Document:

ex_10-24.htm

    
      

      

    

    
      EXHIBIT 10.24

       

       

      NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES
REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE
TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE
FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE
COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO
BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.

       

      10%
UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

      
      

       

      
        	Note No.:
    __	
                ____________,
      2009

              
	 	 
	$__________	
                Santa Ana,
      California

              

      

       

      FOR VALUE
RECEIVED, BALQON CORPORATION, a Nevada corporation (“Company”), promises
to pay to _____________________________________ (“Holder”), or its
registered assigns, the principal sum of
_________________________________________ DOLLARS ($_______), or such lesser
amount as shall equal the outstanding principal amount hereof, together with
interest from the date of this 10% Unsecured Subordinated Convertible Promissory
Note (this “Note”) on the unpaid
principal balance at a rate equal to 10% per annum, computed on the basis of the
actual number of days elapsed and a year of three hundred sixty-five (365)
days.  Interest on the outstanding principal balance of this Note
shall be payable quarterly as described in Section 2.
Subject to Section 6, all
unpaid principal, together with any then unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable on the Note Maturity Date
(as defined below). Subject to Section 6, any
unpaid principal and accrued and unpaid interest on the Note Maturity Date shall
be payable in cash. Upon payment in full of all principal and interest payable
hereunder, this Note shall be surrendered to the Company for
cancellation.

       

      This Note
is being issued pursuant to the terms and conditions contained in that certain
Securities Purchase Agreement of even date herewith between the original Holder
and the Company (the “Securities Purchase
Agreement”) and pursuant to the terms and conditions contained in the
Company’s Confidential Private Placement Memorandum dated March 23, 2009
(the “Memorandum”). This
Note, together with the similar 10% Unsecured Subordinated Convertible
Promissory Notes issued pursuant to the Securities Purchase Agreements and the
Memorandum, are collectively referred to herein as the “Notes.”

       

      
        
          
          

        

        
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      The
following is a statement of the rights of the Holder and the conditions to which
this Note is subject, and to which the Holder, by the acceptance of this Note,
agrees:

       

      1.             Certain
Definitions.  For purposes of this Note, the following terms
shall have the following respective meanings:

       

      “Closing Bid Price”
and “Closing Sales
Price” means, for any security as of any date, the last closing bid price
and last closing trade price, respectively, for such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or, if such principal market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or the last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the OTC Bulletin
Board for such security as reported by Bloomberg, or, if no closing bid price or
last trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink OTC Markets. If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

       

      “Common Stock” means
shares of the common stock, $0.001 par value per share, of the
Company.

       

      “Conversion Shares”
means the shares of Common Stock issuable upon conversion of this
Note.

       

      “Event of Default”
means any of the events specified as such in Section 5.1.

       

      “Holder” means the
person or entity specified in the introductory paragraph of this Note or any
transferee that is at the time the registered holder of this Note. The Holder or
any transferee is an “accredited investor” as defined under U.S. federal
securities laws or otherwise will qualify to allow this offering to take place
as a private placement under applicable securities laws.

       

      “Insolvency or Liquidation
Proceeding” shall mean (i) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding, relative to the Company or to its creditors, as such, or to
its assets, or (ii) any liquidation, dissolution, reorganization or winding up
of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy,

       

      
        
          
          

        

        
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      or (iii)
any assignment for the benefit of creditors or any other marshaling of assets
and liabilities of the Company.

       

      “Note Maturity Date”
shall mean the earlier of (i) March 31, 2012, or (ii) the date as of
which the outstanding principal and accrued interest on this Note and all other
payments payable hereunder are due and payable to the Holder pursuant to Section 5.2.

       

      “Reorganization
Securities” shall mean shares of stock of the Company, or its successor,
as reorganized, or other securities of the Company or any other person provided
for by a plan of reorganization, the payment of which is subordinated, at least
to the same extent as this Note, to the payment of all Senior Indebtedness which
may at the time be outstanding and the principal of which is due no earlier than
the principal of this Note, provided that the rights of the holders of the
Senior Indebtedness are not impaired thereby or such holders as a class shall
have approved such plan of reorganization.

       

      “Representative” shall
mean the trustee, agent or other representative for holders of all or any of the
Senior Indebtedness, if any, designated in the indenture, agreement or other
document creating, evidencing or governing such Senior Indebtedness or pursuant
to which it was issued, or otherwise duly designated by the holders of such
Senior Indebtedness.

       

      “Senior Indebtedness”
shall mean the principal of and unpaid interest on all indebtedness of the
Company incurred on, before or after the date of this Note (i) for money
borrowed from any bank, savings and loan or other financial institution or any
other person, and is evidenced by notes, bonds, debentures or other written
obligations and (ii) in connection with any renewals or extensions of any
indebtedness described in (i) above; provided, however, that the
term shall not include (a) any lease financing arrangement involving the Company
and (b) indebtedness which by the terms of the instrument creating or evidencing
it is subordinated to or on a parity with this Note.

       

      Other
capitalized terms not defined in this Note have the same meaning as in the
Securities Purchase Agreement.

       

      2.         
   Interest.  This
Note will bear interest at a rate of 10% per annum. Accrued interest on this
Note shall be due and payable quarterly on the fifth (5th) day
after the last business day of each calendar quarter beginning with the quarter
ended June 30, 2009, with a final installment due on the Note Maturity
Date, whether by acceleration, scheduled maturity or otherwise, unless such
amounts are converted into Common Stock pursuant to the terms set forth herein.
Subject to Section 6, any
accrued interest on this Note that is due on or prior to the Note Maturity Date
shall be payable in cash.

       

      3.         
   Prepayment.
At any time after March 31, 2010, upon fifteen (15) days prior written notice to
the Holder (which notice may be sent to the Holder prior to March 31, 2010), the
Company may prepay this Note in whole or in part; provided, however, that: (i)
any prepayment of this Note may only be made in connection with the prepayment
of all Notes issued under the Memorandum on a pro rata basis, based on the
respective aggregate outstanding principal amounts of each such Note, and (ii)
any such prepayment will be applied first to the payment
of expenses due under this Note, second to interest accrued on this Note and
third, if the amount of prepayment exceeds the amount of all such expenses and
accrued interest, to the payment of principal of this Note.

       

      
        
          
          

        

        
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      4.            
Subordination.

       

      4.1           Subordinated
Notes Subordinate to Senior Indebtedness. The provisions of this Section 4 apply
notwithstanding anything to the contrary contained in this Note. The Company
covenants and agrees, and the Holder, by such Holder’s acceptance hereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Section, the indebtedness represented by this Note and the
payment of the principal of and interest on this Note are hereby expressly made
subordinate and subject in right of the prior payment in full of all Senior
Indebtedness. This Section 4
constitutes a continuing offer to all persons who become holders of, or continue
to hold, Senior Indebtedness, each of whom is an obligee hereunder and is
entitled to enforce such holder’s rights hereunder, subject to the provisions
hereof, without any act or notice of acceptance hereof or reliance
hereon.

       

      4.2           Payment
Over of Proceeds Upon Dissolution, Etc.

       

      (a)           In
the event of any Insolvency or Liquidation Proceeding, all Senior Indebtedness
shall first be paid in full before the Holder is entitled to receive any direct
or indirect payment or distribution of any cash, property or securities
(excluding Reorganization Securities) on account of the principal of or interest
on this Note.

       

      (b)           The
holders of Senior Indebtedness (or their respective Representatives) shall be
entitled to receive directly, for application to the payment thereof (to the
extent necessary to pay all such Senior Indebtedness in full after giving effect
to any substantially concurrent payment or distribution to the holders of such
Senior Indebtedness), any payment or distribution of any kind or character,
whether in cash, property or securities (excluding Reorganization Securities but
including any payment or distribution, except Reorganization Securities, which
may be payable or deliverable by reason of the payment of any other indebtedness
of the Company being subordinated to the payment of this Note) which may be
payable or deliverable in respect of this Note in any such Insolvency or
Liquidation Proceeding.

       

      (c)           In
the event that, notwithstanding the foregoing provisions of this Section 4.2, the
Holder shall have received any payment from or distribution of assets of the
Company in an Insolvency or Liquidation Proceeding or the estate created by the
commencement of any such Insolvency or Liquidation Proceeding, of any kind or
character in respect of this Note whether in cash, property or securities
(excluding Reorganization Securities but including any payment or distribution,
except Reorganization Securities, which may be payable or deliverable by reason
of the payment of any other indebtedness of the Company being subordinated to
the payment of this Note) before all Senior Indebtedness is paid in
full, then and in such event such payment or distribution shall be received and
held in trust for and shall be paid over to the holders of the Senior
Indebtedness remaining unpaid (or their respective Representatives), to the
extent necessary to pay all such Senior Indebtedness in full after giving effect
to any substantially concurrent payment or distribution to the holders of such
Senior Indebtedness, for application to the payment in full of such Senior
Indebtedness.

       

      
        
          
          

        

        
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      4.3           Default
on Senior Indebtedness.

       

      (a)           If
there exists a default in the payment when due (whether at maturity or upon
acceleration or mandatory repayment, or on any principal installment payment
date or interest payment date, or otherwise) of any Senior Indebtedness (a
“Payment
Default”) and such default shall not have been cured or waived in writing
by or on behalf of the requisite percentage of the holders of such Senior
Indebtedness (or their Representative, if any), then any payment on account of
principal of or interest on this Note which the Holder would then be entitled to
receive, but for the provisions of this Section 4.3(a),
shall instead be paid over to the holders of such Senior Indebtedness (or their
Representative, if any) until all amounts of Senior Indebtedness then due and
payable have been paid in full, prior to any direct or indirect payment by or on
behalf of the Company to the holder of any principal of or interest on this
Note.

       

      (b)           The
Company may not, directly or indirectly, make, and the Holder may not ask,
demand, take or receive from or on behalf of the Company, any payment on account
of the principal of or interest on this Note during the period (a “Deferral Period”)
from the date the Company and/or the Holder receive from a holder of Senior
Indebtedness a notice (a “Deferral Notice”)
of:

       

      (i)           the
existence of a Payment Default; or

       

      (ii)           the
existence of any event of default (other than a Payment Default) under any
agreement or instrument pursuant to which any Senior Indebtedness is issued, in
each instance as now in effect or as hereafter from time to time modified or
amended, without the necessity of any consent by or notice to the Holders (a
“Specified Covenant
Default”);

       

      until the
earlier of (i) the date such Payment Default or Specified Covenant Default is
cured, waived in writing or otherwise ceases to exist and (ii) the one hundred
eightieth (180th) day
after receipt by the Company and/or by the holder of this Note of such Deferral
Notice; provided, however, that (x)
only one Deferral Notice relating to the same Payment Default or Specified
Covenant Default may be given, (y) no subsequent Deferral Notice may be given
with respect to any Payment Default or Specified Covenant Default existing at
the time an effective Deferral Notice is given and (z) if any such Deferral
Notice has been given, no subsequent Deferral Notice with respect to any number
of different Payment Defaults or Specified Covenant Defaults shall be effective
until the later of (1) the date such subsequent Deferral Notice is received by
the Company and the holders of
Subordinated Debentures and (2) the three hundred sixty-fifth (365th) day
after receipt of the then most recent prior effective Deferral Notice. So long
as any Senior Indebtedness is outstanding, the Holder shall give the holders of
the Senior Indebtedness five (5) business days prior written notice of any
proposed demand for payment or institution of proceedings with respect to this
Note (which notice may be given during a Deferral Period provided that the
proposed demand for payment is not to be made or the proposed proceedings are
not to be instituted until the expiration of such Deferral Period).

       

      
        
          
          

        

        
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      (c)           Upon
termination of any Deferral Period the Company shall resume payments on account
of the principal of and interest on this Note subject to the obligation of the
Company and the Holder to pay over to the holders of Senior Indebtedness amounts
otherwise payable on account of the principal of and interest on this Note
pursuant to the provisions of, and in the circumstances specified in, this Section 4.

       

      (d)           During
the first one hundred twenty (120) days of any Deferral Period, payment on
account of this Note may not be accelerated unless a voluntary Insolvency or
Liquidation Proceeding shall be instituted by the Company or an involuntary
Insolvency or Liquidation Proceeding shall be instituted against the Company and
such proceeding remains undismissed for a period of sixty (60) days. So long as
any Senior Indebtedness is outstanding, the Holder shall give the holders of the
Senior Indebtedness five (5) business days’ prior written notice of any proposed
acceleration with respect to this Note (which notice may be given during a
Deferral Period provided that the proposed acceleration is not to be effective
until the expiration of such Deferral Period).

       

      (e)           In
the event that, notwithstanding the foregoing provisions of this Section 4.3, any
payment shall be made by or on behalf of the Company and received by the Holder
at a time after the giving of a Deferral Notice and during a Deferral Period,
then such payment shall be held in trust for the benefit of and shall be
immediately paid over to the holders of Senior Indebtedness remaining unpaid or
their respective Representatives, for application to the payment in full of all
Senior Indebtedness in accordance with its terms (after giving effect to any
prior or substantially concurrent payment to the holders of such Senior
Indebtedness).

       

      4.4           Subrogation
to Rights of Holders of Senior Indebtedness. After all amounts payable
under or in respect of Senior Indebtedness are paid in full, the Holder shall be
subrogated to the extent of the payments or distributions made to the holders
of, or otherwise applied to payment of, such Senior Indebtedness pursuant to the
provisions of this Section 4
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinate and subject in right of payment to Senior
Indebtedness to substantially the same extent as this Note is so subordinate and
subject in right of payment and which is entitled to like rights of
subrogation), to the rights of the holders of such Senior Indebtedness (or their
respective Representatives) to receive payments and distributions of cash,
property and securities applicable to the Senior Indebtedness
until the principal of and interest on this Note shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness (or their respective Representatives) of any cash, property
or securities to which the Holder would be entitled except for the provisions of
this Section 4, and
no payments over pursuant to the provisions of this Section 4 to the
holders of Senior Indebtedness (or their respective Representatives) by the
Company or the Holder shall, as among the Company and its creditors (other than
holders of Senior Indebtedness and the Holder), be deemed to be a payment or
distribution by the Company to or on account of Senior Indebtedness it being
understood that the provisions of this Section 4 are
solely for the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Holder on the other hand.

       

      
        
          
          

        

        
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      If any
payment or distribution to which the Holder would otherwise have been entitled
but for the provisions of this Section 4 shall
have been applied, pursuant to the provisions of this Section 4, to
the payment of all amounts payable under the Senior Indebtedness, then and in
such case, the Holder shall be entitled to receive (equally and ratably with the
holders of all indebtedness of the Company which by its express terms is
subordinate and subject in right of payment to Senior Indebtedness to
substantially the same extent as this Note is subordinate and subject in right
of payment and which is entitled to like rights) from the holders of such Senior
Indebtedness (or their respective Representatives) any substantially
contemporaneous payments or distributions received by such holders of Senior
Indebtedness (or their respective Representatives) in excess of the amount
sufficient to pay in full all obligations payable under or in respect of such
Senior Indebtedness.

       

      4.5           Rights of
Holders Not to Be Impaired. Nothing contained in this Section 4 or
elsewhere in this Note is intended to or shall:

       

      (a)           impair,
as among the Company, its creditors other than holders or Senior Indebtedness
and the Holder, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and premium, if any, and
interest on this Note as and when the same shall become due and payable in
accordance with their terms; or

       

      (b)           affect
the relative rights against the Company of the Holder of this Note and creditors
of the Company other than the holders of Senior Indebtedness; or

       

      (c)           prevent
the Holder from exercising all remedies otherwise permitted by applicable law
upon default subject to the rights, if any, under this Section 4 of the
holders of Senior Indebtedness to receive payments or distributions otherwise
payable or deliverable to, or received by, such holder upon the exercise of any
such remedy and subject to the restriction on acceleration set forth in Section 4.3(d).

       

      4.6           Effectuation
of Subordination. If the Holder does not file a proper claim or proof of
debt in the form required in any Insolvency or Liquidation Proceeding prior to
thirty
(30) days before the expiration of the time to file such claims or proofs, then
the holders of the Senior Indebtedness, or their Representatives, are hereby
authorized, and shall have the right (without any duty), to file an appropriate
claim for and on behalf of such holder.

       

      
        
          
          

        

        
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      4.7           No Waiver
of Subordination Provisions. No right of any present or future holder of
any Senior Indebtedness, or Representative thereof, to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to act
by any such holder or Representative thereof, or by any noncompliance by the
Company with the terms, provisions and covenants of this Note regardless of any
knowledge thereof which any such holder or Representative thereof may have or be
otherwise charged with.

       

      Without
in any way limiting the generality of the foregoing paragraph, the holders of
Senior Indebtedness (or their Representatives, if applicable) may, at any time
and from time to time, without the consent of or notice to the Holder, without
incurring responsibility to the Holder and without impairing or releasing the
subordination and other benefits provided in this Section 4 or the
obligations hereunder of the Holder to the holders of Senior Indebtedness, do
any one or more of the following all without notice to the Holder and even if
any right of reimbursement or subrogation or other right or remedy of the Holder
is affected, impaired or extinguished thereby:

       

      (a)           change
the manner, place or terms of payment or change or extend the time of payment
of, or renew, exchange, amend or alter, the terms of any Senior Indebtedness,
any security therefor or guaranty thereof or any liability of the Company or any
guarantor to such holder, or any liability incurred directly or indirectly in
respect thereof, or otherwise  amend, renew, exchange, modify or
supplement in any manner Senior Indebtedness or any instrument evidencing or
guaranteeing or securing the same or any agreement under which Senior
Indebtedness is outstanding;

       

      (b)           sell,
exchange, release, surrender, realize upon, enforce or otherwise deal with in
any manner and any order any property pledged, mortgaged or otherwise securing
Senior Indebtedness or any liability of the Company or any guarantor to such
holder, or any liability incurred directly or indirectly in respect
thereof;

       

      (c)           settle
or compromise any Senior Indebtedness or any other liability of the Company or
any guarantor of the Senior Indebtedness to such holder or any security therefor
or any liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability (including,
without limitation, Senior Indebtedness) in any manner or order;
and

       

      (d)           fail
to take or to record or otherwise perfect, for any reason or for no reason, any
lien or security interest securing Senior Indebtedness by whomsoever granted,
exercise or delay in or refrain from exercising any right or remedy
against the Company or any security or any guarantor or any other person, elect
any remedy and otherwise deal freely with the Company and any security and any
guarantor of the Senior Indebtedness or any liability of the Company or any
guarantor to such holder or any liability incurred directly or indirectly in
respect thereof.

       

      
        
          
          

        

        
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      4.8           Reliance
on Court Orders; Evidence of Status. Upon any payment or distribution of
assets of the Company referred to in Section 4.2, the
Holder shall be entitled to rely upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution delivered to the Holder for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 4.

       

      In the
absence of any such receiver, trustee in bankruptcy, liquidating trustee, agent
or other person, the holder of this Note shall be entitled to rely upon a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a Representative on behalf of such holder) as evidence that
such person is a holder of Senior Indebtedness (or is such a Representative) for
any relevant purpose. In the event that any holder determines in good faith that
further evidence is  required with respect to the right of any person
as a holder of Senior Indebtedness (or such a Representative), as to the extent
to which such person is entitled to participate in such payment or distribution,
and as to other facts pertinent to the rights of such person under this Section 4, such
holder may request such person to furnish evidence to the reasonable
satisfaction of such holder as to the amount of Senior Indebtedness held by such
person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Section 4, and
if such evidence is not furnished such holder may defer (without liability to
any holder of Senior Indebtedness or any Representative of such holder) any
payment to such person pending judicial determination as to the right of such
person to receive such payment or until such time as such holder shall be
otherwise satisfied as to the right of such person to receive such
payment.

       

      4.9           Not to
Prevent Events of Default. The failure to make a payment on account of
the principal of or interest on this Note by reason of any provision of this
Section 4
shall not be construed as preventing the occurrence of a default or an Event of
Default under this Note. Except as expressly provided in Section 4.3(d),
nothing in this Section 4 shall
affect the rights of the Holder to accelerate the maturity of this Note in
accordance with its terms.

       

      4.10           Amendments.
Without the prior written consent of the holders of the Senior Indebtedness, the
Company and the Holder shall not (i) amend, supplement or otherwise modify any
provision of this Section 4, (ii)
accelerate the payment of the principal of or interest on this Note or (iii) if
such amendment would have a material adverse effect on the holders of the Senior
Indebtedness, amend, supplement or otherwise modify any other provision of this
Note.

       

      
        
          
          

        

        
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      5.           
 Default.

       

      5.1           Events of
Default. If any of the following events (each, an “Event of Default” and
collectively, “Events
of Default”) shall occur:

       

      (a)           the
Company shall default in the payment of any part of the principal of this
Note;

       

      (b)           the
Company shall default in the payment of any installment of interest on this Note
for more than fifteen (15) days after the same shall become due and
payable;

       

      (c)           the
Company shall breach or default in the performance of any covenant or warranty
of the Company in this Note, and continuance of such breach for a period of
thirty (30) days after there has been given, by registered or certified mail, to
the Company by the holder of this Note, a written notice specifying such breach
or default and requiring it to be remedied;

       

      (d)           a
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of the Company in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or for any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and such
decree or order shall remain unstayed and in effect for a period of sixty (60)
consecutive days; or

       

      (e)           the
Company shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, shall consent to the
entry of an order for relief in an involuntary case under any such law, or shall
consent to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of the
Company or for any substantial part of its property, or shall make any general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
any of the foregoing;

       

      then and
in any such event the holder of this Note may at any time (unless all defaults
theretofore or thereupon shall have been remedied) at its option, by written
notice to the Company, declare this Note to be due and payable, whereupon the
same shall forthwith mature and become due and payable without presentment,
demand, protest or other notice, all of which are hereby waived.

       

      5.2           Remedies
on and Notices of Default. Subject to the provisions of Section 4, in
case any one or more Events of Default shall occur, the Holder may proceed to
protect and enforce the rights of such holder by a suit in equity, action at law
or other appropriate proceeding, whether for the specific performance of any
agreement contained in this Note, or for an injunction against a violation of
any of the terms or provisions hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law. In
case of a default under this Note, the Company will pay to the Holder such
further amount as shall be sufficient to cover the reasonable cost and expense
of enforcement, including, without limitation, reasonable attorneys’ fees. If
the Holder shall give any notice or take any other action in respect of a
claimed default, the Company shall forthwith give written notice thereof to all
other holders of similarly subordinated notes at the time outstanding,
describing the notice or action and the nature of the claimed default. No course
of dealing and no delay on the part of any holder of this Note in exercising any
right shall operate as a waiver thereof or otherwise prejudice such holder’s
rights or the rights of the holder of any similarly subordinated notes. No
remedy conferred by this Note upon the holder shall be exclusive of any other
remedy referred to herein or now or hereafter available at law, in equity, by
statute or otherwise.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      6.           Conversion.

       

      6.1           Automatic
Conversion. If at any time after one hundred eighty (180) days after the
issuance of this Note the Closing Bid Price or Closing Sales Price, as the case
may be, of a share of the Company’s Common Stock equals or exceeds $4.50
(subject to appropriate adjustment in the event of a stock split, stock
dividend, combination or similar event) for twenty (20) consecutive trading
days, then the principal amount of this Note shall automatically convert into
shares of Common Stock at the Conversion Price (as defined below). Accrued and
unpaid interest on the date of such automatic conversion shall be paid in cash
by the Company. The conversion will be deemed to have occurred as of the close
of business on such twentieth (20th)
consecutive trading day. The Company shall notify the Holder in writing within
one (1) trading day after any automatic conversion, and will cause certificate
representing the Conversion Shares to be issued within three (3) trading days
after automatic conversion, and will deliver those certificates to the Holder by
overnight courier immediately after receipt of the original of this Note for
cancellation.

       

      6.2           Conversion
Procedure in the Event of Automatic Conversion. In the event of automatic
conversion, the outstanding principal under this Note will convert automatically
without any further action by the Company whether or not the Note is surrendered
to the Company or its transfer agent. The Company will not be obligated to issue
certificates evidencing the securities issuable upon automatic conversion of
this Note unless this Note is either delivered to the Company or its transfer
agent, or the Holder notifies the Company or its transfer agent that this Note
has been mutilated, lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note. At its expense, the Company will,
as soon as reasonably practicable thereafter, issue and deliver to the Holder a
certificate for the number of shares of Common Stock to which the Holder will be
entitled upon conversion (bearing such legends as are required by applicable
state and federal securities laws in the opinion of counsel to the Company),
together with a check payable to the Holder for any cash amounts payable as
described in Section 6.1
(with respect to accrued and unpaid interest) and Section 6.5
(with respect to fractional shares).

       

      6.3           Voluntary
Conversion. The Holder may, at any time before this Note has been repaid
in full, elect to convert all or any portion of the outstanding principal into
shares of Common Stock at the Conversion Price.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      6.4           Conversion
Procedure in the Event of Voluntary Conversion.

       

      (a)           Each
voluntary conversion of this Note shall be effected by the surrender of this
Note at the principal office of the Company at any time during normal business
hours, together with a written notice by the Holder stating that the Holder
desires to convert the entire, or a specified increment of, principal of this
Note into Common Stock. Each conversion of a Note will be deemed to have been
effected as of the close of business on the date on which this Note has been
surrendered and the notice has been received, and at that time, the rights of
the Holder of this Note will cease and the person or persons in whose name or
names any certificate or certificates for Common Stock are to be issued upon
conversion will be deemed to have become the Holder or Holders of record of the
shares of Common Stock represented thereby.

       

      (b)           Within
two (2) trading days after a conversion has been effected, the Company will
deliver to the converting holder:

       

      (i)           a
certificate or certificates representing the number of shares of Common Stock
issuable by reason of conversion in such name or names and such denomination or
denominations as the converting holder has specified; and

       

      (ii)           a
replacement Note representing the principal amount of this Note delivered to the
Company in connection with the conversion but which was not
converted.

       

      (c)           The
issuance of certificates for Common Stock upon conversion of this Note will be
made without charge to the Holder for any tax in respect thereof or other cost
incurred by the Company in connection with conversion and the related issuance
of Common Stock. Upon conversion of any portion of this Note, the Company will
take all actions as are necessary in order to ensure that the Common Stock
issuable with respect to conversion will be validly issued, fully paid and
nonassessable.

       

      (d)           The
Company will not close its books against the transfer of this Note or of the
shares of Common Stock issued or issuable upon conversion of this Note in any
manner which interferes with the timely conversion of this Note, and will at all
times reserve for issuance the maximum number of shares of Common Stock into
which this Note is convertible.

       

      6.5           Fractional
Shares; Interest. No fractional shares shall be issued upon conversion of
this Note. In lieu of Company issuing any fractional shares to Holder upon the
conversion of this Note, Company shall pay to Holder an amount in cash equal to
the product obtained by multiplying the Conversion Price applied to effect such
conversion by the
fraction of a share not issued pursuant to the previous sentence. Upon
conversion of this Note in full or the payment of outstanding amounts specified
in this Note, the Company shall be released from all its obligations and
liabilities under this Note.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      6.6           Conversion
Price. The initial Conversion Price shall be $1.00 per share of Common
Stock. The Conversion Price shall be subject to adjustment as described in Section 7.

       

      7.           Conversion
Price Adjustments.

       

      7.1           Adjustments
for Stock Splits and Subdivisions.  In the event Company should
at any time or from time to time after the date of issuance hereof fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock
without payment of any consideration by such holders for the additional shares
of Common Stock, then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable upon conversion of this Note shall be increased in proportion to
such increase of outstanding shares.

       

      7.2           Adjustments
for Reverse Stock Splits.  If the number of shares of Common
Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
hereof shall be decreased in proportion to such decrease in outstanding
shares.

       

      7.3           Notices
of Record Date, Etc. In the event of:

       

      (a)           Any
taking by Company of a record of the holders of any class of securities of the
Company for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend payable out of earned surplus
at the same rate as that of the last such cash dividend theretofore paid) or
other distribution or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right; or

       

      (b)           Any
capital reorganization of Company, any reclassification or recapitalization of
the capital stock of Company or any transfer of all or substantially all of the
assets of the Company to any other Person or any consolidation or merger
involving the Company; or

       

      (c)           Any
voluntary or involuntary dissolution, liquidation or winding-up of the
Company,

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      the
Company will mail to the Holder at least ten (10) days prior to the earliest
date specified therein, a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and the amount and character of such dividend, distribution or right; and (B)
the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is expected to
become effective and the record date for determining shareholders entitled to
vote thereon.

       

      7.4           Reservation
of Stock Issuable Upon Conversion.  The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock for the purpose of effecting the conversion of this Note such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of this Note; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount of this Note, without
limitation of such other remedies as shall be available to the Investor of this
Note, Company will use its best efforts to take such corporate action as may, in
the opinion of counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

       

      8.          
 Successors
and Assigns.  Subject to the restrictions on transfer described
in Sections 10
and 11, the rights and obligations of Company and the Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties.

       

      9.         
  Waiver
and Amendment.  Any provision of this Note may be amended,
waived or modified upon the written consent of Company and the holders of a
majority in principal amount of the Notes.

       

      10.           Transfer
of this Note or Securities Issuable on Conversion Hereof.  With
respect to any offer, sale or other disposition of this Note or securities into
which such Note may be converted, the Holder will give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of the Holder’s counsel, or other evidence if reasonably
satisfactory to the Company, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect). Upon receiving such written notice and
reasonably satisfactory opinion, if so requested, or other evidence, the
Company, as promptly as practicable, shall notify the Holder that the Holder may
sell or otherwise dispose of this Note or such securities, all in accordance
with the terms of the notice delivered to Company.  If a determination
has been made pursuant to this Section 10 that
the opinion of counsel for the Holder, or other evidence, is not reasonably
satisfactory to the Company, the Company shall so notify Investor promptly after
such determination has been made.  Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities
Act.  The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.  Subject to the foregoing
transfers of this Note shall be registered upon registration books maintained
for such purpose by or on behalf of the Company as provided in the Securities
Purchase Agreement.  Prior to presentation of this Note for
registration of transfer, the Company shall
treat the registered Holder hereof as the owner and the Holder of this Note for
the purpose of receiving all payments of principal and interest hereon and for
all other purposes whatsoever, whether or not this Note shall be overdue and the
Company shall not be affected by notice to the contrary.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      11.           Assignment
by the Company.  Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by Company without the prior written consent of
Investor.

       

      12.           Notices.  All
notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall in writing and faxed, mailed or delivered
to each party at the respective addresses of the parties as set forth in the
Securities Purchase Agreement, or at such other address or facsimile number as
the Company shall have furnished to Investor in writing.  All such
notices and communications shall be effective (i) when sent by Federal Express
or other overnight service of recognized standing, on the business day following
the deposit with such service; (ii) when mailed, by registered or certified
mail, first class postage prepaid and addressed as aforesaid through the United
States Postal Service, upon receipt; (iii) when delivered by hand, upon
delivery; and (iv) when faxed, upon confirmation of receipt.

       

      13.           Pari
Passu Notes.  The Holder acknowledges and agrees that the
payment of all or any portion of the outstanding principal amount of this Note
and all interest hereon shall be pari passu in right of payment and in all other
respects to the other Notes issued pursuant to the Securities Purchase Agreement
or pursuant to the terms of such Notes.  In the event the Holder
receives payments in excess of its pro rata share of the Company’s payments to
the holders of all of the Notes, then the Holder shall hold in trust all such
excess payments for the benefit of the holders of the other Notes and shall pay
such amounts held in trust to such other holders upon demand by such
holders.

       

      14.           Payment.  Payment
shall be made in lawful tender of the United States.

       

      15.           Usury.
In the event any interest is paid on this Note which is deemed to be in excess
of the then legal maximum rate, then that portion of the interest payment
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this
Note.

       

      16.           Waivers.  The
Company hereby waives notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor and all other notices or demands
relative to this instrument.

       

      17.           Governing
Law.  This Note and all actions arising out of or in connection
with this Note shall be governed by and construed in accordance with the laws of
the State of California, without regard to the conflicts of law provisions of
the State of California, or of any other state.

       

      [signature
page follows]

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      IN
WITNESS WHEREOF, the Company has caused this Note to be issued as of the date
first written above.

       

      
        
          
            	 	
                    BALQON
      CORPORATION,

                    a
      Nevada corporation

                  	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/
      Balwinder Samra	 
	 	 	
                    Balwinder
      Samra, Chief Executive Officer

                  	 

          

        

      

    

     

     

    16ex10_3.htm

    
      

    

    Exhibit 10.3

     

    
      The
Partnership has redacted certain confidential information in this agreement in
reliance upon its confidential treatment request that it has filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934. In this agreement, we indicate each redaction by use of
an asterisk *.

    

     

    

    

    GAS
PURCHASE AND PROCESSING AGREEMENT

    

    BETWEEN

    

    DUKE
ENERGY FIELD SERVICES, INC., A COLORADO CORPORATION

    

    AND

    

    UNITED
STATES EXPLORATION, INC, A COLORADO CORPORATION

    

    AND

    

    PETROLEUM
DEVELOPMENT CORPORATION, A NEVADA CORPORATION

    

    

    ("DEDICATED
ACREAGE")

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    INDEX

    

    
      	
              I

            	
              REPRESENTATIONS
      OF SELLERS

            	
              2

            
	 	 	 
	
              II

            	
              COMMITMENT
      OF SELLERS' GAS

            	
              2

            
	 	 	 
	
              III

            	
              CONSTRUCTION
      OF PIPELINE GATHERING SYSTEM

            	
              2

            
	 	 	 
	
              IV

            	
              QUANTITY

            	
              2

            
	 	 	 
	
              V

            	
              GENERAL
      TERMS AND CONDITIONS

            	
              3

            
	 	 	 
	
              VI

            	
              PRICE

            	
              3

            
	 	 	 
	
              VII

            	
              NOTICES

            	
              3

            
	 	 	 
	
              VIII

            	
              TERM

            	
              4

            
	 	 	 
	
              IX

            	
              MISCELLANEOUS

            	
              4

            
	 	 	 
	 
      	
              EXHIBIT
      A - THE LEASES

            	
              Page
      1 A

            
	 	 	 
	 
      	
              EXHIBIT
      B - APPENDIX - GENERAL TERMS AND CONDITIONS

            	 
      
	 	 	 
	 
      	
              1

            	
              DEFINITIONS

            	
              Page
      1 E

            
	 
      	
              2

            	
              POINT(S)
      OF DELIVERY, PRESSURE AND OWNERSHIP

            	
              Page
      2 B

            
	 
      	
              3

            	
              RESERVATIONS
      OF SELLER

            	
              Page
      3 B

            
	 
      	
              4

            	
              QUANTITY
      RESTRICTIONS

            	
              Page
      3 B

            
	 
      	
              5

            	
              SELLER'S
      WARRANTIES

            	
              Page
      4 B

            
	 
      	
              6

            	
              EASEMENTS

            	
              Page
      4 B

            
	 
      	
              7

            	
              SHRINKAGE

            	
              Page
      4 B

            
	 
      	
              8

            	
              GAS
      MEASUREMENT AND QUALITY

            	
              Page
      4 B

            
	 
      	
              9

            	
              ALLOCATION
      OF RESIDUE GAS & PLANT PRODUCTS REVENUES

            	
              Page
      6 B

            
	 
      	
              10

            	
              PRICING
      INFORMATION & REFUNDS

            	
              Page
      7 B

            
	 
      	
              11

            	
              TAXES

            	
              Page
      7 B

            
	 
      	
              12

            	
              PAYMENT

            	
              Page
      7 B

            
	 
      	
              13

            	
              SELLER'S
      REPRESENTATIVE

            	
              Page
      8 B

            
	 
      	
              14

            	
              REGULATORY
      BODIES

            	
              Page
      9 B

            
	 
      	
              15

            	
              FORCE
      MAJEURE

            	
              Page
      9 B

            
	 
      	
              16

            	
              DEFAULTS

            	
              Page
      10 B

            
	 
      	
              17

            	
              UNECONOMIC
      WELL CONNECTIONS

            	
              Page
      10 B

            
	 
      	
              18

            	
              UNECONOMIC
      OPERATION OF GAS PLANTS

            	
              Page
      10 B

            
	 
      	
              19

            	
              LITIGATION
      - ATTORNEYS' FEES

            	
              Page
      11 B

            
	 
      	
              20

            	
              DAMAGES

            	
              Page
      11 B

            
	 
      	
              21

            	
              GENERAL

            	
              Page
      11 B

            

    

    (REVISED
10/11/99)

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    GPA 018 R
(TLL,S/D)

    

    GAS PURCHASE AND PROCESSING
AGREEMENT

    

    

    THIS GAS
PURCHASE AND PROCESSING AGREEMENT, entered into as of the last date acknowledged
below, (herein, as the same may be amended from time to time, called this "Agreement") by and between
DUKE ENERGY FIELD SERVICES, INC., a Colorado corporation, with offices at 370
Seventeenth Street, Suite 900, Denver, Colorado 80202, hereinafter referred to
as "Buyer/Processor",
and UNITED STATES EXPLORATION, INC, a Colorado corporation, whose address is
1560 Broadway, Suite 1900, Denver, Colorado 80202, and PETROLEUM DEVELOPMENT
CORPORATION, a Nevada corporation, whose address is 103 E. Main St., Bridgeport,
WV 26330, hereinafter referred to collectively as "Sellers".

    

    R E C I T A L S

    

    

    
      	
              1

            	
              Buyer/Processor
      owns, operates and maintains a natural gas gathering system, compression
      facilities and natural gas processing facilities, and Buyer/Processor's
      designee owns, operates and maintains certain natural gas liquids
      fractionation facilities (the "Fractionator"), all
      such facilities in the aggregate hereinafter referred to as the "Facilities", which
      Facilities are located in Weld, Larimer, Morgan, Adams and Boulder;
      Counties, Colorado, to enable Buyer/Processor to purchase and accept
      delivery of Sellers' natural gas (including natural gasoline and other
      liquefiable hydrocarbons), produced and saved from the oil and gas leases,
      lands and formations committed hereunder, at the Point(s) of Delivery
      defined herein.

            

    

    

    
      	
              2

            	
              Sellers
      own and hold, or have an interest or interests in certain oil and gas
      leases, wells and/or- lands described in Exhibit "A" attached hereto and
      made a part hereof, said oil and gas leases, wells and/or lands and
      formations thereunder hereinafter sometimes being referred to as the "Leases".

            

    

    

    
      	
              3.

            	
              Sellers
      desires to sell to Buyer/Processor all of the Gas owned or controlled by
      Sellers which is produced and saved from the Leases covered hereunder; as
      well- as to contract with Buyer/Processor to process all such Gas upon the
      terms and for the consideration herein
  expressed.

            

    

    

    
      	
              4

            	
              Buyer/Processor
      desires to purchase, gather and process Sellers' Gas, as defined herein,
      utilizing the Facilities constructed, owned and operated by
      Buyer/Processor upon the terms and for the consideration herein
      expressed.

            

    

    

    

    (DEDICATED
ACREAGE)

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      	
              5

            	
              Buyer/Processor
      has entered into, and may enter into additional, third-party Residue Gas
      Sales Agreements pursuant to which Buyer/Processor shall utilize its best
      efforts to sell the Residue Gas resulting from the processing of Sellers'
      Gas (as defined herein).

            

    

    

    FOR GOOD
AND VALUABLE CONSIDERATION, the Parties hereto agree as follows:

    

    ARTICLE
I

    REPRESENTATIONS OF
SELLERS

     

    
      	
              1.1

            	
              Sellers
      represent and warrant to Buyer/Processor, its successors and assigns, that
      Sellers own an interest in, or have the right to market Sellers' portion
      of the Gas produced and saved from the Leases ("Sellers' Gas") and that Sellers intend
      to construct, or cause to be constructed, the facilities necessary, if
      any, to enable Sellers to sell and deliver to Buyer/Processor for sale at
      the Point(s) of Delivery, as hereinafter set forth, all of Sellers' Gas in
      accordance with the terms and provisions of this
  Agreement.

            

    

    

    ARTICLE
II

    COMMITMENT OF SELLERS'
GAS

    

    
      	
              2.1

            	
              Subject
      to the terms and conditions contained herein, Sellers hereby commit to the
      performance of this Agreement all of Sellers' Gas produced and saved from
      the Leases, and to insure the faithful performance of the provisions of
      this Agreement, Sellers covenant to sell and deliver' the same to
      Buyer/Processor' at the Point(s) of Delivery without other disposition
      except as herein otherwise
provided.

            

    

    

    ARTICLE
III

    CONSTRUCTION OF PIPELINE
GATHERING SYSTEM

    

    
      	
              3.1

            	
              Subject
      to the terms and conditions contained herein, Buyer/Processor agrees to
      construct or has already constructed sufficient miles of pipeline
      gathering system to connect all of the wells drilled and produced, or to
      be drilled and produced, on the Leases by Sellers ("Sellers Wells") at the
      Point(s) of Delivery.

            

    

    

    ARTICLE
IV

    QUANTITY

    

    
      	
              4
      1

            	
              Subject
      to the terms and conditions contained herein, Sellers shall deliver and
      sell to Buyer/Processor, and Buyer/Processor shall receive and purchase
      Sellers' Gas on a best efforts
basis.

            

    

    

    
      	
              4.2

            	
              Sellers
      acknowledge and understand that Buyer/Processor will receive and purchase
      Sellers' Gas utilizing the Facilities which also receive, transmit and
      process Gas delivered to Buyer/Processor by other
  parties.

            

    

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    ARTICLE
V

    GENERAL TERMS AND
CONDITIONS

    

    
      	
              5.1

            	
              The
      General Terms and Conditions set forth in the Appendix attached hereto as
      Exhibit "B" (the "Appendix") are the
      general terms and conditions applicable to this Agreement, which Appendix
      is by reference hereby incorporated into and made an integral part of this
      Agreement.

            

    

    

    ARTICLE
VI

    PRICE

    

    
      	
              6.1

            	
              Effective
      the date of first deliveries of Sellers' Gas under this Agreement, Sellers
      shall receive a price for all of Sellers' Gas purchased hereunder which
      price shall be calculated as follows, pursuant to Section 9 of the
      Appendix:

            

    

    

    
      	
               
      

            	
              A.

            	
              [ *
      ] percent ([ * ]%) of the Residue Gas Revenues
      attributable to each of Sellers' Wells;
plus

            

    

    

    
      	
               
      

            	
              B.

            	
              [ *
      ] percent ([ * ]%) of the Plant Products Revenue attributable to
      each of Sellers' Wells

            

    

    

    
      	
              6.2

            	
              Sellers
      shall be responsible for distribution of revenues to owners of interest in
      the Gas purchased by Buyer/Processor hereunder, as further described in
      the Payment section of the
Appendix.

            

    

    

    ARTICLE
VII

    NOTICES

    

    
      	
              7.1

            	
              All
      notices and communications required or permitted under this Agreement
      shall be in writing and any communication or delivery hereunder shall be
      deemed to have been duly made when delivered personally or three (3)
      business days following deposit in the United States mails, certified
      mail, return receipt requested, or one (1) business day following delivery
      to recognized overnight courier- service, or upon transmittal by
      facsimile, in each such case postage or charges prepaid and addressed as
      follows:

            

    

     

    

    
      	
              TO:

            	
              SELLERS'
      REPRESENTATIVE:

            	 
      
	 	 	 
	 
      	
              United
      States Exploration, Inc

            	
              Petroleum
      Development Corporation

            
	 
      	
              1560
      Broadway, Suite 1900

            	
              103
      East Main Street

            
	 
      	
              Denver,
      Colorado 80202

            	
              P.O.  Box
      26

            
	 
      	 
      	
              Bridgeport,
      WV 26330

            

    

    

    
      	 
      	
              ATTN:

            	
              Connie
      L Nordberg

            	
              Thomas
      E. Riley

            
	 
      	 
      	
              (303)
      863-3505

            	
              Vice
      President

            
	 
      	 
      	
              (303)
      863-1932-FAX

            	
              (304)
      842-3597

            
	 
      	 
      	 
      	
              (304)
      842-8936- FAX

            

    

    

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

    

    TO:         BUYER/PROCESSOR:

    

    Duke
Energy Field Services, Inc

    370 -
17th Street, Suite 900

    Post
Office Box 5493

    Denver,
Colorado 80217

    

    
      	
               
      

            	
              ATTN:

            	
              Vice
      President - Gas Supply

            

    

    (303)
595-3331

    (303)
595-0480 - FAX

    

    

    ARTICLE VIII

    TERM

    

    
      	
              8.1

            	
              This
      Agreement shall be effective as of October 1, 1999 and shall continue and
      remain in full force and effect for the economic life of the
      Facilities.

            

    

     

    ARTICLE
IX

    MISCELLANEOUS

    

    9.1           Respecting
certain rights of the Parties hereto:

    

    
      	
               
      

            	
              A.

            	
              This
      Agreement shall be binding upon and inure to the benefit of the Parties
      hereto, their successors, assigns, heirs, administrators and/or executors
      and shall constitute a real right and covenant running with the lands and
      leasehold-interests covered hereby. Either Party may assign his or its
      right, title, and interest in, to and under this Agreement, including,
      without limitation, any and all renewals, extensions, amendments, and/or
      supplements hereto; provided, however; that no such assignment shall in
      any way operate to enlarge, alter, or change any right or obligation of
      the other Party or Parties hereto.  No assignment shall be effective
      or binding until a copy of same has been furnished to the other
      Party.

            

    

    

    
      	
               
      

            	
              B.

            	
              Further,
      this Agreement, including, without limitation, any and all renewals,
      extensions, amendments and/or supplements hereto shall be binding upon any
      purchaser of Buyer/Processor's Facilities and upon any purchaser of
      Sellers' Leases, or any part thereof or interest therein which are subject
      to this Agreement. It is agreed that no sale of Sellers' Leases, or any
      part thereof or interest therein, or of all or substantially all of
      Buyer/Processor's Facilities, shall be made unless the purchaser thereof
      shall assume and agree to be bound by this Agreement insofar as the same
      shall affect and relate to the Leases, Facilities or interests so sold or
      conveyed. It is further agreed, however; that nothing herein contained
      shall in any way prevent either Party hereto from pledging or mortgaging
      all or any part of such Party's Leases or Facilities as security under any
      mortgage, deed of trust, or other similar lien, or from pledging this
      Agreement or any benefits accruing hereunder to the Party making the
      pledge, without the assumption of obligations hereunder by the mortgagee,
      pledgee or other grantee under such an
  instrument.

            

    

    

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

    

    
      	
               
      

            	
              C.

            	
              Nothing
      in this Agreement, expressed or implied, confers any rights or remedies on
      any person or entity not a party hereto other than successors and assigns,
      or heirs, administrators or executors of the Parties
    hereto.

            

    

    

    
      	
              9.2

            	
              Sellers
      expressly do not by the terms of this Agreement, sell, transfer or assign
      unto Buyer/Processor any title or interest whatsoever in the Leases or any
      pipe, meters, lines or other equipment of any nature owned or used by
      Sellers in the operation of Sellers' Wells and the
  Leases.

            

    

    

    
      	
              9.3

            	
              This
      Agreement constitutes the entire agreement and understanding between the
      Parties hereto and supersedes and renders null and void and of no further
      force and effect any prior understandings, negotiations or agreements
      between the Parties relating to the subject matter
      hereof, and all amendments and letter agreements in any way
      relating thereto. No provision of this Agreement may be changed, modified,
      waived or discharged orally, and no change, modification, waiver or
      amendment of any provision will be effective except by written instrument
      to be executed and approved by the Parties
  hereto.

            

    

    

    
      	
              9.4

            	
              THIS
      AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
      OF THE STATE OF COLORADO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
      LAWS.

            

    

    

    

    THE
PARTIES HERETO have executed this Agreement as of the day and year first above
written.

     

    
      

      
        	 
      	 	
                BUYER/PROCESSOR:

              	 
	
                (SEAL)

              	 	 
      	 
	
                ATTEST:

              	 	
                DUKE
      ENERGY FIELD SERVICES, INC

              	 
	 
      	 	
                A
      COLORADO CORPORATION

              	 
	 
      	 	 
      	 
	
                By:

              	
                /s/ WILLIAM B. MATHEWS

              	 	
                BY:

              	
                /s/ KEVIN L. WILLIAMS

              	 
	 
      	
                WILLIAM
      B. MATHEWS,

              	 	 
      	
                KEVIN
      L. WILLIAMS,

              	 
	 
      	
                ASSISTANT
      SECRETARY

              	 	 
      	
                VICE
      PRESIDENT

              	 

      

    

     

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

     

    
      
        	 
      	 
      	 
      	 
      	
                SELLERS:

              
	 
      	 
      	 
      	 
      	 
      	 
      
	
                (SEAL)

              	 
      	 
      	 
      	 
      
	
                ATTEST:

              	 
      	 
      	
                UNITED
      STATES EXPLORATION, INC.

              
	 
      	 
      	 
      	 
      	
                A
      COLORADO CORPORATION

              
	 
      	 
      	 
      	 
      	 
      	 
      
	
                BY:

              	
                /s/ Shirley R. Kovar

              	 
      	
                BY:

              	
                /s/ Bruce D. Benson

              	 
      
	 
      	
                Shirley
      R. Kovar

              	 
      	 
      	
                Bruce
      D. Benson

              	 
      
	 
      	
                Assistant
      Secretary

              	 
      	 
      	
                President

              	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                SELLER'S
      TAX ID NO. 84-1120323

              
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
                (SEAL)

              	 
      	 
      	 
      	 
      
	
                ATTEST:

              	 
      	 
      	
                PETROLEUM
      DEVELOPMENT CORPORATION

              
	 
      	 
      	 
      	 
      	
                A
      NEVADA CORPORATION

              
	 
      	 
      	 
      	 
      	 
      	 
      
	
                BY:

              	/s/
      Dale G Rettinger	 
      	
                BY:

              	/s/
      Thomas E. Riley	 
      
	 
      	Assistant
      Secretary	 
      	 
      	Vice
      President	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                SELLER'S
      TAX ID NO. 95-2636730

              

      

      

      
        	
                STATE
      OF COLORADO

              	
                )

              
	 
      	
                )
      ss

              
	
                CITY
      & COUNTY OF DENVER

              	
                )

              

      

      

      Before
me, Elaine
D. Hegler, a Notary Public in and for said County and State, on this
28th
day of October,
1999, personally appeared KEVIN L. WILLIAMS and WILLIAM B. MATHEWS, known to me
to be the Vice President and Assistant Secretary, respectively, of Duke Energy
Field Services, Inc, a Colorado corporation, on behalf of said corporation and
acknowledged to me that they executed this Agreement for the considerations and
purposes therein set forth.

      

      Given
under my hand and seal of office this 28th day of October,
1999.

      

      

      
        	
                MY
      COMMISSION EXPIRES:

              	 	
                /s/ Elaine D. Hegler

              	 
	 
      	 	
                NOTARY
      PUBLIC

              	 
	
                11-17-02

              	 	 
      	 

      

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    
      

      
        	
                STATE
      OF Colorado

              	
                )

              
	 
      	
                )
      ss

              
	
                COUNTY
      OF Denver

              	
                )

              

      

      

      Before
me, CONSTANCE
L. NORDBERG, a Notary Public in and for said County and State, on this
15 day of October, 1999, personally
appeared BRUCE D.
BENSON, and SHIRLEY R. KOVAR,
known to me to be the PRESIDENT and ASSISTANT
SECRETARY respectively,
of United States Exploration, Inc., a Colorado corporation, on behalf of said
corporation and acknowledged to me that they executed this Agreement for the
considerations and purposes therein set forth.

      

      Given
under my hand and seal of office this 15 day of October
1999.

      

      

      
        	
                MY
      COMMISSION EXPIRES:

              	 	
                /s/ Constance L.
Nordberg

              
	 
      	 	
                NOTARY
      PUBLIC

              
	
                May 5, 2002

              	 	 
      
	 
      	 	
                CONSTANCE
      L. NORDBERG

              
	 
      	 	
                NOTARY
      PUBLIC

              
	 
      	 	
                STATE
      OF COLORADO

              
	 
      	 	
                My
      Commission Expires May 5, 2002

              

      

      

      
        	
                STATE
      OF
      West Virginia

              	
                )

              
	 
      	
                )
      ss

              
	
                COUNTY OF
      HARRISON

              	
                )

              

      

      

      Before
me, Misty
L. Finch, a Notary Public in and for said County and State, on this 20th
day of October,
1999, personally appeared Dale G.
Rettinger and Thomas E. Riley known
to me to be the Asst.
Secretary and Vice
President,
respectively, of Petroleum Development Corporation, a Nevada corporation,
on behalf of said corporation and acknowledged to me that they executed this
Agreement for the considerations and purposes therein set forth.

      

      Given
under my hand and seal of this 20th
day of October,
1999

      

      
        	
                MY
      COMMISSION EXPIRES:

              	 	
                /s/ Misty L. Finch

              
	 
      	 	
                NOTARY
      PUBLIC

              
	
                October 16, 2001

              	 	 
      

      

      

      

    

     

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

     

    
      
        	
                EXHIBIT
      “A”

              
	
                LEASE
      SCHEDULE

              
	
                ESSOR

              	 	
                LESSEE

              	 	
                DESCRIPTON

              	 	
                LEASE
      DATE/TERM

              	 	
                RECORDED
      BOOK PAGE

              	 	
                COUNTY

              	 	
                GROSS
      ACRES

              	 	
                NET
      ACRES

              
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
                Union
      Pacific Resources Company

              	 	
                United
      States Exploration, Inc.

              	 	
                T4N-R67W
      Sec. 13; NENE Weld Co., CO Insofar and only Insofar as the Lease covers
      the Codell formation and further limited to the wellbore of the Bernhardt
      13A well located in the NENE of section 13, T4N-R67W

              	 	
                To
      be determined

                *

              	 	
                To
      be determined

                *

              	 	
                Weld

              	 	
                40

              	 	
                40

              

      

       

      
        	
                 
      

              	
                *

              	
                To
      be earned under that certain Exploration Agreement dated effective 6/1/98,
      as amended, by and between Union Pacific Resources Company and United
      States Exploration, Inc.

              

      

    

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (ROGGEN)

    

    EXHIBIT
B

    

    APPENDIX

    TO

    GAS PURCHASE AND PROCESSING
AGREEMENT

    GENERAL TERMS AND
CONDITIONS

    

    

    
      	
              1.

            	
              DEFINITIONS

            

    

    

    A.          For
the purposes of the Gas Purchase and Processing Agreement {the "Agreement") to which this
Appendix is attached, unless the context of the Agreement requires otherwise,
the following terms and expressions used therein and in this Appendix shall be
defined as follows:

    

    
      	
               
      

            	
              1)

            	
              "Accounting Period",
      except the initial "Accounting Period",
      shall mean a period of one calendar month, commencing at 8:00 a.m. local
      time on the first day of each month, and ending at 8:00 a.m. local time on
      the first day of the succeeding calendar month. The initial “Accounting Period"
      shall commence at 8:00 a.m. local time on the date of initial deliveries
      of Gas hereunder, continuing for a period of consecutive calendar days
      until 8:00 a.m. local time on the first day of the succeeding calendar
      month.

            

    

    

    
      	
               
      

            	
              2)

            	
              "Btu" (British Thermal
      Unit) shall mean the amount of heat required to raise the temperature of
      one (1) avoirdupois pound of pure water from fifty-eight and five-tenths
      degrees (58.5°) to fifty-nine and five-tenths degrees (59.5°) Fahrenheit
      under standard conditions.

            

    

    

    
      	
               
      

            	
              3)

            	
              "Buyer/Processor's Gathering
      System" shall mean the pipelines (including field compression) and
      appurtenances constructed by Buyer/Processor for the purpose of accepting
      delivery and transmitting Seller's Gas from the Point(s) of Delivery to
      the Gas Plants.

            

    

    

    
      	
               
      

            	
              4)

            	
              "Cubic foot of Gas"
      shall mean the amount of Gas required to fill a cubic foot of space when
      the Gas is at a base pressure of 14.65 Psia and at a base temperature of
      60° F.

            

    

    

    
      	
               
      

            	
              5)

            	
              "Day" shall mean the
      24-hour period beginning and ending at 8:00 a.m. Local
    Time.

            

    

    

    
      	
               
      

            	
              6)

            	
              "Facilities" shall have
      meaning ascribed by the first Recital of the
  Agreement.

            

    

    

    
      	
               
      

            	
              7)

            	
              "Fractionator" shall
      have the meaning ascribed by the first Recital of the
      Agreement.

            

    

    

    
      	
               
      

            	
              8)

            	
              "Gas" shall mean the
      effluent vapor stream including ail of the constituents thereof, entrained
      liquids as produced from a well, whether a gas well or an oil well, and
      delivered into the Facilities by Seller and other producers at their
      respective Point(s) of Delivery.

            

    

    

    
      	
               
      

            	
              9)

            	
              "Gas Plant” shall mean
      Buyer/Processor's Roggen natural gas processing plant (excluding
      fractionation facilities) located in the SW1/4 of Section 24, Township 2
      North, Range 63 West, Weld County, Colorado, as well as those processing
      facilities which may be added or deleted (including the Roggen plant) by
      Buyer/Processor in its sole discretion from time to time for the efficient
      operation of any of the Facilities.  Buyer/Processor, in its sole
      discretion from time to time for the efficient administration of the
      Facilities, may perform allocations under this Agreement on a single
      processing facility basis or on a pooled basis among any or all of the
      processing facilities constituting the Gas
  Plant.

            

    

    

    
      	
               
      

            	
              10)

            	
              "MMBtu" shall mean one
      million (1,000,000) Btu's.

            

    

    

    

    {Revised
10/11/99}

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      	
               
      

            	
              11)

            	
              "Market Price" shall be
      defined as the weighted average commodity price per MM Btu received by
      Buyer/Processor for the amounts of Residue Gas (excluding any storage
      amounts) sold to uncommitted Residue Gas markets via the pipeline
      facilities of Public Service Company of Colorado or Colorado Interstate
      Gas Company at the best price then obtainable in Buyer/Processor's sole
      judgment and discretion, less any applicable transportation, handling and
      storage fees Incurred and paid by Buyer/Processor in association
      therewith. As used above, "uncommitted Residue Gas
      markets" shall mean those markets not committed to specific Gas
      Purchase and Processing or similar Agreements and/or
    sellers.

            

    

    

    
      	
               
      

            	
              12)

            	
              "Month" shall mean the
      period beginning at 8:00 a.m. local time on the first day of a calendar
      month and ending at 8:00 a.m. local time on the first day of the next
      succeeding calendar month.

            

    

    

    
      	
               
      

            	
              13)

            	
              "Party" or "Parties" shall mean
      one or both, respectively, of the signatories to this
      Agreement.

            

    

    

    
      	
               
      

            	
              14)

            	
              "Plant Products” shall
      mean all liquefiable hydrocarbons including without limitation ethane,
      propane, butane, and natural gasoline, individually or as a mixture, as
      determined by the latest GPA Publication 2145 extracted and saved at the
      Gas Plants from all of the Gas delivered to and processed by
      Buyer/Processor, whether or not fractionated into individual components at
      the Fractionator. Plant Products shall not be deemed to include liquids or
      drip (condensed hydrocarbons) which have collected in and are removed from
      Buyer/Processor's Gathering System upstream of the inlets to the Gas
      Plant.

            

    

    

    
      	
               
      

            	
              15)

            	
              "Points of
      Delivery"
      shall have the meaning ascribed to it by Section 2 of this
      Appendix.

            

    

    

    
      	
               
      

            	
              16)

            	
              "Psia" shall mean
      pounds per square inch absolute.

            

    

    

    
      	
               
      

            	
              17)

            	
              "Psig" shall mean
      pounds per square inch gauge.

            

    

    

    
      	
               
      

            	
              18)

            	
              "Residue Gas" shall
      mean that portion of all Gas, as measured at the tailgate of the Gas
      Plant, remaining after the extraction therefrom of Plant Products, Gas
      Plant and field fuel requirements, and Gas Plant and field losses or uses
      of Gas at the Gas Plant.

            

    

    

    
      	
               
      

            	
              19)

            	
              "Seller's Gas Reserves”
      shall mean the total quantity of Seller's Gas attributable to Seller's
      present or future interest in, and/or which Seller has the right to market
      from the Leases.

            

    

    

    
      	
               
      

            	
              20)

            	
              "Shrinkage" shall mean
      the thermal reduction in the Gas which results from Facilities fuel gas
      consumption and the extraction of Plant
  Products.

            

    

    

    
      	
              2.

            	
              POINT(S) OF DELIVERY,
      PRESSURE AND OWNERSHIP

            

    

    

    A.           The
Point(s) of Delivery of all Gas delivered under the Agreement shall be at the
inlet of Buyer/Processor's metering facilities located at Seller's lease
separation facilities or at such other Point(s) of Delivery as may be mutually
agreed upon in writing by the Parties from time to time, and title to said Gas
(including such hydrocarbons from the Gas that have not been or cannot be
recovered through the use of conventional mechanical wellhead gas-oil
separators) shall pass from Seller to Buyer/Processor at said Point(s) of
Delivery with respect to all amounts of Seller's Gas sold to Buyer/Processor
hereunder.

    

    B.           Seller,
at its own expense, shall equip, maintain and operate all facilities to deliver
Seller's Gas to Buyer/Processor at the Point(s) of Delivery, including, but not
limited to, installation and maintenance of Seller's gathering facilities and
mechanical separation equipment.

    

    C.           Buyer/Processor
shall construct, maintain, own and operate all necessary facilities to accept
Seller's Gas from Seller at the Point(s) of Delivery.  Buyer/Processor
shall keep Buyer/Processor's Gathering System and Facilities reasonably clear of
obstruction and in consideration thereof shall own all vapors, liquids or drip
collected and removed from same.

    

    
      
        
           

        

        
          2
B

          
            

          

        

        
           

        

      

    

    

    D.           Seller
will deliver Gas at the Point(s) of Delivery at a pressure sufficient to enter
Buyer/Processor's Gathering System, which Buyer/Processor agrees to maintain at
an average maximum working pressure during each Accounting Period of one
hundred fifty (150) Psig. However, in the event Seller determines that such
working pressure excessively limits the production of Seller's Wells, Seller
shall provide written notice thereof to Buyer/Processor. Upon receipt of such
notice, Buyer/Process or, as soon as practicable, shall present to Seller a
written proposal pursuant to which Buyer/Processor shall construct, own and
operate such field compression facilities as may be necessary to reduce such
pressure to a mutually acceptable level and shall disclose the charges to be
assessed Seller therefore together with a schedule of payment. Once such
proposal has been accepted by Seller in writing, Buyer/Processor shall utilize
its best efforts to construct or cause to be constructed and placed in operation
the required field compression facilities within ninety (90) days of receipt of
such written acceptance.

    

    E.           As
between the Parties, Seder shall be in possession and control of the Gas
deliverable under the Agreement and responsible for any injury or damage caused
thereby until the same shall have been delivered to Buyer/Processor, after which
delivery Buyer/Processor shall be deemed to be in exclusive possession and
control thereof and responsible for any injury or damage caused
thereby.

    

    
      	
              3

            	
              RESERVATIONS OF
      SELLER

            

    

    

    A.           Seller,
as a reasonable and prudent operator, hereby expressly reserves the following
rights with respect to
Seller's Gas Reserves and the Leases subject hereto:

    

    
      	
               
      

            	
              1)

            	
              The
      right to use the Gas produced from the Leases prior to delivery to
      Buyer/Processor for the following
purposes:

            

    

    

    
      	
               
      

            	
              a)

            	
              For
      fuel in the development and operation of the Leases from which the Gas is
      produced;

            

    

    

    
      	
               
      

            	
              b)

            	
              For
      delivery to the lessors of the Leases of the Gas if such lessors are
      entitled to use or take such Gas in kind under the terms of the
      Leases;

            

    

    

    
      	
               
      

            	
              c)

            	
              For
      fuel in the operation of the facilities which Seller may install in order
      to deliver Gas hereunder in accordance with the terms
    hereof.

            

    

    

    
      	
               
      

            	
              2)

            	
              The
      right to pool or unitize the Leases (or-any portion thereof) with other
      lands and leases so long as such action does not reduce Seller's Gas
      Reserves. In the event of any such pooling or unitization, the Agreement
      will cover Seller's interest in the pool or unit and the Gas attributable
      thereto to the extent that such interest is derived from Seller's Gas
      Reserves.

            

    

    

    B.           Seller
shall provide to Buyer/Processor all necessary information whereby
Buyer/Processor can make the proper allocation herein called for or required by
Buyer/Processor's normai and customary accounting practices or required by
Buyer/Processor's normal and customary contract administration practices, when
different vintages of Gas are being delivered through a single Point of
Delivery.

    

    C.           Seller
shall operate the Leases free of any control by Buyer/Processor, including
without limitation the right to make farmouts of any lease subject to this
Agreement, and to abandon any well and surrender any lease when Seller deems the
same no longer capable of producing Gas in commercial quantities under normal
methods of operation. Seller shall not be required to produce any well or wells
in any manner which in its sole judgment and discretion would not constitute
good operating practice, nor shall Seller be obligated to drill additional wells
or to deepen, repair or rework any existing wells.

    

    
      	
              4.

            	
              QUANTITY
      RESTRICTIONS

            

    

    

    A.           Buyer/Processor's
obligation to receive Seller's Gas under the Agreement is subject to the
limitations and conditions set forth below:

    

    
      	
               
      

            	
              1)

            	
              If
      Buyer/Processor is unable to receive and purchase the total amounts of
      Seller's Gas tendered to Buyer/Processor from Seller's Wails due to market
      restrictions or capacity restrictions on the Facilities, Buyer/Processor
      shall receive and purchase only that portion of Seller's Gas available for
      delivery to the Gas Plant which is ratable on a thermal basis with the
      heating value of all Gas available for delivery to the Gas Plant,
      excluding gas being transported by Buyer/Processor, based upon the most
      recent Accounting Period of production during which no delivery
      restrictions wars imposed and/or no events of force majeure were in
      effect, after all required-purchase and/or dedicated capacity Gas has been
      received and purchased.

            

    

    

    
      
        
           

        

        
          3
B

          
            

          

        

        
           

        

      

    

    

    
      
        	
              	
                2) 

              	
                The
      terms of any third-party Residue Gas sales agreements then in
      force.

              

      

    

    

    
      	
              5.

            	
              SELLER'S
      WARRANTIES

            

    

    

    A.           Seller
hereby warrants title to the Gas sold and delivered hereunder and the right of
Seller to sell the same; and Seller warrants that all such Gas is owned by
Seller, or that Seller has the right to market said Gas free from ad liens and
adverse claims, including liens to secure payments of production taxes,
severance taxes, and other taxes. Seller agrees to defend (with counsel
reasonably acceptable to Buyer/Processor), indemnify Buyer/Processor and save it
harmless from all suits, actions, debts, accounts, damages, costs, losses and
expenses arising from or out of adverse claims, whether meritorious or not, of
any and all persons, firms, or corporations to said Gas or to royalties,
overriding royalties, taxes, license fees, or charges thereon, resulting from
actions of, by, through or under Seller, including, without limitation,
nonpayment or incorrect payment of proceeds of production. Buyer/Processor shall
be entitled to recover all attorneys’ fees incurred as a result of its
Involvement in any action or claim described herein. Buyer/Processor, at any
time thereafter, when it shall appear to Buyer/Processor by reason of receipt of
written notice of claim or dispute that the ownership or title to all or part of
the Leases, or the Gas produced therefrom, may be in a party or parties other
than Seller, or upon learning of any other claims, liens, taxes, royalties,
fees, expenses or other adverse claims, may suspend payments hereunder and
retain as security for the performance of Seller's obligations with respect
thereto, the entire purchase price of the Gas until Buyer/Processor has been
satisfied as to the amount of such claim or ownership claimed, and thereafter up
to the amount of such ownership interest or claim until it has been finally
determined and satisfied or until Seller shall have furnished a bond to
Buyer/Processor in an amount and with sureties satisfactory to Buyer/Processor,
conditioned upon the protection of Buyer/Processor with respect to such
ownership or claim.

    

    
      	
              6.

            	
              EASEMENTS

            

    

    

    A.           To
the extent that it may contractually or lawfully do so under its leasehold
interest without impairing its own similar right. Seller hereby assigns and
transfers to Buyer/Processor any easement across the Seller's Leases, and across
any adjoining lands in which Seller may have an interest, for the purposes of
installing, using, inspecting, repairing, operating, replacing, and/or removing
Buyer/Processor's pipe, meters, lines, and other equipment used or useful in the
performance of the Agreement, It is intended that any property of
Buyer/Processor placed in or upon any of such land shall remain the personal
property of Buyer/Processor, subject to removal by it upon the expiration or
termination of the Agreement for any reason.  Buyer/Processor shall have a
reasonable time after the expiration or termination of the Agreement to remove
same. Buyer/Processor shall defend (with counsel reasonably acceptable to
Seller), indemnify and hold Seller harmless of and from any and all claims and
damages for all injuries to persons, including death, or damage to property
arising out of or incident to Buyer/Processor's use of the easement hereunder
transferred, only in the event said claim or damage shall be the result of
negligence legally imputable to Buyer/Processor, its employees, agents, and
representatives.

    

    
      	
              7.

            	
              SHRINKAGE

            

    

    

    A.           Buyer/Processor
agrees to use ordinary care in transporting Seller's Gas from the Point(s) of
Delivery to the Gas Plant, and after processing Seller's Gas, delivering the
resultant Residue Gas to its purchaser at the tailgate of the Gas Plant.
 However, the Parties understand and agree that certain losses in the Gas
will occur and shall be shared by and among Seller and other third parties whose
gas is transported to the Gas Plant, in the proportion that each party delivers
gas into Buyer/Processor's Gathering System at their respective Point(s) of
Delivery.

    

    
      	
              8.

            	
              GAS MEASUREMENT AND
      QUALITY

            

    

    

    A.           Buyer/Processor
shall furnish and install a suitable orifice meter at the Point(s) of Delivery
of the Gas covered hereby.  Each meter installed by Buyer/Processor shall
be a meter acceptable in the industry and each mater shall be installed and
operated in accordance with the requirements of applicable provisions in
ANSI/API 2530, “Orifice
Metering of Natural Gas” (American Gas Association Gas Measurement
Committee Report No. 3) of the Natural Gas Department of the American Gas
Association, as amended from time to time, or by any other method commonly used
in the industry and mutually acceptable to the Parties, Any meter installed
hereunder shall be open to inspection by Seller at ail reasonable times. The
charts and records pertaining to measurement hereunder shall be kept on file by
Buyer/Processor for a period of two (2) years for the mutual use of the Parties.
 In the event any question arises as to the accuracy of the measurement,
the meter or meters shall be tested upon the demand of either Party. The expense
of any such special test shall be borne by the Party demanding same if the meter
registration is found to be correct, and by Buyer/Processor if found to be
incorrect.

    

    
      
        
           

        

        
          4
B

          
            

          

        

        
           

        

      

    

    

    B.           Seller
may, at its option and sole expense, install, maintain and operate check meters
and other equipment to check Buyer/Processor's meters; provided, however, that
such check meters and other equipment shall be installed by Seller so as not to
interfere with the operation of any of the Facilities.. Buyer/Processor and
Seller shall have access to each other's measuring equipment at all times during
business hours, but the reading, calibrating and adjustment thereof and the
changing of charts shall be done only by the employees or agents of
Buyer/Processor and Seller, respectively, as to meters or check meters so
installed hereunder.

     

    C.           At
least semi-annually Buyer/Processor shall calibrate all meters installed
hereunder and make adjustments as necessary. Should Seller so desire,
Buyer/Processor shall give notice to Seller of the time of such calibrations
sufficiently in advance of holding same in order that Seller may have its
representative present. With respect to any test made hereunder, a registration
within two percent (2%) of correct shall be considered correct. However, the
meter or meters, when found to be incorrect, shall be adjusted to one hundred
percent (100%) accuracy as soon as possible. Settlement for any period during
which the meter registration deviates by more than two percent (2%) of correct
shall be corrected at the rate of inaccuracy for any period of inaccuracy which
is definitely known or agreed upon; but in case the period is not definitely
known or agreed upon, then either for a period of fifteen (15) days prior to the
date of said test, or for a period calculated from the beginning of the
Accounting Period in which the test was conducted, whichever is longer. The rate
of the inaccuracy shall be estimated and agreed upon by the Parties hereto on
the basis of the best available data, using the first of the following methods
which is feasible:

     

    
      	
               
      

            	
              1)

            	
              By
      using the registration of any check meter or meters if installed and
      accurately registering; or, in the absence
  thereof,

            

    

    
      	
               
      

            	
              2)

            	
              By
      calibration, test, or mathematical calculation;
  or

            

    

    
      	
               
      

            	
              3)

            	
              By
      estimation based on comparison of the quantity of deliveries with
      deliveries during preceding periods under similar conditions when the
      meter was registering accurately.

            

    

     

    D.           All
fundamental constants, observations, records and procedures involved in the
determination and/or verification of the quantity and other characteristics of
Gas measured hereunder, unless otherwise specified herein, shall be In
accordance with the applicable provisions in ANSI/API 2530, "Orifice Metering of Natural Gas" (American
Gas Association Gas Measurement Committee Report No. 3) of the Natural Gas
Department of the American Gas Association, as amended from time to time, or by
any other method commonly used in the industry and mutually acceptable to the
Parties.  The average local atmospheric pressure shall be assumed to be
12.3 Psia. The temperature of Gas flowing through each meter shall be determined
by a recording thermometer, installed by Buyer/Processor at its sole cost and
expense to properly record the temperature of the flowing Gas, and the
arithmetical average of the temperature recorded while the Gas is flowing during
each meter chart interval shall be used in correcting amounts delivered
hereunder to a temperature base of sixty degrees Fahrenheit (60°F) and to a
pressure base of 14.65 pounds Psia.

     

    E.           Seller
agrees that all Gas delivered to Buyer/Processor under the Agreement
shall:

     

    
      	
               
      

            	
              1)

            	
              Contain
      not more than one-fourth (1⁄4) grain of
      hydrogen sulfide per one hundred (100) cubic feet of Gas, or more than
      five (5) grains of total sulfur per one hundred (100) cubic feet of
      Gas;

            

    

     

    
      	
               
      

            	
              2)

            	
              Contain
      not more than two percent (2%) by volume of carbon dioxide, nor more than
      three percent (3%) by volume of nitrogen, nor more than two-tenths percent
      (0.2%) by volume of oxygen;

            

    

     

    
      	
               
      

            	
              3)

            	
              Not
      have a maximum temperature greater than one hundred twenty degrees
      Fahrenheit (120°F), or a minimum temperature less than forty degrees
      Fahrenheit (40°F); and

            

    

     

    
      	
               
      

            	
              4)

            	
              Be
      commercially free of all objectionable dust or other solid or liquid or
      gaseous matters which might interfere with its merchantability or cause
      injury to or interference with proper operations of any of the Facilities
      through which the Gas flows.

            

    

    

    
      
        
           

        

        
          5
B

          
            

          

        

        
           

        

      

    

    

    F.           Buyer/Processor
may test Seller's Gas delivered hereunder for adherence to the specifications
above set forth, such testing to be in accordance with generally accepted
industry standards and procedures. If the Gas so delivered by Seller does not
meet the specifications set forth above. Buyer/Processor, at its option, may
refuse to accept delivery of said Gas into its Facilities, or may accept such
Gas, provided that measured volumes of such Gas shall be reduced by the amount
by which the total volume of inert components exceed five percent (5%) as set
forth above. If Seller shall deliver Gas to Buyer/Processor which exceeds the
maximum pressure specifications or fails to meet the quality specifications for
any given Delivery Point, Seller shall be responsible for any damages caused to
Buyer/Processor's Facilities and any other damages as a result of Seller's
delivery of such nonconforming Gas.

     

    G.           At
least annually, Buyer/Processor shall take samples from each of Seller's Wells
at the Delivery Points and have such samples analyzed by chromatograph analysis
to determine the liquids content by component and the heating value of such Gas.
Buyer/Processor shall have the right to take and analyze a spot Gas sample prior
to the regularly scheduled sampling. Additionally, upon Seller's written request
to Buyer/Processor and at Seller's sole cost, risk and expense, Buyer/Processor
shall take and analyze Gas samples more frequently, All Gas samples taken
hereunder shall be taken at such times that are reasonably mutually agreeable so
that the sample will be representative of the Gas produced, shall be analyzed
using the most current Gas Processor's Association Publications and Seller shall
be permitted to be present for such sampling and permitted to take a split
sample.  Heating values determined by calculation from compositional
analysis according to GPA Standard 2172-84 (or latest revision) shall be
converted to values that reflect the actual condition of the Gas on delivery as
adjusted for pressure, water content, and compressibility unless otherwise
prescribed by statute. Gas produced and not dehydrated at point of measurement
shall be considered to be saturated with water at measurement temperature and
pressure unless determined otherwise. For the purpose of making Btu
calculations, Gas which contains seven (7) pounds of water or more per Mcf shall
constitute wet gas and Gas which contains less than seven (7) pounds of water
per Mcf shall constitute dry gas. Any chromatograph analysis taken hereunder
shall be effective for Gas delivered commencing on the first day of the next
succeeding month and shall not be effective retroactively unless otherwise
mutually agreed by the Parties.

     

    
      	
              9.

            	
              ALLOCATION OF RESIDUE
      GAS AND PI ANT PRODUCTS
REVENUES

            

    

     

    A.           For
the purpose of determining the Residue Gas MMBtu's attributable to Producer's
Gas, Gatherer/Processor shall calculate a fraction, the numerator being the
Theoretical Residue MMBtu's of Gas attributable to each of Producer's Wells and
the denominator being the total Theoretical Residue MMBtu's of all Gas received
and processed-by Gatherer/Processor, This fraction shall be multiplied by the
total Residue Gas MMBtu's available at the tailgate of the Gas Plant to
determine the Residue Gas attributable to each of Producer's Wells.. Residue Gas
attributable to each of Producer's Wells shall be allocated to
Gatherer/Processor and Producer pursuant to the Gathering and Processing Fees
provisions contained herein.. For the purpose of making Btu calculations, Gas
which contains seven (7) pounds of water or more per Mcf shall constitute wet
gas and Gas which contains less than seven (7) pounds of water per Mcf shall
constitute dry gas. Any chromatograph analysis taken hereunder shall be
effective for Gas delivered commending on the first day of the next succeeding
month and shall not be effective retroactively unless otherwise agreed by the
Parties.

     

    B.           Theoretical
Residue MMBtu's attributable to each of Producer's Wells shall be determined by
calculating the MMBtu's measured at each of Producer's Wells and deducting the
Shrinkage MMBtu's attributable to each of Producer's Wells Shrinkage MMBtu's
shall be the sum of the MMBtu's determined by multiplying the allocated gallons
of each of Plant Product attributable to each of Producer's Wells by the
following conversion factors:

     

    
      
        
          
            
              
                	 
      	
                        Plant Product

                      	 
      	
                        Conversion Factor
    (Btu/Gallon)

                      	 
      
	 
      	
                        C2

                      	 
      	
                        65,869

                      	 
      
	 
      	
                        C3

                      	 
      	
                        90,830

                      	 
      
	 
      	
                        C4

                      	 
      	
                        98,917

                      	 
      
	 
      	
                        NC4

                      	 
      	
                        102,913

                      	 
      
	 
      	
                        IC5

                      	 
      	
                        108,913

                      	 
      
	 
      	
                        NC5

                      	 
      	
                        110,084

                      	 
      
	 
      	
                        C6+

                      	 
      	
                        117,040

                      	 
      

              

            

          

        

      

    

     

    C.           Plant
Products Revenue attributable to each of Producer's Wells shall be calculated by
multiplying the percentage of each Plant Product allocable to each of Producer's
Wells by the total apportioned fractionated and non-fractionated Plant Products
Sales Revenue received by Gatherer/Processor for the total of each Plant Product
marketed by Gatherer/Processor or it designee during the applicable Accounting
Period {FOB the Gas Plant and/or the Fractionator, as applicable), less
transportation and fractionation fees with respect to fractionated volumes
(currently [ * ] ($[ * ]) per gallon), subject to adjustment by
Gatherer/Processor or its designee, as determined at the inlet to the
Fractionator. Division of revenues from tile Plant Products shall be determined
in accordance with the Gathering and Processing Fees provisions contained
herein.

    

    
      
        
           

        

        
          6
B

          
            

          

        

        
           

        

      

    

    

    D.           For
purposes of determining the percentage of each plant Product allocable to each
of Producer's Wells, Gatherer/Processor shall multiply the volume in MCF's of
Gas attributable to each of Producer's Wells by the GPM (Gallons Per MCF) for
each Plant Product contained in the well stream. Said GPM shall be determined by
an Initial chromatograph analysis taken on spot Gas samples from each of
Producer's Wells subject to the measurement provisions of the Existing
Agreements, The calculated value will be the Theoretical Plant Product Content
for each Plant Product of Producer's Gas. Said Theoretical Plant Product Content
for each Plant Product shall be divided by the Total Theoretical Plant Product
Content for each Plant Product of all gas received by Gatherer/Processor to
determine the percentage of Plant Product for each Plant Product attributable to
each of Producer's Wells.

     

    E.           Gatherer/Processor
or its designee, in its sole discretion, shall determine whether or not to
fractionate ail or any portion of the Plant Products based upon then current
market conditions, and will market one hundred percent (100%) of the Plant
Products, both fractionated and unfractionated, upon terms which, in
Gatherer/Processor's or its Designee's sole judgement, are commercially
reasonable. Upon request, Gatherer/Processor will furnish Producer on a monthly
basis with reports containing volumes sold and prices applicable thereto. Upon
execution of Gatherer/Processor's confidentiality agreement. Producer shall have
the right at reasonable times during normal business hours to review the books
and records of Gatherer/Processor pertaining to the sale of Plant Products,
allocation of Residue Gas and revenues received therefrom.

     

    
      	
              10.

            	
              PRICING INFORMATION
      AND REFUNDS

            

    

     

    A.           Seder
agrees that it will supply data and information at Buyer/Processor's reasonable
request, and otherwise cooperate with Buyer/Processor in any regulatory
proceeding wherein the price or other provisions set forth herein may be the
subject of review.

     

    B.           Should
Buyer/Processor make payment to Seller based on the price for any category of
Gas subject to any governmental agency or judicial review of such determination,
and if it is subsequently determined that the Gas for which payment was made was
not eligible for the price upon which payment was based, or if the price to be
paid hereunder for such Gas is determined to be in excess of the maximum lawful
price permitted by applicable NGPA price categories, or if for any reason
Buyer/Processor is not permitted to receive or retain such prices in its resale
rates, then the rate thereafter to be paid shall be accordingly reduced and
Seller will refund to Buyer/Processor any previous excess payments together with
interest at the rate prescribed in 18 C.F.R. Sec. 273.302 or subsequent
regulation.

     

    C.    The Parties
acknowledge that Buyer/Processor has not reviewed the terms of Seller's Leases
pertaining to Seller's Gas and that, to the extent it is responsible for doing
so, Buyer/Processor shall account and make payment to royalty, overriding
royalty, and other interest owners and to taxing authorities based on the price
paid by Buyer/Processor for Seller's Gas as set forth in the Agreement, and that
so long as Buyer/Processor makes payment as aforesaid, Buyer/Processor shall not
be responsible for any other deficiency or overpayment.

     

    
      	
              11.

            	
              TAXES

            

    

     

    A.           Seller
agrees to pay, or cause to be paid, when due, the taxes lawfully levied on
Seller's Gas prior to its delivery to Buyer/Processor, as wall as its
proportionate share of taxes, if any, levied upon the Plant Products to be
marketed by Buyer/Processor hereunder and not paid by the
purchaser.

     

    
      	
              12.

            	
              PAYMENT

            

    

     

    A.           After
delivery of Seller's Gas has commenced, Buyer/Processor shall mail a statement
to Seller indicating the quantity of Gas delivered to and the Plant Products and
Residue Gas purchased by Buyer/Processor during the preceding Accounting Period,
adjustments, if any, made by Buyer/Processor, and the amount due therefore.
Where Buyer/Processor is responsible for distribution of revenues, it shall be
the obligation of Buyer/Processor to cause proper settlement and accounting to
be made and to make distribution of proceeds to all owners of interest in the
proceeds from the sale of Gas delivered to Buyer/Processor hereunder, and in
consideration therefore, Buyer/Processor shall charge a monthly accounting and
settlement fee in the amount of  [ * ] Dollars ($[ *
]) per well per interest owner to whom Buyer/Processor distributes
revenues, said fee to be deducted by Buyer/Processor pro rata from the amount
due the working interest owners hereunder on a per-well basis, The monthly
accounting and settlement fee shall be increased [ each July 1 ] by a percentage
equal to the percentage change In the cumulative implicit GNP price deflator
(January 1995 = 1.0) computed and published as an annual rate by the U.S.
Department of Commerce (or, if not available, a comparable economic indicator),
provided that such number shall never be a negative number. Where Seller is
responsible for revenue distribution, Buyer/Processor shall remit the amount due
for all Gas purchased to Seller, and it shall be the obligation of Seller to
cause proper settlement and accounting to be made and to make distribution of
proceeds to all owners of interest in the proceeds from the sale of Gas
delivered to Buyer/Processor hereunder, Buyer/Processor shall mail the statement
and payment either on or before the last day of each month (or on the next
business day if such day is a weekend or holiday) for Gas purchased the
preceding Accounting Period, provided, however, that until Buyer/Processor has
received satisfactory evidence of title, it may suspend payments
hereunder.  The Party responsible for distribution of revenues to
owners of interest in the Gas hereby agrees to defend (with counsel reasonably
acceptable to the other Party)), indemnify and hold the other harmless of and
from any and all claims, demands, actions, causes of action, costs, damages and
expenses related to, arising out of or in any way stemming from such obligation;
provided, however, that notwithstanding anything contained herein or the
Agreement to the contrary.  Seller shall defend (with counsel
reasonably acceptable to Buyer/Processor), indemnify and hold Buyer/Processor of
and from any and all claims, demands, actions, causes of action, costs, damages
and expenses related to incorrect information provided to Buyer/Processor
concerning ownership interests in the proceeds of production. Buyer/Processor,
at its election, may deduct from its payment to Seller, sums, if any, due to
Buyer/Processor under the terms of the Agreement or other
transactions.

    

    
      
        
           

        

        
          7
B

          
            

          

        

        
           

        

      

    

    

    B.           Buyer/Processor
shall have the right to deduct from payment to Seller a metering fee of $[
* ] per meter, per month for each meter that is less than 100 MMBtu during
any month is delivered to Buyer/Processor.

     

    C.           Upon
execution of the other Party's Confidentiality Agreement, each Party to the
Agreement shall have, at its expense, the right at all times to examine the
books and records of the other Party, during normal working hours, to the extent
necessary to verify the accuracy of any statement, charge, computation, or
demand made under or pursuant to the Agreement. Each Party agrees to keep
records and books of account in accordance with generally accepted accounting
principles in the industry.  The Parties agree that the sole and
exclusive remedy and measure of damages for any improper payments under this
Agreement shall be the amount of underpayment or overpayment, as the case may
be, during the two (2) year period immediately preceding the date on which a
statement delivered hereunder was questioned in writing.

     

    
      	
              13.

            	
              SELLER’S
      REPRESENTATIVE

            

    

     

    A.           The
party set forth in Article 7 of the Agreement, Notices, is designated as
Seller's representative with respect to all matters under this Agreement,
including but not limited to the following:

     

    
      	
               
      

            	
              1)

            	
              To
      give and receive all notices;

            

    

     

    
      	
               
      

            	
              2)

            	
              To
      make and witness any tests to be made of Seller's Gas and measuring
      equipment and adjustments to such
equipment;

            

    

     

    
      	
               
      

            	
              3)

            	
              To
      deliver the quantities of Seller's Gas deliverable
    hereunder;

            

    

     

    
      	
               
      

            	
              4)

            	
              To
      obtain, execute and deliver to Buyer/Processor such division order title
      opinions and division orders as may be required by Buyer/Processor
      hereunder; and

            

    

     

    
      	
               
      

            	
              5)

            	
              To
      comply with the requirements, rules and regulations of any duly
      constituted authority having
jurisdiction.

            

    

     

    
      	
               
      

            	
              6)

            	
              If
      Seller is responsible for distribution of revenues, to receive payment
      hereunder and to cause proper settlement and accounting to be made and
      make distribution of proceeds to all owners of interest in the proceeds
      from the sale of Gas delivered to Buyer/Processor
    hereunder.

            

    

     

    B.           Buyer/Processor
may act, and shall be fully protected in acting, in reliance upon any and all
acts and things done and performed by or agreements made with respect to all
matters dealt with herein by said Representative on behalf of Seller as fully
and with the same effect as though Seller had done, performed, made or executed
the same.

    

    
      
        
           

        

        
          8
B

          
            

          

        

        
           

        

      

    

    

    C.           Seller
may change its Representative designated above, or designate a new
Representative from time to time by delivery of written notice of change and
designation of Representative to Buyer/Processor.  The Representative
so designated shad have and may exercise all power and authority therein granted
with like effect as though named as such Representative herein in the first
instance.

     

    14.           REGULATORY
BODIES

     

    A.           The
Agreement is subject to all present and future valid laws and lawful orders of
all regulatory bodies now or hereafter having jurisdiction of the Parties, or
either of them; and should either of the Parties, by force of such law or
regulation imposed at any time during the term of the Agreement, be ordered or
required to do any act inconsistent with the provisions of the Agreement, the
Agreement shall continue nevertheless and shall be deemed modified to conform
with the requirements of such law or regulation for that period only during
which the requirements of such law or regulation are applicable. Nothing in the
Agreement or this Appendix shall prohibit either Party from obtaining or seeking
to obtain modification or repeal of such law or regulation or restrict either
Party's right to legally contest the validity of such law or regulation, and
each Party reserves the right to file with such regulatory bodies any material
necessary to implement the terms of the Agreement and this Appendix as they
existed prior to the modification.

     

    15           FORCE
MAJEURE

     

    A.           Except
for Buyer/Processor's and Seller's respective obligations to make proper
settlement, accounting and distribution of proceeds to all interest owners as
provided above for Gas delivered to and purchased by Buyer/Processor under the
Agreement, in the event either Buyer/Processor or Seller is rendered unable, by
reason of an event of force majeure, to perform, wholly or in part, any
obligation or commitment set forth in the Agreement, then upon such Party giving
notice and full particulars (including all supporting documentation) of such
event as soon as practicable after the occurrence thereof, the obligations of
both Parties shall be suspended to the extent and for the period of such force
majeure provided that the Party claiming an event of force majeure shall make
all reasonable attempts to remedy the same with all reasonable
dispatch.

     

    B.           The
term "force majeure",
as used herein, shall mean acts of God, strikes, lockouts or industrial disputes
or disturbances, civil disturbances, arrest and restraint of rulers or people,
interruptions by government or court orders, necessity for compliance with any
present and future valid orders of court, or any law, statute, ordinance or
regulation promulgated by any governmental or regulatory authority having proper
jurisdiction, acts of the public enemy, wars, riots, blockades, insurrections,
including inability to secure materials by reason of allocations promulgated by
authorized governmental agencies, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, washouts, inclement weather which necessitates
extraordinary measures and expense to construct facilities and/or maintain
operations, explosions, partial or entire failure of Gas supply, breakage or
accident to machinery or lines of pipe, freezing of wells or pipelines,
inability to obtain or delays in obtaining easements or rights-of-way, the
shutting in of facilities for the making of repairs, alterations or maintenance
to wells, pipelines or plants, or any other cause whether of the kind herein
enumerated or otherwise, not reasonably within the control of the Party claiming
"force
majeure”.

     

    C.           Neither
Party shall be entitled to the benefit of the provisions of this Section under
either or both of the following circumstances:

     

    
      	
               
      

            	
              1)

            	
              To
      the extent that the failure was caused by the Party claiming suspension
      having failed to remedy the condition by taking all reasonable acts, short
      of litigation, if such remedy requires litigation, and having failed to
      resume performance of such commitments or obligations with reasonable
      dispatch; or,

            

    

     

    
      	
               
      

            	
              2)

            	
              If
      the failure was caused by lack of funds, or with respect to the payment of
      any amount or amounts then due
hereunder.

            

    

     

    D.           Settlement
of strikes and lockouts shall be entirely within the discretion of the Party
affected, and the duty that any event of force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes and lockouts
by acceding to the demands of the Parties directly or indirectly involved in
such strikes or lockouts when such course is inadvisable in the discretion of
the Party having such difficulty.

    

    
      
        
           

        

        
          9
B

          
            

          

        

        
           

        

      

    

    

    16.           DEFAULTS

     

    A.           It
is covenanted and agreed that if either Party shall fail to perform any of the
covenants or obligations imposed upon it under and by virtue of the Agreement or
this Appendix, in addition to its other rights and remedies, the other Party may
terminate the Agreement by proceeding as follows:

     

    
      	
               
      

            	
              1)

            	
              The
      Party not In default shall cause a written notice to be served on the
      other Party in default, stating specifically the cause for terminating the
      Agreement, and declaring it to be the Intention of the Party giving notice
      to terminate the same; thereupon, the Party in default shall have thirty
      (30) days after the service of the aforesaid notice in which to remedy or
      remove the cause or causes stated in the notice for terminating the
      Agreement. If within said thirty (30) days the Party in default does so
      remove and remedy said cause or causes, or fully indemnifies the Party not
      in default for any and all consequences of such breach, then such notice
      shall be withdrawn and the Agreement shall continue in full force and
      effect.

            

    

     

    
      	
               
      

            	
              2)

            	
              In
      case the Party in default does not remedy and remove the cause or causes,
      or does not indemnify the Party giving the notice for any and all
      consequences of such breach, within said period of thirty (30) days, then
      the Agreement shall become null and void from and after the expiration of
      said period.

            

    

     

    
      	
               
      

            	
              3)

            	
              Any
      cancellation of the Agreement pursuant to the provisions of this Section
      shall be without prejudice to the obligation of Buyer/Processor to make
      proper settlement, accounting and distribution of proceeds to ad owners of
      interest in the proceeds received for Gas delivered to Buyer/Processor
      thereunder to the time of cancellation, and without waiver of any remedy
      to which the Party not in default may be entitled for violations of the
      Agreement.

            

    

     

    B.           No
waiver by either Seller or Buyer/Processor of any default of the other under
this Agreement shall operate as a waiver of any future default, whether of like
or different character or nature, nor shall any failure to exercise any right
hereunder be considered as a waiver of such right in the future

     

    17.           UNECONOMIC WELL
CONNECTIONS

     

    A.           In
the event Seller desires Buyer/Processor to connect a well to Buyer/Processor's
Gathering System which well, in Buyer/Processor's sole opinion, would not
constitute an economic connection, Buyer/Processor shall be under no obligation
to connect any such well, or to accept any Gas therefrom. Nevertheless,
Buyer/Processor, upon Seller's request, may accept Gas from any such well if
Seller shall acquire and assign without charge to Buyer/Processor a - measuring
station site on Buyer/Processor's existing Gathering System at a mutually
agreeable point, together with all necessary rights of ingress and egress
thereto, and bear the cost of the construction, operation and maintenance of all
facilities necessary to deliver Gas from such well into Buyer/Processor's
Gathering System at said mutually agreeable point. Should Seller elect not to
deliver Gas to Buyer/Processor from such well, Buyer/Processor shall release
such well and the acreage attributable to the drilling and spacing unit thereof
from the Agreement, but only as to the formation in which such well is then
completed.

     

    B.           In
the event Gas volumes available for delivery from any of Seller's Wells
hereunder become uneconomic to Buyer/Processor in the exercise of
Buyer/Processor's reasonable judgment, Buyer/Processor agrees to release from
dedication to this Agreement the affected Well(s) and the Leases to the extent
of the drilling and spacing unit(s) corresponding to such WelI(s).

     

    
      	
              18.

            	
              UNECONOMIC OPERATION
      OF GAS PLANT OR BUYER/PROCESSOR'S GATHERING
  SYSTEM

            

    

     

    A.           If,
in the opinion of Buyer/Processor, any of the Gas Plant or Buyer/Processor's
Gathering System is or becomes uneconomic to operate due to its volume, quality,
Plant Products content, governmental regulation or any other cause,
Buyer/Processor may either modify or suspend operations thereof, in which case
Buyer/Processor shall not be obligated to take delivery of, or may cease
processing all or any portion of the Gas from Seller's Wells, so long as such
condition exists. For the purposes hereof, "uneconomic operation" shall be
defined as circumstances under which Buyer/Processor's share of net operating
revenues (the sum of Buyer/Processor's percentage of revenues attributable to
sales of Plant Products and Residue Gas) of any of the Gas Plant or
Buyer/Processor's Gathering System is insufficient to offset actual operating
costs thereof.

    

    
      
        
           

        

        
          10
B

          
            

          

        

        
           

        

      

    

    

    B.           During
periods of uneconomic operation of any of the Gas Plant or Buyer/Processor's
Gathering System and/or suspension of operation of portions thereof,
Buyer/Processor, at the request of the Seller, shall place back in service and
operate such suspended portions of the affected Gas Plant or Buyer/Processor's
Gathering System as may be necessary to accept and process all or any portion of
Seller's Gas'. In consideration thereof, Seller agrees to reimburse
Buyer/Processor, in the same proportion as the ratio of the Gas volumes
supplied by Seller bear to the total Gas volumes supplied to the affected Gas
Plant or Buyer/Processor's Gathering System by other third-party sellers, for
any losses (costs of operations of the affected Gas Plant or Buyer/Processor's
Gathering System in excess of revenues attributable to operations of the
affected Gas Plant or Buyer/Processor's Gathering System after deducting
payments to all contributing producers for Gas delivered to and processed by the
affected Gas Plant or Buyer/Processor's Gathering System) incurred by
Buyer/Processor during such continued uneconomic operations. Buyer/Processor
may, at its option, elect to sell the affected Gas Plant or Buyer/Processor's
Gathering System rather than operate the same under the terms of this
Section.

     

    
      	
              19.

            	
              LITIGATION -
      ATTORNEYS' FEES

            

    

     

    A.           In
the event litigation arising out of the Agreement (excluding litigation or
actions indemnified pursuant to Section 5, Seller's Warranties,
or Sections 2.E or 21 A of this Appendix) should be initiated by any Party
hereto, the prevailing Party, after the entry of a final non-appealable order,
shall be entitled to recover from the other Party, as a part of said judgment,
all court costs, fees and expenses of such litigation, including reasonable
attorneys' fees.

     

    
      	
              20.

            	
              DAMAGES

            

    

     

    A.           Whether
or not occasioned by a default or other breach of the Agreement, neither Party
shall be liable to he other for special, exemplary, or consequential damages,
except as to third-party claims, pursuant to the indemnification provisions of
the Agreement or this Appendix.

     

    
      	
              21.

            	
              GENERAL

            

    

     

    A.           The
Parties hereto assume full responsibility and liability for the maintenance and
operation of their respective properties and agree to indemnify and save
harmless the other Party from all liability and expense on account of any
damages, claims or actions arising from any act or accident in connection with
the installation, presence, maintenance or operation of the property or
equipment of the indemnifying Party.

     

    B.           Seller
agrees that Buyer/Processor, its successors and assigns, shall have the right,
but not the obligation, at any time to redeem for Seller, its successors and
assigns, or other interest owners by payment of any taxes, deeds of trust,
judgments or other liens on the Leases described in Exhibit "A" hereto, on
Seller's Gas Reserves or the production therefrom, in the event of default of
payment by Seller or other interest owners, and be subrogated to the rights of
the holder or holders thereof Seller further agrees that any such redemption and
payment by Buyer/Processor for the account of Seller or other interest owners
shall be applied by way of a setoff against the purchase price which
Buyer/Processor would otherwise pay to Seller or the other interest owners under
Section 9 of the Appendix attached hereto, such set-off to continue until all
payments by Buyer/Processor under this Agreement, plus interest, have been fully
recouped by Buyer/Processor.

     

    C.           Upon
consent of Buyer/Processor, this Agreement may be ratified and adopted by any
owner of an interest in the Leases subject hereto, or any leases with which the
Leases subject hereto may be pooled or unitized, by execution and delivery to
Buyer/Processor of a separate written instrument ratifying and adopting this
Agreement insofar as said owner's interest in any such lands or leases is
concerned, all the terms and provisions of this Agreement shall be binding upon
such interest owner.  In addition, upon Buyer/Processor's request, Seller
shall cause each interest owner in the Leases to execute and deliver to
Buyer/Processor a ratification of this Agreement.

     

    D.          Each
Seller executing or ratifying the Agreement makes and enters into the Agreement
severally and not jointly with other sellers, and they are not acting as
partners, joint venturers, or otherwise jointly in this transaction, and nothing
herein contained or provided shall operate to create, or be construed as
creating, any such relationship, It is expressly provided that there shall never
be any joint liability against the Parties designated herein as Seller and that
no single party Seller shall be liable for the acts or omissions of any other
single party Seller.

     

    E.           In
the event Seller desires to commit additional Gas produced and saved, or to be
produced and saved, from oil and gas leases other than those dedicated hereunder
and in which Seller owns and holds, or has an interest or interests, such oil
and gas leases and the wells drilled and completed, or to be drilled and
completed, thereon shall be covered by a separate Gas Purchase and Processing
Agreement between Seller and Buyer/Processor.

    

    
      
        
           

        

        
          11
B

          
            

          

        

        
           

        

      

    

    

    F.           The
Equal Employment Opportunity Clause required under Executive Order No. 11246,
the affirmative action commitment for disabled veterans and veterans of the
Vietnam Era, set forth in 41 CFR 60-250 4, the affirmative action clause for
handicapped workers, set forth in CFR 650-741 4, and the related regulations of
the Secretary of Labor, 41 CFR Chapter 60, are incorporated by reference in this
Agreement. By accepting this Agreement, Seller certifies that it complies with
the authorities cited above and that it does not maintain segregated facilities
or permit its employees to perform services at locations where segregated
facilities are maintained, as required by 41 CFR 60.1.8.

     

    

    END OF GENERAL TERMS AND
CONDITIONS

    

    
      
        
           

        

        
          12
B

          
            

          

        

        
           

        

      

    

     

    
      
        		 	
                K N
      Gas Gathering, Inc. 

                A
      Subsidiary of K N Energy Inc 

                635
      N 7th Ave. Brighton,
      CO 80601 

                (303)
      659-5922

              

      

      

      

      September
17, 1999

      

      

      Connie L.
Nordberg

      United
States Exploration, Inc

      1560
Broadway, Suite 1900

      Denver,
CO 80202

      

      Ms.
Nordberg,

      

      KN Gas
Gathering, Inc., hereby releases the following proposed well from our gathering
contract dedication: Bernhardt 13-A, located at NE/4, Section 13 - T4N - R67W,
in Weld County, Colorado

      

      If you
have any questions, please call me at 303-655-4341.

      

      Sincerely,

      

      

      /s/ Scott
Emerson

      Scott
Emerson

      General
Manager

      Wattenberg
Operations

      

      
        	
                Cc:

              	
                Rick
      Williams

              
	 
      	
                Billy
      Cantwell

              
	 
      	
                Darrel
      Gentry

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                Denver
      District Office

              	 	
                 
      

              

      

      

      

      October
4, 1999

      

      

      Ms.
Connie Nordberg

      United
States Exploration, Inc

      1560
Broadway

      Suite
1900

      Denver,
Colorado S0202

      

      
        	
                RE:

              	
                Gas
      Purchase and Sale Agreement

              
	 
      	
                Greater
      Wattenberg Area

              
	 
      	
                Bernhardt
      #13 A T4N, R67W Section 13: NENE

              
	 
      	
                Weld
      County, Colorado

              

      

      

      

      Dear
Connie:

      

      I'm
writing in response to your recent request for a Release of Dedication for the
referenced well from our Gas Purchase and Sale Agreement, effective July 1,
1999.  Narco hereby agrees to release the referenced well from the
dedication of acreage as contained in our Area of Mutual Interest (AMI) to
enable UXP to connect said well to Duke's Gathering System.

      

      All other
terms and conditions remain in full force and effect.  This release
applys only to the referenced well Should you have any questions, please let me
know.

      

      

      Sincerely,

      

      /s/
Christopher J. Denison

      Christopher
J Denison

      Gas
Supply Representative

      

      

      1700
Broadway • Suite 2000 • Denver, Colorado 80290

      Telephone:
303-861-9183

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