Document:

Exhibit 4.5

 

[Portions of this Exhibit have been omitted
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission.  Such omitted
portions are indicated by the characters “[***]”.]

 

 

STORM CAT

ENERGY CORPORATION

 

 

	
  January 17 2005

  	
  don @stormcatenergy. com

  
	
   

  	
   

  
	
  Delta Resources Inc.

  	
  Marin Energy Ltd.

  
	
  #8 - 10th
  Street

  	
  208 Varsity Estates Grove
  NW

  
	
  Sylvan Lake, Alberta T4S
  2P3

  	
  Calgary, Alberta T3B 4C7

  
	
  Fax #: (403) 887-4750

  	
  Fax #: 503-0493

  
	
  Att: Mr. Chris Wilson,
  President

  	
  Att: Mr. Davin Chandler

  

 

Jem
Resources Ltd.

Box
1796

Spruce
View, Alberta TOM 1VO

Att:
Mr. Todd Patterson

 

Dear
Gentlemen,

 

Re:      Offer to Farmin

[***]

[***]

 

Please
accept this letter as Storm Cat Energy Corporation’s proposal to Farmin on
Delta Resources Inc’s, Marin Energy Ltd. and Jem Resources Ltd’s (collectively
referred to herein as “Farmors”) interests in lands within the subject area.
The basic terms of our offer are as set out below:

 

1.     Parties

Farmors:   Delta Resources Inc. (“Delta”), Marin Energy
Ltd. (“Marin”) and Jem

Resources
Ltd. (“Jem Resources”)

Farmee:     Storm Cat Energy Corporation (“Storm Cat”
or “Farmee”)

 

2.     Farmout Lands

All
Farmor’s [***]  within:

[***]

 

 

DENVER, COLORADO Suite 510, 1400—16th Street | Denver, Colorado, USA 80202 | Tel (303)
991-5070 Fax (303) 991-5075 CALGARY, ALBERTA Suite 200, 209-8th Avenue |
Calgary, Alberta, Canada T2P 1B8 | Tel (403) 451-5070 Fax (403) 451-5075 MONGOLIA
Suite 21, P.M. Amar’s Street 2 | Tavan Bogd Plaza, Sukhbaatar District |
Ulaanbaatar, Mongolia | Tel 976-11-33-0464

 

 

Mr. Martin 

1/17/2006

 

[***]

 

[***]

 

[***]

 

[***]

 

 

Mr. Martin 

1/17/2006

 

[***]

 

[***]

 

3.     Title

 

Farmor
does not warrant title to the Farmout Lands, but covenants that there are no
adverse claims against the Farmout Lands and that it has not disposed of or
otherwise encumbered (Lessor royalties only) its interest in the Farmout Lands
other than as described herein.

 

4.     Test Well

 

On
or before [***] Farmee shall [***] and continuously drill and either case or
abandon a well (the “Test Well”) at a location of Farmee’s choice on the
Farmout Lands. Such well shall be drilled to a minimum vertical depth of [***]
or to a total depth of [***], which ever comes first. The costs of such well
shall be born by [***].

 

If
in drilling the Test Well, mechanical difficulties or practically impenetrable
geological horizons are encountered, Farmee may abandon such well. Within [***]
of abandonment of same and subject to [***] Farmee shall commence and
thereafter diligently and continuously carry on the drilling of such substitute
well at allocation of its choice on the same section from the respective
Farmout Lands. All provisions of this Agreement shall apply to the substitute
well in same force and effect as to the abandoned well.

 

Operations
related to the Test Well, should it be located on [***] shall be conducted
subject to [***].

 

5.     Interest Earned - Test Well

 

Upon
Farmee having drilled the Test Well and either cased or abandoned same, then

 

 

Mr. Martin 

1/17/2006

 

Farmee
shall have earned:

 

(a)  [***] reserving to Farmor [***], as the case
may be, [***]:

 

(i) [***] of monthly production on all [***] production; or

 

(ii) [***] produced and sold from such well. [***];

 

(b)  [***] of the section drilled, in the case of
an [***]; and

 

(c)  the right to drill a new
well (the “First Option Well”) pursuant to paragraph 6 hereof on any unearned
section of the Farmout Lands to earn an additional interest as provided herein
in paragraph 7.

 

6.     First Option Well

 

For
a period [***] of the Test Well drilled hereunder, Farmee shall have the right
to elect to drill the First Option Well at a location of [***]. Should Farmee
elect to drill the First Option Well, then Farmee shall [***] of making its
election to drill the First Option Well. The First Option Well shall be drilled
[***] pursuant to the applicable [***]. Such First Option Well shall be drilled
to a minimum depth of [***] or to a total depth of [***], whichever occurs
first. The costs of such well as to Farmor’s share of same shall be born by
[***].

 

Should
Farmee elect not to drill the First Option Well Farmee it shall surrender any
further right to earn hereunder.

 

7.     Interest Earned - First Option Well

 

Upon
Farmee having drilled the First Option Well and either cased or abandoned same,
then Farmee shall have earned [***] in the applicable section drilled.

 

8.     Additional Option Wells

 

Upon
Farmee having drilled the First Option Well and either cased or abandoned same,
then Farmee shall have earned the further right to drill additional option
wells

 

 

Mr. Martin 

1/17/2006

 

[***]
on any other unearned section of the Farmout Lands and earn an interest in such
lands [***].

 

9.     [***] Reserved to Farmor

 

(a)   The [***] as provided for in paragraph 5 (a)
herein shall be payable to Farmors [***] and shall be calculated [***] from the
applicable [***] and sold and paid to the Farmors [***] prior Farmout.

 

(b)   The [***] shall be subject to the following
[***]:

 

(i)  [***];
and

 

(ii) [***].

 

10.  Seismic Review

 

Farmor
agrees to provide Farmee with access to all of its seismic covering and within
1 mile of the Farmout Lands within one (1) week of the date this Agreement is
fully executed. Farmee shall have the right to have same reprocessed should it
so choose. In such case Farmee shall pay for 100% of the reprocessing costs and
would supply Farmor with one (1) copy of such reprocessed data.

 

11.  Operating Procedure

 

Upon
Farmee earning an interest in any portion of the Farmout Lands then:

 

(a)  in the case of certain rights in [***] the
Farmors shall proceed to have Farmee recognized as a party to the applicable
[***] governing such lands; and

 

(b)  in the case of certain rights where only
Farmor holds a working interest therein, then Farmors agree that such lands
would be operated pursuant to the 1990 CAPL Operating Procedure and 1988
Accounting Procedure (Revised February 1991)

 

 

Mr. Martin 

1/17/2006

 

incorporating
those elections and amendments as set out in Schedule “A” attached hereto.

 

In
addition following its earning an applicable interest hereunder, should Storm
Cat request support regarding Storm Cat being appointed Operator under a
respective [***], then Farmors agree to support Storm Cat as to such request.

 

12.  Other

 

(a)  Note in the case of [***] Jem Resources Ltd.
shall be included as one of the Farmors.

 

(b)  Should any company/individual owning [***] in
the Farmout Lands, other than one of the Farmors ([***]) propose the drilling
of a well on such lands it holds [***] prior to Farmee [***] in such lands,
then Farmee shall have the right to:

 

(i) participate in the drilling of such well and
same well shall become an earning well subject to the terms and conditions
herein; or

 

(ii) challenge such proposal, if it chooses, with
Farmors full support and in such case paragraph 12 (a) would still apply.

 

(c)  Should Farmee propose a well on any portion
of the Farmout lands where a company/individual other than one of the Farmors
holds [***] ([***]), then the Farmors shall proceed under the applicable [***],
as directed by Farmee, to allow Farmee conduct such earning operations as
contemplated herein i.e. issue the appropriate drilling notices including AFEs
etc.

 

13.  Further Documentation

 

Upon
acceptance of the foregoing terms, Storm Cat shall initiate the preparation of
a formal agreement to expand upon the terms of this Offer to Farmin.

 

14.  Conditions

 

This
offer is subject to:

 

(a)   Storm Cat, or its agents or solicitors, shall
be entitled to complete due diligence relating to title and the results of such
due diligence review shall be satisfactory to Storm Cat. Farmors agree to make
available all information and documentation pertinent to such due diligence and
to provide Storm Cat with all reasonable access necessary to facilitate the due
diligence review;

 

(b)   this Offer to Farmin being open for
acceptance by Farmors until 4:00 pm on January 19, 2006, at which time it will
expire if not extended by Storm Cat.

 

 

Mr. Martin

1/17/2006

 

Acceptance
may be made by delivery of an executed copy of this letter to Storm Cat at the
above address or by delivery by facsimile to Fax # (403) 451-5075; and

 

(c) any third party consents
and waivers and the satisfaction (whether by exercise or waiver) of all rights
of first refusal.

 

Should you have any
questions please do not hesitate to contact me via Tel # 451-5078. We look
forward to your favourable reply.

 

	
  Yours truly,

  	
   

  
	
   

  	
   

  
	
  STORM CAT
  ENERGY CORPORATION

  	
   

  
	
   

  	
   

  
	
  /s/ D. R. Martin

  	
   

  	
   

  
	
  D. R. Martin P.Geol

  	
   

  
	
  Vice President - Canadian
  Operations

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted and agreed to
  this 19th day of January, 2006

  	
   

  
	
   

  	
   

  
	
  Farmor: Marin Energy Ltd.

  	
   

  
	
   

  	
   

  
	
  Per: 

  	
  /s/ 

  	
  Davin Chandler

  	
   

  	
   

  
	
   

  	
  Davin Chandler, President

  	
   

  
	
   

  	
   

  
	
  Farmor: Delta Resources
  Inc.

  	
   

  
	
   

  	
   

  
	
  Per: 

  	
  /s/ 

  	
  Chris Wilson

  	
   

  	
   

  
	
   

  	
  Chris Wilson

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Farmor: Jem Resources Ltd.

  	
   

  
	
   

  	
   

  
	
  Per: 

  	
  /s/ 

  	
  Todd Paterson

  	
   

  	
   

  
	
   

  	
  Todd PatersonExhibit 4.6

 

[Portions of this Exhibit have been omitted
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission.  Such omitted
portions are indicated by the characters “[***]”.]

 

PURCHASE
AND SALE AGREEMENT

 

 

 

PALO
PETROLEUM, INC.

 

AND

 

PASO
GASO PIPELINE, LLC, ET AL

 

 

 

AS
SELLER

 

 

 

AND

 

 

 

STORM
CAT ENERGY (USA) CORPORATION

 

 

 

AS
BUYER

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  I Assets

  	
  1

  
	
   

  	
   

  
	
  Section
  1.01 Agreement to Sell and Purchase

  	
  1

  
	
  Section
  1.02 Assets

  	
  1

  
	
  Section
  1.03 Excluded Assets

  	
  2

  
	
   

  	
   

  
	
  ARTICLE
  II Purchase Price

  	
  3

  
	
   

  	
   

  
	
  Section
  2.01 Purchase Price

  	
  3

  
	
  Section
  2.02 Deposit

  	
  3

  
	
  Section
  2.03 Allocated Values

  	
  4

  
	
   

  	
   

  
	
  ARTICLE
  III Effective Time

  	
  4

  
	
   

  	
   

  
	
  Section
  3.01 Ownership of Assets

  	
  4

  
	
   

  	
   

  
	
  ARTICLE
  IV Title and Environmental Matters

  	
  4

  
	
   

  	
   

  
	
  Section
  4.01 Examination Period

  	
  4

  
	
  Section
  4.02 Title Defects

  	
  5

  
	
  Section
  4.03 Notice of Title Defects

  	
  5

  
	
  Section
  4.04 Remedies for Title Defects

  	
  7

  
	
  Section
  4.05 Special Warranty of Title

  	
  7

  
	
  Section
  4.06 Preferential Rights To Purchase

  	
  9

  
	
  Section
  4.07 Consents to Assignment

  	
  9

  
	
  Section
  4.08 Environmental Review

  	
  10

  
	
  Section
  4.09 Environmental Definitions

  	
  10

  
	
  Section
  4.10 Notice of Environmental Defects

  	
  11

  
	
  Section
  4.11 Remedies for Environmental Defects

  	
  12

  
	
  Section
  4.12 Limitation of Remedies for Title and Environmental Defects

  	
  12

  
	
   

  	
   

  
	
  ARTICLE
  V Representations and Warranties of Seller

  	
  12

  
	
   

  	
   

  
	
  Section
  5.01 Existence

  	
  12

  
	
  Section
  5.02 Legal Power

  	
  12

  
	
  Section
  5.03 Execution

  	
  13

  
	
  Section
  5.04 Brokers

  	
  13

  
	
  Section
  5.05 Bankruptcy

  	
  13

  
	
  Section
  5.06 Suits

  	
  13

  
	
  Section
  5.07 Royalties

  	
  13

  
	
  Section
  5.08 Taxes

  	
  13

  
	
  Section
  5.09 Contracts

  	
  13

  
	
  Section
  5.10 Environmental Matters

  	
  13

  
	
   

  	
   

  
	
  ARTICLE
  VI Representations and Warranties of Buyer

  	
  14

  
	
   

  	
   

  
	
  Section
  6.01 Existence

  	
  14

  
	
  Section
  6,02 Legal Power

  	
  14

  
	
  Section
  6.03 Execution

  	
  14

  

 

i

 

	
  Section
  6.04 Brokers

  	
  14

  
	
  Section
  6.05 Bankruptcy

  	
  14

  
	
  Section
  6.06 Suits

  	
  14

  
	
  Section
  6.07 Qualifications

  	
  14

  
	
  Section
  6.08 Investment

  	
  15

  
	
  Section
  6.09 Funds

  	
  15

  
	
   

  	
   

  
	
  ARTICLE
  VII Operation of the Assets

  	
  15

  
	
   

  	
   

  
	
  Section
  7.01 Operation of the Assets Prior to the Closing

  	
  15

  
	
  Section
  7.02 Operation of the Assets After the Closing

  	
  15

  
	
  Section
  7.03 Limitations on Liability of Operator

  	
  16

  
	
   

  	
   

  
	
  ARTICLE
  VIII Conditions to Obligations of Seller

  	
  16

  
	
   

  	
   

  
	
  Section
  8.01 Representations

  	
  16

  
	
  Section
  8.02 Performance

  	
  16

  
	
  Section
  8.03 Pending Matters

  	
  16

  
	
  Section
  8.04 Purchase Price

  	
  16

  
	
  Section
  8.05 Execution and Delivery of the Closing Documents

  	
  16

  
	
   

  	
   

  
	
  ARTICLE
  IX Conditions to Obligations of Buyer

  	
  17

  
	
   

  	
   

  
	
  Section
  9.01 Representations

  	
  17

  
	
  Section
  9.02 Performance

  	
  17

  
	
  Section
  9.03 Pending Matters

  	
  17

  
	
  Section
  9.04 Execution and Delivery of the Closing Documents

  	
  17

  
	
   

  	
   

  
	
  ARTICLE
  X The Closing

  	
  17

  
	
   

  	
   

  
	
  Section
  10.01 Time and Place of the Closing

  	
  17

  
	
  Section
  10.02 Extension

  	
  17

  
	
  Section
  10.03 Adjustments to Purchase Price at the Closing

  	
  17

  
	
  Section
  10.04 Pre-Closing Allocations/Statement

  	
  19

  
	
  Section
  10.05 Post-Closing Adjustments to Purchase Price

  	
  19

  
	
  Section
  10.06 Transfer Taxes

  	
  20

  
	
  Section
  10.07 Ad Valorem and Similar Taxes

  	
  20

  
	
  Section
  10.08 Actions of Seller at the Closing

  	
  20

  
	
  Section
  10.09 Actions of Buyer at the Closing

  	
  20

  
	
  Section
  10.10 Further Cooperation

  	
  21

  
	
   

  	
   

  
	
  ARTICLE
  XI Termination

  	
  21

  
	
   

  	
   

  
	
  Section
  11.01 Right of Termination

  	
  21

  
	
  Section
  11.02 Effect of Termination

  	
  22

  
	
  Section
  11.03 Attorneys’ Fees, Etc

  	
  22

  
	
   

  	
   

  
	
  ARTICLE
  XII Obligations and Indemnification

  	
  22

  
	
   

  	
   

  
	
  Section
  12.01 Retained Obligations

  	
  22

  
	
  Section
  12.02 Assumed Obligations

  	
  22

  

 

ii

 

	
  Section
  12.03 Buyer’s Indemnification

  	
  23

  
	
  Section
  12.04 Seller’s Indemnification - Third Party Non-environmental Claims

  	
  23

  
	
  Section
  12.05 Seller’s Indemnification - Third
  Party Environmental Claims

  	
  23

  
	
  Section
  12.06 Notices and Defense of Indemnified Matters

  	
  23

  
	
   

  	
   

  
	
  ARTICLE
  XIII Limitations on Representations and Warranties

  	
  24

  
	
   

  	
   

  
	
  Section
  13.01 Disclaimers of Representations and Warranties

  	
  24

  
	
  Section
  13.02 Survival

  	
  25

  
	
  Section
  13.03 Casualty Loss

  	
  25

  
	
   

  	
   

  
	
  ARTICLE
  XIV Dispute Resolution

  	
  25

  
	
   

  	
   

  
	
  Section
  14.01 General

  	
  25

  
	
  Section
  14.02 Senior Management

  	
  26

  
	
  Section
  14.03 Disputes

  	
  26

  
	
   

  	
   

  
	
  ARTICLE
  XV Miscellaneous

  	
  27

  
	
   

  	
   

  
	
  Section
  15.01 Names

  	
  27

  
	
  Section
  15.02 Taxes and Expenses

  	
  27

  
	
  Section
  15.03 Independent Investigation

  	
  27

  
	
  Section
  15,04 Document Retention

  	
  27

  
	
  Section
  15.05 Entire Agreement

  	
  27

  
	
  Section
  15.06 Waiver

  	
  28

  
	
  Section
  15.07 Publicity

  	
  28

  
	
  Section
  15.08 Construction

  	
  28

  
	
  Section
  15.09 No Third Party Beneficiaries

  	
  28

  
	
  Section
  15.10 Assignment

  	
  28

  
	
  Section
  15.11 Governing Law

  	
  28

  
	
  Section
  15.12 Notices

  	
  28

  
	
  Section
  15.13 Severability

  	
  29

  
	
  Section
  15.14 Time of the Essence

  	
  29

  
	
  Section
  15.15 Counterpart Execution

  	
  29

  
	
  Section
  15.16 Operatorship

  	
  29

  
	
  Section
  15.17 Tax Deferred Exchange

  	
  29

  

 

	
  EXHIBITS
  AND SCHEDULES

  	
   

  
	
   

  	
   

  
	
  Exhibit
  A -

  	
  Subject
  Interests

  	
   

  
	
  Exhibit
  A-l -

  	
  Paso
  Gaso Pipeline, LLC System

  	
   

  
	
  Exhibit
  B -

  	
  Wells
  and Interests and Allocated Values

  	
   

  
	
  Exhibit
  B-l -

  	
  Non-PDP
  Properties and Allocated Values

  	
   

  
	
  Exhibit
  C -

  	
  Assignment
  and Bill of Sale of Oil and Gas Properties

  	
   

  
	
  Exhibit
  C-l -

  	
  Assignment
  and Bill of Sale of Pipeline System

  	
   

  
	
  Schedule
  1.02(f) -

  	
  Contracts

  	
   

  
	
  Schedule
  1.03 -

  	
  Excluded
  Assets

  	
   

  
	
  Schedule
  10.03(c) -

  	
  Gas
  Imbalances

  	
   

  

 

iii

 

PURCHASE AND SALE AGREEMENT

 

This
Purchase and Sale Agreement (this “Agreement”) is made and entered into
this 18th day of January, 2005, by and between Palo Petroleum, Inc.,
a Texas corporation, Paso Gaso Pipeline, LLC, a Texas limited liability
company, Mel McClung, Tonya McClung, Matt McClung, Airborne Investments, LP, a
California limited partnership, the Bernell E. Snider & Flora Snider
Community Property Trust, Kozell T. & Sally Cannon Boren as Co-Trustees of
the Boren Community Property Trust, established April 6, 2001, Sosebee Property
Company No, 2, Ltd., a Texas limited partnership, Double L&S, LLC, a
California limited liability company, Don Farris and Irving Dreibrodt
(hereinafter collectively referred to as “Seller”), and Storm Cat Energy
(USA) Corporation, a Colorado corporation (“Buyer”). Buyer and Seller
are collectively referred to herein as the “Parties”, and are sometimes
referred to individually as a “Party.”

 

WITNESSETH:

 

WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to
purchase from Seller, the Assets (as hereinafter defined), all upon the terms
and conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the mutual benefits derived and to
be derived from this Agreement by each Party, Seller and Buyer hereby agree as
follows:

 

ARTICLE I

Assets

 

Section
1.01  Agreement to Sell and Purchase.
Subject to and in accordance with the terms and conditions of this Agreement,
Buyer agrees to purchase the Assets from Seller, and Seller agrees to sell the
Assets to Buyer.

 

Section 1.02  Assets. Subject
to Section 1.03, the term “Assets” shall mean all of Seller’s right,
title and interest in and to:

 

(a)           the leasehold estates in and to the oil, gas and
mineral leases described or referred to in Exhibit A (the “Leases”) and
any overriding royalty interests in and to the lands covered by the Leases,
assignments and other documents of title described or referred to in Exhibit A,
all as more specifically described in Exhibit A (collectively, the “Subject
Interests.” or singularly, a “Subject Interest”);

 

(b)           the Paso Gaso Pipeline LLC gathering facilities the
(“System”), including Seller’s interest in and to any and all real
property owned by Seller and associated with the System, including, but not
limited to, all fee lands, leases and easements on which the System and related
pipeline and other facilities are located as further described on Exhibit A-l
attached hereto.

 

(c)           all rights incident to the Subject Interests,
including, without limitation, (i) all rights with respect to the use and
occupation of the surface of and the subsurface depths under the Subject
Interests; (ii) all rights with respect to any pooled, communitized or unitized
acreage by virtue of any Subject Interest being a part thereof, including all
Hydrocarbon production after the Effective Time attributable to the Subject
Interests or any such pool or unit allocated to any such Subject Interest;

 

1

 

(d)            all easements, rights-of-way, surface leases,
servitudes, permits, licenses, franchises and other estates or similar rights
and privileges directly related to or used solely in connection with the Subject
Interests and the System (“Easements”), including, without limitation,
the Easements described or referred to in Exhibits A and Al;

 

(e)            all personal property, equipment, fixtures,
inventory and improvements located on or used in connection with the Subject
Interests, the System and the Easements or with the production, treatment,
sale, or disposal of oil, gas or other hydrocarbons (collectively, “Hydrocarbons”),
byproducts or waste produced therefrom or attributable thereto, including,
without limitation, all wells located on the lands covered by the Subject
Interests or on lands with which the Subject Interests may have been pooled,
communitized or unitized (whether producing, shut in or abandoned, and whether
for production, injection or disposal), including, without limitation, the
wells described in Exhibit B, wellhead equipment, pumps, pumping units,
flowlines, gathering systems, piping, tanks, buildings, treatment facilities,
injection facilities, disposal facilities, compression facilities, and other
materials, supplies, equipment, facilities and machinery (collectively, “Personal
Property”);

 

(f)            to the extent assignable or transferable, all
contracts, agreements and other arrangements that directly relate to the
Subject Interests, the Leases, the System or the Easements, including, without
limitation, production sales contracts, farmout agreements, operating
agreements, service agreements and similar agreements, including, but not
limited to, those listed on Schedule 1.02(f) (the “Contracts”):

 

(g)           all books, records, files, muniments of title,
reports and similar documents and materials that relate to the foregoing
interests in the possession of, and maintained by, Seller (the “Records”);

 

(h)           all geological and geophysical data including
without limit, all such data in electronic form, relating to the Subject
Interests, other than such data which cannot be transferred without the consent
of or payment to any Third Party. For purposes of this Agreement, Third Party
means any person or entity, governmental or otherwise, other than Seller or
Buyer, and their respective Affiliates; the term includes, but is not limited
to, working interest owners, royalty owners, lease operators, landowners,
service contractors and governmental agencies; and

 

(i)            except for Excluded Assets, all other rights and
interest in, to, under or derived from the Assets, even though the same may be
improperly described in or omitted from the Exhibits. It is the express intent
of the Parties that all of Seller’s right, title and interest in and to any and
all oil and gas properties described on Exhibits A, Al and B be assigned to
Buyer hereunder.

 

Section 1.03  Excluded Assets.
Notwithstanding the foregoing, the Assets shall not include, and there is
excepted, reserved and excluded from the sale contemplated hereby
(collectively, the “Excluded Assets”): (a) all credits and refunds and
all accounts, instruments and general intangibles (as such terms are defined in
the Wyoming Uniform Commercial Code) attributable to the Assets with respect to
any period of time prior to the Effective Time; (b) all claims and causes of
action of Seller (i) arising from acts, omissions or events, or damage to or
destruction of property, occurring prior to the Effective Time, (ii) arising
under or with respect to

 

2

 

any of
the Contracts that are attributable to periods of time prior to the Effective
Time (including claims for adjustments or refunds), or (iii) with respect to
any of the other Excluded Assets; (c) all rights and interests of Seller (i)
under any policy or agreement of insurance or indemnity, (ii) under any bond,
or (iii) to any insurance or condemnation proceeds or awards arising, in each
case, from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time; (d) all Hydrocarbons produced from or
attributable to the Subject Interests with respect to all periods prior to the
Effective Time, together with all proceeds from the sale of such Hydrocarbons;
(e) all claims of Seller for refunds of or loss carry forwards with respect to
(i) ad valorem, severance production or any other taxes attributable to any
time period prior to the Effective Time, (ii) income or franchise taxes, or
(iii) any taxes attributable to the other Excluded Assets, and such other
refunds, and rights thereto, for amounts paid in connection with the Assets and
attributable to the period prior to the Effective Time, including refunds of
amounts paid under any gas gathering or transportation agreement; (f) all
amounts due or payable to Seller as adjustments to insurance premiums related
to the Assets with respect to any period prior to the Effective Time; (g) all
proceeds, income, revenues, costs, expenses and liabilities (and any security
or other deposits made) attributable to (i) the Assets for any period prior to
the Effective Time, or (ii) any other Excluded Assets; (h) all vehicles and
certain equipment, supplies and office equipment as listed on Schedule 1.03;
(i) all of Seller’s proprietary computer software, technology, patents, trade
secrets, copyrights, names, trademarks, logos and other intellectual property;
(j) all of Seller’s rights and interests in geological and geophysical data
which cannot be transferred without the consent of or payment to any Third
Party; (k) all documents and instruments of Seller that may be protected by an
attorney-client privilege; (1) data and other information that cannot be
disclosed or assigned to Buyer as a result of confidentiality or similar
arrangements under agreements with persons unaffiliated with Seller; (m) all
audit rights arising under any of the Contracts or otherwise with respect to
any period prior to the Effective Time or to any of the other Excluded Assets;
(n) all corporate, partnership, income tax and financial records of Seller; (o)
all right, title and interest owned by Seller in the Subject Interests to the
extent, and only to the extent, of a depth which is the deeper of 2,501 feet or
greater below the surface of the ground or the base of the Fort Union Coal
Formation; and (p) in addition to the foregoing, those items described on
Schedule 1.03.

 

ARTICLE II

Purchase Price

 

Section
2.01  Purchase Price. The total
consideration for the purchase, sale and conveyance of the Assets to Buyer is
Buyer’s payment to Seller of the sum of Eight Million Five Hundred Fifty
Thousand Dollars ($8,550,000) (the “Purchase Price”), as adjusted in
accordance with the provisions of this Agreement. The adjusted Purchase Price
shall be paid to Seller (or its designee) at Closing (as hereinafter defined)
by means of a completed federal funds transfer to an account designated in
writing by Seller.

 

Section
2.02   Deposit.

 

(a)           Concurrently with the execution of this Agreement
by Buyer and Seller, Buyer shall deliver to Seller a performance guarantee
deposit in the amount of [***] of the Purchase Price (the “Deposit”). The
Deposit shall be paid by Buyer to Seller by means of a

 

3

 

completed federal funds transfer to the account of
Palo Petroleum, Inc. on behalf of Seller, Account No. [***] Bank, ABA Routing
Number [***].

 

(b)           If, on the Closing Date or thereafter, Buyer is in
material breach of this Agreement and fails to close, Seller shall have the
option to terminate this Agreement, in which case Seller shall retain the
Deposit as liquidated damages on account of Buyer’s failure to perform its
obligations under this Agreement or Buyer’s breach of any representation under
this Agreement, which remedy shall be the sole and exclusive remedy available
to Seller for Buyer’s failure to perform or breach. Buyer and Seller
acknowledge and agree that (i) Seller’s actual damages upon the event of such a
termination are difficult to ascertain with any certainty, (ii) that the
Deposit is a reasonable estimate of such actual damages and (iii) such
liquidated damages do not constitute a penalty.

 

(c)           If this Agreement is terminated by the mutual
written agreement of Buyer and Seller, or if the Closing does not occur on or
before the Closing Date, for any reason other than as set forth in Section
2.02(b), then Seller shall return the Deposit to Buyer in immediately available
funds within three (3) business days after the event giving rise to such
payment to Buyer. Buyer and Seller shall thereupon have the rights and
obligations set forth elsewhere herein.

 

(d)           If the transactions contemplated by this Agreement
are consummated, the Deposit shall be retained by Seller and shall be
considered as prepayment of a portion of the Purchase Price, and the amount
payable by Buyer at the Closing shall be reduced by the amount of the Deposit.

 

Section 2.03  Allocated Values.
The Purchase Price is allocated among the Assets as set forth in Exhibits B and
B-l attached hereto (the “Allocated Values”), Seller and Buyer agree
that the Allocated Values shall be used to compute any adjustments to the
Purchase Price pursuant to the provisions of Article IV.

 

ARTICLE III

Effective Time

 

Section 3.01  Ownership of
Assets. If the transactions contemplated hereby are consummated in
accordance with the terms and provisions hereof, the ownership of the Assets
shall be transferred from Seller to Buyer on the Closing Date, and effective as
of 7:00 a.m. local time on January 1,2005 (the “Effective Time”).

 

ARTICLE IV

Title and Environmental Matters

 

Section 4.01  Examination
Period. Following the execution date of this Agreement until 5:00 p.m.,
local time in Houston, Texas on the date twenty (20) days after the execution
of this Agreement (the “Examination Period”), Seller shall permit Buyer
and/or its representatives to examine, at all reasonable tunes, in Seller’s
offices, all abstracts of title, title opinions, title files, ownership maps,
lease files, contract files, assignments, division orders, operating and
accounting records and agreements pertaining to the Assets insofar as same may
now be in

 

4

 

existence and in the possession of Seller, subject
to such restrictions on disclosure as may exist under confidentiality
agreements or other agreements binding on Seller or such data.

 

Section
4.02  Title Defects. The term “Title
Defect,” as used in this Agreement, shall mean, subject to Section 4.03:
(a) any encumbrance, encroachment, irregularity, defect in or objection to
Seller’s ownership of any Asset (expressly excluding Permitted Encumbrances, as
hereinafter defined) that causes Seller not to have Defensible Title (as
hereinafter defined) to such Asset; or (b) any default by Seller under a lease,
farmout agreement or other contract or agreement that would (i) have a material
adverse affect on the operation, value or use of such Asset, (ii) prevent or
limit Seller from receiving the proceeds of production attributable to Seller’s
interest therein or (iii) result in cancellation of any portion of Seller’s
interest therein. For purposes of this Agreement, the term “Defensible Title”
means, with respect to a given Asset, such ownership by Seller in such Asset
that, subject to and except for the Permitted Encumbrances:

 

(a)            entitles Seller to receive not less than the
percentage set forth in Exhibit B as Seller’s “Net Revenue Interest” of
all Hydrocarbons produced, saved and marketed from each well or unit as set
forth in Exhibit B, all without reduction, suspension or termination of such
interest throughout the productive life of such well, except as specifically
set forth in Exhibit B and entitles Seller to receive not less than the
percentages set forth in Exhibit B-l as Seller’s “Net Revenue Interest”
in each of the Leases, without reduction, suspension or termination of such
interest throughout the life of the Leases, except as specifically set forth in
Exhibit B-l;

 

(b)            obligates Seller to bear not greater than the
percentage set forth in Exhibit B as

Seller’s “Working Interest” of the costs and expenses relating to the
maintenance, development and operation of each well or unit as set forth in
Exhibit B, all without increase throughout the productive life of such well,
except as specifically set forth in Exhibit B, and obligates Seller to bear not
greater than the percentage set forth in Exhibit B-l as Seller’s “Working
Interest” of the costs and expenses relating to each of the Leases, all
without increase throughout the life of the Leases, except as specifically set
forth in Exhibit B-l;

 

(c)            entities Seller to ownership of all the assets
comprising the System, as set forth in Exhibits A-l and B; and

 

(d)            is free and clear of all liens, encumbrances,
taxes, judgments, and defects in title.

 

Section
4.03   Notice of Title Defects.

 

(a)           If Buyer discovers any Title Defect affecting any
Asset, Buyer shall notify Seller prior to the expiration of the Examination
Period of such alleged Title Defect. To be effective, such notice must (i) be
in writing, (ii) be received by Seller prior to the expiration of the
Examination Period, (iii) describe the Title Defect in sufficient, specific
detail (including any alleged variance in the Net Revenue Interest), (iv)
identify the specific Asset or Assets affected by such Title Defect, and (v)
include the value of such Title Defect as determined by Buyer. Any matters that
may otherwise constitute Title Defects, but of which Seller has not been
specifically notified by Buyer in accordance with the foregoing, shall be
deemed to have been waived by Buyer for all purposes under this Agreement,
however, the failure to notify Seller of an

 

5

 

undiscovered
Title Defect shall not act as a waiver of any breach of the Special Warranty
included in the Assignment to be delivered at Closing.

 

(b)            Upon the receipt of such notice from Buyer, Seller
shall have the option, but not the obligation, to (i) attempt to cure such
Title Defect at any time prior to the Closing, (ii) exclude the affected Asset
from the sale and reduce the Purchase Price by the allocated value of such
affected Asset, or if acceptable to Buyer (iii) not take any action with
respect to the alleged Title Defect and indemnify Buyer pursuant to Section
12.04 against all costs which Buyer may incur in connection with same.

 

(c)            The value attributable to each Title Defect (the “Title
Defect Value”) that is asserted by Buyer in the Title Defect notices shall
be determined based upon the criteria set forth below;

 

(i) If the Title Defect is a lien upon any Asset, the Title Defect Value
is the amount necessary to be paid to remove the lien from the affected Asset.

 

(ii) If the Title Defect asserted is that the Net Revenue Interest
attributable to any Lease, well or unit is less than that stated in Exhibits B
and B-l, then the Title Defect Value is the product of the [***], multiplied by
a fraction, the numerator of which is the difference between the [***]
applicable thereto set forth in [***] and the [***], and the denominator of
which is the applicable [***] stated in [***].

 

(iii) If the Title Defect represents an obligation, encumbrance, burden
or charge upon the affected Asset (including any increase in Working Interest
for which there is not a proportionate increase in Net Revenue Interest) for
which the economic detriment to Buyer is unliquidated, the amount of the Title
Defect Value shall be determined by taking into account the Allocated Value of
the affected Asset, the portion of the Asset affected by the Title Defect, the
legal effect of the Title Defect, the potential discounted economic effect of
the Title Defect over the life of the affected Asset, and the Title Defect
Values placed upon the Title Defect by Buyer and Seller.

 

(iv) If a Title Defect is not in effect or does not adversely affect an
Asset throughout the entire productive life of such Asset, such fact shall be
taken into account in determining the Title Defect Value.

 

(v) The Title Defect Value of a Title Defect shall be determined without
duplication of any costs or losses included in another Title Defect Value
hereunder.

 

(vi) Notwithstanding anything herein to the contrary, in no event shall
a Title Defect Value exceed the Allocated Value of the wells, units or other
Assets affected thereby.

 

(vii) Such other factors as are reasonably necessary to make a proper
evaluation.

 

6

 

Section
4.04  Remedies for Title Defects.

 

(a)            With respect to each Title Defect that is not cured
on or before the Closing, except as otherwise provided in this Section 4.04,
the Purchase Price shall be reduced, subject to Section 4.13, by an amount
equal to the Title Defect Value agreed upon in writing by Buyer and Seller
acting reasonably.

 

(b)            If any Title Defect is in the nature of an unobtained
consent to assignment or other restriction on assignability, the provisions of
Section 4.07 shall apply.

 

(c)            If on or before Closing the Parties have not agreed
upon the validity of any asserted Title Defect or have not agreed on the Title
Defect Value attributable thereto and Seller has not elected to exclude the
affected Subject Interest or to indemnify Buyer pursuant to Section 4.03(a),
either Party shall have the right to elect to have the validity of such Title
Defect and/or such Title Defect Value determined by an Independent Expert
pursuant to Section 14.03. If the validity of any asserted Title Defect, or the
Title Defect Value attributable thereto, is not determined before Closing, the
Purchase Price paid at Closing shall be reduced by the Allocated Value of the
Subject Interest affected by such disputed Title Defect or Title Defect Value
and such Subject Interest shall be excluded from the Closing. Upon the final
resolution of such dispute, the Subject Interest affected by the Title Defect
shall be promptly assigned to Buyer for the amount withheld at Closing if the
Defect is found not to be a Title Defect or the Property

shall remain excluded if the Titled Defect is confirmed.

 

Section 4.05  Special Warranty
of Title. The documents to be executed and delivered by Seller to Buyer,
transferring title to the Assets as required hereby, including the Assignment
and Bill of Sale attached hereto as Exhibits C and C-l (the “Assignments”),
shall provide for a special warranty of title, subject to the Permitted
Encumbrances and the terms of this Agreement. The term “Permitted
Encumbrances” shall mean any of the following matters to the extent the
same are valid and subsisting and affect the Assets:

 

(a)            the Leases, and Contracts;

 

(b)           any (i) inchoate liens or charges constituting or
securing the payment of expenses that were incurred incidental to the
maintenance, development, production or operation of the Assets or for the
purpose of developing, producing or processing Hydrocarbons therefrom or
therein, and (ii) materialman’s, mechanics’, repairman’s, employees’,
contractors’, operators’ liens or other similar liens or charges for liquidated
amounts arising in the ordinary course of business (iii) that Seller has agreed
to assume or pay pursuant to the terms hereof, or (iv) for which Seller is
responsible for paying or releasing at the Closing;

 

(c)            any liens for taxes and assessments not yet
delinquent or, if delinquent, that are being contested in good faith in the
ordinary course of business and for which any Seller has agreed to pay pursuant
to the terms hereof or which have been prorated pursuant to the terms hereof;

 

(d)           the terms, conditions, restrictions, exceptions,
reservations, limitations and other matters contained in (including any liens
or security interests created by law or reserved in oil

 

7

 

and gas
leases for royalty, bonus or rental, or created to secure compliance with the
terms of) the agreements, instruments and documents that create or reserve to
Seller its interest in the Assets;

 

(e)            any obligations or duties affecting the Assets to
any municipality or public authority with respect to any franchise, grant,
license or permit and all applicable laws, rules, regulations and orders of any
Governmental Authority (as hereinafter defined);

 

(f)             any (i) easements, rights-of-way, servitudes,
permits, surface leases and other rights in respect of surface operations,
pipelines, grazing, hunting, lodging, canals, ditches, reservoirs or the like,
and (ii) easements for streets, alleys, highways, pipelines, telephone lines,
power lines, railways and other similar rights-of-way on, over or in respect of
property owned or leased by Seller or over which Seller owns rights-of-way,
easements, permits or licenses, to the extent that same do not materially
interfere with the oil and gas operations to be conducted on the Assets;

 

(g)            all lessors’ royalties, overriding royalties, net
profits interests, carried interests, production payments, reversionary interests
and other burdens on or deductions from the proceeds of production created or
in existence as of the Effective Time, whether recorded or unrecorded, provided
that such matters do not operate to reduce the Net Revenue Interests of Seller
below those set forth in Exhibits B and B-l or increase the Working Interests
of Seller above those set forth in Exhibits B and B-l without a corresponding
increase in the Net Revenue Interests;

 

(h)           preferential rights to purchase or similar
agreements with respect to which (i) waivers or consents are obtained from the
appropriate parties for the transaction contemplated hereby, or (ii) required
notices have been given for the transaction contemplated hereby to the holders
of such rights and the appropriate period for asserting such rights has expired
without an exercise of such rights;

 

(i)            required Third Party consents to assignments or
similar agreements with respect to which (i) waivers or consents are obtained
from the appropriate parties for the transaction contemplated hereby in Section
4.07, or (ii) required notices have been given for the transaction contemplated
hereby to the holders of such rights and the appropriate period for asserting
such rights has expired without an exercise of such rights;

 

(j)            all rights to consent by, required notices to,
filings with, or other actions by Governmental Authorities in connection with
the sale or conveyance of oil and gas leases or interests therein that are
customarily obtained subsequent to such sale or conveyance;

 

(k)           production sales contracts; division orders;
contracts for sale, purchase, exchange, refining or processing of Hydrocarbons;
unitization and pooling designations, declarations, orders and agreements;
operating agreements; agreements of development; area of mutual interest
agreements; gas balancing or deferred production agreements; processing
agreements; plant agreements; pipeline, gathering and transportation
agreements; injection, repressuring and recycling agreements; carbon dioxide
purchase or sale agreements; salt water or other disposal agreements; seismic
or geophysical permits or agreements; and any and all other agreements that
have terms that are ordinary and customary to the oil, gas, sulphur and other
mineral exploration,

 

8

 

development,
processing or extraction business or in the business of processing of gas and
gas condensate production for the extraction of products therefrom, to the
extent the same do not reduce the Net Revenue Interests of Seller below those
set forth in Exhibits B and B-l or increase the Working Interests of Seller
above those set forth in Exhibits B and B-l without a corresponding increase in
the Net Revenue Interest;

 

(l)             rights reserved to or vested in any Governmental
Authority to control or regulate any of the Assets and the applicable laws,
rules, and regulations of such Governmental Authorities; and

 

(m)           all title defects and title irregularities
affecting the Assets which individually or in the aggregate (i) do not operate
to (A) reduce the Net Revenue Interest of Seller, (B) increase the
proportionate share of costs and expenses of leasehold operations attributable
to or to be borne by the Working Interests of Seller, or (C) otherwise
interfere materially with the operation, value or use of the Assets, or (ii)
operate to increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of Seller, so
long as there is a proportionate increase in Seller’s Net Revenue Interest.

 

Section 4.06  Preferential
Rights To Purchase. Seller shall use all reasonable efforts, but without
any obligation to incur any cost or expense in connection therewith (other than
de minimis amounts), to comply
with all preferential right to purchase provisions relative to any Asset prior
to Closing. Prior to the Closing, Seller shall notify Buyer of the existence of
any preferential purchase rights and if any preferential purchase rights are
exercised or if the requisite period has elapsed without said rights having
been exercised. If a Third Party who has been offered an interest in any Asset
pursuant to a preferential right to purchase elects prior to the Closing to
purchase all or part of such Asset pursuant to the aforesaid offer, the
interest or part thereof so affected will be eliminated from the Assets and the
Purchase Price shall be reduced by the Allocated Value of such Asset as paid by
such Third Party. Otherwise, the interest offered as aforesaid shall be
conveyed to Buyer at the Closing subject to any preferential right to purchase
of any Third Party for which notice has been given but the time period for
response by the holder of such preferential right extends beyond the Closing
and Buyer shall assume all duties, obligations and liabilities arising from
such preferential right to purchase. Without limiting the foregoing, if any
such Third Party elects to purchase all or a part of an interest in any Asset
subject to a preferential right to purchase after the Closing Date, Buyer shall
be obligated to convey said interest to such Third Party and shall be entitled
to the consideration for the sale of such interest or part thereof.

 

Section 4.07  Consents to
Assignment. Seller shall use all reasonable efforts to obtain all necessary
consents from third parties to assign the Assets prior to Closing (other than
governmental approvals that are customarily obtained after Closing) and Buyer
shall assist Seller with such efforts. To the extent such consents are not
obtained prior to Closing and would render the assignment of some or all of the
Assets void or voidable or give rise to a claim for damages as a result of the
failure to obtain such consent then such failure shall constitute a Title
Defect as to that portion of the Assets affected thereby. In all other cases,
such unobtained consents shall not constitute Title Defects.

 

9

 

Section
4.08  Environmental Review.

 

(a)            Buyer shall have the right to conduct or cause a
consultant (“Buyer’s Environmental Consultant”) to conduct an
environmental review of the Assets prior to the expiration of the Examination
Period (“Buyer’s Environmental Review”). The cost and expense of Buyer’s
Environmental Review, if any, shall be borne solely by Buyer. The scope of work
comprising Buyer’s Environmental Review shall be limited to that mutually
agreed in writing by Buyer and Seller prior to commencement thereof and shall
not include any intrusive test or procedure without the prior written consent
of Seller. Buyer shall (and shall cause Buyer’s Environmental Consultant to):
(i) consult with Seller before conducting any work comprising Buyer’s
Environmental Review, (ii) perform all such work in a safe and workmanlike
manner and so as to not unreasonably interfere with Seller’s operations, and
(iii) comply with all applicable laws, rules, and regulations. Buyer shall be
solely responsible for obtaining any Third Party consents that are required in
order to perform any work comprising Buyer’s Environmental Review, and Buyer
shall consult with Seller prior to requesting each such Third Party consent. Seller
shall have the right to have a representative or representatives accompany
Buyer and Buyer’s Environmental Consultant at all times during Buyer’s
Environmental Review, and Buyer shall give Seller notice not more than five (5)
days and not less than 48 hours before any visits by Buyer or Buyer’s
Environmental Consultant to the Assets. With respect to any samples taken in
connection with Buyer’s Environmental Review, Buyer shall take split samples,
providing one of each such sample, properly labeled and identified, to Seller. Buyer
hereby agrees to release, defend, indemnify and hold harmless Seller from and
against all claims, losses, damages, costs, expenses, causes of action and
judgments of any kind or character arising out of or relating to Buyer’s
Environmental Review.

 

(b)            Unless otherwise required by applicable law, Buyer
shall (and shall cause Buyer’s Environmental Consultant to) treat
confidentially any matters revealed by Buyer’s Environmental Review and any
reports or data generated from such review (the “Environmental Information”),
and Buyer shall not (and shall cause Buyer’s Environmental Consultant to not)
disclose any Environmental Information to any Governmental Authority or other
Third Party without the prior written consent of Seller. Unless otherwise
required by law, Buyer may use the Environmental Information only in connection
with the transactions contemplated by this Agreement. If Buyer, Buyer’s
Environmental Consultant, or any Third Party to whom Buyer has provided any
Environmental Information become legally compelled to disclose any of the
Environmental Information, Buyer shall provide Seller with prompt notice
sufficiently prior to any such disclosure so as to allow Seller to file any
protective order, or seek any other remedy, as it deems appropriate under the
circumstances. If this Agreement is terminated prior to the Closing, Buyer
shall deliver the Environmental Information to Seller, which Environmental
Information shall become the sole property of Seller. Buyer shall provide
copies of the Environmental Information to Seller without charge.

 

Section
4.09  Environmental Definitions.

 

(a) Environmental Defects. For purposes of this Agreement, the term “Environmental
Defect” shall mean, with respect to any given Asset, an individual
environmental condition that constitutes a violation of Environmental Laws in
effect as of the date of this Agreement in the jurisdiction in which such Asset
is located.

 

10

 

(b)            Governmental Authority. For purposes of this
Agreement, the term “Governmental Authority” shall mean, as to any given
Asset, the United States and the state, county, city and political subdivisions
in which such Asset is located and that exercises jurisdiction over such Asset,
and any agency, department, board or other instrumentality thereof that
exercises jurisdiction over such Asset.

 

(c)            Environmental Laws. For purposes of this Agreement,
the term “Environmental Laws” shall mean all laws, statutes, ordinances,
court decisions, rules and regulations of any Governmental Authority pertaining
to health or the environment as may be interpreted by applicable court
decisions or administrative orders, including, without limitation, the Clean
Air Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act, as amended (“CERCLA”). the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act, as amended,
the Resources Conservation and Recovery Act, as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendment and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and comparable state and local laws.

 

(d)            Environmental Defect Value. For purposes of this
Agreement, the term “Environmental Defect Value” shall mean, with
respect to any Environmental Defect, the value, as of the Closing Date, of the
estimated costs and expenses to correct such Environmental Defect in the most
cost effective manner reasonably available, consistent with Environmental Laws,
taking into account that non-permanent remedies (such as mechanisms to contain
or stabilize hazardous materials, including monitoring site conditions, natural
attenuation, risk-based corrective action, institutional controls or other
appropriate restrictions on the use of property, caps, dikes, encapsulation,
leachate collection systems, etc.) may be the most cost effective manner
reasonably available. In no event shall the Environmental Defect Value exceed
the Allocated Value of the Asset(s) affected thereby.

 

Section 4.10  Notice of
Environmental Defects. If Buyer discovers any Environmental Defect
affecting the Assets, Buyer shall notify Seller prior to the expiration of the
Examination Period of such alleged Environmental Defect. To be effective, such
notice must (i) be in writing, (ii) be received by Seller prior to the
expiration of the Examination Period, (iii) describe the Environmental Defect
in sufficient, specific detail, including, without limitation, (A) the written
conclusion of Buyer’s Environmental Consultants that an Environmental Defect
exists, which conclusion shall be reasonably substantiated by the factual data
gathered in Buyer’s Environmental Review, including, without limitation, maps,
reports, boring logs and field notes prepared in connection with the
Environmental Review, if any, and (B) a general citation of the provisions of
Environmental Laws alleged to be violated and the related facts that
substantiate such violation, (iv) identify the specific Assets affected by such
Environmental Defect, (v) the procedures recommended to correct the
Environmental Defect, together with any related recommendations from Buyer’s
Environmental Consultant, and (vi) Buyer’s estimate of the Environmental Defect
Value, including the basis for such estimate. Any matters that may otherwise
constitute Environmental Defects, but of which Seller has not been specifically
notified by Buyer in accordance with the foregoing, together with any
environmental matter that does not constitute an Environmental Defect, shall be
deemed to have been waived by Buyer for all purposes and constitute an Assumed
Obligation. Upon the receipt of such effective notice from Buyer, Seller shall
have the option, but not the obligation, to (i) attempt to cure such

 

11

 

Environmental Defect at any time prior to the
Closing, (ii) exclude the affected Asset from the sale and reduce the Purchase
Price by the allocated value of such affected Asset, or (iii) not take any
remedial action with respect to the alleged Environmental Defect and, if
acceptable to Buyer, indemnify Buyer pursuant to Section 12.05 against all
costs which Buyer may incur in connection with same.

 

Section
4.11  Remedies for Environmental
Defects.

 

(a)            If any Environmental Defect described in a notice
delivered in accordance with Section 4.11 is not cured on or before the Closing
and Seller has not elected to indemnify Buyer pursuant to Section 4.10, then
the Purchase Price shall be reduced, subject to Section 4.13, by the
Environmental Defect Value of such Environmental Defect as agreed by the
Parties acting reasonably.

 

(b)            If Buyer and Seller have not agreed as to the
validity of any asserted Environmental Defect, or if the Parties have not
agreed on the Environmental Defect Value therefor, on or before three (3)
business days prior to the Closing Date Seller shall be entitled to (i) exclude
such Affected Property from the Assets and shall proceed to Closing reducing
the Purchase Price by the Allocated Value of such excluded Asset, or, if Buyer
agrees (ii) indemnify Buyer pursuant to Section 4.10 and proceed to Closing
without excluding such Affected Property from the Assets and without reducing
the Purchase Price by the Allocated Value of such affected Asset.

 

Section
4.12  Limitation of Remedies for Title
and Environmental Defects. Notwithstanding anything to the contrary
contained in Section 4.04 or 4.1, if the value of the aggregate Title Defects,
as determined herein, does not exceed $[***], or if the value of the aggregate
Environmental Defects, as determined pursuant to Section 4.11 or Section 14.03,
does not exceed $[***], then no adjustment to the Purchase Price shall be made
for such Title Defects or Environmental Defects.

 

ARTICLE V

Representations and Warranties of Seller

 

Each respective Seller represents and warrants to Buyer for its own
behalf and not jointly and severally that:

 

Section
5.01  Existence. To the extent a
party identified as a Seller in the introductory paragraph of this Agreement is
a corporation or partnership, it is duly organized and validly existing under
the laws of the state set forth in such introductory paragraph for such entity.
Such Sellers have full legal power, right and authority to carry on its
business as such is now being conducted and as contemplated to be conducted.

 

Section 5.02  Legal Power. Seller
has the legal power and right to enter into and perform this Agreement and the
transactions contemplated hereby. The consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with:

 

(a)           any provision of any individual Seller’s articles of
incorporation, by-laws, agreement of limited partnership or other governing
documents;

 

12

 

(b)            except for any preferential purchase rights and
consents to assignment, any material agreement or instrument to which Seller is
a party or by which Seller is bound; or

 

(c)            any judgment, order, ruling or decree applicable to
Seller as a party in interest or any law, rule or regulation applicable to
Seller.

 

Section
5.03  Execution. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby are duly and validly authorized by all requisite partnership action on
the part of Seller. This Agreement constitutes the legal, valid and binding
obligation of Seller enforceable in accordance with its terms.

 

Section
5.04  Brokers. [***], has acted
for or on behalf of Seller or any affiliate of Seller in connection with this
Agreement or the transactions contemplated by this Agreement. No broker or
finder is entitled to any brokerage or finder’s fee, or to any commission,
based in any way on agreements, arrangements or understandings made by or on
behalf of Seller or any affiliate of Seller for which Buyer has or will have
any liabilities or obligations (contingent or otherwise).

 

Section
5.05  Bankruptcy. There are no
bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or to the knowledge of Seller threatened against Seller.

 

Section 5.06  Suits. There
is no suit, action, claim, investigation or inquiry by any person or entity or
by any administrative agency or Governmental Authority and no legal,
administrative or arbitration proceeding pending or, to Seller’s knowledge,
threatened against Seller or any affiliate of Seller or the Assets that has
materially affected or will materially affect Seller’s ability to consummate
the transactions contemplated herein or materially affect the title to or value
of the Assets.

 

Section
5.07  Royalties. To Seller’s
knowledge, all Leases are in full force and effect and all rentals, royalties
and other payments due under the Subject Interests described in Exhibit A have
been paid in all material respects, except those amounts in suspense.

 

Section
5.08  Taxes. All ad valorem,
property, production, severance, excise and similar taxes and assessments based
on or measured by the ownership of the Assets or the production of Hydrocarbons
or the receipt of proceeds therefrom that have become due and payable have been
paid in all material respects.

 

Section
5.09  Contracts. To Seller’s
knowledge, all material Contracts (i) are in full force and effect, and (ii)
Seller is not in default with respect to any of its material obligations
thereunder.

 

Section
5.10  Environmental Matters. To
Seller’s knowledge, Seller is not in violation of any Environmental Laws
applicable to the Assets. No notice alleging such violation is pending or
threatened against the Assets.

 

13

 

ARTICLE VI

Representations and Warranties of Buyer

 

Buyer
represents and warrants to Seller that:

 

Section
6.01  Existence. Buyer is a
corporation duly organized and validly existing under the laws of Colorado and
is qualified to conduct business in the State of Wyoming. Buyer has full legal
power, right and authority to carry on its business as such is now being
conducted and as contemplated to be conducted.

 

Section
6.02  Legal Power. Buyer has the
legal power and right to enter into and perform this Agreement and the
transactions contemplated hereby. The consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with:

 

(a)            any provision of Buyer’s charter or other governing
documents;

 

(b)            any material agreement or instrument to which Buyer
is a party or by which Buyer is bound; or

 

(c)            any judgment, order, ruling or decree applicable to
Buyer as a party in interest or any law, rule or regulation applicable to
Buyer.

 

Section 6.03  Execution. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite
[partnership] action on the part of Buyer. This Agreement constitutes the
legal, valid and binding obligation of Buyer enforceable in accordance with its
terms.

 

Section 6.04  Brokers. No
broker or finder has acted for or on behalf of Buyer or any affiliate of Buyer
in connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder’s fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Buyer or any affiliate of Buyer for
which Seller has or will have any liabilities or obligations (contingent or otherwise).

 

Section
6.05  Bankruptcy. There are no
bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or to the knowledge of Buyer threatened against Buyer or any
affiliate of Buyer.

 

Section 6.06  Suits. There
is no suit, action, claim, investigation or inquiry by any person or entity or
by any administrative agency or Governmental Authority and no legal,
administrative or arbitration proceeding pending or, to Buyer’s knowledge,
threatened against Buyer or any affiliate of Buyer that has materially affected
or will materially affect Buyer’s ability to consummate the transactions
contemplated herein.

 

Section
6.07  Qualifications. Buyer is
now, and after the Closing shall continue to be, qualified with all applicable
Governmental Authorities to own and operate the Assets and has, and shall
maintain, all necessary bonds to own and operate the Assets.

 

14

 

Section
6.08  Investment. Prior to
entering into this Agreement, Buyer was advised by and has relied solely on its
own legal, tax and other professional counsel concerning this Agreement, the
Assets and the value thereof. Buyer is acquiring the Assets for its own account
and not for distribution or resale hi any manner that would violate any state
or federal securities law, rule, regulation or order. Buyer understands and
acknowledges that if any of the Assets were held to be securities, they would
be restricted securities and could not be transferred without registration under
applicable state and federal securities laws or the availability of an
exemption from such registration.

 

Section
6.09  Funds. Buyer has arranged to
have available by the Closing Date sufficient funds to enable Buyer to pay in
full the Purchase Price as herein provided and otherwise to perform its
obligations under this Agreement.

 

ARTICLE VII

Operation of the Assets

 

Section
7.01  Operation of the Assets Prior to
the Closing.

 

(a)            From and after the date of execution of this
Agreement and until the Closing, and subject to the provisions of applicable
operating and other agreements, Seller shall use all reasonable efforts to
operate the Assets and use its reasonable efforts to cause any other operators
to operate and administer the Assets in a manner consistent with its past
practices, and shall carry on its business with respect to the Assets in
substantially the same manner as before execution of this Agreement.

 

(b)           Buyer acknowledges that Seller owns undivided
interests in some or all of the Assets, and Buyer agrees that the acts or
omissions of the other working interests owners shall not constitute a
violation of the provisions of this Article VII, nor shall any action required
by a vote of working interest owners constitute such a violation so long as
Seller has voted its interests in a manner that complies with the provisions of
this Article VII. To the extent that Seller is not the operator of any of the
Assets, the obligations of Seller in this Article VII shall be construed to
require that Seller use reasonable efforts (without being obligated to incur
any expense or institute any cause of action) to cause the operator of such
Assets to take such actions or render such performance within the constraints
of the applicable operating agreements and other applicable agreements.

 

Section 7.02  Operation of the
Assets After the Closing. It is expressly understood and agreed that Seller
shall not be obligated to continue operating any of the Assets following the
Closing and Buyer hereby assumes full responsibility for operating (or causing
the operation of) all Assets following the Closing. Seller shall make its
personnel available to Buyer prior to the
Closing as may be reasonably necessary to assist in the transition if Buyer
becomes the operator. Seller does not warrant or guarantee that Buyer will
become the operator of the Assets or any portion thereof, as such matter will
be controlled by the applicable joint operating agreement(s) however, Seller
shall use its reasonable efforts to assist Buyer in becoming successor operator
of the Subject Interests. Without implying any obligation on Seller’s part to
continue operating any Assets after the Closing, if Seller elects to continue
to operate any Assets following the Closing at the request of Buyer or any Third
Party working interest owner, due to constraints of

 

15

 

applicable joint operating agreement(s), failure of
a successor operator to take over operations or other reasonable cause, such
continued operation by Seller shall be for the account of Buyer, at the sole
risk, cost and expense of Buyer. Seller, as a part of the Assumed Obligations,
is hereby released and indemnified by Buyer from all claims, losses, damages,
costs, expenses, causes of action and judgments of any kind or character
related to the election of a successor operator. Buyer shall conduct or cause
to be conducted all operations on the Assets after Closing in a good and
workmanlike manner and in compliance with all applicable laws, rules, regulations
and agreements. Buyer acknowledges that [***] and [***] (the “Employees”)
are currently employed in connection with the Assets and that after Closing
Buyer agrees that it shall offer employment to the Employees as independent
contractors on substantially the same salary as such Employees are presently
employed for a period of time not less than sixty (60) days following Closing.

 

Section 7.03  Limitations on
Liability of Operator. Notwithstanding anything to the contrary in this Article VII, Seller
shall have no liability to Buyer for, and Buyer hereby agrees to release,
defend, indemnify and hold harmless Seller from, the incorrect payment of delay
rentals, royalties, shut-in royalties or similar payments or for any failure to
pay any such payments through mistake or oversight provided that such payments
relate to production months after the Effective Time. In no event shall Buyer’s
remedy for any Seller’s breach of its obligations under this Article VII exceed
the Allocated Value of the Subject Interest affected by such breach.

 

ARTICLE VIII

Conditions to Obligations of Seller

 

The obligations of Seller to consummate the transaction provided for
herein are subject, at the option of Seller, to the fulfillment on or prior to
the Closing Date of each of the following conditions:

 

Section 8.01  Representations.
The representations and warranties of Buyer herein contained shall be true and
correct in all material respects on the Closing Date as though made on and as
of such date.

 

Section 8.02  Performance. Buyer
shall have performed all material obligations, covenants and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing.

 

Section 8.03  Pending Matters.
No suit, action or other proceeding shall be pending or threatened that seeks
to restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement.

 

Section
8.04  Purchase Price. Buyer shall
have delivered to Seller the Purchase Price, as the same may be adjusted
hereunder, in accordance with the provisions of Article II.

 

Section
8.05  Execution and Delivery of the
Closing Documents. Buyer shall have executed, acknowledged and delivered,
as appropriate, to Seller all closing documents described in Section 10.09.

 

16

 

ARTICLE IX

Conditions to Obligations of Buyer

 

The
obligations of Buyer to consummate the transaction provided for herein are
subject, at the option of Buyer, to the fulfillment on or prior to the Closing
Date of each of the following conditions:

 

Section
9.01  Representations. The
representations and warranties of Seller herein contained shall be true and
correct in all material respects on the Closing Date as though made on and as
of such date.

 

Section
9.02  Performance. Seller shall
have performed all material obligations, covenants and agreements contained in
this Agreement to be performed or complied with by them at or prior to the
Closing.

 

Section
9.03  Pending Matters. No suit,
action or other proceeding shall be pending or threatened that seeks to
restrain, enjoin, or otherwise prohibit the consummation of the transactions
contemplated by this Agreement.

 

Section 9.04  Execution and
Delivery of the Closing Documents. Seller shall have executed, acknowledged
and delivered, as appropriate, to Buyer all closing documents described in
Section 10.08.

 

ARTICLE X

The Closing

 

Section
10.01  Time and Place of the Closing.
If the conditions referred to in Articles VIII and IX of this Agreement have
been satisfied or waived in writing, and subject to any extensions pursuant to
Section 10.02, the transactions contemplated by this Agreement (the “Closing”)
shall take place at the offices of Palo Petroleum, Inc., whose address is 5944
Luther Lane, Suite 900, Dallas, Texas 75225, or at such place designated by
Seller on February 28, 2005, as such date may be extended pursuant to Section
10.02 (the “Closing Date”),

 

Section 10.02  Extension. The
Closing Date may be extended by mutual written agreement of the Parties.

 

Section
10.03 Adjustments to Purchase Price at the Closing.

 

(a)           At the Closing, the Purchase Price shall be
increased by the following amounts:

 

(i)             the amount as of the Effective Tune of all prepaid
ad valorem, property or similar taxes and assessments based upon or measured by
ownership of the Assets, insofar as such prepaid taxes relate to periods of
time after the Effective Time;

 

(ii)            an amount equal to all costs and expenses
(including rentals, royalties, production and severance taxes, capital
expenditures, lease operating expenses, pre-paid insurance premiums and
overhead) paid by Seller that are attributable to the Assets and attributable
to the period of time from and after the Effective Time;

 

(iii)           an amount equal to all costs and expenses paid by
Seller that are attributable to the Assets and attributable to the period of
time from and after the Effective Time;

 

17

 

(iv)           the value of all merchantable Hydrocarbons produced
prior to the Effective Time but in storage above the inlet connection or
upstream of the applicable sales meter on the Closing Date, if any; and

 

(v)            any other amount provided for in this Agreement or
agreed upon by Buyer and Seller.

 

(b)           At the Closing, the Purchase Price shall be
decreased by the following amounts:

 

(i)            an amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments based upon or measured
by the ownership of the able to periods of time prior to the Effective Time, which
amounts shall, to the extent not actually assessed, be computed based on such
taxes and assessments for the preceding tax year (such amount to be prorated
for the period of Seller’s and Buyer’s ownership before and after the Effective
Time);

 

(ii)               an amount equal to all revenues received by Seller
with respect to the Assets and attributable to Hydrocarbon produced after the
Effective Time;

 

(iii)              an amount equal to all cash in, or attributable to,
suspense accounts relative to the Assets for which Buyer has assumed
responsibility under Section 12.0:2;

 

(iv)             the Allocated Value of any Subject Interest sold
prior to the Closing to the holder of a preferential right pursuant to Section
4.06;

 

(v)              all downward Purchase Price Adjustment for Title Defects
and Environmental Defects determined in accordance with Article IV; and

 

(vi)             any other amount provided for in this Agreement or
agreed upon by Buyer and Seller.

 

(c)           If an aggregate net gas imbalance relative to the
Subject Interests exists as of the Effective Time (a “Gas Imbalance”),
the Purchase Price shall be increased if the Subject Interests are
underproduced, or decreased if the Subject Interests are overproduced, by the
product of (i) the amount (measured in thousand cubic feet “Mcf”) of
such Gas Imbalance, and (ii) [***] per Mcf. All Gas Imbalances as of the
Effective Time shall be listed by Seller on Schedule 10.03(c).

 

(d)            The adjustments described in Sections 10.03(a), (b)
and (c) are hereinafter referred to as the “Purchase Price Adjustments.”

 

18

 

Section
10.04  Pre-Closing
Allocations/Statement.

 

(a)            Provided that the Closing occurs, appropriate
adjustments shall be made between Buyer and Seller so that (i) Buyer will
receive all proceeds from sales of Hydrocarbons that are produced and saved
from and after the Effective Time and any other revenues arising out of the
ownership or operation of the Assets from and after the Effective Time, net of
all applicable production, severance, and similar taxes, and net of all costs
and expenses that are incurred in the ownership or operation of the Assets from
and after the Effective Time, including, without limitation, all drilling
costs, all capital expenditures, all overhead charges under applicable operating
or other agreements (regardless of whether Seller or an affiliate of Seller
serves as operator prior to the Closing), and (ii) Seller will receive all
proceeds from sales of Hydrocarbons that are produced and saved prior to the
Effective Time and any other revenues arising out of the ownership or operation
of the Assets prior to the Effective Time, net of all applicable production,
severance, and similar taxes, and net of all costs and expenses that are
incurred in the ownership or operation of the Assets prior to the Effective
Time.

 

(b)            Not later than three (3) business days prior to the
Closing Date, Seller shall prepare and deliver to Buyer for its review and
modification, a statement of the estimated Purchase Price Adjustments taking
into account the foregoing principles (the “Statement”). At the Closing,
Buyer shall pay the Purchase Price, as adjusted by the estimated Purchase Price
Adjustments reflected on the Statement.

 

Section
10.05  Post-Closing Adjustments to
Purchase Price.

 

(a)           On or before ninety (90) days after the Closing
Date, Seller shall prepare and deliver to Buyer a revised Statement setting
forth the actual Purchase Price Adjustments. To the extent reasonably required
by Seller, Buyer shall assist in the preparation of the revised Statement. Seller
shall provide Buyer such data and information as Buyer may reasonably request
supporting the amounts reflected on the revised Statement in order to permit
Buyer to perform or cause to be performed an audit. The revised Statement shall
become final and binding upon the parties on the thirtieth (30th) day following
receipt thereof by Buyer (the “Final Settlement Date”) unless Buyer
gives written notice of its disagreement (a “Notice of Disagreement”‘)
to Seller prior to such date. Any Notice of Disagreement shall specify in
detail the dollar amount, nature and basis of any disagreement so asserted. If
a Notice of Disagreement is received by Seller in a timely manner, then the
Parties shall resolve the Dispute evidenced by the Notice of Disagreement in
accordance with Article XIV.

 

(b)           If the amount of the Purchase Price as set forth on
the Final Statement exceeds the amount of the estimated Purchase Price paid at
the Closing, then Buyer shall pay to Seller, the amount by which the Purchase
Price as set forth on the Final Statement exceeds the amount of the estimated
Purchase Price paid at the Closing within five (5) business days after the
Final Settlement Date. If the amount of the Purchase Price as set forth on the
Final Statement is less than the amount of the estimated Purchase Price paid at
the Closing, then Seller shall pay to Buyer the amount by which the Purchase
Price as set forth on the Final Statement is less than the amount of the
estimated Purchase Price paid at the Closing within five (5) business days
after the Final Settlement Date. For purposes of this Agreement, the term “Final
Statement” shall mean (j) if the revised Statement becoming final pursuant
to Section 10.05(a), such revised Statement,

 

19

 

or (ii)
upon resolution of any Dispute regarding a Notice of Disagreement, the revised
Statement reflecting such resolutions, which the Parties shall issue, or cause
the Independent Expert or arbitrators to issue, as applicable, following such
resolution.

 

Section
10.06  Transfer Taxes. All sales,
use or other taxes (other than taxes on gross income, net income or gross
receipts) and duties, levies, recording fees or other governmental charges
incurred by or imposed with respect to the property transfers undertaken
pursuant to this Agreement shall be the responsibility of, and shall be paid
by, Buyer.

 

Section 10.07  Ad Valorem and
Similar Taxes. Ad valorem, property, severance and similar taxes and
assessments based upon or measured by the value of the Assets shall be divided
or prorated between Seller and Buyer as of the Effective Time. Seller shall
retain responsibility for such taxes attributable to the period of time prior
to the Effective Time and Buyer shall assume responsibility for the period of
time from and after the Effective Time.

 

Section
10.08  Actions of Seller at the
Closing. At the Closing, Seller shall:

 

(a)           execute, acknowledge and deliver to Buyer the Assignments,
counterpart assignments on governmental forms, and such other instruments (in
form and substance mutually agreed upon by Buyer and Seller) as may be
reasonably necessary to convey the Assets to Buyer;

 

(b)           execute, acknowledge and deliver to Buyer letters
in lieu of transfer or division orders directing all purchasers of production
from the Subject Interests to make payment of proceeds attributable to such
production to Buyer from and after the Effective Time as reasonably requested
by Buyer prior to the Closing Date;

 

(c)           deliver to Buyer possession of the Assets;

 

(d)           execute and deliver to Buyer an affidavit attesting
to its non-foreign status;

 

(e)           deliver to Buyer appropriate change of operator
forms on those Assets operated by Seller; and

 

(f)            execute, acknowledge and deliver any other
agreements provided for herein or necessary or desirable to effectuate the
transactions contemplated hereby.

 

Section
10.09  Actions of Buyer at the Closing.
At the Closing, Buyer shall:

 

(a)           deliver to Palo Petroleum, Inc., for the benefit of
Seller, the Purchase Price (as adjusted pursuant to the provisions hereof and
net of the Deposit) by wire transfer to an account designated in writing by
Seller;

 

(b)          take possession of the Assets; and

 

20

 

(c)            execute, acknowledge and deliver the Assignments
and any other agreements provided for herein or necessary or desirable to
effectuate the transactions contemplated hereby.

 

Section
10.10  Further Cooperation.

 

(a)            Seller shall make the Records available to be
picked up by Buyer at the offices of Seller during normal business hours within
five (5) business days after the later of the Closing or the end of the
Transition Period to the extent the Records are in the possession of Seller and
are not subject to contractual restrictions on transferability. Seller shall
have the right to retain copies of any of the Records and the rights granted
under Section 15.04.

 

(b)            After the Closing Date, each Party, at the request
of the other and without additional consideration, shall execute and deliver, or
shall cause to be executed and delivered, from time to time such further
instruments of conveyance and transfer and shall take such other action as the
other Party may reasonably request to convey and deliver the Assets to Buyer
and to accomplish the orderly transfer of the Assets to Buyer in the manner
contemplated by this Agreement. After the Closing, the Parties will cooperate
to have all proceeds received attributable to the Assets be paid to the proper
Party hereunder and to have all expenditures to be made with respect to the
Assets be made by the proper Party hereunder.

 

ARTICLE XI

Termination

 

Section 11.01  Right of
Termination. This Agreement may be terminated at any time at or prior to
the Closing:

 

(a)           by mutual written consent of the Parties;

 

(b)           by Seller on the Closing Date if the conditions set
forth in Article VIII have not been satisfied in all material respects by Buyer
or waived by Seller in writing by the Closing Date;

 

(c)           by Buyer on the Closing Date if the conditions set
forth in Article IX have not been satisfied in all material respects by Seller
or waived by Buyer in writing by the Closing Date;

 

(d)           by either Party if the Closing shall not have
occurred on or before February 28, 2005;

 

(e)           by either Party if any Governmental Authority shall
have issued an order, judgment or decree or taken any other action challenging,
delaying, restraining, enjoining, prohibiting or invalidating the consummation
of any of the transactions contemplated herein;

 

(f)            by either Party if (i) the aggregate amount of the
Purchase Price Adjustments agreed by the Parties or otherwise finally
determined pursuant to this Agreement with respect to all uncured Title Defects
plus (ii) the aggregate amount of the Environmental Defect Values agreed by the
Parties or otherwise finally determined pursuant to this Agreement with respect
to all Environmental Defects, exceeds [***] percent ([***]%) percent of the
Purchase Price;

 

21

 

(g)            by Buyer in accordance with Section 13.03(c); or

 

(h)            as otherwise provided herein;

 

provided,
however, that no Party shall have the right to terminate this Agreement
pursuant to clause (b), (c), or (d) above if such Party is at such time in
material breach of any provision of this Agreement.

 

Section
11.02  Effect of Termination. In
the event that the Closing does not occur as a result of any Party exercising
its right to terminate pursuant to Section 11.01, then except as set forth in
Section 2.02, this Agreement shall be null and void and no Party shall have any
further rights or obligations under this Agreement, except that nothing herein
shall relieve any Party from any liability for any breach hereof or any
liability that has accrued prior to the date of such termination.

 

Section
11.03  Attorneys’ Fees, Etc.. If
either Party to this Agreement resorts to legal proceedings to enforce this
Agreement, the prevailing Party in such proceedings shall be entitled to
recover all costs incurred by such Party, including reasonable attorneys’ fees,
in addition to any other relief to which such Party may be entitled. Notwithstanding
anything to the contrary in this Agreement, in no event shall either Party be
entitled to receive any punitive, indirect or consequential damages unless same
are a part of a Third Party claim for which a Party is seeking indemnification
hereunder.

 

ARTICLE XII

Obligations and Indemnification

 

Section 12.01  Retained
Obligations. Provided that the Closing occurs, Seller hereby retains (a)
all obligations and liabilities of Seller for the payment or improper payment
of royalties, rentals and other similar payments under the Leases relating to
the Subject Interests accruing prior to the Effective Time, (b) all obligations
of Seller under the Contracts for (i) overhead charges related to periods prior
to the Effective Time, and (ii) costs and expenses incurred prior to the
Effective Time for goods and services provided prior to the Effective Time, and
(iii) other payment obligations that accrue and become due prior to the Effective
Time, (c) all liability of Seller to third parties for personal injury or death
to the extent occurring prior to the Effective Time as a result of the
operation of the Assets and (d) ad valorem, property, severance and similar
taxes attributable to the period of time prior to the Effective Time retained
by Seller under Section 10.07, (d), all litigation existing as of the Closing
Date, to the extent it relates to the period of time prior to the Effective
Time (collectively, the “Retained Obligations”).

 

Section 12.02  Assumed
Obligations. Provided that the Closing occurs, Buyer hereby assumes all
duties, obligations and liabilities of every kind and character with respect to
the Assets or the ownership or operation thereof (other than the Retained Obligations),
whether attributable to periods before or after the Effective Time, including,
without limitation, those arising out of (a) the terms of the Easements,
Contracts, Leases, Personal Property or Subject Interests comprising part of
the Assets, (b) Gas Imbalances, (c) suspense accounts, (d) ad valorem,
property, severance and other similar taxes or assessments based upon or
measured by

 

22

 

the
ownership of the Assets or the production therefrom, (e) the condition of the
Subject Interests, regardless of whether such condition arose before or after
the Effective Time, (f) obligations to properly plug and abandon or re-plug or
re-abandon or remove wells, flowlines, gathering lines or other facilities,
equipment or other personal property or fixtures comprising part of the Assets,
(g) obligations to restore the surface of the Subject Interests and obligations
to remediate or bring the Subject Interests into compliance with applicable
Environmental Laws (including conducting any remediation activities that may be
required on or otherwise in connection with activities on the Subject
Interests), regardless of whether such obligations or conditions or events
giving rise to such obligations, arose, occurred or accrued before or after the
Effective Time, and (h) any other duty, obligation, event, condition or
liability assumed by Buyer under the terms of this Agreement (collectively, the
“Assumed Obligations”).

 

Section
12.03  Buyer’s Indemnification. Provided
that the Closing occurs, Buyer shall release, defend, indemnify and hold
harmless Seller, its partners, and their respective officers, directors,
employees, agents, partners, representatives, members, shareholders,
affiliates, subsidiaries, successors and assigns (collectively, the “Seller
Indemnitees”) from and against any and all claims, damages, liabilities,
losses, causes of actions, costs and expenses (including, without limitation,
involving theories of negligence or strict liability and including court costs
and attorneys’ fees) (“Losses”) as a result of, arising out of, or
related to the Assumed Obligations.

 

Section
12.04  Seller’s Indemnification -
Third Party Non-environmental Claims. Provided that the Closing occurs,
Seller shall release, defend, indemnify and hold harmless Buyer, its partners,
and their respective officers, directors, employees, agents, representatives,
members, shareholders, affiliates and subsidiaries (collectively, the “Buyer
Indemnitees”) from and against any and all Third Party non-environmental
claims relating to Seller’s ownership or operation of the Assets prior to the
Effective Time or as a result of, arising out of, or related to the Retained
Obligations. Provided, however, not withstanding anything to the contrary
contained herein, Seller’s indemnification obligation under this Section 12.04
shall only apply if Buyer has provided Seller with written notice claiming
indemnification within nine (9) months of the Closing.

 

Section
12.05  Seller’s Indemnification -
Third Party Environmental Claims. Provided that the Closing occurs, Seller
shall release, defend, indemnify and hold harmless Buyer, its partners, and
their respective officers, directors, employees, agents, representatives,
members, shareholders, affiliates and subsidiaries (collectively, the “Buyer
Indemnitees”) from and against any and all Third Party environmental claims
relating to Seller’s ownership or operation of the Assets prior to the
Effective Time or as a result of, arising out of, or related to the Retained Obligations.
Provided, however, not withstanding anything to the contrary contained herein,
Seller’s indemnification obligation under this Section 12.04 shall only apply
if Buyer has provided Seller with written notice claiming indemnification
within nine (9) months of the Closing.

 

Section 12.06  Notices and
Defense of Indemnified Matters. Each Party shall promptly notify the other
Party of any matter of which it becomes aware and for which it is entitled to
indemnification from the other Party under this Agreement. The indemnifying
Party shall be obligated to defend, at the indemnifying Party’s sole expense,
any litigation or other

 

23

 

administrative or adversarial proceeding against
the indemnified Party relating to any matter for which the indemnifying Party
has agreed to indemnify and hold the indemnified Party harmless under this
Agreement. However, the indemnified Party shall have the right to participate
with the indemnifying Party in the defense of any such matter at its own
expense.

 

ARTICLE XIII

Limitations on Representations and Warranties

 

Section
13.01  Disclaimers of Representations
and Warranties. The express representations and warranties of Seller
contained in this Agreement are exclusive and are in lieu of all other
representations and warranties, express, implied or statutory. EXCEPT FOR THE EXPRESS REPRESENTATIONS OF SELLER IN
THIS AGREEMENT OR IN THE ASSIGNMENT DOCUMENTS DELIVERED HEREUNDER, BUYER
ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS
AND NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY,
EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (a)
PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING
INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS,
IF ANY, ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR
MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW,
HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, AND (c)
THE ENVIRONMENTAL CONDITION OF THE ASSETS. EXCEPT FOR THE EXPRESS
REPRESENTATIONS OF SELLER IN THIS AGREEMENT OR IN THE ASSIGNMENT DOCUMENTS
DELIVERED HEREUNDER, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES
CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE,
(v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN OR
UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW, AND
(vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE
OF MATERIALS INTO THE ENVIRONMENT, OR PROTECTION OF THE ENVIRONMENT OR HEALTH,
IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER THAT THE PERSONAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES INCLUDED IN THE ASSETS SHALL BE
CONVEYED TO BUYER, AND BUYER SHALL ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS
AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND BUYER REPRESENTS TO
SELLER THAT BUYER WILL MAKE OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT
TO SUCH PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS
BUYER DEEMS

 

24

 

APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN
WARRANTIES CONTAINED IN THIS SECTION ARE “CONSPICUOUS” DISCLAIMERS FOR THE
PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.

 

Section
13.02  Survival. The
representations, warranties, covenants and obligations of Buyer under this
Agreement shall indefinitely survive the Closing. The representations,
warranties, covenants and obligations of Seller under this Agreement shall
survive the Closing for a period of nine (9) months from the Closing.

 

Section
13.03  Casualty Loss.

 

(a)            Buyer shall assume all risk of loss with respect
to, and any change in the condition of, the Assets from the date of this Agreement
until the Closing, including with respect to the depletion of Hydrocarbons, the
watering-out of any well, the collapse of casing, sand infiltration of wells,
and the depreciation of personal property.

 

(b)           If after the date of this Agreement and prior to
the Closing any part of the Assets shall be damaged or destroyed by fire or
other casualty or if any part of the Assets shall be taken in condemnation or
under the right of eminent domain or if proceedings for such purposes shall be
pending or threatened, this Agreement shall remain in full force and effect
notwithstanding any such destruction, taking or proceeding, or the threat
thereof and the Parties shall proceed with the transactions contemplated by
this Agreement notwithstanding such destruction or taking without reduction of
the Purchase Price, but subject to Section 13.03(c).

 

(c)            Notwithstanding Section 13.03(a), in the event of
any loss described in Section 13.03(b), at the Closing Seller shall pay to
Buyer all sums paid to Seller by third parties by reason of the destruction or
taking of such Assets (up to the Allocated Value thereof), including any sums
paid pursuant to any policy or agreement of insurance or indemnity, and shall
assign, transfer and set over unto Buyer all of the rights, title and interest
of Seller in and to any claims, causes of action, unpaid proceeds or other
payments from third parties, including any policy or agreement of insurance or
indemnity, arising out of such destruction or taking (up to the Allocated Value
thereof). Notwithstanding anything to the contrary in this Section 13.03,
Seller shall not be obligated to carry or maintain, and shall have no
obligation or liability to Buyer for its failure to carry or maintain, any
insurance coverage with respect to any of the Assets. Notwithstanding anything
to the contrary contained in this Section 13.03, should the uncompensated loss
exceed five percent (5%) of the Purchase Price, Buyer shall have the option to
terminate this Agreement in which event Seller shall return the Deposit to
Buyer within three (3) business days after such termination.

 

ARTICLE XIV

Dispute Resolution

 

Section 14.01  General. Any
and all claims, Disputes, controversies or other matters in question arising
out of or relating to this Agreement, any provision hereof, the alleged breach
of any such provision, or in any way relating to the subject matter of this
Agreement or the

 

25

 

relationship between the Parties created by this
Agreement, involving the Parties, their affiliates and/or their respective
representatives (all of which are referred to herein as “Disputes”),
even though some or all of such Disputes allegedly are extra-contractual in
nature, whether such Disputes sound in contract, tort, or otherwise, at law or
in equity, under state or federal law, whether provided by statute or the
common law, for damages or any other relief, shall be resolved solely in
accordance with this Article XIV.

 

Section
14.02  Senior Management. If a
Dispute occurs that the senior representatives of the Parties responsible for
the transaction contemplated by this Agreement have been unable to settle or
agree upon within a period of fifteen (15) days after such Dispute arose,
Seller shall nominate and commit one of its senior officers, and Buyer shall
nominate and commit one of its senior officers, to meet at a mutually agreed
time and place not later than thirty (30) days after the Dispute has arisen to
attempt to resolve same. If such senior management have been unable to resolve
such Dispute within a period of fifteen (15) days after such meeting, or if
such meeting has not occurred within forty-five (45) days following such
Dispute arising, then either Party shall have the right, by written notice to
the other, to resolve the Dispute (i) through the relevant Independent Expert
pursuant to Section 14.03, or (ii) by arbitration in accordance with the
provisions of Section 14.04.

 

Section
14.03  Disputes.

 

(a)           Each Party shall have the right to submit Disputes
regarding title issues, environmental issues, or calculation of the Statement
or revisions thereto, to an independent expert appointed in accordance with
this Section 14.03 (each, an “Independent Expert”), who shall serve as
sole arbitrator. The Independent Expert shall be appointed by mutual agreement
of the Parties from among candidates with experience and expertise in the area
that is the subject of such Dispute, and failing such agreement, such
Independent Expert for such Dispute shall be selected in accordance with the
Rules (as hereinafter defined).

 

(b)           Disputes to be resolved by an Independent Expert
shall be resolved in accordance with mutually agreed procedures and rules and
failing such agreement, in accordance with the rules and procedures of the
Federal Arbitration Act. The Independent Expert shall be instructed by the
Parties to resolve such Dispute as soon as reasonably practicable in light of
the circumstances. The decision and award of the Independent Expert shall be
binding upon the Parties as an award under the Federal Arbitration Act and
final and nonappealable to the maximum extent permitted by law, and judgment
thereon may be entered in a court of competent jurisdiction and enforced by any
Party as a final judgment of such court.

 

(c)           Waiver of Certain Damages. Notwithstanding any
other provision in this Agreement to the contrary, the Parties expressly agree
that the arbitrators shall have absolutely no authority to award consequential,
incidental, special, treble, exemplary or punitive damages of any type under
any circumstances regardless of whether such damages may be available under
Texas law, or any other laws, or under the Federal Arbitration Act or the
Rules.

 

26

 

ARTICLE XV

Miscellaneous

 

Section
15.01  Names. As soon as
reasonably possible after the Closing, but in no event later than 45 days after
the Closing, Buyer shall remove the names of Seller and its affiliates, and all
variations thereof, from all of the Assets and make the requisite filings with,
and provide the requisite notices to, the appropriate federal, state or local
agencies to place the title or other indicia of ownership, including operation
of the Assets, in a name other than the name of the Seller or any of its
affiliates, or any variations thereof.

 

Section
15.02  Taxes and Expenses. Buyer
shall be liable for all sales, use, documentary, recording, stamp, transfer or
similar taxes, assessments or fees arising from the transactions contemplated
by this Agreement. Each Party shall be solely responsible for all expenses,
including due diligence expenses, incurred by it in connection with this
transaction, and neither Party shall be entitled to any reimbursement for such
expenses from the other Party.

 

Section
15.03  Independent Investigation. Buyer
represents and acknowledges that it is knowledgeable of the oil and gas
business and of the usual and customary practices of producers such as Seller
and that it has had (or will have prior to the Closing) access to the Assets,
the officers and employees of Seller, and the books, records and files of
Seller relating to the Assets, and in making the decision to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer has relied
solely on the basis of its own independent due diligence investigation of the
Assets and upon the representations and warranties made in Article V. and not
on any other representations or warranties of Seller or any other person or
entity.

 

Section 15.04  Document
Retention. As used in this Section 15.04, the term “Documents” shall
mean all files, documents, books, records and other data delivered to Buyer by
Seller pursuant to the provisions of this Agreement (other than those that
Seller has retained either the original or a copy of), including, but not
limited to: financial and tax accounting records; land, title and division of
interest files; contracts; engineering and well files; and books and records
related to the operation of the Assets prior to the Closing Date. Buyer shall
retain and preserve the Documents for a period of no less than four (4) years
following the Closing Date (or for such longer period as may be required by law
or governmental regulation), and shall allow Seller or its representatives to
inspect the Documents at reasonable times and upon reasonable notice during
regular business hours during such time period. Seller shall have the right
during such period to make copies of the Documents at its expense.

 

Section
15.05  Entire Agreement. This
Agreement, the documents to be executed hereunder, and the exhibits attached
hereto constitute the entire agreement between the Parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties
pertaining to the subject matter hereof, No supplement, amendment, alteration,
modification or waiver of this Agreement shall be binding unless executed in
writing by the Parties and specifically referencing this Agreement.

 

27

 

Section
15.06  Waiver. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.

 

Section
15.07  Publicity. Neither Seller
nor Buyer will issue any public announcement or press release concerning this
transaction without the written consent of the other Party (except as required
by law and in such case with prior written agreement between the Parties on the
wording of the announcement or press release).

 

Section
15.08  Construction. The captions
in this Agreement are for convenience only and shall not be considered a part
of or affect the construction or interpretation of any provision of this
Agreement. The Parties acknowledge that they have participated jointly in the
negotiation and drafting of this Agreement and as such the Parties agree that
if an ambiguity or question of intent or interpretation arises hereunder, this
Agreement shall not be construed more strictly against one Party than another
on the grounds of authorship.

 

Section
15.09  No Third Party Beneficiaries.
Except as provided in Sections 12.03 and 12.04, nothing in this Agreement shall
provide any benefit to any Third Party or entitle any Third Party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
Parties that this Agreement shall otherwise not be construed as a Third Party
beneficiary contract.

 

Section
15.10  Assignment. Neither Party
may assign or delegate any of its rights or duties hereunder without the prior
written consent of the other Party and any assignment made without such consent
shall be void. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Parties hereto and their
respective permitted successors, assigns and legal representatives.

 

Section 15.11  Governing Law.
This Agreement, other documents delivered pursuant hereto and the legal
relations between the Parties shall be governed and construed in accordance
with the laws of the State of Wyoming, without giving effect to principles of
conflicts of laws that would result in the application of the laws of another
jurisdiction. The Parties agree to venue in Federal or State Courts located in
Laramie County, Wyoming.

 

Section
15.12  Notices. Any notice,
communication, request, instruction or other document required or permitted
hereunder shall be given in writing and delivered in person or sent by U.S. Mail
postage prepaid, return receipt requested, overnight courier or facsimile to
the addresses of Seller and Buyer set forth below. For purposes of this
Agreement, Notice to or from Palo Petroleum, Inc. as provided below shall
constitute notice to or from any and all other Parties constituting Seller as
defined herein. Any such notice shall be effective only upon receipt.

 

28

 

	
   

  	
  -Seller:

  	
  Palo Petroleum, Inc.

  
	
   

  	
   

  	
  5944 Luther Lane Suite 900

  
	
   

  	
   

  	
  Dallas, TX 75225 Attention:

  
	
   

  	
   

  	
  Jim Graham

  
	
   

  	
   

  	
   

  
	
   

  	
  Buyer:

  	
  Storm Cat Energy (USA)
  Corporation

  
	
   

  	
   

  	
  1550 Larimer St., No. 265

  
	
   

  	
   

  	
  Denver, CO 80202

  
	
   

  	
   

  	
  Attention: J. Scott Zimmerman

  

 

Either Party may, by written notice so delivered to
the other Party, change its address for notice purposes hereunder.

 

Section
15.13  Severability. If any term
or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
and the Parties shall negotiate in good faith to modify this Agreement so as to
effect their original intent as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.

 

Section
15.14  Time of the Essence. Time
shall be of the essence with respect to all time periods and notice periods set
forth in this Agreement

 

Section 15.15  Counterpart
Execution. This Agreement may be executed in any number of counterparts,
and each counterpart hereof shall be effective as to each party that executes
the same whether or not all of such parties execute the same counterpart, If
counterparts of this Agreement are executed, the signature pages from various
counterparts may be combined into one composite instrument for all purposes. All
counterparts together shall constitute only one Agreement, but each counterpart
shall be considered an original.

 

Section 15.16  Operatorship.
Within five (5) business days after Closing, Seller will send out notifications
of its resignation as operator for all wells Seller currently operates and is
selling to Buyer pursuant to this Agreement. Seller makes no representation
and/or warranty to Seller as to the transferability or assignability of
operatorship of such wells but will encourage and support Buyer’s efforts to
assume operatorship of the Subject Interests. Buyer acknowledges that the
rights and obligations associated with such wells are governed by applicable
agreements and that operatorship will be determined by the terms of those
agreements.

 

Section
15.17  Tax Deferred Exchange. Either
or both Buyer and Seller may, at or before the Closing, elect to affect a
tax-deferred exchange of the Assets for other qualifying properties
(hereinafter collectively called the “Exchange Property”) in accordance
with the following:

 

(a)           In the event Seller makes such an election prior to
the Closing, Seller may elect, by notice to Buyer delivered on or before the
Closing Date, to have the Purchase Price paid to a

 

29

 

qualified intermediary until Seller has designated
the Exchange Property. The Exchange Property shall be designated by Seller and
acquired by the qualified intermediary within the time periods prescribed in
Section 1031(a)(3) of die Internal Revenue Code, and shall thereupon be
conveyed to Seller. In the event Seller fails to designate and the qualified
intermediary fails to acquire the Exchange Property within such time periods,
the agency or trust shall terminate and the proceeds then held by the qualified
intermediary shall be paid immediately to Seller.

 

(b)            In the event Buyer makes such an election prior to
the Closing, Buyer may elect, by notice to Seller delivered on or before the
Closing Date, to have the Assets conveyed to a qualified intermediary or an
exchange accommodation titleholder (as that term is defined in Rev. Proc. 2000-37
issued effective September 15,2000).

 

(c)            The rights and responsibilities of Seller, Buyer
and the qualified intermediary or exchange accommodation titleholder shall be
documented with such agreements containing such terms and provisions as shall
be reasonably determined by Seller and Buyer to be necessary to accomplish a
tax deferred exchange under Section 1031 of the Internal Revenue Code, subject,
however, to the limitations on costs and liabilities of Buyer and Seller set
forth below. If Seller makes a tax deferred exchange election, Buyer shall not
be obligated to pay any additional costs or incur any additional obligations in
the acquisition of the Assets. If Buyer makes a tax deferred exchange election,
Seller shall not be obligated to pay any additional costs or incur any

additional obligations in the consummation of the transactions contemplated in
this Agreement. Any such tax deferred exchange election by either Party shall
not affect the duties, rights or obligations of the Parties except as expressly
set forth in this Section 15.17.

 

Should
either Seller or Buyer make such an election and should the tax deferred
exchange fail or be disallowed by the Internal Revenue Service for any reason,
the non-electing party’s sole responsibility and liability to the electing
party shall be to take such actions as are required by subsections (a), (b) or
(c) above and such non-electing party shall have no other responsibility or
liability whatsoever to the electing party; and the electing party shall
release, indemnify, defend and hold harmless the non-electing party from any
responsibility or liability related to such election except for such actions as
may be required by subsections (a), (b) or (c) above.

 

30

 

IN WITNESS WHEREOF, Seller and Buyer have executed
and delivered this Agreement as of the date first set forth above.

 

 

	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PALO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James
  P. Graham

  	
   

  
	
   

  	
  Name:

  	
  James P. Graham

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PASO GASO
  PIPELINE, LLC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia
  A. Snyder

  	
   

  
	
   

  	
  Name:

  	
  Patricia A. Snyder

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Mel
  McClung

  	
   

  
	
   

  	
  Mel McClung

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Tonya
  McClung

  	
   

  
	
   

  	
  Tonya McClung

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Matt
  McClung

  	
   

  
	
   

  	
  Matt McClung

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AIRBORNE
  INVESTMENTS, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joyce
  Logsdon

  	
   

  
	
   

  	
  Name:

  	
  Joyce Logsdon

  
	
   

  	
  Title:

  	
  General Partner

  
						

 

31

 

	
   

  	
  Bernell E.
  Snider & Flora Snider Community

  
	
   

  	
  Property Trust

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bernell
  E. Snyder

  	
   

  
	
   

  	
  Name:

  	
  Bernell E. Snyder, Co Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Flora
  Snyder

  	
   

  
	
   

  	
  Name:

  	
  Flora Snyder, Co Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The Boren
  Community Property Trust

  	
   

  
	
   

  	
  established
  April 6, 2001

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kozell
  T. Boren

  	
   

  
	
   

  	
  Name:

  	
  Kozell T. Boren, Co Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sally
  Cannon Boren

  	
   

  
	
   

  	
  Name:

  	
  Sally Cannon Boren, Co Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Sosebee
  Property Company No. 2, Ltd.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jack
  Sosebee

  	
   

  
	
   

  	
  Name:

  	
  Jack Sosebee

  	
   

  
	
   

  	
  Title:

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Double
  L&S, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert
  A. Schmidt

  	
   

  
	
   

  	
  Name:

  	
  Robert A. Schmidt

  	
   

  
	
   

  	
  Title:

  	
  Member

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Don
  Farris

  	
   

  
	
   

  	
  Don Farris

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Irving
  Dreibrodt

  	
   

  
	
   

  	
  Irving Dreibrodt

  	
   

  
						

 

32

 

	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  STORM CAT
  ENERGY (USA)

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Scott Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  J. Scott Zimmerman

  	
   

  
	
   

  	
  Title: 

  	
  President

  	
   

  
						

 

33

 

EXHIBIT “A”

 

	
  PALO

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  LEASE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  GROSS

  	
   

  	
   

  
	
  NO.

  	
   

  	
  LESSOR

  	
   

  	
  LESSEE

  	
   

  	
  DATE

  	
   

  	
  EXP. DATE

  	
   

  	
  LAND DESCRIPTION

  	
   

  	
  BOOK

  	
   

  	
  PAGE

  	
   

  	
  ENTRY

  	
   

  	
  ACRES

  	
   

  	
  NET ACRES

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[***]

 

1

 

EXHIBIT “A”

 

	
  PALO

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  LEASE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  GROSS

  	
   

  	
   

  
	
  NO.

  	
   

  	
  LESSOR

  	
   

  	
  LESSEE

  	
   

  	
  DATE

  	
   

  	
  EXP. DATE

  	
   

  	
  LAND DESCRIPTION

  	
   

  	
  BOOK

  	
   

  	
  PAGE

  	
   

  	
  ENTRY

  	
   

  	
  ACRES

  	
   

  	
  NET ACRES

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[***]

 

2

 

EXHIBIT “A”

 

	
  PALO

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  LEASE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  GROSS

  	
   

  	
   

  
	
  NO.

  	
   

  	
  LESSOR

  	
   

  	
  LESSEE

  	
   

  	
  DATE

  	
   

  	
  EXP. DATE

  	
   

  	
  LAND DESCRIPTION

  	
   

  	
  BOOK

  	
   

  	
  PAGE

  	
   

  	
  ENTRY

  	
   

  	
  ACRES

  	
   

  	
  NET ACRES

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[***]

 

3

 

EXHIBIT “A-l”

 

[***]

 

 

1

 

EXHIBIT “A-l”

 

[***]

 

2

 

EXHIBIT “A-l”

 

[***]

 

 

3

 

EXHIBIT “A-l”

 

[***]

 

4

 

EXHIBIT “A-l”

 

[***]

 

5

 

	
  Palo Petroleum Interests

  	
   

  	
  Palo Petroleum Interests

  
	
  Exhibit B - POP Only

  	
   

  	
   

  
	
  Campbell County, Wyoming

  	
   

  	
  Campbell County, Wyoming

  
	
  As of January 1, 2005

  	
   

  	
  As of January 1, 2005

  

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  RESV

  	
   

  	
  NET

  GAS

  	
   

  	
   

  	
   

  	
  LEASE

  	
   

  
	
  SEQ

  	
   

  	
  LEASE NAME

  	
   

  	
  SECTION

  	
   

  	
  WELL ID

  	
   

  	
  FIELD NAME

  	
   

  	
  RESERVOIR

  	
   

  	
  OPERATOR

  	
   

  	
  COUNTY

  	
   

  	
  ST

  	
   

  	
  CAT

  	
   

  	
  iNST

  	
   

  	
  SEQ

  	
   

  	
  NAME

  	
   

  
	
   

  	
   

  	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

1

 

Palo Petroleum Interests

Exhibit B - POP Only

Campbell County, Wyoming

As of January 1, 2005

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  RESV

  	
   

  	
  NET

  GAS

  	
   

  	
  WORKING

  	
   

  	
  ALLOCATED

  	
   

  
	
  SEQ

  	
   

  	
  LEASE NAME

  	
   

  	
  SECTION

  	
   

  	
  WELLID

  	
   

  	
  FIELD NAME

  	
   

  	
  RESERVOIR

  	
   

  	
  OPERATOR

  	
   

  	
  COUNTY

  	
   

  	
  ST

  	
   

  	
  CAT

  	
   

  	
  iNST

  	
   

  	
  INST

  	
   

  	
  VALUE, $M

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

2

 

EXHIBIT B-1

 

Exhibit B-1 – Allocated Values for Upside Potential
Only

 

	
  LEASE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Working

  	
   

  	
  Gas Net

  	
   

  	
  Allocated Upside

  	
   

  
	
  PALO NO.

  	
   

  	
  LESSOR

  	
   

  	
  LESSEE

  	
   

  	
  DATE

  	
   

  	
  EXP. DATE

  	
   

  	
  LAND DESCRIPTION

  	
   

  	
  Interest,%

  	
   

  	
  Revenue Interest,%

  	
   

  	
  Value, M$

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[***]

 

1

 

EXHIBIT B-1

 

Exhibit B-1 – Allocated Values for Upside Potential
Only

 

	
  LEASE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Working

  	
   

  	
  Gas Net

  	
   

  	
  Allocated Upside

  	
   

  
	
  PALO NO.

  	
   

  	
  LESSOR

  	
   

  	
  LESSEE

  	
   

  	
  DATE

  	
   

  	
  EXP. DATE

  	
   

  	
  LAND DESCRIPTION

  	
   

  	
  Interest,%

  	
   

  	
  Revenue Interest,%

  	
   

  	
  Value, M$

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[***]

 

2

 

EXHIBIT
C

 

ASSIGNMENT
AND BILL OF SALE

 

THIS
ASSIGNMENT AND BILL OF SALE (this “Assignment”), effective as of 7:00 a.m. on
January 1, 2005 (the “Effective Time”) is made by Palo Petroleum, Inc.,
a                                              
corporation, Mel McClung, Tonya McClung, Matt McClung,  Airborne Investments, LP, a California limited
partnership, the Bernell E. Snider & Flora Snider Community Property Trust,
Kozell T. & Sally Cannon Boren as Co-Trustees of the Boren Community
Property Trust, established April 6, 2001, Sosebee Property Company No, 2, Ltd., a Texas limited partnership,
Double L&S, LLC, a California limited liability company, Don Farris and Irving
Dreibrodt (collectively “Assignor”), to Storm Cat Energy (USA ) Corporation, a
Colorado corporation (“Assignee”), whose address is 1550 Larimer Street, No.
265, Denver, Colorado 80202.

 

ARTICLE
I

Granting
and Habendum

 

For Ten Dollars ($10,00) and other good and valuable consideration, the
receipt, and sufficiency of which are hereby acknowledged, Assignor does hereby
grant, bargain, sell, transfer, convey, set over, assign and deliver unto
Assignee, its successors and assigns, effective for all purposes as of the
Effective Time and subject to the matters set forth herein, the Assets. The
term “Assets” shall mean all of Assignor’s right, title and interest in and to
the following:

 

(a)          the leasehold estates in and to the oil, gas and
mineral leases described or referred to in Exhibit A (the “Leases”) and any
overriding royalty interests in and to the lands covered by the leases,
assignments and other documents of title described or referred to in Exhibit A,
all as more specifically described in Exhibit A (collectively, the“Subject
Interests,” or singularly, a “Subject Interest”):

 

(b)          all rights incident to the Subject Interests,
including, without limitation, (i)all rights with respect to the use and
occupation of the surface of and the sub surface depths under the Subject Interests;
(ii) all rights with respect to any pooled,communitized or unitized acreage by
virtue of any Subject Interest being a part thereof,including all Hydrocarbon
production after the Effective Time attributable to the Subject Interests or
any such pool or unit allocated to any such Subject Interest;

 

(c)          all easements, rights-of-way, surface leases,
servitudes, permits, licenses,franchises and other estates or similar rights
and privileges related to or used solely in connection with the Subject
Interests (“Easements”);

 

(d)          all personal property, equipment, fixtures,
inventory and improvements located on or used solely in connection with the
Subject Interests and the Easements or with the production, treatment, sale, or
disposal of oil, gas or other hydrocarbons(collectively, “Hydrocarbons”),
byproducts or waste produced therefrom or attributable thereto, including,
without limitation, all wells located on the lands covered by the Subject
Interests or on lands with which the Subject Interest have been
pooled,communitized or unitized (whether producing, shut in or abandoned, and
whether for

 

C-1

 

production,
injection or disposal), including, without limitation, the wells described in
Exhibits to the Purchase Agreement described below, wellhead equipment, pumps,
pumping units, flowlines, gathering systems, piping, tanks, buildings,
treatment facilities, injection facilities, disposal facilities, compression
facilities, and other materials, supplies, equipment, facilities and machinery;

 

(e) to the extent assignable or transferable, all contracts, agreements
and other arrangements that relate to the Subject Interests, the Leases or the
Easements, including, without limitation, production sales contracts, farmout
agreements, operating agreements, service agreements and similar agreements
(the “Contracts”):

 

(i)
to the extent assignable or transferable, all books, records, files, muniments
of title, reports and similar documents and materials that relate to the
foregoing interests in the possession of, and maintained by, Assignor (the “Records”);

 

(g) all geological and geophysical data relating to the Subject
Interests, other than such data which cannot be transferred without the consent
of or payment to any Third Party; and

 

(h)
except for Excluded Assets, all other rights and interest in, to, under or
derived from the Assets, even though the same may be improperly described in or
omitted from the Exhibits. It is the express intent of the Parties that all of
Seller’s right, title and interest in and to any and all oil and gas properties
described on Exhibits A and B be assigned to Buyer hereunder.

 

NOTWITHSTANDING
THE FOREGOING, the Assets shall not include, and there is excepted, reserved and
excluded from the assignment contemplated hereby (collectively, the “Excluded
Assets”): (a) all trade credits and all accounts, instruments and general
intangibles (as such terms are defined in the Texas Uniform Commercial Code)
attributable to the Assets with respect to any period of time prior to the
Effective Time; (b) all claims and causes of action of Assignor (1) arising
from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time, (ii) arising under or with respect to
any of the Contracts that are attributable to periods of time prior to the
Effective Time (including claims for adjustments or refunds), or (iii) with
respect to any of the other Excluded Assets; (c) all rights and interests of
Assignor (i) under any policy or agreement of insurance or indemnity, (ii)
under any bond, or (iii) to any insurance or condemnation proceeds or awards
arising, in each case, from acts, omissions or events, or damage to or
destruction of property, occurring prior to the Effective Time; (d) all
Hydrocarbons produced from or attributable to the Subject Interests with
respect to all periods prior to the Effective Time, together with all proceeds
from the sale of such Hydrocarbons; (e) all claims of Assignor for refunds of
or loss carry forwards with respect to (i) ad valorem, severance, production or
any other taxes attributable to any time period prior to the Effective Time,
(ii) income or franchise taxes, or (iii) any taxes attributable to the other
Excluded Assets, and such other refunds, and rights thereto, for amounts paid
in connection with the Assets and attributable to the period prior to the
Effective Time, including refunds of amounts paid under any gas gathering or
transportation agreement; (f) all amounts due or payable to Assignor

 

C-2

 

as adjustments to insurance premiums related to the
Assets with respect to any period prior to the Effective Time; (g) all
proceeds, income, revenues, costs or expenses (and any security or other
deposits made) attributable to (i) the Assets for any period prior to the
Effective Time, or (ii) any other Excluded Assets; (h) all vehicles, personal
computers and associated peripherals and all radio, and telephone and other
communication equipment; (i) all of Assignor’s proprietary computer software,
technology, patents, trade secrets, copyrights, names, trademarks, logos and
other intellectual property; (j) all of Assignor’s rights and interests in
geological and geophysical data which cannot be transferred without the consent
of or payment to any Third Party; (k) ail documents and instruments of Assignor
that may be protected by an attorney-client privilege; (1) data and other
information that cannot be disclosed or assigned to Assignee as a result of
confidentiality or similar arrangements under agreements with persons
unaffiliated with Assignor; (m) all audit rights arising under any of the
Contracts or otherwise with respect to any period prior to the Effective Time
or to any of the other Excluded Assets; (n) all corporate, partnership, income
tax and financial records of Assignor; (p) all right, title and interest owned
by Seller in the Subject Interests to the extent, and only to the extent, of a
depth which is the deeper of 2,501 feet or greater below the surface of the
ground or the base of the Fort Union Coal Formation.

 

TO
HAVE AND TO HOLD the Assets, together with all and singular the rights,
privileges, contracts and appurtenances, in any way appertaining or belonging
thereto, unto Assignee, its successors and assigns, forever, subject to the
matters set forth herein.

 

ARTICLE
II

Special
Warranty of Title

 

Section
2.01 Special Warranty of Title. Seller hereby agrees to warrant and
defend title to the Assets solely unto Buyer against every person whomsoever
lawfully claiming or to claim the same or any part thereof, by, through or
under Seller, but not otherwise; subject, however, to the Permitted
Encumbrances (as such term is defined in the Purchase Agreement described below)
and the other matters set forth herein. In no event shall the foregoing
warranty extend to or be enforceable by any party other than Buyer,
specifically excluding Buyer’s successors and assigns in all or part of the
Assets.

 

ARTICLE
III 

Miscellaneous

 

Section
3.01 Construction. The captions in this Assignment are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Assignment. Assignor and Assignee
acknowledge that they have participated jointly in the negotiation and drafting
of this Assignment and as such they agree that if an ambiguity or question of
intent or interpretation arises hereunder, this Assignment shall not be
construed more strictly against one party than another on the grounds of
authorship.

 

Section
3.02 No Third Party Beneficiaries. Nothing in this Assignment shall
provide any benefit to any Third Party or entitle any thirty party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
parties hereto that this Assignment shall otherwise not be construed as a Third
Party beneficiary contract.

 

C-3

 

Section
3.03 Assignment. This Assignment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

 

Section
3.04 Governing Law. This Assignment, other documents delivered pursuant
hereto and the legal relations between the parties hereto shall be governed and
construed in accordance with the laws of the State of Wyoming, without giving
effect to principles of conflicts of laws that would result in the application
of the laws of another jurisdiction.

 

Section
3.05 Counterpart Execution. This Assignment may be executed in any
number of counterparts, and each counterpart hereof shall be effective as to
each party that executes the same whether or not all of such parties execute
the same counterpart. If coimterparts of this Assignment are executed, the
signature pages from various counterparts may be combined into one composite
instrument for all purposes. All counterparts together shall constitute only
one Assignment, but each counterpart shall be considered an original.

 

Section 3.06 Recording. To facilitate the recording or filing of
this Assignment, the counterpart to be recorded in a given county may contain
only that portion of the exhibits that describes Assets located in that county.
In addition to filing this Assignment, the parties hereto shall execute and
file with the appropriate authorities, whether federal, state or local, all
forms or instruments required by applicable law to effectuate the conveyance
contemplated hereby. Said instruments shall be deemed to contain all of the
exceptions, reservations, rights, titles and privileges set forth herein as
fully as though the same were set forth in each such instrument. The interests
conveyed by such separate assignments are the same, and not in addition to the
Assets conveyed herein.

 

Section 3.07 Purchase, Agreement. This
Assignment is subject to all of the terms and  conditions of the Purchase and Sale Agreement dated
January           , 2005
by and between Assignor and Assignee (the “Purchase Agreement”).

 

IN
WITNESS WHEREOF, this Assignment is executed by the parties on the date of
their respective acknowledgments below, but shall be effective for all purposes
as of the Effective Time.

 

 

	
   

  	
  PALO PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Mel McClung

  
							

 

C-4

 

	
   

  	
   

  	
   

  
	
   

  	
  Tonya McClung

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Matt McClung

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AIRBORNE INVESTMENTS, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  The Bernell E. Snider & Flora Snider

  
	
   

  	
  Community Property Trust

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Kozell T. & Sally Cannon Boren, as Co-Trustees

  
	
   

  	
  of the Boren Community Property Trust,

  
	
   

  	
  established April 6, 2001

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sosebee Property Company No. 2, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
										

 

C-5

 

	
   

  	
  Double L&S, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Don Farris

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Irving Dreibrodt

  
						

 

 

[Insert
Acknowledgments]

 

C-6

 

EXHIBIT C-l

 

ASSIGNMENT
AND BILL OF SALE OF PIPELINE SYSTEM

 

THIS
ASSIGNMENT AND BILL OF SALE (this “Assignment”), effective as of 7:00 a.m. on
January 1, 2005 (the “Effective Time”), is made by Paso Gaso Pipeline, LLC, a
Texas limited liability company, whose address is 5944 Luther Lane, Suite 900,
Dallas, Texas 75225 to Storm Cat Energy (USA ) Corporation, a Colorado corporation
(“Assignee”), whose address is 1550 Larimer St., No. 265, Denver, CO 80202.

 

ARTICLE I Granting and Habendum

 

For
Ten Dollars ($10.00) and other good and valuable consideration, the receipt,
and sufficiency of which are hereby acknowledged, Assignor does hereby grant,
bargain, sell, transfer, convey, set over, assign and deliver unto Assignee,
its successors and assigns, effective for all purposes as of the Effective Time
and subject to the matters set forth herein, the Assets. The term “Assets”
shall mean all of Assignor’s right, title and interest in and to the following:

 

(a)           the gas gathering facilities (the “System”) and any
and all real property owned by Assignor and associated with the System,
including, but not limited to, all fee lands, leases and easements on which the
System and related pipeline and other facilities are located, more particularly
described in Exhibit A (collectively, the “Subject Interests”);

 

(b)           all rights incident to the Subject Interests;

 

(c)           all easements, rights-of-way, surface leases,
servitudes, permits, licenses, franchises and other estates or similar rights
and privileges related to or used solely in connection with the Subject
Interests (“Easements”);

 

(d)           all personal property, equipment, fixtures,
inventory and improvements located on or used solely in connection with the
Subject Interests and the Easements, including, without limitation, meters, compression
facilities, and other materials, supplies, equipment, facilities and machinery;

 

(e)           to the extent assignable or transferable, all
contracts, agreements and other arrangements that relate to the Subject
Interests, the Leases or the Easements (the “Contracts”); and

 

(f)            to the extent assignable or transferable, all books,
records, files, muniments of title, reports and similar documents and materials
that relate to the foregoing interests in the possession of, and maintained by,
Assignor (the “Records”).

 

NOTWITHSTANDING THE FOREGOING, the Assets shall not include, and there
is excepted, reserved and excluded from the assignment contemplated hereby
(collectively, the “Excluded Assets”): (a) all trade credits and all accounts,
instruments and general intangibles (as such terms are defined in the Texas
Uniform Commercial Code) attributable to the Assets with

 

C-1-1

 

respect to any period of time prior to the
Effective Time; (b) all claims and causes of action of Assignor (i) arising
from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time, (ii) arising under or with respect to
any of the Contracts that are attributable to periods of time prior to the
Effective Time (including claims for adjustments or refunds), or (iii) with
respect to any of the other Excluded Assets; (c) all rights and interests of
Assignor (i) under any policy or agreement of insurance or indemnity, (ii)
under any bond, or (iii) to any insurance or condemnation proceeds or awards
arising, in each case, from acts, omissions or events, or damage to or
destruction of property, occurring prior to the Effective Time; (d) all claims
of Assignor for refunds of or loss carry forwards with respect to (i) ad
valorem, severance, production or any other taxes attributable to any time
period prior to the Effective Time, (ii) income or franchise taxes, or (iii)
any taxes attributable to the other Excluded Assets, and such other refunds,
and rights thereto, for amounts paid in connection with the Assets and
attributable to the period prior to the Effective Time, including refunds of
amounts paid under any gas gathering or transportation agreement; (e) all
amounts due or payable to Assignor as adjustments to insurance premiums related
to the Assets with respect to any period prior to the Effective Time; (f) all proceeds,
income, revenues, costs or expenses (and any security or other deposits made)
attributable to (i) the Assets for any period prior to the Effective Time, or
(ii) any other Excluded Assets; (g) all vehicles, personal computers and
associated peripherals and all radio, and telephone and other communication
equipment; (h) all of Assignor’s proprietary computer software, technology,
patents, trade secrets, copyrights, names, trademarks, logos and other
intellectual properly; (i) all documents and instruments of Assignor that may
be protected by an attorney-client privilege; (j) data and other information
that cannot be disclosed or assigned to Assignee as a result of confidentiality
or similar arrangements under agreements with persons unaffiliated with Assignor;
(k) all audit rights arising under any of the Contracts or otherwise with
respect to any period prior to the Effective Time or to any of the other
Excluded Assets; and (1) all corporate, partnership, income tax and financial
records of Assignor,

 

TO
HAVE AND TO HOLD the Assets,
together with all and singular the rights, privileges, contracts and
appurtenances, in any way appertaining or belonging thereto, unto Assignee, its
successors and assigns, forever, subject to the matters set forth herein.

 

ARTICLE
II 

Special
Warranty of Title

 

Section
2.01 Special Warranty of Title. Seller hereby agrees to warrant and
defend title to the Assets solely unto Buyer against every person whomsoever
lawfully claiming or to claim the same or any part thereof, by, through or
under Seller, but not otherwise; subject, however, to the Permitted
Encumbrances (as such term is defined in the Purchase Agreement described
below) and the other matters set forth herein. In no event shall the foregoing
warranty extend to or be enforceable by any party other than Buyer,
specifically excluding Buyer’s successors and assigns in all or part of the
Assets.

 

ARTICLE
HI

Miscellaneous

 

Section 3,01 Construction. The captions in this Assignment are
for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of

 

C-2-2

 

this Assignment. Assignor and Assignee acknowledge
that they have participated jointly in the negotiation and drafting of this
Assignment and as such they agree that if an ambiguity or question of intent or
interpretation arises hereunder, this Assignment shall not be construed more
strictly against one party than another on the grounds of authorship.

 

Section
3.02 No Third Party Beneficiaries. Nothing in this Assignment shall
provide any benefit to any Third Party or entitle any thirty party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
parties hereto that this Assignment shall otherwise not be construed as a Third
Party beneficiary contract.

 

Section
3.03 Assignment. This Assignment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

 

Section 3.04 Governing Law. This Assignment, other documents
delivered pursuant hereto and the legal relations between the parties hereto
shall be governed and construed in accordance with the laws of the State of
Wyoming, without giving effect to principles of conflicts of laws that would
result in the application of the laws of another jurisdiction.

 

Section
3.05 Counterrjart Execution. This Assignment may be executed in any
number of counterparts, and each counterpart hereof shall be effective as to
each party that executes the same whether or not all of such parties execute
the same counterpart. If counterparts of this Assignment are executed, the
signature pages from various counterparts may be combined into one composite
instrument for all purposes. All counterparts together shall constitute only
one Assignment, but each counterpart shall be considered an original.

 

Section
3.06 Recording. To facilitate the recording or filing of this
Assignment, the counterpart to be recorded in a given county may contain only
that portion of the exhibits that describes Assets located in that county. In
addition to filing this Assignment, the parties hereto shall execute and file
with the appropriate authorities, whether federal, state or local, all forms or
instruments required by applicable law to effectuate the conveyance
contemplated hereby. Said instruments shall be deemed to contain all of the
exceptions, reservations, rights, titles and privileges set forth herein as
fully as though the same were set forth in each such instrument. The interests
conveyed by such separate assignments are the same, and not in addition to the
Assets conveyed herein.

 

Section 3.07 Purchase Agreement. This
Assignment is subject to all of the terms and  conditions of the Purchase and Sale Agreement dated
January       , 2005 by and between Assignor
and Assignee (the “Purchase Agreement”).

 

C-3-3

 

IN WITNESS WHEREOF, this Assignment is executed by the parties on the
date of their respective acknowledgments below, but shall be effective for all
purposes as of the Effective Time,

 

 

	
   

  	
  PASO GASO
  PIPELINE, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Patricia A. Snyder

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
					

 

 

[Insert Acknowledgments]

 

C-4-4

 

SCHEDULE 1.02(f) 

 

CONTRACTS

 

	
  GRANTOR

  	
   

  	
  INSTRUMENT

  TYPE

  	
   

  	
  DATE

  	
   

  	
  COUNTY

  	
   

  	
  STATE

  	
   

  	
  GRANTEE

  	
   

  	
  ASSIGNMENT

  CONSENT

  NOTICE

  	
   

  	
  LEGAL DESCRIPTION

  	
   

  	
  REMARKS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

1

 

	
  GRANTOR

  	
   

  	
  INSTRUMENT

  TYPE

  	
   

  	
  DATE

  	
   

  	
  COUNTY

  	
   

  	
  STATE

  	
   

  	
  GRANTEE

  	
   

  	
  ASSIGNMENT

  CONSENT

  NOTICE

  	
   

  	
  LEGAL DESCRIPTION

  	
   

  	
  REMARKS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

2

 

	
  GRANTOR

  	
   

  	
  INSTRUMENT

  TYPE

  	
   

  	
  DATE

  	
   

  	
  COUNTY

  	
   

  	
  STATE

  	
   

  	
  GRANTEE

  	
   

  	
  ASSIGNMENT

  CONSENT

  NOTICE

  	
   

  	
  LEGAL DESCRIPTION

  	
   

  	
  REMARKS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3

 

	
  GRANTOR

  	
   

  	
  INSTRUMENT

  TYPE

  	
   

  	
  DATE

  	
   

  	
  COUNTY

  	
   

  	
  STATE

  	
   

  	
  GRANTEE

  	
   

  	
  ASSIGNMENT

  CONSENT

  NOTICE

  	
   

  	
  LEGAL DESCRIPTION

  	
   

  	
  REMARKS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

4

 

SCHEDULE 1.03

 

EXCLUDED ASSETS

 

1.     Nine (9) meter runs with full enclosures

 

2.     Seven (7) meter runs with partial enclosures

 

3.     Five (5) Barton 100/100 dry flow meters

 

4.     Three (3) Catco enclosed heaters

 

5.     One (1) 2” x 2” Honda Pump

 

6.     One (1) 7’x 18’homemade trailer

 

7.     One (1) 1999 Ford truck

 

8.     Personal tools, table saw, woodworking equipment

 

9.     Personal furniture in office trailer

 

10.   All electrical cable in yard

 

1

 

SCHEDULE 10.03(c) 

 

GAS IMBALANCES

 

NONE

 

1

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