AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

Execution Version

AGREEMENT AND PLAN OF MERGER

by and among

THE EXPLORATION COMPANY OF DELAWARE, INC.,

OUTPUT ACQUISITION CORP. and

OUTPUT EXPLORATION, LLC

Dated as of February 20, 2007

TABLE OF CONTENTS

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TABLE OF CONTENTS

(continued)

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TABLE OF CONTENTS

(continued)

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Exhibits

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TABLE OF CONTENTS

(continued)

Disclosure Letter with Disclosure Schedules

Oil and Gas Subset of Schedules to Disclosure Letter

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Execution Version

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger, dated as of February 20, 2007 (this " Agreement "), is made by and among The Exploration Company of Delaware, Inc., a Delaware corporation (" Parent "), Output Acquisition Corp., a Texas corporation and a wholly-owned Subsidiary of Parent (" Sub "), and Output Exploration, LLC, a Delaware limited liability company (the " Company "). Parent, Sub and the Company are each a "party" and together are "parties" to this Agreement. Capitalized terms used herein are defined or cross-referenced in Section 11.3 of this Agreement. The Stakeholders' Representative, upon appointment, shall also enter into and deliver this Agreement.

W I T N E S S E T H

WHEREAS, the Boards of Directors of Parent and Sub and the Board of Representatives of the Company have each approved the merger of the Company with and into Sub (the " Merger "), upon the terms and subject to the conditions set forth in this Agreement, whereby the issued and outstanding units of the membership interests of the Company (excluding units owned, directly or indirectly, by the Company or any Subsidiary of the Company or by Parent, Sub or any other Subsidiary of Parent, which units will be canceled and retired without payment of any consideration) will be canceled and retired and converted into the right to receive the Merger Consideration;

WHEREAS, Parent, Sub, and the Company desire to prescribe various conditions to the Merger; and

WHEREAS, the holders of Company Units representing a majority of the issued and outstanding Company Units entitled to vote on the Merger have, by written consent in lieu of a special meeting of the holders of Company Units entitled to vote thereon, approved the Merger and the terms and conditions of this Agreement;

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows:

ARTICLE I

THE MERGER

Section 1.1   The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the " DGCL ") and the Delaware Limited Liability Company Act (the " DLLCA "), the Company shall be merged with and into Sub at the Effective Time. Upon the Effective Time, the separate existence of the Company shall cease, and Sub shall continue as the surviving corporation in the Merger (the " Surviving Corporation ").

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Section 1.2   Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article IX and subject to the satisfaction or waiver of the conditions set forth in Article VI, the closing of the Merger (the " Closing ") shall take place at 10:00 a.m. on the second business day following the date on which the last of the conditions to be fulfilled or waived set forth in Article VI shall be fulfilled or waived in accordance with this Agreement (the " Closing Date "), at the offices of Haynes and Boone, LLP, legal counsel to the Company, located at 1221 McKinney Street, Suite 2100, Houston, Texas 77010, unless another date, time or place is agreed to in writing by the parties hereto; provided, however, that it is acknowledged and agreed that the Closing Date shall be extended to April 2, 2007 to the extent required for Parent to arrange for its financing for the transactions contemplated by this Agreement despite all conditions to Closing having previously been fulfilled or waived. The Closing may, with the consent of all parties thereto, take place by delivering an exchange of documents by facsimile transmission or electronic mail with originals to follow by overnight mail service or courier.

Section 1.3   Effective Time. The parties hereto shall file with the Secretary of State of the State of Delaware (the " Delaware Secretary of State ") on the Closing Date (or on such other date as Parent and the Company may agree) a certificate of merger (the " Certificate of Merger ") and/or other appropriate documents, executed in accordance with the relevant provisions of the DGCL and the DLLCA, and make all other filings or recordings required under the DGCL or the DLLCA in connection with the Merger. The Merger shall become effective upon the filing of the Certificate of Merger with the Delaware Secretary of State, or at such later time as is specified in the Certificate of Merger (the " Effective Time ").

Section 1.4   Effects of the Merger. The Merger shall have the effects set forth in the DGCL and the DLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Sub shall be and become the debts, liabilities and duties of the Surviving Corporation. For income Tax purposes, the Merger will be treated as (i) a sale of assets by the Company to Sub in exchange for the Merger Consideration and Sub's assumption of the Company's liabilities immediately followed by (ii) a complete liquidation of the Company. The parties hereto will characterize the Merger as such for purposes of all income Tax Returns.

Section 1.5   Certificate of Incorporation; Bylaws. The Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time, and as set forth on Exhibit A attached hereto, shall be the Certificate of Incorporation of the Surviving Corporation until amended in accordance with applicable law. The Bylaws of Sub as in effect immediately prior to the Effective Time, and as set forth on Exhibit B attached hereto, shall be the Bylaws of the Surviving Corporation until amended in accordance with applicable law.

Section 1.6   Directors. The directors of Sub immediately prior to the Effective Time shall become the directors of the Surviving Corporation at and as of the Effective Time (retaining their respective terms of office).

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Section 1.7   Officers. The officers of Sub immediately prior to the Effective Time shall become the officers of the Surviving Corporation at and as of the Effective Time (retaining their respective positions and terms of office).

ARTICLE II

EFFECT OF THE MERGER ON THE SECURITIES OF THE

CONSTITUENT COMPANIES

Section 2.1   Effect of the Merger. As of the Effective Time, by virtue of the Merger and without any further action on the part of the holders of any membership units of the Company (the " Company Units ") or of the holders of any shares of capital stock of Sub:

(a)   Shares of Sub. Each share of capital stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully-paid and non-assessable share of common stock of the Surviving Corporation.

(b)   Cancellation of Treasury Stock and Parent-Owned Capital Stock. All Company Units issued and outstanding immediately prior to the Effective Time that are owned by the Company or by any Subsidiary of the Company or by Parent, Sub or any other Subsidiary of Parent shall automatically be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor.

(c)   Company Units . Other than Company Units to be canceled and retired without any consideration being delivered therefor as provided in Section 2.1(b), each Company Unit issued and outstanding immediately prior to the Effective Time (the " Converting Units ") shall automatically be converted into and become (i) a right to receive an amount, in immediately available funds, equal to the aggregate amount in the Payment Fund divided by the number of Converting Units together with the number of Unit Equivalents, as shown on Exhibit 2.2 plus (ii) a contingent right to receive a portion of each distribution, if any, from the Expense Account and the Reserve Account to the holders of Converting Units pursuant to Section 2.4(g), Section 2.4(h) and Section 2.6(d), as applicable, with such portion to equal the amount of such distribution divided by the number of Converting Units together with the number of Unit Equivalents, as shown on Exhibit 2.2 (such right in clause (i) and such contingent right in clause (ii) referred to collectively as the " Merger Consideration ").

(d)   Cancellation and Retirement of Company Units. As of the Effective Time, all Company Units issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of any such Company Units shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon delivery of a Letter of Transmittal in accordance with Section 2.5.

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(e)   Warrants and Options . The Company shall take such action in order that, prior to the Effective Time, all warrants issued by the Company, whether then exercisable (the " Warrants "), and all options granted by the Company, including without limitation those granted under any Company option plan or agreement (collectively, as such plans or agreements may have been amended, supplemented or modified from time to time, the " Option Plans "), that are unexercised, whether then exercisable (the " Options "), shall have been extinguished and those Warrants and Options that are "in-the-money" shall be converted into a right to receive an amount in cash equal to their appropriate share of the Merger Consideration as provided in Section 2.2, reduced by the exercise price of that respective Option or Warrant, and that the holders of Warrants and Options shall have no other rights with respect thereto. All Options, Warrants and all Option Plans shall be terminated as of the Effective Time.

Section 2.2   Stakeholders. At the Effective Time, all Warrants and Options and all rights under Contingent Payment Agreements and Earn Out Agreements will be converted, based upon cashless exercise principles and the terms of such instruments, into an economic equivalent number of Converting Units (" Unit Equivalents "), as reflected, with the holders of Converting Units, on Exhibit 2.2 . Holders of Converting Units and the holders of Unit Equivalents are collectively referred to as the " Stakeholders ." Stakeholders will be entitled to an appropriate share of the Merger Consideration, distributions from the Expense Account pursuant to Section 2.4(g) and Section 2.4(h), distributions from the Reserve Account pursuant to Section 2.6(d) and distributions of the Restructuring Transactions proceeds other than Moon Bend Proceeds on the basis reflected in Exhibit 2.2 .

Section 2.3   Rights. The Company shall, prior to the Effective Time, (a) ensure that all restrictions on the transfer of Company Units and Unit Equivalents under the Certificate of Formation of the Company (the " Certificate of Formation "), the Limited Liability Company Agreement of the Company (the " Investors Agreement ") and any other contract, agreement, arrangement or understanding to which the Company is a party or by which it, the Company Units or Unit Equivalents are bound shall not apply to the Merger or the other transactions contemplated by this Agreement and (b) solicit from each beneficiary of the Contingent Payment Agreements and the Earn Out Agreements written agreement, in the form of Exhibit 2.3 (which exhibit shall be attached to this Agreement by mutual agreement of Parent and the Company no later than five (5) business days after the date of this Agreement) (each, a " Holders' Agreement "), that the consideration to be provided to such beneficiary pursuant to this Agreement shall be the sole and exclusive consideration to which such beneficiary is entitled pursuant thereto, that each such Contingent Payment Agreement and Earn Out Agreement shall at all times after the Effective Time represent only the right to receive the portion of the Merger Consideration to which such beneficiary is entitled pursuant to this Agreement and that each such Contingent Payment Agreement and Earn Out Agreement shall, for all other purposes, be deemed terminated and of no further force and effect following the Effective Time.

Section 2.4   Funding Obligations and Certain Disbursements.

(a)   Deposit . Parent shall deposit, or shall cause to be deposited, the sum of Two Million Dollars ($2,000,000) with the Escrow Agent by check, wire transfer or other form of immediately available or same day funds upon execution and delivery of this Agreement. The term " Deposit " means, as of a particular time, the sum deposited with the Escrow Agent by Parent pursuant to this Section 2.4(a), together with interest accrued and paid or payable by the Escrow Agent thereon at such time. The Escrow Agent shall hold the amounts deposited with the Escrow Agent hereunder in escrow in an interest-bearing account pursuant to the terms of an escrow agreement executed by Parent, the Company, and the Escrow Agent as of the date hereof in the form materially similar to that set forth in Exhibit 2.4(a) hereto (the " Deposit Escrow Agreement ").

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(b)   Disposition of the Deposit. If the parties consummate the contemplated Merger in accordance with the terms hereof, the parties shall instruct the Escrow Agent to transfer the Deposit to the Payment Fund to be applied to the Merger Consideration. If this Agreement is terminated for any reason other than by the Company pursuant to Section 9.1(d), the parties shall instruct the Escrow Agent, within two (2) business days of such termination, to promptly return the Deposit to Parent. If this Agreement is terminated by the Company pursuant to Section 9.1(d), the parties shall instruct the Escrow Agent, within two (2) business days of such termination, to promptly deliver the Deposit to the Company as compensation for its compliance following execution of this Agreement with Article IV. The parties agree that damage to the Company from any failure or refusal by Parent to perform its obligations under this Agreement would be difficult or impossible to determine with precision, and the balance of the Deposit at the time of such termination pursuant to Section 9.1(d) is a reasonable and fair estimate of such damages.

(c)   Parent's Funding Obligations at Closing. At Closing, Parent shall:

(i)   deposit, or shall cause to be deposited, into an escrow account with the Reserve Agent intended to comply with exemptions under applicable federal and state securities laws (the " Reserve Account "), a stock certificate or certificates, issued in the name of the Reserve Agent for the further benefit of the Stakeholders' Representative, representing a number of fully-paid, non-assessable, validly authorized and issued shares of common stock, par value $0.01 per share, of Parent (" Parent Common ") equal in number to $4,000,000 divided by the Deal Stock Price with any fractional share disregarded (the shares of Parent common stock deposited into the Reserve Account are referred to herein as the " Reserve Shares ");

(ii)   pay, or shall cause to be paid, in full the Debt as of the Closing Date (other than the Product Hedging Contracts) in accordance with the payoff letters from the creditors and lenders of the Debt as provided by the Company to Parent at least one (1) business day prior to the Closing Date;

(iii)   pay off or assume, or shall cause to be paid off or assumed (if, in the case of such an assumption, agreement can be reached with Wells Fargo, the current counterparty to the Product Hedging Contracts), in full, all amounts due under the Product Hedging Contracts;

(iv)   deposit, or shall cause to be deposited, into a segregated expense account (the " Expense Account ") with the Paying Agent, an amount in cash (the " Expense Deposit ") equal to (A) the aggregate amount of Deferred Adjustment Claims, plus (B) the amount of the Employee Retention Bonuses, and plus (C) the amount of Sellers' Expenses set forth in a notice delivered to Parent at least two (2) business days prior to Closing (the " Sellers' Expenses Allowance "); and

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(v)   in addition to the deposit of the Deposit, deposit, or shall cause to be deposited, into a segregated payment account with the Paying Agent (the " Payment Fund "), an amount in cash (the " Distribution Deposit ") equal to:

(A)   $87,000,000, as such amount is adjusted pursuant to Section 2.8(d) and Section 2.12,

plus

(B)   an amount equal to the net cash proceeds received by OPEX from its sale of the Moon Bend field (the " Moon Bend Proceeds ") (which net proceeds are to be retained by OPEX following the Effective Time),

plus

(C)   $4,637,425 (the amount of working capital shown on the Latest Balance Sheet),

minus

(D)   the Deposit (including all earnings thereon),

minus

(E)   the Expense Deposit,

minus

(F)   $60,253,766 (the amount of Debt, other than Product Hedging Contracts, reflected on the Latest Balance Sheet),

minus

(G)   the aggregate amount of Debt (including pursuant to Product Hedging Contracts) incurred by the Companies after September 30, 2006, if any , that constitutes a breach of Section 3.1(f)(xvi) or Section 3.1(f)(xvii) or a violation of Section 4.3(e) or Section 4.3(q),

and minus

(H)   the aggregate amount of indebtedness owed to the Companies by any Related Party as of the Closing Date.

(d)   Escrow Agent's Obligations at Closing . At the Closing, in accordance with the Deposit Escrow Agreement and Section 2.4(b), the Deposit (including all earnings thereon) will be released by the Escrow Agent and transferred to the Paying Agent for deposit by the Paying Agent into the Payment Fund.

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(e)   Disbursement of Sellers' Expenses. At Closing, the Paying Agent shall pay from the Expense Account, to each payee of Sellers' Expenses, the amount due that payee (in an aggregate amount not to exceed the Sellers' Expenses Allowance) as the Stakeholders' Representative may direct.

(f)   Disbursement of Employee Retention Bonuses. Following the Closing, when authorized by the joint written instructions of Parent and the Stakeholders' Representative, the Paying Agent shall pay, from the Expense Account, to each employee of the Company set forth on Exhibit D of this Agreement, the amount of the employee retention bonus listed on such schedule adjacent to such employee's name (the " Employee Retention Bonuses "). Prior to Closing, the Company will extinguish all accrued and unused vacation and sick time for employees accrued during all periods (or portions thereof) prior to January 1, 2007. The Surviving Corporation shall be responsible for all other employment matters and expenses incurred by the Company in the Ordinary Course of Business that are attributable to all periods (or portions thereof) following December 31, 2006, including without limitation unused vacation and sick time accrued after December 31, 2006 by any employee of the Company who is not retained by the Surviving Corporation.

(g)   Disbursement of Amounts in Respect of Deferred Adjustment Claims. From time to time following the Closing upon the settlement of any Deferred Adjustment Claim, as set forth in the joint written instructions of Parent and the Stakeholders' Representative or in a final, non-appealable order by a court of competent jurisdiction delivered to the Paying Agent by Parent or the Stakeholders' Representative, the Paying Agent shall pay, from the Expense Account, (i) to Parent, the amount of such settled Deferred Adjustment Claim to which Parent is entitled, if any, and (ii) to the Stakeholders, the amount of such settled Deferred Adjustment Claim to which Parent is not entitled, if any. All distributions to the Stakeholders pursuant to this Section 2.4(g) shall be allocated among such Stakeholders as provided in Exhibit 2.2 .

(h)   Termination of Expense Account. Following the final resolution of all Deferred Adjustment Claims and payment of all Sellers' Expenses and the Employee Retention Bonuses, any monies remaining in the Expense Account shall be distributed to the Stakeholders, and the Expense Account shall thereafter be terminated. All distributions to the Stakeholders pursuant to this Section 2.4(h) shall be allocated among such Stakeholders as provided in Exhibit 2.2 .

(i)   Investment of Funds. The Paying Agent will invest all cash included in the Payment Fund and the Expense Account, as applicable, through the Escrow Agent in short term United States government securities or comparable investments; provided, however, that the terms and conditions of the investments shall be such as to permit the Paying Agent to make prompt payment of such amounts as required hereunder. All earnings of the Payment Fund and the Expense Account shall be deposited into the Expense Account.

(j)   Paying Agent Expenses. The Expense Account shall be governed by a Distribution Agreement, by and among the Paying Agent, Parent and the Stakeholders' Representative in the form materially similar to that set forth in Exhibit 2.4(j) hereto (the " Expense Escrow Agreement "). In accordance with the terms of the Expense Escrow Agreement, the reasonable charges and expenses of the Paying Agent in connection with the Expense Account shall be (i) paid one-half by Parent and Sub from their own accounts and (ii) paid one-half by the Stakeholders' Representative (including, to the extent available, from the Expense Account).

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(k)   Reconciliation of Closing Statement. Following the Closing, in accordance with the procedures set forth on Exhibit 2.4(k) attached hereto, the parties will verify that the calculations of the California Net Profit or Loss used for adjustments to the Merger Consideration at Closing pursuant to Section 2.12(a) were accurate. To the extent of any inaccuracy, Parent will make a corrective payment to the Expense Account or Parent will be entitled to the release of Reserve Shares from the Reserve Account, as the case may be, as further provided for in Exhibit 2.4(k) .

Section 2.5   Exchange Procedures.

(a)   Letter of Transmittal. The Payment Fund shall be governed by a Distribution Agreement, by and between the Paying Agent and the Stakeholders' Representative in form and substance satisfactory to each of such parties. Promptly after the Effective Time (but in no event more than five (5) days thereafter), the Paying Agent will mail to each Stakeholder a form of letter of transmittal (" Letter of Transmittal ") and instructions for use in surrendering Converting Units, Options, Warrants, Earn Out Agreements and Contingent Payment Agreements and receiving the Merger Consideration to which such Stakeholder shall be entitled therefor. By execution and delivery of a Letter of Transmittal, a Stakeholder shall be deemed to consent to the terms of the Merger and this Agreement, including the appointment of the Stakeholders' Representative pursuant to Section 2.7.

(b)   Paying Agent Procedures . The Paying Agent will distribute from the Payment Fund to each Stakeholder, upon delivery to the Paying Agent of a Letter of Transmittal and acceptance thereof by the Paying Agent, each such Stakeholder's appropriate share of the Payment Fund as provided in Exhibit 2.2 . The Paying Agent shall accept Letters of Transmittal upon compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. If the Merger Consideration (or any portion thereof, including any payments from the Expense Account or the Reserve Account in accordance with Section 2.4(g), Section 2.4(h) or Section 2.6(d), as applicable) is to be delivered to any person other than the Stakeholder in whose name the Converting Units, Options, Warrants, Earn Out Agreements or Contingent Payment Agreements surrendered in exchange therefor is registered, it shall be a condition to such exchange that a duly executed and witnessed instrument of transfer shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such exchange shall pay to the Paying Agent any transfer or other Taxes required by reason of the payment of such consideration to a person other than the registered Stakeholder thereof, or shall establish to the satisfaction of the Paying Agent that such Tax has been paid or is not applicable. After the Effective Time, there shall be no further transfer on the records of the Company or its transfer agent of Converting Units or Unit Equivalents and if Converting Units or Unit Equivalents are presented to the Company for transfer, they shall be canceled against delivery of the Merger Consideration as herein provided. Until surrendered as contemplated by this Section 2.5(b), Converting Units and Unit Equivalents shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration, as contemplated by Section 2.1(c), Section 2.1(e) and Section 2.2.

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(c)   No Further Ownership Rights. The Merger Consideration paid upon the surrender of Converting Units or Unit Equivalents in accordance with the terms of this Article II (including the contingent right to receive a portion of all distributions to the holders of Converting Units or Unit Equivalents from the Expense Account or the Reserve Account in accordance with Section 2.4(g), Section 2.4(h) or Section 2.6(d), as applicable) shall be deemed to be paid in full satisfaction of all rights pertaining to the Converting Units or Unit Equivalents.

(d)   Withholding Rights. Each of the Reserve Agent and the Paying Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any Stakeholder such amounts as the Reserve Agent and the Paying Agent are required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. To the extent such amounts are so withheld by the Reserve Agent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Stakeholder in respect of whom such deduction and withholding was made.

(e)   No Liability. Neither Parent, Sub, the Surviving Corporation nor the Paying Agent shall be liable to any person in respect of any distributions payable from the Payment Fund or Expense Account delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Section 2.6   Reserve Account. The Reserve Account shall be governed by an Escrow Agreement, by and among the Reserve Agent, Parent and the Stakeholders' Representative in the form materially similar to that set forth in Exhibit 2.6 hereto (the " Reserve Escrow Agreement ").

(a)   Payments after Closing . From time to time following the Closing, in accordance with the terms of the Reserve Escrow Agreement, the Reserve Agent shall, upon the joint written instructions of Parent and the Stakeholders' Representative (which instructions shall not be unreasonably withheld, conditioned or delayed by Parent or the Stakeholders' Representative following notice from the Reserve Agent of a claim made against the Reserve Account) or the delivery by Parent of a final, non-appealable order by a court of competent jurisdiction, that Parent or any other Parent Indemnitee is entitled to an amount pursuant to Article X (the " Indemnity Amount "), release to Parent or such other Parent Indemnitee such number of Reserve Shares as may equal the Indemnity Amount divided by the Deal Stock Price, disregarding any fractional share. Parent shall cooperate with the Reserve Agent in exchanging any certificate representing Reserve Shares for such number of certificates, representing the like number of aggregate Reserve Shares, and in such denominations as the Reserve Agent may require to release Reserve Shares as and when required pursuant to this Section 2.6(a).

(b)   Reserve Agent Expenses. In accordance with the terms of the Reserve Escrow Agreement, the reasonable charges and expenses of the Reserve Agent shall be (i) paid one-half by Parent and Sub from their own accounts and (ii) paid one-half by the Stakeholders' Representative (including, to the extent available, from the Expense Account).

(c)   Liquidation of Reserve Shares . At the close of business twelve (12) months after the Effective Time, the Reserve Agent will arrange the sale for cash of an aggregate number of Reserve Shares, disregarding any fractional share, equal to (i) the number of Reserve Shares then held in the

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Reserve Account, minus (ii) the number of Reserve Shares obtained by dividing the aggregate dollar amount of all pending but unsettled and unpaid claims made by Parent Indemnitees pursuant to Article X by the Deal Stock Price, minus (iii) number of Reserve Shares obtained by dividing the aggregate dollar amount of all settled but unpaid claims made by Parent Indemnitees pursuant to Article X by the Deal Stock Price (such pending and unpaid settled claims, the " Outstanding Claims "). As soon as practicable following the final resolution and payment of all Outstanding Claims, including the release to Parent Indemnitees of all Reserve Shares required to satisfy any obligation owing to them in respect of the Outstanding Claims pursuant to Article X, the Reserve Agent will arrange the sale for cash of the remaining Reserve Shares held in the Reserve Account. All sales of Reserve Shares by the Reserve Agent shall be subject to the requirements of applicable law. The sale of the Reserve Shares by the Reserve Agent shall be made in daily amounts not to exceed 20% of the average daily trading volume of Parent Common on the Nasdaq Global Select Market for the prior ten trading days, unless the Reserve Agent is jointly instructed otherwise by the Stakeholders' Representative and Parent.

(d)   Distribution to Stakeholders; Termination of Reserve Account. As soon as practicable following any sale of Reserve Shares pursuant to Section 2.6(c), the Reserve Agent shall distribute the cash proceeds thereof, less costs of sale, to the Stakeholders. All distributions pursuant to this Section 2.6(d) shall be allocated among such Stakeholders as provided in Exhibit 2.2 . Upon the final distribution of such proceeds, the Reserve Account shall be terminated.

Section 2.7   Appointment of Stakeholders' Representative. Prior to the Effective Time, the Company's Board of Representatives will constitute and appoint a person with full power of substitution and resubstitution, to act as the agent, representative and attorney-in-fact of any and all of the Stakeholders and in their name, place and stead (the " Stakeholders' Representative ") with respect to any matter arising in connection with this Agreement and to make on behalf of any or all such holders, individually and collectively, any decisions and take all actions that they would be entitled to make pursuant to this Agreement (but for the appointment of the Stakeholders' Representative), including any decision, action, notice, or election taken with respect to the indemnification rights and obligations of such holders pursuant to Article X and any other decision, action, notice or election that may prejudice the rights of any such holder or may have an adverse effect with respect to any such holder. The Stakeholders' Representative shall be considered a nominee and agent of the Stakeholders. Each Stakeholder shall, by virtue of such Stakeholder's execution and delivery of a Letter of Transmittal, be deemed to ratify and confirm the establishment of, and appointments to, the Stakeholders' Representative. Any decision or action of the Stakeholders' Representative made on behalf of any or all such Stakeholders shall be binding on such Stakeholders, their heirs, successors and assigns. Parent and Sub shall, with respect to any notice, decision or action to be given or made by the Stakeholders, be entitled to rely upon any written notice, instruction, certificate or request given or made by the Stakeholders' Representative. Each Stakeholder, by virtue of such Stakeholder's execution and delivery of a Letter of Transmittal, agrees severally, but not jointly, to indemnify and hold harmless the Stakeholders' Representative from and against all obligations, liabilities, claims, costs, fees, expenses (including costs and expenses of counsel) owed or due to any third party (including any other holder) of whatsoever nature and kind arising out of, associated with or resulting from the exercise by the Stakeholders' Representative, or the failure to exercise by the Stakeholders' Representative, of their powers and the performance or non-performance of their duties hereunder, provided that the foregoing shall be inapplicable in any case of gross negligence or willful misconduct on the part of the Stakeholders' Representative. The Stakeholders' Representative shall not be liable to the holders for any action taken or omitted by the Stakeholders' Representative in good faith under this Agreement, except for gross negligence or willful misconduct.

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Section 2.8   Title and Environmental Defects.

(a)   Access . Through and including March 26, 2007 (the " Examination Period "), the Company shall permit, to the extent that the Company has the ability to grant access, Parent and its representatives to have reasonable access to the properties and assets of the Company and its Subsidiaries for the purpose of allowing Parent to inspect the properties and assets and conduct due diligence (including Phase I and Phase II Environmental Site Assessments) for any Environmental Defects, all at Parent's sole risk, cost and expense. The Company or its representatives shall have the right to be present during any such inspection of the properties and assets. All such inspections by Parent shall be conducted in such a manner as to cause the least possible interference with the operations of the Company, and after any such inspections, the subject properties and assets shall be restored as nearly as possible to their condition prior to such inspections, at Parent's sole cost and expense. Prior to accessing the properties or the assets, Parent shall provide 24 hours prior notice to the Company of the properties or assets to be accessed and during such 24 hour period the parties will mutually agree on the scope of the investigation to be conducted on such properties or assets, which agreement by the Company shall not be unreasonably withheld. Parent shall indemnify, defend and hold harmless the Company and its Subsidiaries for any Losses or Claims asserted against them arising from the acts or omissions of Parent or its agents, contractors or employees in conducting conducing any due diligence on the properties or assets pursuant to this Section 2.8(a). In addition, Parent will remove any investigation-derived wastes within thirty (30) days of its generation and will be designated as the generator of such wastes for the purposes of waste disposal, if permitted under applicable Environmental Laws. Parent will provide to the Company and its Subsidiaries copies of the final draft reports relating to any such inspections.

(b)   Parent's Assertion of Defects .   Prior to the end of the Examination Period (the " Defect Notice Date "), Parent shall notify the Company in writing of any matters which, in Parent's reasonable opinion, constitute Environmental Defects or Title Defects (collectively, " Defects ") and which Parent intends to assert as a Defect with respect to any portion of the Company's Ownership Interests pursuant to this Section 2.8. Those Defects identified in such notice to the Company are herein called " Asserted Defects ." Parent shall be deemed to have waived any Defect that Parent fails to raise as an Asserted Defect by written notice given to the Company on or before the Defect Notice Date, except that if (i) a non-asserted Defect constitutes a breach of the representations and warranties of the Company set forth in this Agreement and (ii) as of the Defect Notice Date, Parent either (A) does not have actual knowledge of the facts necessary to establish all of the material elements of such breach or (B) does not have actual knowledge that the facts known by Parent constitute such breach, then such non-asserted Defect may be asserted by Parent following the Effective Time as a claim for indemnification under Article X to the extent that such non-asserted Defect constitutes a breach of the representation or warranties of the Company set forth in this Agreement. To be effective, Parent's written notice of an Asserted Defect must include (1) a brief description of the matter constituting the Asserted Defect, (2) the estimated claimed Losses attributable thereto, and (3) supporting documents reasonably necessary to verify the existence of such Asserted Defect. The Merger Consideration attributable to any particular Ownership Interest for purposes of the Asserted Defect procedures shall be the values allocated to each such Ownership Interest on Exhibit 2.8 attached hereto (the " Allocated Merger Consideration Values "). Parent shall promptly furnish the Company with written notice of any matter or circumstance which increases the Company's interest in any Ownership Interest and which is discovered by any of Parent's employees or representatives while conducting Parent's title review, due diligence or investigation with respect to the Ownership Interests. Parent shall instruct all employees and representatives of Parent conducting due diligence on the Ownership Interests to report any interest in an Ownership Interest that is additional to those set forth in Exhibit 3.2 .

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    (c)   Company Cure . If Parent notifies the Company of any Asserted Defect on or before the Defect Notice Date, the Company shall have the right, at its sole discretion (and without obligation) and at its cost and expense, until two (2) business days prior to Closing, to cure all or a portion of the Asserted Defect. If the Company fails to cure an Asserted Defect within such time period, and Parent does not waive the Asserted Defect on or before the Closing, the Ownership Interest affected by such Asserted Defect shall be deemed a " Defective Property ."

(d)   Merger Consideration Adjustments .

(i)   If Parent presents an Asserted Defect to the Company in accordance with Section 2.8(b) and the Company is unwilling or unable to cure such Asserted Defect as of two (2) business days prior to Closing, the Company shall have the option to transfer the Defective Property to which such Asserted Defect relates together with pipelines and other personal property necessary to operate the respective Defective Property (collectively, the " Excluded Property ") to the Designated Entity. To exercise such option, the Company must provide Parent with written notice thereof (including a complete listing of the Excluded Property and the Allocated Merger Consideration Value attributable thereto) at any time prior to Closing. Upon receipt of such notice, Parent shall have the right to withdraw the Asserted Defect to which such notice relates, in which case the Company's exercise of the option to transfer the Excluded Property shall be null and void and no adjustment to the Merger Consideration shall be made with respect to such Asserted Defect. If the Company exercises this option and Parent does not withdraw such Asserted Defect, (A) the respective Excluded Property shall be conveyed to the Designated Entity immediately prior to the Closing without warranty of title, either express or implied, (B) the Merger Consideration shall be reduced by the Allocated Merger Consideration Value attributable to all such Excluded Property, pursuant to Section 2.4(c)(iv)(A), and (C) Parent, the Designated Entity and the Company shall enter into a mutually-agreeable arrangement for the sharing of any Excluded Property that is necessary for the Surviving Corporation to be able to conduct the business conducted by the Company as of the Effective Time in the Ordinary Course of Business.

(ii)   If (A) Parent presents an Asserted Defect to the Company in accordance with Section 2.8(b), (B) the Company is unwilling or unable to cure such Asserted Defect as of two (2) business days prior to Closing, (C) the Company does not elect to transfer such Defective Property to the Designated Entity pursuant to Section 2.8(d)(i) and (D) the parties agree on the amount of the corresponding reduction of the Merger Consideration attributable to such Asserted Defect prior to two (2) business days prior to the Closing, then the Merger Consideration shall be reduced by such agreed-upon amount, pursuant to Section 2.4(c)(iv)(A).

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(iii)   Notwithstanding anything to the contrary herein, if the aggregate sum of the reductions in Merger Consideration pursuant to this Section 2.8(d) does not exceed $975,000 (the " Asserted Defect Threshold "), then no such adjustments shall be made with respect to the Merger Consideration. If the sum of the adjustments to be made pursuant to this Section 2.8(d) does exceed the Asserted Defect Threshold, then the Merger Consideration shall be reduced accordingly, inclusive of the portion equal to the Asserted Defect Threshold.

Section 2.9   Definition of Defects.

(a)   Environmental Defects . For purposes of this Agreement, the term " Environmental Defect " shall mean an existing condition or circumstance with respect to the air, soil, subsurface, surface waters, groundwater, and/or sediments that causes, or upon notice or passage of time or both would cause, (i) an asset or property of the Company or its Subsidiaries to not be in compliance with any Environmental Law, including any Permits issued thereunder, or (ii) such asset or property to be required to be remediated (or other corrective action taken with respect to such asset or property) under any Environmental Law. The term " Environmental Defect " shall also mean and include any situation or circumstance regarding an Ownership Interest that would constitute a breach or violation of the Company's representations and warranties given in Section 3.1(n) (disregarding all "Knowledge of the Company" qualifiers in such representations and warranties for purposes of determining whether such a breach or violation has occurred). Notwithstanding any other provision in this Agreement to the contrary, the presence of " NORM " (Naturally Occurring Radioactive Material) that is attached to the inside of wells, materials, and equipment as scale or in other forms shall not be asserted as, and shall not constitute, Environmental Defects, although the presence of NORM in soils, surface water or groundwater may constitute an Environmental Defect if its presence is as a result of the activities of the Company or its Subsidiaries, and the presence of such is regulated under applicable Environmental Laws and/or the presence of such is prohibited under the terms of any lease for such asset or property. To the extent that an Environmental Defect involves contamination or a requirement for remediation, investigation, or corrective action, such Environmental Defect shall be remediated to achieve the most cost-effective remediation standard permitted under applicable Environmental Laws, unless the lease for such asset or property requires contamination to be remediated to a more stringent standard, in which case that standard shall apply to the remediation.

(b)   Title Defects . For purposes of this Agreement, the term " Title Defect " shall mean any of the following:

(i)   the Company does not have Defensible Title to an Ownership Interest;

(ii)   any royalties, overriding royalties, rentals, Pugh clause payments, shut-in gas payments and other payments due with respect to an Ownership Interest have not been properly and timely paid by or on behalf of the Company, except for payments held in suspense for title or other reasons which are customary in the industry and which will not result in grounds for cancellation of the Company's rights in such Ownership Interest;

(iii)   the Company is in default under the terms of any Material Contract which could (A) prevent the Company from receiving the proceeds of production attributable to the Company's interest therein, or (B) result in cancellation of the Company's interest therein; or

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(iv)   any situation or circumstance regarding an Ownership Interest that would constitute a breach or violation of the Company's representations and warranties given in Section 3.2(a).

Section 2.10   Deferred Claims and Disputes. If (a) Parent presents an Asserted Defect to the Company in accordance with Section 2.8(b), (b) the Company is unwilling or unable to cure such Asserted Defect as of two (2) business days prior to Closing, (c) the Company does not elect to transfer such Defective Property to the Designated Entity pursuant to Section 2.8(d)(i) and (d) the parties do not agree on a corresponding reduction of the Merger Consideration attributable to such Asserted Defect prior to two (2) business days prior to the Closing, then Parent's claim to a reduction of the Merger Consideration in respect of such Asserted Defect (a " Deferred Adjustment Claim ") shall be settled pursuant to this Section 2.10 and shall not prevent or delay the Closing. With respect to each potential Deferred Adjustment Claim, Parent and the Company shall deliver to the other promptly a written notice describing each such potential Deferred Adjustment Claim, the amount in dispute and a statement setting forth the facts and circumstances that support such party's position with respect to such Deferred Adjustment Claim. At the Closing, the Merger Consideration shall not be adjusted on account of, and, except as provided in Section 6.1(c), no effect shall be given to, the Deferred Adjustment Claim. On or prior to the thirtieth (30 ^th ) day following the Closing (the " Deferred Matters Date "),   the Company and Parent shall attempt in good faith to reach agreement on the Deferred Adjustment Claims and, ultimately, to resolve by written agreement all disputes regarding the Deferred Adjustment Claims. Any Deferred Adjustment Claims that are not so resolved on or before the Deferred Matters Date may be submitted by either party to final and binding arbitration in accordance with Section 2.11; provided , however , that the Stakeholders' Representative may elect at any time to resolve any disputes relating to such Deferred Adjustment Claim by authorizing payment to Parent of the amount by which the Merger Consideration would have been reduced at Closing on account of the Asserted Defects which constitute Deferred Adjustment Claims if the same did not constitute Deferred Adjustment Claims. Notwithstanding anything herein provided to the contrary, including Section 2.8(c), the Company shall be entitled to cure any Asserted Defect which constitutes a Deferred Adjustment Claim relating to a Title Defect (but not Deferred Adjustment Claims relating to an Environmental Defect) at any time prior to the time when a final and binding written decision of the arbitrators is made with respect thereto. The amount of any reduction in the Merger Consideration shall be promptly paid to Parent from the Expense Account pursuant to Section 2.4(g).

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Section 2.11   Arbitration. Deferred Adjustment Claims unresolved on the Deferred Matters Date and submitted by a party to arbitration pursuant to this Section 2.11 shall be submitted to binding arbitration in Houston, Harris County, Texas, under the auspices of, and pursuant to the rules of, the American Arbitration Association's Commercial Arbitration Rules as then in effect, or such other procedures as the parties may agree to at the time, before a tribunal of three (3) arbitrators, one of which shall be selected by Parent, one of which shall be selected by the Stakeholders' Representative, and the third of which shall be selected by the two (2) arbitrators so selected. Any award issued as a result of such arbitration shall be final and binding between the parties, and shall be enforceable by any court having jurisdiction over the party against whom enforcement is sought. A ruling by the arbitrators shall be non-appealable. The parties agree to abide by and perform any award rendered by the arbitrators. If either Parent or the Stakeholders' Representative seeks enforcement of the terms of this Agreement or seeks enforcement of any award rendered by the arbitrators, then the prevailing party (designated by the arbitrators) to such proceeding(s) shall be entitled to recover its costs and expenses from the non-prevailing party, in addition to any other relief to which it may be entitled. If one party fails or refuses to designate an arbitrator within thirty (30) days after receipt of a written notice that an arbitration proceeding is to be held, then the dispute shall be resolved solely by the arbitrator designated by the other party and such arbitration award shall be as binding as if three (3) arbitrators had participated in the arbitration proceeding. Parent and the Stakeholders' Representative covenant and agree to act as expeditiously as practicable in order to complete arbitration. The arbitration proceeding shall be held in English. Arbitration under this Section 2.11 must be concluded and a final award given within one hundred twenty (120) days following Closing.

Section 2.12   Adjustments. The amount of the Merger Consideration shall be adjusted, as provided in Section 2.4(c)(v)(A), as set forth below:

(a)   the Merger Consideration shall be increased or decreased, as the case may be, by the amount of the California Net Profit or Loss;

(b)   the Merger Consideration shall be decreased by the amount of capital expenditures paid by the Companies between September 30, 2006 and the Closing with respect to the Oil and Gas Interests of the Companies and related properties in the State of California (the " California Assets ");

(c)   the Merger Consideration shall be decreased by the amount by which any capital expenditure, paid by the Companies without the prior approval of Parent, between September 30, 2006 and the Closing (other than with respect to the California Assets) exceeds the amount permitted therefor by the mutually agreed upon Capital Expenditure Budget attached hereto as Exhibit 2.12(c) (the " Capital Expenditure Budget ") (capital expenditures identified by the Company after the signing of this Agreement and before Closing, and approved by the Parent, will be added to the Capital Expenditure Budget);

(d)   the Merger Consideration shall be decreased by the amount of any payments made by the Companies to any Related Parties, and any liabilities to any Related Parties incurred by the Companies, between September 30, 2006 and the Closing (other than the distribution of the net proceeds of the Restructuring Transactions, payment for the provision of engineering services by Huddleston & Co. to the Company and its Subsidiaries in the Ordinary Course of Business at market rates, and the payment of directors fees and employee compensation in the Ordinary Course of Business);

(e)   the Merger Consideration shall be decreased by the amount of any payments (above and beyond salary paid during taken sick days) made by the Companies to their employees in connection with the extinguishment of all accrued and unused vacation and sick time accrued during all periods (or portions thereof) prior to January 1, 2007;

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(f)   the Merger Consideration shall be decreased by $75,000 (which represents a mutually-agreed reduction in the Merger Consideration in consideration of Parent's agreement to include a $75,000 exception amount in the last sentence of Section 3.1(h)(i)); and

(g)   without duplication of any amounts otherwise deducted from the Merger Consideration in accordance with the preceding subsections of this Section 2.12, the Merger Consideration shall be decreased by the amount of any payments made by the Companies to their employees or other third parties, and any liabilities to any employees or third parties incurred by the Companies, in either case outside of the Ordinary Course of Business, between September 30, 2006 and the Closing (other than the distribution of the net proceeds of the Restructuring Transactions).

Section 2.13   Allocation. The Merger Consideration, the portion of the Expense Account that is neither included in the defined term "Merger Consideration" nor paid to Parent, the Company's liabilities assumed by Sub as a result of the Merger and all other capitalized costs (collectively, the " Consideration ") shall be allocated, in a manner consistent with the Allocated Merger Consideration Values and in accordance with Section 1060 of the Code and the Treasury regulations thereunder, among the assets of the Company as of the Closing Date in accordance with a schedule mutually agreed to by Parent, Sub and the Stakeholders' Representative on or before the Closing Date, which schedule shall be attached to this Agreement as Exhibit 2.13 at or before the Closing. Any adjustments to the Consideration (including any adjustment under Section 2.4(k), Section 2.8(d) and Section 2.12) shall be reflected in such allocation in a manner consistent with such Exhibit 2.13 and Treasury Regulation §§1.1060-1(c) and 1.338-7. For all Tax purposes, Parent, Sub and the Company agree to report the transactions contemplated in this Agreement in a manner consistent with the allocation reflected in Exhibit 2.13 (as such Exhibit 2.13 is adjusted in accordance with the immediately preceding sentence), and will not take any position inconsistent therewith in any Tax Return, any proceeding before a taxing authority, or otherwise. In the event such allocation is disputed by any taxing authority, the party receiving notice of such dispute shall promptly notify and consult with the other parties hereto concerning such dispute.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1   Representations and Warranties of the Company. The Company represents and warrants to Parent and Sub as follows:

(a)   Organization, Standing and Corporate Power .

(i)   The Company and each Subsidiary of the Company (collectively, the " Companies ") is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Companies is duly qualified or licensed to transact business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect.

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(ii)   Prior to Closing, the Company will deliver to Parent and Sub true and correct copies of the Certificate of Formation and Investors Agreement as in effect on the date hereof. Prior to Closing, the minute books of the Company will be made available to Parent and Sub and will be complete in all material respects and accurately reflect in all material respects all action taken prior to the Closing by its Board of Representatives and members, in their capacities as such.

(b)   Subsidiaries.

(i)   Set forth in  Section 3.1(b)(i) of the Disclosure Schedule is the name and description of each Subsidiary of the Company and a description of the ownership interests therein held directly or indirectly by the Company, including the type of interest, the class or series of interest, the number of shares or amount of such interest and the percentage of the aggregate outstanding capital stock or equity interests of such Subsidiary represented thereby. For purposes of this Agreement, " Subsidiary " means, with respect to any person, any other entity in which such person owns any direct or indirect equity or other similar ownership interests.

(ii)   Prior to the Closing, the Company will deliver to Parent true and correct copies of the Articles or Certificate of Incorporation and Bylaws, or other similar organizational or constituent documents, of each Subsidiary of the Company as in effect at the Closing. Prior to Closing, the minute books of each such Subsidiary will be made available to Parent and will be complete in all material respects and accurately reflect in all material respects all action taken prior to the Closing by its Board of Directors or other governing body and members or equity owners, in their capacities as such.

(iii)   All the outstanding shares of capital stock of each Subsidiary of the Company that is a corporation have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive rights or other preferential rights of subscription or purchase of any person. All of the outstanding ownership interests in each Subsidiary of the Company that is not a corporation have been duly authorized and validly issued or vested, were not issued in violation of any preemptive rights or other preferential rights of subscription or purchase of any person, are fully paid and are non-assessable. All such stock and ownership interests are owned of record and beneficially by the Company, either directly or indirectly through a wholly-owned Subsidiary, free and clear of all Liens and restrictive agreements, including voting trusts or shareholder agreements.

(iv)   There are no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights, agreements, arrangements or understandings of any character obligating the Company or any Subsidiary (A) to issue, deliver or sell, or cause to be issued, delivered or sold, additional units of capital stock or other equity interests of any Subsidiary or any securities or obligations convertible into or exchangeable for such units or equity interests or (B) to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right, agreement, arrangement or understanding described in clause (A) of this Section 3.1(b)(iv).

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(c)   Capitalization . As of the date of this Agreement, the issued and authorized ownership interests of the Company consist solely of the following:

(i)   Units. A total of 3,846,571.11 Company Units are issued and outstanding. None of the Company Units are certificated.

(ii)   Options, Warrants, Reserved Units. The Company has reserved 199,687.20 Company Units for issuance upon exercise of the Warrants and 968,243.50 Company Units for issuance upon exercise of the Options. No securities issued or issuable by the Company are subject to any rights of first refusal (except the Investors Agreement) or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company.

(iii)   No Other Securities or Purchase Rights . Other than such Company Units, Warrants and Options, there are no ownership interests in, or other equity securities of, the Company issued or outstanding. Other than Contingent Payment Agreements and Earn Out Agreements, there are no "phantom equity" obligations of the Company. In addition, there are no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights, agreements, arrangements or understandings of any character obligating the Company (A) to issue, deliver or sell, or cause to be issued, delivered or sold, additional Company Units or other equity interests of the Company or any securities or obligations convertible into or exchangeable for such Company Units or equity interests or (B) to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right, agreement, arrangement or understanding described in clause (A) of this Section 3.1(c)(iii).

(iv)   Outstanding Security Holders. Exhibit 2.2 sets forth a complete list of all outstanding holders of Company Units (including an indication of which such holders have been admitted to the Company as members), all outstanding holders of Options and Warrants (whether or not vested or exercisable), all beneficiaries under the Contingent Payment Agreements and the Earn Out Agreements and all other security holders of the Company as of the date hereof and as of the Effective Date.

(v)   No Appraisal Rights . No holder of Company Units, Unit Equivalents or other equity interest in the Company has any appraisal rights, dissenters' rights or similar rights to demand an appraisal of such Company Units, Unit Equivalents or other equity interest, including any of the foregoing that would be triggered by or be applicable to the Merger or the other transactions contemplated by this Agreement, in each case whether pursuant to the DLLCA, the Certificate of Formation, the Investors Agreement or any other contract, agreement, arrangement or understanding to which the Company is a party or by which it, the Company Units, Unit Equivalents or any other equity interest in the Company is bound.

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(vi)   Investors Agreement . At the Effective Time, the Investors Agreement shall terminate and be of no further force and effect automatically, by operation of its termination provisions and without any action being required to be taken by the Company, the holders of Company Units or any other person or entity.

(d)   Authority; Noncontravention . The Company has the requisite company power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, including by its Board of Representatives, by the holders of Company Units and by the Company as the sole member of the Subsidiaries of the Company (collectively, the " Corporate Approvals "). This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes the valid and binding agreement of Parent and Sub, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; provided, however, that the Company cannot consummate the Merger until it satisfies the requirements of the HSR Act. The Company has taken all necessary action to exempt the transactions contemplated by this Agreement from, or if necessary to challenge the validity or applicability of, any applicable "moratorium," "fair price," "business combination," "control share" or other anti-takeover laws or similar provisions in the Certificate of Formation or Investors Agreement. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, (i) conflict with any of the provisions of the Certificate of Formation or Investors Agreement or the comparable documents of any Subsidiary of the Company, (ii) except as set forth in Section 3.1(d) (ii) of the Disclosure Schedule , subject to the completion and satisfaction of the governmental filings and other matters referred to in the following sentence, materially conflict with, result in a material breach of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under, or require the consent of any person under, (x) any indenture, mortgage, lease, Benefit Plan or similar obligation, instrument or undertaking to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or (y) any credit agreement or similar obligation, instrument or undertaking to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound, or (iii) subject to the completion and satisfaction of the governmental filings and other matters referred to in the following sentence, contravene any law, rule, regulation, order, judgment, injunction, decree, or award, domestic or foreign, applicable to the Company or any of its Subsidiaries or their respective properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any court, governmental agency or regulatory authority, domestic or foreign (a " Governmental Entity " or " Governmental Authority "), which has not been received or made, is required by or with respect to the Company or any Subsidiary in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (A) the filing of the Certificate of Merger with the Delaware Secretary of State, (B) such filings as may be required in connection with any state, local or foreign Tax that is attributable to the transfer of beneficial ownership of real property, if any, by the Company or any of its Subsidiaries, (C) such other consents, approvals, authorizations, filings or notices as are set forth in Section 3.1(d)(C) of the Disclosure Schedule , and (D) filings under and satisfaction of the HSR Act.

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(e)   Financial Statements .

(i)   The audited consolidated balance sheets of the Company and its consolidated Subsidiaries as of December 31, 2005 (" Balance Sheet ") and as of December 31, 2004 and the audited statements of income, members' equity and comprehensive income, and cash flows of the Company and its consolidated Subsidiaries for the years ended December 31, 2005 and December 31, 2004, in each case together with the notes related thereto (the " Audited Financial Statements "), as previously delivered to Parent, have been prepared in accordance with United States generally accepted accounting principles (" GAAP ") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.

(ii)   True and correct copies of the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as of September 30, 2006 (" Latest Balance Sheet ") and the statement of income for the nine months ended September 30, 2006 have been previously delivered to Parent and Sub (collectively, the " Interim Financial Statements "). The Interim Financial Statements fairly present the financial position of the Company and its consolidated Subsidiaries at September 30, 2006 and results of operations for the nine months ended September 30, 2006, and are prepared in accordance with GAAP in a manner consistent with the Audited Financial Statements. Except as set forth in Section 3.1(e)(ii) of the Disclosure Schedule or reflected or disclosed on the face of the Balance Sheet or Latest Balance Sheet (rather than in the notes thereto), as of September 30, 2006, the Company and its Subsidiaries did not have any Liabilities that would be required to be reflected in a balance sheet prepared in accordance with GAAP, as applied in the Audited Financial Statements.

(iii)   The working capital of the Company and its Subsidiaries as of September 30, 2006 is $4,637,425, which amount has been calculated as set forth in Exhibit 3.1(e)(iii) .

(iv)   Except as set forth in Section 3.1(e)(ii) of the Disclosure Schedule , since September 30, 2006, neither the Company nor any of its Subsidiaries has incurred any Liabilities that were incurred by the Company or any such Subsidiary outside of the Ordinary Course of Business.

(f)   Absence of Certain Changes or Events. Except as disclosed in Section 3.1(f) of the Disclosure Schedule , since December 31, 2005, the Company and its Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business (other than with respect to the process established by the Company for entertaining strategic alternatives involving the Company), and there has not been any material adverse change in the properties, assets, Liabilities, condition (financial or otherwise), business or operations of the Company and its Subsidiaries, taken as a whole (a " Material Adverse Change "). Except as disclosed in Section 3.1(f) of the Disclosure Schedule , since September 30, 2006, there has not been, with respect to the Company or any of its Subsidiaries:

(i)   any Material Adverse Change (other than the Restructuring Transactions);

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(ii)   any event or transaction that was not taken or that did not occur in the Ordinary Course of Business (other than the Restructuring Transactions);

(iii)   any payment to or from, or transaction with, a Related Party, other than (A) compensation to employees and directors fees in the Ordinary Course of Business and (B) the provision of engineering services by Huddleston & Co. to the Company and its Subsidiaries in the Ordinary Course of Business at market rates;

(iv)   any purchase, redemption or other acquisition of any Company Units or other ownership interests in the Company;

(v)   any declaration or payment of a dividend or any other distribution (whether in cash, securities, evidences of indebtedness or other property, tangible or intangible) to the holders of Company Units or any other ownership interests in the Company;

(vi)   any change in the accounting methods or principles or cash management practices (including the collection of receivables, payment of payables and pricing and credit practices);

(vii)   any Tax election, any change in any Tax election previously made, any settlement or compromise of any Tax Liability, any waiver or extension of the statue of limitations or limitation period in respect of any Taxes, or any filing of (A) any Tax Return in a manner inconsistent with past practice, or (B) any amended Tax Return or claim for a Tax refund;

(viii)   any sale, assignment or transfer of any properties or assets (other than the Restructuring Transactions) or the placement of any Lien on any properties or assets;

(ix)   any theft, condemnation or eminent domain proceeding or material damage, destruction or casualty loss affecting any property or asset not covered in full by insurance;

(x)   any cancellation or compromise of any material Liability or Claim in favor of the Company or any Subsidiary, or any waiver or release of any material right related to the business, properties or assets of the Company or any Subsidiary, in each case without fair consideration;

(xi)   any failure to use commercially-reasonable efforts to preserve their business, to keep available the services of key employees and to preserve the goodwill of their suppliers, customers and others having business relations with them;

(xii)   any breach or default (or event that with notice or lapse of time would constitute a breach or default), acceleration, termination (or threatened termination), modification or cancellation of any Material Contract by the Company or any Subsidiary or, to the Knowledge of the Company, by any other party;

(xiii)   any entering into of a Contract that (A) is not terminable upon thirty (30) days or less notice and (B) involves the payment or receipt by the Company of more than $100,000 (other than with respect to the Restructuring Transactions), except in the Ordinary Course of Business or with the consent of Parent;

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(xiv)   any (A) increase in the compensation payable or to become payable to any of their employees; (B) adoption, amendment or increase in the coverage or benefits available under any Benefit Plan or (C) amendment or execution of any employment (other than employment terminable at will without penalty), deferred compensation, severance, consulting, non-competition, employee retention plan (other than the Employee Retention Bonuses) or similar agreement involving any employee;

(xv)   any termination of employment (whether voluntary or involuntary) of any key employee or employees generally that is materially in excess of historical attrition in personnel;

(xvi)   any incurrence of Debt, other than (A) an increase in the amount of Debt under Product Hedging Contracts that existed on September 30, 2006 as a result of adverse changes in the mark-to-market positions thereof, (B) Debt incurred solely for the purpose of making cash payments pursuant to Product Hedging Contracts that existed on September 30, 2006, (C) Debt incurred solely for the purpose of making capital expenditures ratified by the Capital Expenditure Budget, and (D) payment of in kind interest accruing on Debt outstanding as of September 30, 2006 or on Debt permitted by clause (B) or clause (C) above; or

(xvii)   any incurrence of Debt pursuant to Product Hedging Contracts entered into after September 30, 2006.

The outstanding Debt, other than pursuant to Product Hedging Contracts, was $60,253,766 on September 30, 2006 and is $60,369,376 on the date of this Agreement. The outstanding Debt pursuant to Product Hedging Contracts was $6,746,999 on September 30, 2006 and is $4,666,404 on the date of this Agreement.

(g)   Employee Benefit Plans.   Section 3.1(g) of the Disclosure Schedule identifies each employee benefit plan (as that phrase is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (" ERISA ")) and any other benefit or compensation plan, program or arrangement maintained, administered or contributed to by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company or any of its Subsidiaries, including but not limited to deferred compensation plans, incentive plans, bonus plans or arrangements, stock option plans, stock purchase plans, golden parachute agreements, severance pay plans, dependent care plans, cafeteria plans, employee assistance programs, scholarship programs, and other similar agreements that are currently in effect or maintained within three (3) years of the Closing Date (the " Benefit Plans "). The Company has delivered or made available to Parent on or prior to the date hereof true, complete, correct and current copies of (w) each Benefit Plan, (x) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (y) the most recent summary plan description for each Benefit Plan for which such summary plan description is required and (z) each currently effective trust agreement and insurance contract relating to any Benefit Plan.  Section 3.1(g) of the Disclosure Schedule sets forth the amount of paid time off (sick time, vacation days, personal days, "flex" time, "comp" time and otherwise) of each employee of the Company and its Subsidiaries accrued as of the date of this Agreement.

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Except as set forth in Section 3.1(g) of the Disclosure Schedule , with respect to the Benefit Plans of the Company and the Subsidiaries:

(i)   none of such Benefit Plans is a "multiemployer plan" within the meaning of Section 3(37) of ERISA;

(ii)   none of such Benefit Plans is subject to Title IV of ERISA;

(iii)   none of such Benefit Plans promises or provides retiree medical or life insurance benefits to any person, including through any organization described in Section 501(c)(9) of the Code;

(iv)   no employee of the Company or any Subsidiary will be entitled to additional benefits, increase of a benefit amount, the payment of a contingent benefit, or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement;

(v)   each such Benefit Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS that it is so qualified, or has been established under a standardized prototype plan for which an IRS opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer, and nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such Benefit Plan and no facts have occurred which if known by the IRS could cause disqualification of those plans. All employee pension benefit plans to which Section 412 of the Code is applicable have fully complied with the funding requirements of that Section;

(vi)   each such Benefit Plan has been administered in all material respects in accordance with its terms and such Benefit Plans and (A) are in compliance in all material respects with applicable provisions of ERISA, the Code and other applicable law including but not limited to all reporting and disclosure requirements under Title I of ERISA, (B) has had the appropriate Form 5500 filed timely for each year of its existence, (C) has not engaged in any transaction described in Section 406 or 407 of ERISA or Section 4975 of the Code unless exempt under Section 408 of ERISA or Section 4975 of the Code, as applicable, (D) has at all times complied with the bonding requirements of Section 412 of ERISA, (E) there are no investigations by any Governmental Entity, termination proceedings or other claims (except claims for benefits payable in the normal operation of such Benefit Plans), suits or proceedings against or involving any such Benefit Plan or asserting any rights or claims to benefits under any such Benefit Plan that could give rise to any material Liability, (F) can be unilaterally terminated or amended and (G) all contributions or other amounts payable prior to the Closing Date with respect to each employee welfare benefit plan and each employee pension benefit plan, other than an employee pension benefit plan which is subject to Section 412 of the Code have either been paid or accrued by the Company;

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(vii)   neither the Company nor any ERISA Affiliate has incurred any direct or indirect Liability under, arising out of or by operation of Title IV of ERISA in connection with the termination of, or withdrawal from, any such Benefit Plan or other retirement plan or arrangement, and no fact or event exists that could reasonably be expected to give rise to any such Liability;

(viii)   each Benefit Plan that is a "welfare plan" (as defined in Section 3(1) of ERISA) may be amended or terminated without material Liability to the Company or any of its Subsidiaries at any time after the Effective Time;

(ix)   the Company does not provide employee benefits, including without limitation, death, post-retirement medical or health coverage (whether or not insured or contribute to or maintain an employee benefit plan which provides for benefit coverage following termination of employment except (A) as is required by Section 4980B(f) of the Code or other applicable statute, (B) death benefits or retirement benefits under any employee pension benefit plan as defined in Section 3(b) of ERISA, (C) benefits the full cost of which is born by the current or former employee (or his beneficiary) nor has it made any representations, agreements, covenants or commitments to provide that coverage, or (D) deferred compensation benefits which have been accrued as liabilities on the books of the Company and disclosed on its financial statements. All group health plans maintained by the Company have been operated in material compliance with Section 4980B(f) of the Code;

(x)   the execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not give rise to any, or trigger any, change of control, severance or other similar provision in any Benefit Plan; and

(xi)   except for Liabilities specifically disclosed on the Interim Financial Statements, immediately prior to the Effective Time, no Liabilities will exist with respect to any Benefit Plan that exceed $10,000 individually or $50,000 in the aggregate.

(h)   Taxes . Except as set forth in Section 3.1(h) of the Disclosure Schedule :

(i)   The Company and each of its Subsidiaries (and any affiliated group of which the Company or any Subsidiary is now or has been a member, if any) has timely filed with the appropriate taxing authorities all Tax Returns required to be filed through the date hereof and will timely file all such Tax Returns required to be filed on or prior to the Closing Date. All such Tax Returns are (or will be) accurately compiled and completed, properly reflect (or will properly reflect) all liabilities for Taxes for the periods covered by such Tax Returns, and otherwise are (or will be) complete and accurate in all material respects. Neither the Company, any Subsidiary or any affiliated group of which the Company or any Subsidiary is now or has been a member, if any, has requested any extension of time within which to file any Tax Return, which Tax Return has not been filed. The Company and each of its Subsidiaries have timely paid (or the Company has timely paid on its Subsidiaries' behalf) all Taxes due and payable (or claimed to be due and payable by any taxing authority) in respect of periods ending on or before the Closing Date (whether or not shown to be due and payable on any Tax Return). The aggregate liability of the Company and the Subsidiaries for unpaid Taxes for all periods ending on or before the respective dates of the balance sheets included in the Audited Financial Statements and the Interim Financial Statements does not exceed the amount of the current liability accrual for Taxes (excluding reserves for deferred Taxes established to reflect timing differences between book and Tax income) for such periods reflected on such balance sheets by more than $75,000.

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(ii)   The Company and each of its Subsidiaries has complied in all respects with all applicable laws relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 through 1464, 3401 through 3406, 6041 and 6049 of the Code and similar provisions under any state, local or foreign law) and have, within the time and manner prescribed by law, withheld and paid over to the proper Governmental Authorities all amounts required to be withheld and paid over under all applicable laws. There are no liens for Taxes upon the assets or properties of the Company or any of its Subsidiaries except for statutory liens for current Taxes not yet due.

(iii)   Except as set forth in Section 3.1(h)(iii) of the Disclosure Schedule , no deficiencies, assessments or liabilities for any Taxes have been proposed, asserted or assessed against the Company or any Subsidiary of the Company, all Tax deficiencies, assessments and liabilities that have been finally determined against the Company or any of its Subsidiaries have been fully paid or finally settled, and neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. Except as set forth in Section 3.1(h)(iii) of the Disclosure Schedule , at the date hereof, none of the Tax Returns of the Company or any of its Subsidiaries have been examined by the United States Internal Revenue Service or any other taxing authority. No power of attorney granted by the Company or any of its Subsidiaries with respect to any Taxes is currently in force.

(iv)   Except as set forth in Section 3.1(h)(iv) of the Disclosure Schedule , no federal, state, local or foreign audits or other administrative proceedings or court proceedings exist or have been initiated with regard to any Taxes of the Company or any of its Subsidiaries or any of their Tax Returns, and neither the Company nor any of its Subsidiaries has received any notice that any such audit or proceeding is pending or threatened with respect to any Taxes due from or with respect to the Company or any of its Subsidiaries, or any of their Tax Returns.

(v)   No holder of record of Company Units, the Warrants or the Options is a foreign person within the meaning of Treasury Regulation Section 1.1445-2(b)(2) and Section 1445(f)(3) of the Code.

(vi)   The Company and each of its Subsidiaries has disclosed on its Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 or Section 6662A of the Code. Neither the Company nor any of its Subsidiaries has engaged in any transaction described as a "reportable transaction" in Treasury Regulations Section 1.6011-4(b), including any transaction that is the same or substantially similar to a transaction that the United States Internal Revenue Service has determined to be a Tax avoidance transaction or that the United States Internal Revenue Service has identified through a notice, Treasury Regulation or other form of published guidance as a "listed transaction," as such term is defined in Treasury Regulations Section 1.6011-4(b)(2).

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(vii)   The Company is, and at all times since its formation, through and including the Closing Date will be, treated as a partnership for federal, state and local income Tax purposes. OPEX is, and at all times since its formation, through and including the Closing Date will be, treated as an association taxable as corporation for federal, state and local income Tax purposes. The Company has delivered to Parent and Sub true and complete copies of the Form 8832, Entity Classification Election, filed by OPEX to elect to be classified as an association taxable as corporation for federal income Tax purposes and all correspondence received by OPEX from the United States Internal Revenue Service relating or pertaining to such election.

(viii)   Neither the Company nor any of its Subsidiaries (i) has ever been a member of an affiliated group filing a consolidated federal income Tax Return, except with respect to OPEX during the period that OPEX was owned by White Oak and/or its affiliates, (ii) has any liability for the Taxes of any entity under Treas. Reg. § 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise, (iii) is a party to or bound by, and has no obligation under, any Tax allocation or Tax sharing agreement, Tax indemnity agreement, or similar written agreement or arrangement, (iv) is a party to or bound by, and has no obligation under, any agreement, ruling or compromise entered into between the Company or any of its Subsidiaries and any Governmental Authority regarding Taxes or the assessment or payment thereof, (v) is a party to any agreement, contract, arrangement or plan that has resulted, or could result, individually or in the aggregate, in the payment of "excess parachute payments" within the meaning of Section 280G of the Code (or any corresponding provision of state, local or foreign law), and (vi) has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed by Section 355 or 361 of the Code. No Indebtedness of the Company or any of its Subsidiaries consists of "corporate acquisition indebtedness" within the meaning of Section 279 of the Code. Neither the Company nor any of its Subsidiaries is, or will be, required to include any item of income, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for any taxable period ending on or before the Closing Date, (B) "closing agreement" as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Law) executed on or before the Closing Date, (C) installment sale or open transaction disposition made on or before the Closing Date, or (D) prepaid amount received on or before the Closing Date.

(ix)   As used in this Agreement, " Taxes " shall include all federal, state, local and foreign taxes, tariffs, charges, fees, levies, duties, penalties, assessments or other amounts imposed by or payable to any foreign, federal, state, local or other taxing authority or agency, including, but not limited to, income, gross receipts, profits, windfall profits, gains, minimum, alternative minimum, estimated, ad valorem, value added, severance, stamp, customs, import, export, utility, use, service, property, sales, excise, transfer, franchise, employment, payroll, withholding, social security, disability, workers compensation, unemployment compensation and other taxes, together with any interest and any penalties or additions to tax imposed by any court or taxing authority, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

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(i)   Voting Requirements. The Company's Board of Representatives has approved this Agreement and the Merger. The Merger and the terms and conditions of this Agreement have been approved by the holders of a majority of the outstanding Company Units entitled to vote thereon by written consent in lieu of a special meeting of the holders of Company Units. No other vote, consent or approval of the holders of any class or series of the Company Units or any other equity interests are necessary to approve this Agreement, the Merger or the other transactions contemplated by