**Exhibit 10.11**

 

**FIRST AMENDMENTTOASSET PURCHASE AND SALE AGREEMENT**

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This First Amendment to AssetPurchase and Sale Agreement (this “Amendment”), dated March 19, 2003, is by andbetween Carbon Energy Corporation (USA), formerly known as Bonneville Fuels Corporation,a Colorado corporation (“Seller”), and Fasken Acquisitions 02, Ltd., a Texaslimited partnership (“Buyer”).

 

Recitals:

 

A.                                   Buyer andSeller are parties to that certain Asset Purchase and Sale Agreement (the“Agreement”), dated January 15, 2003. Terms defined in the Agreement shall have the same meaning herein unlessotherwise provided.

 

B.                                     Buyer andSeller wish to amend the Agreement in accordance with the provisions of thisAmendment.

 

Agreement:

 

NOW, THEREFORE, inconsideration of the premises and mutual promises herein made, and inconsideration of the representations, warranties and covenants hereincontained, the parties agree as follows:

 

1.                                       Closing Date.  Under Section 9.1 of the Agreement, theClosing Date has been extended to March 24, 2003, and the PreliminarySettlement Statement to be delivered by Seller under Section 9.1(b) will befurnished by the end of the day on Wednesday, March 20, 2003 (two business daysprior to the Closing Date).

 

2.                                       Assignment.  The Assignment to be delivered under Section9.1(a) of the Agreement shall be in the form attached hereto as Exhibit 1.  The Assignment and Exhibit A-2 thereto donot set forth specific Net Revenue Interests or Working Interests for all ofthe Assets transferred by Seller to Buyer. The parties hereto acknowledge and agree that Seller’s special warrantyunder the Assignment shall apply to the Net Revenue Interests and the WorkingInterests set forth in Exhibit A-2 to the Agreement (as amended hereby) as ifall of such Working Interests and Net Revenue Interests were set forth inExhibit A-2 to the Assignment, subject to the terms and conditions of theAgreement as amended by this Amendment.

 

3.                                       Revisions ofExhibits/Deletion of North Bagley Prospect.  Certain errors have been discovered on the Exhibits and Schedulesto the Agreement.  In addition, theparties have agreed to delete the TP A State #2 Well, North Bagley Prospect,Eddy County, New Mexico, from the sale provided for under the Agreement. Theparties hereby acknowledged and agree that the Exhibits and Schedules to theAgreement are replaced by those attached hereto as Exhibit 2.

 

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4.                                       Title Defects.  Buyer has furnished Seller Title DefectNotices by letters dated February 28 and March 3, 2003, with Schedules 1 and 2attached thereto (“Buyer’s Notices”). The parties hereby acknowledge and agree that each of the matterscovered by Buyer’s Notices has been cured or is waived by Buyer except for thefollowing matters:

 

a.               Lake Shore#10-5 Well.  Seller andFasken Land and Minerals Ltd. and Fasken Oil and Ranch, Ltd. (collectively, the“Fasken Entities”) are parties to that certain Participation Agreement datedFebruary 8, 2001, as amended April 10, 2001, and as further amended September20, 2001 (the “Fasken Participation Agreement).  As of the date hereof, the Lakeshore Federal S.C.#10-5 Well,being 3rd Test Well to be drilled under the Fasken ParticipationAgreement (the “Lake Shore #10-5 Well”) has not been drilled.  If the Lake Shore #10-5 Well is commenced onor before the first anniversary of the Closing Date and such well is drilledand completed with due diligence and dispatch, to the objective formation anddepth in accordance with the terms and provisions of the Fasken ParticipationAgreement, then the Buyer shall be entitled to a Purchase Price Adjustment inthe amount of $39,866 (the “Closing Adjustment”) being the amount by which theTitle Defect Amount claimed exceeds the $100,000 Title Defect Deductible.  For purposes of this section 4.a., (1) theLake Shore # 10-5 Well shall be deemed to have been “commenced” only if a drillrig is on location capable of drilling such Well to the objective formation anddepth and actual drilling has commenced by spudding such Well; and (2)“completed” means that the Lake Shore #10-5 Well is completed either as a dryhole or as a producer of oil and/or gas by setting production casing.  Seller agrees to escrow the ClosingAdjustment with Welborn Sullivan Meck & Tooley, P.C. under the Escrow Agreementattached hereto as Exhibit 3, such Escrow Agreement to be entered into atClosing.  Subject to clause c., below,Buyer and Seller agree that the Escrow Agent shall cause the Closing Adjustmentto be paid in accordance with the following provisions and each agrees toprovide appropriate instructions to Escrow Agent accordingly under the terms ofthe Escrow Agreement:

 

i.                  If the LakeShore #10-5 Well is commenced on or before the first anniversary of the ClosingDate and such well is drilled and completed with due diligence and dispatch, tothe objective formation and depth in accordance with the terms and provisionsof the Fasken Participation Agreement, then the Closing Adjustment shall bepaid to Buyer;

 

ii.               If the Lake Shore #10-5 Well is not commencedas provided in clause i, above, on or before the first anniversary of theClosing Date and drilled and completed with due diligence and dispatch to theobjective formation and depth in accordance with the terms and provisions ofthe Fasken Participation Agreement, then the Closing Adjustment shall be paidto Seller; and

 

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iii.            If Buyer is rendered unable, wholly or in part, byforce majeure to commence the drilling of the Lakeshore #10-5 Well or to drillwith due diligence and dispatch to the objective formation and depth inaccordance with the terms and provisions of the Fasken Participation Agreement,then the obligations to commence and drill such well, so far as they areaffected by the force majeure, shall be suspended during, but no longer than,the continuance of the force majeure. The term “force majeure” as here employed shall mean an act of God,strike, lockout, or other industrial disturbance, act of the public enemy, war,blockade, public right, lightning, fire, storm, flood or other act of nature,explosion, governmental action, governmental delay, restraint or inaction,unavailability of equipment, and any other cause, whether of the kindspecifically enumerated above or otherwise, which is not reasonably within thecontrol of Buyer.  Buyer shall use allreasonable diligence to remove the force majeure situation as quickly aspracticable.

 

b.              UnrecordedOverriding Royalty Burdens.  Selleracquired a portion of the Assets from The Louisiana Land & ExplorationCompany et. al. (collectively, “Inexco”), pursuant to an Assignment, Bill ofSale and Conveyance dated July 28, 1989 (the “Inexco Assignment”).  Under the terms of the Inexco Assignment,Seller assumed Inexco’s obligation to pay certain unrecorded overriding royaltyburdens (the “Inexco Burdens”).  UPONCLOSING, SELLER SHALL TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND,INDEMNIFY AND HOLD HARMLESS BUYER, ITS AFFILIATES AND THEIR RESPECTIVEDIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND OTHER REPRESENTATIVES FROM AND AGAINSTALL LOSSES ARISING FROM OR RELATING TO THE INEXCO BURDENS.  This indemnity is subject to the terms andconditions of Article 13 of the Agreement, as amended by this Amendment, and tothe following additional terms and conditions:

 

i.                  For purposes ofthis indemnity, the term “Losses” shall include, but not be limited to, Lossesrelating to the incorrect payment of the Inexco Burdens and Losses relating toa reduction in the Net Revenue Interest specified in Exhibit A-2 of theAgreement, provided however, if the Inexco Burdens have been accounted for inthe Net Revenue Interest reflected on Exhibit A-2 to the Agreement, then thisindemnity shall not apply unless such Burdens have been improperly paid.

 

ii.               In the event the Loss is attributable to alesser Net Revenue Interest being delivered to Buyer than the Net RevenueInterest specified in Exhibit A-2 to the Agreement, the amount of such Lossshall be calculated by multiplying the portion of the Purchase Price allocatedto the property which has a deficient Net Revenue Interest by a fraction, thenumerator of which is the reduction in the Net Revenue Interest

 

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andthe denominator of which is the Net Revenue Interest specified for the propertywhich has a deficiency in the interest (the “Deficient Interest Loss”).  Subject to clauses iii and iv, below, anyamounts due Buyer from Seller as the result of a Deficient Interest Loss shallbe paid to Buyer by Seller within thirty (30) days after receipt of notice ofsuch Loss and Buyer shall have no further liability or obligation with respectto such Loss.

 

iii.            Notwithstanding the foregoing, Seller may contestand defend with reasonable diligence and dispatch against any Loss assertedwith respect to the Inexco Burdens in accordance with the terms and conditionsof Article 13 of the Agreement.  So longas Seller continues in a diligent manner to contest and defend against any suchLoss, payment of the Deficient Interest Loss shall not be due, and the amountof the Deficient Interest Loss shall be adjusted to the extent Seller issuccessful in its contest and defense.

 

iv.           Seller shall not be obligated to indemnify Buyer forany Loss relating to the Inexco Burdens unless Buyer has delivered a writtennotice to Seller of such Loss prior to the third anniversary of the ClosingDate.  Any Loss relating to the InexcoBurdens for which Seller does not receive written notice before the end of suchthree  (3) year period shall be deemedto be an Assumed Liability.

 

v.              The partiesacknowledge and agree that Buyer’s indemnity rights hereunder are in lieu ofand not in addition to any other rights Buyer may have with respect to Lossesattributable to the Inexco Burdens, including the special warranty under theAssignment, Conveyance and Bill of Sale to be delivered at Closing, whichspecial warranty shall not apply to the Inexco Burdens assumed by Seller underthe Inexco Assignment.

 

vi.           This indemnity is subject to the provisions ofclause c., below.

 

c.                  The ClosingAdjustment in clause a., above, is adjusted for the full amount of the TitleDefect Deductible under the Agreement. The parties agree that Seller is entitled to realize the full benefit ofthe $100,000 Title Defect Deductible regardless of whether such benefit inuresunder clause a., clause b., or a combination thereof, and the following shallapply:

 

i.                  If Sellerindemnifies Buyer against Losses with respect to the matters covered underclause b., prior to disbursement of the Closing Adjustment under the Escrow Agreementattached hereto as Exhibit 3, Seller’s indemnity obligation shall only apply tothe extent such Losses exceed $100,000, provided that Seller shall pay theamount

 

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saved(up to $100,000) to Buyer at such time as Buyer is entitled to receive theClosing Adjustment under the Escrow Agreement.

 

ii.               If Seller is entitled to receive the ClosingAdjustment under the Escrow Agreement prior to such time as Seller indemnifiesBuyer against Losses under clause b., then Seller’s indemnity obligation underclause b. shall only apply to the extent such Losses exceed $100,000.

 

IN WITNESSWHEREOF, this Agreement has been signed by or on behalf of each of the partiesas of the day first above written.

 
|   | SELLER:                                                              |
|--------|----------------------------------------------------------------------|
|   |                                                                 |
|   | CARBON ENERGY  CORPORATION (USA)  f/k/a Bonneville Fuels Corporation |
|   |                                                                 |
|   |                                                                 |
|   | By:                                                                  |   |
|   |                                                                 | Name and  Title: |
|   |                                                                 |
|   |                                                                 |
|   | BUYER:                                                               |
|   |                                                                 |
|   | FASKEN ACQUISITIONS 02, LTD.,                                        |
|   | a  Texas limited partnership                                         |
|   | By:   Fasken Management, LLC, its General Partner               |
|   |                                                                 |
|   |                                                                 |
|   | By:                                                                  |   |
|   |                                                                 | Benjamin L.  Blake, Vice President |

 

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