Document:

Exhibit 10.26

 

EXHIBIT 10.26

Asset Transfer Agreement — San Jiao Bei Area

ChevronTexaco China Energy Company

Pacific Asia Petroleum, Ltd.

and

Pacific Asia Petroleum, Inc.

Sale of participating interest in the Production Sharing
 Contract in respect of
the resources in the San Jiao Bei Area

 

 

Asset Transfer Agreement 

Table of Contents

	 	 	 	 	 	 	 
	1.

	 	Definitions and Interpretation
	 	 	4	 
	1.1

	 	Definitions
	 	 	4	 
	1.2

	 	Interpretation
	 	 	8	 
	2.

	 	Conduct before Completion
	 	 	10	 
	2.1

	 	Conduct of business
	 	 	10	 
	2.2

	 	Proceeds and Expenses
	 	 	10	 
	3.

	 	Conditions
	 	 	11	 
	3.1

	 	Conditions to Completion
	 	 	11	 
	3.2

	 	Satisfaction of conditions
	 	 	12	 
	3.3

	 	Other Contracts
	 	 	12	 
	4.

	 	Right to Terminate
	 	 	13	 
	4.1

	 	Relevant events
	 	 	13	 
	4.2

	 	Limitations on right to terminate
	 	 	13	 
	4.3

	 	Additional Rights
	 	 	13	 
	5.

	 	Sale and Purchase
	 	 	13	 
	5.1

	 	Sale and purchase
	 	 	13	 
	5.2

	 	Excluded Assets
	 	 	13	 
	5.3

	 	Purchase Price
	 	 	14	 
	5.4

	 	Deposit
	 	 	14	 
	5.5

	 	Allocation of Adjustments
	 	 	15	 
	5.6

	 	Title and risk
	 	 	15	 
	6.

	 	Completion
	 	 	15	 
	6.1

	 	Place for Completion
	 	 	15	 
	6.2

	 	Purchaser Completion Steps
	 	 	15	 
	6.3

	 	Vendor Completion Steps
	 	 	15	 
	6.4

	 	Contemporaneous effect
	 	 	16	 
	6.5

	 	Liabilities
	 	 	16	 
	6.6

	 	Insurance
	 	 	17	 
	6.7

	 	Prepayments
	 	 	17	 
	7.

	 	Cash Adjustment
	 	 	17	 
	7.1

	 	Completion Accounts to be kept
	 	 	17	 
	7.2

	 	Cashflow Account
	 	 	18	 
	7.3

	 	Procedure to agree Adjustment Amount following Completion
	 	 	19	 
	7.4

	 	Recognition of income and expenses
	 	 	20	 
	8.

	 	Notice to Complete
	 	 	20	 
	8.1

	 	Notice by the Purchaser
	 	 	20	 

 
Page i

 

 

Asset Transfer Agreement 

	 	 	 	 	 	 	 
	8.2

	 	Notice by the Vendor
	 	 	20	 
	8.3

	 	Time of the essence
	 	 	21	 
	9.

	 	Warranties and Purchaser Indemnity
	 	 	21	 
	9.1

	 	Representations and Warranties of the Vendor
	 	 	21	 
	9.2

	 	Disclosures
	 	 	21	 
	9.3

	 	Limitation on liability
	 	 	22	 
	9.4

	 	No reliance
	 	 	23	 
	9.5

	 	Dealing with Warranty breach after Completion
	 	 	24	 
	9.6

	 	Proceedings in respect of a claim
	 	 	24	 
	9.7

	 	Insurance
	 	 	25	 
	9.8

	 	Notification of Warranty breach before Completion
	 	 	25	 
	9.9

	 	Each Party Warranties
	 	 	25	 
	9.10

	 	Purchaser Warranties
	 	 	26	 
	9.11

	 	Purchaser Indemnity
	 	 	26	 
	10.

	 	Overdue Amount
	 	 	26	 
	10.1

	 	Interest
	 	 	26	 
	10.2

	 	Rate
	 	 	27	 
	11.

	 	Access to Records after Completion
	 	 	27	 
	12.

	 	No Disclosure
	 	 	28	 
	12.1

	 	Confidentiality
	 	 	28	 
	12.2

	 	Purchaser’s investigation
	 	 	28	 
	12.3

	 	Exceptions
	 	 	28	 
	12.4

	 	Public announcements
	 	 	28	 
	12.5

	 	Confidentiality Agreement unaffected
	 	 	28	 
	13.

	 	Amendment
	 	 	29	 
	14.

	 	Further Assurances
	 	 	29	 
	15.

	 	Entire Agreement
	 	 	29	 
	16.

	 	Assignment
	 	 	29	 
	17.

	 	Costs and Stamp Duty
	 	 	29	 
	18.

	 	Governing Law
	 	 	29	 
	19.

	 	Counterparts
	 	 	30	 
	20.

	 	No Merger
	 	 	30	 
	21.

	 	No Waiver
	 	 	30	 
	22.

	 	FCPA
	 	 	30	 
	23.

	 	Audit
	 	 	31	 
	24.

	 	Consequential Loss
	 	 	31	 
	25.

	 	Notices
	 	 	31	 

  
Page ii

 

 

Asset Transfer Agreement 

	 	 	 	 	 
	Schedule 1
	 	 	34	 
	Notice of Proposed Transfer
	 	 	34	 
	Schedule 2
	 	 	36	 
	Notice of Assignment to CUCBM
	 	 	36	 
	Schedule 3
	 	 	38	 
	Disclosure Material
	 	 	38	 
	Schedule 4
	 	 	41	 
	Warranty Disclosures
	 	 	41	 

 
Page iii

 

 

Asset Transfer Agreement 

	 	 	 	 
	Date

	 	 	September
7th, 2007
	 

	 
 	 	 
	 
	 	 	 
	Parties
	 	 	 
	 

	 
 	 	 
	 
	 	 	 
	1.
	 	 	ChevronTexaco China Energy Company, a company organised and
existing under the laws of Mauritius (the Vendor);
	 
	 	 	 
	2.

	 	 	Pacific Asia Petroleum, Ltd. a company organised and existing
under the laws of Hong Kong (the Purchaser); and
	 
	 	 	 
	3.

	 	 	Pacific Asia Petroleum, Inc. a company organised and existing
under the laws of Delaware, the United States of America (PAPI).
	 
	 	 	 
	 	 	 	 
	 
	 	 	 
	Recitals
	 	 	 
	 

	 
 	 	 
	 
	 	 	 
	A

	 	 	The Vendor owns a 50% interest in Contractor’s interest in the
San Jiao Bei PSC.
	 
	 	 	 
	B

	 	 	The Vendor wishes to sell and the Purchaser wishes to buy the
Sale Interest on the terms of this Agreement.

IT IS AGREED as follows.

	1.	 	Definitions and Interpretation

 

	1.1	 	Definitions
	 
	 	 	The following definitions apply unless the context requires otherwise.
	 
	 	 	Adjustment Amount means any difference between the Purchaser Account and the Vendor Account
as determined under clause 7.
	 
	 	 	Affiliate has the meaning given in the San Jiao Bei PSC.
	 
	 	 	Agreement means this agreement, the asset transfer agreement for the San Jiao Bei Area.
	 
	 	 	Approval includes any consent, authorisation, registration, filing, lodgement, agreement,
notarisation, certificate, permission, licence, approval, authority or exemption from, by
or with a Governmental Agency.

 
Page 4

 

 

Asset Transfer Agreement 

	 	 	Base Purchase Price means US$ 12,750,000, payable by the Purchaser to the Vendor in
accordance with the terms set out herein.
	 
	 	 	Business means the Coalbed Methane, Liquid Hydrocarbons and Petroleum exploration,
appraisal, development and production operations relating to the Sale Interest and the
operations and activities associated with or related to those operations.
	 
	 	 	Business Day means a weekday on which banks are open in the PRC.
	 
	 	 	Coalbed Methane has the meaning given in the San Jiao Bei PSC.
	 
	 	 	Completion means completion of the sale and purchase of the Sale Interest under this
Agreement.
	 
	 	 	Completion Date means the Business Day in the month in which the last of all the conditions
in clause 3.1 is satisfied or such other date as the parties may agree in writing.
	 
	 	 	Completion Modification Agreement means the modification agreement dated on or about the
date of this Agreement between the parties to this Agreement, SGE and CUCBM modifying the
terms of the San Jiao Bei PSC in contemplation of Completion occurring under this
Agreement.
	 
	 	 	Confidential Information includes know-how, trade secrets, technical processes, finances,
contractual arrangements with customers or suppliers and other information which by its
nature, or by the circumstances of its disclosure to the holder of the information, is or
could reasonably be expected to be regarded as confidential.
	 
	 	 	Contractor has the meaning given in the San Jiao Bei PSC.
	 
	 	 	CUCBM means China United Coalbed Methane Corporation, Ltd, a company organised and existing
under the laws of the PRC having its headquarters domiciled in Beijing, PRC.
	 
	 	 	Deed of Novation means the deed of novation dated on or about the date of this Agreement
between the Vendor, the Purchaser and SGE pursuant to which the Vendor novates its rights
and obligations under the Joint Operating Agreement to the Purchaser.
	 
	 	 	Deposit means a cash amount equal to five percent (5%) of the Base Purchase Price, being
US$ 637,500.

 
Page 5

 

 

Asset Transfer Agreement 

	 	 	Disclosure Material means the material disclosed to the Purchaser in respect of the Sale
Interest up until the Completion Date, including the material described in Schedule 3.
	 
	 	 	Effective Date means 30th June 2007.
	 
	 	 	Encumbrance means an interest or power:

	 	(a)	 	reserved in or over any interest in any asset including any retention of
title; or
	 
	 	(b)	 	created or otherwise arising in or over any interest in any asset under a
bill of sale, mortgage, charge, lien, pledge, trust or power,

	 	 	by way of security for the payment of debt or any other monetary obligation or the
performance of any other obligation and whether existing or agreed to be granted or
created.
	 
	 	 	Environmental Law means a law or a provision of a law that relates to an aspect of the
environment.
	 
	 	 	Farmout Agreement means the Farmout Agreement relating to the San Jiao Bei Area dated 24
January 2006 between the Vendor and SGE.
	 
	 	 	Governmental Agency means a government or a governmental, semi-governmental or judicial
entity or authority. It also includes a self-regulatory organisation established under
statute or a stock exchange.
	 
	 	 	Guarantee means an obligation or offer to provide funds (including by subscription or
purchase) or otherwise be responsible in respect of an obligation or indebtedness, or the
financial condition or insolvency, of another person. It includes a guarantee, indemnity,
letter of credit or legally binding letter of comfort, or an obligation or offer to
purchase an obligation or indebtedness of another person.
	 
	 	 	Interim Period means the period between the Effective Date and the Completion Date.
	 
	 	 	Joint Management Committee has the meaning given in the San Jiao Bei PSC.
	 
	 	 	Joint Operating Agreement means the Joint Operating Agreement relating to the San Jiao Bei
Area dated 24 January 2006 between the Vendor and SGE.
	 
	 	 	Liabilities means the Vendor’s liabilities in respect of the Sale Interest other than any
liabilities which accrued in or relate to any period before the

 
Page 6

 

 

Asset Transfer Agreement 

	 	 	Effective Date, except that the term includes any liability of the Vendor relating to the
Sale Interest to pay compensation to a landholder or a land rights holder, whenever
determined or agreed and whenever or for whatever period that liability accrued or related
to.
	 
	 	 	Liquid Hydrocarbons has the meaning given in the San Jiao Bei PSC.
	 
	 	 	MOFCOM means the PRC Ministry of Commerce or its relevant local representative office as
appropriate.
	 
	 	 	MOLAR means the PRC Ministry of Land and Natural Resources or its relevant local
representative office as appropriate.
	 
	 	 	Operator has the meaning given in the Joint Operating Agreement.
	 
	 	 	Operating Committee has the meaning given in the Joint Operating Agreement.
	 
	 	 	Participating Interest means the Vendor’s 50% interest in the rights and obligations of the
Contractor under the San Jiao Bei PSC or derived from the San Jiao Bei PSC.
	 
	 	 	Participation Agreements means the Joint Operating Agreement and the Farmout Agreement.
	 
	 	 	Petroleum has the meaning given in the San Jiao Bei PSC.
	 
	 	 	PRC means the People’s Republic of China.
	 
	 	 	Purchaser Account means the account of the Purchaser as determined under clause 7.
	 
	 	 	Purchase Price has the meaning given in clause 5.3.
	 
	 	 	Relevant Rate means the rate per annum being the arithmetic mean during the applicable
period, of 6 month term London Interbank Offer Rates (LIBOR rates) for US$ as published on
the first Business Day of each month by the Financial Times of London.
	 
	 	 	SAIC means the PRC State Administration of Industry and Commerce or its relevant local
representative office as appropriate.
	 
	 	 	Sale Interest means:

	 	(a)	 	the Participating Interest and the Vendor’s rights, title and interest
attributable to that Participating Interest; and
	 
	 	(b)	 	the Vendor’s rights and obligations under the Participation Agreements; and

 
Page 7

 

 

Asset Transfer Agreement 

	 	(c)	 	all other commercial interests arising from and relating to the San Jiao Bei
PSC and the Joint Operating Agreement held by the Vendor.

	 	 	San Jiao Bei Area means that area designated as the San Jiao Bei Block in Exhibit B to the
Farmout Agreement.
	 
	 	 	San Jiao Bei PSC means the Production Sharing Contract for the Exploitation of Coalbed
Methane Resources in the San Jiao Bei Area, the People’s Republic of China between CUCBM,
Arco China Inc and Arco Ordos CBM Limited dated 29 June 1998.
	 
	 	 	SGE means Sino Gas & Energy Limited, a company incorporated under the laws of Western
Australia, Australia.
	 
	 	 	Tax includes any tax, levy, impost, deduction, charge, rate, duty, compulsory loan or
withholding that is levied or imposed by a Governmental Agency, and any related interest,
penalty, charge, fee or other amount.
	 
	 	 	Vendor Account means the account of the Vendor as determined under clause 7.
	 
	 	 	Warranty means any of the warranties given in clause 9.
	 
	 	 	Work Program and Budget has the meaning given in the Joint Operating Agreement.
	 
	1.2	 	Interpretation
	 
	 	 	Headings are for convenience only and do not affect interpretation. The following rules
apply unless the context requires otherwise.

	 	(a)	 	The singular includes the plural, and the converse also applies.
	 
	 	(b)	 	A gender includes all genders.
	 
	 	(c)	 	If a word or phrase is defined, its other grammatical forms have a
corresponding meaning.
	 
	 	(d)	 	A reference to a clause, schedule or annexure is a reference to a clause of,
or schedule or annexure to, this Agreement.
	 
	 	(e)	 	A reference to an agreement or document (including a reference to this
Agreement) is to the agreement or document as amended, supplemented, novated or
replaced, except to the extent prohibited by this Agreement or that other agreement or
document, and includes the recitals, and schedules and annexures to that agreement or
document.

 
Page 8

 

 

Asset Transfer Agreement 

	 	(f)	 	A reference to writing includes any method of representing or reproducing
words, figures, drawings or symbols in a visible and tangible form.
	 
	 	(g)	 	A reference to a party to this Agreement or another agreement or document
includes the party’s successors and permitted assigns (and, where applicable, the
party’s legal personal representatives).
	 
	 	(h)	 	A reference to legislation or to a provision of legislation includes a
modification or re-enactment of it, a legislative provision substituted for it and a
regulation or statutory instrument issued under it.
	 
	 	(i)	 	A reference to an agreement includes any undertaking, deed, agreement and
legally enforceable arrangement, whether or not in writing, and a reference to a
document includes an agreement (as so defined) in writing and any certificate, notice,
instrument and document of any kind.
	 
	 	(j)	 	A reference to dollars and $ is to United States currency.
	 
	 	(k)	 	A reference to a right or obligation of any two or more people comprising a
single party confers that right, or imposes that obligation, as the case may be, on
each of them severally and each two or more of them jointly. A reference to that
party is a reference to each of those people separately (so that, for example, a
representation or warranty by that party is given by each of them separately).
	 
	 	(l)	 	All references to time are to PRC time.
	 
	 	(m)	 	Mentioning anything after includes, including, for example, or similar
expressions, does not limit what else might be included.
	 
	 	(n)	 	Nothing in this Agreement is to be interpreted against a party solely on the
ground that the party put forward this Agreement or a relevant part of it.
	 
	 	(o)	 	A month means a calendar month.
	 
	 	(p)	 	A day means a calendar day.

 
Page 9

 

 

Asset Transfer Agreement 

	2.	 	Conduct before Completion

 

	2.1	 	Conduct of business
	 
	 	 	From the date of this Agreement to the Completion Date (inclusive) the Vendor shall:

	 	(a)	 	not do any of the following things (other than things expressly contemplated
by this Agreement) without the prior written consent of the Purchaser, such consent
not to be unreasonably withheld or delayed:

	 	(i)	 	conduct the Business other than in its ordinary course;
	 
	 	(ii)	 	enter into any capital commitment relating to the Business
other than as set out in the Work Program and Budget or as otherwise permitted
by the San Jiao Bei PSC or the Joint Operating Agreement without requiring the
Vendor’s consent;
	 
	 	(iii)	 	except for disposals of Coalbed Methane, Liquid Hydrocarbons
and Petroleum in the ordinary and usual course of the Business, dispose of,
create any Encumbrance over, or declare itself trustee of the Sale Interest or
any part of it; or
	 
	 	(iv)	 	agree to vary the Joint Operating Agreement or the San Jiao
Bei PSC; and

	 	(b)	 	observe and perform all of its obligations and duties under the Joint
Operating Agreement and the San Jiao Bei PSC and shall not knowingly incur or assume
any liability in connection with the Sale Interest other than in the normal and usual
course of business.

	2.2	 	Proceeds and Expenses
	 
	 	 	The Vendor is entitled to the proceeds received from, and shall pay all amounts payable in
respect of, the Sale Interest up to and including the Effective Date.
	 
	 	 	The Vendor is responsible for any tax, levy, encumbrance that any PRC Governmental Agency
imposes on the Vendor that relates directly to its transfer of the Sale Interest.

 
Page 10

 

 

Asset Transfer Agreement 

	3.	 	Conditions

 

	3.1	 	Conditions to Completion
	 
	 	 	The sale and purchase of the Sale Interest as contemplated in this Agreement is subject to:

	 	(a)	 	SGE waiving its pre-emptive right to acquire the Participating Interest, and
consenting to the novation of the Joint Operating Agreement to the Purchaser pursuant
to the terms of this Agreement, the form of such waiver and consent being set out in
Schedule 1;
	 
	 	(b)	 	CUCBM waiving its preferred right to be assigned the Participating Interest,
and consenting to the transfer of the Participating Interest to the Purchaser pursuant
to the terms of this Agreement, the form of such waiver and consent being set out in
Schedule 2;
	 
	 	(c)	 	approval of the Completion Modification Agreement (prior to execution) by
MOLAR;
	 
	 	(d)	 	execution of the Completion Modification Agreement;
	 
	 	(e)	 	filing of the executed Completion Modification Agreement with MOLAR;
	 
	 	(f)	 	approval of the assignment of the Participating Interest and approval of the
Completion Modification Agreement by MOFCOM;
	 
	 	(g)	 	either:

	 	(i)	 	the Purchaser registering with SAIC and including the
Participating Interest in the registration details maintained by SAIC; or
	 
	 	(ii)	 	if the Purchaser is already registered with SAIC, the
Purchaser’s registration details with SAIC are amended to include the
Participating Interest;

	 	(h)	 	the Vendor amending its registration details with SAIC to remove reference to
the Participating Interest (provided the Vendor has previously registered the details
of Participating Interest with SAIC);
	 
	 	(i)	 	any other Approval or Guarantee required to make effective the sale and
purchase of the Sale Interest contemplated by this Agreement; and
	 
	 	(j)	 	the execution of the Deed of Novation by all the parties to it.

 
Page 11

 

 

Asset Transfer Agreement 

	3.2	 	Satisfaction of conditions

	 	(a)	 	The Vendor will forthwith apply for and use all reasonable endeavours to
obtain the waivers and consents to the transfer of the Participating Interest referred
to in clauses 3.1(a) and 3.1(b).
	 
	 	(b)	 	The Vendor shall attend to the fulfilment of the conditions in clauses
3.1(c), 3.1(e) and 3.1(f). The Purchaser agrees to provide reasonable assistance to
the Vendor in order for the Vendor to fulfil the conditions in clauses 3.1(c), 3.1(e)
and 3.1(f).
	 
	 	(c)	 	After the waivers, consents and approvals referred to in clauses 3.1(a) to
3.1(f) have been obtained, the Purchaser will forthwith attend to the registration
requirements referred to in clause 3.1(g).
	 
	 	(d)	 	The Vendor shall inform the Purchaser if any consent or approval necessary
for the satisfaction of any condition in clause 3.1 (other than clause 3.1(g)) is
refused or if any consent or approval is conditional and provide a copy of all
relevant correspondence and documents to the Purchaser. On being informed of any
conditional consent or approval, the Purchaser will promptly inform the Vendor whether
the conditions are acceptable to the Purchaser.
	 
	 	(e)	 	A party will immediately inform each other party once a condition in clause
3.1 for which it is responsible is satisfied and each of the Vendor and the Purchaser
will provide regular reports to each other on progress towards satisfaction of the
conditions in clause 3.1 for which it is responsible.

	3.3	 	Other Contracts
	 
	 	 	The Vendor will, if requested by the Purchaser, or if the Vendor deems it appropriate,
apply for the novations and assignments of any agreement relating to the Sale Interest
other than the Joint Operating Agreement. The parties will use all reasonable endeavours
to obtain those novations and assignments. If the novation or assignment of any such
agreement is not obtained by Completion, then to the extent permitted by such agreement,
the Vendor will hold the benefit of that agreement for the Purchaser and act in accordance
with reasonable directions of the Purchaser and the Purchaser will indemnify the Vendor in
respect of any liabilities under that agreement.

 
Page 12

 

 

Asset Transfer Agreement 

	4.	 	Right to Terminate

 

	4.1	 	Relevant events
	 
	 	 	Subject to clause 4.2, either party may terminate this Agreement by giving notice to the
other party before Completion if any condition referred to in clause 3.1 (other than those
conditions in clauses 3.1(g) or (h)) is not satisfied or waived on or before the day that
is nine months after the date of this Agreement.
	 
	4.2	 	Limitations on right to terminate
	 
	 	 	If any condition contained in clause 3.1 is not satisfied as a result of any breach of this
Agreement by the Vendor or the Purchaser, this Agreement shall not be liable to be
terminated in accordance with clause 4.1, but instead such breach shall constitute a breach
of this Agreement by that party which shall entitle the other party to:

	 	(a)	 	terminate this Agreement and recover damages from the defaulting party; or
	 
	 	(b)	 	sue for specific performance of this Agreement and damages in addition to or
in lieu thereof.

	4.3	 	Additional Rights
	 
	 	 	The rights under this clause 4 are in addition to, and not in substitution for, all other
rights which the other party may have at law or in equity in respect of such breach.
	 
	5.	 	Sale and Purchase

 

	5.1	 	Sale and purchase
	 
	 	 	The Vendor will sell and the Purchaser will purchase the Sale Interest free from
Encumbrances with effect from the Effective Date.
	 
	5.2	 	Excluded Assets

	 	(a)	 	The Purchaser hereby acknowledges and agrees for the avoidance of doubt that
any payments received by the Vendor on or prior to the Effective Date in respect of
Coalbed Methane, Liquid Hydrocarbons or Petroleum sold as a consequence of the
Vendor’s Participating Interest prior to the Effective Date, and any cash held by or
belonging

 
Page 13

 

 

Asset Transfer Agreement 

	 	 	 	to the Vendor as at the Effective Date in no way form part of the Sale Interest.
	 
	 	(b)	 	The Purchaser also acknowledges and agrees that the Vendor will be entitled
to the benefit of any adjustments to payments made in respect of any period prior to
the Effective Date, and will cooperate to permit any audit or other investigation or
action in relation to any such potential adjustments, but at the expense of the Vendor
to the extent such audit, investigation or other action relate to any period prior to
the Effective Date.

	5.3	 	Purchase Price
	 
	 	 	Subject to the Adjustment Amount, the Purchase Price shall comprise:

	 	(a)	 	the Base Purchase Price; and
	 
	 	(b)	 	an amount equivalent to interest on the cash element of the Base Purchase
Price less the Deposit at the Relevant Rate, for the period between the Effective Date
and the Completion Date (both dates inclusive).

	 	 	If any amount payable to the Vendor under clause 5.3(b) of this Agreement is subject to Tax
(including but not limited to, withholding tax or business tax), the Purchaser shall pay
the Vendor any additional amounts actually paid by the Vendor to ensure that the Vendor
receives a net amount (after payment of any Taxes in respect of those additional amounts)
in the relevant currency equal to the full amount which it would have received had a
deduction for Tax not been made. The Purchaser shall pay any such additional amount to the
Vendor within 30 days of receiving confirmation in writing from the Vendor evidencing that
an additional Tax was paid by the Vendor as noted above. The Purchaser shall indemnify the
Vendor against the Tax and any amounts recoverable from the Vendor in respect of the Tax.
	 
	5.4	 	Deposit

	 	(a)	 	The Purchaser will, on the fifth Business Day immediately following the date
of this Agreement, pay the Deposit to the nominated bank account of the Vendor.
	 
	 	(b)	 	If this Agreement is terminated under clause 4.1 other than as a result of
failure by the Purchaser to fulfil its obligations under this

 
Page 14

 

 

Asset Transfer Agreement 

	 	 	 	Agreement, or under clause 8.1, the Deposit will be repaid to the Purchaser within
five Business Days of the date of termination.
	 
	 	(c)	 	Otherwise, subject to Completion, the Deposit shall be released to the
Vendor, and shall be applied towards the Purchase Price.

	5.5	 	Allocation of Adjustments
	 
	 	 	If an amount is charged to the Vendor Account under clause 7.1, it shall be treated as a
negative adjustment to the Purchase Price and if an amount is charged to the Purchaser
Account under clause 7.1, it shall be treated as a positive adjustment to the Purchase
Price. Such amounts shall be paid by the relevant party in accordance with clause 7.2.
	 
	5.6	 	Title and risk
	 
	 	 	Subject to Completion occurring, risk in the Sale Interest and title to the Sale Interest
passes to the Purchaser on the Completion Date.
	 
	6.	 	Completion

 

	6.1	 	Place for Completion
	 
	 	 	Completion will take place at the offices of the Vendor in Beijing or other agreed place
before 1pm on the Completion Date.
	 
	6.2	 	Purchaser Completion Steps
	 
	 	 	On Completion, after satisfaction of the Vendor’s obligations under clause 6.3, the
Purchaser shall pay to the Vendor (or as it may direct before Completion) by electronic
transfer in immediately available funds to an account nominated in writing by the Vendor to
the Purchaser at least five Business Days before Completion an amount equal to the Purchase
Price, less the Deposit, and the Purchaser will execute all documents received from the
Vendor under clause 6.3 (to the extent required to be executed by the Purchaser and not
already executed by it) and, where appropriate, provide one copy of those documents to the
Vendor.
	 
	6.3	 	Vendor Completion Steps
	 
	 	 	On Completion, the Vendor shall place the Purchaser in effective possession and control of
the Sale Interest free from Encumbrances and shall deliver the following to the Purchaser:

 
Page 15

 

 

Asset Transfer Agreement 

	 	(a)	 	possession and control of all components of the Sale Interest, at the places
where they are located;
	 
	 	(b)	 	duly executed transfers or assignments of the Vendor’s undivided interest in
any other assets which comprise part of the Sale Interest which the Purchaser
reasonably requires and submits to the Vendor’s lawyers at least five Business Days
prior to Completion;
	 
	 	(c)	 	duly executed by the person to be bound by it, the waivers and consents set
out in clause 3.1(a) and 3.1(b);
	 
	 	(d)	 	duly executed originals where held by the Vendor, or otherwise complete
copies of the San Jiao Bei PSC and the Joint Operating Agreement; and
	 
	 	(e)	 	evidence to the satisfaction of the Purchaser (acting reasonably) that any
representative on the Operating Committee or the Joint Management Committee who was
nominated or appointed by the Vendor (and any alternate for such representative) has
resigned or been removed from that office effective as of the Completion Date.

	6.4	 	Contemporaneous effect
	 
	 	 	All of the events and deliveries identified in clauses 6.2 and 6.3 shall be deemed to occur
simultaneously on the Completion Date, and no one event or delivery shall be deemed
completed or shall take effect until all are completed.
	 
	6.5	 	Liabilities

	 	(a)	 	Subject to Completion occurring, and notwithstanding the Deed of Novation,
the Purchaser will be responsible for and will indemnify the Vendor:

	 	(i)	 	in respect of the Liabilities and, unless otherwise expressly
stated to the contrary in this Agreement, in respect of all other liabilities
associated with the Sale Interest arising after the Completion Date; and
	 
	 	(ii)	 	for all rehabilitation liabilities and obligations of the
Vendor pursuant to the Sale Interest or under any Environmental Law arising
after the Completion Date.

 
Page 16

 

 

Asset Transfer Agreement 

	 	(b)	 	The Vendor will be responsible for and will indemnify the Purchaser in
respect of all Liabilities associated with the Sale Interest which accrued, or relate
to any period, before the Completion Date.

	6.6	 	Insurance

	 	(a)	 	The Vendor and the Purchaser will use reasonable endeavours to cause any
insurance attributable to the Sale Interest to be changed to include the Purchaser’s
interest as the owner of the Sale Interest at Completion but with effect from the
Effective Date.
	 
	 	(b)	 	The Purchaser will reimburse the Vendor for a pro-rata share of annual
premium costs of insurance attributable to the Sale Interest and incurred in respect
of the Interim Period.

	6.7	 	Prepayments
	 
	 	 	From Completion the Purchaser shall have the benefit of the prepayments made by the Vendor
before the Effective Date on goods, services or other benefits in respect of the Sale
Interest which will be received by the Purchaser after the Effective Date (or by the Vendor
during the Interim Period).
	 
	7.	 	Cash Adjustment

 

	7.1	 	Completion Accounts to be kept
	 
	 	 	This clause 7 provides for adjustments to take into account the following:

	 	(a)	 	The balance between the Operator and the Vendor at the Effective Date (being
the difference of cumulative cash call paid since inception to the Effective Date to
the Operator less billings received from the Operator since inception to the Effective
Date).
	 
	 	(b)	 	All Vendor cash flow payments and receipts from the Effective Date to the
Completion Date.
	 
	 	(c)	 	The Vendor shall prepare a “cash adjustment statement” (the Cash Adjustment
Statement) comprising the balance between the Vendor and the Operator at the Effective
Date (referred to in paragraph (a)) and a cashflow account (Cashflow Account) in
respect of the Sale Interest for the Interim Period, taking into account the items
under clause 7.2.

 
Page 17

 

 

Asset Transfer Agreement 

	 	(d)	 	Where the balance between the Operator and the Vendor at the Effective Date
is payable from the Vendor to the Operator, it will be charged to the Vendor Account.
Where the balance between the Vendor and the Operator is a receivable from the
Operator it will be charged to the Purchaser Account.
	 
	 	(e)	 	The Cashflow Account will record the adjustment to be made for all Vendor
cash flow receipts and payments from the Effective Date to the Completion Date. Net
income received by the Vendor from the Effective Date will be charged to the Vendor
Account and net expenses will be charged to the Purchaser Account.
	 
	 	(f)	 	The Vendor shall periodically (but not less that every 30 days from the date
of this Agreement) provide the Purchaser a copy of an updated Cash Adjustment
Statement.

	7.2	 	Cashflow Account

	 	(a)	 	The Cashflow Account shall take into account:

	 	(i)	 	the amount of any cash paid or payable by the Vendor in
respect of operating costs in relation to the Participating Interest or which
are invoiced or charged to, or otherwise incurred by, the Vendor in respect of
the Participating Interest during the Interim Period (such amounts to be
treated as expenses) and the Vendor shall pay any invoices in respect of such
costs received prior to the Completion Date; and

	 	(ii)	(A) 	the amount of any cash received or entitled to be
received by the Vendor in respect of sales of Coalbed Methane, Liquid
Hydrocarbons or Petroleum invoiced in the Interim Period;
	 
	 	 	(B) 	any other income received or entitled to be
received in respect of the Participating Interest in the Interim
Period,
	 
	 	 	(such amounts to be treated as revenue).

	 	(b)	 	If the sum of the total of revenue exceeds the sum of the total of expenses
incurred, then the amount of the difference (including interest under this clause)
shall be charged to the Vendor Account, otherwise the amount of the difference shall
be charged to the Purchaser Account.

 
Page 18

 

 

Asset Transfer Agreement 

	7.3	 	Procedure to agree Adjustment Amount following Completion

	 	(a)	 	If agreed between the parties, within 30 days after the end of the month in
which Completion occurs, the Vendor will prepare the final Cash Adjustment Statement
and submit it to the Purchaser, made up to the Completion Date. The Vendor will
provide supporting documentation reasonably adequate to justify all of the figures.
	 
	 	(b)	 	Within 15 Business Days of the date on which the Purchaser receives the Cash
Adjustment Statement (or such shorter time as the parties agree), the Purchaser agrees
to advise the Vendor in writing of any amounts to which it does not agree, including
its reasons.
	 
	 	(c)	 	The Vendor and the Purchaser will in good faith seek to reach agreement
without delay on any amounts not agreed to between them.
	 
	 	(d)	 	If no notice is given by the Purchaser under paragraph (b), then the Cash
Adjustment Statement will be considered final for the purposes of determining the
Adjustment Amount.
	 
	 	(e)	 	If a notice is given under paragraph (b) and the Vendor and Purchaser do not
resolve the matter within 10 Business Days following receipt of the notice, then that
amount of the Adjustment Amount not disputed under paragraph (b) shall comprise the
Adjustment Amount.
	 
	 	(f)	 	If the parties are unable to resolve the dispute within 15 Business Days, the
parties shall refer such dispute to a certified public accountant to be selected by
the Vendor and the Purchaser, or failing which to be appointed by the American
Institute of Certified Public Accountants (AICPA). The decision of such chartered
accountant as to the Adjustment Amount shall be final and binding on the Vendor and
the Purchaser, and the Adjusted Amount thereon shall be paid or repaid by Purchaser or
the Vendor (as the case may be ) within 5 Business Days of such decision by the
chartered accountant.
	 
	 	(g)	 	Subject to paragraph (f), the Adjustment Amount shall be settled between the
parties within 20 Business Days of the date on which the Purchaser receives the Cash
Adjustment Statement.
	 
	 	(h)	 	Where the Vendor Account exceeds the Purchaser Account, the Adjustment Amount
shall be payable by the Vendor to the Purchaser.

 
Page 19

 

 

Asset Transfer Agreement 

	 	(i)	 	Where the Purchaser Account exceeds the Vendor Account, the Adjustment Amount
shall be payable by the Purchaser to the Vendor.

	7.4	 	Recognition of income and expenses
	 
	 	 	The Vendor and Purchaser agree that:

	 	(a)	 	the Vendor will recognise the income and expenditures attributable to the
Sale Interest for income tax purposes for all periods up to and including the
Completion Date; and
	 
	 	(b)	 	the Purchaser will recognise the income and expenditures attributable to the
Sale Interest after the Completion Date for income tax purposes.

	 	 	The Vendor and the Purchaser agree to file all income tax returns on this basis.
	 
	 	 	The Vendor will indemnify the Purchaser for any liability for income tax arising on or
prior to the Completion Date and for any other Tax attributable to the Sale Interest
arising prior to or on the Effective Date and the Purchaser will indemnify the Vendor for
any liability for income tax attributable to the Sale Interest arising after the Completion
Date and for any other Tax attributable to the Sale Interest arising from the Effective
Date.
	 
	8.	 	Notice to Complete

 

	8.1	 	Notice by the Purchaser
	 
	 	 	If the Vendor fails to satisfy its obligations under clause 6 on or before the Completion
Date, the Purchaser may give the Vendor a notice requiring it to satisfy those obligations
within 14 days after the date of receipt of the notice. If the Vendor fails to satisfy
those obligations on the date specified in the Purchaser’s notice, the Purchaser may,
without affecting or limiting any other rights it might have, terminate this Agreement.
	 
	8.2	 	Notice by the Vendor
	 
	 	 	If the Purchaser fails to satisfy its obligations under clause 6 on or before the
Completion Date, the Vendor may give the Purchaser a notice requiring it to satisfy those
obligations within 14 days after the date of receipt of the notice. If the Purchaser fails
to satisfy those obligations on the date

 
Page 20

 

 

Asset Transfer Agreement 

	 	 	specified in the Vendor’s notice, the Vendor may, without affecting or limiting any other
rights it might have, terminate this Agreement.
	 
	8.3	 	Time of the essence
	 
	 	 	When a notice is given under clause 8.1 or 8.2, time shall be of the essence under this
Agreement.
	 
	9.	 	Warranties and Purchaser Indemnity

 

	9.1	 	Representations and Warranties of the Vendor
	 
	 	 	The Vendor represents and warrants to the Purchaser, as at the date of this Agreement that
each of the following is true and complete in all material respects.

	 	(a)	 	(Title to Sale Interest) The Vendor has title and rights to the Sale
Interest free and clear of all Encumbrances and there is not in effect any agreement
or other commitment to create any Encumbrance over the Sale Interest.
	 
	 	(b)	 	(No breach) The Vendor is not in breach of the San Jiao Bei PSC or the Joint
Operating Agreement.
	 
	 	(c)	 	(Full disclosure) The Vendor has disclosed all material information in its
possession or under its control relevant to the performance of its obligations under
the San Jiao Bei PSC and the Joint Operating Agreement.
	 
	 	(d)	 	(Valid agreement) The San Jiao Bei PSC and the Joint Operating Agreement are
valid and subsisting in accordance with their terms and set out all of the Vendor’s
rights in relation to those agreements.
	 
	 	(e)	 	(Third party rights) To the best of the Vendor’s knowledge, the Vendor’s
rights under the San Jiao Bei PSC and the Joint Operating Agreement do not infringe
the rights of any third party.

	9.2	 	Disclosures
	 
	 	 	Each Warranty is subject to and qualified by any matter or transaction that:

	 	(a)	 	is provided for or described in this Agreement including the schedules;
	 
	 	(b)	 	is disclosed in the Disclosure Material or in Schedule 4; or
	 
	 	(c)	 	is known by the Purchaser.

 
Page 21

 

 

Asset Transfer Agreement 

	9.3	 	Limitation on liability
	 
	 	 	Notwithstanding any other provision of this Agreement, each of the following applies:

	 	(a)	 	the maximum aggregate liability of the Vendor under this Agreement (including
under any of the Warranties or any indemnity) is limited to an amount equal to the
Base Purchase Price plus any interest accrued;
	 
	 	(b)	 	the Vendor will not have any liability in respect of any claim under this
Agreement (including under the Warranties or any indemnity) unless reasonable
particulars of the claim are given to the Vendor before the end of eighteen (18)
calendar months from the end of the month in which the Completion Date occurs;
	 
	 	(c)	 	the liability of the Vendor in respect of any claim under this Agreement
(including under the Warranties or any indemnity) will be reduced or extinguished (as
the case may be) to the extent that the claim has arisen as a result of any act or
omission after Completion;
	 
	 	(d)	 	if after the Vendor has made a payment to the Purchaser under a claim made
under this Agreement (including under the Warranties or any indemnity), the Purchaser
receives any benefit or credit by reason of the matters to which the claim relates,
then the Purchaser shall immediately repay to the Vendor a sum corresponding to the
amount of the payment or (if less) the amount of the benefit or credit;
	 
	 	(e)	 	the Vendor will not be liable for a breach of Warranty in respect of any
matter or transaction referred to in clause 9.2;
	 
	 	(f)	 	the Vendor will not have any liability in respect of any proper claim under
this Agreement (including under the Warranties or any indemnity) unless:

	 	(i)	 	the amount of any one claim exceeds US $200,000; and
	 
	 	(ii)	 	the amount of the claim when aggregated with the amount of
any other claims properly made against the Vendor under this Agreement exceeds
the sum of US$400,000, but if such aggregate is exceeded then the whole
amount, and not just the excess above US$400,000, shall be recoverable; and

	 	(g)	 	the Vendor will not be liable to the Purchaser for any claim under this
Agreement (including under the Warranties or any indemnity):

 
Page 22

 

 

Asset Transfer Agreement 

	 	(i)	 	where the claim is as a result of any legislation not in
force at the date of this Agreement, including legislation which takes effect
retrospectively; or
	 
	 	(ii)	 	where the claim is as a result of or in respect of a change
in the judicial interpretation of the law in any jurisdiction after the date
of this Agreement.

	 	(h)	 	The limitation contained hereto shall not apply in the event of any
fraudulent act or omission of the Vendor, its agents or advisors.

	9.4	 	No reliance
	 
	 	 	The Purchaser acknowledges that:

	 	(a)	 	at no time has:

	 	(i)	 	the Vendor, or any person on behalf of the Vendor, made or
given; or
	 
	 	(ii)	 	the Purchaser relied on,

	 	 	 	any representation, warranty, promise or forecast except those in clauses 9.1 and
9.9 and otherwise as is set out in this Agreement;
	 
	 	(b)	 	no other statements or representations (written or oral) or other conduct by
or on behalf of the Vendor:

	 	(i)	 	have induced or influenced the Purchaser to enter into this
Agreement or agree to any or all of its terms;
	 
	 	(ii)	 	have been relied on in any way as being accurate by the
Purchaser;
	 
	 	(iii)	 	have been warranted to the Purchaser as being true; or
	 
	 	(iv)	 	have been taken into account by the Purchaser as being
important to the Purchaser’s decision to enter into this Agreement or agree to
any or all of its terms; and

	 	(c)	 	it has had the opportunity to make requests for further information relevant
to the Sale Interest and such information has been supplied, and that this information
and access has been granted by or on behalf of the Vendor to enable the Purchaser to
make its own investigations and form its own views and to rely on those investigations
and views in entering into this Agreement, which investigations and views it has
relied upon.

 
Page 23

 

 

Asset Transfer Agreement 

	9.5	 	Dealing with Warranty breach after Completion
	 
	 	 	If the Purchaser becomes aware after Completion of any circumstances which constitute or
could (whether alone or with any other possible circumstances) constitute a breach of any
Warranty, including (without limitation) a claim against the Purchaser which if satisfied
would result in a claim for breach of any Warranty, the Purchaser must do each of the
following:

	 	(a)	 	promptly give the Vendor full details of the circumstances and any further
related circumstances of which the Purchaser becomes aware;
	 
	 	(b)	 	until it notifies the Vendor in accordance with paragraph (a), take
reasonable steps to mitigate any loss which may give rise to a claim against the
Vendor for breach of any Warranty;
	 
	 	(c)	 	not make any admission of liability, agreement or compromise with any person
in relation to the circumstances without first consulting with and obtaining the
approval of the Vendor (such approval not to be unreasonably withheld);
	 
	 	(d)	 	give the Vendor and its professional advisers reasonable access to:

	 	(i)	 	the personnel and premises of the Purchaser; and
	 
	 	(ii)	 	relevant chattels, accounts, documents and records within the
power, possession or control of the Purchaser,

	 	 	 	to enable the Vendor and its professional advisers to examine the circumstances,
premises, chattels, accounts, documents and records and to take copies or
photographs of them at their own expense; and
	 
	 	(e)	 	at the cost of the Vendor, take all action in good faith and with due
diligence that the Vendor reasonably directs to avoid, remedy or mitigate the breach,
including legal proceedings and disputing, defending, appealing or compromising the
claim and any adjudication of it.

	9.6	 	Proceedings in respect of a claim
	 
	 	 	Any claim by the Purchaser under this Agreement (including under any Warranty or any
indemnity) will (if not previously satisfied, settled or withdrawn) be taken to be waived
or withdrawn and will be barred and unenforceable following the end of eighteen (18)
calendar months from the
end of the month in which the Completion Date occurs unless proceedings

 
Page 24

 

 

Asset Transfer Agreement 

	 	 	in respect of the
claim have been commenced against the Vendor. Proceedings will not be taken to be
commenced unless they have been both issued and served on the Vendor.
	 
	9.7	 	Insurance
	 
	 	 	The Vendor will not be liable to the Purchaser for any claim for breach of, or inaccuracy
in, any Warranty to the extent that the Purchaser is entitled to claim, and does recover,
under an indemnity against any loss or damage suffered by the Purchaser arising out of the
breach or claim under the terms of any insurance policy.
	 
	9.8	 	Notification of Warranty breach before Completion
	 
	 	 	If on or before Completion the Purchaser becomes aware of any breach or potential breach of
any Warranty, the Purchaser must:

	 	(a)	 	notify the Vendor of this; and
	 
	 	(b)	 	allow the Vendor a reasonable opportunity to remedy the breach or potential
breach.

	 	 	If the Vendor is unable to remedy it to the Purchaser’s reasonable satisfaction or if the
Purchaser does not, in its reasonable opinion, accept the result as a remedy and the breach
could expose the Vendor to a liability exceeding 25% of the Base Purchase Price as
determined in good faith by the Purchaser, the Vendor may terminate this Agreement by
giving notice to the Purchaser and the Vendor shall immediately return the Deposit and any
other payments made against the Base Purchase Price, including interest accrued thereon, to
the Purchaser.
	 
	9.9	 	Each Party Warranties
	 
	 	 	Each party, both at the date of this Agreement and at the Completion Date, warrants for the
benefit of each other party as follows:

	 	(a)	 	it is a company duly incorporated and validly existing under the laws of the
State or country of its incorporation;
	 
	 	(b)	 	subject to the satisfaction of the conditions in clause 3.1, it has full
power and authority to enter into, and has taken, or prior to the Completion Date will
have taken, all necessary corporate action required by it for the execution of, this
Agreement and the transactions contemplated by this Agreement;

 
Page 25

 

 

Asset Transfer Agreement 

	 	(c)	 	this Agreement sets out and provides for its valid and binding obligations
enforceable in accordance with its terms and neither the execution and performance by
it of this Agreement nor any transaction contemplated by it will violate in any
respect:

	 	(i)	 	any law or treaty or any judgement, ruling, order,
authorisation, requirement or decree of any Governmental Agency binding on it;
	 
	 	(ii)	 	its constitution or other constituent documents; or
	 
	 	(iii)	 	any other document or agreement which is binding upon it or
its assets; and

	 	(d)	 	to the best of its knowledge, information and belief after due enquiry, no
petition has been issued against it for winding up, no receiver, administrator,
receiver and manager, official manager, liquidator or provisional liquidator has been
appointed to it, no action has been taken to seize or take possession of any of its
assets and there are no unsatisfied judgements against it nor has any sequestration
order been made or writ of execution issued against it or any of its assets.

	9.10	 	Purchaser Warranties
	 
	 	 	The Purchaser warrants for the benefit of the Vendor that at the Completion Date it has all
necessary approvals in place and will be in a position to fund the purchase of the Sale
Interest and complete the transaction contemplated herein without undue delay.
	 
	9.11	 	Purchaser Indemnity
	 
	 	 	PAPI hereby indemnifies, defends and holds harmless the Vendor in respect of all rights,
obligations, acts and omissions of the Purchaser in relation to this Agreement.
	 
	10.	 	Overdue Amount

 

	10.1	 	Interest

	 	(a)	 	Any amount due and payable but unpaid by a party in accordance with this
Agreement will bear interest at the rate referred to in clause 10.2 accruing daily
from the due date up to and including the date of actual payment before and (as a
separate and independent legal obligation) after any judgement obtained in respect of
that amount

 
Page 26

 

 

Asset Transfer Agreement 

	 	 	 	(but excluding that day if payment is made in immediately available funds by 12.00
noon on that day).
	 
	 	(b)	 	If any amount payable pursuant to this clause 10 is subject to Tax in the PRC
(including but not limited to, withholding tax or business tax), the party responsible
for such payment under paragraph (a) (the Responsible Party) shall pay the other party
(the Owed Party) any additional amounts actually paid by the Owed Party to ensure that
the Owed Party receives a net amount (after payment of any Taxes in respect of those
additional amounts) in the relevant currency equal to the full amount which it would
have received had a deduction for Tax not been made. The Responsible Party shall
indemnify the Owed Party against the Tax and any amounts recoverable from the Owed
Party in respect of the Tax.

	10.2	 	Rate
	 
	 	 	The rate of interest applicable for the purposes of clause 10.1 is the rate equal to the
aggregate of 3% per annum and the Relevant Rate calculated on a daily basis.

	11.	 	Access to Records after Completion

 

	 	 	After the Completion Date, to the extent reasonably necessary to enable each party to
comply with its obligations and administer its affairs, in relation to any Tax:

	 	(a)	 	the Purchaser shall keep the books, records and other documents relating to
the Sale Interest delivered to the Purchaser on Completion; and
	 
	 	(b)	 	the Vendor shall keep the books, records and other documents relating to the
Business required to be kept or maintained by the Vendor,

	 	 	for 10 years (or such greater period required under PRC law) from the date of the creation
of the relevant document. Each party, to the extent reasonably necessary to enable the
other party to comply with its obligations and administer its affairs, in relation to any
Tax, shall permit the other party to have access to those books, records and documents
during business hours as the other party reasonably requires.

 
Page 27

 

 

Asset Transfer Agreement 

	12.	 	No Disclosure

 

	12.1	 	Confidentiality
	 
	 	 	Subject to clauses 12.3 and 12.4, each party shall keep the terms of this Agreement
confidential.
	 
	12.2	 	Purchaser’s investigation
	 
	 	 	Subject to clause 12.3, any Confidential Information obtained by the Purchaser in relation
to the Sale Interest must be kept confidential:

	 	(a)	 	until the Completion Date; and
	 
	 	(b)	 	after the Completion Date, if Completion does not occur.

	12.3	 	Exceptions
	 
	 	 	A party may make any disclosures in relation to this Agreement or any Confidential
Information as it thinks necessary:

	 	(a)	 	to its professional advisers, bankers, financial advisers and financiers, if
those persons undertake to keep information disclosed confidential;
	 
	 	(b)	 	to apply for and obtain any approvals or consents contemplated in clause 3.1;
	 
	 	(c)	 	to comply with any applicable law or requirement of any Governmental Agency;
or
	 
	 	(d)	 	to any of its employees to whom it is necessary to disclose the information
and who have an obligation to keep such information confidential.

	12.4	 	Public announcements
	 
	 	 	Except as required by applicable law or the requirements of any Governmental Agency,
all press releases and other public announcements relating to the transactions dealt with
by this Agreement to be made by the Vendor or the Purchaser must be in terms agreed by the
other of them (acting reasonably).
	 
	12.5	 	Confidentiality Agreement unaffected
	 
	 	 	If the Purchaser has entered into any separate agreement to keep confidential the
Confidential Information of the Vendor or the Business,

 
Page 28

 

 

Asset Transfer Agreement 

	 	 	nothing in this clause 12 shall limit or otherwise affect the terms of that agreement.
	 
	13.	 	Amendment

 

	 	 	This Agreement may be amended only by another agreement executed by the parties.
	 
	14.	 	Further Assurances

 

	 	 	Each party shall take all steps, execute all documents and do everything reasonably
required by the other party to give effect to any of the transactions contemplated by this
Agreement.
	 
	15.	 	Entire Agreement

 

	 	 	This Agreement contains the entire agreement between the parties with respect to its
subject matter. It sets out the only conduct relied on by the parties and supersedes all
earlier conduct and prior agreements and understandings between the parties in connection
with its subject matter.
	 
	16.	 	Assignment

 

	 	 	The rights of the parties under this Agreement cannot be assigned, charged or otherwise
dealt with.
	 
	17.	 	Costs and Stamp Duty

 

	 	 	Each party must bear its own costs arising out of the negotiation and preparation of this
Agreement. All stamp duty chargeable on this Agreement, on any instrument executed under
it, and in respect of any transaction evidenced by this Agreement shall be borne equally by
the parties.
	 
	18.	 	Governing Law

 

	 	 	This Agreement is governed by the laws of England and Wales. The parties submit to the
exclusive jurisdiction of the courts exercising jurisdiction there.

 
Page 29

 

 

Asset Transfer Agreement 

	19.	 	Counterparts

 

	 	 	This Agreement may be executed in any number of counterparts. All counterparts together
will be taken to constitute one instrument.

	20.	 	No Merger

 

	 	 	The rights and obligations of the parties will not merge on the completion of any
transaction contemplated by this Agreement. They will survive the execution and delivery
of any assignment or other document entered into for the purpose of implementing a
transaction.
	 
	21.	 	No Waiver

 

	 	 	A failure to exercise or a delay in exercising any right, power or remedy under this
Agreement does not operate as a waiver. A single or partial exercise or waiver of the
exercise of any right, power or remedy does not preclude any other or further exercise of
that or any other right, power or remedy. A waiver is not valid or binding on the party
granting that waiver unless made in writing.
	 
	22.	 	FCPA

 

	 	 	Each Party warrants that neither it nor its affiliates has made or will make, with respect
to the matters provided for hereunder, any offer, payment, promise to pay or authorisation
of the payment of any money, or any offer, gift, promise to give or authorisation of the
giving of anything of value, directly or indirectly, to or for the use or benefit of any
official or employee of any government authority or to or for the use or benefit of any
political party, official, or candidate (Offer) unless such Offer is authorised by the
applicable laws of any government authority. Each Party further warrants that neither it
nor its affiliates has made or will make any such Offer to or for the use or benefit of any
other person if the Party has a belief, or is aware that there is a high probability that
the other person would use such Offer for any of the purposes described in the preceding
sentence. The Purchaser understands that the Vendor does not authorize any payments which
would be prohibited by the United States Foreign Corrupt Practices Act (FCPA) (or any other
similar law or regulation of any other government having jurisdiction over this Agreement
and/or the Parties) and acknowledges that no employee of the Vendor shall have authority to
give any direction relating

 
Page 30

 

 

Asset Transfer Agreement 

	 	 	to the making of any commitment by the Purchaser to any third party in violation of the
FCPA (or other similar law or regulation).
	 
	23.	 	Audit

 

	 	 	Each Party shall be entitled to audit all accounts and financial records the other relating
to the payments made and received under this Agreement for any calendar year upon thirty
(30) days advance notice to the other Party. This right to audit must be exercised within a
period of twenty-four (24) months from the end of the calendar year to which the charges
relate. Payments of any advances or invoices shall not prejudice the right of any Party to
challenge the correctness thereof. After the twenty-four (24) month period, all costs
charged shall conclusively be presumed to be true and correct, except for costs detailed in
written exceptions resulting from the audits provided such exceptions are received before
the expiration of that period. All costs of the audit shall be borne by the Party
conducting the audit.
	 
	24.	 	Consequential Loss

 

	 	 	Neither Party is liable in an action initiated by one against the other for special,
indirect or consequential damages resulting from or arising out of this Agreement,
including loss of profit or business interruptions, however these losses may be caused.
	 
	25.	 	Notices

 

	 	 	Any notice, demand, consent or other communication (a Notice) given or made under this
Agreement:

	 	(a)	 	must be in writing and signed by the sender or a person duly authorised by
the sender;
	 
	 	(b)	 	must be addressed and delivered to the intended recipient at the address or
fax number below or the address or fax number last notified by the intended recipient
to the sender after the date of this Agreement:

	 	 	 	 	 
	(i)

	 	to the Vendor:
	 	1218 China World Tower 2,

1 Jian Guo Men Wai Avenue

Beijing 100004, PRC

 
Page 31

 

 

Asset Transfer Agreement 

	 	 	 	 	 
	 

	 	 	 	Attention: Tim Galvin

Fax No: +86 10 6505 8209;
	 
	 	 	 	 
	(ii)

	 	to the Purchaser:
	 	250 East Hartsdale Ave

Hartsdale, NY 10530

United States of America

Attention: Frank Ingriselli

Fax No: +1 914 472 6793; and
	 
	 	 	 	 
	(iii)

	 	to PAPI:
	 	250 East Hartsdale Ave

Hartsdale, NY 10530

United States of America

Attention: Frank Ingriselli

Fax No: +1 914 472 6793.

	 	 	will be taken to be duly given or made when delivered, received or left at the above fax
number or address. If delivery or receipt occurs on a day that is not a business day in
the place to which the Notice is sent or is later than 4pm (local time) at that place, it
will be taken to have been duly given or made at the commencement of business on the next
business day in that place.

 
Page 32

 

 

Asset Transfer Agreement 

	 	 	 	 	 	 	 
	EXECUTED as an agreement	 	 
	 
	 	 	 	 	 	 
	SIGNED for and on behalf of ChevronTexaco 

China Energy Company by its duly authorised
signatory	 	 
	 
	 	 	 	 	 	 
	Signed	 	 
	 	 
	 

	 	Title
	 	 

	 	 
	 

	 	Witness
	 	 

	 	 
	 
	 	 	 	 	 	 
	SIGNED for and on behalf of Pacific Asia 

Petroleum, Ltd. by its duly authorised signatory	 	 
	 
	 	 	 	 	 	 
	Signed	 	 
	 	 
	 

	 	Title
	 	 

	 	 
	 

	 	Witness
	 	 

	 	 
	 
	 	 	 	 	 	 
	SIGNED for and on behalf of Pacific Asia 

Petroleum, Inc. by its duly authorised signatory	 	 
	 
	 	 	 	 	 	 
	Signed	 	 
	 	 
	 

	 	Title
	 	 

	 	 
	 

	 	Witness
	 	 

	 	 

 
Page 33

 

 

Asset Transfer Agreement 

Schedule 1

Notice of Proposed Transfer

 

To: Sino Gas & Energy Limited

Joint Operating Agreement and Farmout Agreement in respect of the San Jiao Bei Area, PRC

ChevronTexaco China Energy Company (CHEVRON) hereby gives you notice that it proposes to transfer
its rights and obligations under the Joint Operating Agreement between Sino Gas & Energy Limited
and CHEVRON dated 24 January 2006 and a Farmout Agreement between Sino Gas & Energy Limited and
CHEVRON dated 24 January 2006, to Pacific Asia Petroleum, Ltd.. As a consequence, CHEVRON will
also transfer to Pacific Asia Petroleum, Ltd. its Participating Interest in the Production Sharing
Contract for the Exploitation of Coalbed Methane Resources in the San Jiao Bei Area, the People’s
Republic of China between CUCBM, Arco China Inc and Arco Ordos CBM Limited dated 29 June 1998 (the
PSC). The proposed transfer of CHEVRON’s interest in the Joint Operating Agreement, the Farmout
Agreement and the PSC to Pacific Asia Petroleum, Ltd. is referred to hereafter as the Proposed
Transfer.

CHEVRON intends to enter into a binding agreement with Pacific Asia Petroleum, Ltd. in order for
the Proposed Transfer to take place with effect on and from 30 June 2007 subject to obtaining all
necessary approvals. We attach the form of agreement setting out the final terms and conditions of
the Proposed Transfer (the Transfer Agreement).

Pursuant to the terms of the Joint Operating Agreement, you have a right, exercisable within 30
days of receipt of this notice, to acquire CHEVRON’s Participating Interest in the PSC on the same
terms as the attached Transfer Agreement. This right, if exercised, is subject to a final right of
CUCBM to acquire CHEVRON’s interest on the same terms.

CHEVRON is also required to obtain your consent to proceed with the Proposed Transfer.

We would be grateful if you could sign and return the enclosed copy of this letter indicating your
consent to the Proposed Transfer and waiving your pre-emptive right.

 
Page 34

 

 

Asset Transfer Agreement 

	 	 	 
	 

	 	 
	For and on behalf of

ChevronTexaco China Energy Company
	 	 

By counter-signing and returning this letter, we Sino Gas & Energy Limited:

	 	(a)	 	waive the right to exercise our pre-emptive right to acquire CHEVRON’s
Participating Interest on the terms specified in the Transfer Agreement; and
	 
	 	(b)	 	consent to the Proposed Transfer to Pacific Asia Petroleum, Ltd. on the terms
specified in the Transfer Agreement.

	 	 	 
	 

For and on behalf of

Sino Gas & Energy Limited

	 	 

[Transfer Agreement to be attached.]

 
Page 35

 

 

Asset Transfer Agreement 

Schedule 2

Notice of Assignment to CUCBM

	To:	 	China United Coalbed Methane Corporation, Ltd

A88 Anwai Avenue,

Beijing 100011, PRC

Attention: Mr. Du Ming

Facsimile: +86 10 64291881

Production Sharing Contract for the Exploitation of Coalbed Methane Resources in respect of the San
Jiao Bei area, PRC

ChevronTexaco China Energy Company (CHEVRON) gives you notice that it proposes to transfer its
rights and obligations under the Production Sharing Contract for the Exploitation of Coalbed
Methane Resources in the San Jiao Bei Area, the People’s Republic of China between CUCBM, Arco
China Inc and Arco Ordos CBM Limited dated 29 June 1998 (the PSC), to Pacific Asia Petroleum, Ltd.
The proposed transfer of CHEVRON’s participating interest in the PSC to Pacific Asia Petroleum,
Ltd. is referred to hereafter as the Proposed Transfer.

CHEVRON intends to enter into a binding agreement with Pacific Asia Petroleum, Ltd. in order for
the Proposed Transfer to take place with effect on and from 30 June 2007 subject to obtaining all
necessary approvals. We attach the form of agreement setting out the final terms and conditions of
the proposed transfer to Pacific Asia Petroleum, Ltd. (the Transfer Agreement).

Pursuant to the terms of the PSC, you have a right, exercisable within 60 days of receipt of this
notice, to acquire CHEVRON’s Participating Interest in the PSC on the same terms as the attached
Transfer Agreement.

CHEVRON is also required to obtain your consent to proceed with the Proposed Transfer.

We would be grateful if you could sign and return the enclosed copy of this letter, indicating your
consent to the Proposed Transfer.

 
Page 36

 

 

Asset Transfer Agreement 

	 	 	 
	 

	 	 
	For and on behalf of

ChevronTexaco China Energy Company
	 	 

By counter-signing and returning this letter, we China United Coalbed Methane Corporation Ltd
consent to the Proposed Transfer to Pacific Asia Petroleum, Ltd. on the terms specified in the
Transfer Agreement.

	 	 	 
	 

	 	 
	For and on behalf of

China United Coalbed Methane Corporation Ltd
	 	 

[Transfer Agreement to be attached.]

 
Page 37

 

 

Asset Transfer Agreement 

Schedule 3

Disclosure Material

 

	 	1.	 	PSC — Dan Jiao Area (dd. June 1998)
	 
	 	2.	 	Amendment Agreement to PSC (dd February 26, 2004)
	 
	 	3.	 	JOA (Sino Gas) — (dd. January 24, 2006)
	 
	 	4.	 	Modification Agreement for PSC (dd. January 24, 2006)
	 
	 	5.	 	Modification Agreement for PSC (dd. November 24, 1998)
	 
	 	6.	 	Modification Agreement for PSC (dd. August 8, 1999)
	 
	 	7.	 	Modification Agreement for PSC (dd. July 29, 2002)
	 
	 	8.	 	Modification Agreement for PSC (dd. August 26, 2003)
	 
	 	9.	 	Farmout Agreement (dd. January 24, 2006)
	 
	 	10.	 	Amendment to Farmout Agreement (dd. December 20, 2006)
	 
	 	11.	 	Deed of Assignment (dd. December 30, 1998)
	 
	 	12.	 	Deed of Assignment (dd. January 24, 2006)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	Date	 	 	Items	 	 	Description	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	12-Jul-07	 	 	1CD	 	 	End of Well Report:	 	LXSG-1	 
	 	 

	 	 	 	 	 	 	 	 	 	SJSG-1	 
	 	 

	 	 	 	 	 	 	 	 	 	TB-1	 
	 	 

	 	 	 	 	 	 	 	 	 	TB-2	 
	 	 

	 	 	 	 	 	TB-4 data
	 	 	 	All Avialable Data	 
	 	 

	 	 	 	 	 	TB-3 data
	 	 	 	All Available Data	 
	 	 

	 	 	 	 	 	Others:
	 	 	 	TB-1, TB-2, TB-3, TB-4 FE analysis	 
	 	 

	 	 	 	 	 	 	 	 	 	Ordos Play Map	 
	 	 

	 	 	 	 	 	 	 	 	 	TB-1, TB-2, TB-3 wireline logs	 
	 	 

	 	 	 	 	 	 	 	 	 	TB-4 Formation Evaluation	 
	 	 	 	 	 	 	 	 	 
	 	30-Jul-07	 	 	Hard copy	 	 	BD Pilot producion reports (3 Jun-21 Jul)	 
	 	 	 	 	 	 	 	TB-01 Daily Operations Reports (25 Jun-29 Jul)	 
	 	 	 	 	 	 	 	TB-02 Daily Operations Reports (18 Jun -29 Jul)	 
	 	 	 	 	 	 	 	 	 
	 	6-Aug-07	 	 	1CD	 	 	BD-7 & BD-8:	 	5-day Outlook	 
	 	 

	 	 	 	 	 	 	 	 	 	Daily Drilling Reports	 
	 	 

	 	 	 	 	 	 	 	 	 	Daily Geological Reports	 
	 	 

	 	 	 	 	 	 	 	 	 	Mud Logs	 
	 	 

	 	 	 	 	 	 	 	 	 	Wireline Logs	 
	 	 

	 	 	 	 	 	BD-9:
	 	 	 	Daily Drilling Reports	 
	 	 

	 	 	 	 	 	 	 	 	 	Daily Geological Report	 
	 	 

	 	 	 	 	 	BD-10:
	 	 	 	Daily Drilling Reports	 
	 	 

	 	 	 	 	 	 	 	 	 	Daily Geological Reports	 
	 	 

	 	 	 	 	 	 	 	 	 	Mud Logs	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	ChangQing Study-2003:	 	CQ RI Final Report
	 

 
Page 38

 

 

Asset Transfer Agreement 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	Date	 	 	Items	 	 	Description	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 

	 	 	 	 	 	 	 	 	 	Hedong Report
	 
	 	 

	 	 	 	 	 	 	 	 	 	Attachments_tif
	 
	 	 	 	 	 	 	 	 	 
	 	8-Aug-07	 	 	Electronic file	 	 	SF-2 mud log	 	SF-2 wirelin log
	 
	 	 	 	 	 	 	 	BD-11 wireline logs	 	BD-11_BD6_4v_500
	 
	 	 	 	 	 	 	 	 	 
	 	10-Aug-07	 	 	Electronic file	 	 	Linxing Block map	 	 	 
	 	 	 	 	 	 	 	 	 
	 	28-Aug-07	 	 	1CD	 	 	JMC August 2007 FINAL 23Aug07.ppt	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	BD-11 :	 	BD-11 Drilling Parameters.xls	 
	 	 	 	 	 	 	 	 	 	BD-11 DST1 S8_9_10_11_040707.ppt	 
	 	 	 	 	 	 	 	 	 	BD-11 DST2 S4_5_040707.ppt	 
	 	 	 	 	 	 	 	 	 	BD-11 DST3 S8_9_10_11Final_040707.ppt	 
	 	 	 	 	 	 	 	 	 	BD-11 Testing Summary040707.ppt	 
	 	 	 	 	 	 	 	 	 	BD-11_Final_Mudlog_040607.gif	 
	 	 	 	 	 	 	 	 	 	BD11 Daily Drilling Reports.zip	 
	 	 	 	 	 	 	 	 	 	BD11 Final Core Run Sheet.doc	 
	 	 	 	 	 	 	 	 	 	BD11_Final_Lithology_Detail_300507.doc	 
	 	 	 	 	 	 	 	 	 	BD11_Final_Mudlogging_Report_310507.pdf	 
	 	 	 	 	 	 	 	 	 	BD11_Predict_Actual_v1.ppt	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	BD-6 :	 	BD6 Daily Drilling Reports.zip	 
	 	 	 	 	 	 	 	 	 	BD6 Testing Summary190707.ppt	 
	 	 	 	 	 	 	 	 	 	BD6_Detailed_Lithology_Description_
150707.doc	 
	 	 	 	 	 	 	 	 	 	BD6_Gas_Content_test_result_260707.doc	 
	 	 	 	 	 	 	 	 	 	BD6_Predict_Actual_v1.ppt	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Permeability

Testing:	 	Testing Campaign Summary150807.xls	 
	 	 	 	 	 	 	 	 	 	Testing Summary for 2006_7 Wells140807.ppt	 
	 	 	 	 	 	 	 	Seam 89

Maps :	 	Baode_Seam89_Floor_Structure_mAMS_
Aug2007.jpg	 
	 	 	 	 	 	 	 	 	 	Baode_Seam89_Isochore_Aug2007.jpg	 
	 	 	 	 	 	 	 	 	 	Baode_Seam89_Overburden_Aug2007.jpg	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	SF-2 :	 	Prelim_SF2_Proximate_Analysis.doc	 
	 	 	 	 	 	 	 	 	 	SF2 Daily Drilling Reports.zip	 
	 	 	 	 	 	 	 	 	 	SF2 Final Core Run Sheet080507.doc	 
	 	 	 	 	 	 	 	 	 	SF2 Lithology Detail_Final_070507.doc	 
	 	 	 	 	 	 	 	 	 	SF2 S4 DST2 Prelim Interp090507.pdf	 
	 	 	 	 	 	 	 	 	 	SF2 S4 DST2 Prelim Interp110507.ppt	 
	 	 	 	 	 	 	 	 	 	SF2 S8_9 DST3 Prelim Interp110507.pdf	 

 
Page 39

 

 

Asset Transfer Agreement 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	Date	 	 	Items	 	 	Description	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	SF2 S8_9 DST3 Prelim Interp110507.ppt	 
	 	 	 	 	 	 	 	 	 	sf2samp_10-270.jpg	 
	 	 	 	 	 	 	 	 	 	sf2samp_1060-1130a.jpg	 
	 	 	 	 	 	 	 	 	 	sf2samp_275-470.jpg	 
	 	 	 	 	 	 	 	 	 	sf2samp_475-670.jpg	 
	 	 	 	 	 	 	 	 	 	sf2samp_675-870.jpg	 
	 	 	 	 	 	 	 	 	 	sf2samp_875-1055.jpg	 
	 	 	 	 	 	 	 	 	 	SF2_Final_Mudlogging_Report_030607.pdf	 
	 	 	 	 	 	 	 	 	 	SF2_Final_Mudlog_110507.jpg	 
	 	 	 	 	 	 	 	 	 	SF2_Predict_Actual_v3.ppt	 
	 	 	 	 	 	 	 	 	 

 
Page 40

 

 

Asset Transfer Agreement 

Schedule 4

Warranty Disclosures

 

 
Page 41Exhibit 4.1

 

Ex 4.1

2007 EQUITY INCENTIVE PLAN

OF

POINT.360

	1.	 	PURPOSES OF THE PLAN

     The purposes of the 2007 Equity Incentive Plan (the “Plan”) of Point.360, a California
corporation (the “Company”), are to:

     1.1 Encourage selected employees, directors, consultants and advisers to improve operations
and increase the profitability of the Company;

     1.2 Encourage selected employees, directors, consultants and advisers to accept or continue
employment or association with the Company or its Affiliates; and

     1.3 Increase the interest of selected employees, directors, consultants and advisers in the
Company’s welfare through participation in the growth in value of the common stock of the Company
(the “Common Stock”). All references herein to stock or shares, unless otherwise specified, shall
mean Common Stock.

	2.	 	TYPES OF AWARDS; ELIGIBLE PERSONS

     2.1 The Administrator (as defined below) may, from time to time, take the following action,
separately or in combination, under the Plan: (i) grant “incentive stock options” (“ISOs”) intended
to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder (the “Code”); (ii) grant “non-qualified options” (“NQOs,” and together
with ISOs, “Options”); (iii) grant or sell Common Stock subject to restrictions (“restricted
stock”) and (iv) grant stock appreciation rights (any such right would permit the holder to receive
the excess of the fair market value of Common Stock on the exercise date over its fair market value
(or a greater base value) on the grant date (“SARs”)), either in tandem with Options or as separate
and independent grants. Any such awards may be made to employees, including employees who are
officers or directors, and to individuals described in Section 1 of the Plan who the Administrator
believes have made or will make a contribution to the Company or any Affiliate (as defined below);
provided, however, that only a person who is an employee of the Company or any
Affiliate at the date of the grant of an Option is eligible to receive ISOs under the Plan. The
term “Affiliate” as used in the Plan means a parent or subsidiary corporation as defined in the
applicable provisions (currently Sections 424(e) and (f), respectively) of the Code. The term
“employee” includes an officer or director who is an employee of the Company. The term
“consultant” includes persons employed by, or otherwise affiliated with, a consultant. The term
“adviser” includes persons employed by, or otherwise affiliated with, an adviser.

     2.2 Except as otherwise expressly set forth in the Plan, no right or benefit under the Plan
shall be subject in any manner to anticipation, alienation, hypothecation, or charge, and any such
attempted action shall be void. No right or benefit under the Plan shall in any manner be

 

 

liable for or subject to debts, contracts, liabilities, or torts of any option holder or any
other person except as otherwise may be expressly required by applicable law.

	3.	 	STOCK SUBJECT TO THE PLAN; MAXIMUM NUMBER OF GRANTS

     Subject to the provisions of Sections 6.1.1 and 8.2 of the Plan, the total number of shares of
Common Stock which may be offered, or issued as restricted stock or on the exercise of Options or
SARs under the Plan shall not exceed two million (2,000,000) shares of Common Stock. The shares
subject to an Option or SAR granted under the Plan that expire, terminate or are cancelled
unexercised shall become available again for grants under the Plan. If shares of restricted stock
awarded under the Plan are forfeited to the Company or repurchased by the Company, the number of
shares forfeited or repurchased shall again be available under the Plan. Where the exercise price
of an Option is paid by means of the optionee’s surrender of previously owned shares of Common
Stock or the Company’s withholding of shares otherwise issuable upon exercise of the Option as may
be permitted herein, only the net number of shares issued and which remain outstanding in
connection with such exercise shall be deemed “issued” and no longer available for issuance under
the Plan. No eligible person shall be granted Options or other awards during any twelve-month
period covering more than five hundred thousand (500,000) shares.

	4.	 	ADMINISTRATION

     4.1 The Plan shall be administered by the Board of Directors of the Company (the “Board”) or
by a committee (the “Committee”) selected by the Board to administer the Plan, or of part thereof
(in either case, the “Administrator”). The Board shall appoint and remove members of the Committee
in its discretion in accordance with applicable laws. At the Board’s discretion, the Committee may
be comprised solely of “non-employee directors” within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or “outside directors” within
the meaning of Section 162(m) of the Code. The Administrator may delegate non-discretionary
administrative duties to such employees of the Company as the Administrator deems proper and the
Board, in its absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the Plan.

     4.2 Subject to the other provisions of the Plan, the Administrator shall have the authority,
in its discretion: (i) to grant Options and SARs and grant or sell restricted stock; (ii) to
determine the fair market value of the Common Stock subject to Options or other awards; (iii) to
determine the exercise price of Options granted, which shall be no less than the fair market value
of the Common Stock on the date of grant, the economic terms of SARs granted, which shall provide
for a benefit of the appreciation on Common Stock over not less than the value of the Common Stock
on the date of grant, or the offering price of restricted stock; (iv) to determine the persons to
whom, and the time or times at which, Options or SARs shall be granted or restricted stock granted
or sold, and the number of shares subject to each Option or SAR or the number of shares of
restricted stock granted or sold; (v) to construe and interpret the terms and provisions of the
Plan, of any applicable agreement and all Options and SARs granted under the Plan, and of any
restricted stock award under the Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of each Option and

2

 

SAR granted and award of restricted stock (which need not be identical), including but not
limited to, the time or times at which Options and SARs shall be exercisable or the time at which
the restrictions on restricted stock shall lapse; (viii) with the consent of the grantee, to
rescind any award or exercise of an Option or SAR and to modify or amend the terms of any Option,
SAR or restricted stock; (ix) to reduce the purchase price of restricted stock; (x) to accelerate
or defer (with the consent of the grantee) the exercise date of any Option or SAR or the date on
which the restrictions on restricted stock lapse; (xi) to issue shares of restricted stock to an
optionee in connection with the accelerated exercise of an Option by such optionee; (xii) to
authorize any person to execute on behalf of the Company any instrument evidencing the grant of an
Option. SAR or award of restricted stock; (xiii) to determine the duration and purposes of leaves
of absence which may be granted to participants without constituting a termination of their
employment for the purposes of the Plan; and (xiv) to make all other determinations deemed
necessary or advisable for the administration of the Plan, any applicable agreement, Option, SAR or
award of restricted stock.

     4.3 All questions of interpretation, implementation, and application of the Plan or any
agreement or Option, SAR or award of restricted stock shall be determined by the Administrator,
which determination shall be final and binding on all persons.

	5.	 	GRANTING OF OPTIONS AND SARS; AGREEMENTS

     5.1 No Options or SARs shall be granted under the Plan after ten (10) years from the date of
adoption of the Plan by the Board.

     5.2 Each Option and SAR shall be evidenced by a written agreement, in form satisfactory to the
Administrator, executed by the Company and the person to whom such grant is made. In the event of
a conflict between the terms or conditions of an agreement and the terms and conditions of the
Plan, the terms and conditions of the Plan shall govern.

     5.3 Each agreement shall specify whether the Option it evidences is an NQO or an ISO,
provided, however, all Options granted under the Plan to non-employee directors,
consultants and advisers of the Company are intended to be NQOs.

     5.4 Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of
Options or SARs under the Plan to persons who are expected to become employees, directors,
consultants or advisers of the Company, but are not employees, directors, consultants or advisers
at the date of approval.

	6.	 	TERMS AND CONDITIONS OF OPTIONS AND SARS

     Each Option and SAR granted under the Plan shall be subject to the terms and conditions set
forth in Section 6.1. NQOs and SARs shall also be subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and
conditions set forth in Section 6.3, but not those set forth in Section 6.2. SARs shall be subject
to the terms and conditions of Section 6.4.

     6.1 Terms and Conditions to Which All Options and SARs Are Subject. All Options and
SARs granted under the Plan shall be subject to the following terms and conditions:

3

 

          6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the Common Stock of
the Company is changed by reason of a stock split, reverse stock split, stock dividend,
recapitalization, combination or reclassification, or if the Company effects a spin-off of the
Company’s subsidiary, appropriate adjustments shall be made by the Administrator, in its sole
discretion, in (a) the number and class of shares of stock subject to the Plan and each Option and
SAR outstanding under the Plan, and (b) the exercise price of each outstanding Option;
provided, that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Any adjustment, however, in an outstanding Option shall be made without
change in the total price applicable to the unexercised portion of the Option but with a
corresponding adjustment in the price for each share covered by the unexercised portion of the
Option. Adjustments under this Section 6.1.1 shall be made by the Administrator, whose
determination as to the nature of the adjustments that shall be made, and the extent thereof, shall
be final, binding, and conclusive. If an adjustment under this Section 6.1.1 would result in a
fractional share interest under an option or any installment, the Administrator’s decision as to
inclusion or exclusion of that fractional share interest shall be final, but no fractional shares
of stock shall be issued under the Plan on account of any such adjustment.

          6.1.2 Corporate Transactions. Except as otherwise provided in the applicable
agreement, in the event of a Corporate Transaction (as defined below), the Administrator shall
notify each holder of an Option or SAR at least thirty (30) days prior thereto or as soon as may be
practicable. To the extent not then exercised all Options and SARs shall terminate immediately
prior to the consummation of such Corporate Transaction unless the Administrator determines
otherwise in its sole discretion; provided. however, that the Administrator, in its
sole discretion, may (i) permit exercise of any Options or SARs prior to their termination, even if
such Options or SARs would not otherwise have been exercisable, and/or (ii) provide that all or
certain of the outstanding Options and SARs shall be assumed or an equivalent Option or SAR
substituted by an applicable successor corporation or entity or any Affiliate of the successor
corporation or entity. A “Corporate Transaction” means (i) a liquidation or dissolution of the
Company; (ii) a merger or consolidation of the Company with or into another corporation or entity
(other than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of
the assets of the Company; or (iv) a purchase or other acquisition of more than 50% of the
outstanding stock of the Company by one person or by more than one person acting in concert.

          6.1.3 Time of Option or SAR Exercise. Subject to Section 5 and Section 6.3.4, an
Option or SAR granted under the Plan shall be exercisable (a) immediately as of the effective date
of the of the applicable agreement or (b) in accordance with a schedule or performance criteria as
may be set by the Administrator and specified in the applicable agreement. However, in no case may
an Option or SAR be exercisable until a written agreement in form and substance satisfactory to the
Company is executed by the Company and the grantee.

          6.1.4 Grant Date. The date of grant of an Option or SAR under the Plan shall be the
date approved or specified by the Administrator and reflected as the effective date of the
applicable agreement.

          6.1.5 Non-Transferability of Rights. Except with the express written approval of the
Administrator, which approval the Administrator is authorized to give only with respect to NQOs and
SARs, no Option or SAR granted under the Plan shall be assignable or otherwise

4

 

transferable by the grantee except by will or by the laws of descent and distribution. During
the life of the grantee, an Option or SAR shall be exercisable only by the grantee or permitted
transferee.

          6.1.6 Payment. Except as provided below, payment in full, in cash, shall be made for
all Common Stock purchased at the time written notice of exercise of an Option is given to the
Company and the proceeds of any payment shall be considered general funds of the Company. The
Administrator, in the exercise of its absolute discretion after considering any tax, accounting and
financial consequences, may authorize any one or more of the following additional methods of
payment:

               (a) Subject to the Sarbanes-Oxley Act of 2002, acceptance of the optionee’s full recourse
promissory note for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the minimum interest
rate specified under the Code at which no additional interest or original issue discount would be
imputed), which promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security interest in the shares of
the Company);

               (b) Subject to the discretion of the Administrator and the terms of the stock option agreement
granting the Option, delivery by the optionee of shares of Common Stock already owned by the
optionee for all or part of the Option price, provided the fair market value (determined as set
forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by delivery of such
stock;

               (c) Subject to the discretion of the Administrator, through the surrender of shares of Common
Stock then issuable upon exercise of the Option, provided the fair market value (determined as set
forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by surrender of such
stock; and

               (d) By means of so-called cashless exercises as permitted under applicable rules and
regulations of the Securities and Exchange Commission and the Federal Reserve Board.

          6.1.7 Withholding and Employment Taxes. At the time of exercise and as a condition
thereto, or at such other time as the amount of such obligation becomes determinable, the grantee
of an Option or SAR shall remit to the Company in cash all applicable federal and state withholding
and employment taxes. Such obligation to remit may be satisfied, if authorized by the
Administrator in its sole discretion, after considering any tax, accounting and financial
consequences, by the holder’s (i) delivery of a promissory note in the required amount on such
terms as the Administrator deems appropriate, (ii) tendering to the Company previously owned shares
of Common Stock or other securities of the Company with a fair market value equal to the required
amount, or (iii) agreeing to have shares of Common Stock (with a fair market value equal to the
required amount), which are acquired upon exercise of the Option or SAR, withheld by the Company.

5

 

          6.1.8 Other Provisions. Each Option and SAR granted under the Plan may contain such
other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the
Administrator, and each ISO granted under the Plan shall include such provisions and conditions as
are necessary to qualify the Option as an “incentive stock option” within the meaning of Section
422 of the Code.

          6.1.9 Determination of Value. For purposes of the Plan, the fair market value of
Common Stock or other securities of the Company shall be determined as follows:

               (a) If the stock of the Company is listed on a securities exchange or is regularly quoted by a
recognized securities dealer, and selling prices are reported, its fair market value shall be the
closing price of such stock on the date the value is to be determined, but if selling prices are
not reported, its fair market value shall be the mean between the high bid and low asked prices for
such stock on the date the value is to be determined (or if there are no quoted prices for the date
of grant, then for the last preceding business day on which there were quoted prices).

               (b) In the absence of an established market for the stock, the fair market value thereof shall
be determined in good faith by the Administrator, with reference to the Company’s net worth,
prospective earning power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company’s industry, the Company’s position in
the industry, the Company’s management, and the values of stock of other corporations in the same
or a similar line of business.

          6.1.10 Option and SAR Term. No Option or SAR shall be exercisable more than 10 years
after the date of grant, or such lesser period of time as is set forth in the applicable agreement
(the end of the maximum exercise period stated in the agreement is referred to in the Plan as the
“Expiration Date”).

     6.2 Terms and Conditions to Which Only NQOs and SARs Are Subject. Options granted
under the Plan which are designated as NQOs and SARs shall be subject to the following terms and
conditions:

          6.2.1 Exercise Price. The exercise price of an NQO and the base value of an SAR shall
be the amount determined by the Administrator as specified in the option or SAR agreement, but
shall not be less than the fair market value of the Common Stock on the date of grant (determined
under Section 6.1.9).

          6.2.2 Termination of Employment. Except as otherwise provided in the applicable
agreement, if for any reason a grantee ceases to be employed by the Company or any of its
Affiliates, Options that are NQOs and SARs held at the date of termination (to the extent then
exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date
of such termination (but in no event after the Expiration Date). For purposes of this Section
6.2.2, “employment” includes service as a director, consultant or adviser. For purposes of this
Section 6.2.2, a grantee’s employment shall not be deemed to terminate by reason of the grantee’s
transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave does not

6

 

exceed ninety (90) days or, if longer, if the grantee’s right to reemployment by the Company
or any Affiliate is guaranteed either contractually or by statute.

     6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted under the
Plan which are designated as ISOs shall be subject to the following terms and conditions:

          6.3.1 Exercise Price. The exercise price of an ISO shall not be less than the fair
market value (determined in accordance with Section 6.1.9) of the stock covered by the Option at
the time the Option is granted. The exercise price of an ISO granted to any person who owns,
directly or by attribution under the Code (currently Section 424(d)), stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of the Company or of
any Affiliate (a “Ten Percent Stockholder”) shall in no event be less than one hundred ten percent
(110%) of the fair market value (determined in accordance with Section 6.1.9) of the stock covered
by the Option at the time the Option is granted.

          6.3.2 Disqualifying Dispositions. If stock acquired by exercise of an ISO granted
pursuant to the Plan is disposed of in a “disqualifying disposition” within the meaning of Section
422 of the Code (a disposition within two (2) years from the date of grant of the Option or within
one year after the issuance of such stock on exercise of the Option), the holder of the stock
immediately before the disposition shall promptly notify the Company in writing of the date and
terms of the disposition and shall provide such other information regarding the Option as the
Company may reasonably require.

          6.3.3 Grant Date. If an ISO is granted in anticipation of employment as provided in
Section 5.4, the Option shall be deemed granted, without further approval, on the date the grantee
assumes the employment relationship forming the basis for such grant, and, in addition, satisfies
all requirements of the Plan for Options granted on that date.

          6.3.4 Term. Notwithstanding Section 6.1.10, no ISO granted to any Ten Percent
Stockholder shall be exercisable more than five (5) years after the date of grant.

          6.3.5 Termination of Employment. Except as otherwise provided in the stock option
agreement, if for any reason an optionee ceases to be employed by the Company or any of its
Affiliates, Options that are ISOs held at the date of termination (to the extent then exercisable)
may be exercised in whole or in part at any time within 90 days of the date of termination (but in
no event after the Expiration Date). For purposes of this Section 6.3.5, an optionee’s employment
shall not be deemed to terminate by reason of the optionee’s transfer from the Company to an
Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if
the optionee’s right to reemployment by the Company or any Affiliate is guaranteed either
contractually or by statute.

     6.4 Terms and Conditions Applicable Solely to SARs. In addition to the other terms
and conditions applicable to SARs in this Section 6, the holder shall be entitled to receive on
exercise of an SAR only Common Stock at a fair market value equal to the benefit to be received by
the exercise.

	7.	 	MANNER OF EXERCISE

7

 

     7.1 An optionee wishing to exercise an Option or SAR shall give written notice to the Company
at its principal executive office, to the attention of the officer of the Company designated by the
Administrator, accompanied by payment of the exercise price and/or withholding taxes as provided in
Sections 6.1.6 and 6.1.7. The date the Company receives written notice of an exercise hereunder
accompanied by the applicable payment will be considered as the date such Option or SAR was
exercised.

     7.2 Promptly after receipt of written notice of exercise and the applicable payments called
for by Section 7.1, the Company shall, without stock issue or transfer taxes to the holder or other
person entitled to exercise the Option or SAR, deliver to the holder or such other person a
certificate or certificates for the requisite number of shares of Common Stock. A holder or
permitted transferee of an Option or SAR shall not have any privileges as a stockholder with
respect to any shares of Common Stock to be issued until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares.

	8.	 	RESTRICTED STOCK

     8.1 Grant or Sale of Restricted Stock.

          8.1.1 No awards of restricted stock shall be granted under the Plan after ten (10) years from
the date of adoption of the Plan by the Board.

          8.1.2 The Administrator may issue Common Stock under the Plan as a grant or for such
consideration (including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory
notes) as determined by the Administrator. Common Stock issued under the Plan shall be subject to
the terms, conditions and restrictions determined by the Administrator. The restrictions may
include restrictions concerning transferability, repurchase by the Company and forfeiture of the
shares issued, together with such other restrictions as may be determined by the Administrator. If
shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions
paid by the Company with respect to the shares may be retained by the Company until the shares are
no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid
to the recipient. All Common Stock issued pursuant to this Section 8 shall be subject to a
purchase or grant agreement, which shall be executed by the Company and the prospective recipient
of the Common Stock prior to the delivery of certificates representing such stock to the recipient.
The purchase or grant agreement may contain any terms, conditions, restrictions, representations
and warranties required by the Administrator. The certificates representing the shares shall bear
any legends required by the Administrator. The Administrator may require any purchaser of
restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any
applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the
amount demanded, the Administrator may withhold that amount from other amounts payable by the
Company to the purchaser, including salary, subject to applicable law. With the consent of the
Administrator in its sole discretion, a purchaser may deliver Common Stock to the Company to
satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares
reserved for issuance under the Plan shall be reduced by the number of shares issued.

8

 

     8.2 Changes in Capital Structure. In the event of a change in the Company’s capital
structure, as described in Section 6.1.1, appropriate adjustments shall be made by the
Administrator, in its sole discretion, in the number and class of restricted stock subject to the
Plan and the restricted stock outstanding under the Plan; provided, however, that
the Company shall not be required to issue fractional shares as a result of any such adjustments.

     8.3 Corporate Transactions. In the event of a Corporate Transaction, as defined in
Section 6.1.2 hereof, to the extent not previously forfeited, all restricted stock shall be
forfeited immediately prior to the consummation of such Corporate Transaction unless the
Administrator determines otherwise in its sole discretion; provided, however, that
the Administrator, in its sole discretion, may remove any restrictions as to any restricted stock.
The Administrator may, in its sole discretion, provide that all outstanding restricted stock
participate in the Corporate Transaction with an equivalent stock substituted by an applicable
successor corporation subject to the restriction.

	9.	 	EMPLOYMENT OR CONSULTING RELATIONSHIP

     Nothing in the Plan or any Option granted under the Plan shall interfere with or limit in any
way the right of the Company or of any of its Affiliates to terminate the employment, consulting or
advising of any optionee or restricted stock holder at any time, nor confer upon any optionee or
restricted stock holder any right to continue in the employ of, or consult with, or advise, the
Company or any of its Affiliates.

	10.	 	CONDITIONS UPON ISSUANCE OF SHARES

     10.1 Securities Act. Shares of Common Stock shall not be issued pursuant to the
exercise of an Option or the receipt of restricted stock unless the exercise of such Option or such
receipt of restricted stock and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended (the “Securities Act”).

     10.2 Non-Compete Agreement. As a further condition to the receipt of Common Stock
pursuant to the exercise of an Option or the receipt of restricted stock, the optionee or recipient
of restricted stock may be required not to render services for any organization, or engage directly
or indirectly in any business, competitive with the Company at any time during which (i) an Option
is outstanding to such Optionee and for six (6) months after any exercise of an Option or the
receipt of Common Stock pursuant to the exercise of an Option and (ii) restricted stock is owned by
such recipient and for six (6) months after the restrictions on such restricted stock lapse.
Failure to comply with this condition shall cause such Option and the exercise or issuance of
shares thereunder and/or the award of restricted stock to be rescinded and the benefit of such
exercise, issuance or award to be repaid to the Company.

	11.	 	NON-EXCLUSIVITY OF THE PLAN

     The adoption of the Plan shall not be construed as creating any limitations on the power of
the Company to adopt such other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options other than under the Plan.

9

 

	12.	 	MARKET STAND-OFF

     Each optionee, holder of an SAR or recipient of restricted stock, if so requested by the
Company or any representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options, SARs or receipt of
restricted stock during the 180-day period following the effective date of a registration statement
of the Company filed under the Securities Act; provided, however, that such
restriction shall apply only to a registration statement of the Company which includes securities
to be sold on behalf of the Company to the public in an underwritten public offering under the
Securities Act and the restriction period shall not exceed 90 days after the registration statement
becomes effective.

	13.	 	AMENDMENTS TO PLAN

     The Board may at any time amend, alter, suspend or discontinue the Plan. Without the consent
of an optionee, holder of an SAR or holder of restricted stock, no amendment, alteration,
suspension or discontinuance may adversely affect such person’s outstanding Option(s), SAR(s) or
the terms applicable to restricted stock except to conform the Plan and ISOs granted under the Plan
to the requirements of federal or other tax laws relating to ISOs. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a) stockholder approval is
required to preserve incentive stock option treatment for federal income tax purposes or (b) the
Board otherwise concludes that stockholder approval is advisable.

	14.	 	EFFECTIVE DATE OF PLAN; TERMINATION

     The Plan shall become effective upon adoption by the Board; provided, however,
that no Option or SAR shall be exercisable unless and until written consent of the stockholders of
the Company, or approval of stockholders of the Company voting at a validly called stockholders’
meeting, is obtained within twelve (12) months after adoption by the Board. If any Options or SARs
are so granted and stockholder approval shall not have been obtained within twelve (12) months of
the date of adoption of the Plan by the Board, such Options and SARs shall terminate retroactively
as of the date they were granted. Awards may be made under the Plan and exercise of Options and
SARs shall occur only after there has been compliance with all applicable federal and state
securities laws. The Plan (but not Options and SARs previously granted under the Plan) shall
terminate ten (10) years from the date of its adoption by the Board. Termination shall not affect
any outstanding Options or SARs or the terms applicable to previously awarded restricted stock.

10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00130-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00130-of-00352.parquet"}]]