AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

You are currently viewing:

This Agreement and Plan of Merger involves

Sterling Energy (North America) Limited | STERLING ENERGY PLC | Sterling Energy, Inc | STERLING ONSHORE, INC | Whittier Energy Corporation

. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here.

Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Texas Date: 1/24/2007
Law Firm: Thompson Knight;Mayer Brown Rowe & Maw LLP

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

dated as of January 19, 2007

among

STERLING ENERGY PLC

STERLING ONSHORE, INC.

and

WHITTIER ENERGY CORPORATION

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS		1
1.1	Definitions	1
ARTICLE II THE MERGER		11
2.1	The Merger	11
2.2	Effective Time; Closing	11
2.3	Effect of the Merger	11
2.4	Articles of Incorporation; Bylaws	11
2.5	Directors and Officers	11
2.6	Effect on Capital Stock	12
2.7	Payment for Shares	13
2.8	Options and Warrants	14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY		16
3.1	Organization	16
3.2	Capitalization	16
3.3	Authorization; No Conflict	17
3.4	Subsidiaries	18
3.5	SEC Reports and Financial Statements	19
3.6	Disclosure Controls	19
3.7	Absence of Certain Changes	19
3.8	Litigation	22
3.9	Information Supplied	22
3.10	Employee Plans	22
3.11	Board Recommendation; Company Action; Requisite Vote of the Company’s Stockholders	23
3.12	Taxes	23
3.13	Environmental Matters	25
3.14	Compliance with Laws	26
3.15	Employment Matters	27
3.16	Reserve Reports	27
3.17	Hedging	27
3.18	Insurance	28
3.19	Material Contracts	28
3.20	Section 78.378 to Section 78.344 of the NRS; No Rights Agreement	28
3.21	Transactions with Related Parties	28
3.22	Agents	28
3.23	Commission Contracts	29

3.24	Owned Real Property	29
3.25	Leased Real Property	29
3.26	Title	29
3.27	Oil and Gas Interests	29
3.28	Planned Future Commitments	29
3.29	Production Data	29
3.30	Rights to Production	30
3.31	Well Abandonment	30
3.32	Gas or Pipeline Imbalances	30
3.33	Wells	30
3.34	Change of Control	30
3.35	Business	30
3.36	Books and Records	30
3.37	Full Disclosure	30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB		31
4.1	Organization	31
4.2	Merger Sub	31
4.3	Authorization; No Conflict	31
4.4	Information Supplied	32
4.5	Broker’s or Finder’s Fees	32
4.6	Financing	32
4.7	Ownership of Company Common Stock	32
4.8	Litigation	33
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER		33
5.1	Conduct of Business by the Company Pending the Merger	33
ARTICLE VI ADDITIONAL AGREEMENTS		35
6.1	Preparation of Proxy Statement; Stockholders Meeting	35
6.2	Consents and Approvals	36
6.3	Public Statements	37
6.4	Further Assurances	37
6.5	Notification of Certain Matters	37
6.6	Access to Information; Confidentiality	38
6.7	No Solicitation	38
6.8	Indemnification of Company Directors and Officers; Insurance	40
6.9	State Takeover Laws	42
6.10	Employment Matters	42

ARTICLE VII CONDITIONS		42
7.1	Conditions to Each Party’s Obligation To Effect the Merger	42
7.2	Conditions to Obligations of Parent and Merger Sub	42
7.3	Conditions to Obligation of the Company	43
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER		43
8.1	Termination	43
8.2	Effect of Termination	44
8.3	Fees; Transaction Expenses	45
ARTICLE IX GENERAL PROVISIONS		45
9.1	Notices	45
9.2	Nonsurvival of Representations and Warranties	46
9.3	Interpretation	46
9.4	Governing Law; Jurisdiction	46
9.5	Counterparts; Facsimile Transmission of Signatures	47
9.6	Assignment; No Third Party Beneficiaries	47
9.7	Severability	47
9.8	Entire Agreement	47
9.9	Amendment	47
9.10	Extension; Waiver	48

iii

EXHIBITS

Exhibit A		Form of Voting Agreement
Exhibit B		Form of Articles of Incorporation
Exhibit C		Form of Bylaws

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”), dated as of January 19, 2007, is by and among Sterling Energy plc, a company incorporated in England and Wales (“ Parent ”), Sterling Onshore, Inc., a Nevada corporation and a wholly-owned, indirect subsidiary of Parent (“ Merger Sub ”), and Whittier Energy Corporation, a Nevada corporation (the “ Company ”).

INTRODUCTION

WHEREAS , the respective Boards of Directors of each of Parent, Merger Sub and the Company have unanimously (i) approved and declared advisable the merger of Merger Sub with and into the Company (the “ Merger ”), upon the terms and subject to the conditions set forth in this Agreement and (ii) approved this Agreement;

WHEREAS , as a result of the Merger, and in accordance with Chapter 78 of the Nevada Revised Statutes (the “ NRS ”), each issued and outstanding share of Company Capital Stock (as defined below) immediately prior to the Effective Time (as defined in Section 2.2 ) and Dissenting Shares (as defined in Section 2.6(d) ), will, upon the terms and subject to the conditions set forth herein, be converted into the right to receive the Merger Consideration (as defined in Section 2.6 );

WHEREAS ,concurrent with the execution and delivery of this Agreement, certain Company Stockholders have entered with the Company and Parent into the Voting Agreements, dated as of the date hereof, copies of which are attached hereto as Exhibit A (the “ Voting Agreements ”), pursuant to which such Company Stockholders have agreed, among other things, to vote their shares of capital stock of the Company over which such Company Stockholders have voting power to approve this Agreement and the transactions contemplated hereby; and

WHEREAS , Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger.

NOW, THEREFORE , in consideration of the foregoing and of the respective representations, warranties and covenants and agreements contained in this Agreement, Parent, Merger Sub and the Company hereby agree as follows:

ARTICLE I
DEFINITIONS

1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings:

“ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the Person in question. As used herein, the term “control” means (a) direct or indirect beneficial ownership of 50% or more of the voting securities or voting interest of a Person or, in the case of a limited partnership, of 50% or more of the general partnership interest, either directly or through an entity which the Person controls or (b) the possession of the actual power to direct the management of a Person, whether through contract or otherwise.

“ Agreement ” is defined in the Preamble .

“ Alternative Transaction ” means with respect to the Company and the Company Subsidiaries any transaction or series of related transactions (other than the transactions contemplated by this Agreement) involving: (a) any acquisition or purchase from the Company by any Person or group (other than Parent, Merger Sub or any of their Affiliates) of 20% or more in interest of the total

outstanding voting securities of the Company, or any tender offer or exchange offer that if consummated would result in any Person or group (other than Parent, Merger Sub or any of their Affiliates) beneficially owning 20% or more in interest of the total outstanding voting securities of the Company; (b) or any merger, consolidation, business combination or similar transaction involving the Company pursuant to which the stockholders of the Company immediately preceding such transaction hold less than 80% of the equity interests in the surviving or resulting entity (which includes the parent corporation of any constituent corporation to any such transaction) of such transaction; (c) any sale or lease (other than in the ordinary course of business), or exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition (including by way or merger, consolidation, share exchange or otherwise) of an aggregate of 20% or more of the consolidated assets of the Company; or (d) any liquidation or dissolution of the Company.

“ Alternative Transaction Proposal ” means any offer, proposal or indication of interest to the Company, the Company Stockholders, officers, directors or representatives of the Company by and Person or group (other than Parent, Merger Sub or any of their Affiliates) relating to an Alternative Transaction.

“ Applicable Law ” means all foreign, U.S. federal, state, local or municipal laws, statutes, ordinances, regulations and rules, and all orders, writs, injunctions, awards, judgments and decrees of any Governmental Authority, in each case as of the relevant date of determination or, with respect to a representation or warranty, as of the date of such representation or warranty, and that is applicable to Parent, Merger Sub, the Company, and/or their respective Subsidiaries, all as the case may be, or any of their respective assets, properties or businesses.

“ Articles of Merger ” is defined in Section 2.2(b).

“ Bank Credit Agreement ” means the Amended and Restated Credit Agreement, dated as of August 9, 2006, by and among the Company, as Borrower, and BNP Paribas, as Administrative Agent (as amended and supplemented as of the date hereof).

“ Book Entry Shares ” is defined in Section 2.7(b).

“ Breakup Fee ” is defined in Section 8.3(a).

“ Business Day ” means any day that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in Houston, Texas.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any successor statutes and any regulations promulgated thereunder.

“ CERCLIS ” means the Comprehensive Environmental Response, Compensation and Liability Information System List.

“ CFIUS ” means The Committee on Foreign Investments in the United States.

“ Change of Company Recommendation ” is defined in Section 6.7 (b).

“ Claim ” is defined in Section 6.8(a).

“ Closing ” is defined in Section 2.2(a).

“ Closing Date ” is defined in Section 2.2(a).

“ Code ” is defined in Section 2.7(f) .

“ Company ” is defined in the Preamble .

“ Company Capital Stock ” means the capital stock of the Company.

“ Company Certificates ” is defined in Section 2.7(b).

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

“ Company Disclosure Schedule ” is defined in Article III.

“ Company Employee Benefit Plan ” means any plan, program, policy, practice, agreement or other arrangement providing compensation or benefits in any form to any current or former employee, independent contractor, officer or director of the Company or any of the Company Subsidiaries or any beneficiary or dependent thereof or with respect to which the Company or any of the Company Subsidiaries has any actual, direct or contingent liability, whether written or unwritten, formal or informal, including any “employee benefit plan” within the meaning of Section 3(3) of ERISA (whether or not such plan is subject to ERISA), and any other pension, profit-sharing, bonus, incentive compensation, deferred compensation, vacation, sick pay, stock purchase, stock option, phantom equity or any other equity-based benefits, incentives or compensation, severance, employment, consulting, unemployment, hospitalization or other medical, life, or other insurance, long- or short-term disability, change of control, fringe benefit, or any other plan, program or policy providing benefits or compensation.

“ Company Financial Advisor ” is defined in Section 3.23.

“ Company Indemnified Parties ” is defined in Section 6.8(a).

“ Company Material Adverse Effect ” is defined in Section 3.1.

“ Company Preferred Stock ” means the Preferred Stock par value $0.001 per share, of the Company.

“ Company SEC Reports ” is defined in Section 3.5(a).

“ Company Stock Plans ” is defined in Section 2.8(a).

“ Company Stockholders ” means the holders of shares of Company Common Stock.

“ Company Stockholders Meeting ” is defined in Section 6.1(b).

“ Company Subsidiary ” is defined in Section 3.1.

“ Constituent Documents ” is defined in Section 9.8.

“ Confidentiality Agreement ” is defined in Section 6.6.

“ Contract ” means any contract, lease, license, indenture, note, bond, mortgage, agreement, purchase order, loan, conditional subcontract, insurance policy, concession, franchise, instrument, undertaking, commitment, understanding or other arrangement, whether written or oral, and that pursuant to its terms has not expired, terminated or been fully performed by the parties thereto.

“ Customary Post-Closing Consents ” is defined in Section 3.3(c).

“ Defensible Title ” means, subject to matters constituting or covered by Permissible Defects, such right, title and interest that (a) with respect to each of the Oil and Gas Interests set forth in Section 3.26 of the Company Disclosure Schedule , record title evidenced by an instrument or instruments filed of record in accordance with the conveyance and recording laws of the applicable jurisdiction (i) entitles the Company to receive not less than the applicable Net Revenue Interest as specified for such Oil and Gas Interest set forth in Section 3.26 of the Company Disclosure Schedule throughout the economic life of the Oil and Gas Interest, except for decreases (A) in connection

with those operations in which the Company or any of the Company Subsidiaries, as applicable, may be or hereafter become a non-consenting co-owner, (B) resulting from other parties in non-consent status as of the date of this Agreement subsequently no longer being in such non-consent status or (C) resulting from elections to increase or convert existing interests at payout pursuant to contracts and agreements in force and effect as of the date of this Agreement and (ii) obligates the Company to bear costs and expenses attributable to the maintenance, development and operation of such Oil and Gas Interest in an amount not greater than the applicable Working Interest as specified for such Oil and Gas Interest set forth in Section 3.26 of the Company Disclosure Schedule throughout the economic life of such Oil and Gas Interest, other than increases (X) accompanied by at least a proportionate interest in the applicable Net Revenue Interest, (Y) resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements that are accompanied by at least a proportionate increase in the applicable Net Revenue Interest or (Z) increases resulting from elections to decrease or convert existing interests at payout pursuant to contracts and agreements in force and effect as of the date of this Agreement, (b) with respect to Oil and Gas Interests not yet earned under a farmout agreement, there exists no default by the Company under such farmout agreement, and (c) is free and clear of all Liens, claims, infringements, and other burdens, except for Permitted Liens.

“ Dissenting Shares ” is defined in Section 2.6(d)(i).

“ Effective Time” is defined in Section 2.2(b).

“ Employment Agreements ” is defined in Section 6.10.

“ Environmental Law ” means any Law, common law, ordinance, regulation or policy of any Governmental Authority, as well as any order, decree, permit, judgment or injunction issued, promulgated, approved, or entered thereunder, relating to the environment, health and safety, Hazardous Material (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof), industrial hygiene, the environmental conditions on, under or about any real property owned, leased or operated at any time by the Company or any of the Company Subsidiaries, including, without limitation, soil, groundwater and indoor and ambient air conditions or the reporting or remediation of environmental contamination. Environmental Laws include, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as amended, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act (“OSHA”), as amended, the Hazardous Materials Transportation Act, as amended, and any other federal, state and local Law whose purpose is to conserve or protect human health, the environment, wildlife or natural resources.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” means, with respect to any person, any corporation, trade or business which, together with such person, is a member of a controlled group of corporations or a group of trades or businesses under common control within the meaning of section 414 of the Code.

“ Exchange Act ” is defined in Section 3.3(c).

“ Exchange Fund ” is defined in Section 2.7(a).

“ Expenses ” is defined in Section 6.8(a).

“ Financial Statements ” means the consolidated financial statements of the Company and the Company Subsidiaries included in each of the Company’s Annual Report on Form 10 KSB for the

fiscal years ended December 31, 2004 and December 31, 2005, the Company’s Quarterly Report on Form 10 QSB for the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, as well as any consolidated financial statements of the Company filed with the SEC after the date hereof, including in each case the footnotes thereto.

“ GAAP ” means United States generally accepted accounting principles.

“ Governmental Authority ” means any U.S. federal, state, local or any foreign government, governmental, regulatory or administrative authority, agency, or commission or any court, tribunal, or judicial or arbitral body or entity.

“ Hazardous Material ” means (a) any “hazardous substance,” as defined by CERCLA; (b) any “hazardous waste” or “solid waste” in either case as defined by the Resource Conservation and Recovery Act, as amended; (c) any hazardous, dangerous, radioactive or toxic chemical, material, waste or substance, within the meaning of and regulated by any Environmental Law; (d) any asbestos containing materials within the meaning of Environmental Law; (e) any polychlorinated biphenyls within the meaning of Environmental Law; (f) petroleum, petroleum hydrocarbons, or any fraction or byproducts thereof within the meaning of Environmental Law; or (g) any air pollutant which is so designated by the U.S. EPA as authorized by the Clean Air Act.

“ Hedge ” is defined in Section 3.17 .

“ Hydrocarbons ” means, with respect to any Person, crude oil, natural gas, casinghead gas, associated gas, condensate, sulphur, natural gas liquids, plant products and other liquid or gaseous hydrocarbons produced in association therewith (including coalbed gas and carbon dioxide), and all other minerals of every kind and character which may be covered by or included in or attributable to any of the properties of such Person or any of such Person’s Subsidiaries.

“ Knowledge ” means the actual knowledge, after due inquiry and reasonable investigation, of the executive officers and directors of the Company or Parent, as applicable, and in the case of the Company, the Company’s Vice President of Land and Legal.

“ Lands ” has the meaning set forth in the definition of “Oil and Gas Interests.”

“ Leases ” has the meaning set forth the definition of “Oil and Gas Interests.”

“ Lien ” means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest or encumbrance of any kind with respect to such asset.

“ Material Contracts ” means those Contracts (a) that are filed as exhibits to the Most Recent 10-KSB and to the Company SEC Reports that are filed with the SEC after the filing of the Most Recent 10-KSB but prior to the date hereof (b) all Contracts that are with any Affiliate of the Company, (c) all Contracts for the sale of Hydrocarbons produced from or attributable to the Oil and Gas Interests, except those sales contracts that can be terminated by Seller and its assigns upon not more than ninety (90) days notice without penalty or detriment to the Company and its assigns, (d) Contracts that create any area of mutual interest with respect to the acquisition by Parent or its assigns of any Oil and Gas Interests, and (e) that commit Parent to aggregate expenditures or receipts of more than $250,000 in any calendar year.

“ Merger ” is defined in the First Recital .

“ Merger Consideration ” is defined in Section 2.6(b).

“ Merger Sub ” is defined in the Preamble .

“ Most Recent Form 10-KSB ” is defined in Section 3.1.

“ Negotiation Period ” is defined in Section 6.7 (c).

“ Net Revenue Interest ” means an interest (expressed as a percentage or decimal fraction) in and to all oil, gas and other Hydrocarbons produced and saved from or attributable to an Oil and Gas Interest.

“ NORM ” is defined in Section 3.13(c).

“ NRS ” is defined in the Second Recital .

“ Oil and Gas Interests ” means direct and indirect interests in and rights with respect to oil and gas properties and assets of any kind and nature, direct or indirect, including working, leasehold and mineral fee interests under oil and gas leases, subleases, licenses, development licenses, exploration licenses, concessions and other leaseholds; operating rights and non-operating interests, and royalties, overriding royalties, production payments, net profit interests, other non-working interests, carried interests and other properties and interests (collectively, the “ Leases ”) and the lands covered thereby (collectively, the “ Land(s) ”); any and all Hydrocarbon, water or injection wells on or applicable to any of the foregoing thereon or applicable thereto (the “ Wells ”); any pools or units which include all or a part of any Land or include any Well (the “ Units ”) and including without limitation all right, title and interest in Hydrocarbon produced from any such Unit and revenues from the sale thereof, whether such Unit production comes from wells located on or off of the Lands, and all tenements, hereditaments and appurtenances belonging to, used or useful in connection with the Leases, Lands and Units; interests under or derived from all Contracts applicable to or by which the Leases, Lands, Wells or Units are bound or created, to the extent applicable to such properties, including operating agreements, marketing agreements (including commodity swap, collar and/or similar derivative agreements), transportation agreements, seismic data and interpretations and other licensed or owned intellectual property with respect thereto, geological and geophysical agreements, unitization, pooling and communitization agreements, joint venture agreements and farmin and farmout agreements, and orders; division orders, transfer orders and letters in lieu thereof; mineral deeds and royalty deeds; oil and gas sales, exchange and processing contracts and agreements; and in each case, interests thereunder), surface interests, fee interests, reversionary interests, reservations, and concessions; all easements, servitudes, rights of way, Permits, leases, licenses, surface rights and other interests associated with, appurtenant to, used or held for use or necessary for the operation of Leases, Lands, Wells or Units; and all interests in equipment and machinery (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing, and storage facilities (including tanks, tank batteries, pipelines, and gathering systems), pumps, water plants, electric plants, gasoline and gas processing plants, refineries, and other tangible personal property and fixtures associated with, appurtenant to, located on, used or obtained in connection with or necessary for the operation of the Leases, Lands, Wells or Units. The respective Net Revenue Interests and Working Interests set forth in Section 3.26 of the Company Disclosure Schedule shall be a part of the definition of “Oil and Gas Interests.”

“ Option ” is defined in Section 2.8(a).

“ Option Cash Amount ” is defined in Section 2.8(a).

“ Parent ” is defined in the Preamble .

“ Parent Financial Advisor ” is defined in Section 4.5.

“ Parent Material Adverse Effect ” is defined in Section 4.3(c).

“ Parent Subsidiary ” is defined in Section 4.1.

“ Paying Agent ” is defined in Section 2.7(a).

“ Permissible Defect ” means:

(a) defects or irregularities arising out of lack of corporate authorization or a variation in corporate name of record 10 years or more, unless Parent provides affirmative evidence that such corporate action was not authorized and results in another person’s superior claim of title to the relevant Oil and Gas Interest;

(b) defects or irregularities that have been cured or remedied by applicable statutes of limitation or statutes for prescription;

(c) defects or irregularities in the chain of title of record 10 years or more consisting of the failure to recite marital status in documents or omissions of heirship proceedings;

(d) defects or irregularities in title which for a period of 5 years or more have not delayed or prevented Company or the Company Subsidiaries (or such Person’s predecessor, if owned by the Company or the Company Subsidiaries less than 5 years) from receiving its share of the proceeds of production or causes it to bear a share of expenses and costs greater than its Working Interest share from any Unit or Well;

(e) defects or irregularities resulting from or related to probate proceedings or the lack thereof which defects or irregularities have been outstanding for 10 years or more;

(f) conventional rights of reassignment normally actuated by an intent to abandon or release a lease and requiring notice to the holders of such rights; and

(g) any minor defect or irregularity in title as would normally be waived by prudent persons engaged in the oil and gas business when purchasing producing properties.

(h) the terms and conditions of the Leases, including without limitation lessors’ royalties, overriding royalties, net profits interests, carried interests, production payments, reversionary interests and similar burdens, if the net cumulative effect of the burdens does not operate to reduce Company’s Net Revenue Interest below the Net Revenue Interest set forth in Section 3.26 of the Company Disclosure Schedule or increase Company’s Working Interest to more than the Working Interest set forth in Section 3.26 of the Company Disclosure Schedule (without a proportionate increase in Net Revenue Interest);

(i) division orders and sales contracts terminable without penalty upon no more than sixty (60) days notice to Parent;

(j) Preference Rights and required third party consents to assignment and similar agreements with respect to which waivers or consents are obtained from the appropriate parties, or the appropriate time period for asserting any such right has expired without an exercise of the right;

(k) all rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if they are routinely obtained subsequent to the sale or conveyance;

(l) easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations that do not materially interfere with the oil and gas operations to be conducted on any Well or Lease;

(m) all rights reserved to or vested in any Governmental Authority to control or regulate any of the Oil and Gas Interests in any manner, and all applicable laws, rules and orders of governmental authority; and

(n) the net profits interests set forth in Section 1.1 of the Company Disclosure Schedule.

Notwithstanding any other provision in this Agreement to the contrary, the foregoing matters shall not constitute a failure of Defensible Title.

“ Permits ” means all permits, consents, authorizations, approvals, registrations, licenses, certificates or variances granted by or obtained from any U.S. federal, state or local governmental, administrative or regulatory authority.

“ Permitted Liens ” means:

(a) Liens reflected in the Financial Statements;

(b) Liens for Taxes that are not yet due and payable or that are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established in accordance with GAAP;

(c) Liens in favor of Governmental Authorities, vendors, carriers, warehousemen, repairmen, mechanics, workmen, and materialmen, and construction or similar Liens arising by operation of law (including Liens securing statutory or regulatory obligations), and any other statutory liens, for taxes, assessments, labor and materials, where payment is not due (or that, if delinquent, are being contested in good faith);

(d) statutory or regulatory authority of Governmental Authorities;

(e) easements, surface leases and rights, plat restrictions, pipelines, grazing, logging, canals, ditches, reservoirs, telephone lines, power lines, railways and similar encumbrances;

(f) Liens, charges, encumbrances and irregularities in the chain of title which, because of remoteness in or passage of time, statutory cure periods, marketable title acts or other similar reasons, have not materially affected or interrupted, and are not reasonably expected to materially affect or interrupt, the claimed ownership of the Person or the receipt of production revenues from the Oil and Gas Interests affected thereby;

(g) Liens in connection with workers’ compensation, unemployment insurance or other social security (other than Liens created by Section 302(f) or Section 4068 of ERISA), old-age pension, or public liability obligations which are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

(h) Liens in favor of operators and non-operators under joint operating agreements or similar contractual arrangements arising in the ordinary course of the business to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

(i) Liens under production sales agreements, division orders, operating agreements, unitization and pooling orders, gathering and transportation agreements, processing agreements, gas, oil and liquids purchase, sale and exchange agreements and other agreements customary in the oil and gas business for processing, producing,

transporting, marketing and exchanging produced Hydrocarbons securing obligations not constituting indebtedness and provided that such Liens do not secure obligations to deliver Hydrocarbons at some future date without receiving full payment therefor within 90 days of delivery;

(j) Liens incurred in the ordinary course of business covering deposit or securities accounts in favor of the depository institution or securities intermediary holding such accounts and arising in connection with obligations of the depositor arising from any such accounts;

(k) deposits and pledges of cash securing (i) the payment or performance of bids, tenders, leases, contracts (other than for the payment of indebtedness) and statutory or regulatory obligations or (ii) obligations on surety or appeal bonds, performance and return of money bonds and similar obligations (in each case other than for payment of indebtedness) but only to the extent such deposits or pledges are incurred or otherwise arise in the ordinary course of business or secure obligations not past due;

(l) precautionary UCC financing statement filings regarding operating leases;

(m) statutory and common law landlords’ liens; and

(n) statutory Liens in favor of lessors under Leases securing obligations not past due to pay royalties.

“ Person ” means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization, limited liability company or governmental or other entity.

“ Preference Right ” shall mean any right or agreement that enables or may enable any Person to purchase or acquire any asset or any interest therein or portion thereof as a result of or in connection with (i) the sale, assignment, encumbrance or other transfer of any Asset or any interest therein or portion thereof or (ii) the execution or delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, all as listed on Section 3.34 of the Company Disclosure Schedule .

“ Proxy Statement ” is defined in Section 3.3(c).

“ Qualified Transaction Proposal ” has the meaning set forth in Section 6.7 (a).

“ Real Property Leases ” has the meaning set forth in Section 3.25 .

“ Required Company Stockholder Vote ” is defined in Section 3.11(b).

“ Reserve Reports ” is defined in Section 3.16.

“ SEC ” is defined in Section 3.3(c) .

“ Securities Act ” is defined in Section 3.4(a).

“ Subsidiary ” means with respect to any Person, another Person, an amount of the voting securities or other voting ownership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person.

“ Superior Proposal ” means any Qualified Transaction Proposal that a majority of the Board of Directors of the Company determines in its good faith judgment (after consultation with its financial advisor and outside legal counsel), (a) would, if consummated, result in a transaction that is more favorable to the Company Stockholders from a financial point of view than the transactions contemplated by this Agreement taking into account all relevant factors (including whether, in the

good faith judgment of the Board of Directors of the Company, after obtaining the advice of such financial advisor, and taking into account all material financial, legal and regulatory terms and conditions of such Qualified Transaction Proposal and this Agreement, including any alternative transaction (including any modifications to the terms of this Agreement) proposed by any other party in response to such Superior Proposal, including any conditions to and expected timing of consummation, and any risks of non-consummation, of such Qualified Transaction Proposal) and (b) can be completed without undue delay taking into account all technical, legal, financial, regulatory and other aspects of the Qualified Transaction Proposal by the Person making the Qualified Transaction Proposal.

“ Surviving Corporation ” is defined in Section 2.1.

“ Tax Return ” means any report, return, statement, declaration or other written information required to be supplied to a taxing or other Governmental Authority in connection with Taxes, including any schedules or attachments thereto, including any amendments thereto, and including any information returns.

“ Taxes ” means (a) all taxes, levies or other like assessments, charges or fees (including estimated taxes, charges and fees), including, without limitation, income, franchise, profits, corporations, advance corporation, gross receipts, transfer, excise, property, sales, use value-added, ad valorem, license, capital, wage, employment, payroll, withholding, social security, severance, occupation, import, custom, stamp, alternative, add-on minimum, environmental or other governmental taxes or charges, imposed by the United States or any state, county, local or foreign government or subdivision or agency thereof, including any interest, penalties or additions to tax applicable or related thereto (or to the nonpayment thereof); (b) all liability for the payment of any amounts of the type described in clause (a) as the result of being a member of an affiliated, consolidated, combined or unitary group; and (c) all liability for the payment of any amounts as a result of an express or implied obligation to indemnify any other person with respect to the payment of any amounts of the type described in clause (a) or clause (b).

“ Termination Date ” is defined in Section 8.1(b).

“ Transfer Requirement ” shall mean any consent, approval, authorization or permit of, or filing with or notification to, any Person which must be obtained, made or complied with for or in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated by this Agreement in order (a) to prevent any termination, cancellation, default, acceleration or change in terms (or any right thereof from arising) under any terms, conditions or provisions of any asset (or of any agreement, instrument or obligation relating to or burdening any asset) as a result of the execution or delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, or (b) to prevent the creation or imposition of any Lien, penalty or restriction, on or with respect to any asset (or any right thereof from arising) as a result of the execution or delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.

“ Units ” has the meaning set forth in the definition of “Oil and Gas Interests.”

“ Voting Agreements ” means the Voting Agreements entered into as of the date hereof among Parent and certain of the Company Stockholders, each of which is substantially in the form of Exhibit A hereto.

“ Warrant ” is defined in Section 2.8(b).

“ Warrant Cash Amount ” is defined in Section 2.8(b).

“ Wells ” has the meaning set forth in the definition of “Oil and Gas Interests.”

“ Working Interest ” means the percentage of costs and expenses attributable to the maintenance, development, operation, plugging and abandonment and remediation of Oil and Gas Interests.

ARTICLE II
THE MERGER

2.1 The Merger. Upon the terms and subject to the satisfaction or waiver of the conditions hereof, and in accordance with the applicable provisions of this Agreement and Chapter 92A of the NRS, at the Effective Time, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”).

2.2 Effective Time; Closing.

(a) The closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m. (Central time) on a date to be specified by the parties, which shall be no later than the second Business Day after satisfaction or (to the extent permitted by Applicable Law) waiver of the conditions set forth in Article VII (other than any such conditions that by their nature cannot be satisfied until the Closing Date, which shall be required to be so satisfied or (to the extent permitted by Applicable Law) waived on the Closing Date), at the offices of Thompson & Knight LLP, 333 Clay Street, Suite 3300 Houston, Texas 77002 unless another date, time or place is agreed to in writing between Parent and the Company. The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date .”

(b) On the Closing Date or as promptly as practicable thereafter, the Company shall cause the Merger to be consummated by filing articles of merger, in accordance with Chapter 92A of the NRS, with the Secretary of State of the State of Nevada in such form as required by, and executed in accordance with the relevant provisions of Chapter 92A of the NRS (the “ Articles of Merger ”) (the time of such filing (or such later time as is specified in such Articles of Merger as agreed between Parent and the Company) being the “ Effective Time ”).

2.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in Section 92A.250 of the NRS. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of the property, rights, privileges, powers and franchises of each of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of the Company and the Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.

2.4 Articles of Incorporation; Bylaws. At the Effective Time, the articles of incorporation of the Company as in effect immediately prior to the Effective Time shall be amended to read in its entirety in the form of Exhibit B hereto and, as so amended, shall be the articles of incorporation of the Surviving Corporation. At the Effective Time, the bylaws of the Company as in effect immediately prior to the Effective Time shall be amended to read in their entirety in the form of Exhibit C hereto and, as so amended, shall be the bylaws of the Surviving Corporation.

2.5 Directors and Officers.

(a) The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or the election of their successors. The Company shall cause all directors of the Company to resign immediately prior to the Effective Time.

(b) The officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or the election of their successors.

2.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any other holder of any shares of capital stock of Merger Sub or the Company:

(a) Capital Stock of Merger Sub . Each share of capital stock of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation, par value $0.001 per share, and such shares of common stock issued upon conversion of the capital stock of Merger Sub shall represent all of the outstanding shares of the Surviving Corporation.

(b) Conversion of Company Common Stock . Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares and any shares to be cancelled pursuant to Section 2.6(c) ) shall be converted automatically into the right to receive $11.00 in cash payable to the holder thereof (the “ Merger Consideration ”). As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and, subject to Section 2.6(d) , each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

(c) Treatment of Treasury Stock . Each share of Company Capital Stock held in the treasury of the Company immediately prior to the Effective Time, if any, shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto. Each share of Company Capital Stock owned by any Subsidiary of the Company shall not be cancelled at the Effective Time and shall remain outstanding.

(d) Shares of Company Common Stock of Dissenting Stockholders .

(i) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand and properly demands in writing an appraisal of the “fair value” of such shares of Company Common Stock in accordance with Sections 92A.380, 92A.420 and 92A.440 of the NRS (“ Dissenting Shares ”) shall not be converted into or otherwise represent the right to receive the applicable Merger Consideration as provided in Section 2.6 , but rather the holders of Dissenting Shares shall be entitled to payment of the fair market value of such Dissenting Shares in accordance with Section 92A.500 of the NRS; provided, that, any Dissenting Shares held by holders of Company Common Stock who shall have failed to perfect or who effectively shall have withdrawn or lost their rights for an appraisal of such shares under Chapter 92A of the NRS shall thereupon be deemed to have been cancelled and terminated, as of the Effective Time, and shall represent solely the right to receive the applicable Merger Consideration as provided in Section 2.6 , upon surrender in the manner provided in Section 2.7 , of the certificate or certificates that formerly evidenced such shares of Company Common Stock.

(ii) The Company shall give to Parent (i) notice of any written demands for appraisal received by the Company and withdrawals of such demands, and (ii) the opportunity to participate at its own expense in all negotiations and proceedings with respect to demands for appraisal under Chapter 92A of the NRS. The Company shall not, without the prior written consent of Parent (which shall not be unreasonably withheld or delayed), voluntarily make any payment with respect to any such demands, or offer to settle, or settle, any such

demands. Any amount payable to any holder of Company Common Stock exercising appraisal rights shall be paid solely by the Surviving Corporation out of its own funds.

2.7 Payment for Shares .

(a) Paying Agent. Prior to the Effective Time, Parent (i) shall designate a bank or trust company satisfactory to the Company to act as agent for the holders of Company Capital Stock in connection with the Merger (the “ Paying Agent ”) to receive in trust the funds to which holders of Company Capital Stock and Warrants shall become entitled pursuant to Section 2.6 and Section 2.8(b) and (ii) shall deposit, or cause the Merger Sub to deposit, with the Paying Agent, for the benefit of the Company’s Stockholders and holders of Warrants, cash in an amount sufficient for the payment of (x) the Merger Consideration as provided in Section 2.6 upon surrender of certificates representing the shares of Company Capital Stock as provided herein and (y) the Warrant Cash Amount as provided in Section 2.8(b) upon surrender of instruments representing the Warrants as provided herein (together, the “ Exchange Fund ”). The Paying Agent shall invest the cash included in the Exchange Fund only in obligations guaranteed by the full faith and credit of the United States of America. All interest earned on such funds shall be paid to Parent.

(b) Exchange Procedures. Promptly after the Effective Time, but in any event not later than two Business Days thereafter, the Paying Agent shall mail to each holder of record of (x) a certificate or certificates that immediately prior to the Effective Time represented shares of Company Capital Stock (the “ Company Certificates ”) or a Warrant and (y) any non-certificated shares held by book entry (“ Book Entry Shares ”), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Company Certificates or Warrants to the Paying Agent and shall be in a form and have such other provisions as Parent and Company may reasonably specify) and (ii) instructions for use in surrendering Company Certificates, Warrants and Book Entry Shares in exchange for the Merger Consideration or the Warrant Cash Amount, as the case may be, as provided in Section 2.6 . Exchange of any Book Entry Shares shall be effected in accordance with the Exchange Agent’s customary procedures with respect to securities represented by book entry. Upon surrender of a Company Certificate, Warrant or Book Entry Share for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Company Certificate or Book Entry Share shall be entitled to receive in exchange therefor the Merger Consideration and the holder of such Warrant shall be entitled to receive in exchange therefor the Warrant Cash Amount, and the Company Certificate, Book Entry Share or Warrants so surrendered shall forthwith be cancelled. Parent shall cause the Paying Agent to make all payments required pursuant to the preceding sentence promptly following the valid surrender of Company Certificates, Book Entry Shares or Warrants. In the event of a transfer of ownership of Company Capital Stock or Warrants that is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Company Certificate or Warrants so surrendered is registered, if such Company Certificate or Warrant is properly endorsed or otherwise is in proper form for transfer and the Person requesting such payment pays any transfer or other taxes required by reason ofthe payment to a Person other than the registered holder of such Company Certificate or Warrant or establishes to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.7(b) , each Company Certificate, Book Entry Share and Warrant shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration pursuant to Section 2.6 in the case of a Company Certificate or Book Entry Share and the Warrant Cash Amount in the case of a Warrant. No interest will be paid or will

accrue on the cash payable upon the surrender of any Company Certificate or Book Entry Share. All amounts payable hereunder to a holder of Company Stock shall be rounded to the nearest cent.

(c) No Further Ownership Rights in Company Capital Stock; Transfer Books. All Merger Consideration and Warrant Cash Amounts paid upon the surrender of Company Certificates, Book Entry Shares and Warrants in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the Company Capital Stock theretofore represented by such Company Certificates, Book Entry Shares and Warrants, subject, however, to the Surviving Corporation’s obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the Company on such shares of Company Capital Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time, provided that no dividends or other distribution shall be owed with respect to the Warrants. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Company Capital Stock that was outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Certificates, Book Entry Shares or Warrants are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be cancelled and exchanged for Merger Consideration or a Warrant Cash Amount, as the case may be, as provided in this Article II .

(d) No Liability. Notwithstanding anything to the contrary in this Section 2.7 , none of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any Person with respect to any Merger Consideration or Warrant Cash Amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

(e) Lost, Stolen or Destroyed Certificates. In the event any Company Certificates evidencing Company Capital Stock or Warrants are lost, stolen or destroyed, the Paying Agent shall pay to such holder the Merger Consideration required pursuant to Section 2.6 or the Warrant Cash Amount required pursuant to Section 2.8(b) , as the case may be, in exchange for such lost, stolen or destroyed Company Certificates or Warrants, upon the making of an affidavit, which shall include indemnities and the posting of a bond that are reasonably acceptable to Parent, of that fact by the holder thereof with such assurances as the Paying Agent, in its discretion and as a condition precedent to the payment of the Merger Consideration or the Warrant Cash Amount, as the case may be, may reasonably require of the holder of such lost, stolen or destroyed Company Certificates or Warrants.

(f) Withholding Taxes. Parent and Merger Sub shall be entitled to deduct and withhold, or cause the Paying Agent to deduct and withhold, from the consideration otherwise payable to a holder of Company Common Capital pursuant to this Agreement any stock transfer taxes and such amounts as are required to be withheld or deducted under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any applicable provisions of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Capital Stock with respect to which such deduction and withholding were made. The parties recognize and agree that no withholding shall be required under Section 1445 of the Code.

2.8 Options and Warrants.

(a) At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any outstanding Option (as hereinafter defined), whether vested or unvested, exercisable or unexercisable, each Option that is outstanding and unexercised immediately prior thereto shall immediately and fully vest, and subject to the terms and conditions set forth below in this Section 2.8 , each such Option shall terminate and be cancelled at the Effective Time and each

holder of an Option shall be entitled to receive from the Company, and shall receive promptly following the Effective Time in settlement of each Option an Option Cash Amount. The “ Option Cash Amount ” shall be equal to the net amount of (A) the product of (i) the excess, if any, of the Merger Consideration over the exercise price per share of such Option, multiplied by (ii) the number of shares subject to such Option, less (B) any applicable withholdings for Taxes (which withholdings shall be deposited with the appropriate taxing authority for the benefit of the holder of such Option). If the exercise price per share of any Option equals or exceeds the Merger Consideration, the Option Cash Amount therefor shall be zero. Payment of the Option Cash Amount shall be communicated to each holder of Option(s) in a written notice from the Company stating that, upon acceptance of the Option Cash Amount, such holder understands that no further payment is due to such holder on account of any Option and all of such holder’s rights under such Options have terminated. As used in this Agreement, “ Option ” means any option granted and not exercised, expired or terminated, to a current or former employee, director or independent contractor of the Company or any of the Company Subsidiaries or any predecessor thereof to purchase shares of Company Common Stock pursuant to the plans set forth in Section 2.8(a) of the Company Disclosure Schedule , or any other stock option, stock bonus, stock award, or stock purchase plan, program, or arrangement of the Company or any of the Company Subsidiaries or any predecessor thereof (“ Company Stock Plans ”) or any other contract or agreement entered into by the Company or any of the Company Subsidiaries. All amounts payable hereunder to a holder of an outstanding Option shall be rounded to the nearest cent.

(b) At the Effective Time, by virtue of the Merger, each Warrant (as hereinafter defined) shall be converted automatically into the right to receive the Warrant Cash Amount. The “ Warrant Cash Amount ” shall be equal to the net amount of the product of (i) the excess, if any, of the Merger Consideration over the exercise price per share of such Warrant, multiplied by (ii) the number of shares subject to such Warrant. If the exercise price per share of any Warrant equals or exceeds the Merger Consideration, the Warrant Cash Amount therefor shall be zero. Payment of the Warrant Cash Amount shall be payable without interest upon surrender of the instrument representing the Warrant and other documentation specified in Section 2.7(b) . As used in this Agreement, “ Warrant ” means any warrant granted and not exercised, expired or terminated, to purchase shares of Company Common Stock pursuant to the form of agreement set forth in Section 2.8(a) of the Company Disclosure Schedule . All amounts payable hereunder to a holder of an outstanding Warrant shall be rounded to the nearest cent.

(c) At the Effective Time, except as provided in this Section 2.8 , all rights under any Option and any provision of the Company Stock Plans providing for the issuance or grant of any other interest with respect to the capital stock of the Company shall be cancelled. The Company shall use its commercially reasonable efforts to ensure that, as of and after the Effective Time, except as provided in this Section 2.8 , no person shall have any rights under the Company Stock Plans or any other plan, program or arrangement with respect to securities of the Company, the Surviving Corporation or any subsidiary thereof. Prior to the Effective Time, Company shall be permitted hereunder to make any amendments to the terms of the Company Stock Plans (and any agreements thereunder) as are necessary to give effect to the transactions contemplated by this Section 2.8 .

(d) Prior to the Effective Time, Parent, Merger Sub and the Company shall use commercially reasonable efforts to cause the transactions contemplated by this Section 2.8 and any other dispositions of equity securities of the Company (including derivative securities) in connection with this Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 under the Exchange Act.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the corresponding section or subsections of the disclosure schedule of the Company dated as of the date hereof and delivered to Parent concurrently with the parties’ execution of this Agreement (the “ Company Disclosure Schedule ”), the Company hereby represents and warrants to Parent and Merger Sub as follows:

3.1 Organization. The Company and each entity that is a Subsidiary of the Company as of the date hereof (each such Subsidiary, a “ Company Subsidiary ”) is a corporation, limited liability company or partnership, as the case may be, duly organized, validly existing and in good standing (with respect to jurisdictions that recognize such concept) under the laws of the jurisdiction of its organization and has all requisite entity power and authority and all necessary government approvals to own, operate and lease its properties and to carry on its business as now conducted, except for those which have not had and would not reasonably be expected to have a Company Material Adverse Effect. The Company and each of the Company Subsidiaries is duly qualified and/or licensed, as may be required, and in good standing in each of the jurisdictions in which the nature of the business conducted by it or the character of the property owned, leased or used by it makes such qualification and/or licensing necessary, except in such jurisdictions where the failure to be so qualified and/or licensed, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. A “ Company Material Adverse Effect ” means any effect, event or change that is materially adverse to the business, assets, liabilities, condition (financial or otherwise), results of operations or prospects of the Company and the Company Subsidiaries considered as a single enterprise or that prevents or materially impedes or delays the ability of the Company to perform in all material respects its obligations under this Agreement or to consummate the transactions contemplated by this Agreement; provided, however , that any event, condition, change, occurrence or development of a state of circumstances that (i) results from changes in the United States’ economy so long as the Company is not disproportionately affected in comparison to other companies in the same industry; (ii) results solely from changes in the oil and gas exploration and production industry so long as the Company is not disproportionately affected in comparison to other companies in the same industry; and (iii) the public announcement or existence of this Agreement and the transactions contemplated hereby, shall not be considered in determining whether a Company Material Adverse Effect has occurred. Notwithstanding the foregoing, a Company Material Adverse Effect shall include, without limitation, a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, the United Kingdom or France (whether or not mandatory). The copies of the articles of incorporation and bylaws of the Company that are incorporated by reference as exhibits to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005 (the “ Most Recent Form 10-KSB ”) are complete and correct copies of such documents and contain all amendments thereto as in effect on the date of this Agreement.

3.2 Capitalization.

(a) The authorized capital stock of the Company consists of (i) 100,000,000 shares of Company Common Stock and (ii) 1,000,000 shares of Company Preferred Stock. As of the close of business on January 17, 2007; 12,598,132 shares of Company Common Stock were issued and outstanding; no shares of Company Preferred Stock were issued and outstanding; and (iii) as of the close of business on January 18, 2007, no shares of Company Common Stock were held by the Company in its treasury. Such issued and outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable and free of preemptive rights. There are no outstanding contractual obligations of the Company of any kind to redeem, purchase or otherwise acquire any outstanding shares of capital stock of the Company. Except as set forth in Section 3.2 of the Company Disclosure Schedule , as of the date of this Agreement, there are no outstanding bonds, debentures, notes or other indebtedness or warrants or other securities of the

Company having the right to vote (or, other than any outstanding options to purchase Company Common Stock, convertible into, or exchangeable for, securities having the right to vote) on any matters on which the Company Stockholders may vote.

(b) As of the close of business on January 18, 2007, there were outstanding Options to purchase 1,558,268 shares of Company Common Stock. Section 3.2(b) of the Company Disclosure Schedule sets forth the outstanding Options, the strike price of such Options, the Option Cash Amount of each such Option and the aggregate Option Cash Amount of all outstanding Options. There are no stock appreciation rights attached to the Options. As of the close of business on January 18, 2007, there were outstanding Warrants to purchase 569,938 shares of Company Common Stock at an exercise price of $7.50 per share of Company Common Stock. Section 3.2(b) of the Company Disclosure Schedule sets forth the outstanding Warrants, the Warrant Cash Amount of each such Warrant and the aggregate Cash Amount of all outstanding Warrants. Except as set forth in the preceding sentence or above in this Section 3.2 , (i) as of the close of business on January 18, 2007, no shares of capital stock or other voting securities of the Company are issued, reserved for issuance or outstanding, and (ii) there are no outstanding securities, options, warrants, calls, rights, commitments or agreements to which the Company or any of the Company Subsidiaries is a party obligating the Company or any of the Company Subsidiaries to issue or sell any additional shares of capital stock or other voting securities of the Company or of any of the Company Subsidiaries or obligating the Company or any of the Company Subsidiaries to issue or enter into any such security, option, warrant, call, right, commitment or agreement.

(c) As of the close of business on January 18 to the date of this Agreement (i) there have been no issuances by the Company of shares of capital stock or other voting securities of the Company and (ii) there have been no issuances of Options or other options, warrants or other rights to acquire capital stock of the Company.

3.3 Authorization; No Conflict.

(a) Subject to the adoption of this Agreement and approval of the Merger by the Required Company Stockholder Vote (as defined in Section 3.11(b) ), the Company has the requisite corporate power and authority to enter into and deliver this Agreement and all other agreements and documents contemplated hereby to which it is a party. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company. No other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby, except for the adoption of this Agreement by the Required Company Stockholder Vote. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Purchaser and Merger Sub, constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to the effect of (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to the rights of creditors generally and (ii) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

(b) Except as set forth in Section 3.3(b) of the Company Disclosure Schedule , neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) result in a violation or breach of the (x) certificate or articles of incorporation or bylaws of the Company or any Company Subsidiary that is a corporation, (y) the articles or certificate of formation or the limited liability company agreement of

any Company Subsidiary that is a limited liability company, or (z) the certificate of limited partnership or partnership agreement of any Company Subsidiary that is a limited partnership, or the organizational documents of any other Company Subsidiary; (ii) result in a violation or breach of or conflict with any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of the terms, conditions or provisions of, or result in the creation or imposition of any Lien upon any property or asset of the Company or the Company Subsidiaries under any Material Contract; or (iii) subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (c) below, violate any judgment, ruling, order, writ, injunction, decree, statute, law, rule or regulation applicable to the Company or any of the Company Subsidiaries or any of their respective properties or assets, other than any such event described in items (ii) or (iii) which individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(c) Except as set forth in Section 3.3(c) of the Company Disclosure Schedule , no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is necessary to be obtained or made by the Company or any Company Subsidiary in connection with the Company’s execution, delivery and performance of this Agreement or the consummation by the Company of the transactions contemplated hereby, except for (i) compliance with the NRS, with respect to the filing of the Articles of Merger, and with the relevant authorities of the other jurisdictions in which the Company is qualified to do business; (ii) compliance with the Exon-Florio Amendment; (iii) the filing with the Securities and Exchange Commission (“ SEC ”) of (A) a proxy statement relating to the Company Stockholders Meeting (as defined in Section 6.1(b) ) (such proxy statement, as amended or supplemented from time to time, the “ Proxy Statement ”), and (B) such reports under Sections 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”), as may be required in connection with this Agreement and the transactions contemplated hereby and thereby; (iv) such other filings and notifications as may be required to be made by the Company under federal, state or foreign securities laws or the rules and regulations of the Nasdaq Global Market; (v) such governmental consents, qualifications or filings as are customarily obtained or made following the transfer of interests in oil and gas properties (“ Customary Post-Closing Consents ”); (vi) compliance with the “blue sky” laws of various states; and (vii) such other consent, approval, order or authorization of, or registration, declaration or filing that, if not obtained, would not reasonably be expected to have a Company Material Adverse Effect.

3.4 Subsidiaries.

(a) Section 3.4(a) of the Company Disclosure Schedule sets forth the name and jurisdiction of organization of each Company Subsidiary. Each Significant Subsidiary (as such term is defined in Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended (the “ Securities Act ”), of the Company has been named to the extent required in the Company SEC Reports furnished to the SEC prior to the date of this Agreement. The Company owns directly or indirectly all of the capital stock or other equity securities, or other ownership interests, as applicable, in each Company Subsidiary, free and clear of all Liens except for restrictions imposed by applicable securities laws. The Company does not directly or indirectly own any interest in any other corporation, partnership, joint venture or other business association or entity except as set forth in Section 3.4(a) of the Company Disclosure Schedule .

(b) All of the outstanding shares of capital stock or other equity securities of, or other ownership interests in, each Company Subsidiary are duly authorized, validly issued, fully paid and nonassessable. There are no subscriptions, options, warrants, calls, rights, convertible securities or

other agreements relating to the issuance of any of the capital stock or other equity interests of, or other ownership interests in, any Company Subsidiaries.

3.5 SEC Reports and Financial Statements.

(a) Since January 1, 2004, the Company has filed with the SEC all forms, reports, schedules, registration statements, definitive proxy statements and other documents (collectively, the “ Company SEC Reports ”) required to be filed by the Company with the SEC. As of their respective dates, and giving effect to any amendments or supplements thereto filed prior to the date of this Agreement, the Company SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, and the respective rules and regulations of the SEC promulgated thereunder applicable to the Company SEC Reports, and at the time they were filed (or if amended or superseded, then on the date of such filing) the Company SEC Reports did not contain, and any Company SEC Reports filed with the SEC subsequent to the date of this Agreement will not contain, any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No Company Subsidiary is currently required to file any form, report or other document with the SEC under Section 12 of the Exchange Act.

(b) As of their respective dates, the Financial Statements complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, having been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the periods involved (except as otherwise noted therein) and presented fairly the consolidated financial position and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal year-end adjustments). Except as set forth in Section 3.5(b) of the Company Disclosure Schedule or as reflected in the Financial Statements, the Company has no accrued, contingent or other liabilities of any nature, either matured or unmatured, other than normal and recurring current liabilities incurred in the ordinary course of business and consistent with past practice since September 30, 2006 or in connection with this Agreement or the transactions contemplated hereby and that, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect.

3.6 Disclosure Controls. The management of the Company has (i) designed disclosure controls and procedures (as defined under the Exchange Act) to ensure that material information relating to the Company, including the Company Subsidiaries, is made known to the management of the Company by others within those entities, and (ii) disclosed, based on its most recent evaluation, to the Company’s auditors and the audit committee of the Board of Directors of the Company (A) all significant deficiencies in the design or operation of internal control over financial reporting (as defined under the Exchange Act) which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal control over financial reporting (as defined under the Exchange Act) and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting (as defined under the Exchange Act). A summary of such disclosure made by management to the Company’s auditors and audit committee is set forth in Section 3.6 of the Company Disclosure Schedule .

3.7 Absence of Certain Changes. Since January 1, 2006 and except (A) as set forth in Section 3.7 of the Company Disclosure Schedule , (B) for the execution and delivery of this Agreement and changes in its properties or business attributable to the transactions contemplated by this Agreement, and (C) as

disclosed in the Financial Statements or in the Company SEC Reports, neither the Company nor any of the Company Subsidiaries:

(i) had any change in its financial condition or businesses, assets or liabilities, other than changes which have not had, individually or in the aggregate, a Company Material Adverse Effect;

(ii) suffered any damage, destruction or loss of physical property (not adequately covered by insurance) that, individually or in the aggregate, has had a Company Material Adverse Effect;

(iii) issued, sold or otherwise disposed of, or, redeemed, purchased or otherwise acquired, or agreed to issue, sell or otherwise dispose of, redeem, purchase or otherwise acquire, any capital stock or any other security of the Company or any of the Company Subsidiaries or granted or agreed to grant any option, warrant or other right to subscribe for or to purchase any capital stock or any other security of the Company or any of the Company Subsidiaries, other than in connection with the relinquishment of shares by employees and directors of the Company in payment of withholding tax upon the vesting of restricted stock or forfeiture of shares due to termination of employment or Company Common Stock issuable upon the exercise of options outstanding on the date hereof;

(iv) acquired or agreed to acquire by merging or consolidating with, or by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; or otherwise acquired or agreed to acquire any amount of assets other than in the ordinary course of business;

(v) other than sales of Hydrocarbons in the ordinary course of business, sold, leased, or otherwise disposed of, or agreed to sell, transfer, lease (whether such lease is an operating or capital lease), encumber or otherwise dispose of (A) any portion of its properties or assets to any director or officer of the Company or of any Company Subsidiary or any member of the family or any other Affiliate of any of the foregoing or (B) any portion of its properties or assets, except in the ordinary course consistent with past practice and as to which the aggregate value does not exceed $100,000;

(vi) split, combined or reclassified any outstanding shares of its capital stock;

(vii) amended its articles of incorporation or bylaws or, in the case of the Company Subsidiaries, their respective constituent documents;

(viii) incurred or agreed to incur any material indebtedness for borrowed money;

(ix) mortgaged, pledged, encumbered or subjected to any material Lien, or agreed to mortgage, pledge or subject to any material Lien any of its material properties or assets;

(x) declared, set aside or paid any dividend or made any distribution (whether in cash, property or stock) with respect to any of its capital stock;

(xi) except in connection with the routine promotions of employees or to the extent required in a written Contract (including any Company Employee Benefit Plan) in existence as of the date hereof, (A) granted or increased any severance or termination pay to any director, executive officer or employee of the Company or any Company Subsidiary; (B) increased the benefits payable under any existing severance or termination pay policies or employment agreements; (C) increased the compensation, bonus or other benefits of current or former directors, executive officers or employees of the Company or any Company Subsidiary; (D) paid any bonus or similar compensation to any director, officer or employee of the Company or any Company Subsidiary in excess of $50,000, or (E) adopted or established any new employee benefit plan or, except as required by Applicable Law, amended in any material respect any existing employee benefit plan; or (E) taken any action that would result in its incurring any obligation for any payments or benefits

described in subsections (i), (ii) or (iii) of Section 3.10(c) (without regard to whether the transactions contemplated by this Agreement are consummated), except to the extent required in a written Contract in existence as of the date hereof;

(xii) executed or amended (other than as required by existing employee benefit plans or employment agreements or by Applicable Law) in any material respect any employment, consulting, severance or indemnification agreement between the Company or any of the Company Subsidiaries and any of their respective directors, officers, agents, consultants or employees;

(xiii) except in the ordinary course of business and to the extent such action will be binding on the Company, any of the Company Subsidiaries or Parent after the Closing Date: (A) made any material changes in its reporting for Taxes or accounting methods other than as required by GAAP or Applicable Law; (B) made or rescinded any material Tax election or filed any material amended Tax return; (C) made any material change to its method or reporting income, deductions or other Tax items for Tax purposes; or (D) settled or compromised any Tax liability;

(xiv) terminated, or been notified in writing of the likely termination of, a material contract with a lessor, a service provider, a government agency or a national insurance carrier or any other material contract regarding the exploration or production of Hydrocarbons;

(xv) neither the Company nor any of the Company Subsidiaries has entered into a contract or arrangement with an individual or entity providing for the rendering of services by such person as an employee of or contractor to the Company under which, during the last 12 months, the Company was obligated or became committed to pay in excess of $150,000 or under which, during the next 12 months, the Company is reasonably expected to pay or to become obligated to pay in excess of $150,000, except for such contracts that are terminable by the Company upon 90 days (or less) advance notice without penalty;

(xvi) except as otherwise required or provided for in this Agreement and except in the ordinary course of business, made or permitted any material amendment or termination of any material contract, lease, concession, franchise, license, indenture, instrument, mortgage, note, loan or credit agreement or other obligation to which it is a party;

(xvii) had any resignation or termination of employment of any of its key officers or employees, or become aware of any impending or threatened termination of employment, that would, individually or in the aggregate, have a Material Adverse Effect on the Company;

(xviii) had any labor trouble or concerted work stoppage or has Knowledge of any impending or threatened labor trouble or concerted work stoppage;

(xix) canceled, or agreed to cancel, any debts or claims over $250,000 in the aggregate or $100,000 individually other than in the ordinary course of business;

(xx) made any material change in its accounting methods or practices with respect to its condition, operations, business, properties, assets or liabilities;

(xxi) entered into any material transaction not in the ordinary course of its business;

(xxii) made any charitable or political contribution or pledge in excess of $50,000 in the aggregate;

(xxiii) agreed or committed to do, or authorized or approved any action looking to, any of the foregoing; or

(xxiv) non-consented or agreed to non-consent with respect to any Oil and Gas Interests.

3.8 Litigation. Except as set forth in Section 3.8 of the Company Disclosure Schedule , (a) there are no lawsuits, claims, proceedings or governmental investigations, either at law or in equity, before any Governmental Authority, pending or, to the Knowledge of the Company, threatened, to which the Company or any of the Company Subsidiaries is a party that (i) seeks to delay, prevent or restrict the consummation of the transactions contemplated by this Agreement, (ii) questions the validity of legality of this Agreement or (iii) would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Except as set forth in Section 3.8 of the Company Disclosure Schedule , none of the Company nor any of the Company Subsidiaries, nor any of their respective properties or assets, is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement, continuing investigation (other than regularly scheduled audits) by any Governmental Authority, or any judicial, administrative or arbitral judgment, order, writ, decree, injunction, restraint or award of any Governmental Authority, including without limitation cease-and-desist or other orders. Neither the Company nor any of the Company Subsidiaries has agreed to, or is bound by, any extension or waiver of the statue of limitations relating to any pending or potential action, suit, claim proceeding or investigation involving the Company or any of the Company Subsidiaries.

3.9 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the Company Stockholders or at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act. No representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent, Merger Sub or Affiliates thereof for inclusion or incorporation by reference in the Proxy Statement.

3.10 Employee Plans.

(a) Section 3.10(a) of the Company Disclosure Schedule sets forth a true and complete list of each Company Employee Benefit Plan. True, correct and complete copies of the following documents, if applicable, have been provided or made available to Parent: (a) the Company Employee Benefit Plans and related trust documents, and amendments thereto; (b) the most recent Form 5500; (c) the most recent Internal Revenue Service determination or opinion letter; and (d) summary plan descriptions and modifications thereto.

(b) As to all Company Employee Benefit Plans except as set forth in Section 3.10(b) of the Company Disclosure Schedule: (i) all Company Employee Benefit Plans comply and have been administered in all material respects in accordance with their terms and all applicable requirements of law and no event has occurred which will or could cause any such Company Employee Benefit Plan to fail to comply in all material respects with such requirements and no notice has been issued by any governmental authority questioning or challenging such compliance; (ii) none of the Company, any Company Subsidiary or any of their ERISA Affiliates has engaged in any prohibited transaction (within the meaning of section 4975 of the Code or section 406, 407 or 408 of ERISA); (iii) there have been no acts or omissions by the Company, any Company Subsidiary or any of their ERISA Affiliates that have given rise to fines, penalties, taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or 100 of the Code for which the Company or any Company Subsidiary may be liable; (iv) there are no actions, suits or claims (other than routine claims for benefits) pending or threatened involving any Company Employee Benefit Plan or the assets thereof; and (v) each Company Employee Benefit Plan which is an employee pension benefit plan (within the meaning of section 3(2) of ERISA) that is intended to qualified under section 401(a) of the Code is the subject of a favorable determination or opinion letter issued by the Internal Revenue Service (“ IRS ”) with respect to the qualified status of such plan under section 401(a) of

the Code and the tax-exempt status of any trust which forms a part of such plan under section 501(a) of the Code, all amendments to any such plan for which the remedial amendment period (within the meaning of section 401(b) of the Code and applicable regulations) has expired are covered by a favorable IRS determination or opinion letter, and no event has occurred which will or could give rise to disqualification of any such plan under such sections; (vi) none of the assets of any Company Employee Benefit Plan are invested in employer securities or employer real property. Neither the Company nor any Company Subsidiary has any liability or contingent liability for providing, under any Company Employee Benefit Plan or otherwise, any post-retirement medical or life insurance benefits, other than statutory liability for providing group health plan continuation coverage under Part 6 of Title I of ERISA and section 4980B of the Code or applicable state law.

(c) There have been no act or omission that would impair the ability of the Company or any Company Subsidiary (or any successor thereto) to unilaterally amend or terminate any Company Employee Benefit Plan.

(d) None of the Company Employee Benefit Plans is subject to Title IV of ERISA and none of the Company Employee Benefit Plans is a multiemployer plan (as defined in section 3(37) of ERISA).

3.11 Board Recommendation; Company Action; Requisite Vote of the Company’s Stockholders.

(a) The Board of Directors of the Company has, by resolutions duly adopted by the requisite vote of the directors present at a meeting of such board duly called and held on January 18, 2007 and as of the date of this Agreement not subsequently rescinded or modified in any way, unanimously (i) determined that this Agreement, the Merger, in accordance with the terms of this Agreement, and the other transactions contemplated hereby are advisable and in the best interests of the Company and the Company Stockholders; (ii) approved and adopted this Agreement and approved the Merger and the other transactions contemplated hereby; (iii) directed that this Agreement be submitted for consideration by the Company Stockholders and recommended that the Company Stockholders adopt this Agreement (provided that any change in or modification or rescission of such recommendation by the Board of Directors of the Company in accordance with Section 6.8 shall not be a breach of the representation in this clause (iii)). The Board of Directors of the Company has received from BMO Capital Markets Corp. an opinion to the effect that, as of the date of the opinion, the Merger Consideration to be received in the Merger by holders of Company Capital Stock is fair to such holders from a financial point of view.

(b) The affirmative vote of the holders of a majority of the outstanding Company Common Stock as of the record date (the “ Required Company Stockholder Approval ”) is the only vote of the holders of any class or series of Company Capital Stock necessary to approve the Merger.

3.12 Taxes. Except as set forth in Section 3.12 of the Company Disclosure Schedule:

(a) Each of the Company and each Company Subsidiary has filed all material federal, state, local and other Tax Returns required to be filed by it through the date hereof in the manner prescribed by Applicable Law and all such Tax Returns were complete and correct in all material respects. All Taxes shown as due on such Tax Returns have been paid in full and the Company and each Company Subsidiary have made adequate provision (or adequate provision has been made on its behalf) for all accrued Taxes not yet due. The accruals and reserves for Taxes reflected in the Most Recent Form 10-KSB are sufficient as of their respective dates to cover all Taxes accruing through such date. The Company and the Company Subsidiaries have withheld and paid over all material Taxes required to have been withheld and paid over, and complied in all material respects with all information reporting and backup withholding requirements, including the maintenance of

required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party. Except as would not reasonably be expected to have a Company Material Adverse Effect, all hedging transactions entered into by the Company or any of the Company Subsidiaries have been properly identified for U.S. federal income tax purposes. The Company has made available to Parent correct and complete copies of all material Tax Returns, and examination reports of any Governmental Authority and statements of deficiencies assessed by any Governmental Authority against or agreed to by the Company and by any of the Company Subsidiaries since January 1, 2003.

(b) As of the date of this Agreement, no material federal, state, local or foreign audits or other administrative proceedings or court proceedings are currently pending with regard to any Taxes or Tax Returns of the Company or any Company Subsidiary, and neither the Company nor any Company Subsidiary has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. No material deficiencies have been asserted in writing against the Company or any Company Subsidiary as a result of examinations by any state, local, federal or foreign taxing authority, and, to the Knowledge of the Company, no material issue has been raised by any examination conducted by any state, local, federal or foreign taxing authority that, by application of the same principles, would reasonably be expected to result in a proposed deficiency for any other period not so examined which deficiency (or deficiencies), in either case, is not (or are not) adequately reserved for in the most recent Financial Statements in accordance with GAAP. No claim is pending and no claim has ever been made that has not been resolved by an authority in a jurisdiction where the Company or any of the Company Subsidiaries does not file Tax Returns that the Company or any Company Subsidiary, as the case may be, is or may be subject to Tax in that jurisdiction. Neither the Company nor any of the Company Subsidiaries has received or requested any ruling of a Governmental Authority relating to Taxes or entered into any material written or legally binding agreement with a Governmental Authority relating to Taxes. There are no Liens for Taxes upon any of the properties or assets of the Company and the Company Subsidiaries except in each case for Permitted Liens.

(c) Neither the Company nor any Company Subsidiary has requested any extension of time within which to file any material Tax Return which Tax Return has not yet been filed. There are no agreements or waivers of statutes of limitations providing for extensions of time with respect to the assessment or collection of any unpaid Taxes against the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary has been a party to a “listed transaction” within the meaning of Treas. Reg. Sec. 1.6011-4(b). Neither the Company nor any Company Subsidiary is a party to any Tax allocation or sharing agreement that will not be terminated on or before the Closing Date.

(d) Neither the Company nor any Company Subsidiary is a party to any Contract that would give rise to the payment of any amount of employee compensation that would fail to be deductible by reason of Section 280G of the Code or that would be subject to the excise tax under Section 4999 of the Code, or, to the Knowledge of the Company, that would not fail to be deductible by reason of Sections 162(a)(1), 162(m) or 162(n) of the Code.

(e) Neither the Company nor any Company Subsidiary has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company). To the Knowledge of the Company, neither the Company nor any Company Subsidiary has been notified in writing that it will be required to incur any material liability for Taxes of any Person (other than the Company or a Company Subsidiary) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) with respect to any Tax claim that has been made by a Taxing authority with respect to such other Person as a transferee or successor, by Contract or otherwise.

(f) None of the assets of the Company or any Company Subsidiary constitute tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code, and none of such assets is subject to a lease, safe harbor lease or other arrangement as a result of which the Company or any of the Company Subsidiaries is not treated as the owner for U.S. federal income tax purposes.

(g) In the past five years, neither the Company nor any of the Company Subsidiaries has been a party to a transaction that has been reported as a reorganization within the meaning of Section 368 of the Code or has been distributed as a corporation (or been distributed) in a transaction that is reported to qualify under Section 355 of the Code.

(h) Neither the Company nor any of the Company Subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary change in accounting method initiated by the Company or any of the Company Subsidiaries and the Company has no Knowledge that the IRS has proposed any such adjustment or change in accounting method.

3.13 Environmental Matters. Except as disclosed in the Company’s Phase I and Phase II Reports listed on Section 3.13 of the Company Disclosure Schedule :

(a) The Company and the Company Subsidiaries have conducted their businesses and operated their assets, and are conducting their businesses and operating their assets, in material compliance with all Environmental Laws. Other than Oil and Gas Interests, the condition of all facilities and properties currently or formerly owned, leased or operated are, or were at the time owned, leased or operated, in material compliance with all Environmental Laws. To the Knowledge of the Company, all Oil and Gas Interests in which the Company holds, or held, an interest are, or were at the time the interest was held, in material compliance with Environmental Laws.

(b) The Company and the Company Subsidiaries are, and have been, in possession of all Environmental Permits required for their operations, and are, and have been, in compliance with all of the requirements and limitations included in or applicable to such Environmental Permits. The Company and the Company Subsidiaries have timely filed applications for the renewal of such Environmental Permits as may be necessary. To the Knowledge of the Company, there are no facts or circumstances that could reasonably be expected to lead to the suspension, cancellation, or revocation of any existing Environmental Permit or the denial of applications for the renewal of any such Environmental Permits on terms less favorable than what are currently in effect. There are no pending administrative, judicial or alternative dispute resolution proceedings related to any Environmental Permits.

(c) The Company has not been notified by any Governmental Authority or other Person that any of the operations or assets of the Company or the Company Subsidiaries or any Oil and Gas Interest is the subject of any investigation or inquiry by any Governmental Authority or other Person regarding (i) the violation of or liability under any Environmental Law; (ii) the evaluation of whether any material remedial action is required pursuant to Environmental Law to respond to a release or threatened release of any Hazardous Material; (iii) the storage or disposal (including storage or disposal at offsite locations) of any Hazardous Material in violation of any Environmental Law. The Company has received no written notice, request for survey or other communication from the Railroad Commission of Texas, the Environmental Protection Agency or any Governmental Authority regarding Naturally Occurring Radioactive Material (“ NORM ”), with respect to the Oil and Gas Interests. To the Company’s Knowledge, there has been no survey or test conducted to determine the levels of NORM on the Oil and Gas Interests.

(d) The Company has not received any claim, complaint, notice, inquiry or request for information involving any administrative, judicial or alternative dispute resolution proceeding which

remains unresolved as of the date hereof with respect to any alleged violation of any Environmental Law or regarding potential liability under any Environmental Law relating to operations or conditions of any facilities, Oil and Gas Interests or properties (including off site storage or disposal of any Hazardous Material from such facilities or properties) currently owned, leased or operated by the Company or the Company Subsidiaries or formerly owned, leased or operated by the Company or the Company Subsidiaries or in which an interest is held by the Company or a Company Subsidiary.

(e) To the Company’s Knowledge, no property or Oil and Gas Interest now or previously owned, leased, operated or in which an interest is or was held by the Company, or to which the Company transported, or arranged for the transportation of, any Hazardous Material is listed on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal or state list as sites requiring investigation or cleanup.

(f) There is no presence of Hazardous Substances existing on any property owned or leased by the Company or the Company Subsidiaries resulting from the Company’s or the Company Subsidiaries’ operations or activities, past or present, at any location that give rise to any on-site or-off site remedial obligations under any applicable Environmental Laws, other than normal and ordinary remedial work associated with plugging and abandoning of oil and gas facilities.

(g) Other than Oil and Gas Interests, there are no sites, locations or operations at which Company or the Company Subsidiaries are currently undertaking, or have completed, any remedial or response actions under the oversight of a Governmental Authority relating to any disposal or release of Hazardous Materials. To the Knowledge of the Company, there are no Oil and Gas Interests at which any remedial or response actions under the oversight of a Governmental Authority relating to any disposal or release of Hazardous Materials is currently being undertaken or has been completed.

(h) All underground storage tanks and solid waste disposal facilities owned or operated by Company or the Com

SITE SEARCH

AGREEMENTS / CONTRACTS

CLAUSES

Search Contract Clauses >>

Browse Contract Clause Library>>

Get Email Updates