter when received, shall belong to
Seller. All taxes and assessments, including without limitation, excise, ad
valorem, property, production and severance taxes and any other federal, state
and local taxes and assessments attributable to the ownership or operation of
the Properties after the Effective Time shall be Buyer’s responsibility, and
all deductions, credits and refunds pertaining to the aforementioned taxes and
assessments, no matter when received, shall belong to Buyer. The actual
amounts or values associated with the above, if any, shall be accounted for in
the Final Accounting Settlement. The parties agree that the transaction
contemplated herein is an occasional sale of assets by Seller in which Seller
does not trade in the ordinary course of its business. Accordingly, the
parties will take commercially reasonable actions to establish the occasional
sale exemption from any sales tax associated with the transaction contemplated
herein. Notwithstanding the foregoing, Buyer shall be solely responsible for
all transfer, sales, use or similar taxes resulting from or associated with the
transaction contemplated under this Agreement.


           6.3      Obligations and Credits. Any and all prepaid insurance premiums,
utility charges, taxes, rentals and any other prepays, to the extent applicable
to periods of time after the Effective Time and to the extent attributable to
the Properties shall be reimbursed to Seller by Buyer; and accrued payables
applicable to periods of time prior to the Effective Time, if any, and
attributable to the Properties shall be the responsibility of Seller. The
actual amounts or values associated with the above shall be accounted for in
the Final Accounting Settlement.


           6.4      Gas Imbalances. Seller’s estimate of the aggregate gas imbalance as
of the Effective Time for all the Properties is 33,826 mcf under produced
(cumulative working interests), as more particularly set forth for each of the
Properties on Exhibit G. In the event such gas imbalance estimate is revised
by Seller prior to Closing, Seller shall provide Buyer with a revised gas
imbalance schedule for all the Properties as of the Effective Time. There
shall be a Purchase Price adjustment at Closing for the volumetric difference
in the estimated and revised


14






 




imbalance calculated on Seller’s net revenue interest at a price of $1.00 per mcf. To the extent that there is any
difference between Seller’s actual aggregate gas imbalance as of the Effective
Time and the imbalance position settled at Closing, then an adjustment shall be
made at the $1.00 per net mcf rate in the Final Accounting Settlement. There
shall be no further gas imbalance adjustments after the Final Settlement Date.
In the event of a Title Defect affecting all or a portion of the Properties,
the aggregate gas imbalance shown above shall be adjusted to take into account
the affected Property. Any Purchase Price adjustments for gas imbalances shall
be made only on those Properties purchased by Buyer.


           6.5     Miscellaneous Accounting.



		
	 	            6.5.1      A preliminary Closing statement will be prepared for Closing,
as provided in Section 16.1.
	 
	 	            6.5.2     In addition to the items set forth in Sections 6.1 and 6.2,
any other amounts due between Buyer and Seller related to the ownership
or operation of the Properties shall be accounted for in the Final
Accounting Settlement.



           6.6     Final Accounting Settlement. As soon as reasonably practicable, but
in no event later than one hundred twenty (120) Days after Closing, Seller
shall deliver to Buyer a post-Closing statement setting forth a detailed final
calculation of all post-Closing adjustments applicable to the period between
the Effective Time and the Closing Date (“Final Accounting Settlement”). As
soon as reasonably practicable, but in no event later than thirty (30) Days
after Buyer receives the post-Closing statement, Buyer shall deliver to Seller
a written report containing any changes Buyer proposes to be made to such
statement. As soon as reasonably practicable, but in no event later than
thirty (30) Days after Seller receives Buyer’s proposed changes to the
post-Closing statement, the parties shall meet and undertake to agree on the
post-Closing adjustments. If the parties fail to agree on the post-Closing
adjustments, resolution shall be handled in accordance with Section 6.8. The
date upon which all amounts associated with the Final Accounting Settlement are
agreed to by the parties, whether by decision of the Accounting Referee or
otherwise, shall be herein called the “Final Settlement Date”. Any amounts
owed by either party to the other as a result of such post-Closing adjustments
shall be paid within five (5) Business Days after the Final Settlement Date.


           6.7     Post-Final Accounting Settlement. Any revenues received or costs and
expenses paid by Buyer after the Final Accounting Settlement which are
attributable to the ownership or operation of the Properties prior to the
Effective Time shall be billed to or reimbursed to Seller, as appropriate. Any revenues received or
costs and expenses paid by Seller after the Final Accounting Settlement which
are attributable to the ownership or operation of the Properties after the
Effective Time shall be billed to or reimbursed by Buyer, as appropriate.


           6.8     AuditRights. In order to verify the information provided by the
parties under this Article 6, Buyer and Seller shall each have the right to
conduct, at such party’s sole expense, an


15






 




audit of the other party’s records relating thereto for a period of one (1) year after the Closing Date.
Objections or exceptions which are not raised within such one-year audit period
shall be conclusively deemed to be waived by the parties for all purposes, and
neither party shall have the right to make a claim against the other party or
seek indemnification or reimbursement from the other party associated with the
same.If within such fifteen (15) Days after receiving the results of a
party’s audit conducted in accordance with this Article, the parties still
cannot reach agreement, the disputed items shall be resolved by submitting the
same to KPMG LLP, or if such firm declines to act in such capacity, by such
other firm of independent nationally recognized accountants mutually acceptable
to the parties (the “Accounting Referee”). The Accounting Referee shall be
instructed to resolve the accounting dispute(s) within thirty (30) Days after
having the relevant materials submitted to it for review. The decision of the
Accounting Referee shall be binding and non-appealable by the parties. The
fees and expenses associated with the Accounting Referee shall be borne equally
by Buyer and Seller.


ARTICLE 7. CASUALTY AND CONDEMNATION


     If a substantial part of the Properties shall be (a) destroyed prior to
Closing by a Casualty Loss, or (b) taken in condemnation or if proceedings for
such purposes shall be pending (collectively referred to as a “Taking”); then
either Buyer or Seller may terminate this Agreement prior to the Closing. For
the purpose of this Article 7, the term “substantial” shall be defined as
twenty percent (20%) of the unadjusted Purchase Price. If either party
terminates this Agreement in accordance with this Section, neither party shall
have any further obligations, except as provided in this Article and in Section
15.2.1.


     If neither party terminates this Agreement, this Agreement shall remain in
full force and effect, and Seller and Buyer shall attempt to agree on a
reduction in the Purchase Price, reflecting the reduction in the value of the
Properties affected by the Casualty Loss and/or Taking. If the parties cannot
agree on a reduction, the Seller’s good faith calculation shall be used for
purposes of Closing. Notwithstanding anything herein to the contrary, in no
event shall either party have any obligations hereunder with respect to any
Casualty Loss and/or Taking except to the extent that the value of all such
Casualty Losses and/or Takings exceed in the aggregate Fifty Thousand Dollars
(US $50,000), and Buyer hereby waives all downward adjustments to the Purchase
Price for all Casualty Losses and/or Takings the cumulative value of which is
$50,000 or less. Unless otherwise agreed by the parties, Seller shall retain
any and all sums paid to Seller, unpaid awards, insurance proceeds and other
payments associated with or attributable to Casualty Losses and/or Takings.


     If there is a dispute over the value of any Casualty Loss and/or Taking,
Buyer may submit the matter to arbitration in accordance with Article 13 within
sixty (60) Days after Closing, or if a party terminates this Agreement under
this provision and the other party disputes the party’s right to terminate
hereunder, the disputing party may submit the matter to arbitration in
accordance with Article 13 within sixty (60) Days after the date which had been
scheduled for Closing.If Buyer disputes the Purchase Price adjustment for any
Casualty Loss and/or Taking or a


16






 




party disputes termination, and Buyer or the disputing party, as applicable, does not initiate an arbitration proceeding to
resolve the matter within the applicable time periods specified in the
foregoing sentence, such party in either case shall be deemed to have waived
its rights with respect to such dispute.


ARTICLE 8. INDEMNITIES


           8.1     Seller’s Indemnity Obligations (excluding Environmental Claims).
EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH
SECTION 8.3, SELLER SHALL RELEASE BUYER AND BUYER’S AFFILIATES AND THEIR
RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES (COLLECTIVELY, THE “BUYER GROUP”)
FROM AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND BUYER GROUP FROM AND
AGAINST ANY AND ALL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH
WOULD CONSTITUTE CLAIMS BUT WHICH ARE ASSERTED BY SELLER, RELATING TO, ARISING
OUT OF, OR CONNECTED WITH SELLER’S OWNERSHIP OR OPERATION OF THE PROPERTIES
PRIOR TO THE EFFECTIVE TIME, REGARDLESS OF ANY NEGLIGENCE OF ACT OR OMISSION BY
BUYER GROUP; PROVIDED, HOWEVER, THAT PROPER NOTICE UNDER SECTION 8.5 SHALL HAVE
BEEN SUBMITTED TO SELLER WITHIN SIX (6) MONTHS AFTER THE CLOSING DATE, AND
FURTHER PROVIDED THAT BUYER SHALL BEAR SOLE RESPONSIBILITY FOR THE COSTS
ASSOCIATED WITH ALL SUCH CLAIMS (IN AGGREGATE) UP TO ONE HUNDRED TWENTY-FIVE
THOUSAND DOLLARS (US $125,000).


           8.2     Buyer’s Indemnity Obligations (excluding Environmental Claims).
EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH
SECTION 8.3 AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BUYER SHALL
RELEASE SELLER AND SELLER’S AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS
AND EMPLOYEES (COLLECTIVELY, THE “SELLER GROUP”) FROM AND SHALL FULLY PROTECT,
INDEMNIFY, AND DEFEND THE SELLER GROUP FROM AND AGAINST ANY AND ALL CLAIMS AND
ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD CONSTITUTE CLAIMS BUT WHICH
ARE ASSERTED BY BUYER RELATING TO, ARISING OUT OF, OR CONNECTED WITH THE OWNERSHIP OR OPERATION OF THE PROPERTIES (i) PERTAINING
TO THE PERIOD AFTER THE EFFECTIVE TIME, AND (ii) PERTAINING TO THE PERIOD PRIOR
TO THE EFFECTIVE TIME, UNLESS SUCH CLAIMS OR OCCURRENCES AND CONDITIONS SHALL
HAVE BEEN SUBMITTED TO SELLER IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF
WITHIN SIX (6) MONTHS AFTER THE CLOSING DATE AND ARE IN THE AGGREGATE GREATER
THAN ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS (US $125,000). THIS INDEMNITY
SHALL


17






 




APPLY REGARDLESS OF ANY NEGLIGENCE OF ACT OR OMISSION BY SELLER GROUP.


           8.3     Environmental Claims. BUYER SHALL RELEASE SELLER GROUP AND SHALL
FULLY PROTECT, INDEMNIFY, AND DEFEND SELLER GROUP FROM AND AGAINST ANY AND ALL
ENVIRONMENTAL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD
CONSTITUTE ENVIRONMENTAL CLAIMS BUT WHICH ARE ASSERTED BY BUYER PERTAINING TO
THE PROPERTIES AND RELATING TO THE PERIOD FROM AND AFTER THE EFFECTIVE TIME.
SELLER SHALL RELEASE BUYER GROUP AND SHALL FULLY PROTECT, INDEMNIFY, AND
DEFEND BUYER GROUP FROM AND AGAINST ALL ENVIRONMENTAL CLAIMS PERTAINING TO THE
PROPERTIES AND RELATING TO THE PERIOD PRIOR TO THE EFFECTIVE TIME THAT ARE IN
THE AGGREGATE GREATER THAN AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN (i) ONE
HUNDRED TWENTY-FIVE THOUSAND DOLLARS (US $125,000) AND (ii) THE AGGREGATE VALUE
OF ALL ENVIRONMENTAL DEFECTS UNDER SECTION 5.2 ABOVE, IT BEING AGREED THAT
BUYER SHALL BEAR SOLE RESPONSIBILITY FOR THE COSTS ASSOCIATED WITH ALL
ENVIRONMENTAL DEFECTS UNDER SECTION 5.2 ABOVE AND ALL ENVIRONMENTAL CLAIMS
UNDER THIS SECTION 8.3 (IN AGGREGATE) UP TO ONE HUNDRED TWENTY-FIVE THOUSAND
DOLLARS (US $125,000).


           8.4     Asbestos and NORM. The parties acknowledge that the Properties may
contain asbestos and/or NORM, and that special procedures may be required for
the assessment, remediation, removal, transportation or disposal of asbestos
and NORM. Buyer agrees to assume any and all liability associated with or
attributable to the assessment, remediation, removal, transportation and
disposal of the asbestos or NORM associated with or attributable to the
Properties and shall conduct said activities in accordance with all applicable
Laws.


           8.5      Notice and Cooperation. If a Claim is asserted against a party for
which the party would be liable under the provisions of this Agreement, it is a
condition precedent to the indemnifying party’s obligations hereunder that the
indemnified party gives the indemnifying party written notice of such Claim
setting forth full particulars of the Claim, as known by the indemnified party,
including a copy of the Claim (if it was a written Claim.) The indemnified
party shall make a good faith effort to notify the indemnifying party within one (1)
month of receipt of a Claim and shall in all events effect such notice within
such time as will allow the indemnifying party to defend against such Claim and
no later than three (3) calendar months after receipt of the Claim by the
indemnified party. The notice of a Claim given hereunder is referred to as a
“Claim Notice.”


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8.6      Defense of Claims.



		
	 	           8.6.1     Counsel. Upon receipt of a Claim Notice, the indemnifying
party may assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party.
The indemnified party shall cooperate in all reasonable respects in such
defense. If any Claim involves Claims with respect to which Buyer
indemnifies Seller and also Claims for which Seller indemnifies Buyer,
each party shall have the right to assume the defense of and hire counsel
for that portion of the Claim for which it has liability. The
indemnified party shall have the right to employ separate counsel in any
Claim and to participate in the defense thereof, provided the fees and
expenses of counsel employed by an indemnified party shall be at the
expense of the indemnified party unless otherwise agreed between the
parties.
	 
	 	           8.6.2     Settlement. If the indemnifying party does not notify the
indemnified party within the earlier to occur of: (a) the time a
response is due in the relevant litigation matter, or (b) three (3)
calendar months after receipt of the Claim Notice, that the indemnifying
party elects to undertake the defense thereof, the indemnified party has
the right to defend, at the sole expense of the indemnifying party, the
Claim with counsel of its own choosing, subject to the right of the
indemnifying party to assume the defense of any Claim at any time prior
to settlement or final determination thereof at the indemnifying party’s
sole expense. In such event, the indemnified party shall send a written
notice to the indemnifying party of any proposed settlement of any Claim,
which settlement the indemnifying party may accept or reject, in its
reasonable judgment, within thirty (30) Days of receipt of such notice,
unless the settlement offer is limited to a shorter period of time in
which case the indemnifying party shall have such shorter period of time
in which to accept or reject the proposed settlement. Failure of the
indemnifying party to accept or reject such settlement within the thirty
(30) Day period, or such shorter period of time, if applicable, shall be
deemed to be its rejection of such settlement. The indemnified party may
settle any matter over the objection of the indemnifying party but shall
in so doing be deemed to have waived any right to indemnity therefor as
to (and only as to) liabilities with respect to which the indemnifying
party has recognized its liability.



               
8.7     Waiver of Certain Damages. Each of the parties hereby waives, and
agrees not to seek, indirect, consequential, punitive, exemplary or special
damages of any kind with respect to any Claim, occurrence, condition or
dispute, arising out of or relating to this Agreement or breach hereof;
provided, however, that
this provision does not diminish or affect in any way the parties’ rights and
obligations under any indemnities provided for in this Agreement.


               
8.8.     Limitation on Indemnities. In no event shall an indemnifying party
have any obligation of indemnification to the other party, if the Claim,
occurrence, condition or dispute for which indemnity is sought was caused by
the gross negligence or willful


19






 




misconduct on the part of the indemnified party
and/or its officers, directors, employees, agents, contractors, subcontractors,
Affiliates or predecessors. Notwithstanding anything contained herein to the
contrary, the indemnities provided for in this Agreement shall be enforceable
only by the parties hereto and not by either party’s successors or assigns, it
being expressly agreed that such indemnities shall be deemed a personal
covenant between Seller and Buyer and not a covenant that runs with the
Properties.


ARTICLE 9. WARRANTIES AND DISCLAIMERS


               
9.1         Special Warranty of Title. Seller shall warrant and defend title to
the Properties conveyed to Buyer against every person whomsoever lawfully
claiming the Properties or any part thereof by, through or under Seller, but
not otherwise, and subject to the Permitted Encumbrances.


               
9.2         Disclaimer – Representations and Warranties. BUYER ACKNOWLEDGES AND
AGREES THAT THE PROPERTIES ARE BEING SOLD, ASSIGNED AND CONVEYED FROM SELLER TO
BUYER “AS-IS, WHERE-IS”, AND WITH ALL FAULTS IN THEIR PRESENT CONDITION AND
STATE OF REPAIR, WITHOUT RECOURSE. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLER HEREBY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES
CONCERNING THE PROPERTIES, EXPRESS, STATUTORY, IMPLIED OR OTHERWISE, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF TITLE (EXCEPT AS SET FORTH IN SECTION 9.1),
THE QUALITY OF HYDROCARBON RESERVES, THE QUANTITY OF HYDROCARBON RESERVES, THE
AMOUNT OF REVENUES, THE AMOUNT OF OPERATING COSTS, CONDITION (PHYSICAL OR
ENVIRONMENTAL), QUALITY, COMPLIANCE WITH APPLICABLE LAWS, ABSENCE OF DEFECTS
(LATENT OR PATENT), SAFETY, STATE OF REPAIR, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, AND BUYER EXPRESSLY RELEASES SELLER FROM THE SAME.


               
9.3        Disclaimer – Statements and Information. EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ANY AND ALL LIABILITY AND
RESPONSIBILITY FOR AND ASSOCIATED WITH THE QUALITY, ACCURACY, COMPLETENESS OR
MATERIALITY OF THE RECORDS AND ANY OTHER INFORMATION PROVIDED AT ANY TIME
(WHETHER ORAL OR WRITTEN) TO BUYER, ITS OFFICERS, AGENTS, EMPLOYEES AND
REPRESENTATIVES IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREIN,
INCLUDING WITHOUT LIMITATION, QUALITY OF HYDROCARBON RESERVES, QUANTITY OF
HYDROCARBON RESERVES, AMOUNT OF REVENUES, AMOUNT OF OPERATING COSTS, FINANCIAL
DATA, CONTRACT DATA, ENVIRONMENTAL CONDITION OF THE PROPERTIES, PHYSICAL
CONDITION OF THE PROPERTIES AND CONTINUED FINANCIAL


20






 




VIABILITY OF THE
PROPERTIES, AND BUYER EXPRESSLY RELEASES SELLER FROM THE SAME.


ARTICLE 10. SELLER’S REPRESENTATIONS


     Seller represents to Buyer that on the date hereof and as of the Closing
Date:


               
10.1         Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Arkansas, and has all requisite corporate power and authority to own and lease
the Properties. Seller is duly licensed or qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
Properties are located.


               
10.2         Corporate Authority; Authorization of Agreement. Seller has all
requisite corporate power and authority to execute and deliver this Agreement,
to consummate the transactions contemplated herein and to perform all of the
terms and conditions to be performed by it as provided for in this Agreement.
The execution and delivery of this Agreement by Seller, the performance by
Seller of all of the terms and conditions to be performed by it and the
consummation of the transactions contemplated herein have been duly authorized
and approved by all necessary corporate action. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
Laws relating to or affecting the enforcement of creditors’ rights and general
principles of equity (regardless of whether such enforceability is considered
in a proceeding at law or in equity).


               
10.3          No Violations. The execution and delivery of this Agreement by
Seller does not, and the fulfillment and compliance with the terms and
conditions hereof and the consummation of the transactions contemplated herein,
will not:



		
	 	                 (a)         
 Conflict with or require the consent of any person or entity
under any of the terms, conditions or provisions of the certificate of
incorporation or bylaws of Seller;
	 
	 	                 (b)          Violate any provision of, or require any filing, consent or
approval under any Law applicable to or binding upon Seller (assuming
receipt of all consents and approvals of governmental entities
customarily obtained subsequent to the transfers of title);
	 
	 	                 
(c)         
 Conflict with, result in a breach of, constitute a default under
or constitute an event that with notice or lapse of time, or both, would
constitute a default under, accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or
approval under, (i) any mortgage, indenture, loan, credit agreement or
other agreement, evidencing indebtedness for borrowed money to which



21






 




		
	 	Seller is a party or by which Seller is bound or (ii) any order, judgment
or decree of any governmental entity or tribal authority; or
	 
	 	     (d)       Result in the creation or imposition of any lien or encumbrance
upon the Properties.



     10.4       Absence of Certain Changes. Between the Effective Time and the
execution date hereof, there has not been:



		
	 	     (a)       A sale, lease or other disposition of any material part of the
Properties, other than the sale of Hydrocarbons in the ordinary course of
business, consistent with prior practices of Seller;
	 
	 	     (b)       A mortgage, pledge or grant of a lien or security interest in
any of the Properties; or
	 
	 	     (c)       A contract or commitment to do any of the foregoing.



     10.5       Operating Costs. To the best of Seller’s knowledge, all costs
incurred in connection with the operation of the Properties have been fully
paid and discharged by Seller, except normal expenses incurred in operating the
Properties within the previous sixty (60) Days or as to which Seller has not
yet been billed or as to which Seller is disputing in good faith.


     10.6       Litigation and Other Disputes. Seller shall retain liability for the
matters listed on Exhibit E. Except for the matters listed on Exhibit E, there
is no action, suit or proceeding pending or, to the best of Seller’s knowledge,
threatened against Seller or the Properties which would reasonably be expected
to have a material adverse effect on Buyer or Buyer’s interest in the
Properties after Closing or to prevent the consummation of the transaction
contemplated by this Agreement. For purposes of this provision, “material”
means an impact of greater than Fifty Thousand Dollars (US $50,000) in the
aggregate.


     10.7       Bankruptcy. There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by or, to the best of Seller’s
knowledge, threatened against Seller.


     10.8       Leases. To the best of Seller’s knowledge, (i) the Leases have been
maintained in material compliance with their terms, are valid, binding and in
full force and effect, (ii) there are no defaults by Seller in the performance
of any of the material terms and conditions of the Leases and (iii) no event
has occurred that with the lapse of time or action or inaction by any party
would result in a material violation of the Leases or a default thereunder. To
the best of Seller’s knowledge, all royalties (including shut-in payments),
rental, deposits and other amounts due on the Properties have been properly and
timely paid.


22






 


     10.9       Hydrocarbon Sales; Imbalances. Except as otherwise provided in
Section 6.4, Seller has not been nor will Buyer after the Effective Time be
obligated by virtue of any prepayment made under any gas transportation,
production sales contract or any other contract containing a “take or pay”
clause, or under any gas balancing, deferred production or similar arrangement
to deliver oil, gas or other minerals produced from or allocated to any of the
Properties at such future time without receiving full payment therefor at the
time of delivery.


     10.10       Existing Commitments. Except as described on Exhibit H and except
for any commitment for expenditures of less than $10,000, there are no existing
commitments or obligations to pay costs or expenses for drilling, completing,
equipping, deepening, side tracking, reworking or other similar costs or
expenses arising from or relating to the ownership of the Properties. Except
as otherwise provided in the Material Contracts, there are no obligations or
commitments presently existing under which Seller’s interest in the Properties
will be altered due to the passage of time, the collection of a specified sum
of money (including, for example, non-consent operations and back-in
obligations) or other reason.


     10.11       Compliance With Law . Except for those matters disclosed on Exhibit
and such other matters as would not have a material adverse effect on the
value of the Properties, Seller (i) is in material compliance with all Laws
applicable to Seller or those Properties that are operated by Seller and (ii)
has not received notice of and is not aware of any facts, conditions or
circumstances relating to the ownership or operation of the Properties that
could reasonably be expected to give rise to any claim or assertion that
Seller, the Properties or the ownership or operation thereof is not in material
compliance with any Law applicable to Seller or the Properties. For purposes
of this provision, “material” means an impact of greater than One Hundred
Twenty-Five Thousand Dollars (US $125,000) in the aggregate.


     10.12       Availability of Records. To the best of Seller’s knowledge, Seller
has provided Buyer with access to all Records in Seller’s possession in
connection with Buyer’s due diligence review of the Properties.


     10.13       Limitation on Representations. The representations contained in
Sections 10.1 through 10.4 shall survive Closing indefinitely. The
representations contained in Sections 10.5 through 10.12 shall survive Closing
for a period of six (6) months after the Closing Date and shall thereupon
terminate.


ARTICLE 11. BUYER’S REPRESENTATIONS


     Buyer represents to Seller that on the date hereof and as of the Closing
Date:


     11.1       Organization and Good Standing. Buyer is a limited liability company
duly organized, validly existing and in good standing under the Laws of the
State of Oklahoma and has all requisite power and authority to own and lease
the Properties. Buyer is duly licensed or


23






 




qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the
Properties are located.


     11.2      Corporate Authority; Authorization of Agreement. Buyer has all
requisite power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated herein and to perform all the terms
and conditions to be performed by it as provided for in this Agreement. The
execution and delivery of this Agreement by Buyer, the performance by Buyer of
all the terms and conditions to be performed by it and the consummation of the
transactions contemplated herein have been duly authorized and approved by all
necessary action. This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency or other Laws relating to or affecting the
enforcement of creditors’ rights and general principles of equity (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).


     11.3      No Violations. The execution and delivery of this Agreement by Buyer
does not, and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated herein, do not:



		
	 	     (a)       Conflict with or require the consent of any person or entity
under any of the terms, conditions or provisions of the articles of
organization or other organizational documents of Buyer;
	 
	 	     (b)       Violate any provision of, or require any filing, consent or
approval under any Law applicable to or binding upon Buyer; or
	 
	 	     (c)       Conflict with, result in a breach of, constitute a default under
or constitute an event that with notice or lapse of time, or both, would
constitute a default under, accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or
approval under, (i) any mortgage, indenture, loan, credit agreement or
other agreement evidencing indebtedness for borrowed money to which Buyer
is a party or by which Buyer is bound, or (ii) any order, judgment or
decree of any governmental entity or tribal authority.



     11.4       SEC Disclosure. Buyer is an experienced and knowledgeable investor
and operator in the oil and gas business. Buyer is acquiring the Properties
for its own account for use in its trade or business, and not with a view
toward or for sale in connection with any distribution thereof, nor with any
present intention of making a distribution thereof within the meaning of the
Securities Act of 1933, as amended.


     11.5       Independent Evaluation. As of Closing, Buyer represents that it is
sophisticated in the evaluation, purchase, operation and ownership of oil and
gas properties and that in making its decision to enter into this Agreement and
to consummate


24






 




the transaction contemplated herein, Buyer has relied and shall
rely solely on its own independent investigation and evaluation of the
Properties and has satisfied itself as to the physical condition and
environmental condition of the Properties.


     11.6      Buyer’s Reliance. Buyer acknowledges and agrees that it is entitled
to rely only on the express representations and warranties set forth in this
Agreement.


     11.7      Qualified Buyer. Buyer possesses all required governmental licenses,
permits, bonds, certificates, orders and authorizations necessary to own and/or
operate the Properties, except those customarily obtained after the sale or
conveyance of the Properties.


     11.8      Limitation on Representations. The representations contained in
Sections 11.1 through 11.4 shall survive Closing indefinitely. The
representations contained in Sections 11.5 through 11.7 shall survive Closing
for a period of six (6) months after the Closing Date and shall thereupon
terminate.


ARTICLE 12. ADDITIONAL AGREEMENTS


     12.1      Covenants of Seller. From the date hereof until Closing, without
first obtaining the consent of Buyer, Seller has not and will not:



		
	 	     (a)       waive any right of material value relating to the Properties;
	 
	 	     (b)       convey, encumber, mortgage, abandon or pledge any of the
Properties nor dispose of any of the Properties, other than the sale of
production in the ordinary course of business and except as may be
required in connection with the exercise of preferential rights affecting
the Properties;
	 
	 	     (c)       enter into, modify or terminate any contracts relating to the
Properties, other than in the ordinary course of business;
	 
	 	     (d)       vote to commit to any material project or material expenditure
under any operating agreement affecting the Properties or elect to
participate in any operation on the Properties requiring an expenditure
of greater than Ten Thousand Dollars (US $10,000) to Seller’s interest,
except to the extent required in an emergency to protect life or property
from immediate harm or destruction; or
	 
	 	     (e)       contract or commit itself to do any of the foregoing.



     12.2      Notice of Loss. From the date hereof until Closing, Seller shall
promptly notify Buyer of any loss or damage to the Properties, or any part
thereof, known to Seller and in the aggregate exceeding Ten Thousand Dollars
(US $10,000) net to Seller’s interest.


25






 


     12.3      Operations Pending Closing. During the period from the Effective
Time to the Closing Date, Seller shall continue to operate those Properties
that are operated by Seller in the normal course of business in accordance with
Seller’s historical operating practices and using the same standard of care as
is imposed on the “Operator” under the operating agreements applicable to such
Properties.


     12.4      Subsequent Operations. Seller makes no representations or warranties
to Buyer as to the transferability or assignability of operatorship of the
Properties. Buyer acknowledges that the rights and obligations associated with
operatorship of the Properties are governed by the applicable agreement(s) and
that operatorship of the Properties shall be decided in accordance with the
terms of said agreement(s); provided, however, Seller agrees to provide
reasonable assistance to Buyer (at no expense to Seller) in connection with
Buyer’s effort to be designated as operator of the Properties.


     12.5      Buyer’s Assumption of Obligations. Except as expressly set forth in
this Agreement, Buyer agrees to assume and shall timely perform and discharge
all duties and obligations of Seller relating to or arising out of the
ownership of the Properties from and after the Effective Time, including,
without limitation, all duties and obligations of Seller under all the Assumed
Contracts, and Buyer shall indemnify and hold Seller harmless from and
against any and all liabilities of whatsoever nature arising out of Buyer’s
failure to properly perform or discharge such duties and obligations. Buyer
agrees to accept full responsibility for Seller’s proportionate share of the
costs and expenses associated with or attributable to the plugging and
abandonment of all wells, and the removal of all equipment, platforms and
facilities conveyed to Buyer under this Agreement and the remediation,
restoration and clean up of the Properties. In conducting the duties and
obligations contained in this Section 12.5, Buyer shall comply with the
applicable Laws of all governmental entities and tribal authorities having
appropriate jurisdiction.


     12.6      Records. Within thirty (30) Days after Closing, Seller shall furnish
to Buyer all Records which are maintained by Seller, provided, however, that
Seller is entitled to retain copies of any or all such Records and to retain as
long as needed, the originals of any Records required in connection with any
litigation or other proceedings listed on Exhibit E. Buyer agrees to maintain
the Records received from Seller, and any other records that Buyer may receive
from the current operators of any of the Properties, in accordance herewith for
a period of six (6) years after the Closing Date and to afford Seller
reasonable access to as requested by Seller. If Buyer desires to dispose of
any such records prior to the end of the six (6) year period, Buyer shall offer
in writing to Seller to deliver such records to Seller; if Seller elects not to
receive such records or fails to respond to Buyer’s notice within thirty (30)
Business Days after receipt thereof, then Buyer may dispose of such records
within its discretion.


26






 


ARTICLE 13. ARBITRATION


     ANY DISPUTE ARISING UNDER THIS AGREEMENT (“ARBITRABLE DISPUTE”) SHALL BE
REFERRED TO AND RESOLVED BY BINDING ARBITRATION IN HOUSTON, TEXAS BY THREE (3)
ARBITRATORS, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION; AND, TO THE MAXIMUM EXTENT APPLICABLE, THE
FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE). IF THERE IS ANY
INCONSISTENCY BETWEEN THIS ARTICLE AND ANY STATUTE OR RULES, THIS ARTICLE SHALL
CONTROL. ARBITRATION SHALL BE INITIATED (a) WITHIN THE APPLICABLE TIME LIMITS
SET FORTH IN THIS AGREEMENT AND NOT THEREAFTER, PROVIDED THAT IF NO TIME LIMIT
IS GIVEN, WITHIN THE TIME PERIOD ALLOWED BY THE APPLICABLE STATUTE OF
LIMITATIONS, (b) BY ONE PARTY (“CLAIMANT”) GIVING WRITTEN NOTICE TO THE OTHER
OR ADVERSARIAL PARTY (“RESPONDENT”) AND TO THE HOUSTON REGIONAL OFFICE OF THE
AMERICAN ARBITRATION ASSOCIATION (“AAA”), ATTENTION: REGIONAL VICE PRESIDENT,
WITH A COPY TO THE ADMINISTRATOR OF THE AAA, THAT THE CLAIMANT ELECTS TO REFER
THE ARBITRABLE DISPUTE TO ARBITRATION, AND THAT THE CLAIMANT HAS APPOINTED AN
ARBITRATOR, WHO SHALL BE IDENTIFIED IN SUCH NOTICE. THE RESPONDENT SHALL
NOTIFY THE CLAIMANT AND THE AAA WITHIN TEN (10) DAYS AFTER RECEIPT OF CLAIMANT’S NOTICE, IDENTIFYING THE ARBITRATOR WHO
THE RESPONDENT HAS APPOINTED. THE TWO (2) ARBITRATORS SO CHOSEN SHALL SELECT A
THIRD ARBITRATOR WITHIN TEN (10) DAYS AFTER THE SECOND ARBITRATOR HAS BEEN
APPOINTED. UPON FAILURE OF A PARTY TO ACT WITHIN THE TIME SPECIFIED FOR NAMING
AN ARBITRATOR, SUCH ARBITRATOR SHALL BE APPOINTED BY THE ADMINISTRATOR’S
DESIGNEE. SELLER SHALL PAY THE COMPENSATION AND EXPENSES OF THE ARBITRATOR
NAMED BY OR FOR IT, BUYER SHALL PAY THE COMPENSATION AND EXPENSES OF THE
ARBITRATOR NAMED BY OR FOR IT, AND SELLER AND BUYER SHALL EACH PAY ONE-HALF OF
THE COMPENSATION AND EXPENSES OF THE THIRD ARBITRATOR, PROVIDED HOWEVER THAT
ALL COSTS CAN BE ASSESSED AGAINST THE LOSING PARTY, IF THE ARBITRATORS SO
DECIDE. ALL ARBITRATORS MUST BE NEUTRAL PARTIES WHO HAVE NEVER BEEN OFFICERS,
DIRECTORS OR EMPLOYEES OF THE PARTIES OR ANY OF THEIR AFFILIATES, MUST HAVE NOT
LESS THAN FIFTEEN (15) YEARS EXPERIENCE IN THE OIL AND GAS INDUSTRY, AND MUST
HAVE A FORMAL FINANCIAL/ACCOUNTING, ENGINEERING OR LEGAL EDUCATION. THE
HEARING SHALL BE COMMENCED WITHIN THIRTY (30) DAYS AFTER THE SELECTION OF THE
ARBITRATORS. THE PARTIES AND THE ARBITRATORS SHALL PROCEED DILIGENTLY AND IN
GOOD FAITH IN ORDER THAT THE


27






 




ARBITRAL AWARD SHALL BE MADE AS PROMPTLY AS
POSSIBLE. THE INTERPRETATION, CONSTRUCTION AND EFFECT OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF TEXAS, AND TO THE MAXIMUM EXTENT ALLOWED BY LAW, IN
ALL ARBITRATION PROCEEDINGS THE LAWS OF TEXAS SHALL BE APPLIED, WITHOUT REGARD
TO ANY CONFLICTS OF LAWS PRINCIPLES. ALL STATUTES OF LIMITATION AND OF REPOSE
THAT WOULD OTHERWISE BE APPLICABLE SHALL APPLY TO ANY ARBITRATION PROCEEDING.
THE TRIBUNAL SHALL NOT HAVE THE AUTHORITY TO GRANT OR AWARD INDIRECT,
CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR SPECIAL DAMAGES.


ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING


     14.1      Conditions Precedent to Seller’s Obligation to Close. Seller shall
be obligated to consummate the sale of the Properties as contemplated by this
Agreement on the Closing Date, provided the following conditions precedent have
been satisfied or have been waived by Seller:



		
	 	     14.1.1      All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of
Closing as though such representations and warranties were made at and as
of such time;
	 
	 	     14.1.2      Buyer shall have complied in all material respects with all
obligations and conditions contained in this Agreement to be performed or
complied with by Buyer at or prior to the Closing; and
	 
	 	     14.1.3      No suit, action or other proceedings shall be pending before
any court or governmental entity in which it is sought by a person or
entity (other than the parties hereto or any of their Affiliates,
officers, directors, or employees) to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this
Agreement, or to obtain substantial damages in connection with the
transaction contemplated herein, nor shall there be any investigation by
a governmental entity pending which might result in any such suit, action
or other proceedings seeking to restrain, enjoin or otherwise prohibit
the consummation of the transaction contemplated by this Agreement.



     14.2      Conditions Precedent to Buyer’s Obligation to Close. Buyer shall be
obligated to consummate the purchase of the Properties as contemplated by this
Agreement on the Closing Date, provided that the following conditions precedent
have been satisfied or have been waived by Buyer:



		
	 	     14.2.1      All representations and warranties of Seller contained in
this Agreement shall be true and correct in all material respects at and
as of Closing as though such representations and warranties were made at
and as of such time;



28






 





		
	 	     14.2.2      Seller shall have complied in all material respects with all
obligations and conditions contained in this Agreement to be performed or
complied with by Seller at or prior to the Closing; and
	 
	 	     14.2.3      No suit, action or other proceedings shall be pending before
any court or governmental entity in which it is sought by a person or
entity (other than the parties hereto or any of their Affiliates,
officers, directors, or employees) to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this
Agreement, or to obtain substantial damages in connection with the
transaction contemplated herein, nor shall there be any investigation by
a governmental entity pending which might result in any such suit, action
or other proceedings seeking to restrain, enjoin or otherwise prohibit
the consummation of the transaction contemplated by this Agreement.



ARTICLE 15. TERMINATION


     15.1      Grounds for Termination. This Agreement may be terminated at any
time prior to Closing:



		
	 	     15.1.1      By the mutual written agreement of Seller and Buyer;
	 
	 	     15.1.2      By Seller if Buyer fails or refuses to Close in breach of
this Agreement or if the conditions precedent to Seller’s obligation to
Close are unmet at the time set for Closing;
	 
	 	     15.1.3      By Buyer if Seller fails or refuses to Close in breach of
this Agreement or if the conditions precedent to Buyer’s obligation to
Close are unmet at the time set forth Closing;
	 
	 	     15.1.4      By Seller if the Purchase Price would be adjusted downward by
twenty percent (20%) or more or by Buyer if the Purchase Price would be
adjusted upward by twenty percent (20%) or more in accordance with the
terms of this Agreement; or
	 
	 	     15.1.5      By either party (provided the terminating party is not then
in breach of any provisions of this Agreement), if Closing shall not have
occurred within sixty (60) days following the originally scheduled
Closing Date.



     15.2      Effect of Termination.



		
	 	     15.2.1      Except as provided in Section 15.2.2 below, if this Agreement
is terminated in accordance with Section 15.1, such termination shall be
without liability of either party or any Affiliate, officer, director, or
employee of such party, except for Seller’s obligation (if applicable) to
return the Earnest Money Deposit, as provided in



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	 	Article 3, the
obligations to arbitrate any dispute arising from such termination and
the obligations provided in Sections 15.3, 15.4, 15.5, and 17.3.
	 
	 	     15.2.2      If this Agreement is terminated because of Buyer’s failure or
refusal to Close in breach of this Agreement or because the conditions
precedent to Seller’s obligation to Close provided in Section 14.1 are
unmet at the time set for Closing, Seller shall be entitled to retain the
Earnest Money Deposit as liquidated damages to reimburse Seller for its
out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, unless any of the conditions
precedent to Buyer’s obligation to Close provided in Section 14.2 are
also unmet at the time set for Closing. If this Agreement is terminated
because of Seller’s failure or refusal to Close in breach of this
Agreement, any damages asserted by Buyer as a result of such failure or
refusal to Close shall be limited to actual damages incurred by Buyer up
to a maximum of $1,500,000.



     15.3      Dispute over Right to Terminate. If there is a dispute between the
parties over either party’s right to terminate this Agreement under
Section 15.1, Closing shall not occur, as scheduled. The party which disputes
the other party’s right to terminate may initiate arbitration proceedings in
accordance with Article 13 within thirty (30) Days after the date on which
Closing was scheduled to occur and, if arbitration is so initiated, the dispute
will be resolved through such arbitration proceeding. If the party which
disputes the termination right does not initiate an arbitration proceeding to
resolve the dispute within the time period specified hereinabove, such party
shall be deemed to have waived its right to object to such termination.


     15.4      Return of Documents. If this Agreement is terminated, each party
shall return to the party which owns or is otherwise entitled thereto all
books, records, maps, files, papers and other property in such party’s
possession (including copies of such materials and extracts therefrom) relating
to the transaction contemplated by this Agreement.


     15.5      Confidentiality. Notwithstanding the termination of this Agreement
or any other provision of this Agreement to the contrary, the terms of the
letter agreement executed by and among Seller, Anadarko Minerals, Inc. and
Exploration Associates II, LLC dated October 8, 2002, shall remain in full
force and effect.


ARTICLE 16. THE CLOSING


     16.1.      Preliminary Closing Statement. At least two (2) Days prior to the
Closing Date, Seller shall provide Buyer with a preliminary Closing statement
setting forth the adjusted Purchase Price and wiring instructions designating
the account or accounts to which the adjusted Purchase Price is to be delivered
in accordance with Section 16.3.2. Prior to the Closing Date, Buyer shall
furnish Seller with Buyer’s requested adjustments to such statement. Seller
and Buyer shall attempt in good faith to resolve any differences between them,
but if the parties are unable to agree, Seller’s preliminary Closing statement
shall be used for Closing.


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     16.2      Obligations of Seller at Closing. At the Closing, Seller shall
deliver to Buyer, unless waived by Buyer, the following:



		
	 	     16.2.1      Documents substantially in the form of the Assignment and
Bill of Sale attached hereto as Exhibit B, conveying all of Seller’s
right, title and interest in and to the Properties. The Assignment and
Bill of Sale shall be executed and acknowledged in five (5) multiple
originals or such greater number as agreed between the parties;
	 
	 	     16.2.2      Evidence that all consents and approvals prerequisite to the
sale and conveyance of the Properties (except for consents and approvals
of governmental entities customarily obtained subsequent to the transfer
of title or with respect to Properties which have been withdrawn from the
transaction in accordance with the terms hereof) have been obtained,
as well as evidence of waiver or lapse of any unexercised preferential
purchase rights applicable to the Properties;
	 
	 	     16.2.3      A Certificate substantially in the form of Exhibit C,
executed by an authorized officer of Seller, certifying as to the matters
specified in Section 14.2.1;
	 
	 	     16.2.4      A Non-Foreign Affidavit substantially in the form of Exhibit
D, executed by an authorized officer of Seller;
	 
	 	     16.2.5      Executed copies of mutually agreeable transfer orders or
letters-in-lieu, government approved assignment forms and operator
transfer forms to be prepared by Buyer; and
	 
	 	     16.2.6      Such other instruments as are necessary to carry out Seller’s
obligations under this Agreement.



     16.3      Obligations of Buyer at Closing. At the Closing, Buyer shall deliver
to Seller, unless waived by Seller, the following:



		
	 	     16.3.1      The Assignment and Bill of Sale referred to in Section
16.2.1, executed and properly acknowledged;
	 
	 	     16.3.2      The adjusted Purchase Price, less the Earnest Money Deposit,
by wire transfer in accordance with Article 3;
	 
	 	     16.3.3      A Certificate substantially in the form of Exhibit C,
executed by an authorized representative of Buyer, certifying as to the
matters specified in Section 14.1.1.



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	 	     16.3.4      Evidence of compliance with all governmental requirements for
the posting of plugging or other applicable bonds relating to the
ownership or operation of the Properties; and
	 
	 	     16.3.5      Such other instruments as are necessary to carry out Buyer’s
obligations under this Agreement.



     16.4      Site of Closing. Closing shall be held in Seller’s offices in
Houston, Texas or any other location mutually agreed in writing by Seller and
Buyer.


ARTICLE 17. MISCELLANEOUS


     17.1      Notices. All notices and other communications required, permitted or
desired to be given hereunder must be in writing and sent by U.S. mail,
properly addressed as shown below, and with all postage and other charges fully prepaid or by hand
delivery or by facsimile transmission. Date of service by mail and hand
delivery is the date on which such notice is received by the addressee and by
facsimile is the date sent (as evidenced by fax machine confirmation of
receipt), or if such date is not on a Business Day, then on the next date which
is a Business Day. Each party may change its address by notifying the other
party in writing.



	 	 	 
	If to Seller

by mail or hand delivery:	 	
Southwestern Energy Production Company

2350 N. Sam Houston Pkwy. E., Suite 300

Houston, Texas 77032

Attention: John Gargani
	 	 	 
	If to Seller

by facsimile:	 	
Southwestern Energy Production Company

Number: 281-618-4862

Attention: John Gargani
	 	 	 
	If to Buyer

by mail or hand delivery:	 	
Dutch Petroleum, LLC

2110 Bank One Center

100 North Broadway

Oklahoma City, Oklahoma 73102

Attention: William E. Dutcher
	 	 	 
	If to Buyer

by facsimile:	 	
Dutch Petroleum, LLC

Number: 405-235-7150

Attention: William E. Dutcher



     17.2      Conveyance Costs. Buyer shall be solely responsible for filing and
recording documents related to the transfer of the Properties from Seller to
Buyer and for all costs and fees associated therewith, including filing the
assignment of the Properties with appropriate federal, state and local
authorities as required by applicable Law. Promptly following Buyer’s receipt
of


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the recorded documents, Buyer shall furnish Seller with all recording data
and evidence of all required filings.


     17.3      Brokers’ Fees. Neither party has retained any brokers, agents or
finders in connection with this transaction that would result in any liability
on the other party for any fees or commission. Each party agrees to release,
protect, indemnify, defend and hold the other harmless from and against any and
all Claims with respect to any commissions, finders’ fees or other remuneration
due to any broker, agent or finder claiming by, through or under such party.


     17.4      Further Assurances. From and after Closing, at the request of Seller
but without further consideration, Buyer will execute and deliver or use
reasonable efforts to cause to be executed and delivered such other instruments of
conveyance and take such other actions as Seller reasonably may request to more
effectively put Seller in possession of any property which was not intended by
the parties to be conveyed by Buyer. From and after Closing, at the request of
Buyer but without further consideration, Seller shall execute and deliver or
use reasonable efforts to cause to be executed and delivered such other
instruments of conveyance and take such other actions as Buyer reasonably may
request to more effectively put Buyer in possession of the Properties. If any
of the Properties are incorrectly described, the description shall be corrected
upon proof of the proper description.


     17.5      Survival of Representations and Warranties. Unless otherwise
expressly limited herein, all representations, warranties, indemnities,
covenants and agreements contained in this Agreement, to the extent not fully
performed or waived prior to Closing, shall survive the Closing indefinitely.
The parties have made no representations or warranties except those expressly
set forth in this Agreement.


     17.6      Amendments and Severability. No amendments or other changes to this
Agreement shall be effective or binding on either of the parties unless the
same shall be in writing and signed by both Seller and Buyer. The invalidity
of any one or more provisions of this Agreement shall not affect the validity
of this Agreement as a whole, and in case of any such invalidity, this
Agreement shall be construed as if the invalid provision had not been included
herein.


     17.7      Successors and Assigns. This Agreement shall not be assigned, either
in whole or in part, without the prior express written consent of the
non-assigning party. Assignment of this Agreement by either party shall not
relieve the assigning party of liability hereunder in the event of
non-performance or breach of this Agreement by such party’s assignee. The
terms, covenants and conditions contained in this Agreement shall be binding
upon and shall inure to the benefit of Seller and Buyer and their respective
successors and assigns, and such terms, covenants and conditions shall be
covenants running with the land and with each subsequent transfer or assignment
of the Properties.


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     17.8      Headings. The titles and headings set forth in this Agreement have
been included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement.


     17.9      Governing Law. This Agreement shall be governed by and construed
under the Laws of the State of Texas, excluding any choice of law rules which
may direct the application of the Laws of another jurisdiction. This provision
survives termination of this Agreement.


     17.10      No Partnership Created. It is not the purpose or intention of this
Agreement to create (and it shall not be construed as creating) a joint
venture, partnership or any type of association, and the parties are not
authorized to act as agent or principal for each other with respect to any
matter related hereto.


     17.11      Public Announcements. Neither the Seller Group nor the Buyer Group
(as defined in Article 8) shall issue a public statement or press release with
respect to the transaction contemplated herein (including the price and other
terms) without the prior written consent of the other party, except as required
by Law or listing agreement with a national security exchange and then only
after prior consultation with the other party.


     17.12      No Third Party Beneficiaries. Nothing contained in this Agreement
shall entitle anyone other than Seller or Buyer or their authorized successors
and assigns to any claim, cause of action, remedy or right of any kind
whatsoever.


     17.13      Deceptive Trade Practices. As partial consideration for the parties
agreeing to enter into this Agreement, the parties each can and do expressly
waive the provisions of all consumer protection Laws of the State of Texas, or
any other state, applicable to this transaction that may be waived by the
parties; it is not the intent of the parties to waive and the parties shall not
waive any applicable Law or provision thereof which is prohibited by Law from
being waived. Each party represents to the other that such party has had an
adequate opportunity to review the preceding waiver provision, including the
opportunity to submit the same to legal counsel for review and comment, and
understands the rights being waived herein.


     17.14      Tax Deferred Exchange Election. Either party may elect to structure
the conveyance of the Properties as part of an exchange under Article 1031 of
the Internal Revenue Code of 1986, as amended. The parties agree to execute
all documents, conveyances or other instruments necessary to effectuate an
exchange. The party requesting that the transaction be structured as a tax
free exchange shall be responsible for all additional costs associated with so
structuring the transaction.


     17.15      Not to be Construed Against Drafter. The parties acknowledge that
they have had an adequate opportunity to review each and every provision
contained in this


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Agreement and to submit the same to legal counsel for review
and comment, including expressly but without limitation the waivers and
indemnities in Articles 4, 6, 8, 9, and 17. Based on said review and
consultation, the parties agree with each and every term contained in this
Agreement. Based on the foregoing, the parties agree that the rule of
construction that a contract be construed against the drafter, if any, shall
not be applied in the interpretation and construction of this Agreement.


     17.16      Entire Agreement. This Agreement supersedes all prior negotiations,
understandings, letters of intent and agreements (whether oral or written) and
any contemporaneous oral agreements between the parties relating to the
Properties and constitutes the entire understanding and agreement between the
parties with respect to the sale and purchase of the Properties.


     17.17      Conspicuousness of Provisions. The parties acknowledge that the
provisions contained in this Agreement that are set out in “bold” satisfy the
requirement of the express negligence rule and any other requirement at law or
in equity that provisions contained in a contract be conspicuously marked or
highlighted.


     17.18      Execution in Counterparts. This Agreement may be executed in
counterparts, which shall when taken together constitute one valid and binding
agreement. Execution of this Agreement via facsimile shall be effective, and
signatures received via facsimile shall be binding upon the parties hereto and
shall be effective as originals.


     The parties have executed this Agreement on the day and year first set
forth above.



	 	SOUTHWESTERN ENERGY PRODUCTION
COMPANY





	 	By:   /s/ Richard F. Lane



	 	 	Richard F. Lane

Executive Vice President




	 	DUTCH PETROLEUM, LLC




	 	By:   /s/ Mack R.
Ames



	 	Name:   Mack R. Ames



	 	Title:     Vice President







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