Document:

Exhibit 10.4

 

SECURITY AGREEMENT

 

Date:                    November 30,
2005

 

	
  Secured Party:

   

  Oliver
  Kendall Kelley

  8101
  W. 34th Avenue

  Amarillo,
  Randall County, Texas 79121

   

  	
  Debtor/Pledgor:

   

  Apollo
  LNG, Inc.,

  a
  Texas corporation

  3001
  Knox, Suite 407

  Dallas,
  Texas  75205

  	
  Debtor/Pledgor:

   

  Apollo
  Resources International, Inc.,

  a
  Utah corporation

  3001
  Knox, Suite 407

  Dallas,
  Texas  75205

  
	
   

  	
   

  	
   

  
	
  Debtor/Pledgor:

   

  TxHLDM, Inc.,

  a
  Texas corporation

  3001
  Knox, Suite 407

  Dallas, Texas  75205

  	
  Debtor/Pledgor:

   

  Arizona
  LNG, LLC,

  a
  Nevada limited liability company

  3001
  Knox, Suite 407

  Dallas, Texas  75205

  	
  Debtor/Pledgor:

   

  Applied
  LNG Technologies USA, L..L.C.,

  a
  Delaware limited liability company

  3001
  Knox, Suite 407

  Dallas, Texas  75205

  

 

1.                                      Security Interest.  This Security Agreement (this “Agreement”) is made and entered into this
30th day of November, 2005 (the “Effective
Date”) by and among Oliver Kendall Kelley (“Secured Party” or “Payee”); Apollo LNG, Inc. (“Apollo LNG”); Apollo Resources
International, Inc. (“Apollo Resources”)
(Apollo LNG and Apollo Resources are collectively referred to as “Apollo”); TxHLDM, Inc., a Texas
corporation (“HLDM”); Arizona LNG,
L.L.C., a Nevada limited liability company (“Arizona
LNG”); and Applied LNG Technologies USA, L.L.C., a Delaware limited
liability company (“ALT”).  Apollo LNG, Apollo Resources, HLDM, Arizona
LNG, and ALT are collectively referred to herein as “Debtor.”  For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Debtor assigns and
grants to Secured Party, a security interest and lien in the Collateral
(hereinafter defined) to secure the payment and the performance of the
Obligations (hereinafter defined).  On
even date herewith, Apollo, as Maker, has executed that certain Promissory Note
payable to the order of Secured Party, as Payee, which is hereinafter more
specifically described (the “Promissory Note”).  As used in this Agreement, the term “Loan Documents” means the Promissory Note, this Agreement,
the Guaranty, and any other note or instrument, loan agreement, security
agreement, deed of trust, mortgage, promissory note, guaranty, certificate,
assignment, instrument, document, or other agreement concerning or related to
the Obligations or any portion thereof.

 

Debtor
and Secured Party acknowledge the lien held by Jack B. Kelley, Inc., on
the interest of ALT, in all of the Accounts, Inventory, Equipment, Fixtures,
Instruments and/or Investment Documents, and General Intangibles of ALT, as
each of those terms are hereinafter defined ( “ALT’s Assets”).

 

To
the extent, if any, the lien created hereunder is not in a second lien position
with respect to the prior lien of Jack B. Kelley, Inc. in regard to ALT’s
Assets, the Secured Party hereby subordinates the security interest created
under this Security Agreement to the lien of Jack B. Kelley, Inc.  The prior lien of Jack B. Kelley, Inc.
secures payment of a re-advancing note, and any renewals, extensions and
modifications thereof, in the original principal amount of Eight Million and
No/100 Dollars ($8,000,000.00), which is dated November 1, 2005, executed
by ALT, payable to the order of Jack B. Kelley, Inc.  If default occurs in payment of any part of
principal or interest of the $8,000,000.00 note to Jack B.

 

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Kelley, Inc.,
or in observance of any covenants of the security agreement or any other
documents establishing and securing said note, the entire debt secured by this
Security Agreement will immediately become payable at the option of Secured Party.

 

The
Secured Party also acknowledges the lien held by Arizona LNG on ALT’s interest
in the following, which are included among the Collateral, as that term is
hereinafter defined:

 

a.                                       all of ALT’s interest in the storage and
loading facilities known as the “Needle Mountain Plant,”
which is located upon the real property described on Exhibit ”A” attached
hereto and made a part hereof; and

 

b.                                      all of ALT’s other Assets.

 

The
Debtor and Secured Party hereby acknowledge and agree that the lien held by
Arizona LNG in ALT’s Assets, less and except Arizona LNG’s lien covering ALT’s
interest in and to the storage and loading facilities knows as the Needle
Mountain Plant, is junior to the lien held by Jack B. Kelley, Inc.
covering ALT’s Assets.  The Secured Party
and Debtor further acknowledge and agree that the lien created hereunder is prior
and superior to the lien of Arizona LNG in regard to the storage and loading
facilities known as the Needle Mountain Plant and ALT’s other Assets.  The inferior lien of Arizona LNG secures
payment of a note, and any renewals, extensions and modifications thereof, in
the original principal amount of Ten Million Dollars ($10,000,000), which is
dated August 29, 2005, executed by ALT, and payable to the order of
Arizona LNG.

 

2.                                      Collateral.  A security interest is granted in the following collateral described in
this Item 2 (the “Collateral”):

 

A.                                    Stock.  All
of the shares of stock owned by Apollo in HLDM, and all of the shares of stock
owned by Apollo Resources in Apollo LNG.

 

B.                                    Member Units.  All of the member units owned by any Debtor in the following entities:

 

1.                                       Arizona LNG; and

 

2.                                       ALT.

 

C.                                    Other Assets.  All
of the assets owned by HLDM, Apollo LNG, Arizona LNG and ALT (collectively, the
“Entities”) including, without limitation,
the following:

 

1.                                       Accounts.  Any
and all accounts and other rights of the Entities to the payment for goods sold
or leased or for services rendered whether or not earned by performance,
contract rights, book debts, checks, notes, drafts, instruments, chattel paper,
acceptances, and any and all amounts due to the Entities from a factor or other
forms of obligations and receivables, now existing or hereafter arising out of
the business of the Entities.

 

2.                                       Inventory.  Any
and all goods held as inventory by the Entities, whether now owned or hereafter
acquired, including without limitation, any and all such goods held for sale or
lease or being processed for sale or lease in the business of any of the
Entities, as now or hereafter conducted, including all materials, goods and
other tangible property held for sale or lease or furnished or to be furnished
under contracts of service or used

 

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or
consumed in the business of any of the Entities, along with all documents
(including documents of title) covering such inventory.

 

3.                                       Equipment.  Any
and all of the Entities’ equipment wherever located, whether now owned or
hereafter acquired by replacements, substitutions, trades or purchases.

 

4.                                       Fixtures.  Any
and all of the Entities’ goods held as fixtures, whether now existing or
hereafter acquired.

 

5.                                       Instruments and/or Investment
Documents.  Any and all of the Entities’ instruments,
documents, and other  writings of any
type, which evidence a right to the payment of money and which are of a type
that is transferred in the ordinary course of business by delivery with any
necessary endorsement or assignment, whether now owned or hereafter acquired,
including, without limitation, negotiable instruments, promissory notes,
letters of credit and documents of title owned or to be owned by the Entities,
certificates of deposit, and all liens, security agreements, leases and other
contracts securing or otherwise relating to any of said instruments or documents.

 

6.                                       General Intangibles.  Any
and all of the Entities’ general intangible property, whether now owned or
hereafter acquired by any of the Entities or used in the business of any of the
Entities currently or hereafter, including, without limitation, all patents,
trademarks, service marks, trade secrets, copyrights and exclusive licenses
(whether issued or pending) literary rights, contract rights and all documents,
applications, materials and other matters related thereto (but only to the
extent allowed by law), all inventions, all manufacturing, engineering and
production plans, drawings, specifications, processes and systems, all trade
names, goodwill and all chattel paper, documents and instruments relating to
such general intangibles.

 

D.                                    Substitutions, Proceeds, and
Related Items.  Any and all substitutes and replacements for,
accessions, attachments, and other additions to, tools, parts, and equipment
now or hereafter added to or used in connection with, and all cash or non-cash
proceeds and products of, the Collateral (including, without limitation, all
income, benefits, and property receivable, received or distributed which
results from any of the Collateral, such as dividends payable or distributable
in cash, property or stock; insurance distributions of any kind related to the
Collateral, including, without limitation, returned premiums, interest, premium
and principal payments; redemption proceeds and subscription rights; and shares
or other proceeds of conversions or splits of any securities in the Collateral);
any and all causes in action and causes of action of Debtor, whether now
existing or hereafter arising, relating directly or indirectly to the
Collateral (whether arising in contract, tort or otherwise and whether or not
currently in litigation); all certificates of title, other documents, accounts,
and chattel paper, whether now existing or hereafter arising directly or
indirectly from or related to the Collateral; all warranties, wrapping,
packaging, advertising, and shipping materials used or to be used in connection
with or related to the Collateral; all of Debtor’s books, records, data, plans,
manuals, computer software, computer tapes, computer systems, computer disks,
computer programs, source codes, and object codes containing any information,
pertaining directly or indirectly to the Collateral and all rights of Debtor to
retrieve data and other information pertaining directly or indirectly to the
Collateral from third parties, whether now existing or hereafter arising; and
all returned, refused, stopped in transit, or repossessed Collateral, any of
which, if received by Debtor, upon request shall be delivered immediately to
the Secured Party.

 

3.                                      Description of
Obligation(s).  The following obligations (“Obligations”) are secured by this Agreement: (a) that
certain Promissory Note dated of even date herewith, in the original principal
sum of $6,000,000.00, executed by Apollo, and payable to the order of Secured
Party, and all renewals, extensions or rearrangements thereof; (b) all
debts, obligations and liabilities arising pursuant to the provisions of this
Agreement or any agreement, mortgage,

 

3

 

deed
of trust, security agreement, guaranty, or other instrument or agreement now or
hereafter evidencing, securing or relating to the Promissory Note or any
portion thereof, and all amendments, modifications, supplements, renewals,
extensions or rearrangements of any of the above; (c) all debts,
obligations, liabilities,  and agreements
of Debtor to Secured Party of the kinds described in this Item 3., now existing
or hereafter arising; (d) all costs incurred by Secured Party to obtain,
preserve, perfect, and enforce this Agreement and maintain, preserve, collect,
and realize upon the Collateral; (e) all other costs and reasonable
attorneys’ fees incurred by Secured Party, for which Apollo is obligated to
reimburse Secured Party in accordance with the terms of the Loan Documents
(hereinafter defined), together with interest at the lower of 13.5% per annum
or the highest lawful rate; and (f) all amounts which may be owed to
Secured Party pursuant to all other loan documents executed between Secured
Party and Apollo.

 

4.                                      Debtor’s Warranties. 
Debtor hereby represents and warrants to Secured Party as follows:

 

A.                                    Financing Statements. 
Except for financing statements filed in favor of Jack B. Kelley, Inc.
covering ALT’s Assets, and except for financing statements filed in favor of
Arizona LNG covering the Needle Mountain Plant and ALT’s other Assets, no
financing statement covering the Collateral is or will be on file in any public
office, except the financing statements relating to this security interest and
the security interests held by Jack B. Kelley, Inc. and Arizona LNG,
and no security interest, other than the one herein created and those held by
Jack B. Kelley, Inc. and Arizona LNG, has attached or been perfected in
the Collateral or any part thereof.

 

B.                                    Ownership. 
Debtor owns the Collateral free from any setoff, claim, restriction,
lien, security interest, or encumbrance except liens for taxes not yet due, the
security interests of Jack B. Kelley, Inc. and Arizona LNG, and the
security interest hereunder.

 

C.                                    Fixtures and Accessions.  None
of the Collateral is affixed to real estate or is an accession to any goods, or
will become a fixture or accession, except as expressly set out herein.

 

D.                                    Claims of Debtors on the
Collateral.  To the best of Debtor’s knowledge, all
account debtors and other obligors whose debts or obligations are part of the
Collateral have no right to setoffs, counterclaims or adjustments, and no
defenses in connection therewith.

 

E.                                      Power and Authority. 
Debtor has full power and authority to make this Agreement, and all
necessary consents and approvals of any persons, entities, governmental or
regulatory authorities, and securities exchanges have been obtained to
effectuate the validity of this Agreement.

 

5.                                      Debtor’s Covenants.                                   Until full payment and performance of all of
the Obligations and termination or expiration of any obligation or commitment
of Secured Party to make advances or loans to Debtor, unless Secured Party
otherwise consents in writing:

 

A.                                    Obligation and this
Agreement.  Debtor shall perform all of its agreements
herein and in any other agreements between it and Secured Party.

 

B.                                    Financial Statements.  Each
Debtor shall submit to Secured Party, as soon
as available and in any case not later than 120 days after the end of each
fiscal year of the Debtor, unaudited consolidated financial statements of Debtor
for such fiscal year consisting of a balance sheet and a statement of profit
and loss as of the last day of such fiscal year.  Each Debtor’s financial statements shall be
true and complete, prepared in accordance with GAAP, consistently applied, and
shall fairly present the financial operations as of the respective dates
thereof.  The obligation of Debtor to
provide Debtor’s financial statements to Secured Party shall terminate upon a
transfer of the Promissory Note to a third party; provided, however, that upon
transfer of the Promissory Note to a third party, each Debtor shall cause its financial
statements to continue to be provided to the third party, upon written demand
and pursuant to an appropriate agreement of confidentiality, until full payment
and satisfaction of the Promissory Note.

 

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C.                                    Ownership and Maintenance of
the Collateral.  Debtor shall keep the Collateral in good
condition, save normal wear and tear. 
Debtor shall defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein adverse to Secured
Party.  Debtor shall keep the Collateral
free from all liens and security interests except those for taxes not yet due,
the security interests held by Jack B. Kelley, Inc. and Arizona LNG and
the security interest hereby created. 
Upon written demand, Debtor shall furnish to Secured Party on or before January 1
of each year, proof of payment of ad valorem taxes payable on the Collateral.

 

D.                                    Insurance. 
Debtor shall insure the Collateral with companies rated “B+”, or
higher.  Such insurance shall be in an
amount not less than the fair market value of the Collateral and shall be
against such casualties as are normally found in policies of insurance for
collateral such as the Collateral and businesses such as the businesses of
Debtor.  All insurance policies shall be
written for the benefit of Debtor and Secured Party as their interests may
appear, payable to Secured Party as loss payee, or in other form satisfactory
to Secured Party, and such policies or certificates evidencing the same shall
be furnished to Secured Party.  All
policies of insurance shall provide for written notice to Secured Party at
least thirty (30) days prior to cancellation. 
Risk of loss or damage is Debtor’s to the extent of any deficiency in
any effective insurance coverage.

 

E.                                      Secured Party’s Costs. 
Debtor shall pay all costs necessary to obtain, preserve, perfect,
defend, and enforce the security interests created by this Agreement, collect
the Obligations, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
rent, storage costs, and expenses of sales, legal expenses, reasonable
attorneys’ fees, and other fees or expenses for which Debtor is obligated to
reimburse Secured Party in accordance with the terms of the Loan
Documents.  Whether the Collateral is or
is not in Secured Party’s possession, and without any obligation to do so and
without waiving Debtor’s default for failure to make any such payment, Secured
Party, at its option, may pay any such costs and expenses, discharge
encumbrances on the Collateral, and pay for insurance on the Collateral, and
such payments shall be a part of the Obligations and bear interest at the rate
set out in the Obligations.  Debtor
agrees to reimburse Secured Party on demand for any costs so incurred.

 

F.                                      Information and Inspection. 
Debtor shall: (i) promptly furnish Secured Party any information
with respect to the Collateral reasonably requested by Secured Party; (ii) allow
Secured Party or its representatives to inspect the Collateral during normal
business hours, wherever located, but without any unreasonable disruption to
Debtor’s businesses and to inspect and copy, or furnish Secured Party or its
representatives with copies of, all records relating to the Collateral and the
Obligations; (iii) promptly furnish Secured Party or its representatives
such information as Secured Party may reasonably request to identify the
Collateral. All costs and expenses incurred by Secured Party according to this Section F
shall be borne by Secured Party.

 

G.                                    Additional Documents. 
Debtor authorizes Secured Party to file one or more financing statements
describing the Collateral.  Debtor shall
sign and deliver any papers deemed necessary or desirable in the judgment of
Secured Party to obtain, maintain, and perfect the security interest hereunder
and to enable Secured Party to comply with any federal or state law in order to
obtain or perfect Secured Party’s interest in the Collateral or to obtain
proceeds of the Collateral.

 

H.                                    Parties Liable on the
Collateral.  Debtor shall
preserve the liability of all obligors on any Collateral and shall preserve the
priority of all security therefor.

 

I.                                         Records of the Collateral. 
Debtor, at all time, shall maintain records, which shall be accurate in
all material resects, specifying the location of the Collateral; the insurance
covering the Collateral; and the amount of proceeds received from any sale,
lease or other disposition of the Collateral. 
Secured Party, at its sole cost and expense, is hereby given the right
to audit, at reasonable intervals, but without any unreasonable disruption to
Debtor’s businesses, the books and records of Debtor, relating to the
Collateral during normal business hours upon reasonable prior notice.

 

5

 

J.                                      Disposition of the
Collateral.  No Collateral may be sold, or otherwise
disposed of by Debtor in any manner without the prior written consent of
Secured Party, unless the sale is an arms length transaction between
disinterested parties and/or occurs in the sale of inventory in the normal
course of business.  Debtor shall apply,
within three (3) Business Days of the receipt thereof, all proceeds from
the sale of any of the Collateral (other than sales of inventory in the normal
course of business) to payment of the principal, interest, and other amounts
owing to Secured Party under the Loan Documents.

 

K.                                    Accounts.  Each account held as Collateral will represent the valid and legally
enforceable obligation of third parties and shall not be evidenced by any
instrument or chattel paper.

 

L.                                     Notice/Location of the
Collateral.  Debtor shall give Secured Party written
notice of each office of Debtor in which records of Debtor pertaining to
accounts held as Collateral are kept, and each location at which the Collateral
is or will be kept, and of any change of any such location.  If no such notice is given, all records
pertaining to the Collateral and all Collateral of Debtor are and shall be kept
at the address of Debtor as noted above.

 

M.                                  Change of Name/Status and
Notice of Changes.  Without the written consent of Secured Party,
which consent shall not be unreasonably withheld, no Debtor shall change its
name, change its corporate status, use any trade name, or engage in any
business not reasonably related to its business as presently conducted.  Debtor shall notify Secured Party immediately
of: (i) any material change in the Collateral, (ii) a change in
Debtor’s residence or location, (iii) a change in any matter warranted or
represented by Debtor in this Agreement, or in any of the Loan Documents or
furnished to Secured Party pursuant to this Agreement, and (iv) the
occurrence of an Event of Default (hereinafter defined).

 

N.                                    Use and Removal of the
Collateral.  Debtor shall not use the Collateral
illegally.  Debtor shall not, unless
previously indicated as a fixture, permit the Collateral to be affixed to real
or personal property without the prior written consent of Secured Party.  Debtor shall not permit any of the Collateral
to be removed from the locations specified herein without the prior written
consent of Secured Party, except for the sale of inventory in the ordinary
course of business or except as otherwise permitted by the Loan Documents.

 

O.                                   Consumer Credit.  If
any portion of the Collateral or proceeds includes obligations of third parties
to Debtor, the transactions giving rise to the Collateral shall conform in all
respects to the applicable state or federal law including, but not limited, to
consumer credit law.  Debtor shall hold
harmless and indemnify Secured Party against any cost, loss, or expense arising
from Debtor’s breach of this covenant.

 

P.                                     Power of Attorney. 
Debtor appoints Secured Party as Debtor’s attorney-in-fact with full
power in Debtor’s name and behalf to do every act which Debtor is obligated to
do or may be required to do hereunder; however, nothing in this paragraph shall
be construed to obligate Secured Party to take any action hereunder nor shall
Secured Party be liable to Debtor for failure to take any action
hereunder.  This appointment shall be
deemed a power coupled with an interest and shall not be terminable as long as
the Obligations are outstanding and shall not terminate on the disability or
incompetence of Debtor.

 

Q.                                   Waivers by Debtor. 
Debtor waives notice of the creation, advance, increase, existence,
extension, or renewal of, and of any indulgence with respect to, the Obligations;
waives presentment, demand, notice of dishonor, and protest; waives notice of
the amount of the Obligations outstanding at any time, notice of any change in
financial condition of any person liable for the Obligations or any part
thereof, notice of any Event of Default, and all other notices respecting the
Obligations; and agrees that maturity of the Obligations and any part thereof
may be accelerated, extended, or renewed one or more times by Secured Party in
its discretion, without notice to Debtor. 
Debtor waives any right to require that any action be brought against
any other person or to require that resort be had to any other security or to
any balance of any deposit account.

 

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R.                                    Other Parties and Other
Collateral.  No renewal or extension of or any other
indulgence with respect to the Obligations or any part thereof, no release of
any security, no release of any person (including any maker, endorser,
guarantor, or surety) liable on the Obligations, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising
any right or power with respect to the Obligations or any security therefor or
guaranty thereof or under this Agreement shall in any manner impair or affect
the rights of Secured Party under the law, hereunder, or under any other
agreement pertaining to the Collateral. 
Secured Party need not file suit or assert a claim for personal judgment
against any person for any part of the Obligations or seek to realize upon any
other security for the Obligations, before foreclosing or otherwise realizing
upon the Collateral. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and agrees that
Secured Party shall have no duty or obligation to Debtor to apply to the
Obligation any such other security or proceeds thereof.

 

S.                                     Compliance with State and
Federal Laws.  Each Debtor will maintain its existence, good
standing, and qualification to do business, where required, and comply with all
laws, regulations and governmental requirements, including without limitation,
environmental laws applicable to it or any of its property, business
operations, and transactions.

 

T.                                     Environmental Covenants. 
Debtor shall immediately advise Secured Party in writing of: (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed, or threatened pursuant to any
applicable federal, state, or local laws, ordinances, or regulations relating
to any Hazardous Materials affecting Debtor’s business operations or the
business operations of any of the Entities; and (ii) all claims made or
threatened by any third party against Debtor relating to damages, contribution,
cost recovery, compensation, loss, or injury resulting from any Hazardous
Materials.  Debtor shall immediately
notify Secured Party of any remedial action taken by Debtor with respect to
Debtor’s business operations.

 

U.                                     Possession of Stock.  Apollo
shall deliver possession of the Stock to Secured Party immediately, in a form
suitable for transfer by delivery or accompanied by duly executed instruments
of transfer or assignment in blank with signatures appropriately guaranteed in
form and substance suitable to Secured Party.

 

6.                                      Rights and Powers of Secured
Party.  Secured Party, after default, without
liability to Debtor may: obtain from any person relevant information regarding
Debtor or Debtor’s business, which information any such person also may furnish
without liability to Debtor; require Debtor to give possession or control of
any Collateral to Secured Party; endorse as Debtor’s agent any instruments,
documents, or chattel paper in the Collateral or representing proceeds of the
Collateral; take control of proceeds; release the Collateral in its possession
to the Debtor, temporarily or otherwise; 
take control of funds generated by the Collateral, such as proceeds or
refunds from insurance, and use same to reduce any part of the Obligations; at
any time transfer any of the Collateral or evidence thereof into its own name
or that of its nominee; and demand, collect, convert, redeem, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize upon the Collateral,
in its own name or in the name of Debtor, as Secured Party may determine.  Secured Party shall not be liable for any act
or omission on the part of Secured Party, its officers, agents, or employees,
except for its or their own willful misconduct or gross negligence.  The foregoing rights and powers of Secured
Party will be in addition to, and not a limitation upon, any rights and powers
of Secured Party given by law, elsewhere in this Agreement, or otherwise.  If Debtor fails to maintain any required
insurance, to the extent permitted by applicable law Secured Party may (but is
not obligated to) purchase single interest insurance coverage for the
Collateral which insurance may at Secured Party’s option: (i) protect only
Secured Party and not provide any remuneration or protection for Debtor
directly, and (ii) provide coverage only after the Obligations or any part
thereof have been declared due as herein provided.  The premiums for any such insurance purchased
by Secured Party shall be a part of the Obligations and shall bear interest as
provided in 3(d) hereof.

 

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7.                                      Default.

 

A.                                    Event of Default.  An
event of default (“Event of Default”)
shall occur if:

 

1.                                       there is a loss, theft, damage, or
destruction of any material portion of the Collateral for which there is no
insurance coverage or for which, in the opinion of Secured Party, there is
insufficient insurance coverage;

 

2.                                       subject to any applicable grace period, or
notice and cure period, Debtor, on all or part of the Obligations, shall fail
to timely and properly pay or, in a material manner, fail to observe, keep, or
perform any term, covenant, agreement, or condition in this Agreement or in any
other agreement between Debtor and Secured Party concerning or related to the
Obligations, including, but not limited to the Loan Documents;

 

3.                                       Debtor shall wrongfully fail to timely and
properly pay or, in a material manner, fail to observe, keep, or perform any
term, covenant, agreement, or condition in any lease agreement between Debtor
and any lessor pertaining to premises at which the Collateral is located or
stored;

 

4.                                       Debtor abandons any leased premises at which
the Collateral is located or stored and the Collateral is either moved without
the prior written consent of Secured Party or the Collateral remains at the
abandoned premises;

 

5.                                       default is made in any payment, when due, of
the principal of the Promissory Note;

 

6.                                       default is made in any payment, when due, of
any installment of interest on the Promissory Note and such default has not
been cured within three (3) days of the date on which Apollo receives
written notice of the default from Payee;

 

7.                                       Apollo shall fail to perform or observe, in a
material manner, any other term, covenant or agreement contained in the
Promissory Note  or any other of the Loan
Documents, and any such failure shall remain unremedied for twenty (20) days
from the date on which Apollo receives written notice of the default from the
Payee;

 

8.                                       Apollo LNG or Apollo Resources, or any of
Apollo Resources’ subsidiaries, shall fail to pay when due any principal of or
interest on any indebtedness (other than the Obligations) in excess of One
Million Dollars ($1,000,000.00) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
related to such indebtedness; or any other event considered an event of default
under any agreement or instrument related to any such indebtedness shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or such event is to
accelerate, or to permit the acceleration of, the maturity of such
indebtedness, or any such indebtedness shall be declared to be due and payable,
or required to be prepaid, other than a regularly scheduled prepayment (which
does not include any voluntary prepayments) prior to the stated maturity
thereof;

 

9.                                       Debtor shall sell all or substantially all of
its assets or Debtor shall pay a dividend or make a distribution to holders of
its securities generally (other than in shares of stock or other securities of
Debtor or rights to purchase stock or other securities of Debtor),

 

8

 

which
dividend or distribution, together with all other dividends or distributions by
Debtor on or after the date hereof, shall result in an amount in excess of
twenty-five percent (25%) of Debtor’s assets having been distributed to its
shareholders;

 

10.                                 Debtor institutes proceedings to be
adjudicated as bankrupt or insolvent, or consents to institution of bankruptcy
or insolvency proceedings against it or by the filing by it of a petition or
answer or consent seeking reorganization or release under the federal
Bankruptcy Act or any other applicable federal or state law, or consents to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of Debtor, or of any substantial
part of its property, or makes an assignment for the benefit of creditors, or
makes an assignment for the benefit of creditors, or takes corporate action in
furtherance of any such action;

 

11.                                 within sixty (60) days after the commencement
of an action against Debtor seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other similar relief under any present or future
statute, law or regulation, such action shall not have been resolved in favor
of Debtor or all orders or proceedings thereunder affecting the operations or
the business of Debtor stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if, within sixty (60) days after the
appointment without the consent or acquiescence of Debtor of any trustee,
received or liquidator of Debtor or all or any substantial part of its
properties, such appointment shall not have been vacated; or

 

12.                                 any event defined as an Event of Default
under the terms of the Promissory Note occurs.

 

B.                                    Rights and Remedies.  If
any Event of Default shall occur, then, in each and every such case, Secured
Party may, without presentment, demand, or protest; notice of default,
dishonor, demand, non-payment, or protest; notice of intent to accelerate all
or any part of the Obligations; notice of acceleration of all or any part of
the Obligations; or notice of any other kind, all of which Debtor hereby
expressly waives, (except for any notice required under this Agreement, any
other Loan Document or applicable law) at any time thereafter exercise and/or
enforce any of the following rights and remedies at Secured Party’s option:

 

i.                                         Acceleration.  The Obligations shall, at Secured Party’s option, become immediately
due and payable.

 

ii.                                     Possession and Collection of
the Collateral.  At its option: (a) take possession or
control of, store, lease, operate, manage, sell, or instruct any agent or
broker to sell or otherwise dispose of, all or any part of the Collateral; (b) notify
all parties under any account or contract right forming all or any part of the
Collateral to make any payments otherwise due to Debtor directly to Secured
Party; (c) in Secured Party’s own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the
agent of Debtor any check, note, chattel paper, documents, or instruments
forming all or any part of the Collateral; (e) make formal application for
transfer to Secured Party (or to any assignee of Secured Party or to any
purchaser of any of the Collateral) of all of Debtor’s permits, licenses,
approvals, agreements, and the like relating to the Collateral or to Debtor’s
business; (f) take any other action which Secured Party deems necessary or
desirable to protect and realize upon its security interest in the Collateral;
and (g) in addition to the foregoing, and not in substitution therefor,
exercise any one or more of the rights and remedies exercisable by Secured
Party under any other provision of this Agreement, under any of the other Loan
Documents, or as provided by applicable law (including, without limitation, the
Uniform Commercial Code as in effect in Texas (hereinafter referred to as the “UCC”).  In taking
possession of the 

 

9

 

Collateral,
Secured Party may enter Debtor’s premises and otherwise proceed without legal
process, if this can be done without breach of the peace.  Debtor shall, upon Secured Party’s demand,
promptly make the Collateral or other security available to Secured Party.  Secured Party shall not be liable for, nor be
prejudiced by, any loss, depreciation or other damages to the Collateral,
unless caused by Secured Party’s willful and malicious act.  Secured Party shall have no duty to take any
action to preserve or collect the Collateral.

 

iii.                                 Receiver. 
Obtain the appointment of a receiver for all or any of the Collateral,
Debtor hereby consenting to the appointment of such a receiver and agreeing not
to oppose any such appointment.

 

iv.                                    Sale of the Stock and Voting and Trading Rights.  Secured Party may exercise the rights and
pursue the remedies provided under Article 9 of the UCC, as adopted in the
State of Texas and as currently effective or as hereafter amended, including
but not limited to exercising all voting rights with respect to the Stock,
collecting all dividends and other distributions with respect to the Stock, and
selling the Stock at any public or private sale, at the Lender’s option,
without advertisement.  The Secured Party
may bid and become a purchaser at any such sale, and upon any such sale the
Secured Party shall collect, receive, and hold and apply the proceeds as
provided herein.  Notwithstanding the
foregoing, any such sale, and the proceeds therefrom, must be on terms that are
commercially reasonable. If notice of intended disposition is required by law,
such notice, if mailed, shall be deemed reasonably and properly given if mailed
to the address of Debtor appearing on the records of the Secured Party at least
five (5) days before the time of such disposition.  The proceeds from any such sale or action
shall be applied first to the payment of all legal and other costs and expenses
incurred in connection with the sale or action and next to the payment of the
Obligations.  The balance, if any, of
such proceeds remaining after such application shall be paid to Debtor.  If the proceeds of any such sale or action
are insufficient to pay in full the amounts specified above, Debtor shall
remain liable for such deficiency.  If no
Event of Default has occurred and is continuing, Debtor may exercise any voting
rights that Debtor may have as to any of the Collateral.  If an Event of Default has occurred and is
continuing, Secured Party may exercise all voting rights as to any of the
Collateral and Debtor shall deliver to Secured Party all notices, proxy
statements, proxies and other information relating to the exercise of such
rights received by Debtor promptly upon receipt and, at the request of Secured
Party, shall execute and deliver to Secured Party any proxies or other
instruments which are, in the judgment of Secured Party, necessary for Secured
Party to exercise such voting rights.

 

Secured
Party shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or the Collateral, may be situated and
remove the same therefrom without liability. 
Secured Party may surrender any insurance policies in the Collateral and
receive the unearned premium thereon. 
Debtor shall be entitled to any surplus and shall be liable to Secured
Party for any deficiency.  The proceeds
of any disposition after default, which are available to satisfy the
Obligations, shall be applied to the Obligations in such order and in such
manner as Secured Party in its discretion shall decide.

 

Debtor
specifically understands and agrees that any sale by Secured Party of all or
part of the Collateral pursuant to the terms of this Agreement may be effected
by Secured Party at times and in manners which 
could result in the proceeds of such sale as being significantly and
materially less than might have been received if such sale had occurred at
different times or in different manners, and Debtor hereby releases Secured
Party and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner
of any such sale.

 

If,
in the opinion of Secured Party, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Secured Party may offer and sell such Collateral in a transaction exempt
from registration under federal securities law, and any such sale made in good
faith by Secured Party shall be deemed “commercially reasonable.”

 

10

 

8.                                      General.

 

A.                                    Parties Bound.  Secured Party’s rights hereunder
shall inure to the benefit of its successors and assigns.  In the event of any assignment or transfer by
Secured Party of any of the Obligations or the Collateral, Secured Party
thereafter shall be fully discharged from any responsibility with respect to
the Collateral so assigned or transferred, but Secured Party shall retain all rights
and powers hereby given with respect to any of the Obligations or the
Collateral not so assigned or transferred. 
All representations, warranties, and agreements of Debtor, if more than
one are joint and several, and all shall be binding upon the personal
representatives, heirs, successors, and assigns of Debtor.

 

B.                                    Waiver.  No
delay of Secured Party in exercising any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power
or right.  No waiver by Secured Party of
any right hereunder or of any default by Debtor shall be binding upon Secured
Party unless in writing, and no failure by Secured Party to exercise any power
or right hereunder or waiver of any default by Debtor shall operate as a waiver
of any other or further exercise of such right or power or of any further
default.  Each right, power, and remedy
of Secured Party as provided for herein or in any of the Loan Documents, or
which shall now or hereafter exist at law or in equity or by statute or
otherwise, shall be cumulative and concurrent and shall be in addition to every
other such right, power, or remedy.  The
exercise or beginning of the exercise by Secured Party of any one or more of
such rights, powers, or remedies shall not preclude the simultaneous or later
exercise by Secured Party of any or all other such rights, powers, or remedies.

 

C.                                    Agreement Continuing.  This
Agreement shall constitute a continuing agreement, applying to all future as
well as existing transactions, whether or not of the character contemplated at
the date of this Agreement, and if all transactions between Secured Party and
Debtor shall be closed at any time, shall be equally applicable to any new
transactions thereafter.  Provisions of
this Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.  Time is
of the essence of this Agreement.

 

D.                                    Definitions. 
Unless the context indicates otherwise, definitions in the UCC apply to
words and phrases in this Agreement; if UCC definitions conflict, Article 9
definitions apply.

 

E.                                      Notices. 
Notice shall be deemed reasonable if mailed postage prepaid at least
five (5) days before the related action (or if the UCC elsewhere specifies
a longer period, such longer period) to the address of Debtor given above, or
to such other address as any party may designate by written notice to the other
party.  Each notice, request, and demand
shall be deemed given or made, if sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class
postage prepaid, or if sent by any other means, upon delivery.

 

F.                                      Modifications.  No
provision hereof shall be modified or limited except by a written agreement
expressly referring hereto and to the provisions so modified or limited and
signed by Debtor and Secured Party.  The
provisions of the Agreement shall not be modified or limited by course of
conduct or usage of trade.

 

G.                                    Applicable Law and Partial
Invalidity.  This Agreement has been delivered in the
State of Texas and shall be construed in accordance with the laws of that
State.  Wherever possible each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.  The invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.

 

H.                                    Financing Statement.  To
the extent permitted by applicable law, a carbon, photographic, or other
reproduction of this Agreement or any financing statement covering the
Collateral shall be sufficient as a financing statement.

 

11

 

I.                                         Controlling Document.  To
the extent that this Security Agreement conflicts with or is in any way
incompatible with any other Loan Document concerning the Obligations, any
promissory note shall control over any other document, and if such note does
not address an issue, then each other document shall control to the extent that
it deals most specifically with an issue.

 

J.                                      NOTICE OF FINAL
AGREEMENT.  THIS WRITTEN SECURITY
AGREEMENT AND THE OTHER LOAN DOCUMENTS, TOGETHER WITH THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN SECURED PARTY AND APOLLO DATED EFFECTIVE NOVEMBER 30,
2005, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Signature page to follow.

 

12

 

IN
WITNESS WHEREOF, the parties
hereto have caused this Security Agreement to be duly executed by their duly
authorized representatives as of the date first above written.

 

	
   

  	
  Debtor/Pledgor:

  
	
   

  	
   

  
	
   

  	
  APOLLO
  LNG, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Debtor/Pledgor:

  
	
   

  	
   

  
	
   

  	
  APOLLO
  RESOURCES INTERNATIONAL, INC.,

  
	
   

  	
  a
  Utah Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Debtor/Pledgor:

  
	
   

  	
   

  
	
   

  	
  TxHLDM,
  INC.,

  
	
   

  	
  a
  Texas Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Debtor/Pledgor:

  
	
   

  	
   

  
	
   

  	
  ARIZONA
  LNG, LLC,

  
	
   

  	
  a
  Nevada limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Debtor/Pledgor:

  
	
   

  	
   

  
	
   

  	
  APPLIED
  LNG TECHNOLOGIES USA, L.L.C.,

  
	
   

  	
  a
  Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

13

 

	
   

  	
   

  
	
   

  	
  Oliver
  Kendall Kelley

  

 

14

 

Exhibit A

 

Description of the property upon which the Needle Mountain Plant is
located

 

The Needle Mountain Plant is located upon two (2) tracts out of Section 36,
in Township 16 North, Range 21 West, Gila and Salt River Base Line and
Meridian, Mojave County, Arizona, more particularly described as follows:

 

Tract 1:

 

Beginning at a 1980 U.S. Department of Interior brass cap for the West
1/4 corner of said Section 36, thence South 0o02’57” West 395.2 feet to a
point, thence South 89o57’55” East 520.0 feet to the true point of beginning;

 

Thence South 89o57’55” East 248.00 feet;

Thence South 0o00’08” East 235.41 feet;

Thence South 50o38’33” West 324.99 feet;

Thence North 0o00’08” West 445.60 feet to the true point of beginning,

 

containing 1.882 acres, more or less.

 

Tract 2:

 

Beginning at a 1980 U.S. Department of Interior brass cap for the West
1/4 corner of said Section 36, thence South 0o02’57” West 395.2 feet to a
point, thence South 89o57’55” East 768.0 feet to the true point of beginning;

 

Thence South 89o57’55” East 127.15 feet;

Thence South 0o00’08” East 127.65 feet;

Thence South 49o44’13” West 166.62 feet;

Thence North 0o00’08” West 235.41 feet to the true point of beginning,

 

containing 0.530 acres, more or less.

 

15Exhibit 10.5

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT
is entered into on December 7, 2005, but effective as of November 30,
2005 (the “Effective Date”), by and among the parties listed below:

 

	
  SELLER:

  	
   

  	
  NEPTUNE LEASING, INC.,

  
	
   

  	
   

  	
  a Texas corporation

  
	
   

  	
   

  	
  8101 West 34th
  Avenue

  
	
   

  	
   

  	
  Amarillo, Texas 79159-1166

  
	
   

  	
   

  	
  Telephone No.: (806) 355-5679

  
	
   

  	
   

  	
  Facsimile No.: (806) 353-9611

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GOLDEN
  SPREAD ENERGY, INC.,

  
	
   

  	
   

  	
  a Texas corporation

  
	
   

  	
   

  	
  8101 West 34th
  Avenue

  
	
   

  	
   

  	
  Amarillo, Texas 79159-1166

  
	
   

  	
   

  	
  Telephone No.: (806) 355-5679

  
	
   

  	
   

  	
  Facsimile No.: (806) 353-9611

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Jeff Shrader

  
	
   

  	
   

  	
  Joel Howard

  
	
   

  	
   

  	
  Sprouse Shrader Smith,
  P.C.

  
	
   

  	
   

  	
  701 South Taylor, Suite 500

  
	
   

  	
   

  	
  P.O. Box 15008

  
	
   

  	
   

  	
  Amarillo, Texas 79105-5008

  
	
   

  	
   

  	
  Telephone No.: (806) 468-3300

  
	
   

  	
   

  	
  Facsimile No.: (806) 373-3454

  
	
   

  	
   

  	
   

  
	
  APOLLO PRODUCTION:

  
	
   

  	
   

  	
  APOLLO
  PRODUCTION & OPERATING, INC.,

  
	
   

  	
   

  	
  a Texas corporation

  
	
   

  	
   

  	
  Mr. Dennis
  McLaughlin

  
	
   

  	
   

  	
  3001 Knox

  
	
   

  	
   

  	
  Suite 403

  
	
   

  	
   

  	
  Dallas, Texas 75205

  
	
   

  	
   

  	
  Telephone: (214) 389-9800

  
	
   

  	
   

  	
  Facsimile No.: (214) 389-9806

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  APOLLO
  RESOURCES INTERNATIONAL, INC.

  
	
   

  	
   

  	
  a Utah corporation

  
	
   

  	
   

  	
  c/o Mr. Dennis
  McLaughlin

  
	
   

  	
   

  	
  3001 Knox, Suite 407

  
	
   

  	
   

  	
  Dallas, Texas 75205

  
	
   

  	
   

  	
  Telephone: (214) 389-9800

  
	
   

  	
   

  	
  Facsimile No.: (214) 389-9806

  

 

1

 

	
  With a copy to:

  	
   

  	
  George Lowrance

  
	
   

  	
   

  	
  Chappell, Hill &
  Lowrance, L.L.P.

  
	
   

  	
   

  	
  2501 Parkview, Suite 220

  
	
   

  	
   

  	
  Fort Worth, Texas 76102

  
	
   

  	
   

  	
  Telephone No.: (817) 332-1800

  
	
   

  	
   

  	
  Facsimile No.: (817) 332-1956

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Roger Crabb

  
	
   

  	
   

  	
  Scheef &
  Stone, LLP

  
	
   

  	
   

  	
  5956 Sherry Lane, Suite 1400

  
	
   

  	
   

  	
  Dallas, Texas 75225

  
	
   

  	
   

  	
  Telephone No.: (214) 706-4224

  
	
   

  	
   

  	
  Facsimile No.: (214) 706-4242

  

 

RECITALS

 

WHEREAS, Mountain
States Petroleum Corporation (“Mountain States”) is a corporation
organized under the laws of the State of Texas; and 

 

WHEREAS, the issued
and outstanding stock of Mountain States (the “Stock”) is owned 49% by
Neptune Leasing, Inc. (“Neptune”), and 51% by Golden Spread Energy, Inc.
(“Golden Spread”) (collectively, Neptune and Golden Spread may be
referred to herein as “Seller”), 

 

WHEREAS, Apollo
Production & Operating, Inc. (“Apollo Production”) is a
corporation organized under the laws of the State of Texas; and 

 

WHEREAS, Apollo
Production is a wholly owned subsidiary of Apollo Resources International, Inc.
(“Apollo”); and 

 

WHEREAS, Apollo
Production wishes to acquire the Stock and Seller wishes to sell the Stock
(hereinafter, Apollo Production, Apollo, and Seller may be referred to jointly
as the “Parties”); and 

 

WHEREAS, Apollo will
gain substantial benefit under this Agreement, and therefore desires to enter
into this Agreement, jointly and severally, with Apollo Production, in order to
ensure and guarantee payment and performance by Apollo Production hereunder,
and to make certain representations, warranties, covenants and agreements; and

 

NOW, THEREFORE,
subject to the terms and conditions herein expressed, the Parties agree as
follows:

 

AGREEMENT

 

1.                                      DEFINITIONS.

 

1.1.                              Except
as otherwise provided or unless the context otherwise requires, and in addition
to terms defined in other provisions of this Agreement, the following terms
shall have the meanings specified in this Section 1.1 when
capitalized and used in this Agreement.

 

2

 

(a)                                  “Affiliate”
of a specified person shall mean a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the person specified, and in the case of a specified person who
is a natural person, his/her spouse, his/her issue, his/her parents, his/her
estate and any trust entirely for the benefit of his/her spouse and/or issue. 

 

(b)                                 “Agreement”
shall mean this Stock Purchase Agreement, including the Schedules attached
hereto.

 

(c)                                  “Business
Day” shall mean any day during which the Citibank, NA office at 53rd
and Park Avenue, New York, New York is open for business.

 

(d)                                 “Collateral
Agreements” means the Development Company Letter Agreement and the Gas Supply
MOU.

 

(e)                                  “Commercially
Reasonable Efforts” means those efforts which a prudent business Person would
exert using sound business judgment in like circumstances.

 

(f)                                    “Confidentiality
Agreement” shall mean the Confidentiality Agreement dated September 26,
2005, between Mountain States and Apollo.

 

(g)                                 “Development
Company Letter Agreement” means the Letter of Understanding and Intent between
Apollo Production & Operating, Inc., and Neptune Leasing, Inc.,
effective as of November 30, 2005.

 

(h)                                 “Disclosure
Schedule” shall mean the schedules attached to this Agreement.

 

(i)                                     “Effective
Date” has the meaning given to it in the introductory paragraph of this
Agreement.

 

(j)                                     “Effective
Closing Date” shall mean November 30, 2005. 

 

(k)                                  “Gas
Supply MOU” shall mean the Memorandum of Understanding of even date herewith
between Apollo, Apollo Production, and Arizona LNG, L.L.C.

 

(l)                                     “Governmental
Approvals” shall mean any authorization, approval, consent, license,
registration, lease, ruling, permit, tariff, certification, exemption, filing
or registration by or with any Governmental Authority.

 

(m)                               “Governmental
Authority” shall mean the United States, any state, county, or city, any
political subdivision, agency, court or instrumentality of any of the
foregoing, and any governmental or quasi-Governmental Authority, agency or body
having jurisdiction over the respective assets or the Person in question.

 

(n)                                 “HLDM
Stock Purchase Agreement” shall mean the Stock Purchase Agreement entered into
between Ken Kelley, Apollo, and Apollo LNG, Inc., of even date herewith. 

 

3

 

(o)                                 “Ken
Kelley” shall mean Oliver Kendall Kelley, a person and a resident of Potter
County, Texas.

 

(p)                                 “Ken
Kelley Goodwill” shall mean the personal efforts and contributions of Ken
Kelley to Mountain States, prior to the Closing under this Agreement.

 

(q)                                 “Knowledge,”
“known” and “knows,” shall mean the knowledge, either actual or constructive
(based upon what a reasonable person in the applicable position with a Party
should know), of (i) a Responsible Officer of that Party and (ii) in
the case of the knowledge of Seller, and without limiting clause (i) above,
the Responsible Officers of Neptune, Golden Spread, and Mountain States and
each of Ken Kelley, Eric Alexander and Steve Bartlett and (iii) in the
case of the knowledge of Apollo Production and of Apollo, and without limiting
clause (i) above, the Responsible Officers of Apollo Production, Apollo
and each of Dennis McLaughlin, Mark Ariail, Lyle Justus, Wayne McPherson and
Christopher Chambers.  

 

(r)                                    “Law”
or “Laws” shall mean any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
(including applicable permits and Governmental Approvals) of any applicable
Governmental Authority.

 

(s)                                  “Liens”
shall mean any lien, charge, hypothecation, pledge, mortgage, title retention
agreement, security interest, adverse claim, option, or pledge of any nature,
kind or description whatsoever and any agreement to create any of the
foregoing.

 

(t)                                    “Losses”
shall mean any and all liabilities, payments, losses, suits, claims, costs, or
expenses (including attorneys fees and costs of investigation incurred in
defending against such liabilities, payments, losses, suits, claims, costs or
expenses).

 

(u)                                 “Material
Adverse Effect” or “Material Adverse Change” shall mean any change in or effect
on, Mountain States, Apollo Production or Apollo, as the case may be (including
the businesses thereof) which is, or reasonably could be expected to be,
materially adverse to the business, operations, assets, condition (financial or
otherwise) or prospects of such entity. 

 

(v)                                 “Ordinary
Course of Business” shall mean the ordinary course of business consistent with
past custom and practice (including with respect to quantity, quality and
frequency).

 

(w)                               “Person”
shall mean and include an individual, 
partnership,  limited
partnership,  limited liability
company,  corporation,  association, 
joint stock company,  trust,  joint venture, unincorporated organization,
or a Governmental Authority.

 

(x)                                   “Responsible
Officer” shall mean, with respect to any Person, the chief executive officer,
the president, the respective vice presidents in charge of operations, legal,
finance, and accounting of such Person and, in each case, any Person fulfilling
substantially the same role for such Person, however designated.

 

4

 

(y)                                 “Transfer
and Exchange Agreement” shall mean the Transfer and Exchange Agreement between
Neptune, Golden Spread, Apollo, and Apollo LNG, Inc., of even date
herewith. 

 

1.2.                              Rules of Interpretation.

 

(a)                                  The
singular includes the plural, and the plural includes the singular.

 

(b)                                 A
reference to any Law includes any amendment or modification thereto, all rules and
regulations promulgated under such Law and all administrative and judicial
authority exercisable thereunder.

 

(c)                                  A
reference to any contract, agreement or instrument includes any amendment or
modification thereto including by waiver or consent.

 

(d)                                 A
reference to Person includes its permitted successors and assigns.

 

(e)                                  Any
date specified for any action that is not a Business Day shall be deemed to
mean the first Business Day after such date.

 

(f)                                    This
Agreement shall be deemed to have been drafted by each Party hereto and this
Agreement shall not be construed against any Party as a principal drafts
Person.

 

2.                                      AGREEMENT FOR PURCHASE AND SALE OF STOCK.

 

2.1.                              Purchase and Sale of Stock.  Upon the terms and subject to the conditions
set forth in this Agreement, the Seller shall sell to Apollo Production, and
Apollo Production shall purchase from Seller the Stock for an aggregate
purchase price equal to Twenty Five Million (25,000,000) shares of common stock
in Apollo (the “Apollo Shares”) subject to Rule 144 of the Federal
Securities Act of 1934, as amended. At the Closing referred to in Section 3.1
hereof :

 

(a)                                  The
Seller shall sell, assign, transfer and deliver to Apollo Production the Stock
representing 100% of the issued and outstanding common stock of Mountain States
and shall represent to Apollo Production that there are no additional shares of
stock in Mountain States of any nature or of any category and shall deliver the
certificates representing such Stock accompanied by stock powers duly executed
in blank; and

 

(b)                                 Apollo
Production shall accept and purchase the Stock from the Seller and in payment
thereof shall deliver to Seller and Ken Kelley the Apollo Shares.  The Apollo Shares shall be apportioned
between Seller and Ken Kelley as follows: 
20,250,000 shares shall be allocated to Seller, and 4,750,000 shares
allocated to Ken Kelley in consideration for the Ken Kelley Goodwill.

 

3.                                      CLOSING

 

3.1.                              Closing and Preparation Therefor.  The closing of the transaction contemplated
by this Agreement (“Closing”) shall be transacted on the date five (5) days
after all conditions set forth in Sections 5.1 and 5.2 have been
satisfied or waived, or such other date as may be

 

5

 

mutually
agreed to by Seller and Apollo Production, 
but, in no event, after December 7, 2005 (the “Closing Date”)
and shall occur at the offices of Sprouse Shrader Smith, P.C., Amarillo, Texas,
or such other location as the Parties may agree, provided that the date of
Closing shall be deemed to be the Effective Closing Date.

 

3.2.                              Closing Obligations of Apollo Production.  At or before the Closing, Apollo Production
shall deliver to Seller the following:

 

(a)                                  The
Apollo Shares, free and clear of all Liens. 
The certificates representing the Apollo Shares shall bear the restrictive
legend customarily placed on securities that have not been registered under
applicable federal and state securities laws and shall be accompanied by stock
powers as required by this Agreement, and any other documents that are
necessary to transfer to Seller good title to all the Apollo Shares, all of
which shall be in form acceptable to counsel for Seller.

 

(b)                                 Certified
resolutions of the board of directors of Apollo Production and Apollo,
authorizing or ratifying the execution, delivery, and performance of this
Agreement and all related documents and instruments, duly certified by the
secretary of Apollo Production and the secretary of Apollo.

 

(c)                                  A
certificate from the Secretary of State of Texas certifying that Apollo
Production is a corporation organized under and in good standing in the State
of Texas, and a certificate from the Secretary of State of Utah confirming that
Apollo is a corporation organized under and in good standing in the State of
Utah.

 

(d)                                 The
certificates, instruments, and other documents provided for in Section 5.2
hereof.

 

(e)                                  Such
other documents as Seller’s counsel may reasonably request to consummate the
transactions contemplated hereby.

 

3.3.                              Closing Obligations of Seller.  At or before the Closing, Seller shall
deliver to Apollo Production the following:

 

(a)                                  The
Stock, free and clear of all Liens.  The
certificates representing the Stock shall bear the restrictive legend
customarily placed on securities that have not been registered under applicable
federal and state securities laws, and shall be accompanied by stock powers as
are required by this Agreement, and any other documents that are necessary to
transfer to Apollo Production good title to all of the Stock, all of which
shall be in form acceptable to counsel for Apollo Production.

 

(b)                                 Certified
resolutions of the boards of directors of Neptune, Golden Spread, and Mountain
States, authorizing or ratifying the execution, delivery and performance of
this Agreement and all related documents and instruments.

 

(c)                                  A
Certificate from the New Mexico Secretary of State confirming that Mountain
States is a corporation in good standing in the State of New Mexico.

 

6

 

(d)                                 Releases
of any Liens against any of the Stock or the assets of Mountain States, other
than any Liens expressly permitted under this Agreement.

 

(e)                                  Copies
of letters from Mountain States to all material vendors and suppliers advising
them of the sale, which letters will be mailed by Seller promptly following the
Closing to all of their vendors and suppliers.

 

(f)                                    The
certificates, instruments, and other documents provided for in Section 5.1
hereof.

 

(g)                                 Such
other documents as Apollo’s counsel may reasonably request to consummate the
transactions contemplated hereby.

 

3.4.                              Risk of Loss.  Pending the Closing, Mountain States shall
bear all risk of loss, damage or destruction suffered by Mountain States.  In the event of any material loss, damage or
destruction to the assets of Mountain States prior to the Closing, which cannot
be repaired prior to the Closing, Apollo Production may, in the exercise of its
sole judgment (a) declare the Agreement to be null and void; or (b) waive
the loss, damage or destruction and accept the assets of Mountain States in an “as
is, how is, where is” condition.  In such
event, any insurance proceeds received by Mountain States from such loss,
damage or destruction shall be retained in Mountain States. Pending the
Closing, Apollo Production and Apollo shall bear all risk of loss, damage or
destruction suffered by Apollo Production or by Apollo, respectively.  In the event of any material loss, damage or
destruction to the assets of Apollo Production or of Apollo prior to the
Closing, which cannot be repaired prior to the Closing, Seller may, (a) in
the exercise of its sole judgment declare the Agreement to be null and void; or
(b) waive the loss, damage, or destruction and close the transactions
contemplated hereby. Each Party shall immediately notify the other Party of any
loss, damage or destruction to its properties, as contemplated pursuant to this
Section 3.4.

 

4.                                      OTHER AGREEMENTS

 

4.1.                              Environmental.  It is specifically understood and agreed by
the Parties that, as described on Schedule 4.1, and made a part
hereof by reference, Seller has provided a true and complete copy of Phase I
environmental surveys (the “Environmental Surveys”) of all of the real
property owned by Mountain States.  The
Parties agree that, as of the date of the Closing, the Environmental Surveys
shall be conclusively presumed to be an accurate reflection of the
environmental conditions of all of the real property addressed by the
Environmental Surveys.  The Parties
further agree that the Environmental Surveys, whether they are fully executed
or not, shall be conclusively presumed by the Parties to be true and complete.

 

4.2.                              Apollo Production’s Access to Records.  Upon the mutual execution of this Agreement,
Seller shall give Apollo Production, its counsel, accountants, lenders, and
other designated agents full access, at reasonable times and on reasonable
notice but without any unreasonable disruption to Seller’s or Mountain States’
businesses, to all records, assets, properties and operations pertaining to
Mountain States.

 

The activities described in Section 4.1 and Section 4.2  shall be referred to in this Agreement as “Apollo’s
Due Diligence Review.”

 

7

 

4.3.                              Apollo’s Due Diligence Review.  Apollo’s Due Diligence Review shall also be
subject to the following terms and conditions:

 

(a)                                  Apollo’s
Due Diligence Review shall be scheduled through designated representative(s) of
Seller and Seller shall have the right to accompany Apollo Production’s
employees, representatives and agents as they perform Apollo’s Due Diligence
Review;

 

(b)                                 Apollo
Production shall not disclose or allow its employees, representatives or agents
to disclose the purposes for Apollo’s Due Diligence Review, without the consent
of Seller, which consent shall not be unreasonably withheld or delayed;

 

(c)                                  Apollo
Production shall obtain the prior approval of Seller before conducting any
discussions with Seller’s employees, vendors, customers or service providers,
which approval shall not be unreasonably withheld or delayed;

 

(d)                                 Apollo
Production shall indemnify Seller and Mountain States against any physical
damage or injury to property or persons or for any loss or damage proximately
arising from Apollo’s Due Diligence Review; 

 

(e)                                  Except
as otherwise required by Law, any information concerning Mountain States’
properties gathered by Apollo Production as the result of, or in connection
with, Apollo’s Due Diligence Review shall be kept confidential and shall not be
revealed to, or discussed with, anyone other than representatives of Apollo
Production or representatives of Seller; 

 

(f)                                    Apollo
Production shall bear all costs and expenses of Apollo’s Due Diligence Review.

 

(g)                                 From
the Effective Date through the Closing Date, Seller shall notify Apollo
Production promptly of (i) any actions or proceedings threatened or
commenced against Seller or Mountain States or against any officer, director,
affiliate, employee, properties or assets of Seller or Mountain States which
could impair Seller’s ability to perform their obligations under this
Agreement, and (ii) any request for additional information or documentary
materials by any Governmental Authority in connection with the transactions
contemplated hereby.

 

(h)                                 Seller
shall deliver promptly upon request to Apollo Production, copies or originals
of minute books, property files, accounting and tax records, and other material
records in whatever form or medium that relate to the business or assets of
Mountain States, and that are in the possession or control of Sellers or
Mountain States, and Apollo Production shall receive possession of all original
records, to the extent they are in the possession of Mountain States or Seller
and, in the event such originals are not so possessed, then true, complete and
accurate copies thereof.

 

4.4.                              Seller’s Conduct of Business.  Without in any way limiting any
other obligation of Seller pursuant to this Agreement, from the Effective Date
until the Closing, Seller shall cause Mountain States to (a) maintain its
books and records in accordance with past practices; (b) comply in all
material respects with all applicable Laws; (c) conduct its business in
the Ordinary Course of Business; (d) maintain insurance on the assets and
operations of its business in

 

8

 

amounts and
with coverage at least as great as the amounts and coverage presently
maintained by Mountain States; (e) not do any act or omit to do any act,
or permit any act or omission to act, which would cause a breach of any
contract, commitment or obligation for which Apollo Production or Apollo would
be liable or which would have a Material Adverse Effect.  Seller will not take or permit any action to
be taken which would result in any representation or warranty of Seller or
Mountain States herein becoming untrue or incorrect in any material respect.

 

4.5.                              Employees. 
As of the Effective Date, Mountain States does not have any
employees.  Seller shall indemnify,
defend and hold harmless Apollo Production from any and all obligations, claims,
losses, or expenses associated in any manner with Mountain States’ former
employees and COBRA participants’ rights to group health coverage benefits
after their employment termination.

 

4.6.                              Seller’s Access to Records.  Upon the mutual execution of this Agreement,
Apollo Production shall give Seller, Seller’s counsel, accountants, lenders,
and other designated agents full access, at reasonable times and on reasonable
notice but without any unreasonable disruption to Apollo Production’s business,
to all records, assets, properties and operations pertaining to Apollo
Production. The activities described in this Section shall be referred to
as the “Seller’s Due Diligence Review”.

 

4.7.                              Seller’s Due Diligence Review.  Seller’s Due Diligence Review shall also be
subject to the following terms and conditions:

 

(a)                                  Seller’s
Due Diligence Review shall be scheduled through designated representative(s) of
Apollo Production, and shall have the right to accompany Seller’s employees,
representatives and agents as they perform Seller’s Due Diligence Review on
their respective properties and assets;

 

(b)                                 Seller
shall not disclose or allow its employees, representatives or consultants to
disclose the purposes for Seller’s Due Diligence Review, without the consent of
Apollo Production, which consent shall not be unreasonably withheld or delayed;

 

(c)                                  Seller
shall obtain the prior approval of Apollo Production before conducting any
discussions with Apollo Production’s employees, vendors, customers or service
providers, which approval shall not be unreasonably withheld or delayed;

 

(d)                                 Seller
shall indemnify Apollo Production against any physical damage or injury to
property or persons or for any loss or damage proximately arising from Seller’s
Due Diligence Review;  

 

(e)                                  Except
as otherwise required by Law, any information concerning Apollo Production’s
properties gathered by Seller as the result of, or in connection with, Seller’s
Due Diligence Review shall be kept confidential and shall not be revealed to,
or discussed with, anyone other than representatives of Seller; 

 

(f)                                    From
the Effective Date through the Closing Date, Apollo Production and Apollo shall
notify Seller promptly of (i) any actions or proceedings threatened or
commenced

 

9

 

against Apollo
Production or Apollo or against any officer, director, affiliate, employee,
properties or assets of Apollo or Apollo Production which could impair Apollo’s
or Apollo Production’s ability to perform their obligations under this
Agreement, and (ii) any request for additional information or documentary
materials by any Governmental Authority in connection with the transactions
contemplated hereby.

 

4.8.                              Apollo Production’s and Apollo’s Conduct of Business.  Without in any way limiting any other
obligation of the Seller pursuant to this Agreement, from the Effective Date
until the Closing, Apollo Production and Apollo shall (a) maintain their
books and records in accordance with past practices; (b) comply in all
material respects with all applicable Laws; (c) conduct their business in
the Ordinary Course of Business; (d) maintain insurance on the assets and
operations of their business in amounts and with coverage at least as great as
the amounts and coverage presently maintained by them; (e) not do any act
or omit to do any act, or permit any act or omission to act, which would cause
a breach of any contract, commitment or obligation for which Seller would be
liable or which would have a Material Adverse Effect.  Apollo Production and Apollo will not take or
permit any action to be taken which would result in any representation or
warranty of either of Apollo Production or Apollo herein becoming untrue or
incorrect in any material respect.

 

4.9.                              Records. 
After the Closing, Apollo Production shall maintain the books and records
relating to Mountain States in an orderly and businesslike fashion and shall
permit Sellers to have reasonable access at Seller’s expense to such books and
records in connection with the preparation of Seller’s financial reports, tax
returns, tax audits, the defense or prosecution of litigation (including
arbitration), or any other reasonable need of Seller to consult such books and
records.

 

4.10.                        Certificate of Clearance.  The Seller shall exercise Commercially
Reasonably Efforts to deliver to Apollo Production, as soon as practicable
following Closing, Certificates of Clearance from the Arizona Department of
Revenue, dated within a reasonable time period subsequent to the Closing,
addressed to Mountain States, verifying the timely filing of and required
transaction privilege, sales and/or use Tax, income Tax and unemployment and
withholding Tax returns by Mountain States, and payment by Mountain States of
all amounts due.

 

5.                                      CONDITIONS PRECEDENT TO THE PARTIES’ OBLIGATIONS TO CLOSE

 

5.1.                              Contingencies of Apollo.  Apollo Production’s obligation to purchase
the Stock and Apollo Production’s and Apollo’s obligations to take the other
actions required to be taken by Apollo Production and by Apollo at the Closing
are subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Apollo Production or by
Apollo, in whole or in part, in writing).

 

(a)                                  Representations and Warranties; Agreements; Covenants.  Each of the representations and warranties of
Seller shall be true and correct in all material respects on the date made and
shall be true and correct in all material respects as of the Closing. Each of
the obligations of Seller required by this Agreement to be performed by it at
or prior to the Closing shall have been duly performed and complied with in all
material respects as of the Closing. At

 

10

 

the Closing,
Apollo Production shall receive a certificate, dated the Closing Date and duly
executed by Seller to the effect that the conditions set forth in this Section 5.1(a)
have been satisfied except as specified in such certificate.

 

(b)                                 Authorizations; Consents.  All corporate action necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby shall have been duly and validly taken
by Seller and by Mountain States, and all notices to, and declarations, filings
and registrations with, and consents, authorizations, approvals and waivers
from, Governmental Authorities and third persons required to consummate the
transactions contemplated hereby shall have been made or obtained. 

 

(c)                                  Absence of Litigation. 
No order, stay, injunction or decree of any Governmental Authority shall
be in effect (i) that prevents or delays the consummation of any of the
transactions contemplated hereby; or (ii) would impose any limitation on
the ability of Apollo Production effectively to exercise full rights of
ownership of the Stock. No action, suit or proceeding before any Governmental
Authority shall be pending or threatened, and no investigation by any
Governmental Authority shall have been commenced (and be pending), seeking to
restrain or prohibit (or questioning the validity or legality of) the
consummation of the transactions contemplated by this Agreement or seeking
damages in connection therewith which Apollo Production, in good faith and with
the advice of counsel, believes makes it undesirable to proceed with the
consummation of the transactions contemplated hereby. 

 

(d)                                 No Material Adverse Effect.  During the period from September 30,
2005 to the Closing, there shall not have been any Material Adverse Change with
respect to Mountain States.

 

(e)                                  Organizational Documents.  Seller
and Mountain States, as applicable, shall have delivered to Apollo Production
each of the following documents: 

 

(i)                                     certified
copies of the articles of incorporation and bylaws of Neptune, Golden Spread,
and Mountain States;

 

(ii)                                  appropriate
board, shareholder, manager, and member resolutions, and other similar
documents in order to ratify, approve and implement further the transactions
contemplated hereunder in form reasonably satisfactory to counsel for Apollo
Production.

 

(f)                                    Transfer Documents. 
Seller shall have delivered to Apollo Production such transfer documents
and other documents and instruments as shall be reasonably necessary to
transfer to Apollo Production the Stock. 

 

(g)                                 Completion of Due Diligence.  Apollo Production shall have completed the Apollo
Due Diligence Review and the results of the Apollo Due Diligence Review shall
be satisfactory to Apollo. 

 

(h)                                 Board Approval.  The board of directors of Apollo Production
and the board of directors of Apollo shall each have approved the consummation
of all of the transactions contemplated by this Agreement.

 

11

 

(i)                                     Certificates.  Seller and Mountain States shall have
furnished Apollo Production with such certificates of their officers and others
as Apollo Production may reasonably request to evidence compliance with all of
the conditions set forth in this Section 5.1.

 

(j)                                     Legal Matters.  All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of Seller
or Mountain States under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of Seller or
Mountain States in furtherance of the transactions contemplated hereby, shall
be reasonably satisfactory in form and substance to counsel for Apollo
Production.

 

(k)                                  Schedules. 
Mountain States and Seller shall have delivered to Apollo Production all
schedules referred to in this Agreement and required to be delivered by Seller
or Mountain States and such schedules shall be acceptable in form and substance
to Apollo Production.

 

(l)                                     Collateral Agreements.  The Collateral Agreements shall have been
executed and delivered by the Parties thereto. 

 

(m)                               Related Transactions.  The transactions contemplated by the Transfer
and Exchange Agreement shall have closed immediately prior to the Closing under
this Agreement and the transactions contemplated by the HLDM Stock Purchase
Agreement shall have previously closed or shall close simultaneously with the
Closing under this Agreement.

 

5.2.                              Contingencies of Seller.  Seller’s obligations to sell the Stock and to
take the other actions required to be taken by Seller at the Closing are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller, in whole or in
part, in writing).

 

(a)                                  Representations and Warranties; Agreements; Covenants.  Each of the representations and warranties of
Apollo Production and of Apollo shall be true and correct in all material
respects on the date made and shall be true and correct in all material
respects as of the Closing. Each of the obligations of Apollo and Apollo
Production required by this Agreement to be performed by them at or prior to
the Closing shall have been duly performed and complied with in all material
respects as of the Closing. At the Closing, Seller shall receive a certificate,
dated the Closing date and duly executed by Apollo Production and by Apollo to
the effect that the conditions set forth in this Section 5.2(a) have
been satisfied except as specified in such certificate

 

(b)                                 Authorizations; Consents.  All corporate action necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby shall have been duly and validly taken
by Apollo and Apollo Production, and all notices to, and declarations, filings
and registrations with, and consents, authorizations, approvals and waivers
from, Governmental Authorities and third Persons required to consummate the
transactions contemplated hereby shall have been made or obtained.

 

(c)                                  Organizational Documents.  Apollo and Apollo
Production shall have delivered to Seller each of the following documents:

 

12

 

(i)                                     certified
copies of the articles of incorporation and bylaws of Apollo and of Apollo
Production; and

 

(ii)                                  appropriate
board and shareholder resolutions, and other similar documents in order to
approve and implement further the transactions contemplated hereunder in form
reasonably satisfactory to counsel for Seller.

 

(d)                                 Absence of Litigation. 
No order, stay, injunction or decree of any Governmental Authority shall
be in effect (i) that prevents or delays the consummation of any of the
transactions contemplated hereby; or (ii) would impose any limitation on
the ability of Seller effectively to exercise full rights of ownership of the
Apollo Shares. No action, suit or proceeding before any Governmental Authority
shall be pending (or threatened by any Governmental Authority), and no
investigation by any Governmental Authority shall have been commenced (and be
pending), seeking to restrain or prohibit (or questioning the validity or
legality of) the consummation of the transactions contemplated by this
Agreement or seeking damages in connection therewith which Seller, in good
faith and with the advice of counsel, believes makes it undesirable to proceed
with the consummation of the transactions contemplated hereby.

 

(e)                                  No Material Adverse Effect.  During the period from September 30,
2005 to the Closing, there shall not have been any Material Adverse Change with
respect to Apollo Production or of Apollo.

 

(f)                                    Completion of Due Diligence.  Seller shall have completed the Seller’s Due
Diligence Review and the result of the Seller’s Due Diligence Review shall be
satisfactory to Seller. 

 

(g)                                 Certificates.  Apollo and Apollo Production shall have
furnished the Seller with such certificates of their officers and others as the
Sellers may reasonably request to evidence compliance with all of the
conditions set forth in this Section 5.2.

 

(h)                                 Legal Matters.  All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of Apollo
or Apollo Production under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of Apollo or
Apollo Production in furtherance of the transactions contemplated hereby, shall
be reasonably satisfactory in form and substance to counsel for Seller.

 

(i)                                     Board Approval.  The boards of directors of Neptune, Golden
Spread and of Mountain States shall have approved the consummation of all of
the transactions contemplated by this Agreement.

 

(j)                                     Schedules. 
Apollo Production shall have delivered to Seller all schedules referred
to in this Agreement and required to be delivered by Apollo Production and such
schedules shall be acceptable in form and substance to Seller.

 

(k)                                  Collateral Agreements.  The Collateral Agreements shall be executed
and delivered by the Parties thereto. 

 

13

 

(l)                                     Related Transactions.  The transactions contemplated by the Transfer
and Exchange Agreement shall have closed immediately prior to the Closing under
this Agreement and the transactions contemplated by the HLDM Stock Purchase
Agreement shall have previously closed or shall close simultaneously with the
Closing under this Agreement.

 

6.                                      REPRESENTATIONS AND WARRANTIES

 

6.1.                              Warranties and Representations of Seller.  In order to induce Apollo and Apollo
Production to enter into this Agreement, Neptune and Golden Spread, jointly and
severally, covenant, warrant and represent to Apollo and Apollo Production that
each of the following representations and warranties are materially true and
correct as of the date of this Agreement and will be materially true and
correct on and as of the Closing Date:

 

(a)                                  Organization and Licensing.  Mountain States is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of New Mexico and has the power to own, lease and use the properties used in
its business and to carry on its business as now being conducted. Mountain
States is duly qualified to do business and is in good standing as a foreign
corporation in each state and jurisdiction where qualification as a foreign
corporation is required, except to the extent that any variation or failure
thereof does not have a Material Adverse Effect.  Schedule 6.1(a) lists (i) the
states and other jurisdictions where Mountain States is so qualified; and (ii) the
assumed names under which Mountain States conducts business or has conducted
business during the past five (5) years. All permits, licenses and
certificates required by any Governmental Authority having jurisdiction over
Mountain States or its operations, are now and will be current and valid as of
the Closing Date. Mountain States has previously delivered or made available to
Apollo and Apollo Production complete and correct copies of its articles of
incorporation, bylaws, and other organizational documents as amended and
presently in effect.

 

Each of Neptune and Golden Spread has full power and authority to enter
into this Agreement, to consummate the transactions contemplated hereby and to perform,
or to cause Mountain States to perform, their or its obligations
hereunder.  The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein by Seller have been duly authorized by all requisite
corporate action on the part of Neptune and of Golden Spread.  This Agreement has been duly executed and
delivered by each of Neptune and of Golden Spread and is a valid and binding
obligation of each of them, enforceable against them in accordance with its
terms, except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
relating to creditors’ rights generally, and (ii) is subject to general
principles of equity.  

 

(b)                                 Subsidiaries.  Except as reflected on Schedule 6.1(b),
Mountain States has no subsidiaries.

 

(c)                                  Capitalization.  The issued and outstanding stock of Mountain
States is set forth in Schedule 6.1(c) hereto. The Stock
listed on Schedule 6.1(c) hereto constitutes all the issued
and outstanding Stock of Mountain States and has been validly authorized and
issued, is fully paid and nonassessable, and has not been issued in violation
of any preemptive rights or of any federal or state securities law. There is no
security, option, warrant, right, call, subscription,

 

14

 

agreement,
commitment or understanding of any nature whatsoever, fixed or contingent, that
directly or indirectly (i) calls for the issuance, sale, pledge or other
disposition of any stock of Mountain States, or any securities convertible
into, or other rights to acquire, any stock of Mountain States; or (ii) obligates
Mountain States to grant, offer or enter into any of the foregoing; or (iii) relates
to the voting or control of such membership interests, securities or rights,
except as provided in this Agreement or in the articles of incorporation or
bylaws of Mountain States.  Mountain
States has not agreed to register any securities under the Securities Act of
1933.

 

(d)                                 Governmental Approvals. 
Schedule 6.1(d) sets forth all Governmental Approvals
held by Mountain States.  To Seller’s
Knowledge, no Governmental Approvals other than those listed on Schedule 6.1(d) are
necessary for the transaction of Mountain States’ business as currently
conducted.  All such Governmental
Approvals are currently in force.  No
notice of any violation has been received in respect of any such Governmental
Approvals and Seller has no Knowledge of any proceeding which is pending or
threatened that would suspend or revoke or limit any such Governmental
Approvals.

 

(e)                                  Financial Statements.  Attached as Schedule 6.1(e) are
true and complete copies of the preliminary unaudited balance sheet as of September 30,
2005 (the “Balance Sheet Date”) and the related preliminary statements
of income of Mountain States for the nine and twelve month periods then ended
(the “Mountain States Financial Statements”). 

 

The Mountain States Financial Statements have been prepared in
accordance with and are consistent with the books and records of Mountain
States, fairly present the financial position and results of operations of
Mountain States as of the date and for the periods indicated, are stated in
material conformity with GAAP, consistently applied, except as otherwise
clearly and conspicuously stated, and except that they do not contain a full
set of footnotes, and can be legitimately reconciled with the financial
statements and with the financial records maintained and the accounting methods
applied by Mountain States for federal income tax purposes. Except as set forth
on Schedule 6.1(e), the statement of income included in the
Mountain States Financial Statements do not contain any material items of
special or non-recurring income except as expressly specified therein, and the
balance sheet included in the Mountain States Financial Statements does not
reflect any write-up or revaluation increasing the book value of any assets
except as otherwise clearly and conspicuously stated therein. The books and
accounts of Mountain States are complete and correct in all material respects
and fairly reflect, to the extent required or permitted by GAAP, all of the
transactions, items of income and expense and all assets and liabilities of the
business of Mountain States consistent with prior practices of the company,
including past accounting treatments utilized by Mountain States. 

 

(f)                                    Absence of Undisclosed Liabilities.  To the knowledge of Seller, Mountain States
has no liability (whether due or to become due, accrued, absolute, contingent
or otherwise), for Taxes (as defined in Section 6.1(j) hereof)
except for (i) liabilities reflected or reserved against in the most
recent financial statements provided to Apollo Production by Mountain States; (ii) liabilities
incurred in the Ordinary Course of Business after the date of the last Mountain
States balance sheets as supplied to Apollo Production, or which, individually
and in the aggregate, do not have and cannot reasonably be expected to have a
Material Adverse Effect; and (iii) liabilities disclosed in Schedule 6.1(f) or
Schedule 6.1(j) hereto.  

 

15

 

(g)                                 Projections.  Mountain States has previously supplied to
Apollo Production in conjunction with Apollo Production’s investigation of
Mountain States certain forward-looking financial estimates with respect to
Mountain States (the “Projections”), a description of which is attached
here as Schedule 6.1(g).  The
Projections (and accompanying supporting information), were predicated upon
assumptions and subjective judgments (including those provided with the
Projections) believed by Seller to be reasonable at the time the Projections
were prepared, but which may or may not, in fact, prove to be correct.  No representations or warranties are made as
to the accuracy of such Projections.  The
Projections and supporting data did not, to Seller’s Knowledge, contain any
material computational errors.  The
Projections may in certain instances also contain information regarding the
projected potential financial performance of assets and business activities in
addition to those of Mountain States. 
The Projections are subject to various risks, uncertainties, and other
variable and unpredictable factors and accordingly, they are not intended to be
construed as an assurance or guarantee that actual financial performance will,
in any respect, be as indicated therein.

 

(h)                                 Absence of Material Adverse Effect; Conduct of
Business.  

 

(i)                                     Since
the Balance Sheet Date, except as set forth on Schedule 6.1(h) hereto,
Mountain States has operated in the Ordinary Course of Business and there has
not been:

 

(1)                                  any
material adverse change in the assets, properties, business, operations,
prospects, net income or financial condition of Mountain States and, to the
Knowledge of Seller, no factor, event, condition, circumstance or prospective
development exists which could reasonably be expected to have a Material
Adverse Effect;

 

(2)                                  any
material loss, damage, destruction or other casualty to the property or other
assets of Mountain States, whether or not covered by insurance; or

 

(3)                                  any
change in any method of accounting or accounting practice of Mountain States.

 

(ii)                                  Since
the Balance Sheet Date, except as set forth in Schedule 6.1(i) hereto,
Mountain States has not:

 

(1)                                  incurred
any material obligation or liability (whether absolute, accrued, contingent or
otherwise), except in the Ordinary Course of Business;

 

(2)                                  mortgaged,
pledged or subjected to any Lien any of its property or other assets except in
the Ordinary Course of Business, and except for mechanics and materialmen’s
Liens and Liens for Taxes not yet due and payable;

 

16

 

(3)                                  sold
or transferred any material assets or cancelled any debts or claims or waived
any rights of material value, except in the Ordinary Course of Business ;

 

(4)                                  defaulted
on any material obligation;

 

(5)                                  entered
into any material transaction, except in the Ordinary Course of Business ;

 

(6)                                  written
down the value of any inventory or written off as uncollectible any accounts
receivable or any portion thereof not reflected in the Mountain States
Financial Statements except in the Ordinary Course of Business; or

 

(7)                                  entered
into any agreement or made any commitment to do any of the foregoing. 

 

(i)                                     Taxes.  Except as set
forth on Schedule 6.1(f) or Schedule 6.1(i),
Mountain States and, for any period during all, or part of which, the Tax
liability of any other corporation or entity was determined on a combined or
consolidated basis with Mountain States any such other corporation or entity,
have filed timely all federal, state, local and foreign Tax returns, reports
and declarations required to be filed (or have obtained or timely applied for
an extension with respect to such filing) currently reflecting the Taxes (as
defined below) and all other information required to be reported thereon, and
have paid, or made adequate provision for the payment of, all material Taxes
which are due pursuant to such returns or pursuant to any assessments received
by Mountain States or any such other corporation or entity. As used herein, “Tax”
or “Taxes” shall mean all taxes, fees, levies or other assessments,
including but not limited to income, excise, property (including property taxes
paid by Mountain States pursuant to any lease), sales, franchise, withholding,
social security and unemployment taxes imposed by the United States, or any
state, county, local or foreign government, or any subdivision or agency
thereof, or taxing authority therein, and any interest, penalties or additions
to tax relating to such taxes, charges, fees, levies or other assessments.
Copies of all Tax returns for each fiscal year since the formation of Mountain
States have been furnished or made available to Apollo Production or to its
representatives and such copies are accurate and complete as of the date
thereof. Mountain States has also furnished or made available to Apollo
Production or its representatives correct and complete copies of all notices
and correspondence sent or received since the formation of Mountain States by
Mountain States to or from any federal, state or local Tax authorities.
Mountain States has adequately reserved for the payment of all Taxes with
respect to periods ended on, prior to or through the date of Closing for which
Tax returns have not yet been filed. In the ordinary course, Mountain States
makes adequate provision on its books for the payment of all material Taxes
(including for the current fiscal period) owed by Mountain States. Except as
disclosed on Schedule 6.1(h), Mountain States has not been subject
to a federal or state Tax audit of any kind and no adjustment has been proposed
by the Internal Revenue Service (“IRS”) with respect to any Tax return
for any subsequent year. With respect to the Tax audits referred to on Schedule 6.1(h) hereto,
no such audit has resulted in an adjustment in excess of $25,000.  

 

17

 

(j)                                     Legal Matters.  Except as set forth on Schedule 6.1(j)
hereto: 

 

(i)                                     Mountain
States is not subject to any judgment, decree, writ, injunction ruling or order
(collectively, “Judgments”) of any Governmental Authority. 

 

(ii)                                  To
the Knowledge of Seller, the business of Mountain States is being conducted in
compliance with all Laws applicable to Mountain States or any of its business
or properties, except for where the failure to be in such compliance could not
reasonably be expected to have a Material Adverse Effect.

 

(iii)                               Mountain
States owns or holds all Governmental Approvals material to the conduct of its
business. To Seller’s Knowledge, no event has occurred and is continuing which
permits, or after notice or the lapse of time, or both, would permit, any
modification or termination of any such Governmental Approval.

 

(k)                                  Property.  

 

(i)                                     Schedule 6.1(k)
hereto is a list of all real property owned by or leased to Mountain States
(including all real property owned by or leased to Mountain States and used in
Mountain States’ business) and of all options or other contracts to acquire any
such real property (collectively, the “Real Property”). To Seller’s
Knowledge, except as set forth on Schedule 6.1(k), or in the
Environmental Reports, all improvements to the Real Property (“Improvements”)
owned or leased by Mountain States conform in all material respects with all
applicable Laws and such Improvements do not encroach in any material respect
on the property of others. All Improvements are supplied with utilities
(including, without limitation, water, sewage, disposal, electricity, gas, and
telephone) necessary for the operation of such Improvements as currently
operated.  Except as set forth on Schedule 6.1(k),
neither the whole nor any portion of the Improvements have been condemned,
requisitioned or otherwise taken by any Governmental Authority, and Seller has
not received any notice that any such condemnation, requisition, or taking is
threatened, which condemnation, requisition, or taking would preclude or
materially impair the current use thereof. 

 

(ii)                                  The
Real Property is zoned to permit the conduct of the business of Mountain States
as presently conducted and a certificate of occupancy or other similar
Governmental Approval to conduct its business has been issued and is in good
standing, and Mountain States is authorized to conduct its business on all or
any part of its Real Property.

 

(iii)                               Except
as set forth in Schedule 6.1(k), Seller has not received any
written notice that it is in violation of, and Seller has no Knowledge that it
is in material violation of, any zoning, use, occupancy, building, wetlands,
ordinance, or other Law relating to the Improvements, including without
limitation, any Environmental Law.

 

18

 

(l)                                     Inventories.  The
values at which inventories are carried on the Mountain States Balance Sheets
reflect the normal inventory valuation policies of Mountain States. 

 

(m)                               Contracts, Etc.  As
used in this Agreement, the term “Company Agreements” shall mean all
mortgages, indentures, notes, agreements, contracts, leases, licenses,
franchises, obligations, instruments or other commitments, arrangements or
understandings of any kind, whether written or oral, binding or non-binding to
which Mountain States is a party or by which Mountain States or any of its
properties may be bound or affected, including all amendments, modifications,
extensions or renewals of any of the foregoing. Set forth on Schedule 6.1(m)
is a complete and accurate list of each Company Agreement which is material to
the business, operations, assets, condition (financial or otherwise) or
prospects of Mountain States and involves the payment or receipt of
consideration in excess of $25,000 over the term of such Company Agreement (the
“Material Company Agreements”). True and correct copies of all written
Material Company Agreements and an accurate, complete and written description
of all verbal Material Company Agreements have been provided or made available
to Apollo Production. Except as disclosed in Schedule 6.1(m)
neither Mountain States nor, to the Knowledge of Seller, any other party to any
Material Company Agreement, is in default thereunder, and no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default by Mountain States thereunder, or to Seller’s Knowledge,
by any other party to any such contract or agreement.

 

(n)                                 Transactions with Affiliates.  Schedule 6.1(n) is a true,
correct, and complete list of all existing business relationships between
Mountain States and any of the Affiliates of Mountain States that relate in any
material way to the conduct of Mountain States’ business and that are expected
to continue after the Closing.

 

(o)                                 Environmental.  True, complete and correct copies of the
written reports of all environmental audits or assessments which have been
conducted with respect to any real property owned or leased by Mountain States
and which are in the possession of Seller or Mountain States, including the
Environmental Surveys, have been delivered or made available to Apollo
Production (the “Environmental Reports”).  To Seller’s Knowledge, except as disclosed in
the Environmental Reports, the Mountain States Real Property contains no
Hazardous Substances and is not in violation of any Environmental Laws.  To Seller’s Knowledge, except as disclosed in
the Environmental Reports, neither Seller nor Mountain States has caused or
allowed the illegal or unauthorized use, generation, manufacture, production,
treatment, storage, release, discharge, or disposal of any Hazardous Substances
on, under, or about the Real Property, nor has caused or allowed the illegal or
unauthorized transportation to or from the Real Property of any Hazardous
Substance.  Except as set forth on Schedule 6.1(o)
or in the Environmental Reports, neither Seller nor Mountain States has
received any warning, notice of violation, administrative complaint, judicial
complaint, or other formal notice alleging that Mountain States or the Real
Property is in violation of any Environmental Laws, or informing Seller or
Mountain States that Mountain States or the Real Property is subject to
investigation, inquiry, or threatened litigation regarding the presence of
Hazardous Substances on, under or about the Real Property or the potential
violation of any Environmental Laws. 
There are no environmental Liens or “superfund liens” attached to the
Real Property pursuant to any Environmental Laws.  The term “Environmental Laws” shall
mean any federal, state or local law, whether by common law, statute,
ordinance, or regulation, pertaining to health, industrial

 

19

 

hygiene, or
environmental conditions on, under, or about the Real Property, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. 9601, et seq.; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901, et seq.;
the Toxic Substances Control Act of 1976, 15 U.S.C. §§ 2604, et
seq.; the Superfund Amendments and Reauthorization Act of 1986, Title III,
42 U.S.C. §§ 11001, et seq.; the Clean Air Act, 42 U.S.C.
§§ 7401 et seq.; the Federal Water Pollution Control Act,
33 U.S.C. §§ 1251, et seq.; the Safe Drinking Water Act,
42 U.S.C. §§ 300f, et seq.; the Solid Waste Disposal Act,
42 U.S.C. §§ 3251, et seq.; and the storage tank requirements
in 40 C.F.R. Part 280.  The term “Hazardous
Substances” shall mean those substances included within the definitions of “hazardous
substance,” “hazardous waste,” “hazardous material,” “toxic substance,” “solid
waste,” or “pollutant or contaminant” in, or otherwise regulated by, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980;
the Resource Conservation and Recovery Act of 1976; the Toxic Substances
Control Act of 1976; the Hazardous Materials Transportation Act, 49 U.S.C.
§§ 1801, et seq.; and in the regulations promulgated pursuant to
said Laws.

 

(p)                                 Effect of Agreement.  The execution, delivery and performance by
Neptune and Golden Spread of this Agreement, and the consummation by Neptune
and Golden Spread of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (i) result in
a default, right to accelerate or loss of material rights under, or result in,
cause or create any material liability, charge or Lien pursuant to, any
franchise, mortgage, deed of trust, lease, license, agreement, or other
contractual relationship to which Neptune, Golden Spread, or Mountain States is
a party or by which any of them or their assets may be bound or affected; (ii) violate
any Judgment applicable to Neptune, Golden Spread, or Mountain States; or (iii) violate
any provision of the organizational documents of Neptune, Golden Spread or
Mountain States.

 

(q)                                 Litigation.  Except as
set forth on Schedule 6.1(q), there is no legal action, suit,
proceeding, grievance, arbitration, investigation, audit or claim by, of or
before any court, arbitration panel, Governmental Authority, or other body
acting in an adjudicative capacity pending or, to the Seller’s Knowledge,
threatened against either Seller or Mountain States, (i) that involves or
could reasonably be excepted to involve Mountain States or any of its assets,
properties, operations or business or (ii) that seeks to enjoin or obtain
material damages in respect of the consummation of the transactions
contemplated hereby.

 

6.2.                              Warranties and Representations of Apollo Production
and of Apollo.  In order to
induce Seller to enter into this Agreement, Apollo and Apollo Production,
jointly and severally, covenant, warrant and represent to Seller that each of
the following representations and warranties is true as of the date of this
Agreement and will be true on and as of the Closing Date.

 

(a)                                  Organization and Licensing.  Apollo and Apollo Production are corporations
duly organized, validly existing, and in good standing under the Laws of the
States of Utah and Texas, respectively, and have the power to own, lease and
use the properties used in their businesses and to carry on their businesses as
now being conducted. They are each duly qualified to do business and each is in
good standing as a foreign corporation in each state and jurisdiction where
qualification as a foreign corporation is required, except to the extent that
any

 

20

 

variation or
failure thereof shall not be material in its effect.  Schedule 6.2(a) lists (a) the
states and other jurisdictions where either Apollo or Apollo Production is so
qualified; and (ii) the assumed names under which either conducts business
or has conducted business during the past five (5) years. Apollo and
Apollo Production each have full power and authority to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform
their respective obligations hereunder. 
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein by Apollo and Apollo
Production have been duly authorized by all requisite corporate action on the
part of Apollo and Apollo Production. 
This Agreement has been duly executed and delivered by Apollo and Apollo
Production and is a valid and binding obligation of Apollo and Apollo
Production enforceable against them in accordance with its terms, except to the
extent that such enforceability (i) may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws relating to
creditors’ rights generally, and (ii) is subject to general principles of
equity.  All Governmental Approvals required
by any Governmental Authority having jurisdiction over Apollo and Apollo
Production and their respective operations, are now and will be current and
valid as of the date of Closing. Apollo and Apollo Production have previously
delivered or made available to Seller complete and correct copies of their
articles of incorporation, bylaws and other corporate documents as amended and
presently in effect.

 

(b)                                 Approvals; Consents.  Except as set forth on Schedule 6.2(b) hereto,
no Governmental Approval is necessary to be obtained or made by Apollo or by
Apollo Production to enable them to continue to continue to conduct their
businesses and operations and use their properties after the Closing in a
manner which is in all material respects consistent with that in which they are
currently conducted except for the renewal of any permits in the Ordinary
Course of Business (the renewal of which is purely administrative in nature and
does not call for a discretionary review by any granting authority) and for
which Apollo and Apollo Production have no reason to believe will not be
routinely renewed. 

 

(c)                                  Financial Statements.  Attached as Schedule 6.2(c) are
true and complete copies of:

 

(i)                                     the
audited balance sheet of Apollo as of December 31, 2004 and the related
statements of income, stockholders’ equity and cash flow for the fiscal year
ended December 31, 2004, together with the notes thereto, in each case
examined by and accompanied by the report of independent certified public
accountants, and the unaudited balance sheets of Apollo and Apollo Production
as of September 30, 2005, and the related statements of income,
stockholders’ equity and cash flow for the nine months ended September 30,
2005, together with the notes thereto (the “Apollo Financial Statements”).

 

(ii)                                  The
Apollo Financial Statements have been prepared in accordance with and are
consistent with the books and records of Apollo and Apollo Production
respectively, fairly present the consolidated financial positions and results
of operations of Apollo and Apollo Production as of the dates and for the
periods indicated, are stated in conformity with GAAP, consistently applied,
except as otherwise clearly and conspicuously stated, and except that the
unaudited financial statements of Apollo and Apollo Production do not contain a

 

21

 

full set of footnotes, and can
be legitimately reconciled with the financial statements and with the financial
records maintained and the accounting methods applied by Apollo and Apollo
Production for federal income tax purposes. The statements of income included
in the Apollo Financial Statements do not contain any material items of special
or non-recurring income except as expressly specified therein, and the balance
sheets included in the Apollo Financial Statements do not reflect any write-up
or revaluation increasing the book value of any assets except as otherwise
clearly and conspicuously stated therein. The books and accounts of Apollo and
Apollo Production are complete and correct in all material respects and fairly
reflect, to the extent required or permitted by GAAP, all of the transactions,
items of income and expense and all assets and liabilities of the businesses of
Apollo and Apollo Production consistent with prior practices of Apollo and
Apollo Production, including past accounting treatments utilized by Apollo and
Apollo Production. 

 

(d)                                 Absence of Undisclosed Liabilities.  To their Knowledge, neither Apollo nor Apollo
Production has any liability (whether known or unknown, due or to become due,
accrued, absolute, contingent or otherwise), for Taxes (as defined in Section 6.2(h) hereof),
except for (i) Tax liabilities reflected or reserved against in the most
recent financial statements provided to Seller by Apollo or Apollo Production,
as applicable; (ii) Tax liabilities incurred in the Ordinary Course of
Business and consistent with past practice after the date of the last Apollo
Balance Sheets as supplied to Seller or which, individually and in the
aggregate, do not have and cannot reasonably be expected to have a Material
Adverse Effect; and (iii) liabilities disclosed in Schedule 6.2(d) or
Schedule 6.2(h). 

 

(e)                                  Absence of Material Adverse Effect; Conduct of Business.

 

(i)                                     Since
September 30, 2005, except as
set forth on Schedule 6.2(e) hereto, Apollo and Apollo
Production have each operated in the Ordinary Course of Business and there has
not been:

 

(1)                                  any
Material Adverse Change in the assets, properties, business, operations,
prospects, net income or financial condition of Apollo or Apollo Production and
no factor, event, condition, circumstance or prospective development exists
which could reasonably be expected to have a Material Adverse Effect;

 

(2)                                  any
material loss, damage, destruction or other casualty to the property or other
assets of Apollo or Apollo Production, whether or not covered by insurance;

 

(3)                                  any
change in any method of accounting or accounting practice of Apollo or Apollo
Production; or

 

(4)                                  any
loss of the employment, services or benefits of any key employee of Apollo or
Apollo Production. 

 

22

 

(ii)                                  Since
September 30, 2005, except as set forth in Schedule 6.2(e) hereto,
Apollo and Apollo Production have not:

 

(1)                                  incurred
any material obligation or liability (whether absolute, accrued, contingent or
otherwise), except in the Ordinary Course of Business ;

 

(2)                                  mortgaged,
pledged or subjected to any Lien any of its property or other assets except in
the Ordinary Course of Business, and except for mechanics and materialmen’s
Liens and Liens for Taxes not yet due and payable;

 

(3)                                  sold
or transferred any assets or cancelled any debts or claims or waived any
rights, except in the Ordinary Course of Business ;

 

(4)                                  defaulted
on any material obligation;

 

(5)                                  entered
into any material transaction, except in the Ordinary Course of Business ;

 

(6)                                  written
down the value of any inventory or written off as uncollectible any accounts
receivable or any portion thereof not reflected in the Apollo Financial
Statements except in the Ordinary Course of Business;

 

(7)                                  granted
any increase in the compensation or benefits of employees other than the
increases in accordance with past practice not exceeding 10% or entered into
any employment or severance agreement or arrangement with any of them;

 

(8)                                  incurred
any obligation or liability to any employee for the payment of severance
benefits of more than $1,000; or

 

(9)                                  entered
into any agreement or made any commitment to do any of the foregoing. 

 

(f)                                    Legal Matters.  Except as set forth on Schedule 6.2(f) hereto,
neither Apollo nor Apollo Production are subject to any judgment, decree, writ,
injunction ruling or order (collectively, “Apollo Judgments”) of any
Governmental Authority. Schedule 6.2(f) identifies each Apollo
Judgment, each of which is fully covered by an insurance policy and Apollo and
Apollo Production hereby represent and warrant to Seller that they shall be
financially responsible for the full satisfaction of any such Apollo Judgment,
including costs of defense and costs of court and attorney fees, to the extent
that (i) any such Apollo Judgment, including costs of defense and costs of
court including attorney fees, is not covered by insurance; and (ii) to
the extent that any such Apollo Judgment, including costs of defense and costs
of court and attorney fees, is not fully satisfied by insurance proceeds. 

 

23

 

(i)                                     The
businesses of Apollo and Apollo Production are being conducted in compliance
with all Laws applicable to either Apollo or Apollo Production or any of their
businesses or properties, except for where the failure to be in such compliance
could not reasonably be expected to have a Material Adverse Effect. 

 

(ii)                                  Apollo
and Apollo Production own or hold all Governmental Approvals material to the
conduct of their businesses. To Apollo’s and Apollo Production’s Knowledge, no
event has occurred and is continuing which permits, or after notice or the
lapse of time, or both, would permit, any modification or termination of any
Governmental Approval.

 

(g)                                 Inventories.  The
values at which inventories are carried by Apollo and Apollo Production on
their balance sheets reflect the normal inventory valuation policies of Apollo
and Apollo Production. 

 

(h)                                 Taxes.  Apollo and
Apollo Production and, for any period during all or part of which, the tax
liability of any other corporation or entity was determined on a combined or
consolidated basis with Apollo or Apollo Production, any such other corporation
or entity, have filed timely all federal, state, local and foreign tax returns,
reports and declarations required to be filed (or have obtained or timely
applied for an extension with respect to such filing) currently reflecting the
Apollo Taxes (as defined below) and all other information required to be
reported thereon, and have paid, or made adequate provision for the payment of,
all Apollo Taxes which are due pursuant to such returns or are pursuant to any
assessments received by Apollo or Apollo Production or any such other
corporation or entity. As used herein, “Apollo Taxes” shall mean all
taxes, fees levies or other assessments, including but not limited to income,
excise, property (including property taxes paid by Apollo or Apollo Production
pursuant to any lease), sales, franchise, withholding, social security and
unemployment taxes imposed by the United States, or any state, county, local or
foreign government, or any subdivision or agency thereof, or taxing authority
therein, and any interest, penalties or additions to Tax relating to such
taxes, charges, fees, levies or other assessments. Copies of all Tax returns
for each fiscal year since the formation of Apollo and Apollo Production have
been furnished or made available to the Seller or to its representatives and
such copies are accurate and complete as of the date thereof. Apollo and Apollo
Production have also furnished or made available to the Seller or its
representatives correct and complete copies of all notices and correspondence
sent or received since the formation of Apollo and Apollo Production by Apollo
or Apollo Production to or from any federal, state or local Tax authorities.
Apollo and Apollo Production have adequately reserved for the payment of all
material Apollo Taxes with respect to periods ended on, prior to or through the
date of Closing for which Tax returns have not yet been filed. In the ordinary
course, Apollo and Apollo Production make adequate provision on their books for
the payment of all Apollo Taxes (including for the current fiscal period) owed
by Apollo and Apollo Production. Except to the extent reserves therefor are
reflected on their balance sheets, neither Apollo nor Apollo Production is
liable or will become liable, for any Apollo Taxes for any period ending on, prior
to or through the dates of those balance sheets. Except as disclosed on Schedule 6.2(h),
neither Apollo nor Apollo Production has been subject to a federal or state Tax
audit of any kind and no adjustment has been proposed by the IRS with respect
to any return for

 

24

 

any subsequent
year. With respect to the audits referred to on Schedule 6.2(h) hereto,
no such audit has resulted in an adjustment in excess of $25,000. 

 

(i)                                     Subsidiaries.  Apollo
Production is a subsidiary of Apollo. 
Apollo Production has no subsidiaries.

 

(j)                                     Capitalization of Apollo and Apollo Production.  The authorized stock of Apollo and Apollo
Production and the number of shares of capital stock that are issued and
outstanding of Apollo and Apollo Production are set forth in Schedule 6.2(j)
hereto. The shares listed on Schedule 6.2(j) hereto constitute all
the issued and outstanding shares of capital stock of Apollo and Apollo
Production and have been validly authorized and issued, are fully paid and
nonassessable, have not been issued in violation of any preemptive rights or of
any federal or state securities law and no personal liability is attached to
the ownership thereof. Except as set forth on Schedule 6.2(j),
there is no security, option, warrant, right, call, subscription, agreement,
commitment or understanding of any nature whatsoever, fixed or contingent, that
directly or indirectly (i) calls for the issuance, sale, pledge or other
disposition of any shares of capital stock of Apollo or Apollo Production, or
any securities convertible into, or other rights to acquire, any shares of
capital stock of Apollo or Apollo Production; or (ii) obligates Apollo or
Apollo Production to grant, offer or enter into any of the foregoing; or (iii) relates
to the voting or control of such capital stock, securities or rights, except as
provided in this Agreement, or in the articles of incorporation or bylaws of
Apollo or Apollo Production. Apollo Production has not agreed to register any
securities under the Securities Act.

 

(k)                                  Effect of Agreement.  The execution, delivery and performance by
Apollo and Apollo Production of this Agreement, and the consummation by Apollo
and Apollo Production of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (i) result in
a default, right to accelerate or loss of material rights under, or result in,
cause or create any material liability, Lien, or charge pursuant to, any
franchise, mortgage, deed of trust, lease, license, agreement, or other
contractual relationship to which Apollo or Apollo Production is a party or by
which any of them or their assets may be bound or affected; (ii) violate
any Judgment applicable to Apollo or Apollo Production; or (iii) violate
any provision of the organizational documents of Apollo or Apollo Production.

 

(l)                                     Litigation.  Except as
set forth on Schedule 6.2(m) there is no legal action, suit,
proceeding, grievance, arbitration, investigation, audit or claim by, of or before
any court, arbitration panel, Governmental Authority, or other body acting in
an adjudicative capacity pending or, to Apollo’s or Apollo Production’s
Knowledge, threatened against any of Apollo or Apollo Production, (i) that
involves or could reasonably be expected to involve Apollo or Apollo Production
or any of their assets, properties, operations or business or (ii) that
seeks to enjoin or obtain material damages in respect of the consummation of
the transactions contemplated hereby.

 

(m)                               Public Utility Holding Company Act and Investment Company Act.  Neither Apollo nor Apollo Production is a “holding
company” or a “public utility company” as such terms are defined in the Public
Utility Holding Company Act of 1933 as amended. 
Neither Apollo nor Apollo Production is, as a result of and immediately
upon the Closing will not be an

 

25

 

“investment
company” or company “controlled” by an “investment company” within the meaning
of the Investment Company Act of 1940 as amended.

 

(n)                                 ERISA.  No liability
to the Pension Benefit Guaranty Corporation has been incurred with respect to
any benefit plan by Apollo or Apollo Production or any of their respective
Affiliates which is or would be materially adverse to Apollo, Apollo Production
or their Affiliates.  The execution and
delivery of this Agreement and the issuance and sale of the Apollo Shares, will
not involve any transaction which is subject to the prohibitions of Section 406
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)
or in connection with which a Tax or Lien could be imposed thereto.

 

(o)                                 Securities Act of 1933. 
Based in material part upon the representations herein of the Seller,
Apollo and Apollo Production have complied and will comply with all applicable
federal and state securities Laws in connection with the offer, issuance and
sale of the Apollo Shares hereunder.

 

7.                                      TERMINATION

 

7.1.                              Termination Events.  The transactions contemplated herein may be
terminated and/or abandoned prior to the Closing:

 

(a)                                  by
the mutual consent of Apollo, Apollo Production and Seller;

 

(b)                                 by
Apollo and Apollo Production, if any of the conditions provided in Section 5.1
of this Agreement shall not have been met or waived in writing by Apollo and
Apollo Production by the Closing Date; or

 

(c)                                  by
Seller, if any of the conditions provided for in Section 5.2 of
this Agreement shall not have been met or waived in writing by Seller by the
Closing Date.

 

7.2.                              Procedure Upon Termination.  In the event of termination and/or
abandonment by Apollo and Apollo Production or by Seller, or both, pursuant to Section 7.1
hereof, written notice thereof shall be given to the other Parties, and the
transactions contemplated by this Agreement shall be terminated without further
action by Apollo, Apollo Production or by Seller.  If the transactions contemplated by this
Agreement are terminated as provided herein:

 

(a)                                  each
Party, upon request by another Party, shall re-deliver all documents, work
papers and other material, including all copies thereof, provided by the other
Party, to the Party furnishing the same; and

 

(b)                                 no
Party hereto shall have any liability or further obligation to any other Party
to this Agreement, with the exception of any provisions hereof which expressly
survive the termination of this Agreement;

 

(c)                                  the
Parties expressly acknowledge and agree that if the Closing fails to timely
occur due to the wrongful action or failure to act of Seller, Apollo
Production, or Apollo, then the sole remedy of the non-defaulting or
non-breaching Part(ies) shall be to terminate this Agreement.

 

26

 

8.                                      INDEMNIFICATION

 

8.1.                              Survival of Representations and Warranties.  The representations and warranties made by the
Parties under Sections 6.1 and 6.2 hereunder shall survive the Closing
hereunder for a period of one (1) year, with the exception of the
representations and warranties made by the Parties relative to matters of
Taxes, which representations and warranties shall survive the Closing hereunder
for a period of seven (7) years. 

 

8.2.                              Indemnification by Seller.  Seller shall indemnify, defend and hold
Apollo Production and Apollo and each of Apollo Production’s and Apollo’s
officers, directors, and shareholders harmless, from and against, and shall
reimburse Apollo Production or Apollo (or, as the case may be, each of Apollo
Production’s or Apollo’s officers, directors, and shareholders) on demand for
any liabilities, payments, losses, suits, claims, costs, or expenses (including
attorney’s fees and costs of investigation incurred in defending against such
liabilities, payments, losses, suits, claims, costs or expenses) made against
or incurred by or asserted against Apollo Production or Apollo (and/or each of
Apollo Production’s and/or Apollo’s officers, directors, and shareholders)
after the Closing in respect of (a) any breach of any representation,
warranty, covenant or agreement made by Seller or Mountain States in this
Agreement or any certificate or other instrument furnished by them pursuant to
this Agreement, or (b) the failure of Seller to convey to Apollo
Production good and marketable title to the Stock, free and clear of all Liens.

 

8.3.                              Indemnification by Apollo Production and by Apollo.  Apollo Production and Apollo, jointly and
severally, shall indemnify, defend and hold Seller and each of Sellers’
officers, directors, and shareholders harmless, from and against, and shall
reimburse Seller (or, as the case may be, each of Sellers’ officers, directors,
and shareholders) on demand for any liabilities, payments, losses, suits,
claims, costs, or expenses (including attorney’s fees and costs of
investigation incurred in defending against such liabilities, payments, losses,
suits, claims, costs or expenses) made against or incurred by or asserted
against Seller (and/or each of Sellers’ officers, directors, and shareholders)
after the Closing in respect of (a) any breach of any representation,
warranty, covenant or agreement made by Apollo Production or by Apollo in this
Agreement or any certificate or other instrument furnished by either of them
pursuant to this Agreement, or (b) the failure of Apollo to convey good
and marketable title to the Apollo Shares, free and clear of all Liens.

 

8.4.                              Claims Subject to Indemnification.  Each Party shall promptly notify the other of
any claim for which indemnification may be sought under this Agreement, and
shall give the indemnifying Party the opportunity to defend the claim with
counsel of its choice, subject to the approval of the Party against whom the
claim is being brought, which shall not be unreasonably withheld or delayed, at
its sole cost and expense.  The
indemnifying Party shall not settle or compromise such claim without the prior
written consent of the indemnified Party, which shall not be unreasonably
withheld or delayed.  Notwithstanding the
foregoing, in the event the subject matter underlying such claim is reasonably
determined by the indemnitee to be or reasonably anticipated to be materially
and adversely precedent setting to the indemnitee, or which may materially and
adversely affect the indemnitee’s future operations, the indemnitee may, in its
reasonable judgment, withhold its consent to indemnitor defending the claim
with its own counsel, or settling the claim, and upon written notice to
indemnitor, indemnitee shall proceed with its defense of the claim.  The indemnitor’s liability when indemnitee is
defending the claim

 

27

 

shall not
exceed that which indemnitor would have incurred had indemnitor provided the
claim defense.  

 

8.5.                              Limitation on Seller’s Representations and Warranties.
Independent Analysis.  APOLLO AND APOLLO PRODUCTION ACKNOWLEDGE THAT
APOLLO AND APOLLO PRODUCTION, EITHER ALONE OR TOGETHER WITH ANY INDIVIDUALS OR
ENTITIES APOLLO AND APOLLO PRODUCTION HAVE RETAINED TO ADVISE THEM WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREBY, HAVE KNOWLEDGE AND EXPERIENCE IN
TRANSACTIONS OF THE TYPE CONTEMPLATED PURSUANT TO THIS AGREEMENT AND IN THE
BUSINESS OF MOUNTAIN STATES, AND ARE THEREFORE CAPABLE OF EVALUATING THE RISKS
AND MERITS OF ACQUIRING THE STOCK. 
APOLLO AND APOLLO PRODUCTION FURTHER ACKNOWLEDGE THAT NO SELLER NOR ANY
OF THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS, EMPLOYEES, PARTNERS, MEMBERS,
MANAGERS, OR OWNERS, NOR ANY OF THEIR RESPECTIVE AFFILIATES, REPRESENTATIVES,
AGENTS OR CONSULTANTS HAVE MADE ANY REPRESENTATION OR WARRANTY IN RESPECT OF
THE INTERPRETATIONS OR ECONOMIC EVALUATIONS RELATIVE TO MOUNTAIN STATES,
INCLUDING WITH RESPECT TO THE FUTURE OPERATION OF MOUNTAIN STATES OR ITS
BUSINESS, OR AS TO THE PROSPECTS (FINANCIAL OR OTHERWISE) OF MOUNTAIN
STATES.  APOLLO AND APOLLO PRODUCTION
FURTHER ACKNOWLEDGE, AGREE AND RECOGNIZE THAT ANY COST ESTIMATES, PROJECTIONS
OR OTHER PREDICTIONS CONTAINED OR REFERRED TO IN ANY DOCUMENT PROVIDED TO
APOLLO, APOLLO PRODUCTION, OR ANY OF THEIR AFFILIATES, EMPLOYEES, AGENTS OR
REPRESENTATIVES, ARE PREPARED FOR INTERNAL PLANNING PURPOSES ONLY AND ARE NOT
DEEMED TO BE REPRESENTATIONS AND WARRANTIES OF SELLER, OR SELLER’S RESPECTIVE
SHAREHOLDERS, DIRECTORS, EMPLOYEES, PARTNERS, MEMBERS OR OWNERS, OR ANY OF
THEIR RESPECTIVE AFFILIATES, AGENTS, REPRESENTATIVES, OR CONSULTANTS.  

 

IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE
PARTIES HERETO THAT SELLER MAKES NO WARRANTIES OF ANY KIND, INCLUDING BUT NOT
LIMITED TO THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE ASSETS OR PROPERTIES OF MOUNTAIN STATES, WHETHER
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE. UPON CLOSING, APOLLO AND APOLLO
PRODUCTION ACKNOWLEDGE THAT THEY HAVE HAD, OR WILL HAVE HAD, PRIOR TO CLOSING,
A REASONABLE OPPORTUNITY TO CONDUCT THEIR DUE DILIGENCE ACTIVITIES AND TO
INSPECT AND EXAMINE THE CONDITION OF EACH AND EVERY ASSET AND PROPERTY OF
MOUNTAIN STATES, INCLUDING THE ENVIRONMENTAL CONDITIONS OF THE ASSETS AND
PROPERTIES OF MOUNTAIN STATES, AND APOLLO AND APOLLO PRODUCTION ARE AWARE OF
AND ACCEPT THE CONDITION OF EACH AND EVERY ASSET AND PROPERTY OF MOUNTAIN
STATES, INCLUDING BUT NOT LIMITED TO THE ENVIRONMENTAL CONDITIONS OF SUCH
ASSETS AND PROPERTIES.

 

28

 

8.6.                              Remedies: 
Limitations on Liability

 

(a)                                  The
sole remedy of Apollo Production or Apollo under this Agreement, for a breach
by Seller of any representation or warranty set forth in Section 6.1
of this Agreement, shall be to receive from Seller (and/or Ken Kelley, if
required) such amount of the Apollo Shares conveyed to Seller and Ken Kelley
hereunder which is equivalent to the amounts for which Apollo Production and/or
Apollo are entitled to indemnification pursuant to Section 8.2; it
being expressly understood and agreed that the Seller shall have no obligation
to satisfy any such liability to Apollo Production or Apollo in any manner
(including the payment of money), other than by a return of Apollo Shares.  The value of the Apollo Shares, for the
purposes of this Section 8.6(a) shall be the greater of the
average closing price of such stock over the most immediate five day trading
period prior to the date of satisfaction of the indemnity obligation or $0.40
per share.

 

(b)                                 The
sole remedy of Seller under this Agreement for a breach by Apollo and/or Apollo
Production of any representation or warranty set forth in Section 6.2
of this Agreement, shall be to receive from Apollo such number of shares of the
common stock of Apollo which is equivalent to the amount for which Seller is
entitled to indemnification pursuant to Section 8.3.  The value of the Apollo Shares, for the
purposes of this Section 8.6(b) shall be the greater of the
average closing price of such stock over the most immediate five day trading
period prior to the date of satisfaction of the indemnity obligation, or $0.40
per share.

 

(c)                                  The
maximum aggregate liability of Seller, to Apollo and Apollo Production,
collectively, for a breach of a representation or warranty set forth in Section 6.1
of this Agreement, shall not exceed $750,000, and the maximum aggregate
liability of Apollo and Apollo LNG for the breach of a representation or
warranty set forth in Section 6.2 of this Agreement, shall not
exceed $750,000.  

 

(d)                                 No
Party will be required to indemnify another Party unless the indemnified Party’s
claims with respect to a particular set of facts or circumstances exceed
$50,000, and unless (and only to the extent that) the aggregate amount of the
agreed to or adjudicated indemnification claims against such Party exceed
$50,000.  IT IS ADDITIONALLY EXPRESSLY
UNDERSTOOD AND AGREED THAT KEN KELLEY SHALL HAVE NO PERSONAL OR OTHER LIABILITY
UNDER THIS AGREEMENT WHATSOEVER, AND THAT APOLLO AND APOLLO PRODUCTION SHALL
HAVE NO RECOURSE TO THE ASSETS OR PROPERTIES OF KEN KELLEY.

 

(e)                                  NO
PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY FOR SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING LOST PROFITS, OR LOSS
OF BUSINESS OPPORTUNITY OR FOR PUNITIVE DAMAGES, AS TO ANY ACT OR OMISSION
WHATSOEVER, AND WHETHER CHARACTERIZED AS A CONTRACT BREACH, TORT, OR OTHERWISE,
OR WHICH OTHERWISE ARISES OUT OF OR RELATES TO THIS AGREEMENT OR ITS
PERFORMANCE OR NON-PERFORMANCE; PROVIDED THAT THIS LIMITATION ON LIABILITY
SHALL NOT APPLY TO ANY CLAIMS WITH RESPECT TO WHICH A PARTY IS FOUND BY A COURT
OF COMPETENT JURISDICTION TO HAVE COMMITTED ACTUAL FRAUD.

 

29

 

(f)                                    Each
indemnified Party shall be obligated in connection with any claim for
indemnification to exercise all Commercially Reasonable Efforts to mitigate the
Losses associated with such claim upon and after becoming aware of any event
which could reasonably be expected to give rise to such Losses.

 

(g)                                 The
amount of any Loss suffered by a Party, including any Tax Losses, will be
reduced by the amount, if any, of the recovery or Tax benefit (net of
reasonable expenses incurred in connection with obtaining such recovery or
benefit) such Party or its Affiliate has received, in the future receives, or
may reasonably be expected to receive, or otherwise enjoys with respect thereto
from any other Person, including any Affiliate 
(including the present value of any federal, state, or local income Tax
benefit, any recovery under any insurance policies, after the deduction of any
deductible payments and costs of recovery and any offsetting Tax deductions,
credits, losses, including net operating losses, or similar items).  The present value of any Tax benefits will be
calculated utilizing the prevailing interest rates established by the Internal
Revenue Code.

 

(h)                                 The
obligations of the Parties for indemnification for breach of a representation
or warranty under Section 6.1 and 6.2 shall terminate after the
expiration of the periods indicated in Section 8.1, except with
respect to any Loss which has been the subject of written notice to the Party
against whom such claim of Loss is asserted prior to the expiration of such
period, which notice shall preserve such claim until it is liquidated or
otherwise finally resolved.

 

9.                                      TAX MATTERS

 

9.1.                              Tax Returns.  Apollo
Production shall prepare or cause to be prepared and file or cause to be filed
all Tax returns with respect to Mountain States for all Tax periods beginning
with and subsequent to the 2005 taxable year. 
Seller shall prepare or cause to be prepared, and file or cause to be
filed all Tax returns with respect to Mountain States for all Tax periods
beginning prior to the 2005 Taxable year.

 

9.2.                              Cooperation on Tax Matters.

 

(a)                                  Apollo
Production and Seller shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax returns pursuant
to this Section and any audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.  Apollo Production and Seller shall (i) retain
all books and records in their possession with respect to Tax matters pertinent
to Mountain States, its assets or business relating to any whole or partial
Taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Apollo Production or the
Seller, any extensions thereof) of the respective Taxable periods, and abide by
all record retention agreements (if any) entered into with any Taxing
authority, and (ii) give the other Party reasonable written notice prior
to transferring, destroying or discarding any such books and records and, if
the other Party so requests, Apollo Production or Seller, as the case may be,
shall allow the other Party to take possession of such books and records.

 

30

 

(b)                                 Apollo
Production and the Seller further agree, upon request, to use their
Commercially Reasonable Efforts to obtain any certificate or other document
from any Governmental Authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).

 

9.3.                              Confidentiality.  Any information shared in connection with
Taxes shall be kept confidential, except as may otherwise be necessary in
connection with the filing of Tax returns or reports, refund claims, Tax
audits, Tax claims and Tax litigation, or as required by Law.

 

9.4.                              Audits. 
The Seller and Apollo Production shall provide prompt written notice to
the other of any pending or written threat of a Tax audit, assessment or
proceeding that it receives related to Mountain States and its assets for whole
or partial periods for which it is indemnified by the other Party hereunder.  Such notice shall contain factual information
(to the extent known) describing the asserted Tax liability in reasonable
detail and shall be accompanied by copies of any notice or other document
received from or with any Tax authority in respect of any such matters.  

 

9.5.                              Control of Proceedings. The Party
responsible for preparing and filing the Tax return under this Agreement shall
control audits and disputes relating to such Tax returns, including actions
taken to pay, compromise or settle such audits and disputes.  Reasonable out-of-pocket expenses with
respect to any such contest shall be borne by the Seller and Apollo Production
in proportion to their responsibility for such Taxes as set forth in this
Agreement.  Except as otherwise provided
by this Agreement, the non-controlling Party shall be afforded a reasonable
opportunity to participate in such proceedings at its own expense.

 

10.                               GENERAL PROVISIONS

 

10.1.                        Further Assurances.  Each Party hereto shall execute and/or cause
to be delivered to each other Party hereto such instruments and other
documents, and shall take such other actions, as such other Party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the transactions contemplated pursuant to
this Agreement.

 

10.2.                        Waiver. 
Any waiver of any term or condition of this Agreement shall not operate
as a waiver of any prior or subsequent breach of such term or condition other
than the breach specifically intended to be waived, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof.  Prior to this
Agreement being terminated as a result of the failure of a contingency or
condition to be met, the Party in whose favor such failed condition or
contingency exists shall have the sole and exclusive right, by written notice
to the other, to waive any such condition or contingency, and if waived, said
condition or contingency shall be deemed satisfied.

 

10.3.                        Notices. 
Any notices required or capable of being rendered under the provisions
of this Agreement shall be in writing and (a) hand delivered in person, (b) sent
by United States Postal Service certified mail, postage prepaid, (c) sent
by a recognized national overnight delivery service, or local same day delivery
or courier service, addressed as shown on pages 1

 

31

 

and 2
of this Agreement, or (d) sent by facsimile machine.  Any notice sent by United States Postal
Service certified mail shall be deemed to be effective the earlier of the
actual delivery, if hand delivered in Person, or three (3) Business Days
after deposit in a post office operated by the United States Postal
Service.  Any notice sent by a recognized
national overnight delivery service shall be deemed effective one (1) business
day after deposit with such service.  Any
notice personally delivered or delivered through a same-day delivery/courier
service shall be deemed effective upon its receipt or refusal to accept receipt
by the addressee.  Any notice sent by
facsimile machine shall be deemed effective one Business Day after confirmation
of the successful transmission by the sender’s facsimile machine.  Notices shall be addressed to the Parties in
accordance with the information provided on pages 1 and 2 of this
Agreement or to such other addresses as may be designated in writing from time
to time pursuant hereto.

 

10.4.                        Time is of the Essence.  Time is of the essence with respect to all
matters in this Agreement.  Except as
expressly provided for in this Agreement, the time for performance of any
obligation or taking any action under this Agreement will be deemed to expire
at 12:00 o’clock midnight (central time) on the last day of the applicable time
period provided for in this Agreement.

 

10.5.                        Binding Effect.  This Agreement shall be binding upon and
shall inure to the benefit of the Parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.  No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties.

 

10.6.                        No Third Party Beneficiaries.  Nothing in this Agreement or the attachments
hereto, express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any Persons other than the Parties to it, nor
is anything in this Agreement intended to relieve or discharge the obligations
or liabilities of any third Person to any Party to this Agreement.

 

10.7.                        Texas Law and Jurisdiction.  This Agreement shall be construed pursuant to
the laws of the State of Texas.  The
Parties hereby consent to the exclusive personal jurisdiction of the courts in
and for the State of Texas in the event of litigation pertaining hereto, with
venue to lie in Dallas County.

 

10.8.                        Attorneys’ Fees.  If any action at Law or in equity is brought
to enforce or interpret the terms of this Agreement, the prevailing Party shall
be entitled to reasonable attorneys’ fees, costs and disbursements from the
non-prevailing Party, in addition to any other relief to which the prevailing
Party may be entitled pursuant to the court’s ruling.

 

10.9.                        Counterparts and Facsimile Execution.  This Agreement may be executed in any number
of counterparts, and by facsimile signature, each of which will be an original
but all of which will constitute one and the same instrument.

 

10.10.                  Severability.  If any provision or provisions of this
Agreement shall be held to be wholly or partially invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.

 

32

 

10.11.                  Headings. 
The headings of the several Sections of this Agreement are inserted
solely for convenience of reference and are not a part of and are not intended
to govern, limit or aid in the construction of any term or provision hereof.

 

10.12.                  Other Offers.  From and after the mutual execution of this
Agreement, and until its closure or termination as herein provided, Seller
shall not entertain any offers from any third party with respect to the sale
(outside the Ordinary Course of Business) of the assets or the Stock of
Mountain States.

 

10.13.                  No Brokers. 
Apollo Production and Apollo represent and warrant that neither of them
has dealt with any sales agents, finders, brokers or other consultants in
connection with the transaction contemplated hereunder, and neither has any
financial obligation to any such sales agents, finders, brokers or other
consultants in connection with this transaction.  Seller represents and warrants that no
broker, finder, investment banker, sales agent, or other consultants, or other
Person is or will be in connection with the transactions contemplated by this
Agreement, entitled to any brokerage, finder’s or other fee or compensation
based on any arrangement or agreement made by or on behalf of Sellers for which
Apollo Production or Apollo will have any obligation or liability.  Seller has engaged the services of an
investment banker, and Seller shall be responsible for the payment of any fees,
expenses, charges or other claims due to such Person as a result of the
transactions contemplated hereunder.  If
any Person asserts a claim to a finder’s fee, brokerage commission or other
compensation on account of alleged employment as a finder or broker, or the
performance of services as a finder or broker in connection with the
transactions contemplated hereunder, the Party under whom the finder or broker
is claiming will indemnify, defend and hold the other Party and the other Party’s
affiliates harmless for, from, and against any claims related thereto.  This indemnity will survive the Closing or
the cancellation of this Agreement.

 

10.14.                  Seller’s Representative.

 

(a)                                  Ken
Kelley, acting alone, with full power of substitution and re-substitution, is
hereby designated as the representative of the Sellers (“Seller’s
Representative”) to serve, and Apollo and Apollo Production hereby
acknowledge that Seller’s Representative shall serve, as the sole
representative of the Seller from and after the Effective Date with respect to
the matters set forth in this Agreement. 
Seller’s Representative has accepted such designation as of the date
hereof.  Notwithstanding anything to the
contrary contained in this Agreement, Seller’s Representative shall have no
duties or responsibilities except those expressly set forth herein, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities
on behalf of any Seller shall otherwise exist against Seller’s
Representative.  IT IS EXPRESSLY
UNDERSTOOD AND AGREED BY SELLER AND BY APOLLO AND APOLLO PRODUCTION, THAT KEN
KELLEY SHALL HAVE NO PERSONAL LIABILITY WHATSOEVER TO APOLLO OR APOLLO PRODUCTION
WHATSOEVER, WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREUNDER.

 

(b)                                 Neptune
and Golden Spread each hereby irrevocably appoints Seller’s Representative as
the agent, proxy and attorney-in-fact for such Party for all purposes of this
Agreement, including full power and authority on such Party’s behalf (i) to
take all actions which

 

33

 

Seller’s
Representative considers necessary or desirable in connection with the defense,
pursuit or settlement of any determinations relating to (x) the payment of
the purchase price, and (y) any claims for indemnification, including
determinations to sue, defend, negotiate, settle and compromise any such claims
for indemnification made by or against, and other dispute with Apollo or Apollo
Production pursuant to this Agreement, or any of the agreements or transactions
contemplated hereby, (ii) to engage and employ agents and representatives
(including accountants, legal counsel and other professionals) and to incur
such other expenses as he shall deem necessary or prudent in connection with
the administration of the foregoing, (iii) to disburse to Neptune and
Golden Spread all indemnification payments, (iv) to accept and receive
notices to Seller pursuant to this Agreement, and (v) to take all other
actions and exercise all other rights which Seller’s Representative (in his
sole discretion) considers necessary or appropriate in connection with this
Agreement.  Each of Neptune and Golden
Spread acknowledges and agrees that such agency and proxy are coupled with an
interest, and are therefore irrevocable without the consent of Seller’s
Representative and shall survive the bankruptcy, dissolution or liquidation of
either or both of Neptune or Golden Spread.  All decisions and acts by Seller’s
Representative shall be binding upon each of Neptune and Golden Spread, and
neither Neptune nor Golden Spread shall have the right to object, dissent and
protest or otherwise contest the same.

 

(c)                                  In
the event that the person authorized hereunder as Seller’s Representative shall
resign or otherwise fail to act on behalf of Seller for any reason, a
substitute Seller’s Representative shall be elected by prompt action of Neptune
and Golden Spread. Apollo Production and Apollo, however, shall be conclusively
entitled to continue to rely upon the authority herein granted to Ken Kelley as
Seller’s Representative until such time as Neptune and Golden Spread shall have
notified them, in writing, of his removal from office.

 

(d)                                 Seller’s
Representative is authorized to act on behalf of the Seller notwithstanding any
dispute or disagreement among Neptune, Golden Spread, their officers,
directors, employees, shareholders, beneficiaries or the families thereof, and
Apollo and Apollo Production shall be entitled to rely on any and all action
taken by Seller’s Representative without any liability to, or obligation to
make any inquiry of Neptune or Golden Spread under any circumstances, even if
Apollo or Apollo Production shall be aware of any actual or potential dispute
or disagreement among the aforementioned. 
Apollo and Apollo Production are expressly authorized to rely on the
genuineness of the signature of Seller’s Representative and, upon receipt of
any writing which reasonably appears to have been signed by a representative of
Seller’s Representative may act upon the same without any further duty of
inquiry as to the genuineness of the writing.

 

(e)                                  Neither
Seller’s Representative nor any agent employed by him shall be liable to Neptune
or Golden Spread relating to the performance of his duties under this Agreement
for any errors in judgment, negligence, oversight, breach of duty or otherwise
except to the extent it is finally determined in a court of competent
jurisdiction by clear and convincing evidence that the actions taken or not
taken by Seller’s Representative constituted actual fraud or were taken or not
taken willfully and in bad faith.  Seller’s
Representative shall be indemnified and held harmless by Seller against all Claims
paid or incurred in connection with any action, suit, proceeding or Claim to
which Seller’s Representative is made a party by reason of the fact that it was
acting as Seller’s Representative pursuant to this Agreement; provided, however, that

 

34

 

Seller’s
Representative shall not be entitled to indemnification hereunder to the extent
it is finally determined in a court of competent jurisdiction by clear and
convincing evidence that the actions taken or not taken by Seller’s
Representative constituted actual fraud or were taken or not taken willfully in
bad faith.  Seller’s Representative shall
be protected in acting upon any notice, statement or certificate believed by
him to be genuine and to have been furnished by the appropriate Person and in
acting or refusing to act in good faith or any matter.

 

10.15.                  Publicity. 
All notices to third parties and other publicity concerning the
transactions contemplated by this Agreement, or any subsequent termination of
this Agreement, shall be jointly planned and coordinated by and between Seller
and Apollo Production.  No Party shall
act unilaterally in this regard without the prior written approval of the
others; provided, however, that such approval
shall not be unreasonably withheld.  It
is understood that this provision shall never prevent any Party from complying
with any applicable public disclosure requirements; provided, however, that
neither Party may disclose or make public the work product of any certified public
accountants providing services for another Party without giving such certified
public accountants the opportunity to review, comment upon, and approve of any
such disclosure or publication.

 

10.16.                  Expenses. 
Each Party to this Agreement shall pay all expenses incurred by it or on
its behalf in connection with the preparation, authorization, execution and
performance of this Agreement and the transactions contemplated hereunder,
including but not limited to, all fees and expenses of agents, representatives,
counsel, and accountants engaged by such Party.

 

10.17.                  Confidentiality Agreement.  The Parties agree that the Confidentiality
Agreement shall remain in full force and effect, and each Party agrees to
comply with its terms and conditions.

 

10.18.                  Disclosure Schedules; Interpretation.  Any matter set forth in a Disclosure Schedule shall
be deemed disclosure also for purposes of any other Sections or Disclosure
Schedules in this Agreement to which it may relate.  Failure to provide a cross reference to other
applicable Sections contained in the Agreement or Disclosure Schedules shall
not, however, be deemed a failure to disclose unless a reasonable person would
be unable to determine that the disclosure contained in such Section or
Disclosure Schedule contains enough information to qualify or otherwise
apply to other representations, Sections or Disclosure Schedules contained in
this Agreement.

 

10.19.                  Confidential Information.  Prior to the Closing Date and thereafter if
the Closing fails to occur, Apollo, Apollo Production, and their
representatives and Seller and its representatives will hold in strict
confidence, all data and information obtained regarding the other, their
assets, the operations, and financial status obtained in connection with this transaction
and the terms of this Agreement.  Except
as may be required by Law or any Governmental Authority, or to obtain any
consents or approvals required by this Agreement, or to their respective
attorneys, accountants, lenders, insurers, utility providers and consultants,
Seller, Apollo, and Apollo Production will not, without the prior written
consent of the other Part(ies), make any disclosure to third Persons or parties
of the terms of this Agreement or any other matter related to the transactions contemplated
by this Agreement.  Apollo, Apollo
Production and Seller will use their Commercially Reasonable Efforts to avoid
such publicity in

 

35

 

any newspaper
or magazine, or on any radio or television station, or through any other medium
of publication.

 

10.20.                  Joint and Several Liability.  The liability and obligations of Neptune and
Golden Spread hereunder shall be joint and several, and the liability and
obligations of Apollo and Apollo LNG under this Agreement shall be joint and
several.

 

10.21.                  Entire Agreement.  This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter contained in
this Agreement.  All prior and
contemporaneous agreements, representations and understandings of the Parties,
oral or written, are superseded by and merged in this Agreement.  No supplement, modification or amendment of
this Agreement will be binding unless in writing and executed by Apollo, Apollo
Production and Seller.

 

10.22.                  Ken Kelley Goodwill and Liability.  Ken Kelley is entering into this Agreement
solely for the purpose of conveying the Ken Kelley Goodwill and receiving as
consideration therefor, the Apollo Shares allocable to Ken Kelley.  Ken Kelley makes no representations,
warranties, covenants, or agreements with respect to the Stock, or with respect
to the obligations, representations, warranties, covenants, and agreements of
Seller hereunder, or otherwise with respect to this Agreement and the matters
contemplated hereunder; it being expressly understood and agreed that Ken
Kelley shall have no liability whatsoever with respect to this Agreement or the
transactions contemplated hereunder.  It
is expressly understood and agreed, however, that all of the obligations of
Apollo and Apollo Production hereunder, including all representations,
covenants, and agreements of Apollo and Apollo Production, shall inure directly
to the benefit of Ken Kelley, and that either Ken Kelley or Seller may enforce
the obligations of Apollo and Apollo Production, with respect to the Apollo
Shares received by Ken Kelley.

 

36

 

WITNESS WHEREOF, the parties
hereto have executed this Agreement as of the date set forth above.

 

	
   

  	
  APOLLO RESOURCES INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

37

 

	
   

  	
  APOLLO PRODUCTION & OPERATING,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

38

 

	
   

  	
  NEPTUNE LEASING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

39

 

	
   

  	
  GOLDEN SPREAD ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

40

 

	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Ken Kelley

  

 

41

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00094-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00094-of-00352.parquet"}]]