Document:

Exhibit 10.2

 

AMENDMENT TO

 

EMPLOYMENT AND CHANGE IN CONTROL AGREEMENT

 

This AMENDMENT TO
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENT (the “Amendment”), effective
as of February 13, 2006, by and between CONSOLIDATED GRAPHICS, INC., a
Texas corporation (the “Company”), and JOE R. DAVIS (the “Executive”),
evidences that;

 

WHEREAS, the
Executive and the Company entered into an Employment and Change in Control
Agreement dated July 25, 2000 (the “Agreement”) for the purposes
stated therein;

 

WHEREAS, in
furtherance of the purposes stated therein, the Executive and the Company wish
to amend such Employment and Change in Control Agreement to reflect the current
circumstances of the Executive and the Company;

 

NOW, THEREFORE,
the Company and the Executive agree as follows:

 

1.             The text of Section 5(a)(i) of the
Agreement is hereby amended by deleting the existing text in its entirety and
substituting the following text therefor:

 

“In lieu of any further payments under Subsection 3(a) to
the Executive for periods subsequent to the Termination Date, but without
affecting the rights of the Executive referred to in Subsection 5(b) hereof,
a lump sum payment (the “Severance Payment”) in an amount equal to a
multiple of three (3) times the sum of (A) the Executive’s annual base
pay as determined in accordance with Section 4(a) of the Employment
Agreement dated February 13, 2006 (the “Employment Agreement”)
between the Executive and the Company, plus (B) the bonus most recently
paid or then owing to the Executive pursuant to Section 5 of the
Employment Agreement.”

 

2.             The text of Section 5(a)(iii) of the
Agreement is hereby amended to insert the following clause (B) between
the existing clauses (A) and (B) and to relabel the existing
clauses (B), (C) and (D) as clauses (C), (D) and (E),
respectively:

 

“(B)         all
unvested equity-based grants shall be immediately vested and eligible to be
converted immediately into shares of the Company’s common stock otherwise
pursuant to the terms thereof and all restrictions on the sale by the Executive
of any shares of the Company’s common stock, including those pursuant to the
exercise of any equity-based grant imposing such restrictions, shall be removed
and the securities shall become freely transferable;”

 

3.             The text of Section 7 of the Agreement is
hereby amended by deleting the existing text in its entirety and substituting
the following text therefor:

 

“Employment Agreement.  To the extent any provision of the Employment
Agreement conflicts with a provision or provisions of this Agreement, the

 

 

provision or provisions of this Agreement shall
control.  For the avoidance of doubt,
upon termination of the Employment Agreement pursuant to Section 15(a)(viii) thereof,
notwithstanding any language in the Employment Agreement to the contrary, Sections 8
and 9 shall be of no further force or effect, and the Executive shall have no
further obligations thereunder.”

 

IN WITNESS WHEREOF, the parties have caused this
Amendment to be duly executed and delivered as of the date first above written.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  CONSOLIDATED GRAPHICS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/
  G. Christopher Colville

  	
   

  
	
   

  	
  Name: G. Christopher
  Colville

  
	
   

  	
  Title:   Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Joe R. Davis

  	
   

  
	
   

  	
  Joe R. Davis

  

 

2Exhibit 10.19

 

GAS PURCHASE CONTRACT

 

BETWEEN W. O. OPERATING COMPANY, LTD. AS “SELLER”

 

AND DUKE ENERGY FIELD SERVICES, LP AS “BUYER”

 

DATED NOVEMBER 1, 2003

 

BOR147100*

 

INDEX

 

	
  SECTION

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  COMMITMENT

  	
   

  	
  1

  
	
  2.

  	
  DELIVERY POINTS

  	
   

  	
  1

  
	
  3.

  	
  DELIVERY PRESSURE

  	
   

  	
  1

  
	
  4.

  	
  QUANTITY

  	
   

  	
  1

  
	
  5.

  	
  PRICE

  	
   

  	
  2

  
	
  6.

  	
  TERM

  	
   

  	
  5

  
	
  7.

  	
  ADDRESSES AND NOTICES

  	
   

  	
  6

  
	
  8.

  	
  TERMINATION OF PRIOR CONTRACTS AND RELEASE SIGNATURE
  PAGE

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A GENERAL
  TERMS AND CONDITIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  A.

  	
  DEFINITIONS

  	
   

  	
  A-1

  
	
  B.

  	
  DELIVERY DATE

  	
   

  	
  A-1

  
	
  C.

  	
  RESERVATIONS OF SELLER

  	
   

  	
  A-2

  
	
  D.

  	
  METERING

  	
   

  	
  A-2

  
	
  E.

  	
  DETERMINATION OF GAS COMPOSITION

  	
   

  	
  A-3

  
	
  F.

  	
  QUALITY OF GAS

  	
   

  	
  A-3

  
	
  G.

  	
  BILLING AND PAYMENT

  	
   

  	
  A-4

  
	
  H.

  	
  FORCE MAJEURE

  	
   

  	
  A-4

  
	
  I.

  	
  WARRANTY OF TITLE

  	
   

  	
  A-5

  
	
  J.

  	
  ROYALTY

  	
   

  	
  A-5

  
	
  K.

  	
  SEVERANCE AND SIMILAR TAXES

  	
   

  	
  A-5

  
	
  L.

  	
  INDEMNIFICATION AND RESPONSIBLITY FOR INJURY OR
  DAMAGE

  	
   

  	
  A-5

  
	
  M.

  	
  RIGHT OF WAY

  	
   

  	
  A-6

  
	
  N.

  	
  ASSIGNMENT

  	
   

  	
  A-6

  
	
  O.

  	
  MISCELLANEOUS PROVISIONS

  	
   

  	
  A-6

  

 

 

GAS PURCHASE CONTRACT

 

This Contract is
entered as of the 1st day of November 2003, between W.
O. OPERATING COMPANY, LTD. (“Seller”) and DUKE ENERGY FIELD SERVICES, LP (“Buyer”).

 

For and in consideration of the mutual covenants contained herein, the
parties agree as follows:

 

1.             COMMITMENT.
 Seller will sell and deliver, and Buyer
will purchase and receive gas produced from all wells now or later located on
all oil and gas interests now or later owned or controlled by Seller on or
allocated to the following lands in Carson County, Texas:

 

W/2 Section 89, Block 7, I&GN Survey

 

NE/4 SW/4 Section 89, Block 7, I&GN Survey

 

The above lands contain the following well(s), which are or soon will
be producing:

 

Rosa #1

 

Rosa #3

 

Definitions and General Terms and Conditions included in this Contract
are attached as Exhibit A and incorporated by reference.

 

2.             DELIVERY
POINTS.  The Delivery Points for gas to be
delivered by Seller to Buyer for existing sources of production will be at the
inlets of Buyer’s Facilities at a mutually agreeable site at or near Seller’s
sources of production. The Delivery Points for future sources of production
committed under this Contract will be established under Section B.2 of Exhibit A.
Title to the gas and all its components shall pass to and vest in Buyer at the
Delivery Points without regard to the purposes for which Buyer may later use or
sell the gas or its components.

 

3.             DELIVERY PRESSURE.  Seller
will deliver the gas at the Delivery Points at a pressure sufficient to enable
it to enter Buyer’s Facilities against the working pressure at reasonably
uniform rates of delivery, not to exceed the maximum allowable operating
pressure established by Buyer or pressures that prevent others from producing
ratably. Buyer in its discretion may require that Seller install and operate a
pressure relief or reduction device upstream of any Delivery Point set at the
pressure designated by Buyer to limit the pressure at

 

1

 

which Seller delivers
gas, where Seller’s deliveries might interfere with ratable deliveries from
others or to enhance safety.

 

4.             QUANTITY.  (a) 
Seller shall deliver and Buyer shall purchase and take Seller’s gas subject to
the operating conditions and capacity of Buyer’s Facilities and resale markets.
Although there is no specific purchase quantity, Buyer will Use commercially
reasonable efforts to market gas for resale and operate its facilities in an
effort to maintain consistent takes of all available quantities.  If Buyer takes less than the full quantities
available, Buyer will use commercially reasonable efforts to purchase gas from
the lands covered by this Contract ratably with its purchases of similar gas in
each common gathering system or area within its capabilities using existing
facilities, in compliance with Buyer’s existing contracts and with applicable
laws and regulations, including ratable purchases from Buyer’s affiliates.

 

(b)           Seller may dispose
of any gas not taken by Buyer for any reason, including events of force
majeure, subject to Buyer’s right to resume purchases at any subsequent
time.  In the event Buyer does not take
gas for 15 consecutive days and Seller secures a different temporary market,
Buyer may resume purchases only upon 15 days’ advance written notice as of the beginning
of a month unless otherwise agreed.

 

(c)           Seller will use
commercially reasonable efforts to deliver gas meeting the quality requirements
and to avoid delivery of Inferior Liquids as defined in Exhibit A, Section A(g).
In the event the gas at any Delivery Point becomes insufficient in volume,
quality, or pressure, Buyer may cease gas takes from those points so long as
the condition exists, or may terminate this Contract as to any affected gas
upon 30 days advance written notice to Seller. 
If Buyer ceases taking gas under this Section for 30 consecutive
days for reasons other than quality [Ex. A Sec. F] or force majeure [Ex. A Sec.
H], Seller may terminate this Contract with respect to the affected sources as
to the then productive zones upon 30 days’ advance written notice to Buyer; provided
that during the notice period Buyer may resume consistent takes and purchases,
and thereby avoid Contract termination under Seller’s notice.

 

5.             PRICE.

 

5.1          Consideration.  As full consideration for the gas and all its
components delivered to Buyer each month. Buyer shall pay Seller (i) percentage
determined in Table 5.1 below of the net value determined under Section 5.2
below for residue gas attributable to Seller’s gas, and (ii) percentage
determined in Table 5.1 below of the net value determined under Section 5.3
below

 

2

 

for any NGL’s
attributable to Seller’s gas.  No
separate payment or value calculation is to be made under this Contract for
helium, sulfur, CO2, other non-hydrocarbons, or Inferior Liquids.

 

Table 5.1

 

	
  Average MCFD delivered
  hereunder in a

  production month/delivery point

  	
   

  	
  Percentage in 5.1 (i) and 5.1 (ii) for

  such production month

  
	
  0-150 MCFD

  	
   

  	
  75%

  
	
   

  	
   

  	
   

  
	
  151 and Greater
  MCFD

  	
   

  	
  80%

  

 

5.2          Residue
Gas Value.  The net
residue gas value will be determined by multiplying the MMBtu’s of residue gas
attributable to Seller times the “Index Price,” which shall be 98% of the price
per MMBtu published in Inside F.E.R.C. ‘s
Gas Market Report in its first publication of the month in which the
gas is delivered for “Prices of Spot Gas Delivered to Pipelines” for Panhandle
Eastern Pipeline Company: Texas, Oklahoma (mainline). If this price quotation
is discontinued or materially modified, its successor will be used, or in the
absence of a successor, Buyer will select another publication that enables
calculation of an Index Price closely comparable to that previously used.  If a change in the Index Price calculation
becomes necessary, Buyer will so inform Seller by written notice, setting forth
the changes.

 

5.3          NGL Value.  The net value
of any recovered NGLs attributable to Seller will be determined by multiplying
the quantity of each NGL component attributable to Seller’s gas by the average
price per gallon for each NGL component f.o.b. Buyer’s plant or plants.  The term “average price per gallon for each
NGL component f.o.b. Buyer’s plant or plants” as to each NGL component will
mean the simple average of the midpoint of the daily high/low spot price for (i) ethane,
(ii) propane, (iii) isobutane, (iv) normal butane, and (v) natural
gasoline (pentanes and heavier) during the month as reported for Conway/Group
140 Spot Gas Liquids Price (Mapco), Kansas published by the Oil Price
Information Service (or in its absence, a comparable successor publication
designated by Buyer) less a transportation, fractionation, and storage (“TF&S”)
fee of $0.065244 per gallon. The TF&S fee for NGL components shall be
adjusted as follows, but shall never be less than the initial fee.  The TF&S fee shall be adjusted at the beginning
of each calendar year beginning with 2004 by an amount equal to the annual percentage
change in the preliminary estimate of the implicit price deflator, seasonally
adjusted, for the gross domestic product (“GDP”) as computed and most recently
published by the U.S.

 

3

 

Department of Commerce, or in its absence, a similar successor
adjustment factor designated by Buyer.

 

5.4          Low
Volume Delivery Points.  The
price for gas delivered at any Delivery Point where the volume delivered to
Buyer has been less than 450 Mcf per month for three consecutive months will be
reduced to one-half (1/2) of that computed under Section 5.1, 5.2 and 5.3 effective
the first day of the month following the three month period. The price for gas
from the affected Delivery Points will remain so reduced until the quantity
delivered from the Delivery Point is again at least 450 Mcf per month for three
consecutive months effective as of the first day of the following month.

 

5.5          Allocation of Residue
Gas and NGL’s. Buyer will determine
the residue gas and NGL’s attributable to Seller using the following
definitions and procedures.  Additional definitions
are in Section A of Exhibit A.  From time to time Buyer may make changes and adjustments
in its allocation methods to improve accuracy of efficiency.

 

(a)        Field Compression-all
Compression downstream from the Delivery Points, including that adjacent to the
plant inlet, that compresses gas to the plant inlet pressure.

(b)        Low Pressure Gas-any
gas delivered by Seller into Buyer’s Facilities at pressures that allow receipt
at Buyer’s Field Compression at a compressor station inlet pressure equal to or
less than zero pounds psig.

(c)        Intermediate
Pressure Gas-any gas delivered by Seller into Buyer’s Facilities at pressures
that allow receipt at Buyer’s Field Compression at a compressor station inlet
pressure of greater than zero pounds (0#) psig.

(d)        High Pressure Gas-any
gas delivered by Seller into Buyer’s Facilities that is not compressed by Field
Compression.

(e)        Plant Inlet Gallons-the
quantity of each NGL component attributable to Seller delivered to the plant
inlet will be determined by multiplying the gallons of each component contained
in the gas delivered by Seller at each Delivery Point by the applicable
percentage as follows:

 

	
  High Pressure

  	
   

  	
  90

  	
  %

  
	
  Intermediate Pressure

  	
   

  	
  88

  	
  %

  
	
  Low Pressure

  	
   

  	
  85

  	
  %

  

 

(f)         NGL’s Attributable
to Seller-the quantity of each NGL component attributable to Seller’s gas
will be determined by multiplying Seller’s Plant Inlet Gallons times fixed
recovery percentages as follows:

 

4

 

	
  Ethane

  	
   

  	
  50

  	
  %

  
	
  Propane

  	
   

  	
  90

  	
  %

  
	
  Iso & Normal Butanes

  	
   

  	
  95

  	
  %

  
	
  Pentanes & Heavier

  	
   

  	
  95

  	
  %

  

 

(g).       Residue Gas
Attributable to Seller-the MMBtu’s of residue gas attributable to Seller
will be the sum of the MMBtu’s of methane and heavier hydrocarbons contained in
the gas delivered at the Delivery Points by Seller, less the MMBtu’s contained
in the NGL gallons allocated to Seller’s gas determined under Section 5.5(f) above,
less the applicable percentage below of the MMBtu’s delivered at each Delivery
Point for gathering and plant fuel, losses, and unaccountables:

 

	
  High Pressure

  	
   

  	
  10

  	
  %

  
	
  Intermediate Pressure

  	
   

  	
  12

  	
  %

  
	
  Low Pressure

  	
   

  	
  15

  	
  %

  

 

Whenever force majeure or
maintenance needs prevent normal gathering and processing operations for Seller’s
gas, fixed recovery percentages will not apply, and Seller’s attributable NGL
gallons and residue gas will be based on Seller’s prorata share of actual
gathering and processing results during those periods based on gas
compositions, volumes from each common source, and an equitable distribution
among suppliers of fuel, losses, and unaccountables, in a manner similar to
that used for Buyer’s purchase contracts that call for allocations based on
actual results.  Buyer will include the
adjusted overall monthly recoveries in its monthly gas statement to Seller.

 

5.6          Price
Renegotiation Rights.  Notwithstanding the
foregoing provisions of this Section 5, PRICE, if at any time, and from
time to time, Buyer in its sole judgment determines that at any or all Delivery
Points, regulatory or operating conditions relating to Buyer’s Facilities or
market conditions relating to Buyer’s purchase of gas or resale of residue gas
and NGL’s indicate that a downward price revision is necessary or appropriate,
then Buyer may notify Seller of Buyer’s intent to renegotiate Seller’s price
and pricing basis or to terminate this Contract, upon 30 days advance written
notice from Buyer to Seller prior to the proposed effective date. If Seller is
not willing to accept a renegotiated price nominated by Buyer, then as to all
gas affected by Buyer’s notice, Seller may (i) cause a renegotiation of
pricing percentages or (ii) terminate this Contract as to the affected gas
by written notice to Buyer at any time prior to the effective date of Buyer’s
nominated price. Whether or not notice of termination is given by Seller within
that period, if Seller makes and Buyer accepts deliveries of gas from the
affected sources after

 

5

 

the effective date of the
price change, Seller will be deemed to have accepted Buyer’s nominated price
for those deliveries.

 

6.             TERM.
This Contract shall be in force for a primary term extending
through October 31, 2008, and from year to year thereafter until canceled by either
party as of the end of the primary term or any anniversary thereafter by giving
the other party at least 60 but not more than 120 days’ advance written notice
of termination.

 

7.             ADDRESSES
AND NOTICES.  Either party may give notices to the other
party or parties by first class mail postage prepaid, by overnight delivery
service, or by facsimile with receipt confirmed at the following addresses or
other addresses furnished by a party by written notice.  Unless Seller objects in writing, Buyer may
also use Seller’s current address for payments. Any telephone numbers below are
solely for information and are not for Contract notices.  The parties opt out of electronic delivery of
notices and amendments under this Contract, except that notices and hand signed
amendments may be delivered by facsimile with receipt confirmed as stated
above.

 

	
  Notices to Seller:

  	
  W.O. Operating Company,
  Ltd.

  
	
   

  	
  Attn: Gas Contract
  Administration

  
	
   

  	
  P. O. Box 960

  
	
   

  	
  Pampa, TX 79066-0960

  
	
   

  	
  Phone:

  	
  (806) 665-8298

  
	
   

  	
  Fax:

  	
  (806) 665-1960

  
	
   

  	
   

  
	
  Notices to Buyer – General:

  	
  Duke Energy Field
  Services, LP

  
	
  (Gas Acquisitions and
  Accounting)

  	
  Two Warren Place

  
	
   

  	
  6120 South Yale,
  Suite 1100

  
	
   

  	
  Tulsa, OK 74136

  
	
   

  	
  Phone:

  	
  (918) 492-3331

  
	
   

  	
  Fax:

  	
  (918) 492-3375

  
	
   

  	
   

  
	
  Ownership changes,
  Division

  	
  Duke Energy Field
  Services, LP

  
	
  Orders:

  	
  Attn: Division Orders

  
	
   

  	
  Two Warren Place

  
	
   

  	
  6120 South Yale,
  Suite 1100

  
	
   

  	
  Tulsa, OK 74136

  
	
   

  	
  Fax: (918) 499-4286

  

 

6

 

8.             TERMINATION
OF PRIOR CONTRACTS AND RELEASE.

 

8.1          Termination
and Release.  This Contract terminates and supersedes any prior contracts for the
sale or handling of gas between the parties or their predecessors in interest
that apply or applied to any gas produced from any sources covered by this
Contract effective as of its date. In negotiating the terms of this Contract,
the parties have compromised and settled any and all price, fee payment, and
other disputes relating to or under the superseded contract(s). Inconsideration
of the covenants contained herein, each party hereby releases the other party,
its affiliates, and its predecessors in interest under the prior contracts from
any causes of action, claims, and liabilities (i) that they failed to pay
the full prices or fees under the prior contracts, including interest, (ii) that
they failed to perform any other obligation under the prior contracts, and (iii) arising
from their relationship as parties to the prior contracts

 

8.2          Exceptions.  This
termination and release does not include, and the parties expressly retain, the
right to receive payments under the prior contract(s) for current gas production
for which payment is not yet due and for which a party has not yet made payment
in the ordinary course of business.  This
mutual release also does not include matters relating to title to gas and gas
processing rights, Seller’s obligations for payment of third parties and severance
taxes, related interest and penalties, or gas imbalances under prior gathering
or take in kind agreements.

 

IN WITNESS WHEREOF, the parties have
set their hands in person or by their duly authorized representatives as of the
date set first forth above.

 

 

	
  W. O. OPERATING COMPANY, Ltd.

  	
  DUKE ENERGY FIELD SERVICES, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Miles O’ Loughlin

  	
   

  	
  By

  	
  /s/ Mark B. Concienne

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  Manager

  	
   

  	
  Title:

  	
  Managing Director

  	
   

  
	
   

  	
   

  
	
  Executed on

  	
     3-18-04

  	
   

  	
  Executed on

  	
     3/25/04

  	
   

  
	
   

  	
  Seller

  	
   

  	
  Buyer

  
												

 

 

Signature Sheet for Gas Purchase Contract

 

Dated as of November 1, 2003

 

7

 

EXHIBIT A

 

TO GAS
PURCHASE CONTRACT

 

BETWEEN
W.O. OPERATING COMPANY, LTD. AS “SELLER”

 

AND DUKE
ENERGY FIELD SERVICES, LP AS “BUYER”

 

DATED AS
OF NOVEMBER 1, 2003

 

BOR147100*

 

GENERAL
TERMS & CONDITIONS

 

A. DEFINITIONS

 

Except where the context
indicates a different meaning or intent, and whether or not capitalized, the
following terms will have meaning as follows:

 

a. Affiliate-a
company (i) in which a party owns directly or indirectly more than 50% of
the issued and outstanding voting stock or other equity interests; (ii) which
owns directly or indirectly more than 50% of the issued and outstanding voting
stock or equity interests of the party; (iii) in which a company described
in (ii) owns, directly or indirectly, more than 50% of the issued and
outstanding voting stock or other equity interests, or (iv) coventurers of
the Duke Energy Field Services, LP or its successors.

 

b. Btu-British
Thermal Unit, or the quantity of heat required to raise the temperature of 1
pound of water 1°F at a starting temperature of 59.5°F. MMBtu-one
million Btu’s.

 

c. Buyer’s Facilities-
the gas delivered by Seller will be gathered in gathering systems and may be
redelivered to a gas processing plant or plants for the removal of NGL’s
together with gas produced from other properties. The gathering systems and
plant or plants, or successor facilities, are “Buyer’s Facilities” whether
owned by Buyer, an affiliate of Buyer, or an unaffiliated third party. No
facilities downstream of the processing plant or plants other than short
connecting lines to transmission lines are included in “Buyer’s Facilities.”

 

d. Day-a period of
24 consecutive hours beginning and ending at 9:00 a.m. Central Clock Time.

 

e. Force Majeure-see
Section H.2 below.

 

f. Gas-all natural
gas available from the wells or acreage subject to this Contract that arrives
at the surface in the gaseous phase, including all hydrocarbon and
non-hydrocarbon components, casinghead gas produced from oil wells, gas well
gas, stock tank vapors, and other sources of production, unless specifically
excluded in the Commitment Section above.

 

g. Inferior Liquids-mixed
crude oil, slop oil, salt water, nuisance liquids, and other liquids recovered
by Buyer in its gathering system or at plant inlet receivers. Revenues from
Inferior Liquids, drips, and other gathering system liquids will be retained by
Buyer to defray costs of treating and handling; Buyer will not allocate or pay
for those liquids.

 

f. Mcf-1,000 cubic
feet of gas at a standard condition of 60°F and 14.65 psia.

 

i. Month-a
calendar month beginning on the first Day of a month.

 

j. NGL or NGL’s-ethane
and heavier liquefiable hydrocarbons separated from gas and any incidental
methane in NGL after processing. See Section 5.3(i) through (v) for
particular components.

 

k. Delivery Points-whether
one or more, see Sections 2, B.1, and B.2.

 

l. psi-pounds per
square inch; psia-psi absolute; psig-psi gauge.

 

m. Residue gas-merchantable
hydrocarbon gas available for sale from Buyer’s Facilities remaining after
processing, and hydrocarbon gas resold by Buyer without first being processed.

 

n. TF&S-NGL
transportation, fractionation, and storage, see Section5.3.

 

B. DELIVERY DATE; COMPRESSION

 

B.1 Existing Sources Delivery
Date.

 

As to committed sources
of production, deliveries under this Contract will commence within thirty (30)
days of the earlier of (a) Oneok’s refusal to match Buyer’s bona fide
offer contained herein; or (b) termination of the contract currently in
effect between Oneok and Seller. Seller hereby agrees to provide timely and
proper notice to terminate such contract. As to committed sources of production
existing as of the date of this Contract but not yet connected, Seller will
commence and complete with due diligence the construction of the facilities
necessary to enable Seller to deliver the committed gas at the Delivery Points,
and Buyer will cause prompt commencement and complete with due diligence the
construction of the facilities necessary and economically feasible to enable
Buyer or its gas gathering contractor to receive gas deliveries at the Delivery
Points.

 

B.2 Additional Sources
Delivery Date.

 

As to committed sources
of production acquired, drilled, or discovered after the date of this Contract,
Seller will

 

A-1

 

commence and complete
with due diligence the construction of the facilities necessary to enable
Seller to deliver gas at the Delivery Points established for the additional
production. Buyer will cause prompt commencement and complete with due
diligence construction of the facilities necessary and economically feasible to
enable Buyer or its gas gathering contractor to receive deliveries of gas at
those Delivery Points. If Buyer determines it is not profitable to construct
the facilities, Seller will have the option to construct facilities necessary
to deliver gas into Buyer’s then existing facilities. In the event neither
party elects to construct the necessary facilities, either party may cancel
this Contract as to the affected gas upon 15 days advance written notice to the
other.

 

B.3 Delivery Rates.

 

Seller will have agents
or employees available at all reasonable times to receive from Buyer’s
dispatchers advice and directions for changes in the rates of delivery of gas
as required by Buyer from time to time.

 

B.4 Options to Compress.

 

If Seller’s wells become
incapable of delivering gas into Buyer’s Facilities, neither party will be
obligated to compress, but either party will have the option to do so. If
neither party elects to compress within a reasonable time after the need for
compression appears, Buyer upon written request of Seller will either arrange
promptly to provide compression or release the gas sources unable to deliver
gas into Buyer’s Facilities as to the then-producing formations from commitment
under this Contract.

 

C. RESERVATIONS OF SELLER

 

C.1 Reservations.

 

Seller reserves the
following rights with respect to its interests in the oil and gas properties
committed by Seller to Buyer under this Contract together with sufficient gas
to satisfy those rights:

 

a. To operate Seller’s
oil and gas properties free from control by Buyer, in such manner, as Seller,
in Seller’s sole discretion deems advisable, including without limitation the
right, but never the obligation, to drill new wells, to repair and rework old
wells, renew or extend, in whole or in part, any oil and gas lease covering any
of the oil and gas properties, and to abandon any well or surrender any such
oil and gas lease, in whole or in part, when no longer deemed by Seller to be
capable of producing gas in paying quantities under normal methods of
operation.

 

b. To use gas for
developing and operating Seller’s oil and gas properties committed under this
Contract and to fulfill obligations to Seller’s lessors for those properties.

 

c. To pool, combine, and
unitize any of Seller’s oil and gas properties with other properties in the
same field, and to alter pooling, combinations, or units, in which event this
Contract will cover Seller’s allocated interest in unitized production insofar
as that interest is attributable to the oil and gas properties committed under
this Contract, and the description of property committed will be considered to
have been amended accordingly.

 

C.2 Exception.

 

Notwithstanding, Seller
will not engage in any operation, including without limitation reinjection,
recycling, or curtailment, that would materially reduce the amount of gas
available for sale to Buyer except upon 120 days advance written notice to
Buyer, or as much advance notice as is feasible under the circumstances. In the
event Seller ceases or materially curtails deliveries to Buyer under this Section C,
the Contract term will be extended by the duration of the interruptions and
curtailments. Buyer will own and be entitled to collect and pay Seller for any
NGL’s that condense or are manufactured from gas during any of Seller’s
operations, excluding crude oil and distillate recovered from gas by
conventional type mechanical separation equipment and delivered to Buyer.

 

D. METERING AND MEASUREMENT

 

D.1 Buyer to Install Meters.

 

Buyer will install,
maintain and operate office meters or other measuring devices of standard make
at or near the Delivery Points. Except as otherwise specifically provided to
the contrary in this Section D, office meters or other measurement devices
will be installed and volumes computed in accordance with accepted industry
practice. Buyer may re-use metering equipment not meeting current standards but
meeting 1985 or later published standards for gas sources not expected to
deliver in excess of 100 Mcf per day. A party providing compression facilities
will also provide sufficient pulsation dampening equipment to prevent pulsation
from affecting measurement at the Delivery Points. Electronic recording devices
may be used. Seller will have access to Buyer’s metering equipment at
reasonable hours, but only Buyer will read, calibrate, adjust, operate, and
maintain it.

 

D.2 Unit of Volume.

 

The unit of volume will
be one cubic foot of gas at a base temperature of 60°F and at a pressure base
of 14.65 psia. Computations of volumes will follow industry accepted practice.

 

D.3 Pressure, Temperature.

 

Buyer may measure the
atmospheric pressure or may assume the atmospheric pressure to be 13.2 psia.
Buyer may determine gas temperature by using a recording thermometer, otherwise,
the temperature will be assumed to be 60°F. 
The specific gravity will be determined annually, or more often at Buyer
deems advisable.

 

D.4 Check Meters.

 

Seller may install,
maintain, and operate in accordance with accepted industry practice at its own
expense pressure regulators and check measuring equipment of standard make
using separate taps. Check meters shall not interfere with operation of Buyer’s
equipment.

 

A-2

 

Buyer will have access to
Seller’s check measuring equipment at all reasonable hours, but only Seller
will read, calibrate, adjust, operate, and maintain it.

 

D.5 Meter Tests.

 

Annually, Buyer will
verify the accuracy of Buyer’s measuring equipment, and Seller or its lease
operator will verify the accuracy of any check measuring equipment. If Seller’s
lease operator or Buyer notifies the other that it desires a special test of
any measuring equipment, they will cooperate to secure a prompt verification of
the accuracy of the equipment. If either at any time observes a variation
between the delivery meter and the check meter, it will promptly notify the
other, and both will then cooperate to secure an immediate verification of the
accuracy of the equipment. Only if so requested in advance by Seller in
writing, Buyer will give Seller’s lease operator reasonable advance notice of
the time of all special tests and calibrations of meters and of sampling for
determinations of gas composition and quality, so that the lease operator may
have representatives present to witness tests and sampling of make joint tests
and obtain samples with its own equipment. Seller will give or cause its lease
operator to give reasonable advance notice to Buyer of the time of tests and
calibrations of any check meters and of any sampling by Seller for
determination of gas composition and quality.

 

D.6 Correction of Errors.

 

If at any time any of the
measuring or testing equipment is found to be out of service or registering
inaccurately in any percentage, it will be adjusted promptly to read accurately
within the limits prescribed by the manufacturer. If any measuring equipment is
found to be inaccurate or out of service by an amount exceeding the greater of
two percent at a recording corresponding to the average hourly rate of flow for
the period since the last test, or 100 Mcf per month, then previous readings
will be corrected to zero error for any known or agreed period. The volume of
gas delivered during that period will be estimated by the first feasible of the
following methods:

 

a.     using the data recorded by any check
measuring equipment if registering accurately;

 

b.     correcting the error if the percentage of
error is ascertainable by calibration, test, or mathematical calculation; or

 

c.     by estimating the quantity or quality
delivered based on deliveries under similar conditions during a period when the
equipment was registering accurately.

 

No adjustment will be
made for inaccuracies unless they exceed the greater of two percent of affected
volumes, or 100 Mcf per month.

 

D.7 Meter Records.

 

The parties will preserve
for a period of at least two years all test data, charts and similar
measurement records. The parties will raise metering questions as soon as
practicable after the time of production. No party will have any obligation to
preserve metering records for more than two years except to the extent that a
metering question has been raised in writing and remains unresolved.

 

E. DETERMINATION OF GAS
COMPOSITION AND HEATING VALUE

 

Annually, or more often
as Buyer deems advisable, Buyer will obtain a representative sample of Seller’s
gas delivered at each Delivery Point; or Buyer may use continuous samplers. By
chromatography or other accepted method in the industry, Buyer will determine
the composition and gross heating value of the hydrocarbon components of Seller’s
gas in Btu per cubic foot on a dry basis at standard conditions, then adjusting
the result for the water vapor content of the gas (by either the volume or Btu
content method), using an industry accepted practice. No heating value will be
credited for Btu’s in H2S and other nonhydrocarbon components. The
first determination of Btu content for Seller’s deliveries will be made within
a reasonable time after deliveries of gas begin. If continuous samplers are
used, the determinations will apply to the gas delivered while the sampler was
installed. If not, the determination will apply until the first day of the
month following the next determination.

 

F. QUALITY OF GAS

 

F.1 Quality Specifications

 

The gas shall be
merchantable natural gas, at all times complying with the following quality
requirements. The gas shall be commercially free of crude oil, water in the
liquid phase, brine, air, dust, gums, gum-forming constituents, bacteria, and
other objectionable liquids and solids, and not contain more than:

 

a.     1/4 grain of H2S per 100 cubic
feet.

 

b.     Five grains of total sulfur nor more than
one grain of mercaptan per 100 cubic feet.

 

c.     Two mole percent of carbon dioxide.

 

d.     Three mole percent of nitrogen

 

e.     20 parts per million by volume of oxygen,
and not have been subjected to any treatment of process that permits or causes
the admission of oxygen, that dilutes the gas, or otherwise causes it to fail
to meet these quality specifications.

 

f.      Five mole percent of combined carbon
dioxide, nitrogen, and oxygen.

 

The gas shall:

 

g.     Not exceed 120°F in temperature at the
Delivery Point.

 

h.     Have a total heating value of at least 1050
Btu’s per cubic foot.

 

F.2 Quality Tests.

 

Buyer will make
determinations of conformity of the gas with the above specifications using
procedures generally accepted in the gas industry. Such determinations will be
made as often as Buyer reasonably deems necessary.

 

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If in the lease operator’s
judgment the result of any such test or determination is inaccurate, Buyer upon
request will again conduct the questioned test or determination. The costs of
the additional test or determination will be borne by Seller unless it shows
the original test or determination to have been materially inaccurate.

 

F.3 Separation Equipment.

 

Seller will employ only
conventional mechanical separation equipment at all production sites covered by
this Contract. Low temperature, absorption, and similar separation facilities
are not considered conventional mechanical separation equipment. Except for
liquids removed through operation of conventional mechanical separators and
except for removal of substances as required to enable Seller to comply with
this Section F, no components of the gas will be removed prior to delivery
to Buyer.

 

F.4 Rights as to Off
Specification

 

a. If any of the gas
delivered by Seller fails to meet the quality specifications stated in this
Section, Buyer may at its option accept delivery of and pay for such gas or
discontinue or curtail taking of gas at any Delivery Point whenever its quality
does not conform to the quality specifications. If Buyer accepts delivery of
off specification gas from Seller or incurs costs relating to inferior gas
quality in its gathering system, Buyer may deduct from the proceeds otherwise
payable a reasonable fee for monitoring the gas quality and treating and
handling the gas. Buyer typically adjusts gas quality deduction levels
annually, but may do so more often if needed.

 

b. If Buyer is declining
to take off quality gas, Seller may by written notice to Buyer request a
release of the affected gas from commitment under this Contract. In that event,
Buyer will within 30 days either (i) waive its right to refuse to take the
affected off quality gas (subject to its right to charge treating fees under
this Section F) and again take gas from the affected sources, or (ii) release
the affected gas from commitment under this Contract.

 

G. BILLING AND PAYMENT

 

G.1 Statement and Payment
Date.

 

Buyer will render to
Seller on or before the last working day of each month a statement showing the
volume of gas delivered by Seller during the preceding month. Buyer will make
payment to Seller on or before the last day of each month for all gas delivered
during the preceding month. As between the parties, late payments by Buyer and
recoupments/refunds from Seller will carry simple interest at the lesser of 6%
per annum or the maximum lawful interest rate; provided that no interest will
accrue as to monthly principal amounts of less than $1,000 due for less than
one year when paid. The parties waive any rights to differing interest rates.
Except as limited in Section G.2 below, Buyer may recover any overpayments
or collect any amounts due from Seller to Buyer for any reason at any time
under this or other transactions by deducting them from proceeds payable to
Seller.

 

G.2 Audit Rights; Time Limit
to Assert Claims.

 

a. Subject to the
execution of a reasonable confidentiality obligation, each party will have the
right during reasonable business hours to examine the books, records and charts
of the other party and to review its own records to the extent necessary to
verify performance of this Contract and the accuracy of any statement, charge
or computation. If any examination reveals an inaccuracy in any payment, the
appropriate adjustment will promptly be made.

 

b. No adjustment for any
billing or payment will be made, and payments shall be final after the lapse of
two years from their due date except to the extent that (i) either party
has noted a specific exception to the other party in writing during that
period, (ii) Buyer has made the appropriate correction, or (iii) underpayment
claims arise with respect to severance tax or third party liabilities and
related interest.

 

c. No party will have any
right to recoup or recover prior overpayments or underpayments that result from
errors that occur in spite of good faith performance if the amounts involved do
not exceed $10/month/meter. Either party may require prospective correction of
such errors.

 

G.3 Metering Records
Availability.

 

Buyer will not be
required to furnish gas volume records relating to electronic recording devices
for gas meters other than daily volume information unless there are indications
the meter was not operating properly.

 

H. FORCE MAJEURE

 

H.1 Suspension of Performance.

 

In the event either party
is rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Contract, other than to make payments due, the
obligations of that party, so far as they are affected by force majeure, will
be suspended during the continuance of any inability so caused, but for no
longer period. The party whose performance is affected by force majeure will provide
notice to the other party, which notice may initially be oral, followed by a
written notification.

 

H.2 Force Majeure Definition.

 

“Force Majeure” means
acts of God, strikes, lockouts or other industrial disturbances, acts of the
public enemy, war, blockades, insurrections, riots, epidemics, landslides,
lightning, earthquakes, storms, floods, washouts, arrests and restraints of
governments and people, civil disturbances, fires, explosions, breakage or
accidents to machinery or lines of pipe, freezing of wells or lines of pipe,
partial or entire failure of wells or sources of supply of gas, inability to
obtain at reasonable cost servitude’s, right of way grants, permits,
governmental approvals, or licenses, inability to obtain at reasonable cost
materials or supplies for constructing or

 

A-4

 

maintaining facilities,
and other causes, whether of the kind listed above or otherwise, not within the
control of the party claiming suspension and which by the exercise of
reasonable diligence the party is unable to prevent or overcome.

 

H.3 Labor Matters Exception.

 

The settlement of strikes
or lockouts will be entirely within the discretion of the party having the
difficulty, and settlement of strikes, lockouts, or other labor disturbances
when that course is considered inadvisable is not required.

 

I. WARRANTY OF TITLE

 

Seller warrants that it
has good title and processing rights to the gas delivered, free and clear of
any and all liens, encumbrances, and claims whatsoever, and that Seller has
good right and lawful authority to sell the same. Seller grants to Buyer the
right to process Seller’s gas for extraction of NGL’s and other valuable
components. If Seller’s title or right to receive any payment is questioned or involved
in litigation, Buyer will have the right to withhold the contested payment
without interest until title information is received, during the pendency of
litigation, until the title or right to receive the questioned payments are
freed from question, or until Seller furnishes security for repayment
acceptable to Buyer. Without impairment of Seller’s warranty of title to gas
and gas processing rights, if Seller owns less than full title to the gas
delivered, payments will be made only in the proportion that Seller’s interest
bears to the entire title to the gas.

 

J. ROYALTY AND OTHER INTERESTS

 

J.1 Seller’s Responsibility.

 

Seller is responsible for
all payments due to the owners of all working interests, mineral interests,
royalties, overriding royalties, bonus payments, production payments and the
like. Buyer assumes no direct liability to Seller’s royalty or other interest
owners under this Contract. For federal and Indian leases, Buyer may at any
time require Seller to sign and furnish a Payor Information From or other
papers to the Minerals Management Service or successor agency to cover Buyer’s
royalty payments for Seller and to verify Buyer’s refusal to assume Seller’s
lease royalty payment obligations.

 

J.2 Buyer’s Payment Services.

 

At Seller’s request,
Buyer agrees to deduct from payments to Seller and to disburse other working
and mineral interests, royalties, overriding royalties, other working
interests, bonus payments, production payments, and the like as Seller directs
from time to time on Seller’s behalf. In return, Buyer shall retain from the
proceeds otherwise due Seller a monthly fee of $35.00 per well or other
settlement payment basis. Buyer reserves the right to adjust this fee upon
advance written notice to Seller.

 

J.3 Buyer’s Reliance on
Ownership Information.

 

Buyer shall not commence
payments for any month under Section J.2 until 30 days after receipt from
Seller of all title information and executed payment directions necessary for
such payments. Payments on behalf of Seller shall include penalties and
interest when payable under applicable laws or regulations. Buyer shall deduct
all such payments, penalties, and interest from the amounts otherwise due
Seller. Buyer may at any time upon at least 30 days advance written notice cease
disbursements on behalf of Seller under Section J.2 and J.3 as of the end
of any month.

 

K. SEVERANCE AND SIMILAR TAXES

 

K.1 Included in Price.

 

Reimbursement to Seller
for Seller’s full liability for severance and similar taxes levied upon Seller’s
gas production is included in the prices payable under this Contract,
regardless of whether some included interests may be exempt from taxation.

 

K.2 Tax Responsibilities and
Disbursements.

 

Seller shall bear all
sales, severance, and other taxes imposed upon Seller with respect to the gas
delivered hereunder, and Buyer shall bear all taxes imposed upon Buyer with
respect to such gas after delivery to Buyer. Unless otherwise required by law,
severance and similar taxes that are payable on a monthly basis and are based
upon the value or volume of the gas produced and sold by Seller shall be
computed and paid by Buyer for the account of Seller, and Buyer shall deduct
such payments from the amounts due Seller. Notwithstanding, Buyer will compute
and pay severance and similar taxes only at the standard tax rate. If special
incentive tax programs or deductions are available that require more detailed
calculations that Seller desires to use, Seller will file with the tax
authorities and pursue any necessary refund claim with them.

 

L. INDEMNIFICATION AND
RESPONSIBILITY FOR INJURY OR DAMAGE

 

L.1 Title, Royalty, and
Severance Taxes.

 

SELLER RELEASES AND AGREES TO
DEFEND, INDEMNIFY, AND SAVE BUYER, ITS AFFILIATES, AND THEIR OFFICERS,
EMPLOYEES, AND AGENTS (“BUYER INDEMNITEES”) HARMLESS FROM AND AGAINST ALL
CLAIMS, CAUSES OF ACTION, LIABILITIES, AND COSTS (INCLUDING REASONABLE
ATTORNEYS’ FEES AND COSTS OF INVESTIGATION AND DEFENSE) RELATING TO (a) SELLER’S
TITLE TO GAS AND GAS PROCESSING RIGHTS, (b) PAYMENTS TO OTHER WORKING AND
MINERAL INTERESTS, AND OTHER OWNERS, AND (c) ROYALTY AND OVERRIDING
ROYALTY PAYMENTS, SALES, SEVERANCE, AND SIMILAR TAXES, THAT ARE THE
RESPONSIBILITY OF SELLER UNDER SECTIONS 1, J, AND K ABOVE.

 

A-5

 

L.2 Responsibility for Injury
or Damage.

 

As between the parties, Seller
will be in control and possession of the gas deliverable hereunder and
responsible for any injury or damage relating to handling or delivery of gas
until the gas has been delivered to Buyer; after delivery, Buyer will be deemed
to be in exclusive control and possession and responsible for any injury or
damage relating to handling or gathering of gas. THE PARTY HAVING
RESPONSIBILITY UNDER THE PRECEDING SENTENCE SHALL RELEASE, DEFEND, INDEMNIFY,
AND HOLD THE OTHER PARTY, ITS AFFILIATES, AND THEIR OFFICERS, EMPLOYEES, AND
AGENTS HARMELESS FROM AND AGAINST ALL CLAIMS, CAUSES OF ACTION, LIABILITIES,
AND COSTS (INCLUDING REASONABLE ATTORNEYS’ FEES AND COSTS OF INVESTIGATION AND
DEFENSE) ARSING FROM ACTUAL AND ALLEGED LOSS OF GAS, PERSONAL INJURY, DEATH,
AND DAMAGE FOR WHICH THE PARTY IS RESPONSIBLE UNDER THIS SECTION L.2;
PROVIDED THAT NEITHER PARTY WILL BE INDEMNIFED FOR ITS OWN NEGLIGENCE OR THAT
OF ITS AGENTS, SERVANTS, OR EMPLOYEES.

 

M.  RIGHT OF WAY

 

Insofar as Seller’s lease
or leases permit and insofar as Seller or its lease operator may have any
rights however derived (whether pursuant to oil and gas lease, easement,
governmental agency order, regulation, statute, or otherwise), Seller grants to
Buyer and Buyer’s gas gathering contractor, if any, and their assignees the
right of free entry and the right to lay and maintain pipelines, meters, and
any equipment on the lands or leases subject to this Contract as reasonably
necessary in connection with the purchase or handling of Seller’s gas. All
pipelines, meters, and other equipment placed by Buyer or Buyer’s contractors
on the lands and leases will remain the property of the owner and may be
removed by the owner at any time. Without limitation, Buyer or its gathering
contractor may disconnect and remove measurement and other facilities from any
Delivery Point due to low volume, quality, term expiration, or other cause.

 

N.  ASSIGNMENT

 

N.1 Binding on Assignees.

 

Either party may assign
this Contract. This Contract is binding upon and inures to the successors,
assigns, heirs, personal representatives, and representatives in bankruptcy of
the parties, and, subject to any prior dedications by the assignee, shall be
binding upon any prior dedications by the assignee, shall be binding upon any purchaser
of Buyer’s Facilities and upon any purchaser of the properties of Seller
subject to this Contract. Nothing contained in this Section will prevent
either party from mortgaging its rights as security for its indebtedness, but
security is subordinate to the parties’ rights and obligations under this
Contract.

 

N.2 Notice of Assignment.

 

Any assignment or
sublease by Seller of any oil and gas properties or any gas rights contracted
to Buyer will be made expressly subject to the provisions of this Contract. No
transfer of or succession to the interest of Seller, however effected, will
bind Buyer unless and until the original instrument or other proper proof that
the claimant is legally entitled to an interest has been furnished to Buyer at
its Division Order address noted in the Notices Section or subsequent
address.

 

O. MISCELLANEOUS PROVISIONS

 

O.1 Governing Law.

 

THIS CONTRACT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
without reference to those that might refer to the laws of another
jurisdiction.

 

O.2 Default and Nonwaiver.

 

A waiver by a party of
any one or more defaults by the other in the performance of any provisions of
this Contract will not operate as a waiver of any future default or defaults,
whether of a like or different character.

 

O.3 Counterparts.

 

This Contract may be
executed in any number of counterparts, all which will be considered together
as one instrument, and this Contract will be binding upon all parties executing
it, whether or not executed by all parties owning an interest in the producing
sources affected by this Contract.

 

O4. Negotiations: Entire
Agreements; Amendment; No Third Party Beneficiaries.

 

The language of this
Contract shall not be construed in favor of or against either Buyer or Seller,
but shall be construed as if the language were drafted mutually by both
parties. This Contract constitutes the final and complete agreement between the
parties. There are no oral promises, prior agreements, understanding,
obligations, warranties, or representations between the parties relating to
this Contract other that those set forth herein. All waivers, modifications,
amendments, and changes to this Contract shall be in writing and executed by
the authorized representatives of the parties. The relations between the
parties are those of independent contractors; this Contract creates no joint
venture, partnership, association, other special relationship, or fiduciary
obligations. There are no third party beneficiaries of Buyer’s sales contract
or of this Contract.

 

O.5 Ratification.

 

If requested in writing
by Buyer of other interest owners, this Contract may be ratified and adopted by
any owner of an interest in any oil and gas properties subject to this Contract
or any lands or leases with which those oil and

 

A-6

 

gas properties may be
pooled or unitized, by execution and delivery to Buyer of an instrument in
writing ratifying and adopting this Contract insofar as the owner’s interest in
any such land, lease or oil and gas properties is concerned, and the ratifying
owner will become a party Seller to this Contract with like force and effect as
though the owner had executed this Contract as amended as of the time of
execution of the ratification, and all of the terms and provisions of this
Contract as amended to the date of the ratification will become binding upon
Buyer and the ratifying owner.

 

O.6 Compliance with Laws and
Regulations.

 

This Contract is subject
to all valid statutes and rules and regulations of any duly constituted
federal or state authority or regulatory body having jurisdiction. Neither
party will be in default as a result of compliance with laws and regulations.

 

O.7 Fees and Cost; Damages.

 

In the event of a breach,
the parties are entitled to recover as their sole and exclusive damages for
breach of the price and quality obligations under this Contract the price for
gas taken by Buyer in the case of Seller and the lost margin less avoided costs
in the case of Buyer. In the event mediation or arbitration is necessary to
resolve a dispute other than one arising under the indemnification obligation
of this Contract, each party agrees to bear its own attorney’s fees and costs
of investigation and defense, and each party waives any right to recover those
fees and costs from the other party or parties.

 

O.8 Mutual Waiver of Certain
Remedies.

 

Except as to the parties
indemnification obligations, NEITHER PARTY SHALL BE LIABLE OR OTHERWISE
RESPONSIBLE TO THE OTHER FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST
PRODUCTION, OR FOR PUNITIVE DAMAGES, AS TO ANY ACTION OR OMISSION, WHETHER
CHARACTERIZED AS A CONTRACT BREACH OR TORT, THAT ARISES OUT OF OR RELATES TO
THIS CONTRACT OR ITS PREFORMANCE OR NONPERFORMANCE.

 

O.9 Arbitration.

 

The parties desire to
resolve any disputes that may arise informally, if possible. All disputes
arising out of or relating to this Contract that are not resolved by agreement
of the parties must be resolved by agreement of the parties must be resolved
using the provisions of this Section O.9. To that end, if a dispute or
disputes arise out of or relating to this Contract, a party shall give written
notice of the disputes to the other involved parties, and each party will
appoint an employee to negotiate with the other party concerning the disputes.
If the disputes have not been resolved by negotiation within 30 days of initial
dispute notice, the disputes shall be resolved by negotiation within 30 days of
the initial dispute notice, the disputes shall be resolved by arbitration in
accordance with the then current Comprehensive Arbitration Rules and
Procedures of the Center for Public Resources Institute for Dispute Resolution
(“Rules”) and this Section O.9. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. §§ 1-16, and the Rules, to the
exclusion of any provision of state law inconsistent with them. The arbitration
shall be initiated by a party seeking arbitration by written notice transmitted
to the other party or parties involved. The parties shall select one
disinterested arbitration with at least ten years’ experience in the natural
gas industry or ten years’ experience with natural gas law, and not previously
employed by either party or its affiliates, and if possible, shall be selected
by agreement between the parties. If the parties cannot select an arbitrator by
agreement within 15 days of the date of the notice of arbitration, a qualified
arbitrator will be selected in accordance with the Rules. If the disputes
involve an amount greater than $100,000, they will be decided by a panel of
three arbitrators with the above qualifications, one selected by each party,
and the third selected by the party-appointed arbitrators, or in the absence of
their agreement, pursuant to the Rules. The arbitrators(s) shall resolve the
disputes and render a final award in accordance with the substantive law of the
state referenced in Section O.1 above, “Governing Law.” The arbitrator’s
award will be limited by the provisions set forth in Sections O.7, “Fees and
Costs; Damages” and O.8 above, “Mutual Waiver of Certain Remedies.” The
arbitrator(s) shall set forth the reasons for the award maybe entered in any
court having jurisdiction.

 

END OF EXHIBIT A
TO GAS PURCHASE

CONTRACT

 

A-7

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