PLACEMENT AGENCY AGREEMENT

 

Exhibit 1.01

 

                                 FX ENERGY, INC.

                           PLACEMENT AGENCY AGREEMENT

 

April 13, 2004

 

CDC Securities

590 Madison Avenue, 25th Floor

New York, New York 10022

 

Ladies and Gentlemen:

 

FX Energy, Inc., a Nevada corporation (the "Company"), proposes to sell (the

"Offering"), upon the terms and subject to the conditions of this Agreement, to

certain European institutional investors (collectively, the "Investors"). The

Company desires to engage as its placement agent CDC Securities (the "Placement

Agent") in connection with such the issuance and sale, on a best efforts basis,

as agent and not as principal, of an aggregate of 2,152,778 shares (the "Offered

Shares") of the Company's common stock, par value $0.001 per share ("Common

Stock").

 

1.        Registration Statement and Prospectus.

 

         A registration statement (File No. 333-80489) on Form S-3 relating to

         the Common Stock, and such amendments to such registration statement as

         may have been required to the date of this Agreement, has been prepared

         by the Company under the provisions of the Securities Act of 1933, as

         amended (the "Securities Act"), and the rules and regulations

         (collectively referred to as the "Rules and Regulations") of the

         Securities and Exchange Commission (the "Commission") thereunder, and

         has been filed with the Commission. Such registration statement,

         including any documents incorporated therein by reference and any

          exhibits, financial statements and schedules thereto, together with any

         registration statement filed pursuant to Rule 462(b), is herein

         referred to as the "Registration Statement." The form of prospectus to

         be included in the Registration Statement, as supplemented by any

         preliminary prospectus supplement or definitive prospectus supplement

         relating to the offering of the Offered Shares and filed by the Company

         with the Commission pursuant to Rule 424(b), are herein referred to

         collectively as the "Prospectus." Any reference herein to the

         Registration Statement or the Prospectus shall be deemed to refer to

         and include the documents incorporated by reference therein, as of the

         date of such Registration Statement or Prospectus, as the case may be,

         and, in the case of any reference herein to any Prospectus, also shall

         be deemed to include any documents incorporated by reference therein,

         and any supplements or amendments relating to the Offered Shares being

         issued and sold pursuant hereto, filed with the Commission under Rule

         424(b), and prior to the termination of the offering of the Offered

         Shares by the Placement Agent.

 

2.        Representations and Warranties.

 

         Except as set forth under the corresponding section of the Disclosure

         Schedules attached hereto, the Company hereby makes the following

         representations and warranties to the Placement Agent:

 

(a)       Effectiveness of Registration Statement. The Registration Statement has

         been declared effective as of June 30, 1999, by the Commission under

         the Securities Act and no post-effective amendment to the Registration

          Statement has been filed as of the date of this Agreement. Neither the

         Commission nor any state regulatory authority has issued any order

         preventing or suspending the use of the Registration Statement or the

         Prospectus and no proceedings for a stop order suspending the

         effectiveness of the Registration Statement have been instituted, or,

         to the Company's knowledge, are threatened.

 

(b)       Accuracy and Completeness of Registration Statement. The Registration

         Statement contains and the Prospectus and any amendments or supplements

         thereto conforms or will conform, as the case may be, in all material

         respects with the requirements of the Securities Act and the Rules and

         Regulations. The documents incorporated or deemed to be incorporated by

         reference in the Prospectus, at the time they were or hereafter are

         filed with the Commission, complied and will comply, as the case may

         be, in all material respects with the applicable requirements of the

         Securities Exchange Act of 1934, as amended (the "Exchange Act"), and

         the Rules and Regulations promulgated thereunder. Neither the

 

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         Registration Statement nor any amendment thereto, and neither the

         Prospectus nor any supplement thereto, including any documents

         incorporated by reference therein, contains or will contain, as the

         case may be, any untrue statement of a material fact or omits or will

          omit, as the case may be, to state any material fact required to be

         stated therein or necessary to make the statements therein, in light of

         the circumstances under which they were made, not misleading; provided,

         however, that the Company makes no representations or warranties as to

         information contained in or omitted from the Registration Statement or

         the Prospectus, in reliance upon, and in conformity with, written

         information furnished to the Company by or on behalf of the Placement

         Agent, specifically for use in the preparation thereof.

 

(c)       Blue Sky. The Company (or at the Company's request, counsel to the

         Placement Agent) will prepare and file the necessary documents so that

         offers and sales of the Offered Shares may be made in certain

         jurisdictions in the United States.

 

(d)       Description of Common Stock. The Common Stock conforms to all

         statements relating thereto contained in the Registration Statement or

         the Prospectus.

 

(e)       Conduct of Business. The Company is not, and does not intend to conduct

         its business in a manner in which it would be, an "investment company"

         as defined in Section 3(a) of the Investment Company Act of 1940 (the

         "Investment Company Act").

 

(f)       No Third-Party Rights to Registration. No person or entity has the

         right to require registration of shares of Common Stock or other

         securities of the Company because of the filing or effectiveness of the

         Registration Statement, except such persons or entities as set forth on

         Schedule 2(f) hereto or persons or entities from whom written waivers

         of such rights have been received prior to the date hereof.

 

(g)       Nasdaq Authorization for Quotation. The Common Stock, including the

         Offered Shares, is registered pursuant to Section 12(g) of the Exchange

         Act and is listed on The Nasdaq SmallCap Market (the "Nasdaq SmallCap

          Market"), and the Company has taken no action designed to terminate, or

         likely to have the effect of terminating, the registration of the

         Common Stock under the Exchange Act or delisting the Common Stock from

         the Nasdaq SmallCap Market, nor has the Company received any

         notification that the Commission or the NASD is contemplating

         terminating such registration or listing. The Company is not aware of

         any facts or circumstances that might reasonably be expected to give

         rise to any of the foregoing.

 

(h)       Subsidiaries. Except as set forth on Schedule 2(h), the Company does

         not have any subsidiaries and does not own or control, directly or

         indirectly, and interest in any other corporation, association or other

         business entity.

 

(i)       Organization. The Company is duly organized and validly existing in

         good standing under the laws of the jurisdiction of its organization.

         The Company has full power and authority to own, operate and occupy its

         properties and to conduct its business as presently conducted and as

         described in the documents filed by the Company under the Exchange Act,

         since the end of its most recently completed fiscal year through the

         date hereof, including, without limitation, its most recent report on

         Form 10-K included in the SEC Documents as defined in Section 2(n)

         herein, and is registered or qualified to do business and in good

          standing in each jurisdiction in which the nature of the business

         conducted by it or the location of the properties owned or leased by it

         requires such qualification and where the failure to be so qualified

         would have a material adverse effect upon the condition (financial or

         otherwise), earnings, business or business prospects, properties or

         operations of the Company, considered as one enterprise (a "Material

         Adverse Effect"), and no proceeding has been instituted in any such

         jurisdiction revoking, limiting or curtailing, or seeking to revoke,

         limit or curtail, such power and authority or qualification.

 

(j)       Due Authorization and Valid Issuance. The Company has all requisite

         power and authority to execute, deliver and perform its obligations

         hereunder (including its obligation to issue, sell and deliver the

 

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         Offered Shares), and this Agreement has been duly authorized and

         validly executed and delivered by the Company and constitutes a legal,

         valid and binding agreement of the Company enforceable against the

         Company in accordance with its terms, except as rights to indemnity and

         contribution may be limited by state or federal securities laws or the

         public policy underlying such laws, except as enforceability may be

         limited by applicable bankruptcy, insolvency, reorganization,

         moratorium or similar laws affecting creditors' and contracting

         parties' rights generally, and except as enforceability may be subject

         to general principles of equity (regardless of whether such

         enforceability is considered in a proceeding in equity or at law). The

         Offered Shares will, upon issuance and payment therefor pursuant to the

         terms of this Agreement, be duly authorized, validly issued, fully-paid

         and nonassessable.

 

(k)       Noncontravention. The execution, delivery and performance of this

         Agreement and the consummation of the transactions herein contemplated

         will not (i) conflict with or constitute a violation of, or default

         (with the passage of time or otherwise) under (1) any material bond,

         debenture, note or other evidence of indebtedness, lease, contract,

         indenture, mortgage, deed of trust, loan agreement, joint venture or

         other agreement or instrument to which the Company is a party or by

         which its properties are bound, (2) the charter, bylaws or other

         organizational documents of the Company, or (3) any law, administrative

         regulation, ordinance or order of any court or governmental agency,

         arbitration panel or authority applicable to the Company or by which

         its properties are bound, except in the case of clauses (1) and (3) for

         any such conflicts, violations or defaults that are not reasonably

         likely to have a Material Adverse Effect, or (ii) result in the

         creation or imposition of any lien, encumbrance, claim, security

         interest or restriction whatsoever upon any of the material properties

         or assets of the Company or an acceleration of indebtedness pursuant to

          any obligation, agreement or condition contained in any material bond,

         debenture, note or any other evidence of indebtedness or any material

         indenture, mortgage, deed of trust or any other agreement or instrument

         to which the Company is a party or by which it is bound or to which any

         of the material property or assets of the Company is subject. No

         consent, approval, authorization or other order of, or registration,

         qualification or filing with, any regulatory body, administrative

         agency, or other governmental body in the United States or any other

         person is required for the execution and delivery of the Agreement and

         the valid issuance and sale of the Common Stock to be sold pursuant to

         the Agreement, other than such as have been made or obtained, and

         except for any post-closing securities filings or notifications

         required to be made under federal or state securities laws.

 

(l)       No Violation. The Company is not in violation of its charter, bylaws or

         other organizational document, or in violation of any law,

         administrative regulation, ordinance or order of any court or

         governmental agency, arbitration panel or authority applicable to the

         Company, which violation, individually or in the aggregate, would be

         reasonably likely to have a Material Adverse Effect, or is in default

         (and there exists no condition that, with the passage of time or

         otherwise, would constitute a default) in any material respect in the

         performance of any bond, debenture, note or any other evidence of

         indebtedness, indenture, mortgage, deed of trust or any other material

         agreement or instrument to which the Company is a party or by which the

         Company is bound or by which the properties of the Company are bound,

         that would be reasonably likely to have a Material Adverse Effect. The

         business of the Company and its subsidiaries is not being conducted,

         and shall not be conducted so long as the investors own any of the

         Common Stock, in violation of any law, ordinance, rule, regulation,

         order, judgment or decree of any governmental entity, court or

          arbitration tribunal, except for possible violations the sanctions for

         which either singly or in the aggregate would not have a Material

         Adverse Effect.

 

(m)       Capitalization. Except for issuances pursuant to the exercise of

          options under the Company's stock option plans, the Company has not

         issued any capital stock since December 31, 2003. The Offered Shares to

         be sold pursuant to the Prospectus have been duly authorized, and when

         issued and paid for in accordance with the terms of the Prospectus will

         be duly and validly issued, fully paid and nonassessable. The

 

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         outstanding shares of capital stock of the Company have been duly and

         validly issued and are fully paid and nonassessable, have been issued

         in compliance with all applicable federal and state securities laws,

         and were not issued in violation of any preemptive rights or similar

         rights to subscribe for or purchase securities. Except as set forth on

         Schedule 2(m) hereto, there are no other outstanding rights (including,

         without limitation, preemptive rights), warrants or options to acquire,

         or instruments convertible into or exchangeable for, any unissued

         shares of capital stock or other equity interest in the Company, or any

         contract, commitment, agreement, understanding or arrangement of any

         kind to which the Company is a party or of which the Company has

         knowledge and relating to the issuance or sale of any capital stock of

         the Company, any such convertible or exchangeable securities or any

         such rights, warrants or options. Without limiting the foregoing,

          except as set forth on Schedules 2(f) and 2(m) hereto, no preemptive

         right, co-sale right, right of first refusal, registration right, or

         other similar right exists with respect to the Common Stock or the

         issuance and sale thereof. No further approval or authorization of any

         stockholder, the Board of Directors of the Company or of a third party

         is required for the issuance and sale of the Common Stock. Except as

         set forth on Schedule 2(m) hereto, there are no stockholders

         agreements, voting agreements or other similar agreements with respect

         to the Common Stock to which the Company is a party or, to the

         knowledge of the Company, between or among any of the Company's

          stockholders. The Company does not have any so-called stockholder

         rights plan or "poison pill" and there are no "shark-repellant" charter

         or bylaw provisions or so-called "state anti-takeover" statutes

         applicable, in any case, to all or any portion of the transactions

         contemplated by the Agreements, including, without limitation, the

         issuance of the Common Stock.

 

(n)       Reporting Status. Since December 31, 2003, the Company has timely filed

         all reports, schedules, forms, statements and other documents required

         to be filed by it with the Commission pursuant to the reporting

         requirements of the Exchange Act (all of the foregoing filed after

         December 31, 2003, and all exhibits included therein and financial

         statements and schedules thereto and documents incorporated by

         reference therein, being referred to herein as the "SEC Documents")).

         The Company has made available to the Placement Agent true and complete

         copies of the SEC Documents. As of their respective dates, the SEC

         Documents complied in all material respects with the requirements of

         the Exchange Act and the Rules and Regulations of the Commission

         promulgated thereunder applicable to the SEC Documents, and none of the

         SEC Documents, at the time they were filed with the Commission,

         contained any untrue statement of a material fact or omitted to state a

         material fact required to be stated therein or necessary in order to

         make the statements therein, in light of the circumstances under which

         they were made, not misleading, except to the extent corrected by a

         subsequent SEC Document. None of the statements made in any such SEC

         Documents is currently required to be updated or amended under

         applicable law (except for such statements as have been amended or

         updated by subsequent SEC Documents prior to the date of this

         Agreement). The SEC Documents contain or incorporate by reference a

         complete and accurate list of all material undischarged written or oral

         contracts, agreements, leases or other instruments to which the Company

         or any subsidiary is a party, or by which the Company or any subsidiary

         is bound, or to which any of the properties or assets of the Company or

         any subsidiary is subject, and that are required by the Rules and

         Regulations promulgated under the Exchange Act to be included as

         exhibits to the SEC Documents (each a "Contract"). None of the Company,

         its subsidiaries or, to the best knowledge of the Company, any of the

         other parties thereto, is in breach or violation of any Contract, which

         breach or violation would have a Material Adverse Effect. No event,

         occurrence or condition exists that, with the lapse of time, the giving

         of notice, or both, or the happening of any further event or condition,

         would become a breach or default by the Company or its subsidiaries

         under any Contract, which breach or default would have a Material

         Adverse Effect.

 

(o)       Legal Proceedings. There is no action, suit, proceeding, or to the

         knowledge of the Company or any of its subsidiaries, inquiry or

         investigation before or by any court, public board, governmental agency

         or authority, or self-regulatory organization or body pending or, to

         the knowledge of the Company or any of its subsidiaries, threatened

         against or affecting the Company, any of its subsidiaries, or any of

         their respective directors or officers in their capacities as such,

         wherein an unfavorable decision, ruling or finding would have a

         Material Adverse Effect or would adversely affect the Offering or that

         would adversely affect the validity or enforceability of, or the

         authority or ability of the Company to consummate the Offering. The

         Company and each of its subsidiaries are unaware of any facts that

         could give rise to a claim or proceeding that, if asserted or conducted

         with results unfavorable to the Company or any of its subsidiaries,

         could have a Material Adverse Effect.

 

(p)       No Manipulation of Stock. The Company has not taken and will not, in

         violation of applicable law, take any action designed to or that might

         reasonably be expected to cause or result in stabilization or

         manipulation of the price of the Company's Common Stock to facilitate

         the sale or resale of the Common Stock.

 

(q)       Environmental. Except as would not, individually or in the aggregate,

         result in a Material Adverse Effect (i) the Company is not in violation

         of any applicable federal, state, provincial, local or foreign law or

         regulation relating to pollution or protection of human health or the

         environment (including, without limitation, ambient air, surface water,

         groundwater, land surface or subsurface strata) or wildlife, including

         without limitation, laws and regulations relating to emissions,

         discharges, releases or threatened releases of chemicals, pollutants,

         contaminants, wastes, toxic substances, hazardous substances, petroleum

         and petroleum products (collectively, "Materials of Environmental

 

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         Concern"), or otherwise relating to the manufacture, processing,

         distribution, use, treatment, storage, disposal, transport or handling

         of Materials of Environmental Concern (collectively, "Environmental

         Laws"), which violation includes, but is not limited to, noncompliance

         with any permits or other governmental authorizations required for the

         operation of the business of the Company under applicable Environmental

         Laws, or noncompliance with the terms and conditions thereof, nor has

         the Company received any written communication, whether from a

         governmental authority, citizens group, employee or otherwise, that

         alleges that the Company is in violation of any Environmental Law; (ii)

         there is no claim, action or cause of action filed with a court or

         governmental authority, no investigation with respect to which the

         Company has received written notice, and no written notice to the

         Company by any person or entity alleging potential liability for

         investigatory costs, cleanup costs, governmental responses costs,

         natural resources damages, property damages, personal injuries,

         attorneys' fees or penalties arising out of, based on or resulting from

         the presence, or release into the environment, of any Material of

         Environmental Concern at any location owned, leased or operated by the

         Company, now or to the Company's knowledge, in the past (collectively,

         "Environmental Claims"), pending or, to the best of the Company's

         knowledge, threatened against the Company or any person or entity whose

         liability for any Environmental Claim the Company has retained or

         assumed either contractually or by operation of law; and (iii) to the

         best of the Company's knowledge, there are no past or present actions,

         activities, circumstances, conditions, events or incidents, including,

         without limitation, the release, emission, discharge, presence or

         disposal of any Material of Environmental Concern, that reasonably

         could result in a violation of any Environmental Law or form the basis

         of a potential Environmental Claim against the Company or against any

         person or entity whose liability for any Environmental Claim the

         Company has retained or assumed either contractually or by operation of

         law.

 

(r)       Intellectual Property. The Company owns, possesses or has pending, or

         licenses or otherwise has the right to use all patents, patent

         applications, trademarks, trademark applications, trade names, service

         marks, copyrights, copyright applications, franchises, licenses,

         inventions, trade secrets and other intangible properties and assets

         described in the Prospectus (all of the foregoing being collectively

         herein called "Intangibles"), and such Intangibles, if applicable, are

         in good standing and uncontested. Other than the Intangibles described

         in the Prospectus, the Company is unaware of any other Intangibles

         necessary for the conduct of its business as now conducted or as

         proposed to be conducted. The Company has not infringed, is not

         infringing, nor has it received any notice of infringement with respect

         to asserted Intangibles of others. To the knowledge of the Company,

         there is no infringement by others of Intangibles of the Company.

 

(s)       Foreign Corrupt Practices. Neither the Company nor any of its

         subsidiaries has, nor any director, officer, agent, employee or other

         person acting on behalf of the Company or any subsidiary has in the

         course of his actions for or on behalf of the Company, used any

         corporate funds for any unlawful contribution, gift, entertainment or

         other unlawful expenses relating to political activity; made any direct

         or indirect unlawful payment to any foreign or domestic government

         official or employee from corporate funds; violated or is in violation

         of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as

         amended; or made any bribe, rebate, payoff, influence payment, kickback

         or other unlawful payment to any foreign or domestic government

          official or employee. Without limiting the generality of the foregoing,

         the Company and its subsidiaries have not directly or indirectly made

         or agreed to make (whether or not said payment is lawful) any payment

         to obtain, or with respect to, sales other than usual and regular

         compensation to its or their employees and sales representatives with

         respect to such sales.

 

(t)       Internal Accounting Controls. The Company and each of its subsidiaries

          maintains a system of internal accounting controls sufficient to

         provide reasonable assurance that (i) transactions are executed in

         accordance with management's general or specific authorizations, (ii)

         transactions are recorded as necessary to permit preparation of

         financial statements in conformity with generally accepted accounting

 

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         principles and to maintain asset accountability, (iii) access to assets

          is permitted only in accordance with management's general or specific

         authorization, and (iv) the recorded accountability for assets is

         compared with the existing assets at reasonable intervals and

         appropriate action is taken with respect to any differences. The

         Company has established disclosure controls and procedures (as defined

         in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and

         designed such disclosure controls and procedures to ensure that

         material information relating to the Company, including its

         subsidiaries, is made known to the certifying officers by others within

         those entities, particularly during the period in which the Company's

         Form 10-K or 10-Q, as the case may be, is being prepared. The Company's

         certifying officers have evaluated the effectiveness of the Company's

         controls and procedures as of the end of the period covered for such

         report. The Company presented in its most recently filed Form 10-K or

         Form 10-Q, as the case may be, the conclusions of the certifying

         officers about the effectiveness of the disclosure controls and

         procedures based on their evaluations as of the end of the period

         covered by such report. Since the end of the period covered by such

         report, there have been no significant changes in the Company's

         internal controls (as such term is used in Item 307(b) of Regulation

         S-K under the Exchange Act) or, to the Company's knowledge, in other

         factors that could significantly affect the Company's internal

         controls.

 

(u)       Financial Statements. The financial statements, together with the

         related notes and schedules, set forth or incorporated by reference in

         the Prospectus and in the Registration Statement fairly present, on the

         basis stated in the Registration Statement, the financial condition and

         the results of operations of the Company at the respective dates or for

         the respective periods therein specified. Such statements and related

         notes and schedules have been prepared in accordance with generally

         accepted accounting principles applied on a consistent basis, except

         that interim financial statements do not contain all of the notes

         required by generally accepted accounting principles to be included in

         audited financial statements and are subject to normal year-end audit

          adjustments, and as otherwise may be set forth in the Prospectus.

 

(v)       Independent Auditors. PricewaterhouseCoopers, LLP has expressed its

         opinions on the audited financial statements and related schedules

         included in the Registration Statement and the Prospectus and is an

         independent public accountant as required by the Securities Act and the

         Rules and Regulations.

 

(w)       Material Contracts. The Company has performed all material obligations

         required to be performed by it through the date hereof under all

         contracts required by Item 601(b)(10) of Regulation S-K under the

         Securities Act to be filed as exhibits to the Registration Statement,

         and neither the Company nor, to the knowledge of the Company, any other

         party to such contract is in default under or in breach of any such

         obligations, except with respect to any defaults or breaches which,

         singly or in the aggregate, will not result in a Material Adverse

         Effect. The Company has not received any notice of such default or

         breach.

 

(x)       Labor Agreements and Actions. The Company is not involved in any labor

         dispute of a type likely to have a Material Adverse Effect and, to the

         Company's knowledge, no such dispute is threatened. The Company is not

         aware that (i) any executive, key employee or significant group of

         employees of the Company plans to terminate employment with the

         Company, or (ii) any such executive or key employee is subject to any

         noncompete, nondisclosure, confidentiality, employment, consulting or

         similar agreement that would be violated by the present or proposed

         business activities of the Company. The Company does not have or expect

         to have any liability for any prohibited transaction or funding

         deficiency or any complete or partial withdrawal liability with respect

         to any pension, profit sharing or other plan which is subject to the

         Employee Retirement Income Security Act of 1974, as amended ("ERISA"),

         to which the Company makes or ever has made a contribution and in which

         any employee of the Company is or has ever been a participant, except

          where such liability would not have a Material Adverse Effect. With

         respect to such plans, the Company is in compliance in all material

         respects with all applicable provisions of ERISA

 

(y)       Key Individuals; Company's Knowledge. Each Key Individual (as defined

         below) is currently serving the Company in the capacity disclosed in

         its most recent report on Form 10-K and reports filed thereafter and

         included in the SEC Documents. No Key Individual, to the best of the

         knowledge of the Company and its subsidiaries, is, or is now expected

         to be, in violation of any material term of any employment contract,

         confidentiality, disclosure or proprietary information agreement,

         noncompetition agreement, or any other contract or agreement or any

         restrictive covenant, and the continued employment of each Key

         Individual does not subject the Company or any of its subsidiaries to

         any liability with respect to any of the foregoing matters. No Key

         Individual has, to the best of the knowledge of the Company and its

         subsidiaries, any intention to terminate or limit his employment with,

         or services to, the Company or any of its subsidiaries, nor is any such

         Key Individual subject to any constraints (e.g., litigation) that would

         cause such employee to be unable to devote his full time and attention

         to such employment or services. "Key Individual" means each of David N.

         Pierce, President and Chief Executive Officer; Andrew W. Pierce, Vice

         President and Chief Operating Officer; Thomas B. Lovejoy, Chairman and

         Chief Financial Officer; Jerzy B. Maciolek, Vice-President of

         Exploration; and Richard Hardman, Exploration Advisor. For purposes

         hereof, the term "knowledge of the Company" shall mean the knowledge of

         each of the Key Individuals.

 

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(z)       Drilling Practices. The real property that the Company has the right to

         explore, develop or recover oil and gas substances (the "Lands"), all

         right, title and interest of the Company in and to the Lands, and all

         machinery, equipment, jigs, drills, dies, tools, handling equipment,

         furniture, furnishings and accessories and supplies of all kinds used

         on the Lands (collectively, the "Oilfield Assets") have been operated

         in accordance with good oilfield practice, in compliance with the

         applicable law, ordinance, rule, regulation, order, judgment or decree

         of any governmental entity, court or arbitration tribunal, except for

         possible violations, the sanctions for which, either singly or in the

         aggregate would not have a Material Adverse Effect, and materially in

         accordance with the terms and conditions of all agreements applicable

         thereto.

 

(aa)      Sale/Leasebacks. The Oilfield Assets are not be subject to any lease,

         leaseback or sale/leaseback arrangements.

 

(bb)      Oil or Gas Balancing Agreements. Neither the Company nor any other

         person on its behalf has entered into any agreement or arrangements,

         commonly known as an oil or gas balancing, swaps, overproduction or

         underlift-overlift agreements, that are among two or more persons

         owning interests in a portion of the Lands or pooled or unitized

         therewith, nor, to the knowledge of the Company, has there been any

         circumstance or case whereby one of such persons has taken, or may

         hereafter take, a share of the production of oil or gas substances from

         such Lands greater than it would otherwise be entitled to by virtue of

         its interest in such Lands, and which excess taking entitled the other

         persons to a credit in respect of subsequent production of the

         Company's oil and gas substances produced from such Lands.

 

(cc)      Assets Subject to Obligations. The Oilfield Assets are not affected by

         any "take or pay" obligations.

 

(dd)      Abandoned Wells. To the knowledge of the Company, Schedule 2(dd)

         includes a list of all oil and gas wells on the Lands that have been

         either plugged and abandoned, or drilled and abandoned, in which the

         Company had or now has an interest, and for which authorization, if

         required, has been obtained for each such well from the applicable

         governmental entity.

 

(ee)      Allowables. To the knowledge of the Company, none of the oil and gas

         wells operated by the Company on the Lands has been produced in excess

         of applicable production allowables imposed by applicable law,

         ordinance, rule, regulation, order, judgment or decree of any

          governmental entity, court or arbitration tribunal, since the Company

         acquired its interest therein. Such oil and gas wells are not subject

         to any production penalty and, to the knowledge of the Company, it is

         not aware of any impending change in statutorily imposed or sanctioned

         production allowables imposed by applicable governmental entities

         currently applicable to any of the oil and gas wells other than changes

         that are in the public domain.

 

(ff)      No Disagreements with Accountants and Lawyers. There are no

         disagreements of any kind presently existing, or reasonably anticipated

         by the Company to arise, that have had or could reasonably be expected

         to result in a Material Adverse Effect, between the accountants and

         lawyers formerly or presently employed by the Company and the Company

         is current with respect to any fees owed to its accountants and

         lawyers.

 

(gg)      Title to Property and Assets. The Company has good title to all

         personal property owned by it that is material to the business of the

         Company, in each case free and clear of all liens, encumbrances and

         defects except such as are described in the Prospectus or such as would

         not have a Material Adverse Effect. Any real property and buildings

         held under lease by the Company described in the Prospectus are held by

         it under valid, subsisting and enforceable leases with such exceptions

         as would not have a Material Adverse Effect, in each case except as

         described in or contemplated by the Prospectus.

 

(hh)      Insurance. The Company is insured by insurers of recognized financial

         responsibility against such losses and risks and in such amounts as the

         Company believes are reasonable with respect to the business in which

         it is engaged, all of which insurance is in full force an effect.

 

                                       7

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(ii)      Brok