Document:

Rancher Energy Corp. Exhibit 10.3 - Purchase and Participation Agreement

    

     

      
        Exhibit
          10.3
 

      Burke
        Ranch Unit Purchase and 

    Participation
      Agreement

    

    

    

    

    

    Between:

    

    HOT
      SPRINGS RESOURCES LTD.

    (”Seller”
      or “HSR")

    

    and

    

    PIN
      PARTNERS PETROLEUM LTD.

    (”Buyer"
      or "PIN")

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

      Made
        as of the 6th
        day of February,
        2006

    

    

     

    

    
      
        
          
            

          

          
          

        

        
          1

          
            

          

        

        
          
          

          
          

        

      

    

    

    BURKE
      RANCH UNIT PURCHASE AND PARTICIPATION AGREEMENT

    

      THIS
        AGREEMENT made as of the  6th
        day of
February
        2006
        between HOT
        SPRINGS RESOURCES LTD. ("Seller” or HSR")
        and
PIN
        PARTNERS PETROLEUM LTD. ("Buyer” or “PIN").

     

    RECITALS:

     

    A. Whereas
      HSR owns the interests in lands and oil and gas leasehold interests comprising
      the Burke Ranch Unit, a Federal Unit, that is subject to the terms of the Burke
      Ranch Unit Agreement and Unit Operating Agreements,
      and to
      the supervision of such unit and the activities and operations thereon by the
      Bureau of Land Management (BLM) of the United States Department of the Interior;
      such lands and leasehold interests are hereinafter included in the definition
      of
      Subject Property in Section 1.1, and are subject only to those encumbrances,
      if
      any, set forth in in Schedule "A";

     

    B. Whereas
      PIN is interested in acquiring an interest in the Subject Property and otherwise
      participating in development of the Subject Property on the terms and conditions
      set forth in this Agreement;

    NOW
      THEREFORE, in consideration of the mutual promises and covenants contained
      herein, the receipt and sufficiency of which are acknowledged by the Parties,
      the Parties agree as follows:

     

    ARTICLE
      1

    INTERPRETATION

     

    
       

      
        	
                1.1

              	
                DEFINITIONS

              

      

       

    

    In
      this
      Agreement, unless the context otherwise requires:

     

    
      	 	
              (a)

            	
              "Affiliate"
                means, with respect to a Party to this Agreement, a company or other
                entity which controls that Party, is controlled by that Party or
                is under
                common control with that Party. "Control" means (i) the direct or
                indirect
                ownership of sufficient shares or other interests having the right
                to vote
                to elect the senior management or a majority of the board of directors
                or
                other governing board or committee, or otherwise control, the company
                or
                entity, or (ii) actual control of the company or entity by any
                means.

            

    

    

    
      	 	
              (b)

            	
              "Area
                of Mutual Interest" or "AMI" means the area of mutual interest established
                in respect of the AMI Lands;

            

    

    

    
      	 	
              (c)

            	
              "AMI
                Lands" means the lands within the area described in Schedule
                "B";

            

    

    

    
      	 	
              (d)

            	
              "AMI
                Term" means the period following the Effective Date and continuing
                for a
                period of three (3) years thereafter;

               

            

    

    
      	
               

            	
              (e)

            	
              "Business
                Day" means a day other than a Saturday, a Sunday or a statutory holiday
                in
                Wyoming;

            

    

     

    
      	 	
              (e)

            	
              "Engineering
                Report" has the meaning ascribed to that term in Clause
                3.2(a).

            

    

     

    
      	 	
              (f)

            	
              
                "Effective
                  Date" means February
                  6, 2006.

              

            

    

    

    
      
        2

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (g)

            	
              "Engineering
                Report" has the meaning ascribed to that term in Clause
                3.2(a).

            

    

    

    
      	 	
              (h)

            	
              "Subject
                Assets" means the Subject Property, the Tangibles, and the Miscellaneous
                Interests;

            

    

    

    
      	 	
              (i)

            	
              "Subject
                Property" means the lands and leasehold interests set out in Schedule
                "A",
                and any lands pooled, unitized or otherwise combined therewith under
                the
                terms of and pursuant to the Unit Agreement and Unit Operating Agreements
                or otherwise,
                together with the Petroleum Substances within, upon or under those
                lands;

            

    

    

    
      	 	
              (j)

            	
              "Miscellaneous
                Interests" means, subject to any and all limitations and exclusions
                provided for in this definition, all property, assets, interests
                and
                rights pertaining to the Subject Property and the Tangibles, or either
                of
                them, but only to the extent that such property, assets, interests
                and
                rights pertain to the Subject Property and the Tangibles, or either
                of
                them, including without limitation any and all of the
                following:

            

    

    

    
      	 	
              (i)

            	
              contracts
                and agreements relating to the Subject Property and the Tangibles,
                or
                either of them, including without limitation the Unit Agreement and
                Unit
                Operating Agreements,
                any communitization agreements still in effect and having application
                to
                the Subject Property, the Title Documents, processing agreements,
                transportation agreements and agreements for the construction, ownership
                and operation of facilities;

            

    

    
      	 	
              (ii)

            	
              rights
                to enter upon, use or occupy, the surface of any lands which are
                or may be
                used to gain access to or otherwise use the Subject Property and
                the
                Tangibles, or either of them;

            

    

    
      	 	
              (iii)

            	
              all
                records, books, documents, licences, reports and data which relate
                to the
                Subject Property and the Tangibles, or either of them, including
                any of
                the foregoing that pertain to seismic, geological or geophysical
                matters
                not required to be held confidential and which HSR has the legal
                right to
                disclose to PIN; and

            

    

    
      	 	
              (iv)

            	
              the
                Wells (and no other wells), including the wellbores and any and all
                casing;

               

            

    

    
      	 	
              (k)

            	
              "Operating
                Procedure" means the 1982 AAPL Model Form Joint Operating Agreement
                attached hereto as Schedule "C 

               

            

    

    
      	 	
              (l)

            	
              "Party"
                means a party to this Agreement;

            

    

    

    
      	 	
              (m)(i)

            	
              "Payout"
                means that date when PIN recovers out of the gross proceeds of sale
                from
                it's share of production of Petroleum Substances from the Subject
                Property
                an amount equal to the aggregate costs incurred by or paid by PIN
                pursuant
                to Sections 4.1, 4.2, 4.3 and 5.1.

            

    

    

      
        	 	
                (m)(ii)

              	
                "Payout
                  Accounting”"
                  shall mean monthly statements furnished by Buyer to Seller before
                  the
                  fifth day of each and every calendar month prior to the time. Payout
                  occurs setting forth the amounts of all expenditures made by Buyer
                  and
                  claimed by Buyer as costs incurred under Sections 4.1, 4.2, 4.3
                  and 5.1,
                  together with supporting invoices together with copies of reports
                  made by
                  or on behalf of Buyer to the Wyoming Oil and Gas Conservation Commission
                  and/or the Minerals Management Service, statements from Third Party
                  purchasers, processors and transporters of production and all other
                  documents evidencing the volumes and values of Buyer’s share of
                  production, if any, of Petroleum Substances from the Subject Property
                  for
                  the month prior to the immediately preceding calendar month. Such
                  monthly
                  statements shall further include the current accumulative balance
                  of the
                  recoupment of the costs incurred by Buyer under Sections 4.1, 4.2,
                  4.2, ,4.3
                  and 5.1.

              

      

    

    
      
        
           

          

          
          

        

        
          3

          
            

          

        

        
          
          

        

      

    

       

    
      	 	
              (n)

            	
              "Petroleum
                Substances" means any of crude oil, crude bitumen and products derived
                therefrom, synthetic crude oil, petroleum, natural gas, natural gas
                liquids, and any and all other substances related to any of the foregoing,
                whether liquid, solid or gaseous, and whether hydrocarbons or not,
                including without limitation
                sulphur;

            

    

     

    
      	 	
              (p)

            	
              "Studies
                and Report" has the meaning ascribed to that term in Clause
                3.2(a).

            

    

     

    
      
        	 	
                (q)

              	
                "Tangibles"
                  means, any and all tangible depreciable property and assets which
                  are
                  located within, upon or in the vicinity of the Subject Property
                  and which
                  are used or are intended to be used to produce, process, gather,
                  treat,
                  measure, make marketable or inject Petroleum Substances or any
                  of them or
                  in connection with water injection or removal operations that pertain
                  to
                  the Subject Property, including without limitation any and all
                  gas plants,
                  oil batteries, buildings, production equipment, pipelines, pipeline
                  connections, meters, generators, motors, compressors, treaters,
                  dehydrators, scrubbers, separators, pumps, tanks, boilers and
                  communication equipment;

              

      

      

      
        	 	
                (r)

              	
                "Third
                  Party" means any individual or entity other than Parties hereto,
                  including
                  without limitation any partnership, corporation, trust, unincorporated
                  organization, union, government and any department and agency thereof
                  and
                  any heir, executor, administrator or other legal representative
                  of an
                  individual;

              

      

      

      
        	 	
                (s)

              	
                "this
                  Agreement", "herein", "hereto", "hereof" and similar expressions
                  mean and
                  refer to this Agreement;

              

      

       

      
        	 	
                (t)

              	
                "Title
                  Defect" means a material defect or significant deficiency in the
                  title of
                  Seller to any portion or part of the Subject Property, which on
                  its own
                  deprives the Seller of the substantial use, benefit or financial
                  revenue
                  from the Subject Property, having regard to laws respecting limitations
                  of
                  actions, and is sufficiently adverse such that it would, on a commercially
                  reasonable assessment thereof, cause a party experienced in acquisitions
                  of producing oil and gas properties located in the Rocky Mountain
                  region
                  of the United States to not purchase the entirety of the Subject
                  Property,
                  having regard to the loss of value in and
                  thereto;

              

      

       

    

    
      
        
           

          

          
          

        

        
          4

          
            

          

        

        
          
          

        

      

    

    

    

      
        	 	
                (u)

              	
                “Term
                  Assignment” shall mean a current assignment of 50% of Seller’s interest in
                  the Subject Assets, substantially in the form set forth in Schedule
                  "F"
                  hereto  

              

      

    
      	 	
              (v)

            	 

    

      
        	 	
                (uv)

              	
                "Final
                  Assignment”"
                  shall mean an assignment of 50% of Seller's interest in the Subject
                  Assets, substantially in the form set forth in Schedule "G
                  

              

      

      
        	 	
                (vw)

              	
                "Title
                  Documents" means, collectively, any and all certificates of title,
                  leases,
                  reservations, permits, licences, assignments, trust declarations,
                  operating agreements, royalty agreements, gross overriding royalty
                  agreements, participation agreements, farm-in agreements, sale
                  and
                  purchase agreements, pooling agreements and any other documents
                  and
                  agreements granting, reserving or otherwise conferring rights to
                  (i)
                  explore for, drill for, produce, take, use or market Petroleum
                  Substances,
                  (ii) share in the production of Petroleum Substances, (iii) share
                  in the
                  proceeds from, or measured or calculated by reference to the value
                  or
                  quantity of, Petroleum Substances which are produced, and (iv)
                  rights to
                  acquire any of the rights described in items (i) to (iii) of this
                  definition; but only if the foregoing pertain in whole or in part
                  to
                  Petroleum Substances within, upon or under the Subject
                  Property;

              

      

      
        	 	
                (wx)

              	
                "Trust
                  Agreement" means an agreement substantially in the form set forth
                  in
                  Schedule "H";

              

      

      
        	 	
                (xy)

              	
                "Trustee"
                  means the party acting as trustee under the Trust
                  Agreement;

              

      

      
        	 	
                (yz)

              	
                "Unit
                  Agreement" means the unit agreement attached hereto as Schedule
                  "E", as
                  amended and supplemented;

              

      

      
        	 	
                (zaa)

              	
                "Unit
                  Operating Agreements" means the unit operating agreements attached
                  hereto
                  as Schedule "D", as amended and
                  supplemented;

              

      

      
        	 	
                (aabb)

              	
                "Wells"
                  means all wells which are or may be used in connection with the
                  Subject
                  Property, including without limitation Well 9 and Well 9-17 and
                  all other
                  producing, shut-in, abandoned, water source, water disposal and
                  water
                  injection wells.

              

      

    
      
        	 	
                (bbcc)

              	
                "Well
                  9" means the Well located at NW,
                  NW 17, 37 N, 78 W, (API Well No. 49  025
                  06180) 

              

      

    

    
      
        
          	 	
                  (ccdd)

                	
                  "Well
                    9-17" means the Well located at
                    ]NE,
                    SE 17, 37N, 78W (API Well No. 49  025
                    22264); 

                

        

      

    

    
      
        
           

          

          
          

        

        
          5

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                1.2

              	
                Headings

              

      

       

    

    The
      expressions "Article", "section", "subsection", "clause", "subclause",
      "paragraph" and "Schedule" followed by a number or letter or combination thereof
      mean and refer to the specified article, section, subsection, clause, subclause,
      paragraph and schedule of or to this Agreement.

     

    
      
        	
                1.3

              	
                Interpretation
                  Not Affected by
                  Headings

              

      

    The
      division of this Agreement into Articles, sections, subsections, clauses,
      subclauses and paragraphs and the provision of headings for all or any thereof
      are for convenience and reference only and shall not affect the construction
      or
      interpretation of this Agreement.

     

    
      
        
          	
                  1.4

                	
                  Interpretation
                    Not Affected by Headings

                

        

         

      

    

    When
      the
      context reasonably permits, words suggesting the singular shall be construed
      as
      suggesting the plural and vice versa, and words suggesting gender or gender
      neutrality shall be construed as suggesting the masculine, feminine and neutral
      genders.

     

    
      
        
          
            	
                    1.5

                  	
                    Interpretation
                      Not Affected by Headings

                  

          

           

        

      

    

    There
      are
      appended to this Agreement the following schedules pertaining to the following
      matters:

     

    
      	
              Schedule
                "A"

            	
              Subject
                Property 

            
	
              Schedule
                "B"

            	
              Area
                of Mutual Interest

            
	
              Schedule
                "C"

            	
              Operating
                Procedure

            
	
              Schedule
                “D”

            	
              Burke
                Ranch Unit Operating Agreements

            
	
              Schedule
                “E”

            	
              Burke
                Ranch Unit Agreement

            
	
              Schedule
                "F"

            	
              Term
                Assignment

            
	
              Schedule
                "G”

            	
              Final
                Assignment

            
	
              Schedule
                "H"

            	
              Trust
                Agreement

               

            

    

    Such
      schedules are incorporated in this Agreement and form a part hereof. Excepting
      the agreement described above and appended as Schedule E, and subject to Article
      3.2(d), wherever any term or condition of such schedules conflicts or is at
      variance with any term or condition in the body of this Agreement, such term
      or
      condition in the body of this Agreement shall prevail. 

     

    
      
        
          
            
              	
                      1.6

                    	
                      Damages

                    

            

        

      

    

    All
      losses, costs, claims, damages, expenses and liabilities in respect of which
      a
      Party has a claim pursuant to this Agreement include without limitation
      reasonable legal fees and disbursements on a attorney and client
      basis.

    

    ARTICLE
      2

    TITLE
      TO SUBJECT PROPERTY

     

    
      
        
          
            
              
                	
                        2.1 

                      	
                        Title

                      

              

            

          

        

      

    

     

    Seller
      does not represent or warrant title to the Subject Property, but Seller does
      represent that:

    

    
      
        
           

          

          
          

        

        
          6

          
            

          

        

        
          
          

        

      

    

    

      
        	 	
                (a)

              	
                except
                  for the royalties payable to the lessors under the oil and gas
                  leases set
                  forth in Schedule "A" and overriding royalty interests burdening
                  Seller’s
                  interest in such oil and gas leases that were created by third
                  parties
                  prior to the acquisition by Seller of its interest in the Subject
                  Property
                  and of which Seller has no knowledge, it has not granted or otherwise
                  aware of any interest (or the right to acquire any interest) in
                  the
                  Subject Property whereby a Third Party may
                  owns
                  or has the right to
                  acquire
                  any royalty interest in the Subject Property or
                  any portion of Seller’s interest in the Subject
                  Property;

              

      

    
      	 	
              (b)

            	
              it
                is not aware of any Title Defects pertaining to the Subject Property,
                nor
                is it aware of any act or omission whereby Seller is or would be
                in
                default under applicable law or the Title Documents and it has not
                received any notice of default or otherwise become aware of any notice
                of
                default respecting the Subject Property that has not been remedied;
                and

            

    

    
      	 	
              (c)

            	
              Seller
                is not aware of any environmental defects or deficiencies or environmental
                damage affecting or caused by the Subject Assets, nor is Seller aware
                of
                any proceedings which have been commenced or threatened, or which
                could
                reasonably be expected to be commenced, in connection with any such
                defects, deficiencies or damages, or any operations relating
                thereto.

            

    

     

    
      
        
          
            
              
                
                  	
                          2.2 

                        	
                          Maintaining
                            Title

                        

                

              

            

          

        

      

    

     

    While
      the
      Term Assignment is effective and provided Seller has not terminated this
      Agreement by virtue of a material default by Buyer under this Agreement, Seller
      will not grant, assign or convey any interest in the Subject Property which
      may
      be acquired by the Buyer hereunder, nor shall Seller do or cause to be done
      any
      act or omission whereby any interest in the Subject Property becomes encumbered,
      terminated or forefeited.

    

    ARTICLE
      3

    BUYER
      PAYMENT AND RIGHTS/INTERESTS EARNED

     

    
      
        
          
            
              
                
                  
                    	
                            3.1 

                          	
                            Buyer
                              Payment

                          

                  

                

              

            

          

        

      

    

       

      Buyer
        shall upon payment of $150,000 (the "Buyer Payment") to Seller earn the rights
        and interests set forth in Section 3.2. 
        Seller
        acknowledges prior receipt of $35,000 from Buyer, such that the balance
        remaining of the Buyer Payment is $115,000 (the "Payment Balance"). Buyer
        shall
        pay this balance, by wire transfer or other means satisfactory to Seller
        in
        immediately available funds, to Seller or, if Section 3.3 is applicable,
        to the
        Trustee on or before the third calendar day following the date of this
        Agreement, failing which this Agreement and all rights of Buyer hereunder
        shall
        terminate. 

       

    
      
        
          
            
              
                
                  
                    
                      	
                              3.2 

                            	
                               Rights
                                Earned

                               

                            

                    

                  

                

              

            

          

        

      

    

    
      	 	
              (a)

            	
              Upon
                making the Buyer Payment set forth in Section 3.1, the interests
                in the
                Subject Assets shall, subject to the terms of the Term Assignment
                be:

            

    

    

    
      
        
           

          

          
          

        

        
          7

          
            

          

        

         

      

    

     

    
      	
              HSR

            	
              49.9%

            
	
              PIN

            	
              49.9%

            
	
              Others

            	
              0.2%

            

    

     

    In
      addition, Buyer upon making such payment to Seller or the Trustee shall earn
      the
      right to participate in and pay the costs of the activities described in Article
      4 below. Forthwith after receiving the balance of the Buyer Payment, Seller
      shall duly execute and deliver to Buyer the Term Assignment, or if Section
      3.3
      is applicable shall cause the Trustee to release the Term Assignment to
      Buyer.

     

    
      	 	
              (b)

            	
              All
                of the several obligations set forth in Sections 4.1, 4.2 and 4.3
                below
                and the time limit prescribed for the performance of each and all
                such
                obligations are and shall be deemed material and shall consititute
                a
                single condition precedent to Seller’s obligation to make the Final
                Assignment. If the Buyer Payment described in Section 3.1 above is
                timely
                made to Seller or, if Section 3.3 is applicable, to the Trustee and
                if,
                thereafter, Buyer thereafter timely performs in all material respects
                each
                and all of its obligations described in Sections 4.1, 4.2 and 4.3
                below,
                then, prior to Payout, Buyer shall thereupon have:

               

            

    

    
      	 	
              (i)

            	
              earned
                an additional 39.92% beneficial interest in the Subject Assets, such
                that
                the beneficial interests shall be: 

               

            

    

     

      
        	
                HSR

              	
                49.9%

              
	
                PIN

              	
                49.9%

              
	
                Others

              	
                0.2%

              

      

       

      provided
        however that HSR shall retain a 49.9% registered legal interest, and shall
        hold
        the additional 39.92% beneficial interest in trust for PIN; and

       

      
        	 	
                (ii)

              	
                Buyer
                  shall have the right to receive the Final Assignment and Seller
                  shall
                  forthwith thereafter duly execute and deliver to Buyer the Final
                  Assignment.

              

      

       

      
        	 	
                (c)

              	
                
                  In
                    the event the Final Assignment is earned by Buyer and made by
                    Seller and
                    thereafter Payout occurs, Buyer shall be deemed to have thereupon
                    relinquished to Seller the additional 39.92% beneficial interest
                    in the
                    Subject Assets referred to in Section 3.2(b)(i) above, such that
                    the legal
                    and beneficial interests in the Subject Assets shall thereupon
                    be:

                

              

        
 

      

    

    
      
        	
                HSR

              	
                49.9%

              
	
                PIN

              	
                49.9%

              
	
                Others

              	
                0.2%

              

      

       

    

    
      	 	
              (d)

            	
              Upon
                Buyer timely making the Buyer Payment described in Section 3.1 above,
                thereby earning the rights described therein, the Operating Procedure
                shall govern the Subject  Assets and all operations on or in
                respect of the Subject Assets, such that, as between Buyer and Seller,
                the
                Operating Procedure shall supercede the Unit Operating Agreements.
                Thereafter, each party shall use commercially reasonable efforts
                to enter
                into agreements with, and obtain approvals from, all relevant third
                parties (including those "others" owning working interests in the
                Subject
                Property and all applicable governmental and regulatory authorities)
                such
                that the Operating Procedure supercedes the Unit Operating Agreements
                for
                all purposes.

            

    

    

    
      
        
           

          

          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

     

    
Subject
      always to Article 4, all rights and obligations in respect of the Subject Assets
      shall be borne by the Parties in accordance with their interests set forth
      in
      Sections 3.2(a), (b) and (c) which are prevailing at the applicable
      time.

     

    Seller
      shall be the initial operator under the Operating Procedure, provided that upon
      the parties agreeing to drill a well pursuant to Section 4.5, or if Seller
      does
      not agree to drill such well and Buyer elects to drill the well by itself
      pursuant to the Operating Procedure, Buyer shall in either event thereupon
      replace Seller as the operator under the Operating Procedure and the Unit
      Operating Agreements, and Seller shall do all things reasonably necessary to
      effect such replacement.

     

    
      	 	
              (e)

            	
              Provided
                that Buyer timely makes the Buyer Payment described in Section 3.1
                to
                Seller or the Trustee, within fifteen (15) days thereafter, Seller
                shall
                deliver copies of the Title Documents and any other agreements and
                documents to which the Subject Assets are subject, and copies of
                contracts, agreements, records, books, documents, licences, reports
                and
                data comprising Miscellaneous Interests.

               

            

    

    
      	 	
              (f)

            	
              In
                addition to the Term Assignment and Final Assignment provided for
                above,
                Seller agrees to deliver to Buyer any other conveyances, assignments,
                transfers, novations and other instruments reasonably required to
                to
                assign to Buyer the corresponding interest it acquires in the Subject
                Assets. 

            

    

     

    
      
        
          
            
              
                
                  
                    
                      	
                              3.3 

                            	
                              Trust
                                Arrangements

                               

                            

                    

                  

                

              

            

          

        

      

    

    
      	 	
              (a)

            	
              If
                Seller does not deliver to Buyer on the date hereof a title opinion
                prepared by Seller's oil and gas legal counsel respecting the Subject
                Property which opinion is in form and substance satisfactory to Buyer,
                acting reasonably, (the "Title
                Opinion"),
                then:

               

            

    

    
      	 	
              (i)

            	
              Buyer
                shall be entitled to deliver to the Trustee the Payment Balance,
                to be
                held by the Trustee in accordance with the Trust Agreement. Such
                payment
                shall be deemed to satisfy all of Seller's obligations under this
                Agreement to make such payment; and

               

            

    

    
      	
               

               

               

            	
              (ii)

            	
              Concurrently
                with Buyer making the payment pursuant to Section 3.3(a)(i), Seller
                shall
                deliver a duly executed copy of the Term Assignment to the Trustee,
                to be
                held by the Trustee in accordance with the Trust
                Agreement.

            

    

    

    
      
        
           

          

          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

    

    If
      Buyer
      elects to pay the Payment Balance to the Trustee pursuant to Section 3.3(a)(i)
      and Seller does not deliver the Title Opinion to Buyer within ninety (90) days
      from the date of this Agreement, then Buyer shall be entitled to, within ten
      (10) days after the expiry of such period, request a return of the entire Buyer
      Payment and all monies expended by Buyer pursuant to Sections 4.1, 4.2 and
      4.3.
      In that event:

     

    
      	 	
              (iii)

            	
              the
                Trustee shall forthwith return the Payment Balance to Buyer and,
                provided
                that Seller has paid all amounts to Buyer as required pursuant to
                Section
                3.3(b)(iv), destroy all copies of the Term Assignment in its possession,
                with the result that thereupon Buyer shall have no interest in the
                Subject
                Assets; and

               

            

    

    
      	 	
              (iv)

            	
              the
                Seller shall pay to Buyer $35,000, being the prior payment of a portion
                of
                the Buyer Payment, and reimburse Buyer for all amounts expended by
                Buyer
                pursuant to Sections 4.1, 4.2 and 4.3; such payment and reimbursement
                shall, during the period of 1 year from the date hereof, be made
                as soon
                as reasonably possible out of the gross proceeds of the sale of production
                from the Subject Property. If such amounts are not paid to Buyer
                within
                such 1 year period, Seller shall immediately thereafter pay all such
                amounts to Buyer.

               

            

    

    
      	 	
              (b)

            	
              As
                security for the payment obligations in Section 3.3(b)(iv), Buyer
                shall
                have, and Seller hereby grants, a lien, charge and security interest
                in
                the Subject Assets. 

               

            

    

     

    
      
        	 	
                 

              	
                
                  In
                    addition, if Seller fails to make the payments to Buyer as required
                    pursuant to Section 3.3(b)(iv), then notwithstanding any other
                    provision
                    herein, and without limiting any other rights Buyer may have
                    at aw or
                    otherwise, Buyer shall:

                

              

      

    

    

     

    
      	 	
              (i)

            	
              be
                entitled to request the Trustee to deliver the Term Assignment to
                Buyer,
                in which event Buyer shall be entitled to retain the 49.9% interest
                governed thereby for its own account; and

               

            

    

    
      	 	
              (iii)

            	
              be
                entitled to the additional 39.92% beneficial interest provided for
                in
                Section 3.2(b).

               

            

    

    
      	 	
              (c)

            	
              If
                there is any title defect, deficiency or other failure in title which
                was
                in existence at or prior to the date of this Agreement that adversely
                affects the Subject Property at any time hereafter, such defects,
                deficiencies and title problems shall be deemed to first affect the
                interests of Seller, such that Seller's interests shall be reduced
                first
                before there is any effect on Buyer's interests. Conversely, if Seller
                owned more than a 99.8% working interest in the Subject Property
                immediately prior to the date of this Agreement, Seller shall be
                entitled
                to the benefit of any such incremental increased interest.
                

            

    

    

    
      
        
           

          

          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    

    

    ARTICLE
      4

    RIGHTS
      EARNED BY BUYER PAYMENT AND BUYER OPERATIONS

     

    
      	
              4.1 

            	
              Seismic

            

    Buyer
      shall, within one calendar year from the Effective Date, at its sole cost,
      risk
      and expense conduct or cause to be conducted a 3D seismic survey
      over:

     

    
      	 	
              (a)

            	
              the
                Subject Property ; and

               

            

    

    
      	 	
              (b)

            	
              any
                other lands within the AMI which the Parties jointly agree
                upon,
                and shall further conduct (or cause to be conducted) and
                pay for
                all processing, analysis, and interpretation of the 3D seismic data
                acquired as a result of such seismic survey which is reasonably necessary
                to render such data capable of being used by and useful to the Parties
                to
                determine the viability of future drilling operations on the Subject
                Property or AMI lands. Buyer shall provide Seller with access to
                the
                results of the seismic program, including all analysis and interpretation
                thereof, provided that Seller shall maintain in confidence the seismic
                information in accordance with the Operating Procedure, and provide
                proof
                of the same to Seller and share the information as set forth
                above.

               

            

    

     

    
      
        	
                4.2 

              	
                Engineering
                  Study and Development
                  Plans

              

      

       

    

    
      	 	
              (a)

            	
              Buyer
                shall, after consultation with Seller, select an engineering firm
                (the
                "Engineering
                Firm")
                to perform certain engineering studies on the Subject Property and
                to
                prepare a development plan (collectively, the "Studies and Plan")
                in
                respect of the Subject Property. The scope and substance of the Studies
                and Plan shall be at the direction of Buyer, provided that Buyer
                will
                confer with Seller prior to providing or revising any instructions
                to the
                Engineering Firm. Buyer
                shall be solely responsible for the costs incurred in the preparation
                of
                the Studies and Plan. Upon mutual agreement, the Parties may agree
                to an
                alternate engineering firm.

               

            

    

    
      	 	
              (b)

            	
              The
                Parties shall co-own the Studies and Plan and all related data and
                information, and shall share access to all data and information.
                Each
                Party shall maintain in confidence the Studies and Plan and all related
                data and information in accordance with the Operating
                Procedure.

               

            

    

    
      	 	
              (c)

            	
              Each
                Party shall appoint a contact person who shall assist in providing
                documentation and information to the Engineering Firm.

               

            

    

     

    
      
        
          	
                  4.3

                	
                  Field
                    Operations

                

        

      

    

     

    Seller
      shall, within sixty (60) days from the Effective Date (but subject always to
      Article 8), cause to be conducted by or under the supervision of Seller (or
      its
      agents, employees or contractors) in accordance with and if required pursuant
      to
      generally accepted industry practices, operations and purchases of equipment
      necessary to install a submersible

    

    
      
        
           

          

          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

    

    pump,
      cable and if needed a motor in Well 9 and, shall within thirty (30) days from
      the Effective Date (but subject always to Article 8), complete any tubing
      repairs that may be necessary in respect of Well 9-17. Buyer shall be solely
      responsible for all costs and expenses relating to such operations, provided
      that if the costs and expenses respecting Well 9 or Well 9-17 exceed $50,000,
      then Seller shall be solely responsible for all costs and expenses exceeding
      $50,000, provided further however, that if, due to wellbore integrity problems,
      equipment failures or sticking of equipment or tools in the wellbore or other
      problems beyond the anticipation or control of the Parties, the costs of
      operations respecting either or both Well 9 and Well 9-17 are anticipated to
      exceed $75,000 in the aggregate, then the Parties shall determine whether they
      wish to proceed and if so they shall jointly (each as to a 50% share) pay for
      any costs in excess of $75,000. If a party determines not to conduct the
      operations yielding such costs in excess of $75,000, then the other party shall
      be entitled to conduct the operations by itself in accordance with the Operating
      Procedure. Seller shall provide Buyer with information on a daily basis in
      respect of the foregoing operations and the status thereof, and shall provide
      evidence to Buyer of its timely compliance with the obligations set forth in
      this Section 4.3 by providing Buyer with invoices from any Third Party
      performing such work and/or providing equipment and materials evidencing the
      time and dates of the provision of such services and
      materials/equipment.

    

    Subject
      to the foregoing, Buyer shall pay any and all such invoices within 30 days
      of
      receipt of them, and upon such payment shall be deemed to have satisfied all
      of
      its obligations in this Section 4.3. Buyer shall deliver to Seller signed
      acknowledgments by all such Third Parties or other evidence that such invoices
      have been paid by Buyer.

     

    If
      Seller
      fails to complete the operations provided for in this Section 4.3 within 1
      year
      of the Effective Date, Buyer shall be deemed to have no further obligations
      under this Section 4.3. 

     

    
      
        
          
            	
                    4.4

                  	
                    Buyer
                      as
                      Operator

                  

          

        

      

    Buyer
      shall conduct the operations set forth in Sections 4.1 and 4.2 as if and as
      though it was the operator of the Subject Property, provided that Buyer will
      confer with Seller with regard to those operations described in Sections 4.1
      and
      4.2 in an effort to keep the associated operational costs as low as reasonably
      possible (having regard always to good industry practices and health, safety
      and
      environmental concerns) and make beneficial use of the Seller’s knowledge of the
      Subject Property.

     

    
      
        
          
            
              	
                      4.5

                    	
                      Tensleep
                        Test

                    

            

          

        

    

    If,
      after
      the acquisition,processing, analysis and interpretation of the seismic data
      described in Section 4.1 above, Buyer and Seller mutually agree, in good faith,
      based upon such seismic data and analysis thereof, that a well should be drilled
      to test the Tensleep Formation (the "Tensleep Well") on the Subject Property
      (or
      the AMI lands), the Buyer shall at its sole cost drill and log (or cause the
      drilling and logging of) such a well of such a depth to test the entire
      Tensleeep Formation, and, if, after logging, a completion of such a well for
      production is justified, as determined mutually by the Parties hereto, then
      Seller shall pay 50% of the costs of such

    

    
      
        
           

          

          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

    

    completion.
      If such well thereafter produces Petroleum Substances, the Parties shall share
      in the production from such well on the basis of the fractions described below,
      until the costs of such well and its completion have been recovered out of
      the
      production of Petroleum Substances from such well.

     

    Prior
      to
      Cost Recoupment Fractions:

    

    
      	
              HSR

            	
              Amount
                of completion costs paid by HSR
                Total of all drilling, logging and competion costs paid by HSR and
                PIN

            
	
              PIN

            	
              Amount
                of drilling, logging and completion costs paid by PIN
                Total of all drilling, logging and completion costs paid by HSR and
                PIN.

            

    

    

    Upon
      recoupment of such drilling, logging and completion costs, the Parties shall
      share in the production from such well on an equal, 50-50 basis.

      If
        a
        party wishes to drill the Tensleep Well but the other party does not, then
        the
        foregoing provisions of this Article 4.5 shall be of no further effect. In
        such
        event, the party wishing to drill the well shall be entitled to drill such
        well
        by itself without any participation by the other party, all in accordance
        with
        the Operating Procedure. In such event, the penalty applicable to the
        non-participating party shall be as set forth in clause
        Article
        VI
        of the
        Operating Procedure.

       

    Prior
      to
      the time the costs of the drilling, logging and completion from such well have
      been recovered out of the production of Petroleum Substances from such well,
      the
      Party serving as operator shall before the fifth day of each calendar month
      provide the non-operating Party with a monthly accounting of the aggregate
      of
      all costs of drilling, logging and completing of such well and copies of all
      reports filed with the Wyoming Oil and Gas Conservation Commission and/or the
      Minerals Management Service, statements from Third Party purchasers, processors
      and transporters of production and all other documents evidencing the volumes
      and values of all production of Petroleum Substances from such well, in each
      case as regards those costs and revenues relating to such well that arose in
      the
      month prior to the immediately preceding month, together with the current
      accumulative balance of the recoupment of drilling, logging and completion
      costs
      of such well out of the production of Petroleum Substances from such
      well.

     

    ARTICLE
      5

    PRODUCTION
      PAYMENT

    
 

     

     

    
      
        
          
            
              
                	
                        5.1

                      	
                        Production
                          Payment

                      

              

            

          

        

      

    

     

    If
      Buyer
      timely makes the Buyer Payment described in Section 3.1 above and performs
      the
      obligations described in Sections 4.1, 4.2 and 4.3 above, and, thereafter,
      whether prior to or after Payout, production of Petroleum Substances from the
      Subject Property exceeds 20 barrels of oil per day (and for purposes of this
      clause 6mcf of natural gas shall equal 1 barrel of oil) for a continuous period
      of no less than 30 days, then provided that Buyer has received a Title Opinion
      or Buyer is otherwise satisfied with title to the Subject Property, Buyer shall
      each month thereafter for a period of 12 months pay to Seller out of its net
      share of the proceeds from the sale of Petroleum Substances produced from the
      Subject Property a payment of $5,000 (for an aggregate payment obligation of
      $60,000). Each such payment shall be made by no later than the 25th day of
      the
      following month. The Buyer’s obligation for this production payment,
      and

    

    
      
        
           

          

          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

    

    Seller’s
      reservation thereof, shall be set forth in the Term Assignment and in the Final
      Assignment, if made. For greater certainty, if the net revenues from the Subject
      Property are not sufficient to permit the $5,000 payment in any one month,
      the
      payment obligation for that month shall be suspended until the next month in
      which net revenues are sufficient to permit such $5,000 payment. 

     

    ARTICLE
      6

    REPRESENTATIONS
      AND WARRANTIES

     

    
      
        	
                6.1

              	
                Representations
                  and Warranties

              

      

    Each
      Party makes the following representations and warranties to the
      other:

     

    
      	 	
              (a)

            	
              It
                is a corporation, limited partnership, or limited liability company
                duly
                organized and validly existing under the laws of the jurisdiction
                of its
                incorporation or formation, is authorized to carry on business in
                the
                state in which the Subject Property are located, and now has good
                right,
                full power and absolute authority to perform the obligations provided
                for
                in the Agreement according to the true intent and meaning of this
                Agreement;

               

            

    

    
      	 	
              (b)

            	
              the
                execution, delivery and performance of this Agreement has been duly
                and
                validly authorized by any and all requisite company, member and directors'
                actions and will not result in any violation of, be in conflict with
                or
                constitute a default under any articles, charter, operating agreement
                or
                other governing document to which it is bound;

               

            

    

    
      	 	
              (c)

            	
              the
                execution, delivery and performance of this Agreement will not result
                in
                any violation of, be in conflict with or constitute a default under
                any
                term or provision of any agreement or document to which it is party
                or by
                which it is bound, nor under any judgment, decree, order, statute,
                regulation, rule or license applicable to it;

               

            

    

    
      	 	
              (d)

            	
              this
                Agreement and any other agreements delivered in connection herewith
                constitute valid and binding obligations of it enforceable against
                it in
                accordance with their terms;

               

            

    

    
      	 	
              (e)

            	
              it
                has not incurred any obligation or liability, contingent or otherwise,
                for
                brokers' or finders' fees in respect of this Agreement or the transaction
                to be effected by it for which the other Party shall have any obligation
                or liability;

            

    

    

    ARTICLE
      7

    AREA
      OF MUTUAL INTEREST

     

    
      
        
          	
                  7.1

                	
                  AMI
                    Lands

                

        

      

    

     

    If
      a
      Party or any of its Affiliates acquires an interest in any AMI Lands during
      the
      AMI Term, such acquisition shall be subject to the provisions of this Agreement.
      

     

    
      
        	
                7.2

              	
                AMI
                  Procedure for
                  Acquisition

              

      

    
      
        
          

          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

    

    If
      AMI
      Lands are acquired at any time during the AMI Term by a Party or any of its
      Affiliates, that Party (the "Acquiring
      Party")
      shall
      forward a notice to the other Party (the "Receiving
      Party")
      within
      seven (7) days of the acquisition of such AMI Lands. The notice (the
      "Acquisition
      Notice")
      shall
      set forth the particulars of the acquisition, including but not limited
      to:

     

    
      	 	
              (a)

            	
              the
                date that the interest was
                acquired,

            

    

    
      	 	
              (b)

            	
              the
                interest which was acquired,

            

    

    
      	 	
              (c)

            	
              from
                whom the interest was acquired,

            

    

    
      	 	
              (d)

            	
              the
                amount of out of pocket costs incurred by the Acquiring Party and/or
                its
                Affiliates in acquiring the AMI Lands,
                and

            

    

    
      	 	
              (e)

            	
              the
                amount of maintenance costs, if any, incurred by the Acquiring Party
                and/or its Affiliates with respect to the AMI
                Lands.

            

    

     

    The
      Receiving Party shall have twenty (20) days from the date of receipt of an
      Acquisition Notice (the "Acceptance
      Period")
      to
      elect to acquire 50% of the interest acquired by the Acquiring Party and any
      of
      its Affiliates in the AMI Lands set out in such Acquisition Notice by paying
      50%
      of the amounts set forth in the Acquisition Notice. If the Receiving Party
      fails
      to pay such amount within thirty (30) days of its election, it shall be deemed
      to have elected not to acquire such interest, and it shall have no further
      rights to such interest. 

    

    If
      the
      consideration paid by the Acquiring Party or any of its Affiliates to acquire
      the AMI Lands was other than cash or work commitment, the Acquisition Notice
      shall specify the cash equivalent of such consideration. The Receiving Party
      may, within five (5) days of its receipt of the Acquisition Notice, require
      the
      determination of the cash equivalent of the consideration to be submitted to
      arbitration, in which event the twenty (20) day period specified

    in
      this
      section shall commence to run on the date the arbitrator's decision is
      communicated in writing to the Parties. The cash value so determined by the
      arbitrator and communicated in writing to the Parties shall be deemed to be
      the
      cash equivalent of the consideration.

     

    ARTICLE
      8

    FORCE
      MAJEURE

     

    
      
        
          	
                  8.1

                	
                  Meaning
                    of Force Majeure

                

        

For
        the
        purposes of this Article, "force majeure" means an occurrence beyond the
        reasonable control of the Party claiming suspension of an obligation hereunder,
        which has not been caused by such Party's negligence and which such Party
        was
        unable to prevent or provide against by the exercise of reasonable diligence
        at
        a reasonable cost and includes, without limiting the generality of the
        foregoing, an act of God, war, revolution, insurrection, blockage, riot,
        strike,
        a lockout or other industrial disturbance, fire, lightning, unusually severe
        weather, storms, floods, explosion, accident, shortage of labour or materials
        (including rig availability), or government restraint, action, delay or
        inaction.

    

    

    
      
        
           

          

          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    

     

    
      	
              8.2

            	
              Suspension
                of Obligations Due to Force
                Majeure

            

    

     

    If
      any
      Party is prevented by force majeure from fulfilling any obligation hereunder,
      the obligations of the Party, insofar only as its obligations are affected
      by
      the force majeure, shall be suspended while the force majeure continues to
      prevent the performance of such obligation and for that time thereafter as
      that
      Party may reasonably require to commence to fulfill such obligation, and during
      the entirety of such period shall not in any event be considered to be in
      default as regards the affected obligations. A Party prevented from fulfilling
      any obligation by force majeure shall promptly give each other Party notice
      of
      the force majeure and the affected obligations, including reasonably full
      particulars in respect thereof.

     

    
      
        	
                8.3

              	
                Obligation
                  to Remedy

              

      

    

     

    The
      Party
      claiming suspension of an obligation as aforesaid shall promptly use
      commercially reasonable efforts to remedy the cause and effect of the applicable
      force majeure, insofar as it is reasonably able so to do, and such Party shall
      promptly give each other Party notice when the force majeure ceases to prevent
      the performance of the applicable obligation. However, the terms of settlement
      of any strike, lockout or other industrial disturbance shall be wholly in the
      discretion of such Party, notwithstanding Section 8.1, and that Party shall
      not
      be required to accede to the demands of its opponents in any strike, lockout
      or
      industrial disturbance solely to remedy promptly the force majeure thereby
      constituted.

     

    
      
        
          	
                  8.4

                	
                  Exception
                    for Lack of
                    Finances

                

        

      

    

     

    Notwithstanding
      anything contained in this Article, lack of finances shall not be considered
      a
      force majeure, nor shall any force majeure suspend any obligation for the
      payment of money due hereunder.

    

    ARTICLE
      9

    GENERAL

     

    
      	
              9.1

            	
              Confidentiality

            

    

     

    The
      Parties covenant that agree to continue to keep all information and
      documentation directly or indirectly related to the Subject Property
      confidential in accordance with Clause
      [·]Article
      XV
      of the
      Operating Procedure. Nothing contained herein or in the Operating Procedure
      or
      the Unit Operating Agreements shall prevent a Party at any time from furnishing
      information to any governmental agency or regulatory authority or to the public
      if required by applicable law, provided that the Parties shall advise each
      other
      in advance of any public statement which they are required to make.

    

     

    

    
      
        
          

          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

     

    
      
        	
                9.2

              	
                Further
                  Assurances

              

      

    

     

    Each
      Party will, from time to time and at all times, without further consideration,
      do such further acts and deliver all such further assurances, deeds and
      documents as shall be reasonably required in order to fully perform and carry
      out the terms of this Agreement. 

     

    
      
        
          	
                  9.3

                	
                  
                    Further
                      Assurances

                  

                

        

      

       

    

    All
      payments to be made pursuant to Clauses 3.1 and 5.1 shall be made by certified
      cheque, bank draft or wire transfer.

     

    
      
        
          
            	
                    9.4

                  	
                    
                      Entire
                        Agreement

                    

                  

          

        

         

      

    

    The
      provisions contained in any and all documents and agreements collateral hereto
      shall at all times be read subject to the provisions of this Agreement and,
      in
      the event of conflict, the provisions of this Agreement shall prevail. No
      amendments shall be made to this Agreement unless in writing, executed by the
      Parties. This Agreement supersedes all other agreements, documents, writings
      and
      verbal understandings among the Parties relating to the subject matter hereof
      and expresses the entire agreement of the Parties with respect to the subject
      matter hereof.

     

    
      
        
          	
                  9.5

                	
                  Governing
                    Law

                

        

      

    

     

    This
      Agreement shall, in all respects, be subject to, interpreted, construed and
      enforced in accordance with and under the laws of the State of Wyoming. The
      Parties irrevocably submit to the exclusive jurisdiction of the courts of the
      State of Wyoming in respect of all matters arising out of or in connection
      with
      this Agreement.

     

    
      
        
          
            	
                    9.6

                  	
                    Enurement

                  

          

        

      

       

    

    This
      Agreement may not be assigned by a Party without the prior written consent
      of
      the other Party, which consent may be unreasonably and arbitrarily withheld.
      This Agreement shall be binding upon and shall enure to the benefit of the
      Parties and their respective administrators, trustees, receivers, successors
      and
      permitted assigns.

     

    
      
        
          
            
              	
                      9.7

                    	
                      Time
                        of
                        Essence

                    

            

          

        

    

    Time
      shall be of the essence in this Agreement.

     

    
      
        
          
            
              
                	
                        9.8

                      	
                        Notices

                      

              

            

          

        

      

    

     

    The
      addresses for service and the fax numbers of the Parties shall be as
      follows: 

    

      
        	
                HSR

              	
                With
                  a copy to:

              
	 	
                Hot
                  Springs Resources Ltd.

                142
                  N. Lincoln

                Casper,
                  WY

                82601

                Facsimile
                  (307) 234-2245

                Attention:
                  President

              
	
                PIN

              	 
	 	
                PIN
                  Partners Petroleum Ltd.

                Suite
                  2410, P.O. Box 11524

                650
                  West Georgia Street

                Vancouver,
                  B.C.

                V6B
                  4N7

                Facsimile
                  (604)·682-5564

                 

                Attention:
                  President

              

      

     

    All
      notices, communications and statements required, permitted or contemplated
      hereunder shall be in writing, and shall be delivered as follows:

     

    
      	 	
              (a)

            	
              by
                personal service on a Party at the address of such Party set out
                above, in
                which case the item so served shall be deemed to have been received
                by
                that Party when personally served;

            

    

    
      	 	
              (b)

            	
              by
                facsimile transmission to a Party to the fax number of such Party
                set out
                above, in which case the item so transmitted shall be deemed to have
                been
                received by that Party when transmitted;
                or

            

    

    
      	 	
              (c)

            	
              except
                in the event of an actual or threatened postal strike or other labour
                disruption that may affect mail service, by mailing first class registered
                post, postage prepaid, to a Party at the address of such Party set
                out
                above, in which case the item so mailed shall be deemed to have been
                received by that Party on the third Business Day following the date
                of
                mailing.

            

    

    

    A
      Party
      may from time to time change its address for service or its fax number or both
      by giving written notice of such change to the other Party.

     

    
      
        
          
            
              
                
                  	
                          9.9

                        	
                          Invalidity
                            of
                            Provisions

                        

                

              

            

          

        

      

    In
      case
      any of the provisions of this Agreement should be invalid, illegal or
      unenforceable in any respect, the validity, legality or enforceability of the
      remaining provisions contained herein shall not in any way be affected or
      impaired thereby.

     

    
      
        	
                9.10

              	
                Waiver

              

      

    

     

    No
      failure on the part of any Party in exercising any right or remedy hereunder
      shall operate as a waiver thereof, nor shall any single or partial exercise
      of
      any such right or remedy preclude any other or further exercise thereof or
      the
      exercise of any right or remedy in law or in equity or by statute or otherwise
      conferred. No waiver of any provision of this Agreement, including without
      limitation, this section, shall be effective otherwise than by an instrument
      in
      writing dated

    

    
      
        
           

          

          
          

        

        
          17

          
            

          

        

        
          
          

        

      

    

    

    subsequent
      to the date hereof, executed by a duly authorized representative of the Party
      making such waiver.

     

    
      
        	
                9.11

              	
                Amendment

              

      

    

     

    This
      Agreement shall not be varied in its terms or amended by oral agreement or
      by
      representations or otherwise other than by an instrument in writing dated
      subsequent to the date hereof, executed by a duly authorized representative
      of
      each Party.

     

    
      
        
          	
                  9.12

                	
                  Counterpart
                    Execution

                

        

      

    

     

    This
      Agreement may be executed in counterpart, no one copy of which need be executed
      by Seller and Buyer. A valid and binding contract shall arise if and when
      counterpart execution pages are executed and delivered by Seller and
      Buyer.

    

    IN
      WITNESS WHEREOF the Parties have executed this Agreement as of the day and
      year
      first above written.

     

    
      	
               

               

              HOT
                SPRINGS RESOURCES LTD.

               

               

              Per:
                _________________________________

               

            	
               

               

              PIN
                PARTNERS PETROLEUM LTD.

               

               

              Per:
                _________________________________

               

            

    

    

    

    

    
      
        
           

          

          
          

        

        
          18Rancher Energy Corp. Exhibit 10.4b - Loan Agreement

    
      Exhibit
        10.4

    

    LOAN
      AGREEMENT

     

     

    THIS
      AGREEMENT,
      dated
      for reference the 6th
      day of
      June, 2006, is made

     

    BETWEEN:

    ENEREX
      CAPITAL, CORP.,
      a
      company incorporated under the laws of the Province of British Columbia, having
      an office at Suite 2410, 650 West Georgia Street, Vancouver, British Columbia,
      V6B 4N7

    

    (hereinafter
      referred to as the “Lender”)

    

    AND:

    RANCHER
      ENERGY CORP.,
      a
      company incorporated under the laws of the State of Nevada, having an office
      at
      Suite 1700, 1050 17th
      Street,
      Denver, Colorado, USA, 90265

    

    (hereinafter
      referred to as the “Borrower”)

     

    WHEREAS
      the
      Borrower wishes to borrow and the Lender is willing to lend to the Borrower
      the
      sum of One Hundred Fifty Thousand Dollars in US funds (US$150,000) on the terms
      hereinafter set out.

     

    NOW
      THEREFORE THIS AGREEMENT WITNESSES
      that in
      consideration of the premises and the mutual covenants and agreements
      hereinafter set forth, the parties hereto agree as follows:

     

    1. DEFINITIONS

     

    Where
      used in this Agreement, the following words and phrases shall have the following
      meaning:

     

    
      	(a)  	
              “Agreement”
                means this Agreement and the schedules hereto, as at any time amended
                or
                modified and in effect;

            

    

     

    
      	(b)  	
              “Charter”
                means the Memorandum and Articles, the Articles and By-Laws or other
                constating documents of the Borrower, as at any time amended or modified
                and in effect;

            

    

     

    
      	(c)  	
              “Event
                of Default” means any event specified in subsection
                7.1;

            

    

     

    
      	(d)  	
              “Lender’s
                Security” means the Note;

            

    

     

    
      	(e)  	
              “Loan”
                means the loan by the Lender to the Borrower established pursuant
                to
                subsection 3.1; and

            

    

     

    
      	(f)  	
              “Note”
                means the non-interest bearing promissory note to be made by the
                Borrower
                to the Lender as evidence of the Loan which shall substantially be
                in the
                form set out in Schedule “A”.

            

    

     

    2. INTERPRETATION

     

    2.1 Governing
      Law

     

    This
      Agreement is governed by the laws of the State of Nevada and the parties attorn
      to the non-exclusive jurisdiction of the courts of Province
      of British Columbia
      for the
      resolution of all disputes under this Agreement.

    
      
         

        

        
        

      

      
        -
          1
          -

        
          

        

      

      
        
        

      

    

     

    2.2  Severability

     

    If
      any
      one or more of the provisions contained in this Agreement is found to be
      invalid, illegal or unenforceable in any respect, the validity, legality and
      enforceability of the remaining provisions contained herein will not in any
      way
      be affected or impaired thereby.

     

    2.3 Parties
      in Interest

     

    This
      Agreement enures to the benefit of and is binding on the parties hereto and
      their respective successors and permitted assigns.

     

    2.4  Headings
      and Marginal References

     

    The
      division of this Agreement into sections, subsections, paragraphs and
      subparagraphs and the insertion of headings are for convenience of reference
      only and do not affect the construction or interpretation of this
      Agreement.

     

    2.5  Currency

     

    All
      statements of, or references to, dollar amounts in this Agreement means lawful
      currency of the United States of America.

     

    3.  THE
      LOAN

     

    3.1  Establishment
      of the Loan

     

    The
      Lender agrees, on the terms and conditions set forth in this Agreement, to
      lend
      to the Borrower the sum of One Hundred Fifty Thousand Dollars
      ($150,000).

     

    3.2  Evidence
      of Indebtedness

     

    Indebtedness
      of the Borrower to the Lender in respect of the Loan will be evidenced by the
      Note, which will be made by the Borrower to the Lender at the time funds are
      advanced, a copy of which form is attached hereto as Schedule “A”.

     

    3.3  Repayment
      of the Loan

     

    The
      Borrower will repay the Loan on or before June 30, 2006. The Loan will be
      subject to interest payable to a Two Percent (2%) lender’s fee payable to the
      Lender at maturity. The lender’s fee will be payable concurrently with repayment
      of the Loan. 

     

    3.4  Repayment
      of the Loan

     

    The
      Borrower may repay the Loan at any time without penalty, bonus or charges.
      

     

    3.5 Conversion
      into Securities

     

    During
      the term of the Agreement or upon maturity, the Lender will have the option
      to
      convert the Loan, or any portion thereof, into securities of the Company.

     

    In
      the
      event the Lender wishes to convert the loan into shares, the shares will be
      offered at a price per share equal to the closing price of the Company’s shares
      on the OTC.BB market on the day preceding notice from the Lender
      of

    
      
         

        

        
        

      

      
        -
          2
          -

        
          

        

      

      
        
        

      

    

     

    its
      intent to convert the Loan, or any portion thereof, into shares of the Company,
      subject only to the following:

     

    In
      the
      event the Borrower is offering a financing opportunity to the general public,
      the Lender will be granted the opportunity to convert the Loan into shares
      or
      units of the Borrower, whichever is being offered, at such price as is being
      offered to the general investing public.

     

    A
      Notice
      of Conversion is attached hereto as Schedule “B”.

     

    

     

    4.  SECURITY
      FOR THE LOAN

     

    4.1  Costs,
      Charges and Expenses

     

    The
      Borrower will assume and pay all costs, charges and expenses, including
      reasonable solicitors’ costs, charges and expenses on a special costs basis,
      which may be incurred by the Lender in respect of this Agreement or the Lender’s
      Security or which may be incurred by the Lender in respect of any proceedings
      taken or things done by the Lender in connection therewith to collect, protect,
      realize or enforce the Lender’s Security.

     

    5. REPRESENTATIONS
      AND WARRANTIES

     

    5.1 Representations
      and Warranties

     

    The
      Borrower represents and warrants to the Lender that:

     

    
      	
              (a)

            	
              the
                Borrower is a corporation duly incorporated, validly existing and
                in good
                standing under the laws of the State of
                Nevada;

            

    

     

    
      	
              (b)

            	
              the
                Borrower has all requisite corporate power and authority to enter
                into
                this Agreement and to grant the Lender’s Security and to carry out the
                obligations contemplated herein and
                therein;

            

    

     

    
      	
              (c)

            	
              this
                Agreement and the Lender’s Security have been duly and validly authorized,
                executed and delivered by the Borrower and are valid obligations
                of it;
                and

            

    

     

    
      	
              (d)

            	
              no
                Event of Default and no event which, with the giving of notice or
                lapse of
                time would become an Event of Default, has occurred or is
                continuing.

            

    

     

    5.2   Survival
      of Representations and Warranties

     

    All
      representations and warranties made herein will survive the delivery of this
      Agreement to the Lender and no investigation at any time made by or on behalf
      of
      the Lender shall diminish in any respect whatsoever its rights to rely on those
      representations and warranties. All statements contained in any certificate
      or
      other instrument delivered by or on behalf of the Borrower under or pursuant
      to
      this Agreement will constitute representations and warranties made by the
      Borrower thereunder.

     

    6.   COVENANTS
      OF THE BORROWER

     

    The
      Borrower covenants and agrees with the Lender that, at all times during the
      currency of this Agreement, it will:

     

    
      	
              (a)

            	
              pay
                the Loan and all other monies required to be paid to the Lender pursuant
                to this Agreement in the manner set forth
                herein;

            

    

    
      
         

        

        
        

      

      
        -
          3
          -

        
          

        

      

      
        
        

      

    

     

    
      	
              (b)

            	
              duly
                observe and perform each and every of its covenants and agreements
                set
                forth in this Agreement and the Lender’s
                Security;

            

    

     

    
      	
              (c)

            	
              provide
                the Lender with immediate notice of any Event of Default;
                and

            

    

     

    
      	
              (d)

            	
              do
                all things necessary to obtain and maintain the Lender’s Security in good
                standing and make payment of all fees and charges in respect
                thereto.

            

    

     

    7.  EVENT
      OF DEFAULT

     

    7.1  Definition
      of Event of Default

     

    The
      Loan,
      costs and any other money owing to the Lender under this Agreement will
      immediately become payable upon demand by the Lender or, unless otherwise waived
      in writing by the Lender, in any of the following events:

     

    
      	
              (a)

            	
              if
                the Borrower defaults in any payment when due under this
                Agreement;

            

    

     

    
      	
              (b)

            	
              if
                the Borrower commits any default under any of the Lender’s Security
                instruments;

            

    

     

    
      	
              (c)

            	
              if
                the Borrower becomes insolvent or makes a general assignment for
                the
                benefit of its creditors, or if any order is made or an effective
                resolution is passed for the winding-up, merger or amalgamation of
                the
                Borrower or if the Borrower is declared bankrupt or if a custodian
                or
                receiver be appointed for the Borrower under the applicable bankruptcy
                or
                insolvency legislation, or if a compromise or arrangement is proposed
                by
                the Borrower to its creditors or any class of its creditors, or if
                a
                receiver or other officer with like powers is appointed for the
                Borrower;

            

    

     

    
      	
              (d)

            	
              if
                the Borrower defaults in observing or performing any other covenant
                or
                agreement of this Agreement on its part to be observed or performed
                and
                such default has continued for a period of seven (7) days after notice
                in
                writing has been given by the Lender to the Borrower specifying the
                default.

            

    

     

    8. GENERAL

     

    8.1 Waiver
      or Modification

     

    No
      failure on the part of the Lender in exercising any power or right hereunder
      will operate as a waiver of power or right nor will any single or partial
      exercise of such right or power preclude any other right or power hereunder.
      No
      amendment, modification or waiver of any condition of this Agreement or consent
      to any departure by the Borrower therefrom will be effective unless it is in
      writing signed by the Lender. No notice to or demand on the Borrower will
      entitle the Borrower to any other further notice or demand in similar or other
      circumstances unless specifically provided for in this Agreement.

     

    8.2 Time

     

    Time
      is
      of the essence of this Agreement.

     

    8.3
      Further
      Assurances

     

    The
      parties to this Agreement will do, execute and deliver or will cause to be
      done,
      executed and delivered all such further acts, documents and things as may be
      reasonably required for the purpose of giving effect to this
      Agreement.

     

    
      
        
        

      

      
        -
          4
          -

        
          

        

      

      
        
        

      

    

    8.4 Assignment

     

    The
      Borrower may not assign this Agreement or its interest herein or any part hereof
      except with the prior written consent of the Lender.

     

    9. NOTICES

     

    9.1Any
      notice under this Agreement will be given in writing and may be sent by fax,
      telex, telegram or may be delivered or mailed by prepaid post addressed to
      the
      party to which notice is to be given at the address indicated above, or at
      another address designated by that party in writing.

     

    9.2If
      notice
      is sent by fax, telex, telegram or is delivered, it will be deemed to have
      been
      given at the time of transmission or delivery.

     

    9.3If
      notice
      is mailed, it will be deemed to have been received 48 hours following the date
      of mailing of the notice.

     

    9.4If
      there
      is an interruption in normal mail service due to strike, labour unrest or other
      cause at or before the time a notice is mailed the notice will be sent by fax,
      telex, telegram or will be delivered.

     

    10. AMENDMENTS

     

    This
      Agreement may be amended, waived, discharged, or terminated only by instrument
      in writing signed by the party against whom enforcement of the amendment,
      waiver, discharge or termination is sought.

     

    

     

    11.
      EXECUTION
      IN COUNTERPART

    

    This
      Agreement may be signed in counterpart and each such counterpart, whether in
      original or facsimile form, together shall constitute a true original and
      provide satisfactory evidence that this Agreement has been duly executed by
      the
      parties hereto.

     

    IN
      WITNESS WHEREOF
      the
      Lender and the Borrower have executed and delivered this Agreement as of the
      day
      and year first written above.

    

    

    ENEREX
      CAPITAL, CORP.

    

    

    /s/
      William Frieson 

    Per: William
      Frieson, President

    

    

    

    RANCHER
      ENERGY CORP. 

    

    

    

    

    /s/
      John Works

    Per:
       John
      Works, President

    
      
         

        

        
        

      

      
        -
          5
          -

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      “A”

     

    to
      the
      Loan Agreement dated for reference the 6th
      day of
      June, 2006

     

    between
      Enerex Capital, Corp. and Rancher Energy Corp.

     

    

    PROMISSORY
      NOTE

     

    Principal
      Amount: US
      $150,000      

    

    For
      value
      received, Rancher
      Energy Corp. (the
      "Borrower") hereby promises to pay to Enerex
      Capital, Corp.
      (the
      "Lender") the principal sum of One Hundred Fifty Thousand Dollars in US funds
      (US$150,000) on the earlier of:

     

    (i) June
      30,
      2006 :

     

    (ii) any
      change of control of the Borrower ("control" being defined as ownership of
      or
      control of direction over, directly or indirectly, 20% or more of the
      outstanding voting securities of the Borrower); and

     

    (iii) the
      occurrence of an Event of Default (as defined in the Loan Agreement between
      the
      Borrower and the Lender dated for reference June 6, 2006),

    

    together
      with lender’s fee calculated at a rate of Two Percent (2%) payable upon
      repayment of the Loan. All payments under this promissory note will be made
      by
      cheque, bank draft or wire transfer (pursuant to wire transfer instructions
      provided by the Lender from time to time) and delivered to the Lender.

    

    The
      undersigned is entitled to prepay this promissory note, in whole or in part,
      without notice or penalty. The undersigned waives demand and presentment for
      payment, notice of non-payment, protest, notice of protest and notice of
      dishonor. This promissory note will be governed by and construed in accordance
      with the laws of the State of Nevada. 

    

    Dated:
      June
      6,
      2006.

    

    RANCHER
      ENERGY CORP.

    

    

    

    

    

    

    /s/
      John Works

    Per: John
      Works, President

    

    
      
         

        

        
        

      

      
        -
          6
          -

        
          

        

      

      
        
        

      

    

    SCHEDULE
      “B”

    

     

    to
      the
      Loan Agreement dated for reference the 6th
      day of
      June, 2006

     

    between
      Enerex Capital, Corp. and Rancher Energy Corp.

     

    

    

    CONVERSION
      FORM

    

    

    

    TO: Rancher
      Energy Corp.
      (Company) 

    

    

    The
      undersigned Holder of a Loan in the amount of One Hundred Fifty Thousand Dollars
      in US funds (US$150,000) hereby irrevocably elects to convert the said Loan
      (or
      $ ______________ principal thereof) into securities in accordance with the
      Terms
      and Conditions of the Loan Agreement and directs that the securities issuable
      and deliverable upon the conversion be issued and delivered to the address
      indicated below.

    

    

    

    

    

    Dated:
         

    (Signature
      of Holder)

    

     

    (Name
      of Holder)

    

    

     

    (Address
      of Holder)

    

    

     

    

    

     

    
      
        
        

      

      
        -
          7
          -

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