Document:

EX10-1

EMPLOYMENT AGREEMENT

 

            This Executive Employment Agreement ("Agreement") is entered into by and between CellCyte Genetics Corporation, a Washington corporation ("Company"), and Nathan McDonald ("Executive").

            1.        Duration of Employment. Executive's employment shall begin on January 1, 2008, and shall continue until ended by Executive or Company in accordance with the provisions of Paragraph 6.

            2.        Duties and Scope of Employment.

                        (a)       Positions and Duties:  Executive will be employed as VP/Director of Finance with responsibility for management of accounting systems, preparation of quarterly and annual financial statements and SEC filings, budgeting, investor and analyst relations, structuring of financings, structuring of partnerships and joint ventures.   It is understood that from time to time Employee may be assigned other duties in addition to those described above and that Employee's responsibilities may be modified at any time by Company to accommodate its needs.  It is further agreed and understood that Executive is an exempt employee and sometimes will be required to work more than forty (40) hours per week for which Employee is not entitled to receive additional compensation.

                         (b)       Obligations:  During the Employment Term, Executive will perform his/her duties faithfully and to the best of his/her ability.  Executive agrees not to directly or indirectly engage or participate in any activities while employed with the Company that would conflict with its best interests.  Employee warrants and affirms that s/he is not a party to any agreement or contract, such as a confidentiality or noncompetition agreement, that limits his/her ability to perform his/her duties for the Company.

            3.        Compensation.

                         (a)       Base Salary:  The Company will pay Executive as compensation for his services a base salary at the annualized rate of $165,000 (the "Base Salary").  The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and will be subject to lawful withholding.

Company agrees to pay Executive all salary that is due and owing to Executive as of the date of termination, less legal deductions or offsets Executive may owe to Company for such items as salary advances or loans.  Executive agrees that his/her signature on this Agreement constitutes authorization for all such deductions.

                         (b)       Bonus and Incentive Programs:  During the Employment Term, Executive will be entitled to participate in the Company-sponsored Bonus and Incentive Programs currently and or hereafter maintained by the Company of general applicability to other senior executives of the Company. The Company reserves the right to cancel or change any such Bonus or Incentive and programs it offers to its senior executives at any time.

                         (c)       Employee Benefits:  During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other employees of the Company.  The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.

            4.        Vacation.  Executive will be entitled to paid vacation of three weeks per year in accordance with the Company's vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by the parties.

            5.        Expenses.   The Company will reimburse Executive for reasonable and necessary travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties, in accordance with the Company's expense reimbursement policy as in effect from time to time.  Employee shall maintain such records as will be necessary to enable the Company to properly deduct such items as business expenses when computing its federal income tax.

            6.        Termination.   Executive's employment shall be terminated upon the occurrence of any one of the following events.

                         (a)       If Executive shall have been incapacitated from illness, accident or other disability and unable to perform his/her normal duties hereunder for a cumulative period of four (4) months in any period of twelve (12) consecutive months, upon Company or Executive giving the other party not less than thirty (30) days' written notice.  Company may, in its sole discretion, grant Executive a leave of absence, or make other reasonable accommodation for Executive's disability.  The terms of such a leave shall be confirmed by Company in writing, and shall determine Executive's right, if any, to continued compensation, his/her obligation to continue his/her job duties, the terms under which s/he may return to work, and all other conditions of the leave.

                         (b)        By either party, without cause, by providing fourteen (14) days' written notice.  The Company, at its option, may provide pay in lieu of notice.

                         (c)        By Company immediately for "Cause."  For purposes of this Agreement, "Cause" for termination shall include:  material breach of this Agreement; an act of dishonesty by Executive in connection with Executive's responsibilities as an employee; Executive's conviction of, or plea of nolo contendere to, a felony; continued inadequate performance of Executive's duties after Executive has received a written demand for performance from the Company that specifically sets forth the factual basis for the Company's belief that Executive has not adequately performed his/her duties; personal or professional conduct of Executive, which, in the reasonable and good faith judgment of the Company, injures or tends to injure the reputation of Company or otherwise adversely affects the interests of Company; intentional disloyalty; any other conduct constituting cause for termination under Washington judicial common law.

                         (d)        Cessation of Company's business.

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            7.        Severance. 

                         (a)       Involuntary Termination:  If Executive's employment with the Company terminates involuntarily, i.e., other than voluntarily or for "Cause", and Executive signs and does not revoke a general release of all claims against the Company, then (i) Executive shall receive his/her then current annual salary (less lawful withholding) for a period of eighteen (18) months from the date of such termination, to be paid either in lump sum or periodically in accordance with the Company's normal payroll policies, (ii) all of the Executive's unvested stock options shall become fully vested at the time of the Executive's termination (options shall have an execution period of ten years from the date of the Executive's termination), and (iii) all of Executive's unvested stock grants shall become fully vested at the time of Executive's termination.

For purposes of this Agreement, "Involuntary Termination" means:  (i) without Executive's express written consent, a material reduction by the Company of Executive's base salary as in effect immediately prior to such reduction, other than in connection with a general decrease in base salaries for most executives of the Company; (ii) without Executive's express written consent, a material reduction by the Company in the kind or level of employee benefits to which Executive is entitled immediately prior to such reduction, with the result that Executive's overall benefits package is significantly reduced (other than any such reduction applicable to employees of the Company generally); and (iii) without Executive's express written consent, the relocation of the Executive to a facility or a location more than sixty (60) miles from their current location.

                         (b)        Voluntary Termination; Termination for Cause:  If Executive's employment with the Company terminates voluntarily by Executive or for "Cause" by the Company, then (i) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), (ii) all vesting of Executive's unvested stock options and stock grants will terminate immediately, (iii) Executive will only be eligible for severance benefits in accordance with the Company's established policies then in effect.

                         (c)        Change of Control Benefits:  If, within twelve (12) months following a "Change of Control," (i) Executive terminates his employment with the Company or successor corporation voluntarily, or (ii) the Company or the successor corporation terminates Executive's employment with the Company or successor corporation for other than Cause, then the Executive shall receive severance as stated in Section 7(a) of this Agreement

For purposes of this Agreement, "Change of Control" of the Company is defined as: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company; or (iii) the consummation of the sale or disposition by the Company of all or substantially all the Company's assets.

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            8.        Confidential Information:  Executive agrees to enter into the Company's standard Confidential Information Agreement upon commencing employment hereunder.  For purposes of this Agreement, "Confidential Information" shall have the same meaning as it does in the Confidential Information Agreement.

            9.        Inventions and Intellectual Property:  Executive agrees to enter into the Company's standard Invention Assignment Agreement upon commencing employment hereunder. 

            10.       Noncompetition and Nonsolicitation:  Executive acknowledges that the Company is engaged in a highly competitive business, the success and value of which would be diminished by disclosure, interference, or competition by employees or former employees with knowledge of the Company's Confidential Information.  Executive further acknowledges that it would be very difficult for Executive not to rely on or use the Company's Confidential Information if s/he were employed by a competitor of the Company.  Executive also acknowledges that because Company's business is based on scientific data, Company could be damaged by competition by entities located anywhere in the world.  Therefore, in consideration of Executive's employment with Company, access to its Confidential Information, and the compensation and benefits provided under this Agreement, Executive agrees to the following conditions, which Executive agrees are narrowly tailored to protect Company's legitimate interests.

                         (a)       Noncompetition:  During Executive's employment with Company and for a period of eighteen (18 months) after the end of the employment, Executive will not, directly or indirectly, as an employee, employer, consultant, partner, shareholder, owner, officer, director, or in any other capacity, engage in any employment or other business activities in Company's Field of Business.  Because Company does business on a global basis and a competitor could use its Confidential Information to compete from any location in the world, Executive agrees that this restriction shall apply without regard to the geographic location of the business entity or activity.  This clause shall not prohibit Executive from owning less than five percent (5%) of the total outstanding shares of a corporation doing business in Company's Field of Business.

For purposes of this Agreement, "Company's Field of Business" means any of the fields of Company's business.  On the date of the Agreement, Company's Field of Business is defined to mean Stem Cell delivery and regenerative therapies as well as any additional business activities Company may develop during Executive's employment, or be in the process of developing as of the date of Executive's termination of employment.  Executive acknowledges that Company may expand its operations during the time of his/her employment, and that any additional fields of business in which it operates shall be included in this definition, provided that Executive knows, or reasonably should know, of such expansion prior to termination of employment.

                         (b)       Nonsolicitation:  During the Executive's employment and for a period of eighteen months (18) months after the end of employment, Executive will not directly or indirectly solicit or influence any employee, consultant, representative, customer, contractor, vendor, or supplier of Company to terminate or reduce any relationship with the Company, or to divert any business from Company.  Further, Executive will not directly or indirectly disclose the names, addresses, telephone numbers, compensation, or other arrangements between Company and any person or entity described above to any competitor of Company. 

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                         (c)       Notice to Future Business Contacts:  Executive understands that Company has a legitimate interest in ensuring that s/he is not asked or expected, whether intentionally or not, to disclose any of its Confidential Information or violate the noncompetition and nonsolicitation provisions of this Agreement in the course of any employment or other business activities Executive engages in following his/her departure from Company.  Executive therefore agrees that for a period of eighteen (18) months following termination of his/her employment with Company, s/he will inform any prospective employer, partner, consulting contactor or other business associate of this Agreement and provide them with a copy of the Agreement prior to accepting any offer of employment, partnership, or consulting or other business arrangement.

                         (d)       Remedies:  Upon any breach of this section, all remaining severance payments pursuant to this Agreement shall immediately cease.  Moreover, Executive acknowledges that any violation of the provisions of Paragraph 10 set forth above will cause irreparable injury to Company, and Company shall be entitled to extraordinary relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions, and permanent injunctions, without the necessity of posting bond or security.  If any bond or security is required to obtain injunctive relief, the parties agree that the reasonable value of such bond or security shall be one hundred dollars ($100.00).  Executive also agrees that any equitable relief shall be in addition to, and not in substitution for, any other relief to which Company may be entitled, including but not limited to, damages, attorney fees and costs.

                         (e)       Material Breach:  A breach of any provision of Paragraph 10 shall be considered a material breach of this Agreement.

                         (f)       Tolling of Restrictive Period:  Executive agrees that the time periods in Paragraph 10 during which s/he is restricted from competitive activities and solicitation and is required to give notice to future business contacts will be tolled during any period Executive is in breach of the noncompetition and nonsolicitation provisions, and during the pendency of any litigation over enforcement of those provisions of this Agreement.

            11.       Assignment:  This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes.  For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of Executive's right to compensation or other benefits will be null and void.

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            12.       Notices:  All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (a) on the date of delivery if delivered personally, (b) one (1) day after being sent by a well-established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

Gary Reys

Chief Executive Officer, President & Chairman

CellCyte Genetics, Inc.

1725 220th Street SE

Bothell, WA  98021

            13.       Severability:  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

            14.       Arbitration:

                         (a)       General:  In consideration of Executive's service to the Company, its promise to arbitrate all employment-related disputes and Executive's receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's service to the Company under this Agreement or otherwise, or the termination of Executive's service with the Company, including any breach of this Agreement, shall be subject to final and binding arbitration to be held in Kirkland, Washington.  Disputes which Executive agrees to arbitrate and thereby agrees to waive any right to a trial by jury include, without limitation, any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, and RCW Section 49.60.010 et seq., and claims of harassment, discrimination or wrongful termination. The Company also agrees that this agreement to arbitrate also applies to any disputes that the Company may have with Executive. 

                         (b)       Procedure:  The parties agree that any arbitration will be administered by the American Arbitration Association ("AAA") and that a neutral arbitrator will be selected in a manner consistent with its National Rules for the Resolution of Employment Disputes ("Rules").  The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules.  The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss, prior to any arbitration hearing.  The arbitrator shall issue a written decision on the merits and shall have the power to award any remedies, including attorneys' fees and costs, available under applicable law. Executive understands the Company will pay for any administrative or hearing fees charged by the arbitrator or AAA, except that Executive shall pay the first two hundred dollars ($200.00) of any filing fees associated with any arbitration Executive initiates. 

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                         (c)       Remedy:  Arbitration shall be the sole, exclusive and final remedy for any dispute between Executive and the Company.  Accordingly, except as otherwise provided in the Agreement, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

                         (d)       Availability of Injunctive Relief:  The parties agree that they may petition the court for injunctive relief where either party alleges or claims a violation of this Agreement or the Confidentiality Agreement or any other agreement regarding trade secrets, confidential information, non-competition or non-solicitation or RCW Section 49.44.140.  Venue for any such action shall be properly laid in King County, Washington or in the U.S. District Court for the Western District of Washington.  Employee agrees that, regardless of his/her residence at the time suit is filed, s/he shall submit to jurisdiction in the above-named venues.  In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs and attorneys' fees. 

                         (e)       Administrative Relief:  Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body, such as the Washington State Human Rights Commission or the Equal Employment Opportunity Commission, although the Agreement does preclude Executive from pursuing court action regarding any such claim.  If Executive does file an administrative claim, or if a governmental agency prosecutes a claim on behalf of Employee, Employee specifically agrees that s/he will not be entitled to monetary relief of any kind in connection with resolution of the claim, whether by means of settlement or otherwise, including without limitation back pay, front pay, other damages, fees, or costs.

            15.       Voluntary Nature of Agreement:  Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else.  Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that EXECUTIVE IS WAIVING EXECUTIVE'S RIGHT TO A JURY TRIAL.  Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive's choice before signing this Agreement.

            16.       Integration: This Agreement, together with the Option Plan, Option Agreement, Invention Assignment Agreement and Confidential Information Agreement, represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.  No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto.

            17.       Tax Withholding:  All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

            18.       Governing Law:  This Agreement will be governed by the laws of the State of Washington (with the exception of its conflict of laws provisions).

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            19.       Acknowledgment:  Executive acknowledges that s/he has had the opportunity to discuss this matter with and obtain advice from his/her private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

	
CELLCYTE GENETICS, INC.

By:      /s/ Gary A. Reys                           

       Gary A. Reys,

       Chief Executive Officer, President & Chairman

	

Date:   January 1, 2008

	
EXECUTIVE:

/s/ Nathan McDonald                             

Nathan McDonald
	

Date:   January 1, 2008

 

 

 

 

 

 

8ex10-1.htm

    EXHIBIT
10.1

    

    

    

     

     

    PURCHASE
AND SALE AGREEMENT

    

    
       This Purchase And Sale Agreement
(this “Agreement”), dated March 24, 2008,
is between West Texas Gas, Inc., a Texas, corporation (“Purchaser”), and Reef
Ventures, L.P., a Texas limited partnership (“Seller”). (Seller and Purchaser are sometimes
referred to herein individually as a “Party” and
collectively as the “Parties”.) 

    RECITALS

    

               A.           Seller
owns all of the issued and outstanding membership interests in Reef
International, LLC (“Reef International”) and Reef Marketing, LLC (“Reef
Marketing,” and together with Reef International, the “Purchase Entities”) (the
“Membership Interests”);

    

    B.           Seller
desires to sell to Purchaser and Purchaser desires to purchase from Seller the
Membership Interests.

    

    AGREEMENT

    

               In
consideration of the premises, respective representations, warranties,
covenants, agreements and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the Parties, intending to be legally bound, contract and agree as
follows:

    

    1.           ACQUISITION
OF THE MEMBERSHIP INTERESTS

    

               1.01           Purchase of Membership Interests.  Subject
to the terms and conditions set forth herein, on the Closing Date (as defined in
Section 2.01), Seller shall sell and Purchaser shall purchase, as of the Closing
Date, all of the Membership Interests.  Upon the payment at Closing
(as defined in Section 2.01) of the Purchase Price (as hereinafter defined) for
the Membership Interests, Seller will no longer have any interest in the
Purchase Entities.

    

    1.02          Assets.  The term
“Assets” as used in this Agreement means all real property interests, personal
property, intangibles, accounts receivable, contract rights and all other
property interests owned by the Seller and/or the Purchase Entities, including,
but not limited to, those assets and property interests generally described on
Exhibit 1.02 (collectively, the “Assets”).

    

                1.03           Purchase Price. The purchase
price for the Membership Interests and the Assets is (i) $2,500,000 to be paid
in cash as set forth herein (the “Purchase Price”); and (ii) the execution of a
Throughput Payment Agreement between Purchaser and Impact International, L.L.C.
in the form of Exhibit 1.03 (the “Throughput Payment
Agreement”).
 

    
      	
               
      

            	
              (A)

            	
              Adjustments.  

               

            

    

    
      	
               
      

            	
              The
      Purchase Price shall be adjusted (without duplication of any amounts) by
      the net result of the following
adjustments:

            

    

    

    
      	
               
      

            	
              (i)

            	
              upward
      for the cash retained by the Purchase Entities on the Closing
      Date;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              upward
      for all amounts received by the Purchase Entities from the Closing Date
      through the earlier of the conclusion of adjustments under Subsection
      1.03(C) or 180 days after Closing for accounts receivable and other items
      attributable to the ownership and operation of the Assets before the
      Closing Date;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              upward
      by an amount equal to the prepaid expenses pertaining to the Membership
      Interests and the Assets, or any of them, that were actually paid by
      Seller, before the Closing Date to the extent such expenses are, in
      accordance with GAAP, attributable to the period after the Closing Date,
      including, without limitation, (i) prepaid rent, insurance, utilities,
      lease, license or right of way payments, (ii) prepaid renewal fees, (iii)
      prepaid ad valorem and property taxes, and (iv) prepaid emission
      fees;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              downward
      by an amount equal to the expenses paid in arrears pertaining to the
      Membership Interests and the Assets, or any of them, that were actually
      paid by Purchaser after the Closing Date to the extent such expenses are,
      in accordance with GAAP, attributable to the period before the Closing
      Date, including, without limitation, (i) rent, insurance, utilities,
      lease, license or right of way payments paid in arrears, (ii) renewal fees
      paid in arrears, (iii) ad valorem and property taxes paid in arrears, and
      (iv) emission fees paid in arrears; provided that
      no adjustment shall be made pursuant to this Section 1.03(a)(iv) for any
      payments of expenses in arrears pertaining to any of the Assets described
      following numbers 2 (Carrizo Springs Pipeline System), 3 (Peña Creek
      Gathering System), or 4 (Chittim Gas Plant) of Exhibit
      3.01(I);

            

    

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (v)

            	
              downward
      by an amount equal to all unpaid ad valorem and property taxes, based upon
      or measured by the ownership of the Assets to the extent such taxes and
      assessments are, in accordance with GAAP, attributable to the period
      before the Closing Date; provided, if the amount of any such taxes has not
      been actually assessed on or before Closing, the amount of such taxes will
      be computed based upon such taxes and assessments for the preceding
      calendar year (or the current calendar year if such information is
      available) or, if such taxes or assessments are assessed on other than a
      calendar year basis, for the tax-related year last
  ended;

            

    

     

    
      	
               
      

            	
              (vi)

            	
              downward
      by $3,440, which is the amount that Purchaser advanced to Tidelands (as
      defined in Section 2.02(A)) on behalf of Seller prior to the Closing Date
      for the purchase by Seller of a parcel of land from Quirk Land &
      Cattle Company;

            

    

    

    
      	
               
      

            	
              (vii)

            	
              any
      other amount agreed upon by Seller and
  Purchaser.

            

    

    

    
      	
               
      

            	
              (B)

            	
              Closing Settlement
      Statement. Seller
      has prepared and delivered to Purchaser a closing settlement statement
      reflecting the Seller’s good faith estimates of the upward and downward
      adjustments to the Purchase Price determined in accordance with this
      section, itemizing adjustments and the calculation of such adjustments
      using the best information available (the “Closing Settlement Statement”).
      The Closing Settlement Statement reflects the precise amount of cash
      payment estimated by Seller to be made by Purchaser under Section 1.03 at
      the Closing.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Adjustment Post
      Closing. On
      or before 180 days after Closing, Purchaser and Seller shall review any
      additional information which may then be available pertaining to the
      adjustments provided for in Section 1.03(A), shall determine if any
      additional adjustments should be made beyond those made at Closing
      (whether the same be made to account for expenses or revenues not
      considered in making the adjustments made at Closing, or to correct errors
      made in the adjustments made at Closing), and shall make any such
      adjustments by appropriate payments from Seller to Purchaser or from
      Purchaser to Seller. If Purchaser and Seller are unable to agree as to
      whether or not any such additional adjustments should be made or the
      amount of those adjustments by 180 days after Closing, that disagreement
      will be resolved by submission, as soon as practicable, to a mutually
      acceptable firm of independent public accountants.  The decision
      of that firm as to the question or questions in dispute will be final and
      binding on Seller and Purchaser.  During the period between
      Closing and the point in time when the post closing adjustment has been
      agreed to or resolved by the independent public accountant, Purchaser or
      Seller shall, on a monthly basis, pay over to Seller or Purchaser (as the
      case may be) any revenue received by it with respect to the Assets which
      was, under Section 1.03(A), to be received by Seller or
      Purchaser.

            

    

    
    

    

    
      	
               
      

            	
              (D)

            	
              No Further
      Adjustments. Following
      the adjustments under Section 1.03(C), no further adjustments will be made
      under Section 1.03.  Subject to the provisions of Section 6.01,
      should any expenses with regard to the Assets be charged to Seller or
      Purchaser after the earlier of:  (i) the conclusion of such
      adjustments under Section 1.03(C); or (ii) 180 days after Closing, the
      same shall be borne by Purchaser, regardless of the periods to which the
      same relate, and any bills received by Seller will be forwarded to
      Purchaser.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              Ad Valorem Tax and Emission
      Fees Calculation. The
      liability of each of the Purchase Entities for ad valorem taxes and
      emission fees will be taken into account by the Parties in determining the
      Purchase Price under Section 1.03(A), in the Closing Settlement Statement,
      and in any additional adjustments under Section 1.03(C).  After
      the applicable time period stated in Section 1.03(D), no further
      adjustments for ad valorem taxes or emission fees will be made to the
      Purchase Price.

            

    

    
    

    

    2.           CLOSING

    

                2.01           Closing Date.  The
closing of the purchase and sale of the Membership Interests (the “Closing”),
will be held on March 24, 2008 (the “Closing Date”) at the offices of Bullock,
Scott, Neisig, Morgan, Leeton & Strauss, P.C., located at 500 West Texas,
Suite 700, Midland, Texas 79701, or at such other place as Purchaser and Seller
mutually agree.  The purchase and sale will be effective as of 12:01
a.m. on the Closing Date. 

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

               2.02           Closing Transactions.
At the
Closing, the following will occur, each being a condition precedent to the
others and each being deemed to have occurred simultaneously with the
others:

    

    
      	
               
      

            	
              (A)

            	
              Seller’s
      Deliveries. Seller
      shall deliver to Purchaser:(i) assignments from Seller in form
      satisfactory to Purchaser conveying to Purchaser good and transferable
      title to the Membership Interests free and clear of all liens, security
      interests, claims, encumbrances, charges or rights of third parties; (ii)
      the Non-Competition Agreement (as defined in Section 4.04); (iii) the
      resignations of all officers and directors, if any, of each of the
      Purchase Entities; (iv) certified copies of resolutions of Tidelands Oil
      & Gas Corporation ("Tidelands") authorizing Arrecefe Management LLC,
      as General Partner of Seller, to execute and deliver this Agreement, and
      complete the transactions contemplated herein; (v) certified copies of
      resolutions of Tidelands approving the Non-Competition Agreement and the
      transactions contemplated therein; (vi) releases of the liens and the
      guaranty described in Exhibit 3.01(O); and (vii) such other documents as
      are set forth in Section 5.01(D) (collectively, the “Seller’s Ancillary
      Documents”).

            

    

    
    

    

    
      
        	
                 
      

              	
                (B)

              	
                 Purchaser’s  Deliveries. Purchaser
      shall deliver to Seller the:  (i) the Purchase Price by wire
      transfer of immediately available funds to the bank account designated in
      writing by Seller to Purchaser; (ii) the Throughput Payment Agreement; and
      (iii) such other documents as are set forth in Section 5.02(D) (the
      “Purchaser Ancillary Documents,” together with the Seller’s Ancillary
      Documents, referred to herein as the “Ancillary
      Documents”). 

              

      

      
      

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Closing Settlement
      Statement. Seller
      and Purchaser shall execute and deliver a Closing Settlement Statement
      prepared in accordance with Section
  1.03(B).

            

    

    
    

    

    3.           REPRESENTATIONS
AND WARRANTIES

    

               3.01           Seller’s Representations and
Warranties. All
references herein to “the best of Seller’s knowledge” means only those matters
within the actual knowledge of Mr. James Smith, President and CEO of the general
partner of Seller or Mr. Robert Dowies, Vice President of the general partner of
Seller on or before the Closing Date.  Seller represents and warrants
to Purchaser as follows:

    

    
      	
               
      

            	
              (A)

            	
              Seller’s
      Organization. Seller
      is a limited partnership which has been duly organized, is validly
      existing and is in good standing under the laws of the state of
      Texas.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              Seller’s
      Authority. Seller
      has all necessary power and authority to enter into and perform this
      Agreement and to consummate the transactions contemplated
      hereby.  The execution, delivery, and performance by Seller of
      this Agreement and the consummation of the transactions contemplated
      hereby have been duly authorized and approved by all requisite corporate
      action and this Agreement has been duly executed and delivered by
      Seller.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Enforceability. This
      Agreement constitutes the legal and binding obligation of Seller,
      enforceable according to its terms, except as such enforceability may be
      limited by bankruptcy, insolvency, reorganization, moratorium or similar
      laws affecting the rights of creditors generally and by general equitable
      principles (whether or not such enforceability is considered in a
      proceeding at law or in equity). The execution and delivery hereof by
      Seller does not, and the fulfillment and compliance with the terms and
      conditions hereof, and the consummation of the transactions contemplated
      hereby, will not, result in the creation or imposition of any lien, charge
      or other encumbrance on the Assets or the Membership
      Interests.

            

    

    
    

    

    
      	
               
      

            	
              (D)

            	
              Effective Easements and
      Leases. To
      the best of Seller’s knowledge, except as provided in Exhibit 3.01(D), the
      easements, rights-of-way, and surface leases owned by each of the Purchase
      Entities are in full force and effect, and are valid and
      subsisting.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              No Litigation or
      Bankruptcy.  Other
      than Claims (as defined in this Section 3.01(E)) that might be asserted in
      connection with those pending issues or matters listed on Exhibit 3.01(E),
      there are no Claims, actions, suits, demands or proceedings, pending or,
      to the best of Seller’s knowledge, threatened, against Seller or each of
      the Purchase Entities or the Assets in any court or before any arbitrator
      or before any federal, state, county, municipal, or other governmental
      authority or judicial regulatory agency, board, body, department, bureau,
      commission, instrumentality, court, tribunal, or quasi-governmental
      authority having or asserting jurisdiction (in the past, present or
      future) over any portion of the Assets or any Party to this Agreement or
      any of the transactions or matters contemplated by this Agreement or any
      Ancillary Documents (collectively, “Governmental Authority”) or agency
      which in any manner raises any material question affecting each of the
      Purchase Entities or the Assets or the validity or enforceability of the
      this Agreement or any other material agreement or instrument to which
      Seller is a party or by which they are bound that is to be used in
      connection with, or is contemplated by, this Agreement.  There
      are no bankruptcy, reorganization or arrangement proceedings pending,
      being contemplated by or, to the best of Seller’s knowledge, threatened
      against Seller or each of the Purchase Entities.  As used in
      this Agreement, “Claims” means any and all losses, costs, expenses,
      liabilities, claims, demands, causes of action, penalties, fines,
      assessments, settlements, damages, and any related expenses of whatever
      kind or nature, including, without limitation, reasonable attorneys’ fees,
      expert witness fees, accounting, consulting, and investigation expenses
      and litigation costs.

            

    

    
    

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (F)

            	
              No Brokers’
      Fees. All
      negotiations on behalf of Seller relating to this Agreement and any
      transactions contemplated hereby have been carried on by Seller and their
      agents directly with Purchaser without the intervention of any other
      person or entity in such manner as to give rise to any enforceable claims
      against Seller, each of the Purchase Entities or Purchaser for a brokerage
      commission, finder’s fee or like payment in connection with the
      consummation of the transactions contemplated
    herein.

            

    

    
    

    

    
      	
               
      

            	
              (G)

            	
              No Violation of Contractual or
      Legal Restrictions. Other
      than as set forth on Exhibit 3.01(G), the execution, delivery and
      performance of this Agreement and the documents necessary to consummate
      the transactions contemplated herein, to the best of Seller’s knowledge,
      do not conflict with or violate:  (i) any material agreement or
      instrument to which Seller or any of the Purchase Entities is a party or
      by which Seller or any of the Purchase Entities is bound; and (ii) any
      law, rule, regulation, ordinance, judgment, decree or order to which
      Seller or any of the Purchase Entities is
  subject.

            

    

    
    

    

    
      	
               
      

            	
              (H)

            	
              Membership Interests. Seller:
      (i) owns all of the issued and outstanding membership interests in the
      Purchase Entities; and, following the termination of the agreement(s) set
      forth in Exhibit 3.01(G), (ii) will have the right and power to sell,
      transfer and assign same as contemplated by this Agreement. The Membership
      Interests are duly authorized, validly issued and were not issued in
      violation of any preemptive rights. There are no other membership or other
      ownership interest of the Purchase Entities authorized, issued,
      outstanding or reserved for any purpose. Except as set forth in Exhibit
      3.01(G), there are no: (i) existing options, warrants, calls, preemptive
      rights, subscriptions or other rights, agreements, arrangements or
      commitments of any character, relating to the Membership Interests or any
      other membership, partnership or ownership interest of the Purchase
      Entities, obligating Seller or any of the Purchase Entities to issue,
      transfer or sell, or cause to be issued, transferred or sold, any of the
      Membership Interests or any other authorized membership, partnership or
      ownership interests of the Purchase Entities; (ii) outstanding securities
      of Seller or any of the Purchase Entities that are convertible into or
      exchangeable or exercisable for any membership, partnership or ownership
      interests of the Purchase Entities; or (iii) other than this Agreement,
      contracts, agreements or arrangements of any kind relating to the issuance
      or sale of any of the Membership
  Interests.

            

    

    
    

    

    
      	
               
      

            	
              (I)

            	
              Real
      Property. All
      rights, titles and interests, if any, of each of the Purchase Entities in
      real property are described in Exhibit 3.01(I).  Except as
      described in Exhibit 3.01(I), none of the Purchase Entities has any right,
      title or interest in any real property.  Except as set forth in
      Exhibit 3.01(I)(2), each lease held by the Purchase Entities with respect
      to real property is in full force and effect, with all lease payments due
      to date on each such lease having been paid, and there exists no event of
      default under any such
lease.

            

    

    
    

    

    
      	
               
      

            	
              (J)

            	
              Environmental
      Representations. For
      purposes of this Agreement, the term “Environmental Laws” means any
      federal, state or local law, rule, regulation, order, decree, or judicial
      or administrative decision of any Governmental Authority relating to,
      governing or designed to protect human health, natural resources or the
      physical environment, or regulate the generation, production, storage,
      transportation, or disposition of hazardous wastes or substances, toxic
      wastes or substances, or any other pollutant, including, but not limited
      to the Comprehensive Environmental Response Compensation and Liability Act
      of 1980, as amended (“CERCLA”), (42 U.S.C.  §§9601 et seq.), the
      Resource Conservation and Recovery Act of 1976 (“RCRA”) (42
      U.S.C.  §§6901 et seq.), the Clean Water Act (33
      U.S.C.  §§466 et seq.), the Safe Drinking Water Act (14
      U.S.C.  §§1401-1450), the Hazardous Materials Transportation Act
      (49 U.S.C.  §§1801 et seq.), the Toxic Substance Control Act (15
      U.S.C.  §§2601-2629), the Clean Air Act (42
      U.S.C.  §§7401 et seq.) as amended, and the Clean Air Act
      Amendments of 1990.  To the best of Seller’s knowledge, each of
      the Purchase Entities is in full compliance with, and has not been and is
      not in material violation of or liable under, any Environmental
      Laws.  Other than as set forth on Exhibit 3.01(J), there is no
      action, suit, demand or proceeding, pending or, to the best of Seller’s
      knowledge, threatened, against Seller or either of the Purchase Entities
      or the Assets in any court or before any arbitrator or Governmental
      Authority with regard to:  (i) compliance of the Assets
      with any environmental protection, pollution, land use or other laws,
      rules, regulations, order or requirement, including, but not limited to,
      those pertaining to the handling, generating, treating, storing or
      disposing of any hazardous waste or substance; (ii) the environmental
      condition of the Assets; or (iii) the existence of any condition or
      substance that could cause liability under any environmental
      laws.

            

    

    
    

    

    
      	
               
      

            	
              (K)

            	
              Formation and Qualification of
      the Purchase Entities. Each
      of the Purchase Entities is a limited liability company which has been
      duly organized, is validly existing and is in good standing under the laws
      of the state of Texas.  None of the Purchase Entities is: (i)
      qualified to do business in any other state of the United States of
      America or in the United Mexican States; or (ii) engaged in, or has
      engaged in, any activity which would require qualification in any other
      state of the United States of America or in the United Mexican
      States.

            

    

    
    

    

    
      	
               
      

            	
              (L)

            	
              Financial Information; No
      Material Change. Seller
      has furnished to Purchaser copies of the following financial statements
      prepared in accordance with generally accepted accounting principles
      applied on a consistent basis in all material respects to those applied in
      the preceding period (“GAAP”), all of which reflect the financial
      performance of the Assets only: (i) unaudited balance sheets of the Assets
      as of December 31, 2004, December 31, 2005, December 31, 2006 and December
      31, 2007; (ii) unaudited income statements for the Assets for the years
      ended December 31, 2004, December 31, 2005, December 31, 2006 and December
      31, 2007.  Such financial statements are correct and complete in
      all material respects and fairly present the financial condition, assets
      and liabilities of the Purchase Entities related to the Assets as of the
      dates specified therein and the results of the operations of the Assets
      for the periods indicated.  Since December 31, 2007, there has
      been no material change in the business, properties, assets or financial
      condition of the Assets as reflected in the financial
      statements.  Except as set forth on Exhibit 3.01(L), to Seller’s
      knowledge (and Seller has no reasonable ground to know otherwise), there
      is no liability, indebtedness, obligation, expense, claim, deficiency,
      guaranty or endorsement required by GAAP to be reflected, reserved against
      or given effect to in the financial statements, except for liabilities
      incurred in the ordinary course of business which, individually or in the
      aggregate, would not have a material adverse effect upon any of the
      properties that are material to the financial condition or operation of
      the Assets.

            

    

    
    

     

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (M)

            	
              Tax Returns and
      Payments.

            

    

    

    
      	
               
      

            	
              (i)

            	
              All
      “Income Tax Returns” and all “Other Tax Returns” (as those terms are
      defined in Section 4.02(E)) for the Purchase Entities for all periods
      ending on or prior to the Closing Date, required to be filed by or with
      respect to the Purchase Entities have been or will be timely filed with
      the appropriate governmental agencies in all jurisdictions in which such
      returns and reports are required to be filed. Except for “Taxes” (as that
      term is defined in Section 4.02(E)) due with respect to Tax Returns that
      will be paid by the Seller, all Taxes due from or with respect to the
      Purchase Entities ending on or prior to the Closing Date, to the extent
      such Taxes would be payable by the Purchase Entities, have been fully paid
      or are, in Seller's best estimate, adequately reflected in the financial
      statements of the Purchase
Entities.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Seller
      has not received any written notice of nor has knowledge of a claim
      against the Purchase Entities for any Taxes, and no assessment, deficiency
      or adjustment has been asserted or, to the best of Seller’s knowledge,
      proposed, with respect to any Tax Return of or with respect to the
      Purchase Entities.

            

    

    

    
      	
               
      

            	
              (N)

            	
              Intellectual Property.
      Other
      than as may exist at common law, none of the Purchase Entities either own
      or have applied for any patents, patent applications, patent licenses,
      trademarks, trademark applications or trademark licenses.  To
      the best of Seller’s knowledge, there are
      no:  (i) infringements or claimed infringements by any of
      the Purchase Entities of any patent rights, trademarks or trademark rights
      of others; or (ii) infringements of the patent or patent rights,
      trademarks or trademark rights owned by or under license to any of the
      Purchase Entities.

            

    

    
    

    

    
      	
               
      

            	
              (O)

            	
              Title to Assets. Except
      for the liens described in Exhibit 3.01(O) under the heading “Liens to be
      Released at Closing” (which liens will be released on the Closing Date),
      neither the Membership Interests, nor the Assets is subject to any
      mortgage, pledge, lien, security interest, lease charge, or conditional
      sale or other title retention agreements, except for imperfections of
      title to, or liens, easements, rights-of-way or encumbrances on the Assets
      only which do not materially affect the marketability of the Assets
      subject thereto and which do not materially impair the present use of the
      Assets subject thereto.  Except as set forth in Exhibit 3.01(O),
      The Purchase Entities have sufficient title to their respective real
      property interests included in the Assets to enable them to own and
      operate their interests in real property and to receive the material
      economic benefit thereof without
  interference.

            

    

    
    

    

    
      	
               
      

            	
              (P)

            	
              Subsidiaries. Neither
      of the Purchase Entities has any direct or indirect ownership interest,
      whether by way of stock ownership or otherwise, in any corporation,
      partnership, limited liability company, firm, association or other
      business enterprise.

            

    

    
    

    

    
      	
               
      

            	
              (Q)

            	
              Material Contracts.
      Attached
      hereto as Exhibit 3.01(Q) is a list of all contracts, agreements and other
      documents (the “Material Contracts”) (other than interests in easements,
      leases, and real property) to the best of Seller’s knowledge, to which
      Seller or any of the Purchase Entities is a party, or by which it is
      bound, that are material to the operation of the Assets.  Except
      as noted on Exhibit 3.01(Q), to the best of Seller's knowledge, each such
      contract is in full force and effect and, the parties thereto are neither
      in default thereunder nor has any event occurred that could, with notice
      or the passage of time or otherwise, be reasonably expected to give rise
      to an event of default thereunder by any party thereto.  Without
      limitation of the foregoing, there are no contracts, agreements or other
      documents between Seller or any of its affiliates and any of the Purchase
      Entities for which any of the Purchase Entities will have any liabilities
      or obligations after the
Closing.

            

    

    
    

    

    
      	
               
      

            	
              (R)

            	
              Insurance. The
      Assets have been continuously insured against such risks and in such
      amounts normally insured against by companies of the same type and in the
      same line of business as the Purchase Entities.  No notice of
      cancellation, nonrenewal or material increase in premiums has been
      received by any of the Purchase Entities or Seller with respect to such
      policies.  To Seller’s knowledge, neither any of the Purchase
      Entities nor Seller is in material default with respect to any provision
      contained in any such policies or binders.  To Seller’s
      knowledge there has not been any failure to give notice or to present any
      claim relating to the business or the assets of the Purchase Entities
      under any such policy or binder in a timely fashion or in the manner or
      detail required by the policy or binder.  There are no
      outstanding unpaid premiums (except premiums not yet due and
      payable).  To Seller’s knowledge no notice of cancellation or
      non-renewal with respect to, or disallowance of any claim under, any such
      policy or binder has been received by Seller or any of the Purchase
      Entities as of the date
hereof.

            

    

    
    

    

    
      	
               
      

            	
              (S)

            	
              Officers and
      Employees. All
      employees working on the Assets are employed by Seller, an agent of
      Seller, or a subsidiary or an affiliate of Seller other than the Purchase
      Entities.  None of the Purchase Entities has, and since its
      respective date of organization has had, any employees or been a party to
      any of the matters which are contained in (i), (ii) and (iii) below and
      which any of the Purchase Entities would be obligated to
      perform:  (i) any employment agreement; (ii) any plan, contract
      or arrangement providing for bonuses, stock options, deferred
      compensation, profit sharing or the like for any officer or employee; or
      (iii) any employee retirement, welfare, vacation, or other benefit plans,
      agreements, practices, programs, or
  arrangements.

            

    

    
    

    

    
      	
               
      

            	
              (T)

            	
              Compliance with
      Law. Except
      for matters related to Environmental Law, which matters are exclusively
      dealt with in Exhibit 3.01(J), to the best of Seller’s knowledge, neither
      the Purchase Entities, Seller, nor any affiliate thereof, is in violation
      of any applicable law relating to or affecting the operation, conduct or
      ownership of the Assets, except where such violation is not likely to have
      a material adverse effect on the holder of the Assets, its business or its
      material assets.

            

    

    
    

     

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (U)

            	
              Governmental Approvals; Third
      Party Consents. To
      the best of Seller’s knowledge, no approval or authorization of any
      Governmental Authority or third party consent is required in connection
      with the execution and delivery of this Agreement by, or the consummation
      of the transactions contemplated in this Agreement by,
      Seller.

            

    

    
    

    

    
      	
               
      

            	
              (V)

            	
              Permits and
      Franchises. To
      the best of Seller’s knowledge, each of the Purchase Entities holds such
      franchises, certificates of public convenience and necessity, licenses,
      permits, consents, authorizations and orders of governmental authorities
      as are necessary to own and operate the Assets as they are presently owned
      and operated.

            

    

    
    

    

    
      	
               
      

            	
              (W)

            	
              Presidential
      Permit. Reef
      International is in full compliance with all terms and conditions of the
      Presidential Permit granted to Reef International under
      F.E.R.C.  Docket No.  CP02-74-000, dated May 30, 2002,
      (the “Presidential Permit”).  Neither Reef International nor
      Seller has received any notice of any violation of the Presidential
      Permit, or of any violation of the Presidential Permit, or any past,
      present or future events which may interfere with continued compliance
      with the Presidential
Permit.

            

    

    
    

    

    
      	
               
      

            	
              (X)

            	
              No Mexican Assets. None
      of the Purchase Entities owns, or has owned, any real or personal property
      located in the United Mexican
States.

            

    

    
    

    

    
      	
               
      

            	
              (Y)

            	
              Ad
      Valorem
      Taxes.  All
      Ad valorem taxes on the Assets have been paid in full for all years
      through 2007.

            

    

    
    

    

               3.02           Purchaser’s Representations and
Warranties. 
Purchaser
represents and warrants to Seller as follows:

    

    
      	
               
      

            	
              (A)

            	
              Purchaser’s
      Organization. Purchaser
      has been duly organized, is validly existing and is in good standing under
      the laws of the state of Texas, and is qualified to do business in
      Texas.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              Purchaser’s
      Authority. Purchaser
      has all necessary corporate power and authority to enter into and perform
      this Agreement and to consummate the transactions contemplated
      hereby.  The execution, delivery, and performance by Purchaser
      of this Agreement and the consummation of the transactions contemplated
      hereby have been duly authorized and approved by all requisite corporate
      action and this Agreement has been duly executed and delivered by
      Purchaser.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Enforceability. This
      Agreement constitutes the legal and binding obligation of Purchaser,
      enforceable according with its terms, except as such enforceability may be
      limited by bankruptcy, insolvency, reorganization, moratorium or similar
      laws affecting the rights of creditors generally and by general equitable
      principles (whether or not such enforceability is considered in a
      proceeding at law or in equity).  The execution and delivery
      hereof by Purchaser does not, and the fulfillment and compliance with the
      terms and conditions hereof and the consummation of the transactions
      contemplated hereby will not, result in the creation or imposition of any
      lien, charge or other encumbrance on the
  Assets.

            

    

    
    

    

    
      	
               
      

            	
              (D)

            	
              No Violation of Contractual or
      Legal Restrictions. The
      execution, delivery and performance of this Agreement and the documents
      necessary to consummate the transactions contemplated herein do not
      conflict with or violate any:  (i) agreement or instrument to
      which Purchaser or any subsidiary or affiliate thereof is a party or by
      which Purchaser or any subsidiary or affiliate thereof is bound; or (ii)
      law, rule regulation, ordinance, judgment, decree, or order to which
      Purchaser or any subsidiary or affiliate thereof are
      subject.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              No Litigation or
      Bankruptcy. There
      is no action, suit, demand or proceeding pending, or to the best of
      Purchaser’s knowledge, threatened, against Purchaser, or any affiliate
      thereof in any court or before any arbitrator or before any Governmental
      Authority or agency which in any manner raises any material question
      affecting the validity or enforceability of this Agreement or any other
      material agreement or instrument to which such Party is party or by which
      it is bound that is to be used in connection with, or contemplated by,
      this Agreement.  There are no bankruptcy, reorganization, or
      arrangement proceedings pending, being contemplated by Purchaser or, to
      the best of Purchaser’s knowledge, threatened against
      Purchaser.

            

    

    
    

    

    
      	
               
      

            	
              (F)

            	
              No Broker’s Fees. All
      negotiations on behalf of Purchaser relating to this Agreement and any
      transactions contemplated hereby have been carried on by Purchaser and its
      agents directly with Seller without the intervention of any person or
      entity in such manner as to give rise to any enforceable claims against
      Purchaser, the Purchase Entities or Seller for a brokerage commission,
      finder’s fee or like payment in connection with the consummation of the
      transactions contemplated
herein.

            

    

    
    

    

    
      	
               
      

            	
              (G)

            	
              Independent
      Evaluation. Purchaser
      is an experienced and knowledgeable investor in the business of the
      Purchase Entities, including, without limitation, the gas transportation
      business, particularly that portion of the business dealing with gas
      transportation to Mexico.  Purchaser has had access to Seller’s
      and each of the Purchase Entities’ books, records, files, physical
      facilities and to the Assets, has had a full and fair opportunity to
      conduct and has conducted the due diligence with respect to the
      transactions contemplated by this Agreement which it deems necessary and
      is satisfied with the results of such due diligence.  Except for
      the representations contained in Section 3.01 hereof, Purchaser has relied
      on its own expertise and has engaged, consulted and relied solely upon the
      expertise and advice of its own legal, tax, environmental, engineering,
      and other professional counsel concerning the transactions contemplated by
      this Agreement and involving the Purchase Entities, the Assets, and the
      value thereof.

            

    

    
    

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (H)

            	
              Securities Laws and
      Purchaser’s Other Dealings. Purchaser
      has complied with all federal and state securities laws applicable to the
      purchase of Seller’s interests in the Membership Interests and will comply
      with such laws if it subsequently disposes of all or any part of such
      interests.  Purchaser is acquiring the Membership Interests for
      its own account and not with a view to, or for offer of resale in
      connection with, a distribution thereof, within the meaning of the
      Securities Act of 1933, as amended, and any other applicable state and
      federal rules, regulations, and laws pertaining to the distribution of
      securities.  Purchaser has not sought or solicited, nor is
      Purchaser participating with, investors, partners, or other third parties
      in order to close this transaction, and all funds used by Purchaser in
      connection with the Closing of this transaction are Purchaser’s own
      funds.

            

    

    
    

    

    4.           COVENANTS,
AGREEMENTS AND ACKNOWLEDGEMENTS

    

               4.01           Acknowledgements, Covenants and
Agreements of Parties.  Each of
Seller and Purchaser hereby acknowledge, covenant and agree as
follows:

    

    
      	
               
      

            	
              (A)

            	
              Information About
      The Assets and the Purchase
      Entities. Except
      as otherwise expressly provided in this Agreement or any instruments and
      documents executed by Seller in connection herewith, neither Seller nor
      the Purchase Entities nor any Seller Indemnified Party has made any
      warranty or representation, express, statutory, implied or otherwise, as
      to:  (i) the accuracy, completeness, or materiality of any data,
      information or records furnished or made available to Purchaser (or any
      affiliate thereof) in connection with Seller, the Purchase Entities or the
      Assets; (ii) regulatory matters; or (iii) the present or future value
      of the anticipated income, costs or profits, if any, to be derived from
      the Purchase Entities, Seller’s interests therein or the
      Assets.  Any data, information or other records furnished or
      made available by Seller or the Purchase Entities, have been provided to
      Purchaser (or any affiliate thereof) only as a convenience and Purchaser’s
      reliance on or use of the same is at Purchaser’s sole
      risk.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              No Reliance On Seller As To
      Quality Or Physical Condition Of Assets. Except as otherwise expressly provided herein, Purchaser is not
      relying and has not relied on Seller or any other Seller Indemnified Party
      as to:  (i) the quality, nature, adequacy or physical
      condition of the Assets; (ii) the quality, nature, adequacy or physical
      condition of the soil or the existence or condition of ground water at the
      location of the Assets; (iii) the ad valorem taxes now or hereafter
      payable on the Assets or the valuation of the Assets for ad valorem tax
      purposes; (iv) the development potential of the Assets, their
      merchantability or fitness, suitability or adequacy for any particular
      purpose; (v) the zoning or other legal status of the Assets; (vi) the
      compliance of the Assets with any applicable codes, laws, regulations,
      statutes, ordinances, covenants, conditions or restrictions of any
      Governmental Authority, or (vii) the quality of any materials relating in
      any manner to the Assets.  Except as otherwise provided herein,
      to the maximum extent permitted by law, Purchaser is purchasing the
      Purchase Entities specifically and expressly without, and Seller hereby
      disclaims, any warranties, representations or guaranties of any kind,
      statutory, oral or written, express or implied, concerning the
      Assets.  Specifically, but not by way of limitation, Seller
      disclaims any and all implied warranties, including, but not limited to,
      any implied warranties of merchantability or fitness for a particular
      purpose, which relate to the physical conditions of the
      Assets.  Purchaser has inspected the Assets and is satisfied as
      to the physical and environmental condition (both surface and subsurface)
      of the Assets.  The Assets are being accepted by Purchaser on an
      “as is,” “where is,” and “with all faults” basis, based on the condition
      and location of the Assets at the time made available for inspection by
      Purchaser or Purchaser’s representatives or agents in connection with
      purchaser’s due diligence investigations; subject, however, to
      deterioration, obsolescence, and movement in the ordinary course of
      business.

            

    

    

    
      	
               
      

            	
              (C)

            	
              No Liens or
      Limitations. Nothing
      contained in this Agreement or the Ancillary Documents shall be construed
      as or be deemed to:  (i) grant Seller a lien upon the Membership
      Interests or the Assets; or (ii) be a limitation on the rights of
      Purchaser to sell, assign, encumber or otherwise dispose of all or any
      portion of the Membership Interests or the Assets without the consent of
      the Seller; provided, however, Purchaser shall remain liable for all of
      its duties, obligations and covenants under this Agreement and the
      Ancillary Documents after any such sale, assignment, encumbrance or other
      disposition.

            

    

    
    

    

               4.02           Preparation of Tax Returns; Tax
Covenants. »

    

    
    

    
      	
               
      

            	
              (A)

            	
              Tax
      Returns.

            

    

    

    

    
      	
               
      

            	
              (i)

            	
              Seller
      shall be responsible for preparing and timely filing all federal, state,
      local and foreign Tax Returns of the Purchase Entities, if any, that are
      due on or before the Closing Date, or which relate to Tax periods ending
      on or before the Closing Date, but which are due after that
      date.  In order for Seller to fulfill its obligations under this
      paragraph, Purchaser shall provide Seller with all access to the Purchase
      Entities’ books and records after the Closing Date upon reasonable request
      by Seller.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Upon
      the request of Purchaser, Seller shall, without charge, provide to
      Purchaser the federal Income Tax basis of the Assets, as adjusted, through
      the Closing Date and before any adjustments to be made by Purchaser under
      Section 754 of the Code.

            

    

    

    
      	
               
      

            	
              (B)

            	
              Audits and
      Inquiries. Purchaser
      shall provide Seller with prompt written notice of any inquiries, audits,
      examinations or proposed adjustments by the Internal Revenue Service
      (“IRS”) or any other income tax authorities, which relate to the Purchase
      Entities for any income tax period ending on or before the Closing
      Date.  Unless any such inquiry, audit, examination or proposed
      adjustment would involve a Liability Issue as described in Section 4.02(C)
      (iv), Purchaser has the sole right, at its sole cost and expense, to
      represent the interests of the Purchase Entities in any Income Tax audit
      or administrative proceeding relating to any Income Tax period beginning
      after the Closing Date, to employ counsel of its choice at its cost and
      expense, and to settle any issues and to take any other actions in
      connection with such proceedings relating to such Income Tax periods;
      provided, that Purchaser shall inform Seller of the status of any such
      proceedings, shall provide Seller (at Purchaser’s cost and expense) with
      copies of any pleadings, correspondence, and other documents as Seller may
      reasonably request, and shall consult with Seller and obtain the written
      consent of Seller, such consent not to be unreasonably withheld, prior to
      the settlement of any such
proceedings.

            

    

    
    

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (C)

            	
              Liability Issues and
      Proceedings. 

            

    

     

    
      	
               
      

            	
              (i)

            	
              Except
      as provided in Section 1.03(E), Purchaser has no liability for, and Seller
      shall be solely responsible for and shall pay, all Taxes, including but
      not limited to accrued and unpaid Taxes, (and any costs or expenses
      connected therewith) relating to the business or operations of the
      Purchase Entities and the Assets for all Tax periods ending on or before
      the Closing Date, and shall indemnify and hold harmless Purchaser and the
      Purchase Entities with respect
thereto.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Seller
      has no liability for, and Purchaser shall be solely responsible for and
      shall pay, all Taxes (and any costs or expenses connected therewith)
      relating to the business or operations of the Purchase Entities and the
      Assets for all Tax periods ending after the Closing Date, and shall
      indemnify and hold harmless Seller with respect
  thereto.

            

    

     

    
      	
               
      

            	
              (iii)

            	
              Except
      as otherwise set forth in this Agreement, to the extent any refunds or
      credits with respect to Taxes paid by the Purchase Entities or any of
      their affiliates are attributable to Tax periods ending on or before the
      Closing Date, such refunds or credits shall be for the account of
      Seller.  Any refunds or credits with respect to Taxes paid by
      the Purchase Entities for any Tax period ending after the Closing Date,
      shall be for the account of Purchaser.  Purchaser shall cause
      the Purchase Entities to forward to Seller or to reimburse Seller for any
      such refunds or credits for the account of Seller within 10 business days
      from receipt or application thereof by Purchaser or the Purchase
      Entities.  Seller shall forward to Purchaser or reimburse
      Purchaser for any refunds or credits for the account of Purchaser within
      10 business days from receipt or application thereof by
      Seller.  Any refunds or reimbursements not made within the 10
      business day period specified above shall bear interest from the date
      received or applied by the refunding or reimbursing party at the prime
      rate as published in the Money Rates section of the Wall Street Journal on
      the first business day of each
month.

            

    

     

    
      	
               
      

            	
              (iv)

            	
              Purchaser
      shall provide Seller with prompt notice of any inquiries, audits,
      examinations or proposed adjustments by the IRS or any Tax authorities,
      which relate to Taxes which could give rise to a liability of Seller to
      Purchaser under this Agreement (a “Liability
  Issue”).

            

    

    

    
      	
               
      

            	
              (D)

            	
              Preparation and Filing of
      1099s. Seller
      will be responsible for the preparation and filing of all 1099 federal tax
      reporting through the Closing Date.  Purchaser will be
      responsible for the preparation and filing of all 1099 federal Tax
      reporting after the Closing
Date.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              Tax Matters
      Definitions. As
      used in this Agreement:  (i) “Taxes” (or “Tax”) means all
      federal, state, county, local, foreign, territorial, and other taxes,
      imposts, charges, fees, levies, and duties (including, without limitation,
      income, profits, premium, estimated, excise, tollgate, sales, use,
      license, occupancy, gross receipts, franchise/margin (including but not
      limited to, any franchise or margin taxes imposed on the Purchase Entities
      under Chapter 171 of the Texas Tax Code), ad valorem, severance, capital
      levy, production, transfer, gain, withholding, employment and payroll
      related, and property taxes, import duties, and other governmental charges
      and assessments), whether attributable to statutory or non-statutory rules
      and whether or not measured in whole or in part by net income, and
      including interest, additions to tax or interest, and assessments and
      penalties with respect thereto, and including expenses associated with
      contesting any proposed adjustment relating to any of the foregoing; (ii)
      “Income Taxes” (or “Income Tax”) means all Taxes based upon, measured by,
      assessed or imposed upon gross or net income; (iii) “Other Taxes” means
      any Taxes other than Income Taxes; (iv) “Tax Return” means any and all
      reports, returns, declarations, schedules, information returns,
      statements, or other information required to be supplied to a taxing or
      Governmental Authority respect to any Tax or Taxes, including without
      limitation any individual, combined or consolidated return; (v) “Income
      Tax Return” means any Tax Return relating to Income Taxes; and (vi) “Other
      Tax Returns” means all Tax Returns other than Income Tax
      Returns.

            

    

    
    

    

    
      	
               
      

            	
              (F)

            	
              Sales Taxes.  Both
      parties believe this transaction is exempt from sales tax.  If,
      however, any sales tax results from the sale of the Membership Interests,
      Purchaser shall be responsible for those
  taxes.

            

    

    
    

    

               4.03           Preservation of Books and
Records. For a
period of five years after the Closing Date, each Party shall provide the other
(and its officers, employees and representatives) with access to its books and
records that pertain to each of the Purchase Entities and the Assets, upon
reasonable advance notice and at reasonable times during regular business hours,
at the requesting Party’s sole cost and expense.

    

               4.04           Non-Competition Agreement. In order
to induce Purchaser to enter into this Agreement and to pay the Purchase Price,
effective as of the Closing Date, Seller agrees to execute and deliver a
Non-Competition Agreement in the form of Exhibit 4.04 (the “Non-Competition
Agreement”).

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    
 

    5.           CONDITIONS
TO CLOSING

    

               5.01           Conditions to the Obligations of
Purchaser. The
obligations of Purchaser to proceed with the Closing are subject to the
satisfaction on or prior to the Closing Date of all of the following conditions,
any one or more of which may be waived in writing, in whole or in part, by
Purchaser:

    

    
      	
               
      

            	
              (A)

            	
              Compliance. (i)
      Seller has performed, satisfied and complied with its covenants and
      agreements contained herein; (ii) each of Seller’s representations and
      warranties contained in Section 3.01 must be true and correct in all
      material respects on and as of, the Closing Date; and (iii) each of
      the conditions specified in this Section 5.01 has been satisfied or
      waived.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              No Orders. The
      Closing will not violate any order or decree of any court or any
      Governmental Authority having jurisdiction over the transactions
      contemplated by this
Agreement.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Absence of
      Litigation. No
      material action, suit, proceeding or investigation pertaining to the
      transactions contemplated by this Agreement or to their consummation, has
      been instituted or threatened by any third
  party.

            

    

    
    

    

    
      	
               
      

            	
              (D)

            	
              Third Party
      Consents. All
      necessary agreements, consents and approvals of any persons or entities to
      the consummation by Purchaser of the transactions contemplated by this
      Agreement, or otherwise pertaining to the matters covered by this
      Agreement, have been received and shall be in a form and substance
      reasonably satisfactory to
Purchaser.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              Performance by
      Seller. Seller
      has: (i) performed its obligations under Section 2.02 of this Agreement;
      and (ii) provided Purchaser with all additional documentation as Purchaser
      reasonably deems necessary to evidence Seller’s compliance with this
      section.

            

    

    
    

    

               5.02           Conditions to the Obligations of the
Seller. The
obligations of Seller to proceed with the Closing are subject to the
satisfaction on or prior to the Closing Date of all of the following conditions,
any one or more of which may be waived in writing by Seller:

    

    
      	
               
      

            	
              (A)

            	
              Compliance. (i)
      Purchaser has performed, satisfied and complied with its covenants and
      agreements contained herein; (ii) each of Purchaser’s representations and
      warranties contained in Section 3.02 must be true and correct in all
      material respect on and as of, the Closing Date; and (iii) each of
      the conditions specified in this Section 5.02 hereof has been satisfied or
      waived.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              No Orders. The
      Closing will not violate any order or decree of any court or governmental
      body having competent jurisdiction over the transactions contemplated by
      this Agreement.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Absence of
      Litigation. No
      material action, suit, proceeding or investigation pertaining to the
      transactions contemplated by the Agreement has been initiated or
      threatened on or before the Closing Date by any third
      party.

            

    

    
    

    

    
      	
               
      

            	
              (D)

            	
              Third Party
      Consents. All
      necessary agreements, consents and approvals of any persons or entities to
      the consummation by Seller of the transactions contemplated by this
      Agreement, or otherwise pertaining to the matters covered by this
      Agreement, have been received and are in form and substance reasonably
      satisfactory to Seller.

            

    

    
    

    

    
      	
               
      

            	
              (E)

            	
              Performance by
      Purchaser. Purchaser
      has performed its:  (i) obligations under Section 2.02 of this
      Agreement; and (ii) provided Seller with all additional documentation as
      Seller reasonably deems necessary to evidence Purchaser’s compliance with
      this section.

            

    

    
    

     

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    
 

    6.           SURVIVAL
AND INDEMNIFICATION

    

               6.01           Indemnification of
Purchaser. Subject
to Section 6.02, Seller agrees to indemnify Purchaser and Purchaser’s affiliates
and the representatives, officers, directors, employees and agents, of such
entities (collectively, the “Purchaser Indemnified Parties”) against, any Claims
sustained or incurred by any of the Purchaser Indemnified Parties arising out of
or resulting from any inaccuracy or breach of any of the representations,
warranties or covenants made by Seller herein; provided that in no event shall
Seller be liable for an amount in excess of the amount actually received by it
pursuant to Section 1.03.

    

               6.02           Indemnification of
Seller. Subject
to Section 6.01, Purchaser agrees to indemnify Seller, Seller’s affiliates, and
the benefit plans of Seller and Seller’s affiliates and the representatives,
officers, directors, employees and agents of such entities and plans
(collectively, the “Seller Indemnified Parties”) against, any Claims sustained
or incurred by any of the Seller Indemnified Parties arising out of or resulting
from:  (i) any inaccuracy or breach of any of the representations,
warranties or covenants made by Purchaser herein; or (ii) any act or occurrence
relating to the ownership and operation of the Assets, or operation of the
Purchase Entities, on or after the Closing Date, except to the extent that any
such act or occurrence pertains to a breach by Seller of a representation,
warranty or covenant set forth in this Agreement.  Except as expressly
provided otherwise herein, each obligation of indemnification and defense
undertaken by Purchaser under this Agreement or any Ancillary Document will
survive Closing and will survive any disposition or sale by Purchaser of any or
all of the Assets or the Membership Interests and will further survive any
dissolution, merger, liquidation or winding up of the Purchase Entities or
Purchaser.  The rights and entitlements of the Seller Indemnified
Parties derived under this Agreement are cumulative and not alternative to any
other rights and remedies under other provisions of this Agreement or otherwise
existing at law or in equity.  If Purchaser disposes, transfers,
assigns or sells all or any portion of the Assets or the Membership Interests,
Purchaser will remain liable under this Agreement and the Ancillary Documents to
the Seller Indemnified Parties.

    
 

               6.03           Indemnification
Procedures. The
indemnification obligations of Seller and Purchaser under this Agreement arising
from liability asserted by a third party (“Third Party Claim”) will be asserted
and resolved as follows:

    

    
      	
               
      

            	
              (A)

            	
              Indemnity
      Definitions. A
      Party claiming indemnification under this Agreement (an “Indemnified
      Party”) shall promptly notify in writing the other Party (the
      “Indemnifying Party”) of the Third Party Claim which has given rise to a
      right of indemnification under this Agreement, describing in detail the
      nature of the Third Party Claim and the agreement, representation or
      warranty with respect to which the Third Party Claim is made, the facts
      giving rise to the Third Party Claim and the amount (to the extent then
      determinable) of liability for which indemnity is asserted (the “Claim
      Notice”).  The Indemnifying Party shall promptly after receipt
      of the Claim Notice:  (i) at the sole cost and expense of the
      Indemnifying Party, defend the Indemnified Party against such Claim;
      or  (ii) if the Indemnifying Party denies responsibility,
      promptly so notify the party claiming
    indemnification.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              Indemnifying Party
      Defends. The
      Indemnifying Party will have the right and obligation to diligently
      defend, at its sole cost and expense, the Third Party
      Claim.  The Indemnifying Party will have full control of such
      defense and proceedings, including any compromise or settlement
      thereof.  If requested by the Indemnifying Party, the
      Indemnified Party agrees to cooperate in contesting any Third Party Claim
      which the Indemnifying Party elects to contest and to provide witness and
      other support at the sole cost and expense of the Indemnifying
      Party.  At its expense, the Indemnified Party may participate
      in, but not control, any defense or settlement of any Third Party Claim
      controlled by the Indemnifying Party pursuant to this section, and may not
      consent to the entry of any judgment or enter into any settlement with
      respect to a Third Party Claim without the prior written consent of the
      Indemnifying Party, which shall not be unreasonably
      withheld.  Subject to the foregoing provisions, no Party will,
      without the other Party’s written consent, settle, compromise, confess
      judgment or permit judgment by default in any action, suit or proceeding
      if such action would create liability for, or attach liability or
      obligation to, the other
Party.

            

    

    
    

    

    
      	
               
      

            	
              (C)

            	
              Indemnified Party
      Defends. If
      the Indemnifying Party wrongfully fails to diligently defend or settle the
      Third Party Claim, or in the event that counsel to the Indemnified Party
      determines that there exists a conflict of interest that requires the
      Indemnified Party to obtain separate counsel, then the Indemnified Party
      will have the right to assume or participate in the defense of such Third
      Party Claim at the sole cost and expense of the Indemnifying Party, unless
      it is ultimately determined that such Indemnified Party was not entitled
      to indemnification pursuant to this Agreement.  However, an
      Indemnifying Party will never have the obligation to pay the costs and
      expenses of more than one other law firm (in addition to counsel of the
      Indemnifying Party) with respect to the Indemnified Party in connection
      with a particular Third Party
Claim.

            

    

    
    

    

               6.04           Survival. 

    

    
      	
               
      

            	
              (A)

            	
              Representations and
      Warranties. The
      representations and warranties of Seller and Purchaser contained in
      Sections 3.01 and 3.02, respectively, will survive the Closing for a
      period of two years after the Closing
  Date.

            

    

    
    

    

    
      	
               
      

            	
              (B)

            	
              Covenants. Unless
      a specified period is set forth in this Agreement (in which event such
      specified period will control), the covenants in this Agreement and any
      Ancillary Document, including, but not limited to those in Section 4.04,
      Article 6 and Article 7, will survive the Closing and remain in
      effect.  Notwithstanding anything to the contrary in this
      Agreement, the terms and conditions of Sections 7.06, 7.13 and 7.16 will
      survive termination of this
Agreement.

            

    

    
    

     

    
 

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    7.           MISCELLANEOUS

     

    7.01    
     Expenses. Except as
may be otherwise specifically provided in this Agreement, all fees, costs and
expenses incurred by Purchaser or Seller in negotiating this Agreement or in
consummating the transactions contemplated by this Agreement shall be paid by
the Party incurring the same, including, without limitation, attorneys’ fees and
legal, accounting and environmental consulting fees, costs and
expenses.

    

               7.02           Notices. All
notices and other communications hereunder shall be in writing and shall be
deemed given when delivered personally or when received if sent by registered or
certified mail, return receipt requested, by reputable overnight delivery
service, or by facsimile (with the transmission confirmed), to the Parties at
the following addresses (or at such other address as a Party may specify by like
notice):

     

    
      
        	(A)
      If
      to Seller:	
                Reef
      Ventures, L. P.

              
	 
      	
                c/o
      Tidelands Oil & Gas Corporation

              
	
                   

              	
                1862
      W. Bitters, Bldg. 1

              
	 
      	
                San
      Antonio, Texas 78248

              
	
                   

              	
                Attention:
      James B. Smith

              
	 	
                Fax:
      (210) 764-2809

              
	
                 

              	 
      
	
                
                  with
      a copy (which shall not constitute notice)
to:

                

              	
                David
      J. Cibrian

              
	 
      	
                Strasburger
      & Price, LLP

              
	 
      	
                300
      Convent Street, Suite 900

              
	 
      	
                San
      Antonio, Texas 78205-3715

              
	 	
                Fax:
      (210) 258-2716

              
	 
      	 
      
	(B) If
      to Purchaser:	
                West
      Texas Gas, Inc.

              
	 
      	
                211
      North Colorado

              
	 
      	
                Midland,
      Texas  79701-4696

              
	 
      	
                Attention:
      J.L. Davis

              
	 	
                Fax:
      (432) 682-4024

              
	
                 

              	 
      
	
                
                  with
      a copy (which shall not constitute notice)
to:

                

              	
                Russell
      W. Neisig

              
	 
      	
                Bullock,
      Scott, Neisig, Morgan,

              
	 
      	
                Leeton
      & Strauss, P.C.

              
	 
      	
                500
      West Texas, Suite 700

              
	 
      	
                Midland,
      Texas  79701-4200

              
	 
      	
                Fax:
      (432) 683-2658

              

      

       

    

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

               7.03           Amendment. 
This
Agreement may not be amended, nor may any rights hereunder be waived except by
an instrument in writing signed by the Party to be charged with such amendment
or waiver. No waiver of any term, provision or condition of this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further
continuing waiver of any such term, provision or condition or as a waiver of any
other term, provision or condition of this Agreement.

    

               7.04           Headings. 
The
headings of the articles and sections of this Agreement are for guidance and
convenience of reference only and do not limit or otherwise affect any of the
terms or provisions of this Agreement.

    

               7.05           Usage. 
References
made in this Agreement, including use of a pronoun, shall be deemed to include,
where applicable, masculine, feminine or neuter, singular or plural,
individuals, partnerships or corporations.  Unless otherwise
indicated, the terms “herein,”  “hereunder” and “hereof” used in this
Agreement refer to this Agreement and not to a particular section of this
Agreement.

    

               7.06           Venue and Governing Law. 
This
Agreement and the transactions contemplated hereby will be construed in
accordance with, and governed by, the laws of the state of Texas, regardless of
such state’s choice of law principles.  The venue for any action,
litigation or lawsuit involving this agreement and the transactions contemplated
hereby will be in the courts of the state of Texas situated in Midland County,
Texas, or if federal jurisdiction exists and the party bringing the action so
chooses, then in the United States District Court for the Midland-Odessa
Division of the Western District of Texas.

    

               7.07           Entirety. 
This
Agreement (including the exhibits hereto) and the Ancillary Documents, when read
together, constitute the entire understanding between the parties with respect
to the subject matter hereof and supersedes all negotiations, prior discussions
and prior agreements and understandings relating to such subject
matter.  In the event of a conflict or inconsistency between this
Agreement, on the one hand, and any Ancillary Document, on the other hand, the
terms and conditions of this Agreement controls.  No material
representation, warranty, covenant, agreement, promise, inducement or statement,
whether oral or written, has been made by Seller or Purchaser and relied upon by
the other that is not set forth in this Agreement or in the instruments referred
to herein.  Neither Seller nor Purchaser will be bound by or liable
for any alleged representation, warranty, covenant, agreement, promise,
inducement or statement not so set forth.

    

               7.08           Assignment. This
Agreement shall be binding on and shall inure to the benefit of the Parties
hereto and their respective successors and assigns.  Neither Party may
assign all or any portion of its respective rights, or delegate any portion of
its duties hereunder, without the prior written consent of the other, such
consent not to be unreasonably withheld.

    

               7.09           Subsequent Notification. Purchaser
agrees that it shall timely notify Seller in writing of their receipt, after the
Closing Date, of any instrument, notification or other document affecting the
Assets while owned, directly or indirectly, by Seller.  Seller agrees
that it shall timely notify Purchaser in writing of its receipt, after the
Closing Date, of any instrument, notification or other document affecting the
Assets while owned, directly or indirectly, by Purchaser.

    

               7.10           Subsequent Filings. Effective
on the Closing Date, Purchaser shall file, at its own expense, with all
applicable regulatory agencies or authorities any such notices or certificates
as are necessary to reflect the sale to Purchaser.

    

               7.11           Severability.  If any
term or other provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any material adverse manner to any
Party.  Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent
possible.

    

               7.12           Further Assurances. The
Parties agree to deliver or cause to be delivered to each other on the Closing
Date and at such other times thereafter as shall be reasonably agreed any such
additional instrument as either of them may reasonably request for the purpose
of carrying out the transactions contemplated by this Agreement.

    

               7.13           Expenses of Litigation. If any
proceeding is brought by any Party, or its successors or assigns, for the
enforcement of this Agreement, or as a result of any alleged dispute, breach,
default or misrepresentation by any Party of any of the provisions of this
Agreement, the successful or prevailing Party will be entitled to recover its
reasonable attorneys’ fees and other costs incurred in pursuing such proceeding,
in addition to such other relief to which it may be entitled.

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    
 

               7.14           Public Announcements. Purchaser
and Seller agree that prior to making any public announcement or statement with
respect to the transactions contemplated by this Agreement, the Party desiring
to make such public announcement or statement shall consult with the other Party
and obtain prior written approval of the other Party of the text of a public
announcement or statement to be made.  Nothing contained in this
section will be construed to require either Party to obtain approval of the
other Party hereto to disclose information with respect to the transaction
contemplated by this Agreement to any state or federal Governmental Authority or
agency to the extent required by applicable law or by any applicable rules,
regulations or orders of any Governmental Authority or agency having
jurisdiction or necessary to comply with disclosure requirements of the New York
Stock Exchange, NASDAQ or any applicable securities laws.

    

               7.15           No Third Party
Beneficiaries. Except
for the Seller Indemnified Parties and the Buyer Indemnified Parties, who are
express third-party beneficiaries of the indemnification provisions of this
Agreement, there are no third-party beneficiaries of any of the rights and
obligations of either Seller or Purchaser under this Agreement.

    

               7.16           Waiver of Punitive
Damages. To the
maximum extent permitted by law, each of the parties knowingly, voluntarily and
intentionally waives any right it may have to claim or recover any special,
exemplary, punitive or consequential damages, arising out of or in connection
with this agreement or the transaction contemplated by this
agreement.  But, to the extent that a person is indemnified under this
agreement from liability to third parties, such person will be indemnified from
any liability to such third party for special, exemplary, punitive or
consequential damages.

    

               7.17           Exhibits Incorporated. Each of
the exhibits attached to this Agreement are incorporated into and made a part of
this Agreement.

    

               7.18           Counterpart Execution. This
Agreement may be executed by Purchaser and Seller in any number of counterparts,
no one of which need be executed by all parties.  Each of such
counterparts is an original instrument, and all counterparts together constitute
but one and the same instrument.  This agreement will become operative
when each Party has executed at least one counterpart.

    

    Agreed
to and Accepted:

    

    PURCHASER:

    

    West Texas Gas, Inc.

    

    By: /s/ J.L.
Davis                       

     

    Name:
J.L.
Davis                       
                                       

     

    Title:  President                                                                

     

    

    SELLER:

    

    Reef
Ventures, L.P.

    

    By:   Arrecefe
Management, LLC, its general partner

     

     

    By: /s/ James B.
Smith               
 

     

    Name:
James B.
Smith                
                                               

     

    Title:  Manager                           
                                   

     

     

    
      
        
        

      

      
        18

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