TABLE OF CONTENTS

		Page
ARTICLE 1 PURCHASE AND SALE		1
Section 1.1	Purchase and Sale	1
Section 1.2	Combined Assets	1
Section 1.3	Excluded Assets	3
Section 1.4	Certain Definitions	3
Section 1.5	Effective Time; Proration of Costs and Revenues	8
Section 1.6	Back-In Interests	9
Section 1.7	Pre-Effective Time Interests and Assets	9
Section 1.8	Intentions of the Parties	10
ARTICLE 2 PURCHASE PRICE		10
Section 2.1	Purchase Price	10
Section 2.2	Adjustments to Purchase Price	11
Section 2.3	Effect of Purchase Price Adjustments	12
Section 2.4	Allocation of Purchase Price	12
ARTICLE 3 TITLE MATTERS		12
Section 3.1	Title	12
Section 3.2	Definition of Defensible Title	13
Section 3.3	Definition of Permitted Encumbrances	14
Section 3.4	Notice of Asserted Title Defects; Defect Adjustments	15
Section 3.5	Consents to Assignment and Preferential Rights to Purchase	19
Section 3.6	Casualty or Condemnation Loss	20
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER		20
Section 4.1	Disclaimers	20
Section 4.2	Seller	22
Section 4.3	Liability for Brokers’ Fees	23
Section 4.4	Consents, Approvals or Waivers	23
Section 4.5	Litigation	23
Section 4.6	Taxes	23
Section 4.7	Environmental Laws	24
Section 4.8	Compliance with Laws	24
Section 4.9	Contracts	24
Section 4.10	Payments for Production	24
Section 4.11	Production Imbalances	24
Section 4.12	Permits, etc.	24
Section 4.13	Outstanding Capital Commitments	25
Section 4.14	Plugging and Abandonment	25
Section 4.15	Condition of Equipment, etc.	25
Section 4.16	Payments of Royalties and Expenses	25

 

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Section 4.17	Suspense	26
Section 4.18	Absence of Certain Events	26
Section 4.19	Information	26
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER		26
Section 5.1	Existence and Qualification	26
Section 5.2	Power	26
Section 5.3	Authorization and Enforceability	26
Section 5.4	No Conflicts	26
Section 5.5	Liability for Brokers’ Fees	27
Section 5.6	Consents, Approvals or Waivers	27
Section 5.7	Litigation	27
Section 5.8	Financing	27
Section 5.9	Qualification	27
Section 5.10	No Top Leases	27
Section 5.11	Independent Investigation	27
Section 5.12	Seller Information	28
ARTICLE 6 COVENANTS OF THE PARTIES		28
Section 6.1	Access	28
Section 6.2	Indemnity Regarding Access	28
Section 6.3	Pre-Closing Notifications	28
Section 6.4	Confidentiality; Public Announcements	29
Section 6.5	Governmental Reviews	30
Section 6.6	Tax Matters	30
Section 6.7	Further Assurances	32
Section 6.8	Assumption of Obligations	32
Section 6.9	Like-Kind Exchange	32
Section 6.10	Operation of Assets	32
Section 6.11	Financial Information	33
Section 6.12	No Merger of Interests	33
Section 6.13	Waiver of Condition for Pittston Litigation	34
ARTICLE 7 CONDITIONS TO CLOSING		35
Section 7.1	Conditions of Seller to Closing	35
Section 7.2	Conditions of Purchaser to Closing	36
ARTICLE 8 CLOSING		37
Section 8.1	Time and Place of Closing	37
Section 8.2	Closing Deliveries of Seller	37
Section 8.3	Closing Deliveries of Purchaser	38
Section 8.4	Closing Payment and Post-Closing Purchase Price Adjustments	39
ARTICLE 9 TERMINATION AND AMENDMENT		40
Section 9.1	Termination	40
Section 9.2	Effect of Termination	41

 

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ARTICLE 10 INDEMNIFICATIONS; LIMITATIONS		41
Section 10.1	Indemnification	41
Section 10.2	Indemnification Actions	43
Section 10.3	Limitation on Actions	45
ARTICLE 11 MISCELLANEOUS		46
Section 11.1	Receipts	46
Section 11.2	Property Costs and Gathering Charges	47
Section 11.3	Counterparts	47
Section 11.4	Notices	47
Section 11.5	[Intentionally Omitted]	48
Section 11.6	Expenses	48
Section 11.7	[Intentionally Omitted]	48
Section 11.8	Governing Law; Jurisdiction; Court Proceedings	48
Section 11.9	Records	48
Section 11.10	Captions	48
Section 11.11	Waivers	48
Section 11.12	Assignment	49
Section 11.13	Entire Agreement	49
Section 11.14	Amendment	49
Section 11.15	No Third Person Beneficiaries	49
Section 11.16	References	49
Section 11.17	Construction	50
Section 11.18	Limitation on Damages	50
Section 11.19	Attorney’s Fees	50
Section 11.20	EPC Lease	50

 

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EXHIBITS:

Exhibit A-1	Leases
Exhibit A-2	Wells
Exhibit A-3	Contracts
Exhibit A-4	Water Disposal Wells; Other Excluded Assets
Exhibit A-5	Delinquent Liens for Current Taxes or Assessments
Exhibit A-6	Delinquent Liens Arising in the Ordinary Course of Business
Exhibit A-7	Calls on Production Under Existing Contracts
Exhibit B	Form of Conveyance
Exhibit C	Form of New Lease
Exhibit D	Form of Operating Agreement
Exhibit E	Form of Settlement Agreement
Exhibit F	Form of Termination Agreement
Exhibit G	Permitted Encumbrances
Exhibit H	Seller Guaranty
Exhibit I	Purchaser Guaranty
Exhibit J	Form of EPC Lease

 

SCHEDULES:

 

Schedule 2.4	Allocated Values
Schedule 4.2(d)	Conflicts (Seller)
Schedule 4.4	Consents, Approvals or Waivers (Seller)
Schedule 4.5A	Litigation
Schedule 4.5B	Litigation
Schedule 4.6	Taxes and Assessments
Schedule 4.8	Compliance with Laws
Schedule 4.9	Contracts
Schedule 4.10	Payments for Production
Schedule 4.11	Production Imbalances
Schedule 4.12	Governmental Permits
Schedule 4.13	Outstanding Capital Commitments
Schedule 4.14	Plugged or Abandoned Wells
Schedule 4.15	Condition of Equipment, etc.
Schedule 4.17	Suspense Funds
Schedule 4.18	Casualty Events
Schedule 6.10	Operation of Assets and Expenses Associated Therewith

 

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Index of Defined Terms

Defined Term		Section
Adjusted Purchase Price		Section 2.2
Affiliate		Section 1.4(a)
Agreed Interest Rate		Section 1.4(b)
Agreement		Preamble
Allocated Value		Section 2.4
AMI		Section 1.4(c)
Asserted Title Defect		Section 3.2
Asserted Title Defect Amount		Section 3.4(c)
Assets		Section 1.7
Business Day		Section 1.4(d)
Chosen Court		Section 11.8
Claim		Section 10.2(b)
Claim Notice		Section 10.2(b)
Closing		Section 8.1
Closing Date		Section 8.1
Closing Payment		Section 8.4(a)
Code		Section 2.4
Combined Assets		Section 1.2
Company		Section 1.4(e)
Consents		Section 4.4
Contracts		Section 1.2(b)(ii)
Contribution Agreement		Section 7.1(c)
Conveyance		Section 8.2(a)
Conveyed Lease Interests		Section 1.2(a)
Damages		Section 10.1(d)
Defensible Title		Section 3.2
Earned		Section 1.5(b)
Effective Time		Section 2.2(a)
Encumbrance		Section 3.2
Environmental Laws		Section 4.7
EPC Lease		Section 1.4(f)
Equipment		Section 1.2(b)(iv)
Event		Section 4.1(d)
Exchange Act		Section 1.4(f)
Excluded Assets		Section 1.3
Execution Date		Preamble
Existing JOA		Section 1.4(h)
Exploration Agreement		Section 1.4(i)
Exploration Agreement PMOG Area		Section 1.4(j)
Future Well		Section 1.4(k)
Gas Retention Percentage		Section 1.4(l)
Gathering Agreement		Section 1.4(m)

 

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Gathering Assets		Section 1.4(n)
Gathering Charges		Section 1.4(o)
Governmental Authority		Section 1.4(p)
Governmental Permits		Section 4.12
Hydrocarbons		Section 1.4(q)
Incurred		Section 1.5(b)
Indemnified Person		Section 10.2(a)
Indemnifying Person		Section 10.2(a)
LACT		Section 1.4(r)
Laws		Section 1.4(s)
Leases		Section 1.2(a)
Letter of Intent		Section 11.13
Like-Kind Exchange		Section 6.9
Material Adverse Effect		Section 4.1(d)
New Lease		Section 1.7
Non-PM Assets		Section 1.4(t)
Operating Agreement		Section 8.2(e)
Original Lease		Section 1.4(u)
Party; Parties		Preamble
Party Lawsuit		Section 7.1(e)
Permitted Encumbrances		Section 3.3
Person		Section 1.4(v)
Pittston		Section 6.13(a)
Pittston Claims		Section 6.13(a)
Pittston Litigation		Section 7.1(e)(ii)
PM Assets		Section 1.4(w)
PM Undeveloped Lease Interests		Section 1.4(x)
PM Wells		Section 1.4(y)
Pre-Closing Taxable Period		Section 6.6(c)
Pre-Effective Time Interests		Section 1.7
Preferential Rights		Section 4.4
Production Taxes		Section 1.4(z)
Properties		Section 1.2(b)(i)
Property Costs		Section 1.5(c)
Proration Unit		Section 1.4(aa)
Purchaser Indemnified Persons		Section 10.1
Purchase Price		Section 2.1
Purchaser		Preamble
Purchaser Successors		Section 1.2(a)
Records		Section 1.4(bb)
Review Well		Section 1.4(cc)
Scheduled Transfer Requirements		Section 4.4(a)
SEC		Section 1.4(dd)
Securities Act		Section 1.4(ee)
Seller		Preamble
Seller Indemnified Persons		Section 10.1

 

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Seller’s knowledge		Section 4.1(c)
Statements of Revenues and Expenses		Section 6.11
Straddle Taxable Period		Section 6.6(c)
Tax		Section 1.4(ff)
Tax Return		Section 1.4(gg)
Termination Agreement		Section 8.2(g)
Termination Date		Section 9.1
Title Arbitrator		Section 3.4(f)
Title Claim Date		Section 3.4(a)
Title Defect		Section 3.2
Transaction Documents		Section 11.13
Transfer Taxes		Section 1.4(hh)
Undeveloped Lease Interests		Section 1.4(ii)
Well Location		Section 1.4(jj)
Wells		Section 1.2(a)

 

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PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”), dated as of April 13, 2007, (the “Execution Date”) is by and between Equitable Production Company, a corporation organized under the Laws of the Commonwealth of Pennsylvania (“Seller”), and Pine Mountain Oil and Gas, Inc., a corporation organized under the Laws of the Commonwealth of Virginia (“Purchaser”).  Seller and Purchaser are sometimes referred to herein, collectively, as the “Parties” and, individually, as a “Party.”

RECITALS:

WHEREAS, Seller is the owner of certain interests in oil and gas properties that are defined and described herein; and

WHEREAS, Seller desires to sell and Purchaser desires to purchase a portion of Seller’s right, title and interest in and to such properties on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

ARTICLE 1
PURCHASE AND SALE

Section 1.1            Purchase and Sale .  On the terms and conditions contained in this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase and accept from Seller the Assets.  Seller further agrees to transfer to Purchaser and Purchaser agrees to accept from Seller the Pre-Effective Time Interests as contemplated by Section 1.7 hereof.

Section 1.2            Combined Assets .  “Combined Assets” means the following:

(a)   an undivided one-half (½) of all of Seller’s interest in and to those leases identified on Exhibit A-1 attached hereto (including without limitation, in accordance with Section 11.20, Seller’s interest as lessee under the EPC Lease, but for the avoidance of doubt, excluding its interest as lessor thereunder) (such undivided one-half (½) interest in such leases, the “Leases”), provided that, with respect to each of the wellbores of the wells identified on Exhibit A-2 attached hereto (collectively, the “Wells”) and the Proration Unit currently existing or to be formed therefor, such interest shall be reduced or increased to the extent necessary to cause:  (i) effective as of the Effective Time:  (A) Purchaser and all Persons holding any working interest in such Well and the Proration Unit currently existing or that was formed previously held by Purchaser or any of its Affiliates (all such Persons, “Purchaser Successors”), to collectively hold, the interest in the wellbore of such Well specified under the column titled “Purchaser Effective Time Interest” on Exhibit A-2 and the same interest in the Proration Unit currently existing or

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to be formed for such Well; and (B) Seller to hold the interest in the wellbore of such Well specified under the column titled “Seller Effective Time Interest” on Exhibit A-2 and the same interest in the Proration Unit currently existing or to be formed for such Well; and (ii) effective as of the Closing:  (A) Purchaser and all Purchaser Successors to collectively hold the interest in the wellbore of such Well specified under the column titled “Purchaser Closing Interest” on Exhibit A-2 and the same interest in the Proration Unit currently existing or to be formed for such Well; and (B) Seller to hold the interest in the wellbore of such Well specified under the column titled “Seller Closing Interest” on Exhibit A-2 and the same interest in the Proration Unit currently existing or to be formed for such Well (the interests to be transferred to Purchaser described in this Section 1.2(a), the “Conveyed Lease Interests”);

(b)   that portion of Seller’s right, title and interest corresponding to the Conveyed Lease Interests in and to the following:

(i)            all pooled, communitized or unitized acreage, including acreage in units formed or prescribed by regulatory order, associated with the Leases or Wells (that portion of Seller’s right, title and interest in such acreage corresponding to the Conveyed Lease Interests, together with the Conveyed Lease Interests, the “Properties”), and all tenements, hereditaments and appurtenances associated therewith;

(ii)           all contracts listed on Exhibit A-3 (that portion of Seller’s right, title and interest in such contracts corresponding to the Properties, the “Contracts”);

(iii)          all easements, licenses, servitudes, rights-of-way, surface leases and other surface rights appurtenant to, and used or held for use primarily in connection with, the Properties or other Combined Assets, but excluding any of the foregoing to the extent that (1) transfer is restricted by third-party agreement or applicable Law, (2) Seller is unable to obtain, using commercially reasonable efforts, a waiver of, or otherwise satisfy, such transfer restriction (provided that Seller shall not be required to provide consideration or undertake obligations to or for the benefit of the holders of such rights in order to obtain any necessary consent or waiver), and (3) the failure to obtain such waiver or satisfy such transfer restriction would cause a termination of such instrument or a material impairment of the rights thereunder; and

(iv)          all equipment, machinery, fixtures, well lines, pipelines and other tangible personal property and improvements located on the Properties or used or held for use primarily in connection with the ownership or operation of the Properties or other Combined Assets, but excluding any such items at and downstream of any wellsite metering equipment associated with any Well (including such wellsite metering equipment and any gathering lines, pipelines, well lines and compressors downstream of such wellsite metering equipment), and any such items included in the Excluded Assets (that portion of Seller’s right,

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title and interest in such equipment, machinery, fixtures and other tangible personal property and improvements corresponding to the Properties, and subject to such exclusions, the “Equipment”).

Section 1.3            Excluded Assets .  Notwithstanding anything to the contrary contained herein, the Combined Assets shall not include, and the following are excepted, reserved and excluded from the transactions contemplated hereby (collectively, the “Excluded Assets”):

(a)   all water disposal wells, and any transfer facility, loadout facility or other facility associated with such water disposal wells, located on the Leases or used in connection with the disposal of produced water derived from or otherwise attributable to any of the Wells, including those water disposal wells and associated facilities described on Exhibit A-4;

(b)   (i) computers and peripheral equipment related to such computers; (ii) communication and telecommunication equipment including but not limited to radios, towers, and networking equipment; (iii) custom applications and databases; (iv) measurement and data collection devices; and (v) software and associated licenses, including but not limited to any software relating to the SCADA System, Enertia, Altra, Flow-Cal, Talon, Aries, Production Access, Pre-drill Manager, Geographix, Synergy, and CygNet;

(c)   all rights and all obligations of Seller with respect to any refund or payment of Taxes or other costs or expenses borne by Seller or Seller’s predecessors in interest and title attributable to the Assets and the period prior to the Effective Time;

(d)   all rights and all obligations of Seller with respect to the claims and causes of action relating to the Assets that accrued or arose prior to the Effective Time (other than claims or causes of action for proceeds to which Purchaser is entitled under Section 1.5(b));

(e)   Seller’s area-wide bonds, permits and licenses (including all Federal Communications Commission licenses) or other permits, licenses or authorizations used in the conduct of Seller’s business generally;

(f)    the Gathering Assets;

(g)   all fee mineral interests in Hydrocarbons; and

(h)   those other assets and interests identified on Exhibit A-4.

Section 1.4            Certain Definitions .  As used herein:

(a)   “Affiliate” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context meaning (i) the power to direct the vote of more than fifty percent (50%) of the voting shares or other securities of such Person through ownership, pursuant

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to a written agreement, or otherwise or (ii) the power to direct the management and policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.  For the purposes of this Agreement, the Company shall not be considered an Affiliate of either Party or such Party’s Affiliates.

(b)   “Agreed Interest Rate” means the lesser of (i) five percent (5%) per annum and (ii) the maximum rate allowed by applicable Laws.

(c)   “AMI” has the meaning set forth in the Operating Agreement.

(d)   “Business Day” means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in Pittsburgh, Pennsylvania or Fort Worth, Texas.

(e)   “Company” means Nora Gathering, LLC, a limited liability company organized under the Laws of the State of Delaware.

(f)    “EPC Lease” means a Hydrocarbons lease in substantially the form attached hereto as Exhibit “J”.

(g)   “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(h)   “Existing JOA” means the Coalbed Methane Gas Operating Agreement dated as of August 1, 1994 and the Conventional Gas (Non-Coalbed Gas) Operating Agreement dated as of August 1, 1994.

(i)    “Exploration Agreement” means the Coalbed Gas Exploration and Development Agreement dated as of April 5, 1988, together with and as amended, supplemented and modified from time to time by various amendments and supplemental agreements thereto, including (i) the Amendment to Coalbed Gas Exploration and Development Agreement dated as of December 12, 1990, (ii) the Second Amendment to Coalbed Gas Exploration and Development Agreement dated as of August 26, 1994, (iii) the Third Amendment to Coalbed Gas Exploration and Development Agreement dated as of June 10, 1996, (iv) the Fourth Amendment to Coalbed Gas Exploration and Development Agreement dated as of July 10, 1997, and (v) the Fifth Amendment to Coalbed Gas Exploration and Development Agreement dated as of December 31, 1998.

(j)    “Exploration Agreement PMOG Area” means the areas covered by the Exploration Agreement under which PMOG or any of its Affiliates holds, or leases from third Persons not affiliated with Seller, the mineral interest.

(k)   “Future Well” shall mean a well to be drilled in the future upon a Well Location, which (for the purposes of determining Defensible Title thereto and any Title Defects associated therewith pursuant to this Agreement) shall be treated as if such well had been drilled and completed and was in existence as of the date of this Agreement.

(l)    “Gas Retention Percentage” has the meaning set forth in the Gathering Agreement.

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(m)  “Gathering Agreement” has the meaning set forth in the Contribution Agreement.

(n)   “Gathering Assets” has the meaning set forth in that certain Contribution Agreement of even date herewith between Seller, Equitable Gathering Equity, LLC, Purchaser and the Company.

(o)   “Gathering Charges” means the Gathering Rate (as defined in the Gathering Agreement) and all other charges set forth in the Gathering Agreement, except the Gas Retention Percentage, chargeable in connection with Hydrocarbons produced from the Assets for the gathering services provided by Seller or its Affiliates through the Gathering Assets, which charges shall be determined as if the Gathering Agreement was in place effective as of the Effective Time.

(p)   “Governmental Authority” means any government and/or any political subdivision thereof, including departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities.

(q)   “Hydrocarbons” means all oil, gas, coalbed methane gas and other associated hydrocarbons.

(r)    “LACT” means Lease Automatic Custody Transfer.

(s)   “Laws” means all laws, statutes, rules, regulations, ordinances, orders, requirements and codes of Governmental Authorities.

(t)    “Non-PM Assets” means all Assets other than the PM Assets.

(u)   “Original Lease” means that certain Agreement, dated as of July 25, 1972, between The Pittston Company (the predecessor in interest to Purchaser), as lessor, and Philadelphia Oil Company (the predecessor in interest to Seller), as lessee (together with and as amended, supplemented and modified from time to time by various amendments and supplemental agreements thereto, including (i) the Supplemental Agreement, dated as of January 19, 1976, between The Pittston Company and Philadelphia Oil Company, (ii) the Supplemental Agreement II, dated as of August 24, 1978, between The Pittston Company and Philadelphia Oil Company, (iii) the Supplemental Agreement III, dated as of January 1, 1986, between The Pittston Company and Philadelphia Oil Company, (iv) the First Amendment to Supplemental Agreement III, dated as of August 26, 1994, and effective August 1, 1994 between Purchaser and Equitable Resources Exploration, Inc., (v) the Supplemental Agreement IV, dated as of February 3, 1997, between Purchaser and Equitable Resources Energy Company – Eastern Region, (vi) the Additional Acreage Agreement, dated as of January 1, 1986, between The Pittston Company and Equitable Resources Energy Company, (vii) the Amendment to the Additional Acreage Agreement, dated as of January 1, 1987, between Purchaser and Equitable Resources Energy Company, (viii) the Second Amendment to the Additional Acreage Agreement, dated as of April 11, 1988, and effective January 1, 1988 between Purchaser and Equitable Resources Exploration, Inc., (ix) the Third Amendment to the Additional Acreage

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Agreement, dated as of February 26, 1993, and effective January 1, 1993 between Purchaser and Equitable Resources Exploration, Inc., (x) the Fourth Amendment to the Additional Acreage Agreement, dated as of August 26, 1994, between Purchaser and Equitable Resources Exploration, Inc., (xi) the Fifth Amendment to the Additional Acreage Agreement, dated as of March 21, 1995, and effective January 1, 1995 between Purchaser and Equitable Resources Exploration, Inc., (xii) the Sixth Amendment to the Additional Acreage Agreement, dated as of June 10, 1996, and effective December 31, 1995 between Purchaser and Equitable Resources Exploration, Inc., (xiii) the Seventh Amendment to the Additional Acreage Agreement, effective as of December 31, 1996, between Purchaser and Equitable Resources Energy Company, (xiv) the Eighth Amendment to the Additional Acreage Agreement, dated as of December 29, 1997, and effective December 31, 1997 between Purchaser and Equitable Resources Energy Company, (xv) the Ninth Amendment to the Additional Acreage Agreement, dated as of November 25, 1999, and effective December 31, 1999 between Purchaser and Seller,  and (xvi) the Tenth Amendment to the Additional Acreage Agreement, dated as of May 3, 2005, and effective as of January 1, 2000, between Purchaser and Seller.

(v)   “Person” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.

(w)  “PM Assets” means all PM Undeveloped Lease Interests and all PM Wells.

(x)    “PM Undeveloped Lease Interests” means all Undeveloped Lease Interests in which Purchaser or its Affiliates possessed or has the right to possess any part of the working interest or lessor interest as of the Execution Date.  For avoidance of doubt, Undeveloped Lease Interests under the Original Lease and any portion of the Exploration Agreement PMOG Area that constitutes an Undeveloped Lease Interest shall be deemed to be PM Undeveloped Lease Interests for all purposes of this Agreement.

(y)   “PM Wells” means all Wells in which Purchaser or its Affiliates possessed or has the right to possess any part of the working interest or lessor interest as of the Execution Date.  For the avoidance of doubt, the Wells listed under “PM Wells” on Exhibit A-2 shall be deemed PM Wells for all purposes of this Agreement.

(z)    “Production Taxes” means ad valorem, property, severance, production and similar Taxes based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but excluding any other Taxes

(aa)         “Proration Unit” means, for any Well (i) the acreage unit size as shown in the pooling or unit designation for such Well filed in the real property records in the county in which such Well is located, or if no such designation is filed, as permitted with the state regulatory agency (or as shown on the issued well permit) for such Well; provided that if no such acreage size is provided pursuant to any of the foregoing, then “Proration Unit” means, for any Well, the minimum acreage unit size permitted by applicable Law for such Well and (ii) the producing interval or targeted producing interval for such Well.

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(bb)         “Records” means all lease files, land files, well files, gas and oil sales contract files, gas processing files, division order files, abstracts, title opinions, land surveys, geologic and geophysical data (excluding interpretations thereof) and files and all other books, records, data, files, maps and accounting records to the extent relating primarily to the Properties or other Combined Assets, excluding however, (A) any record to the extent that:  (1) disclosure of such record is restricted by third-party agreement or applicable Law, (2) Seller is unable to obtain, using commercially reasonable efforts, a waiver of, or otherwise satisfy, such disclosure restriction (provided that Seller shall not be required to provide consideration or undertake obligations to or for the benefit of the holders of such rights in order to obtain any necessary consent or waiver) and (3) the failure to obtain such waiver or satisfy such disclosure restriction would cause a termination of such instrument or a material impairment of the rights thereunder; (B) computer software; (C) all legal records and legal files of Seller (other than (x) title opinions and (y) Contracts) and all other work product of and attorney-client communications with any of Seller’s legal counsel; (D) records relating to the sale of the Assets, including bids received from and records of negotiations with third Persons; (E) any other records to the extent constituting Excluded Assets; and (F) contracts and agreements of no further force and effect as of the Effective Time.

(cc)         “Review Well” shall mean a Well or a Future Well, as the context requires.

(dd)         “SEC” means the U.S. Securities and Exchange Commission.

(ee)         “Securities Act” means the Securities Act of 1933, as amended, and any successor statute thereto and the rules and regulations of the SEC promulgated thereunder.

(ff)           “Tax” means all taxes, including income tax, surtax, remittance tax, presumptive tax, net worth tax, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other assessments, duties, fees, or levies imposed by a Governmental Authority, together with any interest, fine or penalty thereon, or addition thereto.

(gg)         “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, required to be filed with any Governmental Authority.

(hh)         “Transfer Taxes” means all transfer, sales, use, documentary, stamp duty, conveyance and other similar Taxes, duties, fees or charges.

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(ii)           “Undeveloped Lease Interests” means any Lease, acreage, area (including the Exploration Agreement PMOG Area) or portion thereof included in the Properties that is not included in a Proration Unit corresponding to a Well.

(jj)           “Well Location” shall mean each lease/tract location identified on Exhibit A-2.

Section 1.5          Effective Time; Proration of Costs and Revenues .

(a)   Title and interest in and to the Combined Assets shall be transferred from Seller to Purchaser at the Closing, but certain financial benefits and burdens in respect of the Assets shall be transferred effective as of the Effective Time, as described below.  Notwithstanding anything to the contrary herein, financial benefits and burdens in respect of the Pre-Effective Time Interests prior to the Effective Time shall not be modified or changed from the manner in which such benefits and burdens were treated in the period prior to the Effective Time by the provisions of this Section 1.5.

(b)   Purchaser shall be entitled to all production of Hydrocarbons from or attributable to the Assets on and after the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets on and after the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred on and after the Effective Time (provided that Purchaser’s entitlement to production, income, proceeds, receipts, and credits earned with respect to, and responsibility for and entitlement to refunds with respect to Property Costs relating to, certain of the Assets shall be adjusted as of Closing in the manner described in Section 2.2).  Seller shall be entitled to all production of Hydrocarbons from or attributable to the Assets prior to the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Time (provided that Seller’s entitlement to production, income, proceeds, receipts, and credits earned with respect to, and responsibility for and entitlement to refunds with respect to Property Costs relating to, certain of the Assets shall be adjusted as of Closing in the manner described in Section 2.2).  “Earned” and “incurred”, as used in this Agreement, shall be interpreted in accordance with United States generally accepted accounting principles (as published by the Financial Accounting Standards Board) and Council of Petroleum Accountants Societies (COPAS) standards.

(c)   “Property Costs” means all operating expenses (including costs of insurance and Production Taxes), capital expenditures incurred in the ownership and operation of the Assets in the ordinary course of business, and overhead costs charged to the Assets under the applicable operating agreement or if none, charged to the Assets on the same basis as Seller has historically charged under the Existing JOA.  “Property Costs” as used herein shall not include the Gathering Charges.

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(d)   For purposes of allocating production (and accounts receivable with respect thereto), under this Section 1.5, (i) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Assets when they pass through the pipeline flange connecting into the storage facilities located on the Leases or, if there are no such storage facilities, when they pass through the LACT meters or similar meters at the point of entry into the pipelines through which they are transported from the Leases, and (ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Assets when they pass through the delivery point sales meters or similar meters at the point of entry into the pipelines through which they are transported from the Leases.  Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings are not available.  Production Taxes, surface use fees, insurance premiums and other Property Costs that are paid periodically shall be prorated based on the number of days in the applicable period falling before, or at and after, the Effective Time, except that Production Taxes measured by units of production shall be prorated based on the amount of Hydrocarbons actually produced, purchased or sold, as applicable, before, or at and after, the Effective Time.  In each case, Purchaser shall be responsible for the portion allocated to the period on and after the Effective Time and Seller shall be responsible for the portion allocated to the period before the Effective Time.

Section 1.6            Back-In Interests .  Purchaser acknowledges and agrees that any and all existing back-in rights of the Purchaser or its Affiliates to an additional or increased working interest in the Wells listed in Exhibit A-2 to which Purchaser was entitled pursuant to the Existing JOA shall be extinguished in full, and any liabilities or rights associated with such back-in rights shall cease to exist and shall no longer be enforceable.

Section 1.7            Pre-Effective Time Interests and Assets .  Immediately prior to the Closing, Purchaser and Seller are the owners of certain working interests relating to lands subject to the Original Lease and the Exploration Agreement.  As part of this Agreement and the transactions contemplated hereby (as well as other transactions between the Parties and their Affiliates), the Parties desire to enter into a new lease agreement in substantially the form attached hereto as Exhibit C (the “New Lease”), effective as of the Closing Date, with Purchaser as the lessor and Seller as the lessee, and to terminate the Original Lease, the Exploration Agreement and certain related agreements, effective as of the Closing Date.  In addition to the working interests in the Leases and Review Wells and the related assets that Purchaser is purchasing from Seller under this Agreement (as such working interests are more particularly described in the column titled “Conveyed Working Interest” on Exhibit A-2 and the corresponding undivided interests in the Combined Assets associated therewith, the “Assets”). For purposes of clarification, the Parties acknowledge that each Party may currently own some of the interests that will be conveyed or cross conveyed under the Conveyance and that the Conveyance is intended to stipulate and clarify as of the Closing the interests that each of the Parties will own as of the Closing.  In order to reflect Purchaser’s pre-Effective Time working interests in the Wells drilled under the Original Lease and/or the Exploration Agreement, Seller, as the lessee under the New Lease, will enter into such conveyances (including the Conveyance) with Purchaser to confirm the pre-Effective Time working interests of Purchaser in such Wells and related assets that will be subject to the New Lease (as such pre-Effective Time working interests are more particularly described in the column titled “Purchaser Pre-Effective Time

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Working Interest” on Exhibit A-2 and the corresponding undivided interests included in the Combined Assets associated therewith, the “Pre-Effective Time Interests”).  The Parties acknowledge that the Assets and the Pre-Effective Time Interests together constitute the Combined Assets and the term “Assets” as defined in this Agreement shall be the Combined Assets excluding the Pre-Effective Time Interests, and upon Closing, Purchaser and all Purchaser Successors shall collectively hold the interest in each Review Well identified on Exhibit A-2 as the “Purchaser Closing Interest” for such Review Well and the same interest in the Proration Unit for such Review Well, and Seller shall hold the interest in each Review Well identified on Exhibit A-2 as the “Seller Closing Interest” for such Review Well and the same interest in the Proration Unit for such Review Well.  Further, the parties acknowledge that certain existing wells drilled by PMOG or its predecessors upon the lands covered by the Original Lease were excluded under the Original Lease and are being excluded under the New Lease (as more particularly described therein), and such excluded wells shall not be part of the Combined Assets, Assets or Pre-Effective Time Interests.

Section 1.8            Intentions of the Parties .  The Parties acknowledge that it is their intent that (a) Seller transfer to Purchaser and Purchaser accept as of the Effective Time an undivided one-half (1/2) of Seller’s interest existing as of the Closing Date in all leases (including without limitation Seller’s interest as lessee under the EPC Lease, but for the avoidance of doubt, excluding its interest as lessor thereunder) included in Buchanan, Russell and Dickenson Counties, Virginia (excluding any interests in the lands and properties excluded from the AMI) and (b) pursuant to the Conveyance, Purchaser shall cross convey to Seller such interest in such leases (but excluding its interest as lessor under the Original Lease or the New Lease), such that the respective interests of the Parties in such leases as lessees thereunder shall be equal as of the Effective Time, whether or not such leases are included in or accurately described on Exhibit A-1.  The Parties further acknowledge and agree that it is their intent that, notwithstanding anything herein to the contrary, to the extent that there are any Wells in which both Seller and Purchaser currently have a working interest that exist upon any Leases or within the AMI and that are not described on Exhibit A-2, the respective interests of the Parties in such Wells shall be the same interests as the Parties have in such Wells as of the date hereof; provided, however, if any such Well has been drilled by Seller upon the Leases or within the AMI on or after the Effective Time, then the Parties agree that their respective interests in such Wells and the Proration Units therefor as of the Effective Time shall be equal.

ARTICLE 2
PURCHASE PRICE

Section 2.1            Purchase Price .  The purchase price for the Assets (the “Purchase Price”) shall be Two Hundred and Sixty-Two Million Dollars (US$262,000,000), adjusted as provided in Section 2.2.

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Section 2.2            Adjustments to Purchase Price .  The Purchase Price shall be adjusted as follows:

(a)   Decreased by the aggregate amount of the following proceeds received by Seller attributable to the Assets on and after 12:01 a.m. local time where the Assets are located on June 1, 2006 (the “Effective Time”):

(i)            proceeds from the sale of Hydrocarbons produced from or attributable to the Assets (less any royalties, overriding royalties net profits interests and other similar burdens payable out of the production of Hydrocarbons from the Assets or the proceeds thereof which are not included in “Property Costs”); and

(ii)           any other proceeds received by Seller attributable to the Assets;

(b)   Decreased in accordance with Section 3.4;

(c)   Decreased in accordance with Section 3.5;

(d)   Increased by the amount of all Property Costs attributable to the Assets on and after the Effective Time which are incurred and paid by Seller excluding, however, any amounts deducted pursuant to Section 2.2(a)(i) above;

(e)   [Intentionally omitted].

(f)    Increased by the amount of the Gathering Charges attributable to the Assets on and after the Effective Time;

(g)   Decreased by Six Hundred Thousand Dollars (US$600,000) to represent an adjustment (i) to the gathering rate paid by Purchaser in connection with gathering services on the Gathering Assets provided by Seller and its Affiliates prior to the Effective Time, (ii) for certain pre-Effective Time capital expenditures and (iii) for the Parties’ agreement regarding resolution of the Pittston Litigation; and

(h)   Decreased by an amount equal to the difference between the (i) aggregate amount paid by Purchaser for gathering services on the Gathering Assets provided by Seller and its Affiliates for the period from (and including) the Effective Time until the Closing with respect to the Pre-Effective Time Interests, and (ii) the aggregate amount that would have been paid by Purchaser for gathering services on the Gathering Assets provided by Seller and its Affiliates for the period from (and including) the Effective Time until the Closing with respect to the Pre-Effective Time Interests if Purchaser would have been charged the Gathering Charges for such services.

The Purchase Price, adjusted as set forth in this Section 2.2, shall be the “Adjusted Purchase Price.”

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Section 2.3            Effect of Purchase Price Adjustments .  The adjustment described in Section 2.2(a) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s entitlement under Section 1.5 to Hydrocarbon production from or attributable to the Assets between the Effective Time and the Closing and to other income, proceeds, receipts and credits earned with respect to the Assets between the Effective Time and the Closing, and Purchaser shall not have any separate rights to receive any production or income, proceeds, receipts and credits with respect to which an adjustment has been made.  Similarly, the adjustment described in Section 2.2(d) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s obligation under Section 1.5 to pay Property Costs attributable to the ownership and operation of the Assets which are incurred between the Effective Time and the Closing, and Purchaser shall not be separately obligated to pay for any Property Costs with respect to which an adjustment has been made.

Section 2.4            Allocation of Purchase Price .  Schedule 2.4 sets forth the agreed allocation of the unadjusted Purchase Price among the Assets, which has been made in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury regulations thereunder.  The “Allocated Value” for any Asset shall equal the portion of the unadjusted Purchase Price allocated to such Asset on Schedule 2.4, increased or decreased as described in this Section 2.4.  Any adjustments to the Purchase Price other than the adjustments provided for in Section 2.2(b) and Section 2.2(c) shall be applied on a pro rata basis to the amounts set forth on Schedule 2.4 for all Assets.  After all such adjustments are made, any adjustments to the Purchase Price pursuant to Section 2.2(b) and Section 2.2(c) shall be applied to the amounts set forth in Schedule 2.4 for the particular affected Assets.  Seller and Purchaser have accepted such Allocated Values for purposes of this Agreement and the transactions contemplated hereby, however, neither Seller nor Purchaser make any representation or warranty as to the accuracy of such Allocated Values.  Seller and Purchaser agree (a) that the Allocated Values shall be used by Seller and Purchaser as the basis for reporting asset values and other items for purposes of all applicable Tax returns, and (b) that neither they nor their Affiliates will take positions inconsistent with the Allocated Values in notices to Governmental Authorities, in audit or other proceedings with respect to Taxes, in notices to preferential purchaser right holders, or in other documents or notices relating to the transactions contemplated by this Agreement.

ARTICLE 3
TITLE MATTERS

Section 3.1          Title .

(a)   The Conveyance shall contain a special warranty of title against every Person lawfully claiming or to claim the interest to be conveyed by Seller to Purchaser or any part thereof by, through and under Seller and its Affiliates, but not otherwise, subject to Permitted Encumbrances, but shall otherwise be without warranty of title, express, implied or statutory, except that the Conveyance shall transfer to Purchaser all rights or actions on title warranties given or made by Seller’s predecessors (other than Affiliates of Seller), to the extent Seller may legally transfer such rights.

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(b)   Notwithstanding anything to the contrary in Section 3.1(a) and the Conveyance, Section 3.4 shall provide Purchaser’s exclusive remedy in respect of Asserted Title Defects reported in accordance with this Article 3, and, Purchaser shall not be entitled to make any claims against Seller or any of its Affiliates under Seller’s special warranty of title in the Conveyance against any such Asserted Title Defect.  Except to the extent expressly provided herein (including Purchaser’s rights with respect to any breach of Seller’s covenant under Section 6.10(f) and Purchaser’s rights under this Article 3) and except under the special warranty of title set forth in the Conveyance, Purchaser shall not be entitled to make any claims against Seller or any of its Affiliates with respect to any Title Defects to the extent that such Title Defects pertain to the PM Assets (provided that if such Title Defects affect both the PM Assets and the other Assets, then Purchaser shall be entitled to any and all of its rights and remedies with respect to such Title Defects insofar and only insofar as such Title Defects affect such other Assets).

Section 3.2            Definition of Defensible Title .  As used in this Agreement, the term “Defensible Title” means that title of Seller with respect to the Assets which, subject to Permitted Encumbrances:

(a)   entitles Seller to receive throughout the duration of the productive life of any Review Well (after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons), not less than the “Conveyed Net Revenue Interest” share shown in Exhibit A-2 for such Review Well of all Hydrocarbons produced and sold from such Review Well, as applicable, except (solely to the extent that such actions do not cause a breach of Seller’s covenants under Section 6.10 hereof) decreases in connection with those operations in which, from or after the date of this Agreement, Seller may be a nonconsenting co-owner, decreases resulting from the establishment or amendment of pools or units from and after the date of this Agreement, and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past underdeliveries;

(b)   obligates Seller to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, a Review Well not greater than the “Conveyed Working Interest” shown in Exhibit A-2 for such Review Well without increase throughout the productive life of such Review Well, as applicable, except as stated in Exhibit A-2, respectively, and except increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller’s net revenue interest; and

(c)   is free and clear of all Encumbrances.

As used in this Agreement, the term “Encumbrance” means any lien, charge, encumbrance, irregularity or other defect (including a discrepancy or error in net revenue interest or working interest as set forth in Exhibit A-2 for a Review Well).  The term “Title Defect” means, with respect to any Asset that is a Non-PM Asset, any Encumbrance that would cause

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Seller not to have Defensible Title to such Non-PM Asset, and with respect to any Asset that is a PM Asset, the term “Title Defect” means any Encumbrance created by, through or under Seller or any of its Affiliates that would cause Seller not to have Defensible Title to such PM Asset.  The term “Asserted Title Defect” means a Title Defect reported by Purchaser pursuant to Section 3.4 hereof.

Section 3.3            Definition of Permitted Encumbrances .  As used herein, the term “Permitted Encumbrances” means any or all of the following:

(a)   lessors’ royalties and any overriding royalties, reversionary interests and other burdens on production of Hydrocarbons to the extent that they do not, individually or in the aggregate, reduce the “Conveyed Net Revenue Interest” below that shown in Exhibit A-2 with respect to any Review Well or increase the “Conveyed Working Interest” above that shown in Exhibit A-2 with respect to any Review Well without at least a proportionate increase in the net revenue interest for such Review Well;

(b)   all Contracts, to the extent that they do not, individually or in the aggregate, reduce the “Conveyed Net Revenue Interest” below that shown in Exhibit A-2 with respect to any Review Well or increase the “Conveyed Working Interest” above that shown in Exhibit A-2 with respect to any Review Well without at least a proportionate increase in the net revenue interest for such Review Well;

(c)   Preferential Rights;

(d)   third-party consent requirements and similar restrictions with respect to which waivers or consents are obtained by Seller from the appropriate parties prior to the Closing Date or the appropriate time period for asserting the right has expired or which are expressly not required to be satisfied prior to a transfer;

(e)   liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions and listed on Exhibit A-5;

(f)    materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by law), or if delinquent, being contested in good faith by appropriate actions and listed on Exhibit A-6;

(g)   all rights to consent, by required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of oil and gas leases, licenses, concessions, production sharing agreements or interests therein if they are customarily obtained subsequent to the sale or conveyance;

(h)   rights of reassignment arising upon final intention to abandon or release the Leases included in the Proration Unit for such Review Well;

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(i)    easements, rights-of-way, servitudes, permits and other rights in respect of surface and subsurface operations not involving the extraction of Hydrocarbons to the extent that they do not, individually or in the aggregate (i) reduce the “Conveyed Net Revenue Interest” below that shown in Exhibit A-2 with respect to any Review Well, (ii) increase the “Conveyed Working Interest” above that shown in Exhibit A-2 with respect to any Review Well without at least a proportionate increase in the “Conveyed Net Revenue Interest” for such Review Well, or (iii) materially detract from the value of, or materially interfere with the use, ownership or operation of, any Review Well subject thereto or affected thereby (as currently used, owned and operated) and which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties in the Appalachian Basin;

(j)    calls on production under existing Contracts that are listed on Exhibit A-7;

(k)   all rights reserved to or vested in any Governmental Authority to control or regulate any of the Wells or Undeveloped Lease Interests in any manner and all obligations and duties under all applicable Laws or under any franchise, grant, license or permit issued by any such Governmental Authority;

(l)    any Encumbrance which is discharged by Seller at or prior to Closing;

(m)  any rights related to coal, coal seams or coal mining, whether statutory or otherwise, other than rights to explore for, develop and produce coalbed methane and associated Hydrocarbons and rights attendant thereto;

(n)   any matters shown on Exhibit G; and

(o)   any other Encumbrances which do not, individually or in the aggregate, (i) reduce the “Conveyed Net Revenue Interest” below that shown in Exhibit A-2 with respect to any Review Well, (ii) increase the “Conveyed Working Interest” above that shown in Exhibit A-2 with respect to any Review Well without at least a proportionate increase in the net revenue interest for such Review Well, or (iii) materially detract from the value of or materially interfere with the use, ownership or operation of the Review Wells subject thereto or affected thereby (as currently used, owned or operated) and which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties in the Appalachian Basin.

Section 3.4          Notice of Asserted Title Defects; Defect Adjustments .

(a)   To assert a claim of a Title Defect prior to Closing, Purchaser must deliver a claim notice to Seller on or before 5:00 p.m. EDT on April 25, 2007 (the “Title Claim Date”), except as otherwise provided under Section 3.5 or Section 3.6; provided that Purchaser agrees to furnish Seller at the end of every week period following the execution of this Agreement and prior to the Title Claim Date with a claim notice if any officer of Purchaser or its Affiliates discovers or learns of any Title Defect during such  period.  Each such notice shall be in writing and shall include (i) a description of the Asserted Title Defect(s), (ii) the Wells and/or Undeveloped Lease Interests affected,

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(iii) the Allocated Values of the Wells and/or Undeveloped Lease Interests subject to such Asserted Title Defect(s), (iv) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of such Asserted Title Defect(s) and (v) the amount by which Purchaser reasonably believes the Allocated Values of those Wells and/or Undeveloped Lease Interests are reduced by such Asserted Title Defect(s) and the computations and information upon which Purchaser’s belief is based.  Subject to Purchaser’s rights under the special warranty of title described in Section 3.1(a) and its rights with respect to any breach of Seller’s covenant under Section 6.10(f), Purchaser shall be deemed to have waived all Title Defects of which Seller has not been given notice on or before the Title Claim Date.

(b)   In the event that Purchaser notifies Seller of a Title Defect before the Title Claim Date, Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove any Asserted Title Defects of which it has been notified by Purchaser.  If Seller so elects to cure or remove any Asserted Title Defect, Purchaser shall use commercially reasonable efforts to cooperate with Seller’s efforts to cure or remove such Asserted Title Defect.  If prior to Closing, Seller has been unable to cure or remove any Asserted Title Defect, then Seller and Purchaser mutually shall elect to have one of the following options apply:

(i)            Remove the interests in such Well or Undeveloped Lease Interest included in the Assets that is subject to such Asserted Title Defect and those other Assets primarily related to such interest in such Well or Undeveloped Lease Interest from the transaction contemplated by this Agreement.  Such removed Assets shall not be assigned at the Closing, shall become “Excluded Assets” for all purposes hereunder and the Purchase Price shall be reduced by an amount equal to the Allocated Value for such Assets, provided that if any Asserted Title Defect is cured at any time prior to one hundred eighty (180) days after Closing, within five (5) days of Seller’s notice to Purchaser of such event, the Parties shall conduct a subsequent Closing (in accordance with the same terms hereof) for the purchase and sale of the Excluded Asset that was subject to such cured Asserted Title Defect.

(ii)           Assign the Asset subject to the Asserted Title Defect to Purchaser at Closing, and defend, indemnify and hold the Purchaser Indemnified Persons and Purchaser Successors harmless from and against all Damages that arise out of or that any such Person may suffer as a result of such Asserted Title Defect pursuant to a form of indemnity agreement mutually agreeable to the Parties.

(iii)          Assign the Asset subject to the Asserted Title Defect to Purchaser at Closing, and reduce the Purchase Price in accordance with Section 3.4(c).

Provided that, if Seller and Purchaser are unable to mutually agree on one of the foregoing options, then the Parties shall be deemed to have chosen the option under subsection (i) above.

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(c)   The Purchase Price shall be reduced by an amount (the “Asserted Title Defect Amount”) equal to the reduction in the Allocated Value for the interest in such Well or Undeveloped Lease Interest included in the Assets that is subject to an uncured Asserted Title Defect, which reduction is caused by such uncured Asserted Title Defect as determined pursuant to Section 3.4(e); provided that no reduction shall be made in the Purchase Price with respect to any Asserted Title Defect for which an election has been made pursuant to Section 3.4(b)(ii).

(d)   Except for Purchaser’s rights under the special warranty of title described in Section 3.1(a) and its rights with respect to any breach of Seller’s covenant under Section 6.10(f), Section 3.4(c) shall, to the fullest extent permitted by applicable Laws, be the exclusive right and remedy of Purchaser against Seller or its Affiliates with respect to any Title Defect attributable to the Combined Assets.

(e)   The Asserted Title Defect Amount resulting from an Asserted Title Defect shall be determined as follows:

(i)            if Purchaser and Seller agree on the Asserted Title Defect Amount, that amount shall be the Asserted Title Defect Amount;

(ii)           if the Asserted Title Defect is an Encumbrance which is undisputed and liquidated in amount, then the Asserted Title Defect Amount shall be the amount necessary to be paid to remove the Asserted Title Defect from the affected Well or Undeveloped Lease Interest;

(iii)          if the Asserted Title Defect represents a discrepancy between (A) the actual net revenue interest included in the Assets for any Well or Undeveloped Lease Interest and (B) the “Conveyed Net Revenue Interest” stated on Exhibit A-2 for such Review Well, then the Asserted Title Defect Amount shall be the product of the Allocated Value for the interest in the affected Well or Undeveloped Lease Interest included in the Assets multiplied by a fraction, the numerator of which is the net revenue interest decrease and the denominator of which is the net revenue interest stated on Exhibit A-2 for such interest; provided that if the Asserted Title Defect does not affect a Review Well throughout the life of such Review Well, the Asserted Title Defect Amount determined under this Section 3.4(e)(iii) shall be reduced accordingly;

(iv)          if the Asserted Title Defect represents an Encumbrance of a type not described in subsections (i), (ii) or (iii) above, the Asserted Title Defect Amount shall be determined by taking into account the Allocated Value of the interest in the Review Well included in the Assets so affected, the portion of such interest in the Review Well affected by the Asserted Title Defect, the legal effect of the Asserted Title Defect, the potential economic effect of the Asserted Title Defect over the life of the affected Review Well, the values placed upon the Asserted Title Defect by Purchaser and Seller and such other factors as are necessary to make a proper evaluation; and

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(v)           notwithstanding anything to the contrary in this Article 3, (A) except for adjustments required by Section 3.6, the aggregate Asserted Title Defect Amounts attributable to all Asserted Title Defects upon any given interest in a Review Well included in the Assets shall not exceed the Allocated Value of such interest in the Review Well and (B) except for adjustments required by Section 3.5 or Section 3.6, there shall be no Purchase Price adjustment for Asserted Title Defects unless and until the aggregate Asserted Title Defect Amounts for all interests in the Review Wells included in the Assets for which claim notices were timely delivered pursuant to Section 3.4(a) exceed Two Million Six Hundred Twenty Thousand Dollars (US$2,620,000.00), and then only to the extent that the aggregate Asserted Title Defect Amounts exceed Two Million Six Hundred Twenty Thousand Dollars (US$2,620,000.00);

(vi)          if an Asserted Title Defect of the type not described in subsections (i), (ii) or (iii) above is reasonably susceptible of being cured, the Asserted Title Defect Amount determined under subsection (iv) above shall not be greater than the lesser of (1) the reasonable cost and expense of curing such Asserted Title Defect or (2) the share of such curative work cost and expense which is allocated to such interest in such Review Well included in the Assets pursuant to subsection (vii) below; and

(vii)         the Asserted Title Defect Amount with respect to a Review Well shall be determined without duplication of any costs or losses (i) included in another Asserted Title Defect Amount hereunder, or (ii) included in a casualty loss under Section 3.6.  To the extent that the cost to cure any Asserted Title Defect will result in the curing of all or a part of one or more other Asserted Title Defects, such cost of cure shall be allocated for purposes of Section 3.4(e)(vi) among the interests in the Review Wells so affected on a fair and reasonable basis.

(f)    Seller and Purchaser shall attempt to agree on all Asserted Title Defects and Asserted Title Defect Amounts by two (2) Business Days prior to the Closing Date.  If Seller and Purchaser are unable to agree by that date, the average of Seller’s and Purchaser’s estimates with respect to the Asserted Title Defect Amounts for the Asserted Title Defects shall be used to determine the Closing Payment pursuant to Section 8.4(a), and all Asserted Title Defects and Asserted Title Defect Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 3.4(f).  During the ten (10) Business Day period following the Closing Date, Asserted Title Defects and Asserted Title Defect Amounts in dispute shall be submitted to an attorney with at least ten (10) years of experience in oil and gas titles in southwestern Virginia as selected by mutual agreement of Purchaser and Seller (the “Title Arbitrator”).  The arbitration proceeding shall be held in Pittsburgh, Pennsylvania and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect as of the date hereof, to the extent such rules do not conflict with the terms of this Section 3.4(f).  The Title Arbitrator’s determination shall be made within twenty (20) days after submission of the matters in dispute and shall be final and binding

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upon both Parties, without right of appeal.  In making his determination, the Title Arbitrator shall be bound by the rules set forth in Section 3.4(e) and may consider such other matters as in the opinion of the Title Arbitrator are necessary or helpful to make a proper determination.  Additionally, with the prior written consent of Purchaser and Seller, the Title Arbitrator may consult with and engage disinterested third parties to advise the Title Arbitrator, including title attorneys from other states and petroleum engineers.  In no event shall any Asserted Title Defect Amount exceed the estimate given by Purchaser in its claim notice delivered in accordance with Section 3.4(a).  The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Asserted Title Defects and Asserted Title Defect Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter.  Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case.  Each Party shall bear one-half of the costs and expenses of the Title Arbitrator.

Section 3.5            Consents to Assignment and Preferential Rights to Purchase .

(a)   Seller will use reasonable efforts, consistent with industry practices in transactions of this type, to identify, with respect to all Assets, the names and addresses of all parties holding Preferential Rights and Consents applicable to the transactions contemplated hereby.  In attempting to identify the names and addresses of such parties holding such Preferential Rights and Consents, Seller shall in no event be obligated to go beyond its own records.  Seller will request, from the parties so identified (and from any parties identified by Purchaser prior to Closing who have Preferential Rights or from whom a Consent may be required), in accordance with the documents creating such rights, execution of waivers of Preferential Rights or Consents so identified.  Seller shall have no obligation other than to identify such Preferential Rights and Consents and to so request such execution of waivers of Preferential Rights and Consents (including, without limitation, Seller shall have no obligation to assure that such waivers of Preferential Rights and Consents are obtained).

(b)   With respect to Preferential Rights but not Consents, if a Person from whom a waiver of a Preferential Right is requested refuses to give such waiver prior to Closing, the interest in the Asset subject to such Preferential Right will be excluded from the transaction contemplated hereby, such interest in such Asset will become an “Excluded Asse