Document:

MVA - UPC

MINING VENTURE AGREEMENT

BETWEEN

URANIUM POWER CORP. 

(FORMERLY “BELL COAST CAPITAL CORP.”)

AND

U.S. ENERGY CORP.

and a joint venture between

U.S. ENERGY CORP.

and

CRESTED CORP.

	

	 	 	 
	

	 

TABLE OF CONTENTS

ARTICLE    Page No.

I -     DEFINITIONS-----------------------------------------------------------------------------------------------------------------------------------------------------------------1

1.1    "Accounting Procedure"-----------------------------------------------------------------------------------------------------------------------------------------------1

1.2    "Affiliate"--------------------------------------------------------------------------------------------------------------------------------------------------------------1

1.3    "Agreement" ----------------------------------------------------------------------------------------------------------------------------------------------------------2

1.4    "Area of Mutual Interest"  ---------------------------------------------------------------------------------------------------------------------------------------------2

1.5    "Assets"  --------------------------------------------------------------------------------------------------------------------------------------------------------------2

1.6    "Budget"---------------------------------------------------------------------------------------------------------------------------------------------------------------2

1.7    "Development"---------------------------------------------------------------------------------------------------------------------------------------------------------2

1.8    “Effective Date”  ------------------------------------------------------------------------------------------------------------------------------------------------------ 2

1.9    "Exploration" ----------------------------------------------------------------------------------------------------------------------------------------------------------2

1.10   "Initial Contribution"---------------------------------------------------------------------------------------------------------------------------------------------------2

1.11    "Joint Account"-------------------------------------------------------------------------------------------------------------------------------------------------------2

1.12    "Liabilities" -----------------------------------------------------------------------------------------------------------------------------------------------------------2

1.13    "Management Committee"--------------------------------------------------------------------------------------------------------------------------------------------2

1.14    "Manager"  -----------------------------------------------------------------------------------------------------------------------------------------------------------2

1.15    "Mining" --------------------------------------------------------------------------------------------------------------------------------------------------------------2

1.16    "Net Proceeds" -------------------------------------------------------------------------------------------------------------------------------------------------------2

1.17    "Net Milling Return"  --------------------------------------------------------------------------------------------------------------------------------------------------2

1.18    "Operations"    --------------------------------------------------------------------------------------------------------------------------------------------------------3

1.19    "Participant" and "Participants" ----------------------------------------------------------------------------------------------------------------------------------------3

1.20    "Participating Interest"-------------------------------------------------------------------------------------------------------------------------------------------------3

1.21    "Plan of Operations" --------------------------------------------------------------------------------------------------------------------------------------------------3

1.22    "Prime Rate" ----------------------------------------------------------------------------------------------------------------------------------------------------------3

1.23    "Products"-------------------------------------------------------------------------------------------------------------------------------------------------------------3

1.24    "Program"-------------------------------------------------------------------------------------------------------------------------------------------------------------3

1.25    "Properties"-----------------------------------------------------------------------------------------------------------------------------------------------------------3

1.26    “PSA” --------------------------------------------------------------------------------------------------------------------------------------------------------------- 3

1.27    "Reclamation"---------------------------------------------------------------------------------------------------------------------------------------------------------3

1.28    "Mining Venture"------------------------------------------------------------------------------------------------------------------------------------------------------3

1.29    "Transfer"-------------------------------------------------------------------------------------------------------------------------------------------------------------3

1.30    "Venture"-------------------------------------------------------------------------------------------------------------------------------------------------------------3

II -    REPRESENTATIONS AND WARRANTIES;

                   TITLE TO ASSETS--------------------------------------------------------------------------------------------------------------------------------------------------------4

2.1    Capacity of Participants -----------------------------------------------------------------------------------------------------------------------------------------------4

2.2    Disclosures  -----------------------------------------------------------------------------------------------------------------------------------------------------------4

2.3    Record Title  ----------------------------------------------------------------------------------------------------------------------------------------------------------4

2.4    Joint Loss of Title -----------------------------------------------------------------------------------------------------------------------------------------------------4

	  
	 	 	 
	

	 

ARTICLE    Page No.

III -    NAME, PURPOSES AND TERM--------------------------------------------------------------------------------------------------------------------------------------------5

3.1    General---------------------------------------------------------------------------------------------------------------------------------------------------------------5

3.2    Name ----------------------------------------------------------------------------------------------------------------------------------------------------------------5

3.3    Purposes -------------------------------------------------------------------------------------------------------------------------------------------------------------5

3.4    Limitation-------------------------------------------------------------------------------------------------------------------------------------------------------------5

3.5    Effective Date and Term----------------------------------------------------------------------------------------------------------------------------------------------5

IV -    RELATIONSHIP OF THE PARTICIPANTS--------------------------------------------------------------------------------------------------------------------------------6

4.1    No Partnership-------------------------------------------------------------------------------------------------------------------------------------------------------6

4.2    Federal Tax Elections ------------------------------------------------------------------------------------------------------------------------------------------------6

4.3    State Income Tax ----------------------------------------------------------------------------------------------------------------------------------------------------6

4.4    Tax Returns ----------------------------------------------------------------------------------------------------------------------------------------------------------6

4.5    Other Business Opportunities-----------------------------------------------------------------------------------------------------------------------------------------6

4.6    Waiver of Right to Partition-------------------------------------------------------------------------------------------------------------------------------------------7

4.7    Transfer or Termination of Rights to Properties -----------------------------------------------------------------------------------------------------------------------7

4.8     Implied Covenants---------------------------------------------------------------------------------------------------------------------------------------------------7

V -    CONTRIBUTIONS BY PARTICIPANTS------------------------------------------------------------------------------------------------------------------------------------7

5.1    Participants' Initial Contributions--------------------------------------------------------------------------------------------------------------------------------------7

5.2    Deemed Initial Contribution of USE Parties---------------------------------------------------------------------------------------------------------------------------8

5.3    Contributions By Participants After Effective Date--------------------------------------------------------------------------------------------------------------------8

VI -    INTERESTS OF PARTICIPANTS-------------------------------------------------------------------------------------------------------------------------------------------9

6.1    Initial Participating Interests-------------------------------------------------------------------------------------------------------------------------------------------9

6.2    Changes in Participating Interests-------------------------------------------------------------------------------------------------------------------------------------9

6.3    Voluntary Reduction in Participation----------------------------------------------------------------------------------------------------------------------------------9

6.4    Default in Making Contribution---------------------------------------------------------------------------------------------------------------------------------------10

6.5    Elimination of Minority Interest---------------------------------------------------------------------------------------------------------------------------------------11

6.6    Continuing Liabilities Upon Adjustments

        of Participating Interests ------------------------------------------------------------------------------------------------------------------------------------------11

VII -    MANAGEMENT COMMITTEE-------------------------------------------------------------------------------------------------------------------------------------------12

7.1    Organization and Composition---------------------------------------------------------------------------------------------------------------------------------------12

7.2    Decisions------------------------------------------------------------------------------------------------------------------------------------------------------------12

7.3    Meetings ------------------------------------------------------------------------------------------------------------------------------------------------------------12

7.4    Action Without Meeting ---------------------------------------------------------------------------------------------------------------------------------------------12

7.5    Matters Requiring Approval -----------------------------------------------------------------------------------------------------------------------------------------13

7.6    Change in the Management Committe--------------------------------------------------------------------------------------------------------------------------------13

	  
	 	 	 
	

	 

ARTICLE    Page No.

VIII -      MANAGER--------------------------------------------------------------------------------------------------------------------------------------------------------------------13

8.1    Appointment----------------------------------------------------------------------------------------------------------------------------------------------------------13

8.2    Powers and Duties of Manager ---------------------------------------------------------------------------------------------------------------------------------------13

8.3    Standard of Care -----------------------------------------------------------------------------------------------------------------------------------------------------16

8.4    Resignation; Deemed Offer to Resign ---------------------------------------------------------------------------------------------------------------------------------16

8.5    Payments to Manager-------------------------------------------------------------------------------------------------------------------------------------------------17

8.6    Transactions With Affiliates -------------------------------------------------------------------------------------------------------------------------------------------17

8.7    Activities During Deadlock--------------------------------------------------------------------------------------------------------------------------------------------17

8.8    Funding of Reclamation -----------------------------------------------------------------------------------------------------------------------------------------------17

8.9    Assumed Reclamation of Burdens-------------------------------------------------------------------------------------------------------------------------------------18

IX -    PROGRAMS AND BUDGETS-----------------------------------------------------------------------------------------------------------------------------------------------18

9.1    Initial Program and Budget--------------------------------------------------------------------------------------------------------------------------------------------18

9.2    Operations Pursuant to Programs and Budgets------------------------------------------------------------------------------------------------------------------------18

9.3    Presentation of Programs and Budgets--------------------------------------------------------------------------------------------------------------------------------18

9.4    Review and Approval of Proposed Programs and Budgets------------------------------------------------------------------------------------------------------------18

9.5    Election to Participate ------------------------------------------------------------------------------------------------------------------------------------------------19

9.6    Deadlock on Proposed Programs and Budgets -----------------------------------------------------------------------------------------------------------------------19

9.7    Budget Overruns; Program Changes----------------------------------------------------------------------------------------------------------------------------------19

9.8    Emergency or Unexpected Expenditures------------------------------------------------------------------------------------------------------------------------------19

X -    ACCOUNTS AND SETTLEMENTS-----------------------------------------------------------------------------------------------------------------------------------------20

10.1    Monthly Statements-------------------------------------------------------------------------------------------------------------------------------------------------20

10.2    Cash Calls ---------------------------------------------------------------------------------------------------------------------------------------------------------20

10.3    Failure to Meet Cash Calls or Billings-------------------------------------------------------------------------------------------------------------------------------20

10.4    Audits--------------------------------------------------------------------------------------------------------------------------------------------------------------20

10.5    Distributions--------------------------------------------------------------------------------------------------------------------------------------------------------20

XI -    DISPOSITION OF PRODUCTION-----------------------------------------------------------------------------------------------------------------------------------------21

11.1    Marketing Agreement ----------------------------------------------------------------------------------------------------------------------------------------------21

XII -    WITHDRAWAL AND TERMINATION -----------------------------------------------------------------------------------------------------------------------------------21

12.1     Termination by Expiration or Agreement----------------------------------------------------------------------------------------------------------------------------21

12.2     Termination by Deadlock-------------------------------------------------------------------------------------------------------------------------------------------21

12.3     Withdrawal --------------------------------------------------------------------------------------------------------------------------------------------------------21

12.4     Continuing Obligations ---------------------------------------------------------------------------------------------------------------------------------------------22

12.5     Disposition of Assets on Termination -------------------------------------------------------------------------------------------------------------------------------22

12.6     Non-Competition Covenants---------------------------------------------------------------------------------------------------------------------------------------23

12.7     Right to Data After Termination ------------------------------------------------------------------------------------------------------------------------------------23

12.8     Continuing Authority -----------------------------------------------------------------------------------------------------------------------------------------------23

	  
	 	 	 
	

	 

ARTICLE    Page No.

XIII - ACQUISITIONS WITHIN AREA OF MUTUAL INTEREST------------------------------------------------------------------------------------------------------------------------23

13.1    General--------------------------------------------------------------------------------------------------------------------------------------------------------------23

13.2    Terms of Developments for Area of Mutual Interest Lands-----------------------------------------------------------------------------------------------------------23

13.3    UPC’s Earn-In Contribution-----------------------------------------------------------------------------------------------------------------------------------------23

13.4    Notice to Non-acquiring Participant ---------------------------------------------------------------------------------------------------------------------------------23

13.5    Option Exercised----------------------------------------------------------------------------------------------------------------------------------------------------24

13.6    Option Not Exercised-----------------------------------------------------------------------------------------------------------------------------------------------24

XIV - ABANDONMENT AND SURRENDER OF PROPERTIES-------------------------------------------------------------------------------------------------------------------------24

14.1     Surrender or Abandonment of Property ----------------------------------------------------------------------------------------------------------------------------24

14.2     Reacquisition-------------------------------------------------------------------------------------------------------------------------------------------------------24

XV - TRANSFER OF INTEREST----------------------------------------------------------------------------------------------------------------------------------------------------------25

15.1     General------------------------------------------------------------------------------------------------------------------------------------------------------------25

15.2     Limitations on Free Transferability----------------------------------------------------------------------------------------------------------------------------------25

15.3     Preemptive Right---------------------------------------------------------------------------------------------------------------------------------------------------27

15.4     Exceptions to Preemptive Right ------------------------------------------------------------------------------------------------------------------------------------28

XVI - DISPUTES ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------28

16.1    Default; Right to Cure-----------------------------------------------------------------------------------------------------------------------------------------------28

XVII - CONFIDENTIALITY---------------------------------------------------------------------------------------------------------------------------------------------------------------28

17.1     General------------------------------------------------------------------------------------------------------------------------------------------------------------28

17.2     Exceptions --------------------------------------------------------------------------------------------------------------------------------------------------------28

17.3     Duration of Confidentiality -----------------------------------------------------------------------------------------------------------------------------------------29

17.4    Public Statements --------------------------------------------------------------------------------------------------------------------------------------------------29

XVIII - GENERAL PROVISIONS---------------------------------------------------------------------------------------------------------------------------------------------------------29

18.1     Notices -----------------------------------------------------------------------------------------------------------------------------------------------------------29

18.2     Waiver------------------------------------------------------------------------------------------------------------------------------------------------------------30

18.3     Modification ------------------------------------------------------------------------------------------------------------------------------------------------------30

18.4     Force Majeure----------------------------------------------------------------------------------------------------------------------------------------------------30

18.5     Governing Law ---------------------------------------------------------------------------------------------------------------------------------------------------31

18.6     Rule Against Perpetuities------------------------------------------------------------------------------------------------------------------------------------------31

18.7     Further Assurances -----------------------------------------------------------------------------------------------------------------------------------------------31

18.8     Survival of Terms and Conditions ---------------------------------------------------------------------------------------------------------------------------------31

18.9    Conditions---------------------------------------------------------------------------------------------------------------------------------------------------------31

18.10    Currency---------------------------------------------------------------------------------------------------------------------------------------------------------31

18.11     Entire Agreement; Successors and Assigns-----------------------------------------------------------------------------------------------------------------------31

18.12     Memorandum ---------------------------------------------------------------------------------------------------------------------------------------------------32

18.13     Interpretation and Severability -----------------------------------------------------------------------------------------------------------------------------------32

	  
	 	 	 
	

	 

EXHIBITS

EXHIBIT A -

1. - PROPERTIES 

2. - AREA OF MUTUAL INTEREST 

EXHIBIT B - ACCOUNTING PROCEDURE

EXHIBIT C - TAX MATTERS

EXHIBIT D - NET PROCEEDS CALCULATION 

EXHIBIT E - INSURANCE 

EXHIBIT F - NET MILLING RETURN CALCULATION

 

	

	 	 	 
	

	

MINING VENTURE AGREEMENT

THIS MINING VENTURE AGREEMENT (“Agreement”) dated April 11, 2005, is between Uranium Power Corp. (formerly “Bell Coast Capital Corp.”), a British Columbia corporation ("UPC") of the First Part and U.S. Energy Corp., a Wyoming corporation ("USE"), and a joint venture between USE and Crested Corp., a Colorado corporation ("Crested") of the Second Part (the joint venture between USE and Crested is referred to herein as "USECC" and USE, Crested and USECC are collectively referred to herein as the "USE Parties").

RECITALS

A.    On December 8, 2004, UPC and the USE Parties entered into the PSA, whereby the USE Parties agreed to sell and UPC agreed to purchase a 50% undivided interest in the Properties defined in Section 1.24. 

B.     As part of the PSA, UPC and the USE Parties agreed to enter into an agreement to form a joint mining venture and to set out the terms and conditions that will govern the Joint Venture on the Effective Date. 

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, UPC and the USE Parties agree as follows:

ARTICLE I

DEFINITIONS

1.1        “Accounting Procedure” means the procedures set forth in Exhibit B.

1.2        “Affiliate” means any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Participant. For purposes of the preceding sentence, “control” means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise.

1.3        “Agreement” means this Mining Venture Agreement, including all amendments and modifications thereof, and all schedules and exhibits, which are incorporated herein by this reference.

1.4        “Area of Mutual Interest” means the area described in Exhibit A-2.

1.5        “Assets” means the Properties, Products and all other real and personal property, tangible and intangible, held for the benefit of the Participants hereunder.

1.6        “Budget” means a detailed estimate of all costs to be incurred by the Participants with respect to a Program and a schedule of cash advances to be made by the Participants.

1.7    “Development” means all preparation for the removal and recovery of Products, including the construction or installation of a mill or any other improvements to be used for the mining, handling, milling, processing or other beneficiation of Products.

	 
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1.8    “Effective Date” as that term relates to the Properties means the date UPC closes its purchase of a 50% interest in and to the Properties under the PSA but if the term is used with respect to any mining claims included within the AMI, then the Effective Date for the Joint Venture to be established to develop those separately defined AMI lands shall be the date each of the Participants hold a 50% interest in and to the AMI lands. At that time a separate and distinct joint venture related only to the selected and defined AMI lands shall be established to the exclusion of the Properties and the Effective Date for the Joint Venture established for the properties shall remain the date UPC closes its purchase of a 50% interest in and to the properties.

1.9    “Exploration” means all activities directed toward ascertaining the existence, location, quantity, quality or commercial value of deposits of Products. Exploration may include all activities undertaken through to the completion of a feasibility study.

1.10    “Joint Account” means the account maintained in accordance with the Accounting Procedure showing the charges and credits accruing to the Participants.    

1.11“Liabilities” means any and all claims, demands, investigations, judgments, losses, liabilities, costs and expenses, including reclamation liabilities and reasonable attorneys’ fees of the Venture.

1.12“Management Committee” means the committee established under Article VII.

1.13“Manager” means the person or entity appointed under Article VIII to manage Operations, or any successor Manager.

1.14“Mining” means the mining, extracting, producing, handling, beneficiation, milling or other processing of Products.

1.15“Net Proceeds” means certain amounts calculated as provided in Exhibit D.

1.16“Net Milling Return” means certain amounts calculated as provided in Exhibit F.

1.17“Operations” means the activities carried out under this Agreement.

1.18“Participant” and “Participants” mean the persons or entities that from time to time have Participating Interests.

1.19“Participating Interest” means the percentage interest representing the operating ownership interest of a Participant in Assets, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder. Participating Interests shall be calculated to three decimals and rounded to two (e.g. 1.519% rounded to 1.52%). Decimals of .005 or more shall be rounded up to .01, decimals of less than .005 shall be rounded down. The initial Participating Interests of the Participants are set forth in Section 6.1.

1.20“Plan of Operations” means a general description of the Operations to be conducted by the Manager.

1.21“Prime Rate” means the interest rate published as “Prime Rate” in the "Money Rates" column of The Wall Street Journal, as said rate may change from day to day, or the arithmetic mean thereof. 

	 
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1.22“Products” means all ores, minerals and mineral resources produced from the Properties under this Agreement.

1.23“Program” means a description in reasonable detail of Operations to be conducted and objectives to be accomplished by the Manager for a specified period.

1.24“Properties” means those interests in real property described in part 1 of Exhibit A-1.

1.25“PSA” means the Purchase and Sales Agreement dated December 8th, 2004 entered into between the Participants.

1.26“Reclamation” means actions performed during or after Exploration, Development, or Operations to shape, stabilize, revegetate or otherwise affect the Properties in order to establish a safe, stable condition capable of establishing and sustaining a productive post-Operation use of the Properties and ensure public safety, as required by applicable laws and other applicable contractual commitments or obligations.

1.27“Transfer” means sell, grant, assign, encumber, pledge or otherwise commit or dispose of.

1.28“Venture” means the business arrangement of the Participants under this Agreement.

	 
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ARTICLE II

REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS

2.1    Capacity of Participants. Each of the Participants represents and warrants as follows:

(a)    that it is a corporation duly incorporated and in good standing in its province or state of incorporation and that it is qualified to do business and is in good standing in those states where necessary in order to carry out the purposes of this Agreement;

(b)    that it has the capacity to enter into and perform this Agreement and all transactions contemplated herein and that all corporate and other actions required to authorize it to enter into and perform this Agreement have been properly taken;

(c)    that it will not breach any other agreement or arrangement by entering into or performing this Agreement;

(d)    that this Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms; and

(e)    that no consent or approval of any third party or governmental agency is required (i) for the execution and delivery of or the performance of its financial obligations under this Agreement, or (ii) for the performance of all its other obligations under this Agreement, except for such consents or approvals as have been obtained and evidence thereof delivered to the other Participant, and except for such consents or approvals which, while necessary for Operations, are not presently necessary and which it reasonably expects will be acquired in a timely fashion.

2.2    Disclosures. Each of the Participants represents and warrants that it is unaware of any material facts or circumstances which have not been disclosed in this Agreement, which should be disclosed to the other Participant in order to prevent the representations in this Article II from being materially misleading.

2.3    Record Title. On the Effective Date the Participants as tenants in common with ownership equal to their respective Participating Interests. Recorded title to the Assets or any portion thereof may be held by the Manager for the benefit of the Participants. Each Participant shall execute, acknowledge and deliver appropriate documents to reflect record title as described in this section and changes thereto resulting in any changes in Participating Interests.

2.4    Joint Loss of Title. Any failure or loss of title to the Assets, and all costs of defending title, shall be charged to the Joint Account.

	 
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ARTICLE III

NAME, PURPOSES AND TERM

3.1    General. UPC and the USE Parties hereby enter into this Agreement for the purposes hereinafter stated, and they agree that all of their rights and all of the Operations on or in connection with the Properties shall be subject to and governed by this Agreement.

3.2    Name. The name of this Venture shall be the Power Energy Mining Venture. The Manager shall accomplish any registration required by applicable assumed or fictitious name statutes and similar statutes.

3.3    Purposes. This Agreement is entered into for the following purposes and for no others, and shall serve as the exclusive means by which the Participants, or either of them, accomplish such purposes:

(a)    to evaluate the possible Development of the Properties,

(b)    to engage in Development and Mining Operations on the Properties,

(c)    to engage in marketing Products extracted from the Properties, to the extent permitted by Article XI,

(d)    to complete Reclamation of disturbances caused by Operations on the Properties; 

(e)    where applicable as this agreement may relate to the Area of mutual interest lands:

(i)    to conduct Exploration within the Area of Mutual Interest;

(ii)    to acquire additional properties within the Area of Mutual Interest;

(iii)    to engage in the activities set out in (a) to (d) as such activities are relevant to the AMI lands; and

(f)    to perform any other activity necessary, appropriate, or incidental to any of the foregoing.

3.4    Limitation. Unless the Participants otherwise agree in writing, the Operations shall be limited to the purposes described in Section 3.3, and nothing in this Agreement shall be construed to enlarge such purposes.

3.5    Term. The term of this Agreement shall be for thirty (30) years from the Effective Date and for so long thereafter as Products are produced from the Properties or until Reclamation of all disturbance caused by Operations is completed, unless the Agreement is earlier terminated as herein provided.

ARTICLE IV

RELATIONSHIP OF THE PARTICIPANTS

4.1    No Partnership. Nothing contained in this Agreement shall be deemed to constitute either Participant the partner of the other, nor, except as otherwise herein expressly provided, to constitute either Participant the agent or legal representative of the other, nor to create any fiduciary relationship between them. It is not the intention of the Participants to create, nor shall this Agreement be construed to create, any 

	 
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mining, commercial or other partnership. Neither Participant shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Participant, except as otherwise expressly provided herein. The rights, duties, obligations and Liabilities of the Participants shall be several and not joint or collective. Each Participant shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, it being the express purpose and intention of the Participants that their ownership of Assets and the rights acquired hereunder shall be as Tenants in Common. Each Participant shall indemnify, defend and hold harmless the other Participants, its directors, officers, employees, agents and attorneys from and against any and all Liabilities arising out of any act or any assumption of liability by the indemnifying Participant, or any of its directors, officers, employees, agents and attorneys done or undertaken, or apparently done or undertaken, on behalf of the other Participant, except pursuant to the authority expressly granted herein or as otherwise agreed in writing between the Participants.

4.2    Federal Tax Elections. Without chang-ing the effect of Section 4.1, the Participants agree that their relationship shall constitute a tax partnership within the mean-ing of Section 761(a) of the United States Internal Revenue Code of 1986, as amended. Tax elections and allocations shall be made as set forth in Exhibit C.

4.3    Other Business Opportunities. Except as expressly provided in this Agreement, each Participant shall have the right independently to engage in and receive full benefits from business activities, whether or not competitive with the Operations without consulting the other. The doctrines of “corporate opportunity” or “business opportunity” shall not be applied to any other activity, venture, or operation of either Participant, and, except as otherwise provided in Section 12.6, neither Participant shall have any obligation to the other with respect to any opportunity to acquire any property outside the Area of Mutual Interest at any time or within the Area of Mutual Interest after the termination of this Agreement. Unless otherwise agreed in writing, no Participant shall have any obligation to mill, beneficiate or otherwise treat any products or any other Participant’s share of Products in any facility owned or controlled by such Participant.

4.4    Waiver of Right to Partition. The Participants hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of Assets, including any such rights provided by statute.

4.5    Transfer or Termination of Rights to Properties. Except as otherwise provided in this Agreement, neither Participant shall Transfer all or any part of its interest in the Assets or this Agreement or otherwise permit or cause such interests to terminate.

4.6    Implied Covenants. There are no implied covenants contained in this Agreement other than those of good faith and fair dealing.

ARTICLE V

CONTRIBUTIONS BY PARTICIPANTS

5.1    Participants' Initial Contributions.

(a) UPC, as part of its Initial Contribution, hereby pledges to contribute 100% of its right, title and interest to be acquired in the Properties at the time of Closing after full payment of the purchase price contained in paragraph 4 as provided in the PSA.

	 
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(b) The USE Parties, as its Initial Contribution, hereby contributes 100% of its right, title and interest in the Properties at the time of Closing as provided in the PSA.

5.2     Deemed Initial Contribution of USE Parties. The agreed deemed value of the USE Parties’ Initial Contribution shall be equal to the aggregate amount paid by UPC under the PSA either in cash, securities, committed exploration funds or conditional balloon payments in order to purchase a 50% interest in and to the Properties. The amount shall include all payments made under Paragraph 4 of the PSA. 

5.3    Contributions By Participants After Effective Date. On and after the Effective Date, the Participants, subject to any election permitted by Section 6.3, shall be obligated to contribute funds to implement adopted Programs in proportion to their respective Participating Interests.

	 
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ARTICLE VI

INTERESTS OF PARTICIPANTS

6.1    Initial Participating Interests. The Participants shall have the following initial Participating Interests:

	
Uranium Power
	
50%

	
USE Parties
	
50%

6.2    Changes in Participating Interests. A Participant’s Participating Interest shall be changed as follows:

(a)    As provided in Section 6.3, 6.4, 6.5; or

(b)    Upon an election by a Participant pursuant to Section 6.3 to contribute less to an adopted Program and Budget than the percentage reflected by its Participating Interest; or

(c)    In the event of default by a Participant in making its agreed-upon contribution to an adopted Program and Budget, followed by an election by the other Participant to invoke Section 6.4(b); or

(d)    Transfer by a Participant of less than all of its Participating Interest in accordance with Article XV; or

(e)    Acquisition of less than all of the Participating Interest of the other Participant however arising.

6.3    Voluntary Reduction in Participation. A Participant may elect, as provided in Section 9.5, to limit its contributions to an adopted Program and Budget as follows:

(a)    to some lesser amount than its respective Participating Interest; or

(b)    to make no contribution.

If a Participant elects to contribute to an adopted Program and Budget some lesser amount than its respective Participating Interest, or not at all, the Participating Interest of that Participant shall be recalculated provisionally at the time of election by dividing: (i) the sum of (a) the agreed value of the Participant’s Initial Contribution under Section 5.2, (b) the total of all of the Participant’s contributions under Section 5.3, and (c) the amount, if any, the Participant elects to contribute to the adopted Program and Budget; by (ii) the sum of (a), (b) and (c) above for all Participants; and then multiplying the result by one hundred. The Participating Interest of the other Participant shall thereupon become the difference between 100% and the recalculated Participating Interest. The Participating Interests of each of the Participants shall be recalculated at the conclusion of each Program by dividing: (i) the sum of (a) the agreed value of the Participant’s Initial Interest under Section 5.1, and (b) the total of all of the Participant’s contributions under Section 5.1 and (c) the total of all of the transfers to or from the Participant’s account under Section 6.4(b)(1); by (ii) the sum of (a) and (b) for all Participants; and then multiplying the result by one hundred.

6.4    Default in Making Contributions.

(a)    If a Participant defaults in making a contribution or cash call required by an approved Program and Budget, the non-defaulting Participant may advance the defaulted contribution on behalf of the 

	 
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defaulting Participant and treat the same, together with any accrued interest, as a demand loan bearing interest from the date of the advance at the rate provided in Section 10.3. The failure to repay said loan upon demand shall be a default. Each Participant hereby grants to the other a lien upon its interest in the Properties and a security interest in its rights under this Agreement and in its participating Interest in other Assets, and the proceeds therefrom, to secure any loan made hereunder, including interest thereon, reasonable attorneys fees and all other reasonable costs and expenses incurred in recovering the loan with interest and in enforcing such lien or security interest, or both. A non-defaulting Participant may elect the applicable remedy under this Section 6.4(a) or under 6.4(b), or, to the extent a Participant has a lien or security interest under applicable law, it shall be entitled to its rights and remedies at law and in equity. All such remedies shall be cumulative. The election of one or more remedies shall not waive the election of any other remedies. Each Participant hereby irrevocably appoints the other its attorney-in-fact to execute, file and record all instruments necessary to perfect or effectuate the provisions hereof.

(b)    The Participants acknowledge that if a Participant defaults in making a contribution, or a cash call, or in repaying a loan, as required hereunder, it will be difficult to measure the damages resulting from such default. In the event of such default, as reasonable liquidated damages, the non-defaulting Participant may, with respect to any such default not cured within 30 days after notice to the defaulting Participant of such default, elect one of the following remedies by giving notice to the defaulting Participant:

(1)    For a default relating exclusively to a Program and Budget, the non-defaulting Participant may elect to have the defaulting Participant’s Participating Interest permanently reduced as provided in Section 6.3, then to the extent the other Participant makes up the defaulting Participant’s shortfall, the funding Participant’s account shall be credited with three times the amount covered, and twice the amount of covered default shall be deducted from the defaulting Participant’s account. In other words, in addition to being credited for the amount actually funded, twice that amount shall be transferred from the defaulting Participant’s account to the funding Participant’s account. The non-defaulting Participant’s Participating Interest shall, at such time, become the difference between 100% and the further reduced Participating Interest shall, at such time, become the difference between 100% and the further reduced Participating Interest. Such reductions shall be effective as of the date of the default.

(2)    For a default relating to a Program and Budget covering in whole or in part Development or Mining, at the non-defaulting Participant’s election, the defaulting Participant shall be deemed to have withdrawn from the Venture and to have automatically relinquished its Participating Interest to the non-defaulting Participant; provided, however, the defaulting Participant shall have the right to receive only from 3% of the Net Milling Returns, if any, and not from any other source, an amount equal to the defaulting Participant’s Initial contribution pursuant to Sections 5.1 and 5.5. Upon receipt of such amount the defaulting Participant shall thereafter have no further right title or interest in Assets or under this Agreement.

6.5    Elimination of Minority Interest. Upon the reduction of its Participating Interest to less than ten percent, a Participant shall be deemed to have withdrawn from this Agreement and shall relinquish its entire Participating Interest. Such relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant, the withdrawing Participant shall receive in lieu of its Participating Interest a five percent Net Proceeds Interest. The provisions of this Section 6.5 shall only apply to a Participant whose Participating Interest is reduced to less than ten percent pursuant to any combination of voluntary reductions in participation pursuant to Sections 6.3 or Exploration contribution defaults pursuant to Section 6.4(b)(1), and shall not apply to a Participant whose Participating Interest is relinquished pursuant to Section 6.4(b)(2).

	 
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6.6    Continuing Liabilities Upon Adjustments of Participating Interests. Any reduction of a Participant’s Participating Interest under this Article VI shall not relieve such Participant of its share of any Liability, including Reclamation obligations, whether it accrues before or after such reduction, arising out of Operations conducted prior to such reduction or under the PSA. For the purposes of this Article VI, such Participant’s share of such liability shall be equal to its Participating Interest at the time such liability was incurred. The increased Participating Interest accruing to a Participant as a result of the reduction of the other Participant’s Participating Interest shall be free of royalties, liens or other encumbrances arising by, through or under such other Participant, other than those existing at the time the Properties were acquired or those to which both Participants have given their written consent. An adjustment to a Participating Interest need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant’s Participating Interest shall be shown in the books of the Manager. However, either Participant, at any time upon the request of the other Participant, shall execute and acknowledge instruments necessary to evidence such adjustment in form sufficient for recording in the jurisdiction where the Properties are located.

	 
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ARTICLE VII

MANAGEMENT COMMITTEE

7.1    Organization and Composition. The Participants hereby establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement and to provide general direction to the Manager. Except as provided in Section 7.6, the Management Committee shall consist of two members appointed by UPC and two members appointed by the USE Parties. Each Participant may appoint one or more alternates to act in the absence of a regular member. Any alternate so acting shall be deemed a member. Appointments shall be made or changed by notice to the other Participant.

7.2    Decisions. Each Participant, acting through its appointed members shall have one vote on the Management Committee equal to its Participating Interest. Unless otherwise provided in this Agreement, the decisions of the Management Committee shall be determined by majority of the Participating Interests of the Participants.

7.3    Meetings. The Management Committee shall hold regular meetings at least quarterly in Riverton, Wyoming, or at another mutually agreed place. The Manager shall give 15 days’ notice to the Participants of such regular meetings. Additionally, either Participant may call a special meeting upon 5 day’s notice to the Manager and the other Participant. In case of emergency, reasonable notice of a special meeting shall suffice. There shall be a quorum if at least one member representing each Participant is present. If a Participant fails to attend a regular or special meeting for which notice has been given as provided above, the Manager or the Participant calling the meeting, as applicable, may give a second notice of the meeting in compliance with the above rules for special meetings. If the non-attending Participant does not attend the meeting scheduled by the second notice, there shall be a quorum if at least one member of one Participant is present. Each notice of a meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting, or by the Participant calling the meeting in the case of a special meeting, but any matters may be considered with the consent of all Participants. The Manager shall prepare minutes of all meetings and shall distribute copies of such minutes to the Participants within 30 days after the meeting. The minutes, when signed by all Participants, shall be the official records of the decisions made by the Management Committee and shall be binding on the Manager and the Participants. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be a Venture cost. All other costs shall be paid by the Participants individually.

7.4    Action Without Meeting. In lieu of meetings, the Management Committee may hold telephone conferences, so long as all decisions are immediately confirmed in writing by the Participants.

7.5    Matters Requiring Approval. The Management Committee shall have ultimate authority to determine all management matters related to this Agreement. This authority shall be delegated to the Manager and the Management Committee will provide overall direction and guidance to the Manager, who will be responsible for implementing approved Programs and Budgets and carrying out the overall objectives of this Venture, including but not limited to, the specific duties set forth in Section 8.2. 

7.6     Change in the Management Committee. If the Participating Interest of the Participant with two representatives and two votes on the Management Committee under Sections 7.1 and 7.2, respectively, is reduced to less than 45% and the other Participant has a Participating Interest greater than 45%, then the Management Committee shall be restructured such that the Participant with a Participating Interest greater than 45% shall be entitled to appoint three representatives to the Management Committee under Section 7.1 and the Participant with a Participating Interest of less than 45% shall be entitled to appoint two members to the Management Committee under Section 7.1.

	 
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ARTICLE VIII

MANAGER

8.1    Appointment. The Participants hereby appoint the USE Parties as the Manager with overall management responsibility for Operations.

8.2    Powers and Duties of Manager. Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties which, except as provided in Section 9.1, shall be discharged in accordance with adopted Programs and Budgets:

(a)    The Manager shall manage, direct and control Operations.

(b)    The Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement.

(c)    The Manager shall: (i) purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Operations, such purchases and acquisitions to be made on the best terms available, taking into account all of the circumstances; (ii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and (iii) keep the Assets free and clear of all liens and encumbrances, except for those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic’s or materialmen’s liens which shall be released or discharged in a diligent manner, or liens and encumbrances specifically approved by the Management Committee.

(d)    The Manager shall conduct such title examinations and cure such title defects as may be advisable in the reasonable judgment of the Manager.

(e)    The Manager shall: (i) make or arrange for all payments required by leases, licenses, permits, contracts and other agreements related to the Assets; (ii) pay all taxes, assessments and like charges on Operations and Assets except taxes determined or measured by a Participant’s sales revenue or net income. If authorized by the Management Committee, the Manager shall have the right to contest in the courts or otherwise, the validity or amount of any taxes, assessments or charges if the Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment or equalization thereof before the Manager shall be required to pay them, but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the nonpayment of any taxes, assessments or like charges; and (iii) shall do all other acts reasonably necessary to maintain the Assets.

(f)    The Manager shall: (i) apply for all necessary permits, licenses and approvals; (ii) comply with applicable federal, state and local laws and regulations; (iii) notify promptly the Management Committee of any allegations of substantial violation thereof; and (iv) prepare and file all reports or notices required for Operations. The Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager’s good faith efforts to comply, and the Manager has timely cured or disposed of such violation through performance, or payment of fines and penalties.

(g)    The Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Operations. The non-managing Participant shall have the right to participate, at its own expense, in such litigation or 

	 
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administrative proceedings. The non-managing Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of $50,000 in cash or value.

(h)    The Manager shall provide insurance for the benefit of the Participants as provided in Exhibit E.

(i)    The Manager may dispose of Assets, whether by abandonment, surrender or Transfer in the ordinary course of business, except that Properties may be abandoned or surrendered only as provided in Article XIV. However, without prior authorization from the Management Committee, the Manager shall not: (i) dispose of Assets in any one transaction having a value in excess of $50,000; (ii) enter into any sales commitments for Product, except as permitted in Article XI; (iii) begin a liquidation of the Venture; or (iv) dispose of all or a substantial part of the Assets necessary to achieve the purposes of the Venture.

(j)    The Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates or independent contractors.

(k)    The Manager shall perform or cause to be performed during the term of this Agreement all assessment and other work and shall pay all rentals fees and assessments required by law in order to maintain the Properties and the State Lease. The Manager shall have the right to perform the assessment work required hereunder pursuant to a common plan of exploration and continued actual occupancy of such claims and sites shall not be required. The Manager shall not be liable on account of any determination by any court or governmental agency that the work performed by Manager does not constitute the required annual assessment work or occupancy for the purposes of preserving or maintaining ownership of the claims, provided that the work done is in accordance with the adopted Program and Budget. The Manager shall timely record with the appropriate county and file with the appropriate United States agency, affidavits in proper form attesting to the performance of assessment work or payment of the required fees or assessments, or notices of intent to hold in proper form, and allocating therein, to or for the benefit of each claim, at least the minimum amount required by law to maintain such claim or site.

(l)    If authorized by the Management Committee, the Manager may: (i) locate, amend or relocate any unpatented mining claim or mill site or tunnel site, (ii) locate any fractions resulting from such amendment or relocation, (iii) apply for patents or mining leases or other forms of mineral tenure for any such unpatented claims or sites, (iv) abandon any mining claims for the purpose of locating mill sites or otherwise acquiring from the United States rights to the ground covered thereby, (v) abandon any mill sites for the purpose of locating mining claims or otherwise acquiring from the United States rights to the ground covered thereby, (vi) exchange with or convey to the United States any of the Properties for the purpose of acquiring rights to the ground covered thereby or other adjacent ground, and (vii) convert any claims or mill sites into one or more leases or other forms of mineral tenure pursuant to any law hereafter enacted.

(m)    The Manager shall keep and maintain all required accounting and financial records pursuant to the Accounting Procedure and in accordance with customary cost accounting practices in the mining industry.

(n)    The Manager shall keep the Management Committee advised of all Operations by submitting in writing to the Management Committee: (i) monthly progress reports which include statements of expenditures and comparisons of such expenditures to the adopted Budget; (ii) periodic summaries of data acquired; (iii) copies of reports concerning Operations; (iv) a detailed final report within 60 days after completion of each Program and Budget, which shall include comparisons between actual and budgeted expenditures and comparisons between the objectives and results of Programs; and (v) such other reports as the Management Committee may reasonably request. At all reasonable times the Manager shall provide the 

	 
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Management Committee or the representative of any Participant, upon the request of any member of the Management Committee, access to, and the right to inspect and copy all maps, drill logs, core tests, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other information acquired in Operations. In addition, the Manager shall allow the non-managing Participant, at the latter’s sole risk and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times, so long as the inspecting Participant does not unreasonably interfere with Operations.

(o)    The Manager shall undertake all other activities reasonably necessary to fulfill the foregoing.

(p)    The Manager shall not be in default of any duty under this Section 8.2 if its failure to perform results from the failure of the non-managing Participant to perform acts or to contribute amounts required of it by this Agreement.

8.3    Standard of Care. The Manager shall conduct all Operations in a good, workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with the terms and provisions of leases, licenses, permits, contracts and other agreements pertaining to Assets. The Manager shall not be liable to the non-managing Participant for any act or omission resulting in damage or loss except to the extent caused by or attributable to the Manager’s willful misconduct or gross negligence.

8.4    Resignation: Deemed Offer to Resign.

(a)    The Manager may resign upon three months’ prior notice to the other Participant, in which case the other Participant may elect to become the new Manager by notice to the resigning Participant within 60 days after the notice of resignation.

(b)    If any of the following shall occur, the Manager shall be deemed to have offered to resign, which offer shall be accepted by the other Participant, if at all, within 90 days following such deemed offer:

(1)    The Participating Interest of the Manager becomes less than 50%; or

(2)    The Manager fails to perform a material obligation imposed upon it under this Agreement and such failure continues for a period of 60 days after notice from the other Participant demanding performance; or

(3)    The Manager fails to pay or contest in good faith its bills within 60 days after they are due.

(c)    If

(1)    A receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of the Manager’s assets is appointed and such appointment is neither made ineffective nor discharged within 60 days after the making thereof, or such appointment is consented to, requested by, or acquiesced in by the Manager; or

(2)    The Manager commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect; or consents to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of any substantial part of its assets; or makes a 

	 
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general assignment for the benefit of creditors; or fails generally to pay its debts or the debts of the Participants arising under this Agreement as such debts become due; or takes corporate or other action in furtherance of any of the foregoing; or

(3)    Entry is made against the Manager of a judgment, decree or order for relief affecting a substantial part of its assets by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect;

the Manager shall be deemed to have resigned without any action by the other Participant. 

(d)    If a petition for relief under the federal bankruptcy laws is filed by or against the Manager, and the removal of the Manager is prevented by the federal bankruptcy court, the Participants shall comprise an interim operating committee to serve until the Manager has elected to reject or assume this Agreement pursuant to the Bankruptcy Code, and an election to reject this Agreement by the Manager as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation as the Manager without any action by the other Participant. During the period of time the operating committee controls Operations, a third party acceptable to the non-managing Participant, the Manager and the federal bankruptcy court shall be selected as a member of the operating committee, and all actions shall require the approval of two members of the operating committee without regard to their interest in the Properties.

8.5    Payments to Manager. The Manager shall be compensated for its services and reimbursed for its costs as specified hereunder in accordance with the Accounting Procedure in Exhibit C.

8.6    Transactions With Affiliates. If the Manager engages Affiliates to provide services hereunder, it shall do so on terms no less favorable than would be the case with unrelated persons in arm’s-length transactions.

8.7    Activities During Deadlock. If the Management Committee for any reason fails to adopt a Program and Budget, subject to the contrary direction of the management Committee and to the receipt of necessary funds, the Manager shall continue Operations at levels comparable with the last adopted Program and Budget. For purposes of determining the required contributions of the Participants and their respective participating Interests, the last adopted Program and Budget shall be deemed extended. The Participants expressly agree that the Management Committee's authority shall include the authority to replace the Manager by majority vote.

8.8     Funding of Reclamation. The Participants agree that funds shall regularly be set aside by the Venture during the term of this Venture in an amount sufficient to meet reclamation costs which are reasonably estimated to be required for reclamation for all Operations conducted pursuant to this Agreement after Operations cease. The Management Committee will periodically, but not less frequently than once a year, estimate the amount of funds which will be required for such purposes and will establish the amount of annual funding required which, together with interest thereon, will accumulate to such estimate. The estimated annual required funding will be made part of the Program and Budget and shall be satisfied by cash contributions from the Participants or the posting of a letter of credit or other form of surety. Provided, however, that if a Participant posts a letter of credit or other form of surety, that Participant shall be obligated to make additional contributions on an annual basis so that the value of the letter of credit or other surety equals the value of a cash contribution plus interest at the rate of return realized by investment of the cash contribution as provided in this Section 8.8. Funds will be deposited in an interest-bearing escrow account or such other revenue generating investment account as the Management Committee shall direct. withdrawals 

	 
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from such accounts will be restricted to the specified purpose of paying end of mine life reclamation costs; provided, however, that the Management Committee may, from time-to-time, use such funds to perform reclamation that would otherwise have to be undertaken at the end of Operations so long as the ability to fund all such reclamation is not impaired. If any escrow funds remain after reclamation obligations have been fulfilled, they shall be distributed to the Participants in pro-portion to the Participants' Participating Interests.

8.9    Assumed Reclamation Burdens. On the Effective Date, both parties hereto shall equally assume all current and future reclamation liabilities on the Properties, except as provided for by Section 14 of the PSA. 

ARTICLE IX

PROGRAMS AND BUDGETS

9.1    Programs and Budgets. Plans of Operations shall be prepared for information purposes only, shall be delivered to the Management Committee and shall describe the Operations the Manager intends to conduct during the period covered by the applicable Plan of Operations. If the Manager desires to conduct Operations substantially different from those described in the current Plan of Operations, the Manager shall, at least five days before undertaking such other Operations, notify the Management Committee. The Manager shall not be obligated to fulfill every aspect of a Plan of Operations or to conduct the Operations described therein on any particular schedule.

(a)    The Manager shall:

(1)    Keep the Management Committee generally informed concerning all Operations conducted by the Manager with respect to or affecting the Properties:

(2)    Provide the Management Committee with monthly reports pertaining to Operations conducted on or for the benefit of the Properties, on or before March 31 of each year, furnish to the Management Committee a narrative report with all maps and sections prepared by appropriate field professionals, together with copies of all non-interpretive reports and data gathered on the Properties by the Manager.

(3)    Make available for inspection and copying by the Management Committee all non-interpretive reports, studies, and analyses concerning the Properties, and make all core and other samples available for inspection by the Management Committee;

(4)    Submit to the Management Committee on or before March 31 of each year a statement of Expenses incurred during the preceding year;

(5)    Make all payments and complete all obligations required to maintain the Properties in good standing and furnish proof to the Management Committee of the making of such payments;

(6)    Discharge the powers and duties of the manager, as provided in Section 8.2, and this Article 9; and

(7)    Prepare an initial Program and Budget for consideration by the Management Committee within 60 days following the Effective Date.

	 
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9.2    Operations Pursuant to Programs and Budgets. Except as otherwise provided in Section 9.8 and Article XIII, operations shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to approved Programs and Budgets. Pro-grams and Budgets shall be designed to set forth in reasonable detail the scope, direction and nature of Operations and to establish a basis for Operations, but are not expected to constitute an enumerated list of each activity and expenditure to be undertaken by the Manager.

9.3    Presentation of Programs and Budgets. Proposed Programs and Budgets shall be prepared by the Manager for such period as the Manager, in its reasonable discretion, shall determine. Each adopted Program and Budget, regardless of length, shall be reviewed at least once a year at a meeting of the Management Committee. The Manager shall prepare and submit to each Participant and the Management Committee prior to September 30 of each year a proposed Program and Budget for the following year or as often as otherwise desired by the Participants. Each such proposed Program and Budget shall be in a form and degree of detail sufficient to allow the non-Manager to make a reasonably informed determination concerning participation therein.

9.4    Review and Approval of Proposed Programs and Budgets. Within 30 days after submission of a proposed Program and Budget consisting solely of Exploration Operations, or within 60 days after submission of a proposed Program and Budget that includes Development or Mining Operations, each Participant shall submit to the Management Committee:

(a)    Notice that the Participant approves the proposed Program and Budget; or

(b)    Proposed modifications of the proposed Program and Budget.

(c)    Notice that the Participant rejects the proposed Program and Budget.

If a Participant fails to give either of the foregoing responses within the allotted time, the failure shall be deemed to be an approval by the Participant of the Manager’s proposed Program and Budget. If a Participant makes a timely submission to the Management Committee pursuant to Section 9.4(b), then the Management Committee shall seek, for a period of one month in the case of an Exploration Program and Budget and for a period of two months in the case of a Development or Mining Program and Budget, to develop a Program and Budget acceptable to the Participants. At the end of such period, the Management Committee shall vote on any revised Program and Budget developed pursuant to the preceding sentence or, failing agreement by the Participants on a revised Program and Budget, shall vote on the original Program and Budget submitted by the Manager.

9.5    Election to Participate. By notice to the Management Committee within 20 days after the final vote adopting a Program and Budget, a Participant may elect to contribute to such Program and Budget in some lesser amount than its respective Participating Interest, or not at all, in which cases its participating Interest shall be recalculated as provided in Article VI. If a Participant fails to so notify the Management Committee, the Participant shall be deemed to have elected to contribute to such Program and Budget in proportion to its respective Participating Interest as of the beginning of the period covered by the Program and Budget.

9.6    Deadlock on Proposed Programs and Budgets. If the Participants, acting through the Management Committee, fail to approve a Program and Budget by the beginning of the period to which the proposed program and Budget applies, the provisions of Sections 8.7 and 12.2 shall apply.

	 
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9.7    Budget Overruns; Program Changes. The Manager shall immediately notify the Management Committee of any material departure from an adopted Program and Budget. If the Manager exceeds the Budget (unless directly caused by an emergency or unexpected expenditure made pursuant to Section 9.8 or unless otherwise authorized by the Management Committee and incorporated into an amended Program and Budget), the excess shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests. Budget overruns of ten percent or less shall be borne by the Participants in proportion to their respective Participating Interest as of the time the overrun occurs.

9.8    Emergency or Unexpected Expenditures. In case of emergency, the Manager may take any reasonable action it deems necessary to protect life, limb or property, to protect the Assets or to comply with law or government regulation. The Manager may also make reasonable expenditures for unexpected events which are beyond its reasonable control and which do not result from a breach by it of its standard of care. The Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and the Manager shall be reimbursed for all resulting costs by the Participants in proportion to their respective Participating Interest at the time the emergency or unexpected expenditures are incurred.

ARTICLE X

ACCOUNTS AND SETTLEMENTS

10.1    Monthly Statements. The Manager shall promptly submit to the Management Committee monthly statements of account reflecting in reasonable detail the charges and credits to the Joint Account during the preceding month.

10.2    Cash Calls. On the basis of the adopted Program and Budget, the Manager shall submit to each Participant prior to the last day of each month, a billing for estimated cash requirements for the next month. The Manager shall promptly submit to each Participant billings for all other authorized expenditures as they occur. Within ten days after receipt of each billing, each Participant shall advance to the Manager its proportionate share of the estimated amount. Time is of the essence of payment of such billings. The Manager shall at all times maintain a cash balance approximately equal to the rate of disbursement for up to 30 days. All funds in excess of immediate cash requirements shall be invested in insured interest-bearing accounts for the benefit of the Joint Account.

10.3    Failure to Meet Cash Calls or Billings. A Participant that fails to meet cash calls or billings in the amount and at the times specified in Section 10.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to five percentage points over the Prime Rate, but in no event shall said rate of interest exceed the maximum permitted by law. The defaulting Participant shall have the right to cure such default by paying the amount of the defaulted billing and interest within seven days after notice of such default is given by the non-defaulting Participant. Unless the default is cured, the non-defaulting Participant shall have those rights, remedies and elections specified in Section 6.4.

10.4    Audits. Within three months following the end of any calendar year after the Effective Date the Manager shall order an audit of the accounting and financial records for such calendar year (or other accounting period). The costs associated with such audit shall be charged to the Joint Account. All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three months after receipt of the audit report. Failure to make any such exception or claim within the three-month period shall mean the audit is correct and binding upon the Participants. The audits shall be conducted by a firm of certified public accountants selected by the Manager, unless otherwise agreed by the Management Committee. Additional audits may be requested by any Participant at any time, the costs of 

	 
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which shall be borne by the Participant requesting the same. Such additional audits shall not interfere with the performance of the audits chargeable to the Joint Account or alter the binding effect of such audits.

ARTICLE XI

DISPOSITION OF PRODUCTION

	11.1  	Marketing Agreement. The Participants select the Manager to market and dispose of all Products produced from the Properties for the Participants, subject to the general oversight and direction of the Management Committee., 

	11.2  	Distributions. Distribution of the proceeds from production shall be made on the terms set out in Article 7 of Exhibit “B”, Accounting Procedure.

ARTICLE XII

WITHDRAWAL AND TERMINATION

12.1    Termination by Expiration or Agreement. This Agreement shall terminate as expressly provided in this Agreement, unless earlier terminated by written agreement of the Participants.

12.2    Termination by Deadlock. If the Management Committee fails to adopt a Program and Budget for 12 months after the expiration of the latest adopted Program and Budget, either Participant may elect to terminate this Agreement by giving notice of termination to the other Participant.

12.3    Withdrawal. A Participant may elect to withdraw as a Participant from this Agreement by giving notice to the other Participant of the effective date of withdrawal, which shall be the later of the end of the then current Program and Budget or at least thirty days but not more than one year after the date of the notice. Upon such withdrawal, this Agreement shall terminate, and the withdrawing Participant shall be deemed to have transferred to the remaining Participant, without cost and free and clear of royalties, liens or other encumbrances arising by, through or under such withdrawing Participant, except those exceptions to title described in part 1 of Exhibit A and those to which both Participants have given their written consent after the date of this Agreement, all of its Participating Interest in the Assets and in this Agreement. Any withdrawal under this Section 12.3 shall not relieve the withdrawing Participant of its share of Liabilities, including Reclamation obligations, (whether such accrues before or after such withdrawal) arising out of Operations conducted prior to such withdrawal. For purposes of this Section 12.3, the withdrawing Participant’s share of such Liabilities shall be equal to its Participating Interest at the time such Liability was incurred.

Notwithstanding any other provision of this Agreement, a Participant that receives notice from the other Participant of the latter’s intended withdrawal from the Venture, may, by notice given prior to the effective date of such withdrawal, itself withdraw from the Venture, in which even there shall be a voluntary mutual termination of the Venture pursuant to Section 12.1, effective as of the date specified in the notice of the Participant first electing to withdraw.

12.4    Continuing Obligations. On termination of this Agreement under Section 12.1 or 12.2, the Participants shall remain liable for continuing obligations hereunder until final settlement of all accounts and for any liability, whether it accrues before or after termination, if it arises out of Operations during the term of the Agreement.

	 
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12.5    Disposition of Assets on Termination. Promptly after termination under Section 12.1 or 12.2, the Manager shall take all action necessary to wind up the activities of the Venture, and all costs and expenses incurred in connection with the termination of the Venture shall be expenses chargeable to the Venture. The Assets shall first be paid, applied, or distributed in satisfaction of all Liabilities of the Venture to third parties and then to satisfy any debts, obligations, or Liabilities owed to the Participants. Before distributing any funds or Assets to Participants, the Manager shall have the right to segregate amounts which, in the Manager’s reasonable judgment, are necessary to discharge continuing obligations or to purchase for the account of Participants, bonds or other securities for the performance of such obligations. The foregoing shall not be construed to include the repayment of any Participant’s capital contributions. Thereafter, any remaining cash and all other Assets shall be distributed (in undivided interests unless otherwise agreed) to the Participants (after making any adjustments required by Exhibit C) in accordance with their respective Participating Interests. No Participant shall receive a distribution of any interest in Products or proceeds from the sale thereof if such Participant’s Participating Interest therein has been terminated pursuant to this Agreement.

12.6    Non-Compete Covenants. Neither a Participant that withdraws pursuant to Section 12.3, or is deemed to have withdrawn pursuant to Section 6.5, nor any Affiliate of such Participant, shall directly or indirectly acquire any interest in property within the Area of Mutual Interest for 12 months after the effective date of withdrawal. If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Section 12.6, such Participant or Affiliate shall be obligated to offer to convey to the non-withdrawing Participant, without cost, any such property or interest so acquired. Such offer shall be made in writing and can be accepted by the non-withdrawing Participant at any time within 45 days after it is received by such non-withdrawing Participant.

12.7    Right to Data After Termination. After termination of this Agreement pursuant to Section 12.1 or 12.2, each Participant shall be entitled to copies of all information acquired hereunder before the effective date of termination not previously furnished to it, but a termination or withdrawing Participant shall not be entitled to any such copies after any other termination or any withdrawal.

12.8    Continuing Authority. On termination of this Agreement under Section 12.1 or 12.2 or the deemed withdrawal of a Participant pursuant to Section 6.3(b)(2),6.4(b)(2) or 6.5 or the withdrawal of a Participant pursuant to Section 12.3, the Manager shall have the power and authority, subject to control of the Management Committee, if any, to do all things on behalf of the Participants which are reasonably necessary or convenient to: (a) wind up Operations and (b) complete any transaction and satisfy any obligation, including Reclamation obligations, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal. The Manager shall have the power and authority to grant or receive extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of the Participants and the Venture, mortgage Assets, and take any other reasonable action in any matter with respect to which the former Participants continue to have, or appear or are alleged to have, a common interest or a common liability.

ARTICLE XIII

ACQUISITIONS WITHIN AREA OF MUTUAL INTEREST

13.1    General. This Agreement provides for the development of the Properties and additional mineral claims described in Exhibit A-2 constituting mineral claims located within a defined Area of Mutual Interest. 

	 
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13.2    Terms of Development for Area of Mutual Interest Lands. The terms of development for lands located within the Area of Mutual Interest is set out in Paragraph 11 of the PSA.

13.3    UPC’s Earn-In Contribution. For each exploration project that is identified within the Area of Mutual Interest Lands for development, UPC will contribute the first $500,000 expenditure on each defined exploration project to a maximum of twenty (20) exploration projects within the Area of Mutual Interest Lands. After UPC has expended the first $500,000, each of the Participants will be deemed to have a 50% interest in and to the lands located within the Area of Mutual Interest and each such parcel shall thereafter be developed on the terms of this Agreement which shall apply mutatis mutandis to each separate and distinct project defined and developed within the Area of Mutual Interest. The deemed Initial Contribution of each of the Parties in each separate and distinct exploration project located within the Area of Mutual Interest Lands shall be $500,000 and on the date a separate mining joint venture is formed with respect to any of such lands, the USE Parties shall be liable to reimburse UPC for one half of any expenditure made in exploring and developing such lands above the amount of $500,000 required to be spent by UPC. Any interest or right to acquire any interest in real property within the Area of Mutual Interest acquired during the term of this Agreement by or on behalf of a Participant or any Affiliate shall be subject to the terms and provisions of this Agreement.

13.4    Notice to Non-acquiring Participant. Within ten days after the acquisition of any interest or the right to acquire any interest in real property wholly or partially within the Area of Mutual Interest (except real property acquired by the Manager pursuant to a Program), the acquiring Participant shall notify the other Participant of such acquisition. The acquiring Participant’s notice shall describe in detail the acquisition, the lands and minerals covered thereby, the cost thereof, and the reasons why the acquiring Participant believes that the acquisition of the interest is in the best interest of the Participants under this Agreement. In addition to such notice, the acquiring Participant shall make any and all information concerning the acquired interest available for inspection by the other Participant.

13.5    Option Exercised. If, within 21 days after receiving the acquiring Participant’s notice, the other Participant notifies the acquiring Participant of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest, the acquiring Participant shall convey to the other Participant, by special warranty deed, such a proportionate undivided interest therein. The acquired interest shall become a part of the Properties for all purposes of this Agreement immediately upon the notice of such other Participant’s election to accept the proportionate interest therein. Such other Participant shall promptly pay to the acquiring Participant its proportionate share of the latter’s actual out-of-pocket acquisition costs to the acquiring Participant.

13.6    Option Not Exercised. If the other Participant does not give such notice within the 30-day period set forth in Section 13.3, it shall have no interest in the acquired interest, and the acquired interest shall not be a part of the Properties or be subject to this Agreement.

ARTICLE XIV

ABANDONMENT AND SURRENDER OF PROPERTIES

14.1    Surrender or Abandonment of Property. Except to the extent permitted in Article VIII or this Article XIV, neither Participant shall permit or cause any right, title or the Manager to surrender or abandon part or all of the Properties. The Management Committee may authorize the Manager to surrender or abandon part or all of the Properties. If the Management Committee authorizes any such surrender or abandonment over the objection of a Participant, the Participant that desires to abandon or surrender shall assign to the objecting Participant, by special warranty deed and without cost to the surrendering Participant, 

	 
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all of the surrendering Participant’s interest in the property to be abandoned or surrendered, and the abandoned or surrendered property shall cease to be part of the Properties, provided, however, that the objecting Participant shall not conduct or permit any exploration, development or mining operations on any such abandoned or surrendered property assigned to it that would unreasonably interfere with Operations of the Venture.

14.2    Reacquisition. If any Properties are abandoned or surrendered under the provisions of this Article XIV, then, unless this Agreement is earlier terminated in which case Section 12.6 shall remain applicable, neither Participant nor any Affiliate thereof shall acquire any interest in such Properties or a right to acquire such Properties for a period of two years following the date of such abandonment or surrender. If a Participant reacquires any Properties in violation of this Section 14.2, the other Participant may elect by notice to the reacquiring Participant within 45 days after it has actual notice of such reacquisition, to have such properties made subject to the terms of this Agreement. In the event such an election is made, the reacquired properties shall thereafter be treated as Properties, and the costs of reacquisition shall be borne solely by the reacquiring Participant and shall not be included for purposes of calculating the Participants’ respective Participating Interests. Notwithstanding the foregoing provisions of this Section 14.2, the Management Committee may authorize the reacquisition of any abandoned Properties, and the Participants shall each pay a proportionate share of the cost of reacquiring such Property and the reacquired Property shall thereafter be treated as part of the Properties.

ARTICLE XV

TRANSFER OF INTEREST

15.1    General. A Participant shall have the right to Transfer to any third party all or any part of its interest in or to this Agreement, its Participating Interest, or the Assets solely as provided in this Article IV.

15.2    Limitations on Free Transferability. The Transfer right of the Participant in Section 15.1 shall be subject to the following terms and conditions:

(a)    No transferee of all or any part of the interest of a Participant in this Agreement, any Participating Interest, or the Assets shall have the rights of a Participant unless and until the transferring Participant has provided to the other Participant notice of the Transfer, and except as provided in Sections 15.2(g) and 15.2(h), the transferee, as of the effective date of the Transfer, has committed in writing to be bound by this Agreement to the same extent as the transferring Participant;

(b)    Each Participant shall, if possible, attempt to structure any sale or assignment of part or all of its interest in any property subject to this Agreement so as not to cause a deemed termination of the tax partnership under Section 708(b)(1)(B) of the Code, but no Participant shall have any liability to any other Participant if the tax part-nership is deemed terminated on account of such sale or assignment; No participant, without the consent of the other Participant, shall make a Transfer which shall cause termination of the tax partnership established by the provisions of Section 4.2. If, contrary to Section 15.2(b), a Transfer is made which causes termination of the tax partnership established by Section 4.2, the transferring Participant shall indemnify the other Participant from and against any and all losses, costs, (including attorneys’ and accountants’ fees) claims or damages arising from or relating to such termination;

(c)    No Transfer permitted by this Article XV shall relieve the transferring Participant of its share of any liability, whether accruing before or after such Transfer, which arises out of Operations conducted prior to such Transfer;

	 
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(d)    As provided in Exhibit C, the transferring Participant and the transferee shall bear all tax consequences of the Transfer;

(e)    In the event of a Transfer of less than all of a Participating Interest, except for tax reporting and accounting purposes, the transferring Participant and its transferee shall act and be treated as one Participant;

(f)  No Participant shall Transfer any interest in this Agreement or the Assets except by Transfer of part or all of its Participating Interest;

(g)    If the Transfer is the grant of a security interest by mortgage, deed of trust, pledge, lien or other encumbrance of any interest in this Agreement, any Participating Interest or the Assets to secure a loan or other indebtedness of a Participant in a bona fide transaction, such security interest shall be subordinate to the terms of the Agreement and the rights and interests of the other Participant hereunder. Upon any foreclosure or other enforcement of rights in the security interest the acquiring third party shall be deemed to have assumed the position of the encumbering Participant with respect to this Agreement and the other Participant, and it shall comply with and be bound by the terms and conditions of this Agreement;

(h)    If a sale or other commitment or disposition of Products or proceeds from the sale of Products by a Participant upon distribution to it pursuant to Article XI creates in a third party a security interest in Products or proceeds therefrom prior to such distribution, such sales, commitment or disposition shall be subject to the terms and conditions of this Agreement; 

(i)    If requested by the transferring Participant, the election provided for under section 754 of the Internal Revenue code of 1986, as amended, shall be made, provided that all costs attributable to making such election are borne solely by the requesting Participant and its transferee.

(j)    The following shall not be deemed a Transfer, nor shall the transferee be deemed an assignee for purposes of this Agreement:

(1)    a transfer by a Participant to an Affiliate, provided that the Participant shall continue to be liable for all obligations hereunder, and provided further that any transfer of less than all of a Participant’s Participating Interest shall be subject to the provisions of Section 15.2(e);

(2)    a transfer by a Participant of all or substantially all of its assets, or a sale of all shares of a corporate Participant by its parent corporation or other entity holding such shares, or such other corporate merger, consolidation or reorganization of a Participant, by which the surviving entity shall possess substantially all of the shares, or all of the property rights and interests, and shall be subject to substantially all of the liabilities and obligations of that Participant; provided, however, that the interest of the Participant in this Agreement and the Assets and its Participating Interest are not the sole assets of the Participant; provided further, however, that the transferee is or following the Transfer will be substantially similar in financial strength to the transferring Participant;

(3)    an incorporation of a Participant; or

(4)    a transfer by a Participant to a joint venture or partnership in which such Participant is a participating venturer or partner with a majority or controlling interest, provided that any transfer of less than all of a Participant’s Participating Interest shall be subject to the provisions of Section 15.2(e).

	 
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(k)    If the interest of a Participant in this Agreement and the Assets and its Participating Interest are all or substantially all of the assets of the Participant, or are not all or substantially all of its assets but the financial strength of the transferee will be substantially less than the financial strength of the transferring Participant, a sale of all shares of a corporate Participant or the sale of all shares of any Affiliate of a Participant (by which the Participant is effectively subject to new ownership or management) or such other corporate merger, consolidation or reorganization, shall be deemed a Transfer. A transfer by a Participant to a joint venture or partnership in which such Participant is a participating venturer or partner with a minority or non-controlling interest shall also be deemed a Transfer, provided that any transfer of less than all of a Participant’s Participating Interest shall be subject to the provisions of Section 15.2(e).

15.3    Preemptive Right. Except as otherwise provided in Section 15.4, if a Participant desires to Transfer all or any part of its interest in this Agreement, any Participating Interest, or the Assets, the other Participant shall have a preemptive right to acquire such interests as provided in this Section 15.3.

(a)    A Participant intending to Transfer all or any part of its interest in this Agreement, any Participating Interest, or the Assets shall promptly notify the other Participant of its intentions. The notice shall state the price and all other pertinent terms and conditions of the intended transaction, and shall be accompanied by a copy of the offer or contract for sale. If any portion of the consideration to be received is in nonmonetary form, including an exchange of property, a transfer of securities or an undertaking to act or refrain from acting, the notice shall describe such consideration and its monetary value, based on the fair market value of such nonmonetary consideration. The other Participant shall have 60 days from the date such notice is delivered to notify the transferring Participant whether it elects to acquire the offered interest at the same price and on the same terms and conditions as set forth in the notice (or their monetary equivalent). If it does so elect, the transaction shall be consummated promptly after notice of such election is delivered to the transferring Participant.

(b)    If the other Participant fails to so elect within the period provided for in Section 15.3(a), the transferring Participant shall have 180 days following the expiration of such period to consummate the Transfer to a third party at a price and on terms no less favorable than those offered by the transferring Participant to the other Participant in the notice required in Section 15.3(a).

(c)    If the transferring Participant fails to consummate the Transfer to a third party within the period set forth in Section 15.3(b), the preemptive right of the other Participant in such offered interest shall be deemed to be revived. Any subsequent proposal to Transfer such interest shall be conducted in accordance with all of the procedures set forth in this Section 15.3.

15.4    Exceptions to Preemptive Right. Section 15.3 shall not apply to the following:

(a)    The transfer referred to in Section 15.2(k);

(b)    The grant by a Participant of a security interest in any interest in this Agreement, any Participating Interest, or the Assets by mortgage, deed of trust, pledge, lien or other encumbrance; or

(c)    A sale or other commitment or disposition of Products or proceeds from sale of Products by a Participant upon distribution to it pursuant to Article XI.

ARTILCE XVI

DISPUTES

	 
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16.1    Default; Right to Cure. If a Participant defaults in any of its obligations hereunder, other than a payment obligation, the non-defaulting Participant may give the defaulting Participant written notice thereof and specify the default or defaults relied on. If the defaulting Participant has not cured or begun to cure such default within a reasonable time after receipt of such notice (which shall not, in any case, be less than 30 days), the non-defaulting Participant may exercise its legal and equitable remedies; provided that if the defaulting Participant disputes that any default has occurred, the matter shall be determined by litigation in a court of competent jurisdiction, and if the court shall find the defaulting Participant in default hereunder, the defaulting Participant shall have reasonable time (which in any case shall not be less than 60 days from receipt by the defaulting Participant of notice of entry of final judgment adverse to the defaulting Participant) to cure such default.

ARTICLE XVII

CONFIDENTIALITY

17.1    General. The financial terms of this Agreement and all information obtained in connection with the performance of this Agreement shall be the exclusive property of the Participants and, except as provided in Section 17.2, shall not be disclosed to any third party or the public without the prior written consent of the other Participant, which consent shall not be unreasonably withheld.

17.2    Exceptions. The consent required by Section 17.1 shall not apply to a disclosure:

(a)    To an Affiliate, consultant, contractor or subcontractor that has a bona fide need to be informed;

(b)    To any third party to whom the disclosing Participant contemplates a Transfer of all or any part of its interest in or to this Agreement, its Participating Interest, or the Assets; or

(c)    To a governmental agency or to the public which the disclosing Participant believes in good faith is required by pertinent law or regulation or the rules of any stock exchange;

In any case to which this Section 17.2 is applicable, the disclosing Participant shall give notice to the other Participant concurrently with the making of such disclosure. As to any disclosure pursuant to Section 17.2(a) or (b), only such confidential information as such third party shall have a legitimate business need to know shall be disclosed and such third party shall first agree in writing to protect the confidential information from further disclosure to the same extent as the Participants are obligated under this Article XVII.

17.3    Duration of Confidentiality. The provisions of this Article XVII shall apply during the term of this Agreement and for two years following termination of this Agreement pursuant to Section 12.1 or 12.2, and shall continue to apply to any Participant who withdraws, who is deemed to have withdrawn, or who Transfers its Participating Interest, for two years following the date of such occurrence.

17.4    Public Statements. Without limiting the foregoing provisions of this Article XVII, no Participant shall make any public announcement or public disclosure with regard to the Venture, including Confidential Information and non-Confidential Information, without the prior written consent of the other Participant as to the content and timing of such announcement or disclosure, which consent shall not be unreasonably withheld; provided, however, that nothing in this Section 17.4 shall prevent a Participant from making such an announcement or disclosure which is required in the good faith judgment of such Participant by applicable law, regulation or stock exchange rule.

	 
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ARTICLE XVIII

GENERAL PROVISIONS

18.1    Notices. All notices, payments and other required communications (“Notices”) to the Participants shall be in writing, and shall be addressed respectively as follows:

If to Uranium Power Corp. (formerly “Bell Coast Capital Corp.”):

Rahoul Sharan

President

#525 - 999 West Hastings Street

Vancouver, BC

CANADA V6C 2W2

Phone:    (604) 689-1810

Fax:    (604) 689-1817

E-Mail: rahoul@axion.net

If to U.S. Energy Corp. and or USE/CC

Keith G. Larsen

President and Director

877 North 8th West

Riverton, WY 82501

Phone:    (307) 856-9271

Fax:    (307) 857-3050

E-Mail: keith@usnrg.com

All Notices shall be given (i) by personal delivery to the Participant, or (ii) by electronic communication or facsimile, with a confirmation sent by registered or certified mail return receipt requested, (iii) by registered or certified mail return receipt requested, (iv) or by commercial courier service. All Notices shall be effective and shall be deemed delivered (1) if by personal delivery on the date of delivery if delivered during normal business hours, and, if not delivered during normal business hours, on the next business day following delivery, (2) if by electronic communication on the next business day following receipt of the electronic communication, and (3) if solely by mail or commercial carrier, on the next business day after actual receipt. A Participant may change its address by Notice to the other Participant.

18.2    Waiver. The failure of a Participant to insist on the strict performance of any provision of this Agreement or to exercise any rights, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this Agreement or limit the Participant’s right thereafter to enforce any provision or exercise any right.

18.3    Modification. No modification of this Agreement shall be valid unless made in writing and duly executed by the Participants.

18.4    Force Majeure. Except for the obligation to make payments when due hereunder, the obligations of a Participant shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control (“Force Majeure”), 

	 
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including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Participant to grant); acts of God; laws, regulations, orders, proclamations, instructions or requests of any government or governmental entity; judgments or orders of any court, inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization, curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of federal, state or local environmental standards, acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors’ or subcontractors’ shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; or any other cause whether similar or dissimilar to the foregoing. The affected Participant shall promptly give notice to the other Participant of the suspension of performance, stating therein the nature of the suspension, the reasons therefore, and the expected duration thereof. The affected Participant shall resume performance as soon as reasonably possible. During the period of suspension the obligations of the Participants to advance funds pursuant to Section 10.2 shall be reduced to levels consistent with Operations.

18.5    Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Wyoming, except for its rules pertaining to conflicts of laws.

18.6    Rule Against Perpetuities. Any right or option to acquire any interest in real or personal property under this Agreement must be exercised, if at all, so as to vest such interest in the acquirer within 21 years after the death of the last surviving descendent of George Bush who is alive as of the effective date of this Agreement.

18.7    Further Assurances. Each of the Participants agrees to take from time to time such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement.

18.8    Survival of Terms and Conditions. The following Sections shall survive the termination of this Agreement to the full extent necessary for their enforcement and the protection of the Participant in whose favor they run: Sections 2.2 (Representations and Warranties), 4.5 (Other Business Opportunities), 6.4 (Default in Making Contributions), 6.5 Elimination of Minority Interest), 6.6 (Continuing Liabilities Upon Adjustments of Participating Interests), 10.3 (Failure to Meet Cash Calls or Billings), 12.3 (Withdrawal), 12.4 (Continuing Obligations), 12.5 (Disposition of Assets After Termination), 12.6 (Non-Compete Covenants), 12.7 (Right To Data After Termination), 12.8 (Continuing Authority), 14.2 (Reacquisition), and 17.3 (Duration of Confidentiality).

18.9  Currency. Unless otherwise stated, all currency referred to herein is referred to in lawful currency of United States.

18.11    Entire Agreement; Successors and Assigns. This Agreement contains the entire understanding of the Participants and supersedes all prior agreements and understandings between the Participants relating to the subject matter hereof. Providing nothing in this Agreement, however, shall in any way modify or alter the provisions of the terms and conditions of the PSA that pertain to UPC's obligations to purchase and the USE Parties' obligations to sell the property interests subject to that letter agreement. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Participants. In the event of any conflict between this Agreement and any Exhibit attached hereto, the terms of this Agreement shall be controlling.

	 
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18.12    Memorandum. At the request of either Participant, a Memorandum or short form of this Agreement, as appropriate, which shall not disclose financial information contained herein, shall be prepared and recorded by Manager. This Agreement shall not be recorded.

18.13    Interpretation and Severability. In the event that any condition, covenant or other provision of this Agreement is held to be invalid or void by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Agreement and shall in no way affect any other condition, covenant or other provision of this Agreement. If such condition, covenant or other provision shall be deemed invalid due to its scope or breadth, such condition, covenant or other provision shall be deemed valid to the extent of the scope or breadth permitted by law.

	 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

BELL COAST CAPITAL CORP.

By     /s/ Rahoul Sharan            

Its     President                

U.S. ENERGY CORP.

By     /s/ Keith G. Larsen            

Its     President                

U.S. ENERGY CORP. and CRESTED CORP. dba as USECC, a JOINT VENTURE

U.S. ENERGY CORP.

By     /s/ Keith G. Larsen            

Its     President                

CRESTED CORP.

By     /s/ Harold F. Herron            

Its     President                

	
164067    

	 	29PAA - Enterra

ROCKY MOUNTAIN GAS, INC.

 

PRE-ACQUISITION AGREEMENT

 

 

Dated February 22, 2005

 

 

 

 

 

	

	 	 	 
	

	 

 

 

TABLE OF CONTENTS

 

Page

	
ARTICLE 1 THE OFFER
	
2

	 	 	 	 
	 	
1.1
	
General
	
2

	 	
1.2
	
RMG Approval of the offer and Share Exchange Plan
	
4

	 	
1.3
	
RMG Covenants
	
4

	 	
1.4
	
Enterra Cooperation
	
5

	 	
1.5
	
Public Disclosure
	
5

	 	
1.6
	
Outstanding RMG Share Rights
	
5

	 	
1.7
	
Outstanding Geddes Loan and Geddes Conversion Option
	
5

	 	
1.8
	
No Registration of the Exchangeable Shares or the Underlying Trust Units
	
5

	 	 	 	 
	
ARTICLE 2 COVENANTS OF RMG
	
6

	 	 	 	 
	 	
2.1
	
Ordinary Course of Business
	
6

	 	
2.2
	
Non-Solicitation
	
7

	 	
2.3
	
Access to Information
	
9

	 	
2.4
	
Structure of Transaction
	
9

	 	 	 	 
	
ARTICLE 3 DUE DILIGENCE/MATERIAL TITLE DEFECTS
	
9

	 	 	 	 
	 	
3.1
	
Due Diligence
	
9

	 	
3.2
	
Deficiencies
	
9

	 	
3.3
	
Time to Satisfy
	
10

	 	 	 	 
	
ARTICLE 4 COVENANTS OF USE
	
11

	 	 	 	 
	 	
4.1
	
Covenants of RMG
	
11

	 	
4.2
	
Transition Period
	
11

	 	
4.3
	
Indemnity Respecting Legal Actions
	
11

	 	
4.4
	
Indemnity Agreement
	
11

	 	
4.5
	
Payment of 'Fair Value' of RMG Shares Held by Dissenters
	
12

	 	 	 	 
	
ARTICLE 5 COVENANTS OF ENTERRA
	 
	 	 	 	 
	 	
5.1
	
Transition Period
	
12

	 	
5.2
	
Rule 904 Cooperation
	
12

	 	
5.3
	
Maintenance of Toronto Stock Exchange Listing; Covenant to Register Resale on Nasdaq in the Event of Delisting
	
12

	 	 	 	 
	
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF RMG, USE AND CRESTED
	 
	 	 	 	 
	 	
6.1
	
Representations
	
12

	 	
6.2
	
Investigations
	
13

	  
	 	 	 
	

	 

	
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF ENTERRA
	
13

	 	 	 	 
	 	
7.1
	
Representations
	
13

	 	 	 	 
	
ARTICLE 8 MUTUAL COVENANTS
	
13

	 	 	 	 
	 	
8.1
	
Consultation
	
13

	 	
8.2
	
Further Assurance
	
13

	 	 	 	 
	
ARTICLE 9 TERMINATION FEES AND THE DEPOSIT
	
14

	 	 	 	 
	 	
9.1
	
Termination Fees and the deposit
	
14

	 	 	 	 
	
ARTICLE 10 TERMINATION
	
15

	 	 	 	 
	 	
10.1
	
Termination
	
15

	 	 	 	 
	
ARTICLE 11 MISCELLANEOUS
	
16

	 	 	 	 
	 	
11.1
	
Amendment or Waiver
	
16

	 	
11.2
	
Entire Agreement
	
16

	 	
11.3
	
Headings
	
16

	 	
11.4
	
Notices
	
16

	 	
11.5
	
Counterparts
	
17

	 	
11.6
	
Expenses
	
17

	 	
11.7
	
Assignment
	
17

	 	
11.8
	
Severability
	
17

	 	
11.9
	
Currency
	
18

	 	 	 	 
	
ARTICLE 12 REGARDING FUTURE DISPOSITION OF EQUITY HOLDINGS IN PINNACLE GAS RESOURCES, INC.
	
18

	 	 	 	 
	 	
12.1
	
Disposition of Equity Holdings
	
18

	 	
12.2
	
Payment Due on Disposition
	
18

	 	
12.3
	
Application to Other Dispositions
	
19

	 	
12.4
	
No Limits on Disposition; No Payment Owed if Disposition is for Less then $10 Million
	
19

	 	 	 	 

SCHEDULE "A" CONDITIONS OF COMPLETION OF THE OFFER

SCHEDULE "A" EXHIBIT 1 ALLOCATION OF CONSIDERATION

SCHEDULE "B" REPRESENTATIONS AND WARRANTIES OF RMG, USE AND CRESTED

SCHEDULE "C" REPRESENTATIONS AND WARRANTIES OF ENTERRA

SCHEDULE "D" ROCKY MOUNTAIN GAS, INC. AUDITED ANNUAL FINANCIAL STATEMENTS DECEMBER 31, 2004

SCHEDULE "E" INDEMNITY AGREEMENT

 

	 
	 	 	 
	

	 

PRE-ACQUISITION AGREEMENT

 

THIS PRE-ACQUISITION AGREEMENT is made effective as of the 22nd day of February, 2005;

 

AMONG:

 

ENTERRA ENERGY TRUST, an open-ended unincorporated trust governed by the laws of the Province of Alberta and having an office in the City of Calgary, Alberta (hereinafter called “Enterra”)

 

- and -

 

ROCKY MOUNTAIN GAS, INC., a body corporate incorporated under the laws of the State of Wyoming and having an office in the City of Riverton, Wyoming (hereinafter called “RMG”)

 

- and -

 

U.S. ENERGY CORP., a body corporate incorporated under the laws of the State of Wyoming and having an office in the City of Riverton, Wyoming (hereinafter called “USE”)

 

- and -

 

CRESTED CORP., a body corporate incorporated under the laws of the State of Colorado and having an office in the City of Riverton, Wyoming (hereinafter called “Crested”)

 

WHEREAS:

 

	A.  	the board of directors of RMG wishes to have Enterra make an offer to the Shareholders of RMG to purchase all of the issued and outstanding shares of RMG by way of a Plan and Agreement of Share Exchange under Wyoming law (the “Share Exchange Plan”);

 

	B.  	as at the date hereof, RMG has issued outstanding common shares (the “RMG Shares”); as well as outstanding warrants and options to purchase common shares and Class A preferred shares convertible to common shares, (collectively the “RMG Share Rights”)and an option by Geddes and Company to convert an outstanding liability owing by USE (the “Geddes Loan”) to common shares of RMG (the “Geddes Conversion Option”);

 

	C.  	the board of directors of RMG has determined that it would be in the best interest of RMG and the holders of RMG Shares (“the Shareholders”) to (i) recommend approval of the Plan of Share Exchange; and (ii) cooperate with Enterra and take all reasonable action to support Enterra’s offer;

 

	 
	 	1	 
	

	 

	D.  	the board of directors of RMG has determined that it would be in the best interests of RMG and its Shareholders for RMG to enter into this Agreement; 

 

	E.  	Enterra has determined to offer to purchase all of the RMG Shares subject to the terms and conditions of this Agreement;

 

	F.  	USE and Crested have determined to vote their RMG Shares in favor of the Plan of Share Exchange subject to the terms and conditions of this Agreement, and to support the offer of Enterra by making indemnities, representations and warranties to Enterra respecting RMG; and

 

	G.  	Enterra has paid an earnest money deposit in the amount of $500,000 (the “Deposit”) to USE, which is being held by USE in a segregated escrow account.

 

NOW THEREFORE IN CONSIDERATION of the mutual covenants hereinafter set out, the parties hereby agree as follows.

 

ARTICLE 1   THE OFFER

 

	1.1  	General.

 

1.1.1  Subject to the terms and conditions set forth in this Agreement (including those set out in Schedule “A” hereto), Enterra offers to purchase all of the RMG Shares, on a fully diluted basis, for total aggregate consideration of $20,000,000. (The foregoing offer, as amended from time to time as permitted under this Agreement, is hereinafter referred to as the “Offer”.) RMG agrees to call a meeting of the Shareholders (the “Meeting”) to consider approval of the Offer and Share Exchange Plan, and to prepare and send to the Shareholders a proxy statement (the “Circular”), recommending approval of the Share Exchange Plan. Enterra agrees to cooperate with RMG to provide all information respecting Enterra required for the Circular. The Offer will be deemed made as of the date the Circular is sent to the Shareholders.

 

1.1.2  Subject to Section 1.1.6, the consideration payable for the RMG Shares shall be the issuance of 736,842 exchangeable shares (the “Exchangeable Shares”) at a stated value of $19.00 per Exchangeable Share and payment of cash in the amount of $6,000,002 (including the Deposit). Provided, that if, before or as of the date of completion of the Share Exchange Plan, all of the overriding royalty interests held by the secured lenders of outstanding debt owed by RMG I, LLC (approximately $3.539 million) are not purchased by USE for $266,000 and immediately completely extinguished, the cash consideration to be paid to the Shareholders shall be reduced by $266,000, pro rata for each Shareholder, which $266,000 (for purposes of this Section 1.1.2) is the agreed value of the overriding royalty interests. If the purchase price for all the interests is more than $266,000, Enterra shall pay the excess and shall not be entitled to a credit under this Agreement. If all or less than all the interests are purchased, for less than $266,000, then USE shall pay that amount and the difference between the amount paid and $266,000 shall be deducted, pro rata, from the cash consideration to be paid by Enterra to the Shareholders.

 

	 
	 	2	 
	

	 

1.1.3  The form of documents for such extinguishment shall be subject to the prior approval of Enterra. USE shall be solely responsible for payment to the holders of the overriding royalty interests, and for recording their extinguishments.

 

1.1.4  Each Exchangeable Share shall be exchanged automatically on the first anniversary of the Effective Date (as hereinafter defined) for one trust unit (a “Trust Unit”) of Enterra. 

 

1.1.5  If the Share Exchange Plan is approved, each Shareholder who does not perfect his or her rights under Wyoming law to dissent from the Share Exchange Plan shall receive the allocation of consideration between Exchangeable Shares and cash as set out on Exhibit 1 to Schedule “A,” to be provided to Enterra prior to the completion of the Share Exchange Plan. Each Shareholder’s right to receive the consideration shall be conditioned on Enterra’s receipt of his or her certificate(s) for the RMG Shares, with the Shareholder’s signature Medallion guaranteed. The aggregate amount of consideration was determined by approximately two-thirds of the consideration payable in Exchangeable Shares and approximately one-third in cash, adjusted as necessary for the receipt by each Shareholder of a whole number of Exchangeable Shares after aggregating all of the shareholdings of each Shareholder. 

 

1.1.6  The parties hereto understand that as a trust, Enterra cannot issue shares and agree that the Exchangeable Shares shall be issued by one or more direct or indirect wholly owned subsidiaries, or any combination thereof (which, for the purposes hereof, may include a partnership, all of the partners of which are direct or indirect subsidiaries of Enterra), and, the parties further agree that all or any part of the cash component of the consideration may be provided by parties other than Enterra. The term “Enterra” as used herein will include Enterra Energy Trust, the issuer(s) of the Exchangeable Shares and all parties providing the cash component of the consideration, but Enterra will continue to be liable to RMG for any default in the performance of any obligations hereunder by any such entity, as more fully provided in this Agreement.

 

1.1.7  If a more effective alternative from the aspect of taxation other than the issuance of Exchangeable Shares is mutually agreed upon by the Parties prior to the mailing of the Circular, the Parties may agree upon a substitute mechanism for the issuance and distribution to the Shareholders of 736,842 Trust Units at a stated value of $19.00 per Trust Unit on the first anniversary of the Effective Date.

 

1.1.8  The Offer will expire on the earlier of (i) the completion of the Share Exchange Plan; (ii) the termination of this Agreement, or (iii) June 30, 2005 (or, if any such date is not a business day, on the next following business day), provided that the Offer may be extended, at the sole discretion of Enterra, if any of the conditions thereto set forth in Schedule “A” hereto is not satisfied on the expiry date of the Offer. Subject to the satisfaction or waiver of the conditions set forth in Schedule “A” hereto, Enterra will, within seven (7) calendar days following the Meeting, take up and pay for all RMG Shares. Enterra will use its best efforts to consummate the Offer, subject only to satisfaction of the terms and conditions set forth in this Agreement (including those set out in Schedule “A”).

 

	 
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1.1.9  Subject to completion of the Share Exchange Plan, it is agreed that payment of all of RMG’s general and administrative expenses up to the date of completion of the Share Exchange Plan (the date when Enterra pays for the RMG Shares) shall be the sole responsibility of USE. Payment of such expenses thereafter shall be the responsibility of RMG, or otherwise governed by the Transition Services Agreement. Subject to completion of the Share Exchange Plan, it is agreed that all other expenses of RMG (including, without limitation, lease operating and field expenses), beginning April 1, 2005, shall the sole responsibility of RMG.

 

1.1.10  Enterra expressly reserves the right to amend, extend, vary or waive any term or condition of the Offer, except that, without the prior written consent of RMG, Enterra will not: (i) reduce the consideration payable by Enterra pursuant to the Offer, as provided for herein; (ii) change the form of consideration payable under the Offer; or (iii) add to, amend or change any of the terms of the Offer in any manner adverse to the Shareholders (it being understood that an extension of the Offer or waiver of any condition thereto will not be considered to be a change adverse to the Shareholders). Enterra agrees to provide RMG with not less than two days prior written notice of any waiver or amendment of any term or condition of the Offer.

 

	1.2  	RMG Approval of the Offer and Share Exchange Plan

 

RMG hereby represents that its board of directors has determined unanimously (i) that the Offer and the Share Exchange Plan is fair to the Shareholders and is in the best interests of RMG and the Shareholders; (ii) the board of directors will unanimously recommend approval of the Share Exchange Plan by the Shareholders subject to Section 1.3, and (iii) the RMG officers and directors will vote their RMG Shares in favor of the Share Exchange Plan, provided that the Offer is not amended except in accordance with the terms of this Agreement. Such recommendation (and agreement by the RMG officers and directors to so vote) will be stated in the Circular.

 

	1.3  	RMG Covenants.

 

1.3.1  Subject to the fiduciary obligations of its board of directors, RMG hereby covenants to cooperate with Enterra and to take all reasonable action to support the Offer and ensure that the Share Exchange Plan is accepted by the Shareholders.

 

1.3.2  As soon as practicable following the date hereof and in any event prior to the completion of the Share Exchange Plan, RMG will cause to be delivered to Enterra a list (in paper and electronic form, if available) as Exhibit 1 to Schedule A, made up to a date as of completion of the Share Exchange Plan, setting out the registered names of the Shareholders, their municipalities of residence, and the number of RMG Shares held by each. RMG will immediately give written notice to Enterra if RMG Shares are issued between February 22, 2005 and the completion of the Share Exchange Plan to Shareholder(s) resident in a state where no Shareholders were resident on February 22, 2005. RMG will also make such of its executive officers available for meetings with Shareholders as Enterra may reasonably request.

 

1.3.3  RMG will, on a confidential basis, provide Enterra with a draft copy of the Circular (and any amendments thereto), prior to the mailing thereof and will provide Enterra 

 

	 
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with a reasonable opportunity to review and provide comments thereon. The Circular will set forth (among other things) the recommendation of the board of directors referred to in Paragraph 1.2(i) hereof and the agreement of the directors and officers referred to in Paragraph 1.2(ii) hereof. It is understood that the content of the Circular will be determined by the board of directors of RMG, acting reasonably, provided that such Circular will not contain any information or statements inconsistent with matters that are specifically addressed or provided for in this Agreement, and provided further that the information about Enterra which is contained in the Circular (as such information is approved by Enterra after review) will be the responsibility of Enterra as to its accuracy and completeness.

 

	1.4  	Enterra Cooperation.

 

1.4.1  Enterra hereby covenants to cooperate with RMG and to take all reasonable action to support the Meeting and ensure that the Share Exchange Plan is accepted by the Shareholders.

 

1.4.2  Enterra will make such of its executive officers available for meetings with Shareholders as RMG may reasonably request.

 

1.4.3  Enterra will provide RMG with all information concerning Enterra that is required or reasonably desired to be provided in the Circular.

 

	1.5  	Public Disclosure.

 

The parties will consult each other with respect to any public disclosures respecting this Agreement, the Offer and any matter related thereto prior to making any public disclosure.

 

	1.6  	Outstanding RMG Share Rights.

 

Prior to completion of the Share Exchange Plan, all of the RMG Share Rights shall have been terminated. 

 

	1.7  	Outstanding Geddes Loan and Geddes Conversion Option.

 

Prior to or simultaneously with the completion of the Share Exchange Plan, USE shall have obtained the agreement of Geddes and Company that the collateral security for the Geddes Loan consisting of 4,000,000 RMG Shares held by USE and security in RMG’s interests in the Castle Rock area mineral leases shall be released and the Geddes Conversion Option shall have been either terminated or exercised in full or in part for additional RMG Shares (and if in part, the balance shall have been terminated), which additional shares (if any) will be issued and outstanding as of the date the Circular is sent to the Shareholders. 

 

	1.8  	No Registration of the Exchangeable Shares or the Underlying Trust Units.

 

RMG, USE and Crested acknowledge and agree that (i) neither the issuance of the Exchangeable Shares nor the underlying Trust Units into which the Exchangeable Shares may be exchanged have been or will be registered under the U.S. Securities Act or the securities laws of any state of the United States (and resale of the Trust Units by the Shareholders will not be so 

 

	 
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registered, unless Enterra ceases to be listed on the Toronto Stock Exchange, as provided in Section 5.2) ; (ii) neither the Exchangeable Shares nor the underlying Trust Units into which the Exchangeable Shares may be exchanged may be offered or sold in the United States without registration under the U.S. Securities Act or compliance with requirements of an exemption from registration under the U.S. Securities Act and all applicable state laws, and (iii) Enterra is not obligated to file and has no present intention of filing with the U.S. Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resale of the Common Shares in the United States. 

 

ARTICLE 2   COVENANTS OF RMG

 

	2.1  	Ordinary Course of Business.

 

RMG covenants and agrees that, prior to completion of the Share Exchange Plan, or the termination of this Agreement pursuant to its terms, unless Enterra otherwise agrees in writing or as otherwise expressly contemplated or permitted by this Agreement:

 

2.1.1  RMG will not, directly or indirectly, do or permit to occur any of the following:

 

(a)  pledge, lease, dispose of or encumber, or agree to pledge, lease, dispose of or encumber;

 

(b)  except in the usual, ordinary and regular course of business and consistent with past practice, any assets of RMG, except for the disposition of its equity holdings in Pinnacle Gas Resources Inc.;

 

(c)  amend or propose to amend its articles or by laws;

 

(d)  split, combine or reclassify any outstanding RMG Shares, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to the RMG Shares;

 

(e)  reorganize or merge RMG with any other person, corporation, partnership or other business organization whatsoever; or

 

(f)  incur or commit to incur any indebtedness for borrowed money or issue any debt securities except for the borrowing of working capital in the ordinary course of business and consistent with past practice other than renewals of existing credit facilities;

 

2.1.2  RMG shall promptly notify Enterra in writing of:

 

(a)  any material change (actual, anticipated, contemplated or, to the knowledge of RMG, threatened, financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of RMG and its subsidiaries considered as a whole; or

 

	 
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(b)  any change in any representation or warranty set forth in Schedule B which change is or may be of such a nature as to render any such representation or warranty misleading or untrue in a material respect.

 

RMG shall in good faith discuss with Enterra any change in circumstances (actual, anticipated, contemplated or, to the knowledge of RMG, threatened, financial or otherwise) which is of such a nature that there may be a reasonable question as to whether notice need to be given to Enterra pursuant to this Section 2.1.2.

 

2.1.3  RMG will not (otherwise than as may be contemplated in this Section 2.1:

 

(a)  enter into any employment, severance or similar agreement, policy or arrangement with, or grant any bonuses, salary increases, severance or termination pay to or make any loan to, any officers or directors of RMG; or

 

(b)  hire any employees.

 

2.1.4  RMG will use reasonable commercial efforts to cause its current insurance (or re insurance) policies not to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re insurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

 

2.1.5  RMG will:

 

(a)  use reasonable commercial efforts to preserve intact their respective business organizations and goodwill, to keep available the services of its officers and consultants as a group and to maintain satisfactory relationships with suppliers, agents, distributors, customers and others having business relationships with it; and

 

(b)  not take any action that would render, or that reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue in any material respect at any time prior to the Effective Date;

 

2.1.6  RMG will not enter into or modify in any material respect any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 2.1.

 

	2.2  	Non-Solicitation.

 

2.2.1  RMG shall not, directly or indirectly, through any officer, director, employee, representative or agent of RMG: (i) solicit, initiate or encourage (including, without limitation, by way of furnishing information or entering into any form of agreement, arrangement or understanding) any inquiries or proposals regarding any merger, amalgamation, take over bid, sale of substantial assets, sale of treasury shares or any similar transaction or transactions involving RMG (any of the foregoing inquiries or proposals being referred to herein as an “Acquisition Proposal”); or (ii) provide any confidential information to, participate in any 

 

	 
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discussions or negotiations relating to any such transactions with, or otherwise cooperate with or assist or participate in any effort to take such action by, any corporation, person or other entity or group; provided, however, that nothing contained in this Section 2.2 or other provision of this Agreement shall prevent the board of directors of RMG from considering, negotiating, approving and recommending to the Shareholders an unsolicited, bona fide, written Acquisition Proposal for which adequate financial arrangements have been made, that the board of directors of RMG determines in good faith (after consultation with its financial advisors, and after receiving a written opinion of outside counsel, or advice of outside counsel that is reflected in the minutes of the board of directors of RMG, to the effect that the board of directors is required to do so in order to discharge properly its fiduciary duties to RMG) would, if consummated in accordance with its terms, result in a transaction financially superior for the Shareholders than the transaction contemplated by this Agreement (any such Acquisition Proposal being referred to herein as a “Superior Proposal”).

 

2.2.2  RMG previously has been approached by Silverado Exploration regarding a proposed purchase by Silverado Exploration of interests in RMG’s Castle Rock and Oyster Ridge properties. RMG shall not discuss such proposed purchase with Silverado Exploration without prior consultation with and approval by Enterra, unless this Agreement is terminated.

 

2.2.3  In the event that any Acquisition Proposal is for consideration other than all cash, then the value of that Superior Proposal shall be as determined by agreement by the financial advisors to Enterra and RMG, or failing such agreement, the value of the Superior Proposal shall be determined by the financial advisors to RMG alone.

 

2.2.4  RMG will, and will direct and use its best efforts to cause its officers, directors, consultants, representatives and agents to, immediately cease and cause to be terminated any existing discussions or negotiations with any parties (other than Enterra) with respect to any potential Acquisition Proposal. Subject to Section 2.2.5 below, RMG will immediately close any data rooms that may be open. RMG agrees not to release any third party from any confidentiality or standstill agreement to which RMG and such third party are a party. RMG will immediately request the return or destruction of all information provided to any third parties who have entered into a confidentiality agreement with RMG relating to a potential Acquisition Proposal and will use its best efforts to ensure that such requests are honored.

 

2.2.5  RMG will immediately notify Enterra of any future Acquisition Proposal or any request for non public information relating to RMG or for access to the properties, books or records of RMG by any person or entity that informs any member of the board of directors of RMG that it is considering making, or has made, an Acquisition Proposal. Such notice to Enterra will be made, from time to time, orally and in writing and will indicate such details of the proposal, inquiry or contact as Enterra may reasonably request including the identity of the person making such proposal, inquiry or contact.

 

2.2.6  RMG will not make available, after the date hereof, any material non public information to any party in connection with any potential or actual Acquisition Proposal. Notwithstanding the foregoing sentence of this Paragraph 2.2.6, in the event that the board of directors of RMG receives a request for material non public information from a party who proposes to RMG a bona fide Acquisition Proposal and the board of directors of RMG 

 

	 
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determines in good faith that such proposal is a Superior Proposal as contemplated by Section 2.2.1, then, and only in such case, RMG may, subject to the execution of a confidentiality agreement substantially similar to that then in effect between RMG and Enterra, provide such party with access to information regarding RMG. RMG agrees to send a copy of any such confidentiality agreement to Enterra immediately upon its execution.

 

2.2.7  RMG will ensure that the officers, directors and employees of RMG and any investment bankers or other advisors or representatives retained by RMG are aware of the provisions of this Section 2.2, and RMG will be responsible for any breach of this Section 2.2 by such bankers, advisors or representatives.

 

	2.3  	Access to Information.

 

Subject to the existing Confidentiality Agreement between RMG and Enterra, dated January 6, 2005 and the provisions of existing confidentiality agreements between RMG and third parties restricting RMG from disclosing the existence of discussions or negotiations between RMG and such third parties occurring prior to the date hereof, upon reasonable notice RMG will afford Enterra’s officers, employees, counsel, accountants and other authorized representatives and advisors (“Representatives”) access, at all reasonable times from the date hereof and until the termination of this Agreement, to its properties, books, contracts and records as well as to its management personnel, employees and agents or advisors, and, during such period, RMG will furnish promptly to Enterra all information concerning its business, properties and personnel as Enterra may request and Enterra will hold in confidence all such information on the terms and subject to the conditions contained in the existing Confidentiality Agreement between RMG and Enterra. 

 

	2.4  	Structure of Transaction.

 

RMG will cooperate with Enterra in structuring the acquisition by Enterra of RMG in a tax efficient manner, provided that no such cooperation will be required where such structuring will have an adverse effect on RMG or the existing Shareholders of RMG or cause any breach of or default under this Agreement by RMG.

 

ARTICLE 3   DUE DILIGENCE/MATERIAL TITLE DEFECTS

 

	3.1  	Due Diligence.

 

Subject to Enterra receiving the access to information contemplated by Section 2.3, Enterra will have until April 15, 2005 to complete a due diligence review of RMG’s assets, business, operations, title documents, financial records, corporate records, wells and facilities, and Enterra’s obligation to complete the Share Exchange Plan is conditional upon the due diligence review being satisfactory to Enterra in all material respects, under the procedures of Sections 3.2 and 3.3. 

 

	3.2  	Deficiencies.

 

On or before April 15, 2005 Enterra shall give written notice to RMG of any material deficiencies (“Due Diligence Deficiencies”) identified in the due diligence review, the non-

 

	 
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satisfaction of which would cause Enterra to terminate this Agreement and not complete the Share Purchase Plan. “Materiality” in this Section shall be construed in the context of RMG’s business and assets. However, resolution as between Enterra and RMG of material defects in RMGs title to assets (“Material Title Defects” as defined in Section 3.3.2 below), where the Material Title Defects are not cured by April 30, 2005 under Section 3.3.1, shall be subject to Section 3.3.2. 

 

	3.3  	Time to Satisfy.

 

3.3.1  RMG shall have until April 30, 2005 to satisfy any Due Diligence Deficiencies for which it has received written notice from Enterra pursuant to Section 3.2 to the satisfaction of Enterra, acting reasonably. The April 30, 2005 deadline may be extended by agreement of the parties, it being understood that satisfaction of a deficiency could require more time (for examples, difficulty in obtaining signature of lessors in an instance of title failure, or a delay in confirmation or amendment of a permit due to backlogs at a regulatory agency).

 

3.3.2  If any of the information or materials supplied by RMG relating to RMG’s title to mineral properties pursuant to Section 3.1, reflects the existence of any encumbrance, encroachment, defect in or objection to title that renders title to the properties defective or encumbered, and not cured by April 30, 2005 (subject to mutual extension of time), which defect in or objection to title makes such title unmarketable in accordance with accepted industry standards (“Material Title Defects”), then:

 

(a)  Enterra shall notify RMG in writing of the Material Title Defects as they are identified, providing RMG with adequate information to enable RMG to go forward with curing the Material Title Defects. RMG then shall furnish to Enterra all documentation reasonably satisfying the Material Title Defects.

 

(b)  If RMG is unable to cure the Material Title Defects before completion of the Share Exchange Plan, Enterra shall have the option to: (A) accept the properties as being owned by RMG, with the Material Title Defects, and adjust the consideration to be paid to the RMG Shareholders in an amount to be agreed upon between RMG and Enterra; (B) accept the properties as being owned by RMG, with the Material Title Defects, and go forward to resolve the Material Title Defects after completion of the Share Exchange Plan pursuant to (iii) below; or (C) terminate this Agreement and receive a refund of the Deposit from USE, provided that for purposes of (A), the aggregate value of the Material Title Defects must exceed 5% of the aggregate consideration set out in Section 1.1.1 before any adjustment will be made; and provided further, that for purposes of (C), the aggregate value of the Material Title Defects must exceed 10% of such aggregate consideration before Enterra will have the right to terminate this Agreement.

 

(c)  If RMG is unable to cure the Material Title Defects before completion of the Share Exchange Plan, Enterra may elect to accept the properties as being owned by RMG, with the Material Title Defects, and the former officers of RMG shall continue to work with Enterra to resolve such Defects. USE shall hold in reserve (from its portion of the Share Exchange Plan consideration) cash and Exchangeable Shares sufficient to pay back to Enterra an amount equal to the value (agreed to by RMG and Enterra) of the mineral properties 

 

	 
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in question, and shall pay that amount to Enterra (one-third in cash and two-thirds in Exchangeable Shares), if the Material Title Defects are not resolved to Enterra’s reasonable satisfaction on or before six months after completion of the Share Exchange Plan. Provided, that the amount which USE may be obligated to pay Enterra shall not exceed $1,000,000 in aggregate amount, under any circumstances. Enterra’s ‘reasonable satisfaction’ shall (a) be construed in accordance with industry title standards as applied to the coalbed methane business, and (b) not be unreasonably withheld.

 

(d)  Enterra shall give written notice to USE of all payments due from USE under subsection (c) before that six months date; and upon receipt by Enterra of full payment therefore, thereafter, no payments shall be due from USE, and all Material Title Defects then outstanding shall be deemed waived by Enterra as of that six months date. For clarity, the parties understand that if the Share Exchange Plan is completed (which for all purposes of this Agreement shall be defined to be the date when Articles of Share Exchange are filed with the Wyoming Secretary of State (which filing is to be made as soon as possible after Enterra pays for the RMG Shares), then, by way of example only, if that filing is made on May 15, 2005, then the six months date would be as of the close of business on November 15, 2005.

 

(e)  Material Title Defects which become subject to (b) or (c) above shall not be deemed to be breaches of the representations and warranties in paragraph 12 of Schedule B

 

ARTICLE 4   COVENANTS OF USE

 

	4.1  	Covenants of RMG.

 

USE, as the major and controlling Shareholder and the provider of personnel to RMG, shall cause RMG to perform and comply with its covenants and agreements set out herein.

 

	4.2  	Transition Period.

 

Subject to the completion of the Share Exchange Plan, Enterra and USE shall enter into a Transition Agreement in the form attached as Schedule “E” hereto.

 

	4.3  	Indemnity Respecting Legal Actions.

 

Subject to the completion of the Share Exchange Plan, USE agrees to indemnify and save harmless RMG and Enterra, their respective officers, directors, employees, agents, shareholders and unitholders, from and against any and all legal actions, suits and claims of whatever nature by any third party respecting RMG or its operations and affairs arising prior to February 22, 2005; any judgments, settlements, or demands arising therefrom, and all expenses, costs and fees, including without limitation legal fees, pertaining thereto. 

 

	4.4  	Indemnity Agreement.

 

Subject to the completion of the Share Exchange Plan, USE and Enterra shall enter into an indemnification agreement in the form attached as Schedule “E” hereto.

 

	 
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	4.5  	Payment of ‘Fair Value’ of RMG Shares Held by Dissenters.

 

Subject to completion of the Share Exchange Plan, USE shall pay to those Shareholders who perfect their rights as dissenters under Wyoming law the ‘fair value’ of their RMG Shares. Enterra shall not be responsible for any of such payments. The rights of Shareholders who wish to dissent from the Share Exchange Plan shall be set forth in the Circular.

 

ARTICLE 5   COVENANTS OF ENTERRA

 

	5.1  	Transition Period.

 

Subject to the completion of the Share Exchange Plan, Enterra and USE shall enter into a Transition Agreement in the form attached as Schedule “E” hereto.

 

	5.2  	Rule 904 Cooperation.

 

Following completion of the Share Exchange Plan, Enterra shall cooperate in providing, promptly, documents and/or approval of submissions related to sale of the Trust Units on the Toronto Stock Exchange under SEC rule 904. 

 

	5.3  	Maintenance of Toronto Stock Exchange Listing; Covenant to Register Resale on Nasdaq in the Event of Delisting.

 

For at least 24 months after issuance of the trust units, Enterra shall maintain its listing on the Toronto Stock Exchange. If Enterra is delisted from the Toronto Stock Exchange, for any reason, before the end of the 21st month after issuance of the Trust Units, Enterra shall (i) give notice thereof to the shareholders; and (ii) at Enterra’s sole expense, promptly file a registration statement with the sec and use its best efforts to have it declared effective as soon as possible, and make appropriate filings with state securities administrators, and keep those registrations in effect, until the sooner to occur of (i) all the Trust Units having been sold by the shareholders; (ii) at such time as all Trust Units held by a holder can be sold in a three month period pursuant to Rule 144; or (iii) the second anniversary of the original issue date of the Trust Units, in order to permit the public sale of the Trust Units on the Nasdaq National Market.

 

	ARTICLE 6   	REPRESENTATIONS AND WARRANTIES OF RMG, USE AND CRESTED

 

	6.1  	Representations.

 

Each of RMG, USE and Crested, on a joint and several basis, hereby represents and warrants to Enterra as set forth in Schedule “B” to this Agreement and acknowledges that Enterra is relying upon those representations and warranties in connection with the execution and delivery of this Agreement and the making of the Offer. These representations and warranties shall survive completion of the Share Exchange Plan for a period of two years. 

 

	 
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	6.2  	Investigations.

 

Any investigation by Enterra and its advisors shall not mitigate, diminish or affect the representations and warranties of RMG, USE and Crested provided pursuant to this Agreement, except as those representations and warranties may be modified as a result of proper notice and cure under Article III. Where the provisions of Schedule “B” or elsewhere in this Agreement refer to disclosure in writing, such disclosure shall either be stated in this Agreement or be made expressly in response to the applicable provision (which shall be prominently identified) and shall be signed by a senior officer of RMG. 

 

ARTICLE 7   REPRESENTATIONS AND WARRANTIES OF ENTERRA

 

	7.1  	Representations.

 

Enterra hereby represents and warrants to each of RMG, USE and Crested as provided in Schedule “C” to this Agreement (and acknowledges that RMG, USE and Crested are relying upon such representations and warranties in connection with the execution and delivery of this Agreement). These representations and warranties shall survive completion of the Share Exchange Plan for a period of two years (except the representation and warranty contained in the last sentence of number 5, which shall terminate on the thirtieth day after such completion).

 

ARTICLE 8   MUTUAL COVENANTS

 

	8.1  	Consultation.

 

Subject to applicable securities laws and stock exchange rules, Enterra and RMG agree to consult with each other in issuing any press releases or otherwise making public statements with respect to the Share Exchange Plan or any other Acquisition Proposal and in making any filings with any federal, provincial, governmental or regulatory agency or with any securities exchange with respect thereto. Each party will use its best efforts to enable the other party to review and consent to all such press releases prior to release thereof.

 

	8.2  	Further Assurance.

 

Subject to the terms and conditions herein, Enterra and RMG agree to use their respective commercially reasonable efforts to take, or cause to be taken, all acts and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, to consummate the transactions contemplated by this Agreement and the Share Exchange Plan., including the filing of Articles of Share Exchange with the Wyoming Secretary of State (promptly after completion of the Share Exchange Plan and payment to the Shareholders of the Exchangeable Shares and the cash) as required under Wyoming law RMG and Enterra will, and will cause each of their respective Subsidiaries to, use their commercially reasonable efforts to: (i) obtain all necessary waivers, consents and approvals from other parties to material loan agreements, leases and other contracts or agreements (including, in particular but without limitation, the agreement of any persons as may be required pursuant to any agreement, arrangement or understanding relating to RMG’s operations); (ii) obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, provincial or foreign law or regulations with respect to this Agreement or the Share Exchange Plan; (iii) lift or 

 

	 
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rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby or by the Share Exchange Plan; and (iv) fulfill all conditions and satisfy all provisions of this Agreement and the Share Exchange Plan .

 

ARTICLE 9   TERMINATION FEES AND THE DEPOSIT

 

	9.1  	Termination Fees and the Deposit.

 

9.1.1  If at any time after the execution of this Agreement, RMG has complied with all representations, conditions and covenants of RMG contained herein, any Due Diligence Deficiencies of which RMG has been given notice in accordance with Section 3.2 have been satisfied to the satisfaction of Enterra, acting reasonably, by April 30, 2005 (subject to extension by agreement of the parties), and all conditions precedent for the benefit of Enterra have been either satisfied or waived, and 

 

(a)  Enterra fails to take up and pay for the RMG Shares within 7 calendar days of the Meeting at which the Share Exchange Plan is approved, then Enterra shall pay to RMG $500,000 in immediately available funds to an account designated by RMG, within two business days after the first to occur of the events described above, and the Deposit shall become non-refundable to Enterra and may be transferred from the escrow account to any general account of USE together with any interest accrued thereon.

 

9.1.2  If at any time after the execution of this Agreement, Enterra has complied with all representations, conditions and covenants of Enterra contained herein (except to take up and pay for the RMG Shares), any Due Diligence Deficiencies of which RMG has been given notice in accordance with Section 3.2 have been satisfied to the satisfaction of Enterra, acting reasonably, by April 15, 2005, and all conditions precedent for the benefit of RMG have been either satisfied or waived, and:

 

(a)  RMG fails to hold the Meeting by June 23, 2005 (unless the failure is due to not sending the Circular to Shareholders at least 10 days before the RMG meeting of Shareholders, owing to delays in Enterra delivering information to RMG which is required to be in the Circular); or 

 

(b)  the Shareholders fail to approve the Share Exchange Plan; or

 

(c)  RMG fails to fully comply with or breaches any of its representations, warranties or covenants made in this Agreement in any material respect, including, without limitation, the representations and covenants in Articles IV and VI (but not as to Material Title Defects which Enterra has elected to resolve under the provisions of Section 3.3.2(b) or (c)) then RMG shall pay to Enterra $500,000 in immediately available funds to an account designated by Enterra, and USE shall refund to Enterra the Deposit together with any interest accrued thereon, within two business days after the first to occur of the events described above.

 

9.1.3  If at any time after the execution of this Agreement, both RMG and Enterra have complied with all representations, conditions and covenants of each contained 

 

	 
	 	14	 
	

	 

herein (except of Enterra to take up and pay for the RMG Shares), but all Due Diligence Deficiencies of which RMG has been given notice in accordance with Section 3.2 have not been satisfied to the satisfaction of Enterra, acting reasonably, by April 15, 2005 and Enterra terminates this Agreement as a consequence thereof, no termination fee shall be payable by either Enterra or RMG to the other, but USE shall refund to Enterra the Deposit together with any interest accrued thereon, within two business days after receipt of Enterra’s notice to terminate.

 

9.1.4  If the Share Exchange Plan is completed, the Deposit together with all interest accrued thereon shall form part of the cash component of the consideration payable to USE for its RMG Shares.

 

ARTICLE 10   TERMINATION

 

	10.1  	Termination.

 

This Agreement may be terminated at any time prior to the date on which Enterra takes up and pays for the RMG Shares:

 

10.1.1  by mutual written consent of the parties;

 

10.1.2  by Enterra if (i) the Meeting has not been held by June 23, 2005 (subject to Section 9.1.2(a)); (ii) the Share Exchange Plan is not approved by the Shareholders at the Meeting; (iii) subject to Section 4.5, the number of RMG Shares for which dissent rights under Wyoming law have been exercised are not satisfactory to Enterra in its sole discretion; or (iv) any Due Diligence Deficiencies of which RMG has been given notice pursuant to Section 3.2 have not been satisfied to the satisfaction of Enterra, acting reasonably, by April 15, 2005, subject to extension by agreement of the parties (but this clause (iii) shall not apply as to Material Title Defects which Enterra has elected to resolve under the provisions of Section 3.3.2(b) or (c));

 

10.1.3  by RMG, USE or Crested if Enterra is in material breach of any of its material covenants, agreements or representations or warranties contained in this Agreement; or by Enterra if any of RMG, USE or Crested is in material breach of any of its respective material covenants, agreements or representations or warranties contained in this Agreement; or

 

10.1.4  by Enterra if any of the conditions set forth in Section 1.3 hereof are not satisfied prior to the date specified therein.

 

In the event of the termination of this Agreement as provided in this Section 10.1: (i) this Agreement shall forthwith become void and there shall be no liability on the part of Enterra, RMG, USE or Crested hereunder except with respect to the obligations set forth in Section 9.1, as applicable, for refund of the Deposit and/or payment of a termination fee, which will survive such termination; (ii) if such termination occurs prior to the purchase of RMG Shares pursuant to the Offer, the Offer shall be terminated without any RMG Shares being purchased.; and (iii) the confidentiality agreements between the parties shall continue in effect. 

 

	 
	 	15	 
	

	 

ARTICLE 11   MISCELLANEOUS

 

	11.1  	Amendment or Waiver.

 

This Agreement may be amended, modified or superseded, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, but only by written instrument executed by Enterra , RMG, USE and Crested; provided, however, that either Enterra or RMG may in its discretion waive a condition herein which is solely for its benefit without the consent of the other parties. No waiver of any nature, in any one or more instances, will be deemed or construed as a further or continued waiver of any condition or any breach of any other term, representation or warranty in this Agreement.

 

	11.2  	Entire Agreement.

 

This Agreement and the documents referred to herein constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, arrangements or understandings with respect thereto, including without limitation the letter of intent among the parties dated February 22, 2005.

 

	11.3  	Headings.

 

The descriptive headings contained in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provision of this Agreement.

 

	11.4  	Notices.

 

All notices or other communications which are required or permitted hereunder shall be communicated confidentially and in writing and shall be sufficient if delivered personally or by overnight courier service, or sent by confidential facsimile (with confirmation of receipt) addressed as follows:

 

To Enterra              -    2600, 500 - 4th Avenue S.W.

Calgary, Alberta T2P 2V6

Attention: Marcia L. Johnston, Esq.

Facsimile: 403 265 1241

with a copy to          -    Dorsey & Whitney LLP

Attorneys at Law

1420 Fifth Avenue, Suite 3400

Seattle, Washington 98101

Attention: Kimberley Anderson, Esq.

Facsimile: 206-903-8820

	 
	 	16	 
	

	 

To RMG, USE and Crested:  -    877 N. 8th West

Riverton, Wyoming 82501

Attention: Steve R. Youngbauer, Esq.

Facsimile: 307-857-3050

with a copy to          -   Stephen E. Rounds, Esq.

Attorney at Law

1544 York Street, Suite 110

Denver, Colorado 80206

Facsimile: 303-377-0231

 

	11.5  	Counterparts.

 

This Agreement may be executed in any number of counterparts and each such counterpart will be deemed to be an original instrument and all such counterparts together shall constitute but one Agreement.

 

	11.6  	Expenses.

 

Each party shall be responsible for the payment of all legal, accounting and other fees incurred by it in connection with the transactions described herein. Enterra and RMG represent and warrant to each other that no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission, or to the reimbursement of any of its expenses, in connection with the transaction.

 

	11.7  	Assignment.

 

In accordance with Paragraph 1.1.6, Enterra may assign all or any part of its rights or obligations under this Agreement (i) relating to the issue of the Exchangeable Shares to one or more direct or indirect wholly owned subsidiaries of Enterra or any combination thereof (which may include a partnership all of the partners of which are direct or indirect subsidiaries of Enterra, Enterra or any combination thereof), and (ii) relating to all or part of the cash component of the consideration to third parties; but, if any such assignment(s) take place, Enterra will continue to be liable to the Shareholders for the full amount of any default in the performance of obligations hereunder by an assignee. In the event of such a default, Enterra’s liability to the Shareholders shall be absolute, unconditional, and immediate. RMG shall not be required to take any actions or give any notices in order for Enterra’s liability, in the event of such a default, to be absolute, unconditional and immediately due and payable to the Shareholders . This Agreement shall not otherwise be assignable by any party without the prior written consent of the other parties.

 

	11.8  	Severability.

 

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect and 

 

	 
	 	17	 
	

	 

will in no way be affected, impaired or invalidated and the parties will negotiate in good faith to modify the Agreement to preserve each party’s anticipated benefits under the Agreement.

 

	11.9  	Currency.

 

All dollar amounts in this Agreement are expressed in currency of the United States of America.

 

	ARTICLE 12   	REGARDING FUTURE DISPOSITION OF EQUITY HOLDINGS IN PINNACLE GAS RESOURCES, INC.

 

	12.1  	Disposition of Equity Holdings.

 

Before or as of the date of the completion of the Share Exchange Plan, RMG shall have disposed of all of its Equity Holdings in Pinnacle Gas Resources, Inc. (“Pinnacle”) by assignment of such Equity Holdings to USE. For purposes of this Article 12, “Equity Holdings” means (i) any and all shares, and warrants and other rights to acquire shares and other capital stock of Pinnacle; (ii) any and all liabilities, duties and obligations associated with such shares, warrants and other rights; and (iii) any and all other rights to participate in a distribution of Pinnacle assets (whether on liquidation, a sale of assets, or otherwise).

 

	12.2  	Payment Due on Disposition.

 

If at any time after completion of the Share Exchange Plan,

 

12.2.1  (a) Pinnacle’s shares are listed for trading on an exchange or Nasdaq, and the value of the Equity Holdings held by USE at any time thereafter equals at more than $12 million for 15 consecutive trading days (the “First Measurement Period),” computed on the basis of simple averaging of the closing prices for the Pinnacle stock during the Measurement Period, regardless of whether USE is subject to a lockup agreement for the Equity Holdings, then USE shall pay Enterra (on or before the 15th consecutive trading day following the First Measurement Period) $2 million, in cash, common stock of USE, a portion of the Equity Holdings then owned by USE, or a combination of cash and such USE stock and Equity Holdings, at USE’s sole election. If the value of the Equity Holdings is more than $10 million but less than $12 million for all the trading days in any 90 calendar period (the “Second Measurement Period”), computed on the basis of simple averaging of the closing prices for the Pinnacle stock during the Second Measurement Period, regardless of whether USE is subject to a lockup agreement for the Equity Holdings, then USE shall pay Enterra (on or before the 15th consecutive trading day following the Second Measurement Period) the difference between $12 million and the value of the Equity Holdings as so determined in the Second Measurement period, in cash, common stock of USE, a portion of the Equity Holdings then owned by USE, or a combination of cash and such USE stock and Equity Holdings, at USE’s sole election, and no further amount will be owed to Enterra under this Section 12.2.1. 

 

(b) A payment in USE common stock shall be valued at the average Nasdaq Official Close Price for USE stock for the 15 consecutive trading days following the Measurement Period. If paid in stock, such stock shall be restricted under rule 144 of the Securities Act of 1933, however, USE shall (i) as soon as practicable after issuance of the stock, 

 

	 
	 	18	 
	

	 

to Enterra, file with the SEC, for the benefit of Enterra, a resale registration statement for the public sale of such stock; (ii) use its best efforts to have that registration statement declared effective by the SEC as soon as practicable; (iii) if necessary, qualify the public sale of such stock under the securities laws of one state of Enterra’s choice; and (iv) keep that registration statement effective under the Securities Act of 1933 (and the laws of the one state, if necessary) for a period of 12 months after being declared effective, all at USE’s sole expense. Any payment to Enterra with a portion of the Equity Holdings then held by USE shall be computed on the basis of simple averaging of the closing prices for the Pinnacle stock during the Measurement Period.

 

12.2.2  Pinnacle or Pinnacle’s assets is or are acquired by a third party, and USE receives at least $12 million for its Equity Holdings (regardless of how that amount is paid), then USE shall pay Enterra (on or before the 15th consecutive trading day after the closing of the sale of Pinnacle or Pinnacle’s assets), $2 million, in cash, common stock of USE, a portion of the securities received from the acquiror of Pinnacle or Pinnacle’s assets, or a combination of cash and such USE stock and securities of the acquiror, at USE’s sole election. The value of the acquiror’s securities received in the transaction shall be computed on the basis of simple averaging of the closing prices for the acquiror’s stock during the 15 consecutive trading days after closing of the sale of Pinnacle or Pinnacle’s assets, regardless of whether USE is subject to a lockup agreement for the acquiror’s securities. If the value of the consideration received by USE is more than $10 million but less than $12 million, the amount owed to Enterra shall be the amount in excess of $10 million. Section 12.2.1(b) shall apply if the payment to Enterra under this Section 12.2.2 is to be made in USE stock, After payment has been made under this Section 12.2.2, no further amount will be owed to Enterra under this Section 12.2.2. 

 

	12.3  	Application to Other Dispositions.

 

The parties agree that the foregoing obligation of USE to pay up to $2 million to Enterra also shall apply, using the same mechanisms as set forth in Section 12.2, if USE disposes of its Equity Holdings in Pinnacle by any means other than set forth in this Article 12. If the Equity Holdings are acquired for consideration including stock in a private company, the value of the that stock shall be determined by an independent qualified appraiser to be selected by agreement of Enterra and USE. 

 

	12.4  	No Limits on Disposition; No Payment Owed if Disposition is for Less than $10 Million.

 

The parties agree that nothing in this Article 12 shall operate to limit USE’s right to dispose of the Equity Holdings to a non-affiliated third party in any manner. The parties agree that if a disposition to a non-affiliated third party results in proceeds to USE of less than $10 million, USE shall not owe Enterra any amount under this Article 12. 

 

	  
	 	19	 
	

	 

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed on their behalf by their officers thereunto duly authorized on April __, 2005 and effective as of the date first written above.

 

	 	
ENTERRA ENERGY TRUST

by its Administrator,

ENTERRA ENERGY CORP.

 

 

 

Per:   /s/ Reg J. Greenslade

Reg J. Greenslade, President and CEO

	 	 
	
 

 

ATTEST:

 

 

By:   /s/ Daniel P. Svilar

Daniel P. Svilar, Secretary
	
 

 

ROCKY MOUNTAIN GAS, INC.

 

 

By:   /s/ March J. Larsen

Mark J. Larsen, President 

	 	 
	
 

 

 

ATTEST:

 

 

By:   /s/ Daniel P. Svilar

Daniel P. Svilar, Secretary
	
 

 

U.S. ENERGY CORP.

 

 

 

By:   /s/ Keith G. Larsen

Keith G. Larsen, President

	 	 
	
 

 

 

ATTEST:

 

 

By:   /s/ Daniel P. Svilar

Daniel P. Svilar, Secretary 
	
 

 

CRESTED CORP. 

 

 

 

By:   /s/ Harold F. Herron

Harold F. Herron, President

	 	 

 

	  
	 	20	 
	

	 

SCHEDULE “A”

 

CONDITIONS OF COMPLETION OF THE OFFER

 

Capitalized terms in the following conditions shall have the meanings ascribed to such terms in the Pre-Acquisition Agreement of which this Schedule “A” is attached and forms a part. Completion of the Offer shall by subject to the satisfaction of the following conditions:

 

	(1)  	Prior to the Effective Date and at the time Enterra shall first take up and pay for the RMG Shares under the Offer, the Share Exchange Plan shall have been approved by the Shareholders at the Meeting, and, subject to Section 4.5, the number of RMG Shares for which dissent rights have been exercised, if any, shall be satisfactory to Enterra in its sole discretion. 

 

	(2)  	All government and regulatory approvals, orders, rulings, exemptions and consents (including, without limitation, those of any stock exchanges or securities or other regulatory authorities) that are necessary or desirable shall have been obtained and shall be in full force and effect. Enterra shall have received evidence satisfactory to it that fewer than 35 of RMG shareholders do not satisfy the definition of "accredited investor" as defined in Rule 501(a) under the Securities Act of 1933, as amended, and that any such shareholders that are not “accredited investors” either alone or with his purchaser representative has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the Offer and the securities to be received in the Offer. 

 

	(3)  	No act, action, suit or proceeding shall have been threatened or taken before or by any domestic or foreign court or tribunal or governmental agency or other regulatory authority or administrative agency or commission by any elected or appointed public official or by any private person in the United States, Canada or elsewhere, whether or not having the force of law, and no law, regulation or policy shall have been proposed, enacted, promulgated or applied, whether or not having the force of law:

 

	(a)  	that has the effect or may have the effect to enjoin, prohibit or impose material limitations, damages or conditions on the purchase by, or the sale to, Enterra, of the RMG Shares or the right of Enterra to own or exercise full rights of ownership of the RMG Shares; or

 

	(b)  	that has had or may have a material adverse effect on RMG or Enterra and its subsidiaries considered on a consolidated basis.

 

	(4)  	There shall not exist any prohibition at law against Enterra making the Offer or taking up and paying for all of the Shares under the Share Exchange Plan. 

 

	(5)  	There shall not have occurred (and there shall not have been publicly disclosed, and Enterra shall not have otherwise learned of, if previously not publicly disclosed) any change (or any condition, event or development involving a prospective change) not publicly disclosed prior to the announcement of the Offer n the business, operations, assets, capitalization, financial condition, licenses, permits, rights, liabilities, prospects or privileges, whether contractual or otherwise, of RMG or any of its subsidiaries considered as a whole which, in the sole judgment of Enterra, acting reasonably, is materially adverse to the business of RMG or to the value of the RMG Shares to Enterra.

 

	 
	 	21	 
	

	 

	(6)  	There shall not have occurred any material breach by any RMG, USE, Crested or Enterra of any of the terms of the Pre Acquisition Agreement or any termination of the Pre Acquisition Agreement pursuant to the terms thereof.

 

	(7)  	The representations and warranties set out in the Pre-Acquisition Agreement shall be true in all material respects.

 

	(8)  	There shall not be any Due Diligence Deficiencies outstanding and unsatisfied.

 

	(9)  	The RMG Shares Rights and the Geddes Conversion Option shall not be outstanding. 

 

	(10)  	There shall be been no material changes to the financial condition of RMG as set out on the Financial Statements and the debt shall not exceed $3.539 million. 

 

	(11)  	Prior to the completion of the Share Exchange Plan, RMG shall have disposed of all of its equity holdings in Pinnacle Gas Resources, Inc. and any and all liabilities associated therewith.

 

The foregoing conditions that are for the exclusive benefit of Enterra or RMG, may be waived by Enterra or RMG, as applicable, in whole or in part at any time and from time to time, both before or after the Expiry Date.

 

	  
	 	22	 
	

	 

SCHEDULE “B”

 

REPRESENTATIONS AND WARRANTIES OF RMG, USE AND CRESTED

 

Capitalized terms in the following representations and warranties shall have the meanings ascribed to such terms in the Pre-Acquisition Agreement of which this Schedule “B” is attached and forms a part. 

 

	(1)  	Organization. RMG is an entity duly organized, validly existing and in good standing under the laws of the State of Wyoming, has full requisite power and authority to carry on its business as it is currently being conducted and to own, lease and operate the properties currently owned, leased and operated by it, and is duly registered to do business and is in good standing in each jurisdiction in which the character of its properties, owned or leased, or the nature of its activities make such registration necessary, except where the failure to be so registered or in good standing would not have a material adverse effect on RMG..

 

	(2)  	Material Subsidiaries and Secured Debt of RMG I, LLC. RMG has no material subsidiaries other than RMG I LLC, which is wholly owned by RMG and which holds the assets and liabilities acquired by RMG from Hi - Pro Production, LLC. RMG I, LLC owes approximately $3.539 million of secured debt. Upon completion of the Share Exchange Plan, Enterra will own RMG and its subsidiary RMG I, LLC, and that debt will continue to be outstanding. 

 

	(3)  	Capitalization. As of the date the Circular is sent to the Shareholders, there shall be no outstanding RMG Share Rights. As of the date Enterra takes up and pays for the RMG Shares, Geddes and Company shall have agreed to release the RMG Shares and the RMG properties which collateralize the Geddes Loan, and to have exercised or canceled the Geddes Conversion Option, such release, exercise or cancellation to be effective on the same date Enterra takes up and pays for the RMG Shares. RMG and USE shall provide the form of agreement for such release, exercise or cancellation for Enterra’s review and approval. The RMG Shares have been duly authorized and validly issued as fully paid and non assessable and are not and will not be subject to, and were not and will not be issued in violation of any pre emptive rights or other rights of any person. RMG will provide a certified list of the Shareholders and the number of RMG Shares owned by each, as of the date of the Offering Circular, and amend that list as necessary for any Shareholders who dissent. Except as described in this paragraph 3, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating RMG to issue or sell any shares in the capital of RMG or securities or obligations of any kind convertible into or exchangeable for any shares in the capital of RMG, or any other person, nor are there outstanding any stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or any other attribute of RMG.

 

	 
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	(4)  	Authority. Each of RMG, USE and Crested has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by RMG, USE and Crested and the consummation by RMG of the transactions contemplated by this Agreement have been duly authorized by the respective boards of directors of RMG (unanimously in the case of the RMG board of directors), and by USE and Crested, and no other corporate proceedings on the part of RMG (except for obtaining Shareholder approval for the Share Exchange Plan) are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of RMG, USE and Crested and constitutes a valid and binding obligation of each, enforceable against each in accordance with its terms subject to securities laws, bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws relating to or affecting creditors’ rights generally and to general principles of equity. The execution and delivery by RMG of this Agreement and performance by it of its obligations hereunder and the completion of the Share Exchange Plan and the transactions contemplated thereby, will not:

 

	(a)  	result in a violation or breach of, require any consent to be obtained under or give rise to any termination rights under any provision of:

 

	(i)  	its certificate of incorporation, articles, by laws or other charter documents, including any unanimous shareholder agreement or any other agreement;

 

	(ii)  	any law, regulation, order, judgment or decree; or

 

	(iii)  	any material contract, agreement, license, franchise or permit to which RMG is bound or is subject or is the beneficiary;

 

	(b)  	give rise to any right of termination or acceleration of indebtedness, or cause any indebtedness to come due before its stated maturity or cause any available credit to cease to be available (and RMG shall have obtained the consent of the secured lenders to RMG I, LLC to the Share Exchange Plan, if RMG determines, in consultation with Enterra, that obtaining that consent is necessary or appropriate); or

 

	(c)  	result in the imposition of any encumbrance, charge or lien upon any of its assets, or restrict, hinder, impair or limit the ability of RMG to carry on the business of RMG as and where it is now being carried on or as and where it may be carried on in the future.

 

	(5)  	Absence of Material Adverse Changes. Since December 31, 2004 there has not been any material adverse change in the financial conditions, results of operations or business of RMG.

 

	 
		25	
	

	 

	(6)  	No Undisclosed Material Liabilities. Except (a) as disclosed or reflected in the consolidated audited financial statements of RMG as at December 31, 2004; and (b) for liabilities and obligations (i) incurred in the ordinary course of business and consistent with past practice, (ii) pursuant to the terms of this Agreement, or (iii) as disclosed in writing to Enterra, RMG, taken as a whole, has not incurred any material liabilities of any nature, whether accrued, contingent or otherwise, or which would be required by generally accepted accounting principles in the United States to be reflected on a consolidated balance sheet of RMG as of the date hereof.

 

	(7)  	Financial Statements. The audited, consolidated financial statements of RMG for the fiscal year ended December 31, 2004, were prepared in accordance with generally accepted accounting principles in the United States consistently applied, and fairly present the consolidated financial condition of RMG at that date and the results of operations of RMG (on a consolidated basis) for the period covered.

 

	(8)  	Indebtedness. RMG’s consolidated indebtedness as of the date of this Agreement does not exceed $3.539 million.

 

	(9)  	Books and Records. The corporate records and minute books of RMG have been maintained in accordance with all applicable statutory requirements and prudent business practices and are complete and accurate in all material respects.

 

	(10)  	Litigation, etc. Except as set forth, or as disclosed in writing to Enterra prior to the date hereof, there is no claim, action, proceeding or investigation pending or, to the knowledge of RMG, threatened against or relating to RMG or affecting any of its properties or assets before any court or governmental or regulatory authority or body that, if adversely determined, is likely to have a material adverse effect on RMG or prevent or materially delay consummation of the transactions contemplated by this Agreement or the Share Exchange Plan, nor is RMG aware of any basis for any such claim, action, proceeding or investigation. RMG is not subject to any outstanding order, writ, injunction or decree that has had or is reasonably likely to have a material adverse effect or prevent or materially delay consummation of the transactions contemplated by this Agreement or the Share Exchange Plan. RMG has disclosed to Enterra recent developments in the Northern Plains Resource Council litigation involving coalbed methane drilling in Montana.

 

	(11)  	Environmental. Except as has been disclosed in writing to Enterra prior to the date hereof, RMG is not aware of, or has received:

 

	(a)  	any order or directive which relates to environmental matters, and which requires any material work, repairs, construction, or capital expenditures; or

 

	(b)  	any demand or notice with respect to the material breach of any environmental, health, or safety law applicable to RMG, including, without limitation, the Environmental Laws and any regulations respecting the use, storage, treatment, transportation, or disposition of environmental contaminants; or

 

	 
		26	
	

	 

	(c)  	any violation of any Environmental Laws applicable to RMG’s properties, or notice alleging such violation is pending or threatened against the RMG properties. 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.

 

	(12)  	Leases. To RMG’s best knowledge, all leases and other documents of title by which it holds its assets (collectively the “Leases”) are in full force and effect and are valid and subsisting documents, and all royalties, rentals and other payments due under the Leases have been fully, properly and timely paid. RMG will use its commercially reasonable efforts to take all action necessary to keep the Leases in full force and effect until completion of the Share Exchange Plan. RMG has not received a written notice of material default with respect to the Leases that remains uncured. This representation and warranty is subject to Article 3 of the Agreement.

 

	(13)  	Taxes and Royalties. All due and payable ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property or the production of natural gas or the receipt of proceeds therefrom on RMG’s interests in the Leases, which become due prior to the Closing Date for any periods prior to the Closing Date, have been properly paid. RMG has not received a written notice of default, non-payment of taxes or mispayment of taxes which remains uncured.

 

	(14)  	Special Warranty of Title. RMG represents, warrants and agrees that the Subject Properties are (or will be at Closing) free and clear of all of all liens, encumbrances, burdens and defects of title arising by, through or under RMG, but not otherwise.

 

	(15)  	Broker. RMG has incurred no obligation or liability, contingent or otherwise, for brokers’ or finders’ fees with respect for this transaction for which Enterra shall have any obligation or liability.

 

	 
		27	
	

	 

	(16)  	Tax Matters. 

 

	(a)  	The Affiliated Group has filed all Tax Returns that it was required to file under applicable laws and regulations for each taxable period during which RMG (or its predecessors) was a member of such Affiliated Group. RMG has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects and have been prepared in substantial compliance with all applicable laws and regulations. All material Taxes due and payable by RMG (whether or not shown on any Tax Return), except for sales or use Taxes reflected on the Closing Date Balance Sheet, have been paid. No claim has ever been made by an authority in a jurisdiction where RMG does not file Tax Returns that RMG is or may be subject to taxation by that jurisdiction. There are no security interests on any of the assets of RMG that arose in connection with any failure (or alleged failure) to pay any Tax. RMG has not been a member of an Affiliated Group (other than a group the common parent of which was USE) that has filed a “consolidated return” within the meaning of Code Section 1501, or has filed a combined or consolidated return with another entity with any other taxing authority.

 

	(b)  	Each member of the Affiliated Group has made all withholdings of Taxes required to be made in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party and such withholdings have either been paid to the appropriate governmental agency or set aside in appropriate accounts for such purpose.

 

	(c)  	There is no dispute or claim concerning any material Income Tax liability of the Affiliated Group for any taxable period during which RMG (or its predecessors) was a member of such Affiliated Group either (A) claimed or raised by any governmental tax authority in a writing or (B) as to which USE or any of its officers responsible for Tax matters has knowledge based upon personal contact with any agent of such tax authority. Neither USE nor any officer responsible for Tax matters of RMG expects any tax authority to assess any additional Taxes against RMG or for which RMG may be liable for any period for which returns have been filed. RMG is not currently under audit with respect to Taxes by any tax authority, and has not received any notice or other indication that any tax authority is considering assessing any additional Taxes for any period for which Tax Returns have been filed since inception of RMG. There is no dispute or claim concerning any Tax Liability of RMG either (A) claimed or raised by any tax authority in writing or (B) as to which RMG has knowledge based upon personal contact with any agent or representative of such tax authority. RMG has previously provided Enterra with a list of all material federal, state, local, and foreign income Tax returns filed with respect to RMG for taxable periods ended on or after the inception of RMG, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. RMG has delivered to Enterra true, correct and complete copies of all material federal and foreign income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by RMG.

 

	 
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	(d)  	No member of the Affiliated Group has waived any statute of limitations in respect of Income Taxes or agreed to any extension of time with respect to an Income Tax assessment or deficiency. RMG has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

	(e)  	RMG has not filed a consent under Code Section 341(f) concerning collapsible corporations. RMG is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code Section 280G (or any corresponding provision of state, local or foreign Tax law). RMG has not been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Each member of the Affiliated Group has disclosed on its federal Income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal Income Tax within the meaning of Code Section 6662. RMG (or its predecessors) (x) has not been a member of an Affiliated Group filing a consolidated federal Income Tax Return (other than a group the common parent of which was USE) and (y) has no liability for the Taxes of any Person (other than RMG and the Affiliated Group) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

 

	(f)  	The unpaid Taxes of RMG did not, as of the date of the Financial Statements, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Financial Statements (rather than in any notes thereto). Since the date of the current Financial Statements, RMG has not incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.

 

	(g)  	RMG will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A) change in method of accounting for a taxable period ending on or prior to the Closing Date; (B) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date; (C) intercompany transactions or any excess loss account described in Treasury Regulations promulgated under Code Section 1502 (or any corresponding or similar provision of state, local or foreign Tax law); (D) installment sale or open transaction disposition made on or prior to the Closing Date; or (E) prepaid amount received on or prior to the Closing Date.

 

	 
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	(h)  	Notwithstanding any provision to the contrary in this Agreement, with respect to the representations and warranties set forth in this Section 16: 

 

	(i)  	“Affiliated Group” shall mean a group of corporations which includes RMG and only for such period in which RMG is included in such group of corporations; 

 

	(ii)  	“Tax Returns” when such term is used with reference to Tax Returns required to be filed by the Affiliated Group, shall only include Tax Returns which report financial data of RMG, such as revenues and expenses, but such term shall not be so limited when referring to Tax Returns required to be filed by RMG; and

 

	(iii)  	“Tax” shall only include Taxes for which RMG is directly or indirectly liable. 

 

	(17)  	Employee Matters. RMG has no employees and is not bound by or a party to:

 

	(a)  	any benefit plan including, without limiting the generality of the foregoing, any pension plan, retirement savings plan, retirement compensation arrangement, salary deferral arrangement, health care plan or deferred profit sharing plan, or any benefit arrangement, obligation, custom, or practice, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, agents, or independent contractors including, without limiting the generality of the foregoing, employment agreements, severance agreements, executive compensation arrangements, incentive programs or arrangements, sick leave, vacation pay, severance pay policies, plant closing benefits, salary continuation for disability, consulting, or other compensation arrangements, workers' compensation, retirement, deferred compensation, bonus, stock option or purchase, hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs, any plans providing benefits or payments in the event of a change of control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business or portion thereof, in each case with respect to any present or former employees, directors, or agents maintained by or on behalf of RMG for any of its employees (each, a "Benefit Plan"), or

 

	(b)  	any liability for any unfunded obligation for any benefit or compensation for employees including, without limiting the generality of the foregoing, any profit sharing plans, or

 

	(c)  	any liability for any contingent obligation which will become an obligation upon the consummation of the Share Exchange Agreement including, without limiting the generality of the foregoing, any retirement allowance or retirement compensation arrangement.

 

	 
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	(18)  	Insurance. Policies of insurance in force as of the date hereof naming RMG as an insured adequately cover all risks reasonably and prudently foreseeable in the operation and conduct of the business of RMG. All such policies of insurance will remain in force and effect and will not be cancelled or otherwise terminated as a result of the transactions contemplated hereby or by the Share Exchange Plan.

 

	(19)  	Confidentiality. RMG has not, to the date hereof, waived any provision set forth in any confidentiality agreement in favor of the other party thereto.

 

In the event that one or more of the representations and warranties set forth in this Schedule “B” is not true and correct immediately prior to the Effective Date, Enterra shall be relieved of its obligations under the Pre-acquisition Agreement, unless RMG has notified Enterra under Section 2.1.2 of the Agreement of any changes covered therein and Enterra has consented to or otherwise approved of such changes. The representation and warranty as to leases is subject to the resolution provisions of Article 3.

 

	  
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SCHEDULE “C”

 

REPRESENTATIONS AND WARRANTIES OF ENTERRA

 

Capitalized terms in the following representations and warranties shall have the meanings ascribed to such terms in the Pre-Acquisition Agreement of which this Schedule “C” is attached and forms a part. 

 

1.  Organization. Enterra and each of its direct and indirect subsidiaries, partnerships and other entities over which it exercises direction or control (collectively, the “Subsidiaries”) has been duly incorporated or formed under applicable law, is validly existing and has full corporate or legal power and authority to own its properties and conduct its businesses as presently owned and conducted.

 

2.  Authority. Enterra has the requisite power and capacity to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Enterra and the consummation by Enterra of the transactions contemplated by this Agreement have been duly authorized by the board of directors of Enterra’s administrator, Enterra Energy Corp., and no other corporate proceedings on the part of Enterra are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by Enterra and constitutes a valid and binding obligation of Enterra, enforceable against Enterra in accordance with its terms subject to securities laws, bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws relating to or affecting creditors’ rights generally and to general principles of equity. Except as disclosed in writing to Enterra prior to the date hereof, the execution and delivery by Enterra of this Agreement and performance by it of its obligations hereunder and the completion of the Offer and the transactions contemplated thereby, will not:

 

(a)  result in a violation or breach of, require any consent to be obtained under or give rise to any termination rights under any provision of:

 

(i)  its or any Subsidiary’s certificate of incorporation, articles, by laws or other charter documents, including any unanimous shareholder agreement or any other agreement or understanding with any party holding an ownership interest in any Subsidiary;

 

(ii)  any law, regulation, order, judgment or decree; or

 

(iii)  any material contract, agreement, license, franchise or permit to which Enterra or any Subsidiary is bound or is subject or is the beneficiary;

 

(b)  give rise to any right of termination or acceleration of indebtedness, or cause any indebtedness to come due before its stated maturity or cause any available credit to cease to be available; or

 

(c)  result in the imposition of any encumbrance, charge or lien upon any of its assets or the assets of any Subsidiary, or restrict, hinder, impair or limit the ability of Enterra or any Subsidiary to carry on the business of Enterra or any Subsidiary as and where it is now being carried on or as and where it may be carried on in the future.

 

	 
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3.  Funds Available. The aggregate cash consideration payable pursuant to the Offer is available to Enterra so that Enterra is in a position to pay for all RMG Shares in accordance with the Share Exchange Plan.

 

4.  Knowledge. As of the date hereof, Enterra has no actual knowledge of any misrepresentation, breach or non performance by RMG of any representation, warranty or covenant contained in this Agreement which would have or would be reasonably likely to have a material adverse effect on Enterra should the Share Exchange Plan be completed.

 

5.  SEC Filings and Listings. Enterra’s reports filed with the SEC in calendar 2004 and through the completion of the Share Exchange Plan are complete and contain no material misstatements of material fact, or omit to state any material facts necessary to make the statements made not misleading. The description of the Enterra trust units in the Form 20-F (filed April 27, 2004) is a complete summary of the principal terms of the trust and the rights of unit holders. Enterra is in compliance with the listing standards of the Toronto Stock Exchange and the Nasdaq National Market. Enterra has received no notice of noncompliance with such listing standards which it reasonably does not expect to rectify in a timely manner, and has no reasonable expectation of receipt of such a notice.

6.  TSX Hold Period. The four month hold period required by the Toronto Stock Exchange will apply only to the Exchangeable Shares, beginning upon the date of their issuance, because the contractual or other relationship between the issuer or issuers of the Exchangeable Shares, and the Enterra Trust Units, will be such, as of the completion of the Share Exchange Plan, that no additional TSX hold period shall be imposed on the Trust Units upon their issuance.

 

	 
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