Purchase and Sale Agreement

Purchase and Sale Agreement

By and Between

Teton Energy Corporation
and Teton Piceance LLC

as Seller

and

Puckett Land Company

as Buyer

Dated April 22, 2009

Garden Gulch Property
Garfield County, Colorado

TABLE OF CONTENTS

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EXHIBIT LIST

SCHEDULE OF DEFINED TERMS

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”), dated April 22, 2009, is by and between Teton Energy Corporation, a Delaware corporation and its wholly owned subsidiary, Teton Piceance LLC, a Colorado limited liability company, 600 17 ^th Street, Suite 1600 North, Denver, Colorado 80202 (together “Seller” or “Teton”) and Puckett Land Company, a Colorado corporation, 5460 S. Quebec St., Ste. 250, Greenwood Village, Colorado 80111 (“Buyer” or “PLC”). The transaction contemplated by this Agreement may be referred to as the “Transaction.” Seller and Buyer may be referred to individually as a “Party” or collectively as the “Parties.”

RECITALS

A. Seller owns and desires to sell its interests in certain oil and gas properties located in Garfield County, Colorado (the “Assets,” all as more particularly described in Section 1.2 below).

B. Buyer has conducted and will conduct an independent investigation of the nature and extent of the Assets (as defined below) and desires to purchase all of Seller’s interest in the Assets pursuant to the terms of this Agreement.

C. To accomplish the foregoing, the Parties wish to enter into this Agreement.

AGREEMENT

In consideration of the mutual promises contained herein, $100 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:

ARTICLE 1
PURCHASE AND SALE

Seller agrees to sell and Buyer agrees to purchase all of Seller’s right, title and interest in the Assets, all pursuant to the terms of this Agreement.

1.2 The Assets.

As used herein, the term “Assets” refers to all of the Seller’s right, title and interest in and to the following:

A. The oil, gas and/or mineral leases specifically described in Exhibit A-1 (the “Leases”), the lands described in Exhibit A-1 (the “Lands”),and the oil, gas and other hydrocarbons (“Hydrocarbons”) attributable to the Leases and Lands, including without limitation, all oil, gas and/or other mineral leases, leasehold estates and interests, all mineral, royalty, overriding royalty, production payment, reversionary, net profit, contractual leasehold and other similar rights, estates and interests in the Leases or Lands, together with all the property and rights incident thereto, including all rights in any pooled, unitized or communitized acreage by virtue of the Lands or Leases being a part thereof and all Hydrocarbons produced from the pool or unit allocated to any such Leases;

B. The oil and gas wells specifically described in Exhibit A-2 (the “Wells”), together with all other oil and gas wells and all water, injection and disposal wells on the Leases or on lands pooled, communitized or unitized therewith, and all personal property, equipment, fixtures, improvements, permits, water discharge permits, roads, rights-of-way and easements located on the Lands or used in connection with the production, gathering, treatment, processing, storing, transportation, sale or disposal of Hydrocarbons or water produced from the Leases and Lands;

C. The unitization, pooling and communitization agreements, declarations and orders, and the units created thereby and all other such agreements relating to the Assets described in Sections 1.2 A. and B. and to the production of Hydrocarbons, if any, attributable to said Assets;

D. All existing and effective sales, purchase, exchange, gathering, and service agreements and other contracts, agreements and instruments which relate, and only insofar as they relate, to the Assets described in Subsections 1.2 A. through C., and including those which are described in Exhibit C (the “Material Agreements”); and

E. All files, records and data relating to the Assets described in Sections 1.2A. through D. maintained by Seller, including without limitation, the following, if and to the extent that such files exist: all books, records, reports, manuals, files, title documents, including correspondence, records of production and maintenance, revenue, sales, expenses, warranties, lease files, land files, well files, division order files, abstracts, title opinions, assignments, reports, property records, contract files, operations files, and files, maps, core data, hydrocarbon analysis, well logs, mud logs, field studies together with other files, contracts and other records and data including all geologic and geophysical data and maps (the “Records”). To the extent that any of the Records contain interpretations of Seller, Buyer agrees to rely on such interpretations at its own risk.

1.3 Excluded Assets.

As used herein, the term “Excluded Assets” refers to all of Seller’s right, title and interest in and to the following, all of which are excluded from the terms of this Agreement and shall remain the sole property of Seller:

A. All of Seller’s corporate minute books, financial records and other business records that relate to Seller’s business generally (including the ownership and operation of the Assets);

B. All trade credits, all accounts, receivables and all other proceeds, income or revenues attributable to the Assets with respect to any period of time prior to the Effective Time;

C. All claims and causes of action of Seller arising under or with respect to any contracts that are attributable to periods of time prior to the Effective Time (including claims for adjustments or refunds);

D. All rights and interests of Seller (a) under any policy or agreement of insurance or indemnity, (b) under any bond, or (c) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property attributable to periods of time prior to the Effective Time;

E. All Hydrocarbons produced and sold from the Assets with respect to all periods prior to the Effective Time;

F. All claims of Seller for refunds of or loss carry forwards with respect to (a) production or any other taxes attributable to any period prior to the Effective Time, (b) income or franchise taxes, or (c) any taxes attributable to the Excluded Assets;

G. All personal computers and associated peripherals and all radio and telephone equipment;

H. All of Seller’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and all other intellectual property; and

I. All audit rights arising under any of the applicable contracts or otherwise with respect to any period prior to the Effective Time or to any of the Excluded Assets.

1.4 Effective Time.

The purchase and sale of the Assets shall be effective as of January 1, 2009 at 7:00 a.m. Mountain Time (the “Effective Time”).

1.5 1031 Exchange.

Seller reserves the right, at or prior to Closing, to assign its rights under this Agreement with respect to all or a portion of the Purchase Price, and that portion of the Assets associated therewith (“1031 Assets”), to a Qualified Intermediary (“QI”) (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) to accomplish this Transaction, in whole or in part, in a manner that will comply with the requirements of a like-kind exchange (“Like-Kind Exchange”) pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (“Code”). If Seller so elects, Seller may assign its rights under this Agreement to the 1031 Assets to the QI. Buyer hereby (i) consents to Seller’s assignment of its rights in this Agreement with respect to the 1031 Assets, and (ii) if such an assignment is made, agrees to pay all or a portion of the Purchase Price into the qualified trust account at Closing as directed in writing by Seller. Seller and Buyer acknowledge and agree that a whole or partial assignment of this Agreement to a QI shall not release either Party from any of its respective liabilities and obligations to each other or expand any such respective liabilities or obligations under this Agreement. Neither Party represents to the other that any particular tax treatment will be given to either Party as a result of a Like-Kind Exchange. Buyer shall not be obligated to pay any additional costs or incur any additional obligations under this Agreement resulting from Seller’s Like-Kind Exchange, and Seller shall hold harmless and indemnify Buyer from and against all claims, losses and liabilities (including reasonable attorneys’ fees, court costs and related expenses), if any, resulting from such a Like-Kind Exchange.

ARTICLE 2
PURCHASE PRICE

2.1 Purchase Price.

The purchase price for the Assets shall be $10,330,000.00 (the “Purchase Price”). At Closing, Buyer shall pay Seller the Purchase Price, as adjusted pursuant to Section 2.4.

2.2 Deposit.

Contemporaneously with the execution of this Agreement, Buyer has deposited by wire transfer in same day funds the sum of $ 673,000 (the “Deposit”) in an escrow account maintained and controlled by Davis, Graham and Stubbs, 1550 Seventeenth Street, Denver, Colorado 80202 (the “Escrow Agent”), which account shall be under the joint control of Buyer and Seller: provided, however, that in the event Seller or either of them should voluntarily file for protection under the Bankruptcy laws of the United States, have a petition in bankruptcy initiated against it or either of them or should either of them make an assignment of some or all of their respective assets for the benefit of creditors, then Buyer shall have sole and exclusive authority over such escrow account and of the disposition of the funds contained therein. The Deposit shall be distributed to Seller and credited to the Purchase Price at Closing, or if this Agreement is terminated, shall be distributed pursuant to Article 11.

2.3 Allocation of the Purchase Price.

Buyer, with Seller’s approval, has allocated the Purchase Price among the Assets as set forth on Exhibit B. Buyer and Seller agree to use the values so allocated as the values for the individual Assets when filing all tax returns. The value so allocated to a particular Asset may be referred to as the “Allocated Value” for that Asset.

2.4 Adjustments to Purchase Price.

All adjustments to the Purchase Price shall be made (i) according to the factors described in this Section, (ii) in accordance with generally accepted accounting principles as consistently applied in the oil and gas industry, and (iii) without duplication.

A.  Settlement Statements.

The Purchase Price shall be adjusted at Closing pursuant to a “Preliminary Settlement Statement” which shall be prepared by Seller and submitted to Buyer on or before five (5) business days prior to Closing, subject to Buyer’s review and comment. The form and content of the Preliminary Settlement Statement will be agreed to by both Buyer and Seller. The Preliminary Settlement Statement shall set forth the Closing Amount and all adjustments to the Purchase Price and associated calculations. The term “Closing Amount” means the Purchase Price, adjusted as provided in this Section using reasonable estimates as agreed to by the Parties if actual numbers are not available. After Closing, the Purchase Price shall be adjusted pursuant to the Settlement Statement delivered pursuant to Section 13.1.

B.  Property Expenses.

For the purposes of this Agreement, the term “Property Expenses” shall mean all capital costs, expenses, joint interest billings, lease operating expenses, lease rental and maintenance costs, royalties, overriding royalties, leasehold payments, Taxes (as defined and apportioned as of the Effective Time pursuant to Article 9), drilling costs, workover costs, gathering costs, geological, geophysical and any other exploration or development expenditures chargeable under applicable operating agreements or other agreements consistent with the standards established by the Council of Petroleum Accountant Societies of North America that are attributable to the maintenance and operation of the Assets during the period in question.

C.  Upward Adjustments.

The Purchase Price shall be adjusted upward by the following:

1. An amount equal to all proceeds (net of royalty and Taxes not otherwise accounted for hereunder) received and retained by the Buyer from the sale of all Hydrocarbons produced from or credited to the Assets prior to the Effective Time;

2. An amount equal to all direct and actual costs attributable to the Assets, including, without limitation, the Property Expenses, incurred and paid by Seller that are attributable to the period after the Effective Time;

3. To the extent not covered in the preceding paragraph, an amount equal to all prepaid expenses attributable to the Assets after the Effective Time that were paid by or on behalf of Seller, including without limitation, prepaid drilling and/or completion costs, applicable insurance costs through Closing, and prepaid utility charges;

4. An amount equal to the value (net of applicable Taxes) of Seller’s share of all oil in storage tanks above the pipeline interconnect at the Effective Time to be calculated as follows: The value shall be the product of (i) the volume in each storage tank (attributable to Seller’s interest) as of the Effective Time as shown by the actual gauging reports, multiplied by (ii) the price actually received for January 2009 production under the applicable marketing contract if the Hydrocarbons in question had been sold; provided, however, that the adjustment contemplated by this subsection (4) shall be made only to the extent that Seller does not receive and retain the proceeds, or portion thereof, attributable to the pre-Effective Time merchantable oil in the storage tanks;

5. An amount equal to the Interest Addition Adjustment; and

6. Any other amount agreed to by Buyer and Seller.

D.  Downward Adjustments.

The Purchase Price shall be adjusted downward by the following:

1. Proceeds received and retained by Seller (net of applicable Taxes and royalties) that are attributable to production from the Assets after the Effective Time;

2. The amount of all direct and actual expenses attributable to the Assets, including, without limitation, the Property Expenses, that remain unpaid by Seller, or that have been paid by Buyer, that are attributable to the period prior to the Effective Time;

3. An amount equal to the sum of all Environmental Defect Adjustments;

4. An amount equal to the Title Defect Adjustments; and

5. Any other amount agreed to by Buyer and Seller.

E.  Tax Adjustments.

To adjust the Purchase Price for the apportionment of Taxes, the Parties agree to adjust the Purchase Price, downward or upward, as appropriate, pursuant to the provisions of Article 9.

ARTICLE 3
BUYER’S INSPECTION

3.1 Access to the Records.

Immediately upon execution of this Agreement and subject to Section 8.3, Seller will make the Records available to Buyer for inspection, copying, and review at Seller’s offices during normal business hours to permit Buyer to perform its due diligence review. Subject to the consent and cooperation of third parties, Seller will assist Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information from such parties as Buyer may reasonably desire.

3.2 Disclaimer.

Except for the representations contained in this Agreement, Seller makes no representation of any kind as to the Records or any information contained therein. Buyer agrees that any conclusions drawn from the Records shall be the result of its own independent review and judgment.

3.3 Physical Access to the Leases, Lands and Wells.

During reasonable business hours, Seller agrees to grant Buyer physical access to the Leases, Lands and Wells to allow Buyer to conduct, at Buyer’s sole risk and expense, on-site inspections and environmental assessments of the Leases, Lands and Wells. In connection with any such on-site inspections and assessments, Buyer agrees not to interfere with the normal operation of the Leases, Lands and Wells and agrees to comply with all operational and safety requirements of the operators of the Wells. In the event that Buyer’s ability to effectively inspect the Leases, Lands and Wells is rendered reasonably impracticable by the presence of snow cover, the due date for Environmental Defect Notices in Section 5.1 of this Agreement will be automatically extended for a period equal to the period during which the Buyer’s inspection is so delayed, but in no event later than May 31, 2009 . If, during its inspection and/or environmental assessment called for herein, Buyer discovers any condition or event which would require the Operator of any Asset to report such condition or event to any public body, including but not limited to the United States Environment Protection Agency (the “EPA”), the Colorado Department of Public Health and Environment (the “CDPHE) or the Colorado Oil and Gas Conservation Commission (the “COGCC”), Buyer will advise Seller of the condition or event within 48 hours. In such event, Seller shall have 48 hours to advise the Operator and demand that such event be reported. If Seller fails to so notify Operator within this period of time, Seller shall be deemed to have agreed to indemnify and hold harmless Buyer from any liability or penalty Buyer may thereafter incur for failure to so report such condition or event. Subject to the immediately preceding sentence, such information shall be held confidential but may be disclosed to Buyer or Buyer’s affiliates, attorneys, officers, employees and consultants used in Buyer’s evaluation of the Assets. Furthermore, Buyer’s obligations of confidentiality shall not apply to information (i) required to be disclosed by legal process, order, regulation, or rule, or (ii) available to the public, or (iii) acquired from third parties not known by Buyer to have confidentiality obligations to Seller, provided that Buyer agrees to inquire of such third parties if such third party has an obligation of confidence to Seller. In connection with granting such access, Buyer represents that it is insured and waives, releases and agrees to indemnify Seller, and its respective directors, officers, shareholders, employees, agents and representatives, against all claims for injury to, or death of, persons or for damage to property arising as a result of any act or omission committed by Buyer or its employees, agents, contractors or representatives in conducting Buyer’s on-site inspections and environmental assessments of the Leases and Wells. This waiver, release and indemnity by Buyer shall survive termination of this Agreement.

3.4 Buyer’s Agents.

To the extent that Buyer uses agents to conduct its due diligence activities, either in Seller’s offices or on the Lands, Buyer agrees to (i) make such agents aware of the terms and conditions set forth in this Article 3 and the confidentiality provisions of Article 8, and (ii) ensure that such agents agree to be bound by the terms of this Article 3 and the confidentiality provisions of Article 8.

ARTICLE 4
TITLE MATTERS

4.1 Definitions.

A.  Defensible Title.

The term “Defensible Title” means such title to the Assets, that, subject to and except for Permitted Encumbrances: (i) entitles Seller to receive not less than the net revenue interest (“NRI”) set forth on Exhibit A-2; (ii) obligates Seller to bear costs and expenses relating to the maintenance, development, operation and the production of Hydrocarbons in an amount not greater than the working interest set forth in Exhibit A-2 (“WI”); and (iii) is free and clear of encumbrances, liens and defects.

B.  Permitted Encumbrances.

The term “Permitted Encumbrances” shall mean:

1. Lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens (payable or in suspense) if the net cumulative effect of such burdens does not operate to reduce the NRI;

2. Liens for Taxes or assessments not yet due and delinquent or, if delinquent, that are being contested in good faith in the normal course of business and for which Seller shall retain responsibility;

3. All rights to consent by, required notices to, filings with, or other actions by federal, state or local governmental bodies, in connection with the conveyance of the applicable Asset if the same are customarily obtained after such conveyance;

4. Rights of reassignment upon the surrender or expiration of any Lease;

5. The terms and conditions of the Material Agreements and all documents of record to the extent such do not decrease the NRI for the affected Asset or increase the WI for such Asset without a corresponding proportionate increase in the NRI for such Asset;

6. Easements, rights-of-way, servitudes, permits, surface leases and other rights with respect to surface operations, on, over or in respect of any of the Assets or any restriction on access thereto that do not materially interfere with the operation of the affected Asset as has been conducted in the past or materially affect the value thereof;

7. Liens to be released in connection with the Closing pursuant to Section 12.3; and

8. Materialmen’s, mechanics’, operators’ or other similar liens arising in the ordinary course of business incidental to operation of the Assets (i) if such liens and charges have not been filed pursuant to law and the time for filing such liens and charges has expired, (ii) if filed, such liens and charges have not yet become due and payable or payment is being withheld as provided by law and for which Seller shall retain responsibility, or (iii) if their validity is being contested in good faith by appropriate action and for which Seller shall retain responsibility.

C.  Title Defect.

The term “Title Defect” means any lien, encumbrance, claim, defect in or objection to real property title, excluding Permitted Encumbrances, that alone or in combination with other defects renders the Seller’s title to the Asset (i) less than Defensible Title, and (ii) reduces the Allocated Value of the affected Asset by more than $12,500, net to Seller’s interest, (with such amount being the “Individual Title Threshold”). Notwithstanding the foregoing, the following shall not be considered Title Defects:

1. Defects based on a lack of information in Seller’s files;

2. Defects arising out of lack of survey;

3. Defects based on failure to record Leases issued by the BLM or any state, or any assignments of record title or operating rights in such Leases, in the real property or other county records of the county in which such Asset is located; provided that such Leases or assignments are properly filed with the applicable federal or state office;

D.  Title Defect Value.

“Title Defect Value” means the amount by which the Allocated Value of an Asset has been reduced by a Title Defect. In determining the Title Defect Value, the Parties intend to include only that portion of the Asset affected by the defect. The Title Defect Value may not exceed the Allocated Value of the Asset and shall be determined by the Parties in good faith taking into account all relevant factors, including without limitation, the following:

1. If the Title Defect is a lien or encumbrance on the Asset created by Seller, Seller shall have the lien or encumbrance unconditionally released, and consequently, there shall be no Title Defect Value associated with such lien or encumbrance.

2. If the Title Defect is an actual reduction in NRI or any other matter that does not fall within the matters described in subsection 1., then the Buyer and Seller will negotiate in good faith to reach mutual agreement as to the diminution effect of this Title Defect and thus the Title Defect Value.

4.2 Purchase Price Adjustments for Title Defects.

A.  Notices of Title Defects.

Buyer shall give Seller a written “Title Defect Notice” as soon as possible but no later than the fifth business day prior to Closing (the “Title Defect Date”). Each Title Defect Notice must be in writing and must satisfy the following conditions precedent: (i) name the affected Asset; (ii) describe each Title Defect in reasonable detail; (iii) describe the basis for each Title Defect; (iv) attach Supporting Documentation; (v) state the Allocated Value of the affected Asset; (vi) state Buyer’s good faith estimate of the Title Defect Value. For the purposes of this Section, “Supporting Documentation” for a particular Title Defect means if the basis is derived from any document, a copy of such document (or pertinent part thereof) or if the basis is derived from any gap in Seller’s chain of title, the documents preceding and following the gap shall be attached, or in any case, other reasonable written documentation.

B.  Defect Adjustments.

1. If an Asset is affected by a Title Defect, the Purchase Price will be reduced under Section 2.4 and as set forth below, unless, at Seller’s election: (i) Seller cures the Title Defect prior to Closing, (ii) Buyer agrees to waive the relevant Title Defect, or (iii) Seller elects on or before the third business day prior to closing to cure such title defect no later than 90 days after closing (iv) Seller, with Buyer’s consent, which Buyer may withhold in its sole discretion, elects on or before Closing to indemnify Buyer against any loss attributable to the relevant Title Defect or (v) Buyer and Seller to agree to exclude the portion of the Asset affected by the Title Defect from the transaction and reduce the Purchase Price pursuant to Section 2.4.D.4; if, in the absence of such agreement by Buyer and Seller, Seller elects nonetheless to exclude the portion of the Asset affected by the Title Defect, then, in such event, Buyer may terminate this Agreement pursuant to Section 11.1.E The Purchase Price shall be adjusted only for Title Defects that exceed the Individual Title Threshold (with the amount of such adjustment being the “Title Defect Adjustment”).

2. If Seller elects to cure the relevant Title Defect post Closing, Seller shall assign the affected Asset to Buyer at Closing, the Purchase Price will not be adjusted downward pursuant to Section 2.4.D.4 at Closing for such Title Defect and the Title Defect Value will be paid into and held in an escrow account established for this purpose with the Escrow Agent, which escrow account shall be under the joint control of both the Buyer and the Seller; provided, however, that in the event Seller or either of them should voluntarily file for protection under the Bankruptcy laws of the United States, have a petition in bankruptcy initiated against it or either of them or should either of them make an assignment of some or all of their respective assets for the benefit of creditors, then Buyer shall have sole and exclusive authority over such escrow account and of the disposition of the funds contained therein. If within 90 days of Closing, Seller cures the relevant Title Defect to the reasonable satisfaction of Buyer, Buyer agrees to instruct the Escrow Agent to release the Title Defect Value including all interest earned thereon to Seller. If within 90 days of Closing Seller fails to cure the relevant Title Defect to the reasonable satisfaction of Buyer, Seller agrees to instruct the Escrow Agent to release the Title Defect Value including all interest earned thereon to Buyer.

4.3 Interest Additions.

Promptly on discovery, but on or before two days prior to Closing, Buyer shall in good faith notify Seller, or Seller shall in good faith notify Buyer, of any interest discovered by that Party that would be an Asset hereunder, but which Seller failed to list as an Asset (with such interest being an “Interest Addition”). Interest Additions shall include, without limitation, the failure to describe the interest in detail and any interest that entitles Seller to receive more than the NRI or obligates Seller to bear costs and expenses in an amount less than the WI without a proportionate change in NRI. Each such notice of an Interest Addition shall be in writing and shall describe the Interest Addition, the estimated Allocated Value for the Interest Addition, or the amount by which the Allocated Value of the Asset has been increased by the Interest Addition (“Value of Interest Addition”), together with the associated computations and supporting documentation. The Parties shall determine the Value of the Interest Addition in good faith in the same manner as provided in Section 4.1D.2 taking into account all relevant factors. The Purchase Price shall be increased for only those Interest Additions that exceed the Individual Title Threshold (with the amount of such adjustment being the “Interest Addition Adjustment”).

4.4 Dispute Resolution.

The Parties agree to resolve disputes concerning title matters pursuant to the Arbitration procedure set forth in Section 14.6.

4.5 Casualty Loss.

After the Effective Time and prior to Closing, if a portion of the Assets is destroyed by fire or other casualty, or is taken or threatened to be taken in condemnation or under the right of eminent domain (with such event being a “Casualty Loss”), Buyer shall purchase the Asset at Closing for the Allocated Value of the Asset reduced by the estimated cost to repair or replace such Asset (with equipment of similar utility)(the reduction being the “Net Casualty Loss”). At its option, with Buyer’s consent, which Buyer may withhold in its sole discretion, Seller may elect to cure such Casualty Loss prior to Closing. If Seller elects to cure such Casualty Loss, Seller may replace or cause to be replaced any personal property that is the subject of a Casualty Loss with equipment of similar grade and utility at Seller’s sole cost and expense and Seller shall indemnify and hold harmless Buyer against any and all losses as a result of such Casualty Loss and Seller’s election to cure such Casualty Loss. If Seller cures the Casualty Loss, Buyer shall purchase the affected Asset at Closing for the Allocated Value thereof without any Purchase Price Adjustment for such Casualty Loss.

4.6 Preferential Rights and Consents.

To Seller’s knowledge, the preferential purchase rights and/or required consents affecting the Assets are set forth on Exhibit D. To the extent that there are preferential purchase rights or required consents affecting the Assets, the provisions of this Section 4.6 shall apply. Seller shall obtain all required consents and to give notices required in connection with preferential purchase rights prior to Closing. If Buyer discovers other affected Assets during the course of Buyer’s due diligence activities, Buyer shall notify Seller immediately and Seller shall obtain such consents or obtain waivers and to give the notices required in connection with the preferential rights prior to Closing.

A.  Required Consents.

Except for consents and approvals which are customarily obtained post-Closing, and those consents the absence of which would not invalidate the conveyance of the Assets (with all other consents being “Required Consents”), Seller shall obtain all Required Consents prior to Closing. Buyer shall reasonably cooperate with Seller in obtaining any Required Consent including providing assurances of reasonable financial conditions, but Buyer shall not be required to expend funds or make any other type of financial commitments a condition of obtaining such consent.

B.  Preferential Purchase Rights.

1. If any preferential right to purchase any portion of the Assets is exercised prior to the Closing Date, Buyer may elect, at its sole option, to terminate this Agreement pursuant to the terms of Section 11.1.C.

ARTICLE 5
ENVIRONMENTAL MATTERS

The provisions of this Article apply only to the environmental matters associated with the Assets.

5.1 Definitions.

For the purposes of the Agreement, the following terms shall have the following meanings:

“Environmental Consultant” means a third party consultant reasonably acceptable to Buyer and Seller.

“Environmental Defect” means (a) a condition in, on or under an Asset (including, without limitation, air, land, soil, surface and subsurface strata, surface water and ground water) attributable to the period of time prior to the Effective Time that (i) causes an Asset to be in violation of an Environmental Law, or (ii) requires Remediation under an Environmental Law and (b) the cost to remediate the Environmental Defect exceeds $12,500 per incident or condition, net to Seller’s interest (“Individual Environmental Threshold”). It is understood and agreed that matters of an essentially similar nature such as, but not limited to, oil spills, chemical barrels or equipment containing NORM or hazardous materials found at a single site shall be deemed a single incident or condition.

“Environmental Defect Notice” means each written notice given by Buyer to Seller alleging an Environmental Defect. Each Environmental Defect Notice must be in writing and must satisfy the following conditions precedent: (i) name the affected Asset, (ii) describe the condition that causes the Environmental Defect, (iii) provide reasonable factual substantiation for the Environmental Defect, and (iv) state the estimated Remediation Cost as calculated by the Environmental Consultant. All Environmental Defect Notices must be received by Seller on or before five (5) days prior to Closing

“Environmental Defect Value” means the costs to remediate that particular Environmental Defect.

“Environmental Law” means any law, statute, rule, regulation, code, ordinance or order issued by any federal, state, or local governmental entity in effect on or before the Closing date regulating or imposing liability or standards of conduct concerning protection of the environment or human health and safety or the release or disposal of waste or hazardous materials explicitly including the Colorado Oil and Gas Conservation Commission rules which became effective on April 1, 2009.

“Remediation” means actions taken to correct an Environmental Defect or otherwise required to remediate in compliance with applicable Environmental Law, as recommended in writing by the Environmental Consultant.

5.2 Environmental Representations.

Seller owns a working interest in all of the Assets but operates none of the Assets. Seller’s Knowledge with respect to the Assets is that of a non-operator and is qualified accordingly. For the period of Seller’s ownership of the Assets, and to the Knowledge of Seller, Seller represents to Buyer that, except as described on Exhibit J, the Assets have been operated in compliance with all Environmental Laws and Seller has not received notice of a violation of an Environmental Law with respect to the Assets that remains uncured.

5.3 Environmental Liabilities and Obligations.

A.  Retained Environmental Liabilities.

1. Upon Closing, subject to Section 5.4, Seller agrees to retain and pay, perform, fulfill and discharge all claims, cost, expenses, liabilities and obligations accruing or relating to and release Buyer and Buyer’s successors and assigns from all Losses attributable to and relating to all Environmental Defects (a) described on Exhibit J and (b) for which Seller receives a timely Environmental Defect Notice. Except for the Environmental Defects described on Exhibit J, timely receipt of an Environmental Defect Notice and verification of the Remediation Costs by the Environmental Consultant are conditions precedent to Seller’s obligation to retain liability for Retained Environmental Liabilities. If Seller receives an Environmental Defect Notice for a particular Environmental Defect and such Environmental Defect Notice is not contested under the provisions of Section 5.5, and subject to the provisions of Section 5.4, Seller agrees to retain all claims, costs, expenses, liabilities and obligations accruing or relating to the Environmental Defect that was the subject of the Environmental Defect Notice.

2. If, within a period of six (6) months after Closing, Buyer becomes aware of an Environmental Defect which existed prior to the Effective Time and delivers to Seller an Environmental Defect Notice, and which Buyer could not have been aware of with the exercise of reasonable diligence prior to closing, Seller agrees to retain and pay, perform, fulfill and discharge all claims, costs, expenses, liabilities and obligations accruing or relating to and release Buyer and Buyer’s successors and assigns from all Losses attributable to and relating to such Environmental Defect. Timely receipt of an Environmental Defect Notice and verification of the Remediation Costs by the Environmental Consultant are conditions precedent to Seller’s obligation to retain liability for Retained Environmental Liabilities. If Seller receives an Environmental Defect Notice for a particular Environmental Defect and such Environmental Defect Notice is not contested under the provisions of Section 5.5, and subject to the provisions of Section 5.4, Seller shall be deemed to have retained all claims, costs, expenses, liabilities and obligations accruing or relating to the Environmental Defect that was the subject of the Environmental Defect Notice.

3. The Retained Environmental Liabilities include Environmental Defects described in Sections 5.3.A.1 and 5.3.A.2 above.

B.  Assumed Environmental Liabilities.

Except for Retained Environmental Liabilities and subject to the provisions of Section 5.4, upon Closing, Buyer agrees to assume and pay, perform, fulfill and discharge and release Seller from all Losses relating to environmental conditions in, on or under the Assets attributable to the period of time before and after the Effective Time, including without limitation any and all liability for (i) ground water contamination, (ii) Naturally Occurring Radioactive Materials, (iii) man-made material fibers, (iv) the obligation to plug and abandon all of the wells located on the Lands and reclamation of existing well sites on the Lands (collectively, the “Assumed Environmental Liabilities”). If Buyer fails to timely deliver an Environmental Defect Notice with respect to an Asset, or if the aggregate of all Environmental Defects is equal to or less than the Environmental Deductible (as defined in Section 5.4), Buyer shall be deemed to (i) accept the environmental condition(s) in, on and under that Asset or the Assets, (ii) have waived its right to claim an Environmental Defect with respect to that particular condition in, on or under the Assets, and (iii) include the particular environmental condition(s) as part of the Assumed Environmental Liabil