AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 2.1

 

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

UNITED REFINING ENERGY CORP.,

CHAPARRAL SUBSIDIARY, INC.

AND

CHAPARRAL ENERGY, INC.

Dated as of October 9, 2009

 

TABLE OF CONTENTS

 

 

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Exhibit A – Certificate of Merger

Exhibit B – Stockholders of Chaparral and Merger Consideration Allocation

Exhibit C – Form of Lock-Up Agreement

Exhibit D – Amended and Restated Certificate of Incorporation

Exhibit E – Long-Term Incentive Plan

Exhibit F – Terms of Employment Agreements

Exhibit G – Form of Indemnification Agreement

Exhibit H – Amended and Restated Bylaws

 

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Index of Defined Terms

 

 

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vi

AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (this “ Agreement ”) is made and entered into as of October 9, 2009 by and among Chaparral Energy, Inc., a Delaware corporation (“ Chaparral ”), United Refining Energy Corp., a Delaware corporation (“ Parent ”), and Chaparral Subsidiary, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“ Merger Sub ”). Parent, Merger Sub and Chaparral are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

WITNESSETH:

A. Parent, Chaparral and Merger Sub intend to effect the merger of Merger Sub with and into Chaparral (the “ Merger ”), with Chaparral continuing as the surviving entity following the Merger, as a result of which all of the issued and outstanding common stock, par value $0.01 per share, of Chaparral (the “ Chaparral Common Stock ”), will automatically be exchanged into the right to receive the Merger Consideration (as defined herein) upon the terms and subject to the conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law (the “ DGCL ”), as amended.

B. The Board of Directors of Chaparral and the Boards of Directors of each of Parent and Merger Sub have unanimously approved this Agreement and the Merger and each of them have determined that this Agreement, the Merger and the other transactions contemplated hereby are advisable and in the respective best interests of Chaparral, Parent and Merger Sub.

C. The Chaparral Stockholders (as defined herein) have approved and adopted this Agreement and the Merger, and the Board of Directors of Parent has resolved to recommend that its stockholders approve and adopt this Agreement and the Merger.

NOW, THEREFORE, in consideration of the premises set forth above, which are incorporated in this Agreement as if fully set forth below, and the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the Parties hereto agree as follows:

ARTICLE I

TERMS OF THE MERGER

1.1 The Merger .

Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time (as defined herein), Merger Sub shall be merged with and into Chaparral. Upon consummation of the Merger, the separate existence of Merger Sub shall thereupon cease, and Chaparral, as the surviving company in the Merger (the “ Surviving Company ”), shall continue its corporate existence under the laws of the State of Delaware as a wholly-owned subsidiary of Parent.

1.2 The Closing; Effective Time; Effect .

(a) Unless this Agreement shall have been terminated and the transactions contemplated hereby shall have been abandoned pursuant to Section 7.1, and subject to the satisfaction or waiver of the conditions set forth in Article VI hereof, the closing of the Merger (the “ Closing ”) shall take place at the offices of Ellenoff Grossman & Schole LLP at 10:00 a.m. New York City time no later than the second Business Day after the date that all of the closing conditions set forth in Article VI have been satisfied or waived, unless

 

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another time, date or place is agreed upon in writing by the Parties hereto. The date on which the Closing occurs is herein referred to as the “ Closing Date .”

(b) Subject to the terms and conditions hereof, concurrently with the Closing, the Parties shall file with the Secretary of State of Delaware (the “ DE Secretary of State ”) a certificate of merger in accordance with the DGCL substantially in the form of Exhibit A attached hereto (referred to herein as the “ Certificate of Merger ”), executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL in order to effect the Merger. The Merger shall become effective upon the filing of the Certificate of Merger or at such other time as is agreed by the Parties hereto, in accordance with the DGCL and as specified in the Certificate of Merger. The time when the Merger shall become effective is herein referred to as the “ Effective Time .” The Certificate of Merger shall change the name of the Surviving Company to Chaparral Subsidiary, Inc.

(c) From and after the Effective Time, the Surviving Company shall possess all properties, rights, privileges, powers and franchises of Chaparral and Merger Sub, and all of the claims, obligations, liabilities, debts and duties of Chaparral and Merger Sub shall become the claims, obligations, liabilities, debts and duties of the Surviving Company.

1.3 Exchange of Securities .

(a) At the Effective Time, by virtue of the Merger and without any action on the part of Chaparral or the holders of any securities of Chaparral, all of the Chaparral Common Stock issued and outstanding immediately prior to the Effective Time shall automatically be converted into the right to receive an aggregate of sixty three million (63,000,000) shares of common stock (the “ Stock Consideration ”) of Parent, par value $0.0001 per share (“ Parent Common Stock ”). At the Closing, (i) fifty eight million (58,000,000) shares of the Stock Consideration shall be distributed to the stockholders of Chaparral of record immediately prior to the Closing (individually, a “ Chaparral Stockholder ” and collectively, the “ Chaparral Stockholders ”) in accordance with the allocation set forth on Exhibit B attached hereto, and (ii) five million (5,000,000) shares of the Stock Consideration (the “ Escrow Shares ”) shall be escrowed to cover any indemnification claims of Parent against Chaparral pursuant to Section 5.3 of this Agreement and such Escrow Shares shall be subject to forfeiture and cancellation in the event the Escrow Shares are not earned pursuant to Section 1.4(a)(i) of this Agreement.

(b) Each issued and outstanding share of common stock, par value $0.0001 per share, of Merger Sub shall be exchanged into one (1) issued and outstanding share of common stock of the Surviving Company, and all such Surviving Company common stock shall constitute the only outstanding common stock and common stock equivalents of the Surviving Company following the Effective Time. From and after the Effective Time, any certificate representing the common stock of Merger Sub shall be deemed for all purposes to represent common stock of the Surviving Company into which such shares of common stock of Merger Sub represented thereby were exchanged in accordance with the immediately preceding sentence.

(c) All Chaparral Common Stock shall, by virtue of the Merger and without any action on the part of the Chaparral Stockholders, be automatically cancelled and shall cease to exist, and each Chaparral Stockholder shall cease to have any rights with respect thereto, except the right to receive the Stock Consideration and the Earn-Out Shares (as defined in Section 1.4 below). The Stock Consideration and Earn-Out Shares are referred to collectively herein as the “ Merger Consideration ”.

(d) Each Chaparral Stockholder shall enter into a “lock-up” agreement substantially in the form set forth on Exhibit C attached hereto (a “ Lock Up Agreement ”) pursuant to which such Chaparral Stockholder shall agree, for a period of one year from the Closing Date, that such Chaparral Stockholder shall neither, on his, her or its own behalf or on behalf of entities, family members or trusts affiliated with or controlled by him, her or it, offer, issue, grant any option on, sell or otherwise dispose of any portion of the Stock Consideration issued to such Chaparral Stockholder.

 

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1.4 Earn-Out Shares . In addition to the Stock Consideration, Chaparral Stockholders shall be entitled to up to an additional: (1) fifteen million (15,000,000) shares of Parent Common Stock, which includes the Escrow Shares (the “ Share Price Earn-Out Shares ”), and (2) five million (5,000,000) shares of Parent Common Stock (the “ EBITDA Earn-Out Shares ” and together with the Share Price Earn-Out Shares, the “ Earn-Out Shares ”) in the event Parent achieves certain earn-out triggers, defined in terms of a combination of criteria as follows:

(a) Share Price Earn-Out Shares . The following table (“ Table X ”) sets forth the criteria that must be met in order for the Share Price Earn-Out Shares to be issued. For purposes of clarification, Criterion A set forth in the table below is required to be met, together with at least one of Criterion B, C or D.

Table X

 

(i) If Criterion A and B in Table X are met at any time during the period from the Closing through December 31, 2010, the Chaparral Stockholders shall be vested in the Escrow Shares, which will be distributed to the Chaparral Stockholders in accordance with the allocation set forth on Exhibit B, unless such shares otherwise remain subject to escrow pursuant to Section 5.3 hereof and the terms of the Indemnification Escrow Agreement (defined in Section 5.3(a) of this Agreement).

(ii) If Criterion A and C in Table X are met at any time during the period from the Closing through December 31, 2011, Parent shall issue to the Chaparral Stockholders an aggregate of ten million (10,000,000) shares of Parent Common Stock as Share Price Earn-Out Shares, less any Share Price Earn-Out Shares issued pursuant to subsection 1.4(a)(i) above.

(iii) If Criterion A and D in Table X are met at any time during the period from the Closing through December 31, 2012, Parent shall issue to the Chaparral Stockholders an aggregate of fifteen million (15,000,000) shares of Parent Common Stock as Share Price Earn-Out Shares, less any Share Price Earn-Out Shares issued pursuant to subsections 1.4(a)(i) and (ii) above.

(b) EBITDA Earn-Out Shares . In the event (1) Criterion A on Table X above is met and (2) Parent’s EBITDA for any fiscal year from 2010 through 2014, based on the information shown on Parent’s audited financial statements filed on Form 10-K (or equivalent form) with the Securities and Exchange Commission (the “ SEC ”), is in excess of six hundred million dollars ($600,000,000), Parent shall issue to the Chaparral Stockholders an aggregate of five million (5,000,000) shares of Parent Common Stock as EBITDA Earn-Out Shares. For purposes of clarification, the EBITDA Earn-Out Shares may only be earned once, without regard to whether the criteria set forth in this Section 1.4(b) is achieved in any fiscal year following issuance of the EBITDA Earn-Out Shares for the initial fiscal year in which they were earned. For purposes of this Agreement, “ EBITDA ” of Parent shall be calculated in the same manner as the calculation of “Consolidated EBITDAX” for Chaparral under its Fifth Amendment to Seventh Restated Credit Agreement, dated as of May 21, 2009, by and among Chaparral, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers, JP Morgan Chase Bank, N.A., as Administrative Agent, and the Lender parties thereto

 

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(the “ Chaparral Credit Agreement ”); provided however , that cash proceeds received from the termination or other monetization of any Swap Agreement (as defined in the Chaparral Credit Agreement) shall not reduce Consolidated Net Income (as defined in the Chaparral Credit Agreement).

(c) The Earn-Out Shares shall be distributed to the Chaparral Stockholders in accordance with the allocation set forth on Exhibit B attached hereto within a reasonable period following achievement of the applicable criteria and, if applicable, the provisions of Section 5.3 of this Agreement.

(d) The Lock Up Agreement for each Chaparral Stockholder shall also provide that for a period of six (6) months from the date of issuance of any Earn-Out Shares, such Chaparral Stockholder shall neither, on his, her or its own behalf or on behalf of entities, family members or trusts affiliated with or controlled by him, her or it, offer, issue, grant any option on, sell or otherwise dispose of any portion of the Earn-Out Shares then-issued to such Chaparral Stockholder.

(e) Any contingent stock payment hereunder shall be treated as comprised of two components, respectively a principal component and an interest component, the amounts of which shall be determined as provided in Treas. Reg. Section 1.483-4(b) example (2) using the 3-month test rate of interest provided for in Treas. Reg. Section 1.1274-4(a)(1)(ii) employing the semi-annual compounding period. As to each such contingent stock payment to each former Chaparral Stockholder, shares representing the principal component (with a value equal to the principal component) and shares representing the interest component (with a value equal to the interest component) shall be represented by separate share certificates.

1.5 Sponsor Earn-Out Shares . At the Effective Time, the terms of the Securities Escrow Agreement dated December 11, 2007 (the “ Securities Escrow Agreement ”) by and among Parent, United Refining, Inc. (the “ Sponsor ”) and Continental Stock Transfer & Trust company, as escrow agent (the “ Escrow Agent ”) shall be amended and restated to provide that 5,625,000 shares of Parent Common Stock owned by the Sponsor and currently escrowed pursuant to the Securities Escrow Agreement will be subject to forfeiture and cancellation in the event none or only a portion of the Earn-Out Shares are released from escrow (the “ Sponsor Earn-Out Shares ”). The amendment to the Securities Escrow Agreement (the “ Securities Escrow Agreement Amendment ”) shall provide that the Sponsor Earn-Out Shares will be released from escrow to the Sponsor in four equal tranches; each tranche to be released when the Chaparral Stockholders are entitled to receive 5,000,000 shares of the Share Price Earn-Out Shares and/or the EBITDA Earn-Out Shares. The Securities Escrow Agreement Amendment shall provide that it is a condition to the release from escrow of any Sponsor Earn-Out Shares that the Sponsor enter into a Lock Up Agreement pursuant to which the Sponsor shall agree, for a period of six months from the date of release of such shares from escrow, that the Sponsor shall not on its own behalf or on behalf of entities, Persons or trusts affiliated with or controlled by it, offer, issue, grant any option on, sell or otherwise dispose of any portion of the Sponsor Earn-Out Shares then-released to the Sponsor.

1.6 Tender and Payment .

(a) Surrender of Certificates . Upon surrender of stock certificates representing the shares of Chaparral Common Stock (the “ Chaparral Stock Certificates ”) (accompanied by duly executed stock powers) at the Closing as well as the delivery to Parent of a letter of transmittal which shall include customary representations and warranties including, but not limited to, the Chaparral Stockholders’ right, title and interest in their Chaparral Common Stock, their acceptance of the terms and conditions of the proposed transaction, and acknowledgement by the Chaparral Stockholders that any and all rights, preferences, privileges and obligations owed by Chaparral to the Chaparral Stockholders, shall cease and be of no further force or effect, the Chaparral Stockholders holding such Chaparral Stock Certificates shall receive in exchange therefore stock certificates representing the number of shares of Parent Common Stock into which their shares of Chaparral Common Stock are converted at the Effective Time, and such Chaparral Stock Certificates shall be cancelled. Until so surrendered, outstanding Chaparral Stock Certificates will be deemed, from and after the Effective Time, to evidence only the right to receive the applicable number of shares of Parent Common Stock pursuant to the allocation set forth on Exhibit B . If payment of the Stock Consideration is to be made to a Person other than the Person in whose name the Chaparral Common Stock

 

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is registered, it shall be a condition of payment that the letter of transmittal be in proper form for such transfer and that the Person requesting such payment shall have paid all transfer and other Taxes required by reason of the issuance to a Person other than the registered holder of the Chaparral Common Stock, or such Person shall have established to the satisfaction of Parent that such Tax either has been paid or is not applicable.

(b) Fractional Shares . No certificates or scrip representing fractional shares of Parent Common Stock or book-entry credit of the same shall be issued upon the surrender of the Chaparral Common Stock for exchange. Each Chaparral Stockholder who receives any portion of the Stock Consideration payable in Parent Common Stock who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock shall have such fractional share rounded up to the nearest whole number.

(c) Transfer Books; No Further Ownership Rights in the Chaparral Common Stock . At the Effective Time, the transfer books of Chaparral shall be closed, and thereafter there shall be no further registration of transfers of Chaparral Common Stock on the records of Chaparral. From and after the Effective Time, the Chaparral Common Stock outstanding immediately prior to the Effective Time shall be cancelled and they shall cease to have any rights, except as otherwise provided for herein or by applicable Law.

(d) Withholding Taxes . Parent and the Surviving Company shall be entitled to deduct and withhold, or cause the Paying Agent to deduct and withhold, from the Merger Consideration payable to a Chaparral Stockholder any such amounts as are required under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any applicable provision of state, local or foreign Tax Law. To the extent such amounts are so withheld by Parent or the Surviving Company, or caused to be withheld by the Paying Agent, such withheld amounts shall be treated for all purposes as having been paid to the Chaparral Stockholders in respect of which such deduction and withholding was made by Parent, the Surviving Company or the Paying Agent, as the case may be.

1.7 Certificate of Incorporation and Governing Documents . At and after the Effective Time and by virtue of the Merger, and until the same have been duly amended, the certificate of incorporation and the bylaws of Chaparral, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Company.

1.8 Directors and Officers .

(a) At the Effective Time, the officers and directors of Chaparral shall be the officers and directors of the Surviving Company.

(b) At the Effective Time, the officers of Parent shall be the officers set forth on Section 5.8 of the Parent Disclosure Schedules. The directors of Parent shall be the directors set forth in the Proxy Statement, which are selected pursuant to the methodology set forth in Section 5.8 of the Parent Disclosure Schedules.

1.9 Certain Adjustments to Parent Capitalization .

If, between the date of this Agreement and the Effective Time, the outstanding Parent Common Stock is changed into a different number of shares or different class by reason of any reclassification, recapitalization, stock split, split-up, combination or exchange of shares or a stock dividend or dividend payable in any other securities occurs or is declared with a record date within such period, or any similar event occurs, the Merger Consideration shall be appropriately adjusted to provide to the Chaparral Stockholders the same economic effect as contemplated by this Agreement prior to such event.

1.10 Other Effects of the Merger .

The Merger shall have all further effects as specified in the applicable provisions of the DGCL.

 

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1.11 Additional Actions .

If, at any time after the Effective Time, the Surviving Company or Parent, as applicable, shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Company or Parent its right, title or interest in, to or under any of the rights, properties or assets of Merger Sub or Chaparral or otherwise carry out this Agreement, the officers and directors of the Surviving Company or Parent, as applicable, shall be authorized to execute and deliver, in the name and on behalf of Merger Sub or Chaparral, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of Merger Sub or Chaparral, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Company or otherwise to carry out this Agreement.

1.12 Tax-Free Reorganization .

Collectively, the Merger and the Short-Form Merger described in Section 5.14 are intended to be a reorganization within the meaning of Section 368(a) of the Code, and this Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying the Merger and the Short-Form Merger, collectively, as a Tax-free transaction for federal income Tax purposes. The Parties agree to report the Merger and the Short-Form Merger, collectively, as a Tax-free reorganization under the provisions of Section 368(a). None of the Parties will take or cause to be taken any action which would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368(a).

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF CHAPARRAL

The following representations and warranties by Chaparral to Parent and Merger Sub are qualified by the Chaparral disclosure schedules, which set forth certain disclosures concerning Chaparral and its subsidiaries (each a “ Subsidiary ” and collectively, the “ Subsidiaries ”) and each of their divisions and businesses (the “ Chaparral Disclosure Schedules ”). Except as disclosed in the Chaparral Disclosure Schedules, Chaparral hereby represents and warrants to Parent and Merger Sub as follows:

2.1 Due Organization and Good Standing . Each of Chaparral and the Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its properties and to carry on its respective business as now being conducted. Each of Chaparral and the Subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect. Chaparral has heretofore made available to Parent accurate and complete copies of Chaparral’s and each Subsidiaries’ certificate of incorporation, formation or organization, bylaws, membership agreements or other organizational documents, each as currently in effect. None of Chaparral or any Subsidiary is in violation of any provision of its certificate of incorporation, formation or organization, stockholder agreements, bylaws, membership agreements, partnership agreements or other organizational documents.

For purposes of this Agreement, the term “ Material Adverse Effect ” shall mean, with respect to a Party, any occurrence, state of facts, change, event, effect or circumstance that, individually or in the aggregate, has, or would reasonably be expected to have, a material adverse effect on the assets, liabilities, business, results of

 

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operations or financial condition of such Party and its subsidiaries, taken as a whole, or to otherwise carry on its business as now being conducted and as proposed to be conducted following the Effective Time, except, in each case, for any such effect attributable to (i) changes in laws, regulations or generally accepted accounting principles in the United States (“ GAAP ”), or interpretations thereof, (ii) the announcement or pendency of this Agreement, any actions taken in compliance with this Agreement or the consummation of any of the transactions contemplated by this Agreement (including the Merger), or (iii) the failure of a Party or any of its subsidiaries to take any action referred to in Sections 4.1 or 4.6, as the case may be, due to another Party’s unreasonable withholding, delaying or conditioning of its consent. For purposes of determining whether a particular change, event, circumstance or effect has a “Material Adverse Effect,” the nature and effect of each change, event, circumstance or effect shall be considered alone and together and along with the detrimental impact on the properties, financial condition, business operations, prospects or results of operations of a Party and its subsidiaries, taken as a whole, of such change, event, circumstance or effect.

2.2 Capitalization .

(a) The authorized capital stock of Chaparral consists of (i) 3,000,000 shares of Chaparral Common Stock and (ii) 600,000 shares of preferred stock, no par value. As of the date hereof, 877,000 shares of Chaparral Common Stock were issued and outstanding. Except for Chaparral Common Stock held by the Chaparral Stockholders as set forth on Exhibit B , no Chaparral Common Stock or preferred stock is issued and outstanding. All of the outstanding Chaparral Common Stock is duly authorized, validly issued, fully paid and non-assessable and not subject to any preemptive or similar rights. None of the outstanding securities of Chaparral has been issued in violation of any foreign, federal or state securities Laws.

(b) There are no: (i) outstanding options, warrants, puts, calls, convertible securities, preemptive or similar rights, (ii) bonds, debentures, notes or other indebtedness having general voting rights or that are convertible or exchangeable into securities having such rights, or (iii) subscriptions or other rights, agreements, arrangements, contracts or commitments of any character, relating to the issued or unissued Chaparral Common Stock or equity or partnership interest in any Subsidiary or obligating Chaparral or any Subsidiary to issue, transfer, deliver or sell or cause to be issued, transferred, delivered, sold or repurchased any options or Chaparral Common Stock of, or other equity interest in, Chaparral or any Subsidiary, or securities convertible into or exchangeable for such shares or equity interests, or obligating Chaparral or any Subsidiary to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment for such equity interests. There are no outstanding obligations of Chaparral or any Subsidiary to repurchase, redeem or otherwise acquire any Chaparral Common Stock or other equity interest in, Chaparral or any Subsidiary to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any other entity.

(c) There are no stockholder agreements, voting trusts or other agreements or understandings to which Chaparral or any Subsidiary is a party with respect to the voting of the Chaparral Common Stock or other equity interest in or any Subsidiary.

(d) No Indebtedness of Chaparral or any Subsidiary contains any restriction upon: (i) the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness by Chaparral or any Subsidiary or (iii) the ability of Chaparral or any Subsidiary to grant any Encumbrance (as defined in Section 2.6), other than Permitted Encumbrances (as defined in Section 2.19), on its properties or assets. As used in this Agreement, “ Indebtedness ” means (A) all indebtedness for borrowed money or for the deferred purchase price of property or services (including amounts by reason of overdrafts and amounts owed by reason of letter of credit reimbursement agreements) including with respect thereto, all interests, fees and costs (other than Expenses and current trade liabilities incurred in the ordinary course of business consistent with past practices and payable in accordance with customary practices), (B) any other indebtedness that is evidenced by a note, bond, debenture, credit agreement or similar instrument, (C) all obligations under financing leases, (D) all obligations under conditional sale or other title retention agreements relating to property purchased by Chaparral, (E) all obligations under leases required to be accounted for as capital leases under GAAP, (F) all obligations in respect of acceptances issued or created, (G) all liabilities secured by an

 

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Encumbrance on any property and (H) all guarantee obligations. As used in this Agreement, “ Expenses ” means all reasonable out-of-pocket expenses (including all reasonable fees and expenses of counsel, accountants, investment bankers, reserve engineers, financing sources, experts and consultants to a Party and its affiliates) incurred by a Party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution or performance of this Agreement, the preparation, printing, filing or mailing of the Proxy Statement, the solicitation of the Required Parent Vote (as defined in Section 3.4) and all other matters related to the consummation of the Merger.

2.3 Subsidiaries .

Section 2.3(a) of the Chaparral Disclosure Schedules sets forth, a true, complete and correct list of all Subsidiaries, the authorized shares of each Subsidiary, the issued and outstanding shares or membership interests of each Subsidiary, their respective jurisdictions of organization and all jurisdictions in which each Subsidiary is qualified to conduct business. All of the capital stock and other equity interests of the Subsidiaries are owned, directly or indirectly, by Chaparral free and clear of any Encumbrance with respect thereto. All of the outstanding shares of capital stock or other equity interests in each of the Subsidiaries are duly authorized, validly issued, fully paid and non-assessable and are free of preemptive rights and were issued in compliance with applicable Laws (as defined in Section 2.6). No capital stock or other equity interests of any of any of the Subsidiaries are or may become required to be issued or purchased by reason of any options, warrants, rights to subscribe to, puts, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of any capital stock of, or other equity interests in, any Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any Subsidiary is bound to issue additional shares of its capital stock or other equity interests, or options, warrants or rights to purchase or acquire any additional shares of its capital stock or other equity interests or securities convertible into or exchangeable for such shares or interests. Neither Chaparral nor any Subsidiary owns any shares of capital stock or other equity or voting interests in (including any securities exercisable or exchangeable for or convertible into capital stock or other equity or voting interests in) any other Person other than publicly traded securities constituting less than five percent of the outstanding equity of the issuing entity, other than capital stock or other equity interest of the Subsidiaries owned by Chaparral or another Subsidiary.

2.4 Authorization; Binding Agreement . Chaparral has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including the Merger: (i) have been duly and validly authorized by the Board of Directors of Chaparral, (ii) have been unanimously adopted and approved by the Chaparral Stockholders, and (iii) no other corporate proceedings on the part of Chaparral or any Subsidiary are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Chaparral and assuming the due authorization, execution and delivery of this Agreement by Parent and Merger Sub, constitutes the legal, valid and binding obligation of Chaparral, enforceable against Chaparral in accordance with its terms, except to the extent enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting the enforcement of creditors’ rights generally, and the fact that equitable remedies or relief (including, but not limited to, the remedy of specific performance) are subject to the discretion of the court from which such relief may be sought (collectively, the “ Enforceability Exceptions ”).

2.5 Governmental Approvals . No consent, approval, waiver, authorization or permit of, or notice to or declaration or filing with (each, a “ Consent ”), any government, any state or other political subdivision thereof, or any other entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory organization (each, a “ Governmental Authority ”), on the part of Chaparral or any Subsidiary is required to be obtained or made in connection with the execution, delivery or performance by Chaparral of this

 

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Agreement or the consummation by Chaparral of the transactions contemplated hereby (including the Merger), other than: (i) the filing of the Certificate of Merger with the DE Secretary of State in accordance with the DGCL, (ii) such filings as may be required in any jurisdiction where Chaparral is qualified or authorized to do business as a foreign corporation in order to maintain such qualification or authorization, (iii) compliance with any applicable federal or state securities or Blue Sky laws, (iv) pursuant to any other Laws (as defined in Section 2.6) designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (“ Antitrust Laws ”), if applicable, and (v) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect.

2.6 No Violations or Conflicts . The execution and delivery by Chaparral of this Agreement, the consummation by Chaparral of the Merger and the other transactions contemplated hereby, and compliance by Chaparral with any of the provisions hereof, will not: (i) conflict with or violate any provision of the certificate of incorporation, bylaws or other organizational documents of Chaparral or any Subsidiary, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment or acceleration) under, any Chaparral Material Contract (as defined in Section 2.14) to which Chaparral or any Subsidiary is a party or by which Chaparral’s or any Subsidiary’s assets are bound, except where such violation, breach or default would not reasonably be expected to have a Material Adverse Effect, (iii) result (immediately or with the passage of time or otherwise) in the creation or imposition of any liens, claims, mortgages, pledges, security interests, equities, options, assignments, hypothecations, preferences, priorities, deposit arrangements, easements, proxies, voting trusts or charges of any kind or restrictions (whether on voting, sale, transfer, disposition or otherwise) or other encumbrances or restrictions of any nature whatsoever, whether imposed by agreement, Law or equity, or any conditional sale contract, title retention contract or other contract (the “ Encumbrances ”), other than Permitted Encumbrances (as defined in Section 2.19), upon any of the properties, rights or assets of Chaparral or any Subsidiary that would reasonably be expected to have a Material Adverse Effect, or (iv) subject to obtaining the Consents from Governmental Authorities, and the waiting periods referred to therein having expired, and any condition precedent to such Consent having been satisfied, conflict with, contravene or violate any foreign, federal, state or local Order (as defined in Section 2.12), statute, law, rule, regulation, ordinance, writ, injunction, arbitration award, directive, judgment, decree, principle of common law, constitution, treaty or any interpretation thereof enacted, promulgated, issued, enforced or entered by any Governmental Authority (each, a “ Law ” and collectively, the “ Laws ”) to which Chaparral or any Subsidiary or any of their respective assets or properties is subject, except where such conflict, contravention or violation would not reasonably be expected to have a Material Adverse Effect.

2.7 Chaparral Financial Statements .

(a) As used herein, the term “ Chaparral Financials ” means (x) Chaparral’s audited consolidated financial statements (including, in each case, any related notes thereto), consisting, in part, of Chaparral’s balance sheets as of December 31, 2008, and 2007 and its statements of operations and statements of cash flow for the years ended December 31, 2008, 2007 and 2006 and (y) the unaudited interim financial statements of Chaparral for the six month period ended June 30, 2009 and for the three months and nine months periods ended September 30, 2009. Chaparral has made or will make available to Parent true, correct and complete copies of the Chaparral Financials. The Chaparral Financials fairly present in all material respects the consolidated financial condition and the results of operations, changes in stockholders’ equity, and cash flow of Chaparral and the Subsidiaries as at the respective dates of and for the periods referred to in such financial statements, all in accordance with (i) GAAP and (ii) Regulation S-X. As of January 1, 2008, neither Chaparral nor any Subsidiary had any off-balance sheet arrangements. The Chaparral Financials, to the extent required for inclusion in the Proxy Statement, comply in all material respects with the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), Regulation S-X and the published general rules and regulations of the SEC. Notwithstanding any provision in this Agreement to the contrary, any representation and warranty in this Agreement with respect to Chaparral’s unaudited interim financial statements for the three months and nine months periods ended September 30, 2009 shall be made as of the Closing Date.

 

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(b) For the year ended December 31, 2008 and the quarters ended March 31, 2009 and June 30, 2009, Chaparral has had no (i) significant deficiencies or material weaknesses in the design or operation of Chaparral’s internal controls over financial reporting that are reasonably likely to adversely affect Chaparral’s ability to record, process, summarize and report financial information and (ii) fraud, whether or not material, that involves management or other employees who have a significant role in Chaparral’s internal controls over financial reporting.

(c) Chaparral and each Subsidiary has not and, to the knowledge of Chaparral, no auditor or accountant of Chaparral or any Subsidiary or any manager, director, officer or consultant of Chaparral or any Subsidiary, has received any material written complaint, allegation, assertion or claim, regarding the accounting or auditing practices, procedures, methodologies or methods of Chaparral or any Subsidiary or their internal accounting controls, including any complaint, allegation, assertion or claim that Chaparral or any Subsidiary has engaged in questionable accounting or auditing practices. No attorney representing Chaparral or any Subsidiary has reported evidence of any violation of consumer protection (including rules and regulations promulgated by any state or federal Governmental Authority or with jurisdiction, oversight or regulatory control over the conduct of the business of Chaparral or its Subsidiaries) or securities Laws, breach of fiduciary duty or similar violation by Chaparral or any Subsidiary or any of their respective officers, directors, managers, employees or agents to the Board of Directors, Board of Managers or any committee thereof or to any director, manager or executive officer of Chaparral or any Subsidiary.

2.8 Absence of Certain Changes . Since December 31, 2008, Chaparral and the Subsidiaries have conducted their respective businesses in the ordinary course of business consistent with past practice and there has not been any fact, change, effect, occurrence, event, development or state of circumstances that has had or would reasonably be expected to have a Material Adverse Effect. Neither Chaparral or any Subsidiary has any off-balance sheet arrangements.

2.9 Absence of Undisclosed Liabilities . Neither Chaparral nor any Subsidiary has incurred any liabilities or obligations of the type required to be reflected on a balance sheet in accordance with GAAP that are not adequately reflected or reserved on or provided for in the Chaparral Financials, other than liabilities of the type required to be reflected on a balance sheet in accordance with GAAP that have been incurred since December 31, 2008 or that would not reasonably be expected to have a Material Adverse Effect.

2.10 Compliance with Laws .

(a) Chaparral and the Subsidiaries are each in compliance with all Laws applicable to it and the conduct of its businesses as currently conducted and as proposed to be conducted following consummation of the Merger, except where the failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. Chaparral and each Subsidiary is not in conflict with, or in default or violation of, nor since December 31, 2008, has it received any notice of any conflict with, or default or violation of any applicable Law by which Chaparral or any Subsidiary, or any property or asset of Chaparral or any Subsidiary, is bound or affected, except for any such conflicts, defaults or violations that would not reasonably be expected to have a Material Adverse Effect.

(b) There is no pending or, to the knowledge of Chaparral, threatened, proceeding, examinations, reviews or investigation to which Chaparral or any Subsidiary is subject before any Governmental Authority regarding whether Chaparral has violated in any material respect applicable Laws. Since December 31, 2008, neither Chaparral nor any Subsidiary has received written notice of any material violation of, or noncompliance with, any Law applicable to Chaparral or any Subsidiary, or directing Chaparral or any Subsidiary to take remedial action with respect to such applicable Law or otherwise, and no deficiencies of Chaparral or any Subsidiary have been asserted in writing by any Governmental Authority with respect to possible violations of any applicable Laws except for such violations or deficiencies that would not reasonably be expected to have a Material Adverse Effect. Chaparral and each Subsidiary have filed or made all material reports, statements, documents, registrations, notices, filings or submissions required to be

 

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filed with any Governmental Authority, and all such reports, statements, documents, registrations, notices, filings and submissions are in material compliance (and materially complied at the relevant time) with applicable Law and no material deficiencies have been asserted by any Governmental Authority with respect to any such reports, statements, documents, registrations, notices, filings or submissions required to be filed with any Governmental Authority.

2.11 Regulatory Agreements; Permits . Except as set forth on Section 2.11 of the Chaparral Disclosure Schedules:

(a) There are no: (i) written agreements, consent agreements, memoranda of understanding, commitment letters, cease and desist orders, or similar undertakings to which Chaparral or any Subsidiary is a party, on the one hand, and any Governmental Authority is a party or addressee, on the other hand, (ii) Orders (as defined in Section 2.12) or directives of or supervisory letters from a Governmental Authority specifically with respect to Chaparral or any Subsidiary, or (iii) resolutions or policies or procedures adopted by Chaparral or any Subsidiary at the request of a Governmental Authority, that (A) limit in any material respect the ability of Chaparral or any Subsidiary to conduct its business as currently being conducted or as contemplated by the Parties to be conducted following the Closing, (B) in any manner impose any requirements on Chaparral or any Subsidiary that materially add to or otherwise materially modify in any respect the requirements imposed under applicable Laws, (C) require Chaparral or any Subsidiary or any of its divisions to make capital contributions or make loans to another division or affiliate of Chaparral or any Subsidiary or (D) in any manner relate to the ability of Chaparral or any Subsidiary to pay dividends or otherwise materially restrict the conduct of business of Chaparral or any Subsidiary in any respect.

(b) Chaparral and each Subsidiary hold all material permits, licenses, franchises, grants, authorizations, consents, exceptions, variances, exemptions, orders and other governmental authorizations, certificates, consents and approvals necessary to lawfully conduct its business as presently conducted and to own, lease and operate its assets and properties (collectively, the “ Chaparral Permits ”), all of which are in full force and effect, and no suspension, non-renewal, amendment, restriction, limitation or cancellation of any of the Chaparral Permits is pending or, to the knowledge of Chaparral, threatened, except where the failure of any of the Chaparral Permits to be in full force and effect, or the suspension or cancellation of any of the Chaparral Permits, would not reasonably be expected to have a Material Adverse Effect. To the knowledge of Chaparral, no facts or circumstances exist that would reasonably be expected to impact Chaparral’s ability to obtain any material Chaparral Permit in the future as may be necessary for Chaparral to continue its operations as currently contemplated. Neither Chaparral nor any Subsidiary is in violation in any material respect of the terms of any Chaparral Permit.

(c) To the knowledge of Chaparral each of the officers and employees of Chaparral and all Subsidiaries are in compliance with all applicable federal, state and foreign Laws requiring any registration, licensing or qualification, and are not subject to any liability or disability by reason of the failure to be so registered, licensed or qualified, except where such failure to be in compliance or such liability or disability would not reasonably be expected to have a Material Adverse Effect.

2.12 Litigation . There is no private, regulatory or governmental inquiry, action, suit, proceeding, litigation, claim, arbitration or investigation (each, an “ Action ”) pending before any arbitrator, agency, court or tribunal, foreign or domestic, or, to the knowledge of Chaparral, threatened against Chaparral or any Subsidiary or any of their respective properties, rights or assets or any of their respective managers, officers or directors (in their capacities as such) that would reasonably be expected to have a Material Adverse Effect. There is no decree, directive, order, writ, judgment, stipulation, determination, decision, award, injunction, temporary restraining order, cease and desist order or other order by, or any capital plan, supervisory agreement or memorandum of understanding with any Governmental Authority (each, an “ Order ”) binding against Chaparral or any Subsidiary or any of its properties, rights or assets or any of its managers, officers or directors (in their capacities as such) that would prohibit, prevent, enjoin, restrict or materially alter or delay any of the transactions contemplated by

 

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this Agreement (including the Merger), or that would reasonably be expected to have a Material Adverse Effect. Chaparral and each Subsidiary are in material compliance with all Orders. There is no material Action which Chaparral or any Subsidiary has pending against other parties.

2.13 Restrictions on Business Activities . There is no agreement or Order binding upon Chaparral or any Subsidiary which has or could reasonably be expected to have the effect of prohibiting, preventing, restricting or impairing in any respect any business practice of Chaparral or any Subsidiary as their business is currently conducted, any acquisition of property by Chaparral or any Subsidiary, the conduct of business by Chaparral or any Subsidiary as currently conducted, or restricting in any respect the ability of Chaparral or any Subsidiary from engaging in business as currently conducted or from competing with other parties, except where such agreement or Order would not reasonably be expected to have a Material Adverse Effect.

2.14 Material Contracts .

(a) Except for such Chaparral Material Contracts that Chaparral has filed with the SEC as a material contract as required by Item 601(b)(10) of Regulation S-K, Section 2.14 of the Chaparral Disclosure Schedules sets forth a list of, and Chaparral has made available to Parent, true, correct and complete copies of, each written contract, agreement, commitment, arrangement, lease, license, permit or plan and each other instrument to which Chaparral or any Subsidiary is a party or by which Chaparral or any Subsidiary is bound as of the date hereof (each, a “ Chaparral Material Contract ”) that:

(i) is described in the Chaparral Financials for the year ended December 31, 2008;

(ii) intentionally omitted;

(iii) contains covenants that materially limit the ability of Chaparral or any Subsidiary (or which, following the consummation of the Merger, could materially restrict the ability of Parent, Chaparral, the Subsidiaries or any of their affiliates): (A) to compete in any line of business or with any Person or in any geographic area or to sell, supply, price, develop or distribute any service, product or asset, including any non-competition covenants, exclusivity restrictions, rights of first refusal or most-favored pricing clauses or (B) to purchase or acquire an interest in any other entity, except, in each case, for any such contract that may be canceled without any penalty or other liability to Chaparral or any Subsidiary upon notice of 60 days or less;

(iv) involves any joint venture, partnership, limited liability or other similar agreement or arrangement relating to the formation, creation, operation, management or control of any partnership or joint venture that is material to the business of Chaparral, taken as a whole;

(v) involves any exchange traded, over-the-counter or other swap, cap, floor, collar, futures contract, forward contract, option or other derivative financial instrument or contract, based on any commodity, security, instrument, asset, rate or index of any kind or nature whatsoever, whether tangible or intangible, including currencies, interest rates, foreign currency and indices;

(vi) relates to Indebtedness (whether incurred, assumed, guaranteed or secured by any asset) having an outstanding principal amount in excess of $1,000,000 with respect to any Indebtedness;

(vii) was entered into by Chaparral or any Subsidiary and has not yet been consummated, and involves the acquisition or disposition, directly or indirectly (by merger or otherwise), of a substantial amount of the assets or capital stock or other equity interests of another Person, other than the acquisition or disposition of assets in the ordinary course of business consistent with past practices;

(viii) by its terms calls for aggregate payments by Chaparral under such contract of more than $3,000,000 with respect to any payments;

(ix) with respect to any material agreement for the acquisition or disposition, directly or indirectly (by merger or otherwise), of a substantial amount of the assets or capital stock or other equity interests

 

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of another Person, pursuant to which Chaparral or any Subsidiary has: (A) any continuing indemnification obligations or (B) any “earn-out” or other contingent payment obligations;

(x) involves any managers, directors, executive officers or key employees of Chaparral that cannot be cancelled by Chaparral within 60 days’ notice without liability, penalty or premium;

(xi) obligates Chaparral or any Subsidiary to provide indemnification or a guarantee in excess of $3,000,000 with respect to any obligation;

(xii) obligates Chaparral or any Subsidiary to make any capital commitment or capital expenditure (including pursuant to any joint venture) in excess of $3,000,000 with respect to such obligation;

(xiii) relates to the development, ownership, licensing or use of any Intellectual Property (as defined in Section 2.15) material to the business of Chaparral or any Subsidiary, other than “shrink wrap,” “click wrap,” and “off the shelf” software agreements and other agreements for software commercially available on reasonable terms to the public generally, with license, maintenance, support and other fees of less than $500,000 per year (collectively, “ Off-the-Shelf Software Agreements ”);

(xiv) provides for any standstill arrangements; or

(xv) Chaparral has filed as a material contract with the SEC pursuant to Item 601(b)(10) of Regulation S-K.

(b) With respect to each Chaparral Material Contract: (i) each Chaparral Material Contract is legal, valid, binding and enforceable in all material respects against Chaparral or the Subsidiaries, as the case may be, and, to Chaparral’s knowledge, the other party thereto, and in full force and effect (except as such enforcement may be limited by the Enforceability Exceptions); (ii) the consummation of the transactions contemplated by this Agreement will not affect the terms, validity or enforceability of such Chaparral Material Contract against the Surviving Company or any Subsidiary and, to Chaparral’s knowledge, the other party thereto; (iii) neither Chaparral nor any Subsidiary is in breach or default in any material respect, and no event has occurred which, with the passage of time or giving of notice or both, would constitute such a breach or default by Chaparral or any Subsidiary, or permit termination or acceleration by the other party, under any Chaparral Material Contract; (iv) to Chaparral’s knowledge, no other party to any Chaparral Material Contract is in breach or default in any material respect, and no event has occurred which, with the passage of time or giving of notice or both, would constitute such a breach or default by such other party, or permit termination or acceleration by Chaparral or any Subsidiary, under such Chaparral Material Contract, and (v) the consummation of the transactions contemplated by this Agreement will not obligate Chaparral or any Subsidiary to make any payments thereunder.

2.15 Intellectual Property .

(a) Section 2.15(a) of the Chaparral Disclosure Schedules contains a list of: (A) all material Intellectual Property that is owned by Chaparral or any Subsidiary (the “ Chaparral Intellectual Property ”) and (B) all material Intellectual Property, other than Off-the-Shelf Software Agreements, licensed, used or held for use by Chaparral or any Subsidiary in the conduct of its business (“ Licensed Intellectual Property ”). Except where the failure to own, license or otherwise possess such rights has not had and would not reasonably be expected to have a Material Adverse Effect, Chaparral and each Subsidiary has: (i) all right, title and interest in and to all Chaparral Intellectual Property owned by it, free and clear of all Encumbrances, other than Permitted Encumbrances and (ii) all necessary proprietary rights in and to all of its Licensed Intellectual Property, free and clear of all Encumbrances, other than Permitted Encumbrances. Neither Chaparral nor any Subsidiary has received any notice alleging it or any Subsidiary has infringed, diluted or misappropriated, or, by conducting its business as proposed, would infringe, dilute or misappropriate, the Intellectual Property rights of any Person, and, to the knowledge of Chaparral, there is no valid basis for any such allegation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will impair or materially alter Chaparral’s or any Subsidiary’s rights to any Chaparral Intellectual Property or Licensed Intellectual Property. To the knowledge of Chaparral, there

 

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is no unauthorized use, infringement or misappropriation of the Chaparral Intellectual Property by any third party. Neither Chaparral nor any Subsidiary is engaged in any unauthorized use, infringement or misappropriation of any Intellectual Property owned by any third party that would reasonably be expected to have a Material Adverse Effect. All of the rights within the Chaparral Intellectual Property are valid, enforceable and subsisting (except as such enforcement may be limited by the Enforceability Exceptions). There is no Action pending or, to Chaparral’s knowledge, threatened which challenges the rights of Chaparral or any Subsidiary in respect of any Chaparral Intellectual Property or the validity, enforceability or effectiveness thereof. The Chaparral Intellectual Property and the Licensed Intellectual Property constitute all material Intellectual Property used in or necessary for the operation by Chaparral or any Subsidiary of its business as currently conducted. Neither Chaparral nor any Subsidiary is in breach or default in any material respect (or would with the giving of notice or lapse of time or both be in such breach or default) under any license to use any of the Licensed Intellectual Property.

(b) For purposes of this Agreement, “ Intellectual Property ” means: (A) United States, international and foreign patents and patent applications, including divisionals, continuations, continuations-in-part, reissues, reexaminations and extensions thereof and counterparts claiming priority therefrom; utility models; invention disclosures; and statutory invention registrations and certificates; (B) United States and foreign registered, pending and unregistered trademarks, service marks, trade dress, logos, trade names, corporate names and other source identifiers, domain names, Internet sites and web pages; and registrations and applications for registration for any of the foregoing, together with all of the goodwill associated therewith; (C) United States and foreign registered copyrights, and registrations and applications for registration thereof; rights of publicity; and copyrightable works; and (D) all inventions and design rights (whether patentable or unpatentable) and all categories of trade secrets as defined in the Uniform Trade Secrets Act, including business, technical and financial information.

2.16 Employee Benefit Plans .

(a) Section 2.16(a) of the Chaparral Disclosure Schedules lists, with respect to Chaparral and any trade or business (whether or not incorporated) which is treated as a single employer with Chaparral within the meaning of Section 414(b), (c), (m) or (o) of the Code (an “ ERISA Affiliate ”): (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)), (ii) loans to managers, officers, directors or employees other than advances for expense reimbursements incurred in the ordinary course of business consistent with past practices and any securities option, securities stock purchase, phantom securities, securities appreciation right, equity-related, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs, agreements or arrangements, (iii) all bonus, pension, retirement, profit sharing, savings, deferred compensation or incentive plans, programs, policies, agreements or arrangements, (iv) other fringe, perquisite, or employee benefit plans, programs, policies, agreements or arrangements and (v) any current or former employment, consulting, change of control, retention or executive compensation, termination or severance plans, programs, policies, agreements or arrangements, written or otherwise, as to which unsatisfied liabilities or obligations (contingent or otherwise) remain for the benefit of, or relating to, any present or former employee, consultant, manager or director, or which could reasonably be expected to have any liabilities or obligations (together, the “ Benefit Plans ”).

(b) Any Chaparral Benefit Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service (“ IRS ”) a current favorable determination letter as to its qualified status under the Code, or has applied to the IRS for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or IRS pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination 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.

 

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(c) To the knowledge of Chaparral, there has been no “prohibited transaction,” as such term is defined in Section 406 of ERISA and Section 4975 of the Code, by Chaparral or any Subsidiary or by any trusts created thereunder, any trustee or administrator thereof or any other Person, with respect to any Chaparral Benefit Plan. Except as would not reasonably be expected to have a Material Adverse Effect: (i) each Chaparral Benefit Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all applicable Laws (including ERISA and the Code), and (ii) Chaparral and each ERISA Affiliate have performed all obligations required to be performed by them under, are not in any respect in default under or violation of, and have no knowledge of any default or violation by any other party to, any of the Chaparral Benefit Plans. All contributions and premiums required to be made by Chaparral or any ERISA Affiliate to any Chaparral Benefit Plan have been made on or before their due dates, including any legally permitted extensions. No Action is pending, or to the knowledge of Chaparral or any Subsidiary is threatened, against or with respect to any such Chaparral Benefit Plan, including any audit or inquiry by the IRS, United States Department of Labor (the “ DOL ”) or other Governmental Authority (other than as would not reasonably be expected to have a Material Adverse Effect). Each Chaparral Benefit Plan that is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code and any awards thereunder, in each case that is subject to Section 409A of the Code, has been operated in good faith compliance, in all material respects, with Section 409A of the Code since January 1, 2007.

(d) Except as set forth in Section 2.16(d) of the Chaparral Disclosure Schedules or as otherwise provided in this Agreement, the consummation of the transactions contemplated by this Agreement will not, either alone or in combination with any other event or events, (i) entitle any current or former employee, manager, director or consultant of Chaparral or any Subsidiary to any payment (whether of severance pay, unemployment compensation, phantom stock plan payments (under Chaparral’s Second Amended & Restated Phantom Stock Plan, dated December 31, 2008, or otherwise), golden parachute, bonus or otherwise), (ii) accelerate, forgive indebtedness, vest, distribute, or increase benefits or an obligation to fund benefits with respect to any employee, manager, director or consultant of Chaparral or any Subsidiary, or (iii) increase the amount of compensation due any such employee, manager, director or consultant.

(e) Except as set forth in Section 2.16(e) of the Chaparral Disclosure Schedules, any amounts payable under any of the Chaparral Benefit Plans or any other contract, agreement or arrangement with respect to which Chaparral or any Subsidiary may have any liability will be deductible for federal income Tax purposes by virtue of Section 162(m) or Section 280G of the Code. None of the Chaparral Benefit Plans contains any provision requiring a gross-up pursuant to Section 280G or 409A of the Code or similar Tax provisions.

(f) Except as set forth in Section 2.16(f) of the Chaparral Disclosure Schedules, no Chaparral Benefit Plan provides benefits, including death or medical benefits (whether or not insured), with respect to current or former employees, managers, directors or consultants of Chaparral or any Subsidiary after retirement or other termination of service (other than: (i) coverage mandated by applicable Laws, (ii) death benefits or retirement benefits under any “employee pension benefit plan,” as that term is defined in Section 3(2) of ERISA, or (iii) benefits, the full direct cost of which is borne by the current or former employee, manager, director or consultant (or beneficiary thereof)).

(g) Neither Chaparral nor any Subsidiary nor any ERISA Affiliate has any liability with respect to any: (i) employee pension benefit plan (within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, (ii) “multiemployer plan” as defined in Section 3(37) of ERISA or (iii) “multiple employer plan” within the meaning of Sections 4063 and 4064 of ERISA or Section 413(c) of the Code.

(h) Neither Chaparral nor any Subsidiary nor any of its ERISA Affiliates has used the services or workers provided by third party contract labor suppliers, temporary employees, “leased employees” (as that term is defined in Section 414(n) of the Code), or individuals who have provided services as independent contractors to an extent that would reasonably be expected to result in the disqualification of any of the Chaparral Benefit Plans or the imposition of penalties or excise Taxes with respect to the Chaparral Benefit Plans by the IRS or the DOL.

 

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(i) All employees, managers, directors, and consultants are appropriately classified as such under applicable Law in all material respects, and neither Chaparral nor any Subsidiary is in material violation of any applicable Law in connection with such classification or has not received notice of any possible violation from any Governmental Authority.

Notwithstanding anything to the contrary contained elsewhere in this Agreement, Chaparral makes no representation or warranty related to any Chaparral Benefit Plan, except for those representations and warranties set forth in this Section 2.16.

2.17 Taxes and Returns . Except as would not reasonably be expected to have a Material Adverse Effect:

(a) Chaparral and each Subsidiary has or will have filed, or caused to be filed, all material federal, state, local and foreign Tax returns and reports required to be filed by it (taking into account all available extensions) (collectively, “ Tax Returns ”), and all such Tax Returns are true, accurate, correct and complete in all material respects, and has paid, collected or withheld, or caused to be paid, collected or withheld, all material Taxes required to be paid, collected or withheld, other than such Taxes that it is contesting in good faith or for which adequate reserves in the Chaparral Financials have been established in accordance with GAAP. There are no claims, assessments, audits, examinations, investigations or other proceedings pending against Chaparral or any Subsidiary in respect of any Tax, and neither Chaparral nor any Subsidiary has been notified in writing of any proposed Tax claims, assessments or audits against Chaparral or any Subsidiary (other than, in each case, claims or assessments for which adequate reserves in the Chaparral Financials have been established in accordance with GAAP or are immaterial in amount). There are no material Encumbrances with respect to any Taxes upon any of Chaparral’s or any Subsidiary’s assets, other than: (i) Taxes, the payment of which are not yet due, (ii) Taxes or charges being contested in good faith by appropriate proceedings, or (iii) Taxes for which adequate reserves in the Chaparral Financials have been established in accordance with GAAP. No Tax Returns of Chaparral have been audited over the last 5 years. Chaparral has delivered or made available to Parent correct and complete copies of all Tax Returns filed, examination reports and statements of deficiencies assessed or agreed to by Chaparral for the last 2 years. Neither Chaparral nor any Subsidiary has any outstanding waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by Chaparral or any Subsidiary for any extension of time within which to file any Tax Return or within which to pay any Taxes shown to be due on any Tax Return.

(b) Neither Chaparral nor any Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of securities (to any Person or entity that is not a member of the consolidated group of which Chaparral or any Subsidiary is the common parent corporation) qualifying for, or intended to qualify for, Tax-free treatment under Section 355 of the Code: (i) within the two-year period ending on the date hereof or (ii) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(c) Neither Chaparral nor any Subsidiary is nor has it ever been a member of any consolidated, combined, unitary or affiliated group of corporations for any Tax purposes other than a group of which Chaparral or such Subsidiary is or was the common parent corporation.

(d) During the past 5 years neither Chaparral nor any Subsidiary has made any change in accounting method or received a ruling from, or signed an agreement with, any taxing authority.

(e) Neither Chaparral nor any Subsidiary has participated in, or sold, distributed or otherwise promoted, any “reportable transaction,” as defined in Treasury Regulation Section 1.6011-4.

(f) Since December 31, 2008, neither Chaparral nor any Subsidiary has: (i) changed any Tax accounting methods, policies or procedures except as required by a change in Law, (ii) made, revoked or amended any material Tax election, (iii) filed any amended Tax Returns or claim for refund or (iv) entered

 

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into any closing agreement affecting or otherwise settled or compromised any material Tax liability or refund.

(g) Chaparral is not a party to or bound by any Tax indemnity agreement, Tax sharing agreement or similar contract. Chaparral is not a party to any joint venture, partnership, or other arrangement or contract, which could be treated as a partnership or “disregarded entity” for United States federal income Tax purposes.

(h) Chaparral is not obligated under any agreement, contract or arrangement that may result in the payment of any amount that would not be deductible by reason of Sections 162(m) or 280G of the Code.

(i) Chaparral has not been or, to its knowledge, will be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax Laws as a result of transactions, events or accounting methods employed prior to the Merger other than any such adjustments required as a result of the Merger. Chaparral has not filed any consent to have the provisions of paragraph 341(f) of the Code (or comparable provisions of any state Tax Laws) apply to Chaparral. Chaparral has not filed any disclosures under Section 6662 or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return.

(j) For purposes of this Agreement, the following terms have the following meanings: “ Tax ” (and, with correlative meaning, “ Taxes ” and “ Taxable ”) means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Entity responsible for the imposition of any such tax (domestic or foreign), (ii) any liability for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any taxable period, and (iii) any liability for the payment of any amounts of the type described in (i) or (ii) as a result of being a transferee of or successor to any Person, or as a result of any express or implied obligation to indemnify any other Person.

Notwithstanding anything to the contrary contained elsewhere in this Agreement, Chaparral makes no representation or warranty related to any Taxes, except for those representations and warranties set forth in this Section 2.17.

2.18 Finders and Investment Bankers . Except for the fees set forth in Section 2.18 of the Chaparral Disclosure Schedules, the fees of which will be borne by Chaparral, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Chaparral.

2.19 Title to Properties; Assets .

(a) Section 2.19(a)-1 of the Chaparral Disclosure Schedules contains a correct and complete list of all real property (excluding any Oil and Gas Interests) owned by Chaparral or any Subsidiary or any partnership or joint venture in which Chaparral or any Subsidiary directly or indirectly has an interest having a fair market value in excess of $500,000 (“ Owned Real Property ”). Section 2.19(a)-2 of the Chaparral Disclosure Schedules contains a correct and complete list of all real property (excluding any Oil and Gas Interests) leased or subleased by Chaparral or any Subsidiary as tenant or subtenant (“ Leased Real Property ”) (the Owned Real Property and the Leased Real Property are herein sometimes collectively called the “ Chaparral Real Property ”). The list set forth in Section 2.19(a)-1 of the Chaparral Disclosure Schedules contains, with respect to each parcel of the Owned Real Property, a description of all existing leases, licenses or other occupancy contracts to which Chaparral or any Subsidiary is a party or by which Chaparral or any Subsidiary is bound as a landlord, including all amendments, modifications, extensions,

 

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renewals and supplements thereto (collectively, the “ Landlord Leases ”), the terms of which have been complied with by Chaparral or such Subsidiary in all material respects. The list set forth in Section 2.19(a)-2 of the Chaparral Disclosure Schedules contains, with respect to each parcel of the Leased Real Property, a description of all existing leases, subleases, licenses or other occupancy contracts to which Chaparral or any Subsidiary is a party or by which Chaparral or any Subsidiary is bound as a tenant, including all amendments, modifications, extensions, assignments, subleases, renewals and supplements thereto (collectively, the “ Tenant Leases ”) (the Landlord Leases and the Tenant Leases are herein sometimes collectively called the “ Leases ”), the terms of which have been complied with by Chaparral and such Subsidiary in all material respects. Except as would not reasonably be expected to have a Material Adverse Effect, Chaparral and the Subsidiaries have good, valid and marketable title to all of the Owned Real Property and related personal property, assets and rights, free and clear of all Encumbrances other than Permitted Encumbrances. For purposes of this Agreement, when used with respect to Company Real Property, the term “ Permitted Encumbrances ” means: (i) Encumbrances with respect to Taxes either not yet due or being contested in good faith in appropriate proceedings or for which adequate reserves have been set aside; (ii) mechanics’, materialmen’s or similar statutory Encumbrances for amounts not yet due or being contested in good faith in appropriate proceedings; (iii) any covenants, conditions, restrictions, reservations, rights, liens, easements, encumbrances, encroachments and other matters affecting title which are shown as exceptions on the title insurance policies and/or title insurance commitments or reports which have been made available to Parent; (iv) the terms and conditions of the Tenant Leases; (v) applicable federal, State, local or tribal authority building and land use regulations, restrictions or requirements, (vi) existing easements and encroachments; (vii) building code violations not caused by Chaparral or any Subsidiary; and (viii) mortgages or other liens under the Chaparral Credit Agreement.

(b) A correct and complete copy of each Lease has been furnished to Parent prior to the date hereof. Chaparral or a Subsidiary, if applicable, has a valid, binding and enforceable leasehold interest under each of the Tenant Leases and each of the Leases is in full force and effect (except as such enforcement may by limited by the Enforceability Exceptions or where the loss of such Lease would not have a Material Adverse Effect) and to the extent permitted under the terms of each Lease, grants Chaparral or a Subsidiary the concurrent right to use and occupy the premises leased thereby. Neither Chaparral nor any Subsidiary nor, to the knowledge of Chaparral, any other party to any Lease is in breach of or in default under, in any material respect, any of the Leases, except to the extent any such breach would not have a Material Adverse Effect. Chaparral and the Subsidiaries enjoy peaceful and undisturbed possession under all Tenant Leases, have not received notice of any material default, delinquency or breach on the part of any party under any Lease, and there are no existing material defaults (with or without notice or lapse of time or both) by Chaparral or any Subsidiary or, to the knowledge of Chaparral, any other party thereto. No Consent under any Lease is required in connection with the transactions contemplated hereby, except where the failure to obtain such Consent would not have a Material Adverse Effect.

(c) Except as would not reasonably be expected to have a Material Adverse Effect, neither Chaparral nor any Subsidiary nor, to the knowledge of Chaparral, any other party to any Landlord Lease, is in breach of or in default under any of the Landlord Leases.

(d) True and complete copies of all Tenant Leases, together with all modifications, extensions, amendments and assignments thereof, if any, affecting or relating to the Owned Real Property have heretofore been furnished to Parent.

(e) There is no action, suit, litigation, hearing or administrative proceeding pending or, to Chaparral’s knowledge, threatened against Chaparral or any Subsidiary or any partnership in which Chaparral or any Subsidiary owns an interest, with respect to all or any portion of the Chaparral Real Property, in each case which is not or would not be fully covered by insurance, except as would not reasonably be expected to have a Material Adverse Effect.

(f) There are no condemnation or eminent domain proceedings pending, or to Chaparral’s knowledge, threatened against any Owned Real Property and, to Chaparral’s knowledge, there are no condemnation or eminent domain proceedings pending or threatened against any Leased Real Property.

 

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(g) Neither Chaparral nor any Subsidiary has granted any Person a purchase option, right of first refusal, right of first offer or other right to purchase any Owned Real Property.

(h) Neither Chaparral nor any Subsidiary has sent to any holder of any mortgage or other interest (secured or unsecured) in any Chaparral Real Property, nor has Chaparral or any Subsidiary received from any such holder, a notice of default under any financing, loan or other document or security agreement with respect to any Chaparral Real Property.

(i) There are no finder’s fees, brokerage commissions or tenant improvement allowances outstanding with respect to any Chaparral Real Property.

(j) There are no Tax certiorari or Tax appeal proceedings outstanding with respect to any Owned Real Property as of the date hereof.

(k) Neither Chaparral nor any Subsidiary has assigned its interest as lessor or lessee under any Lease, other than to Chaparral or a Subsidiary or collateral assignments in connection with any existing financing of any Chaparral Real Property.

(l) Chaparral and each Subsidiary have insurable and marketable title to all Owned Real Property subject to Permitted Encumbrances. Neither Chaparral nor any Subsidiary has received notice of, or other writing referring to, any requirements or recommendations by any insurance company that has issued a policy covering any part of the Chaparral Real Property or by any board of fire underwriters or other body exercising similar functions, requiring or recommending any repairs or work to be done on any part of the Chaparral Real Property, which repair or work has not been completed.

(m) Chaparral has no knowledge of any proceeding pending for the adjustment of the assessed valuation of all or any portion of any Chaparral Real Property or abatement with respect to all or any portion of the real estate taxes payable on any Chaparral Real Property.

(n) The use and operation of the Chaparral Real Property in the conduct of the business of Chaparral and its Subsidiaries does not violate any instrument of record or agreement affecting such Owned Real Property, except for such violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Valid policies of title insurance have been issued insuring all fee simple title to the Owned Real Property, except where the failure of such policies to be in full force and effect would not reasonably be expected to have a Material Adverse Effect and such policies are in full force and effect. No material claim has been made against any such policy.

(o) Chaparral or a Subsidiary has good, and transferable title to all of its respective Oil and Gas Interests and additionally Defensible Title to all of its respective Oil and Gas Interests shown as Working Interests and Net Revenue Interests in the wells listed in the Reserve Reports (including wells to be drilled at locations to which proved undeveloped reserves are attributable in the Reserve Reports, collectively the “ Wells ”). Chaparral or a Subsidiary has satisfactory title to all other Oil & Gas Interests. As used herein, “ Oil and Gas Interests ” shall mean (i) direct and indirect ownership interests in and rights with respect to oil, gas, mineral and related properties and assets of any kind and nature, direct or indirect, including, without limitation, working, revenue, production, royalty and overriding royalty interests, mineral interests, leasehold interests, production payments, operating rights, net profits interests, other non-working interests and non-operating or undeveloped interests; (ii) interests in and rights with respect to Hydrocarbons and other minerals or revenues therefrom and contracts in connection therewith and claims and rights thereto (including, without limitation, oil and gas leases, operating agreements, unitization and pooling agreements and orders, division orders, transfer orders, mineral deeds, 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; and/or (iii) interests in oil and gas production, gathering, transmission, compression, 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, or

 

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necessary for the operation of any of the foregoing. As used herein, “ Hydrocarbons ” shall mean oil, condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons.

(p) As used herein, the term “ Defensible Title ” shall mean good, clear, transferable and unencumbered (other than by Permitted Encumbrances) title to Oil and Gas Interests such that to the knowledge of Chaparral (i) after giving effect to existing spacing orders, operating agreements, unit agreements, unitization orders and pooling designations, and subject to the limitations, if any, described in any of the Chaparral Disclosure Schedules attached hereto, and after taking into account all royalty interests, overriding royalty interests, net profit interests, production payments and other burdens on production, Chaparral or a Subsidiary is entitled to a share (expressed as a decimal) of all Hydrocarbons produced from each Well that is not less than the Net Revenue Interest set out in the Reserve Reports in connection with the description of such Well, (ii) Chaparral or a Subsidiary owns an undivided interest (expressed as a decimal) equal to the Working Interest set out in the Reserve Reports in connection with the description of such Well in and to all property and rights incident thereto, including all rights in, to and under all agreements, leases, permits, easements, licenses and orders in any way relating thereto, and in and to all wells, personal property, fixtures and improvements thereon, appurtenant thereto or used or obtained in connection therewith or with the production or treatment or sale or disposal of Hydrocarbons or water produced therefrom or attributable thereto, (iii) Chaparral or a Subsidiary is obligated for a fraction of the costs relating to the exploration, development and operation of such Well no greater than the Working Interest set out in the Reserve Reports in connection with Chaparral’s or a Subsidiary’s interest in such Well and in the Hydrocarbons produced therefrom is not subject to being reduced by virtue of reversionary interests owned by third parties.

(q) For purposes of this Agreement, when used with respect to Oil and Gas Interests, the term “ Permitted Encumbrances ” means: (i) matters described without material omission in any of the Chaparral Disclosure Schedules attached hereto; (ii) royalties, overriding royalties, net profits interests, production payments and other burdens on production which do not reduce the Company’s or any Company Subsidiary’s Net Revenue Interest in Hydrocarbons produced from any Well to less than that described in the Reserve Report; (iii) liens for Taxes, assessments, labor and materials where payment is not due; (iv) operating agreements, unit agreements, unitization and pooling designations and declarations, gathering and transportation agreements, processing agreements, Hydrocarbon purchase, sale and exchange agreements, and other similar agreements which are not required by the terms of this Agreement to be disclosed on any Chaparral Disclosure Schedules hereto, provided (A) they contain terms and conditions reasonably customary in the oil and gas industry, (B) they do not materially adversely affect or burden the ownership or operation or transferability of the Oil and Gas Interests affected thereby, (C) all amounts due and payable by Chaparral or any Subsidiary thereunder have been paid, and (D) neither Chaparral or any Subsidiary is in material default thereunder; (v) regulatory authority of governmental agencies not presently or previously violated, easements, surface leases and rights, plat restrictions and similar encumbrances, provided that they do not materially detract from the value or materially increase the cost of operation of any of the Wells or otherwise adversely affect the operation thereof; (vi) consents to assignment required from state and federal governments, Indian tribes and similar authorities that customarily are obtained following the delivery of an assignment; (vii) conventional rights of reassignment obligating Chaparral or any Subsidiary to reassign or offer to reassign its interest in any Oil and Gas Interest prior to a release or abandonment of such Oil and Gas Interest; (viii) preferential rights to purchase that are not triggered by the Merger; (ix) title to an Oil and Gas Interest being held of record by a farmer or third party under a binding contractual obligation to assign such Oil and Gas Interest to Chaparral or any Subsidiary; and (x) mortgages or other liens under the Chaparral Credit Agreement.

(r) Oil and Gas Operations . To the knowledge of Chaparral, as to Wells not operated by Chaparral or any Subsidiary but from which Chaparral or any Subsidiary derives revenues, and without qualification as to knowledge, as to Wells operated by Chaparral or any Subsidiary:

(i) As of the date of this Agreement, (A) none of the Wells have been overproduced such that they are subject or liable to being shut-in or to any material overproduction penalty, (B) neither Chaparral

 

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nor any Subsidiary has received any deficiency payment under any gas contract for which any Person has a right to take deficiency gas from Chaparral or any Subsidiary, and (C) neither Chaparral nor any Subsidiary has received any payment for production which is subject to refund or recoupment out of future production;

(ii) There have been no changes proposed in the production allowables for any Wells that could reasonably be expected to result in a Material Adverse Effect;

(iii) All Wells have been drilled and (if completed) completed, operated, and produced in accordance with good oil and gas field practices and in compliance in all material respects with applicable oil and gas leases and applicable laws, rules, and regulations, except where any failure or violation could not reasonably be expected to result in a Material Adverse Effect;

(iv) Chaparral or any Subsidiary has not agreed to, nor is it now obligated to, abandon any Well operated by it that is or will not be abandoned and reclaimed in accordance with applicable laws, rules, and regulations and good oil and gas industry practices;

(v) Proceeds from the sale of Hydrocarbons produced from the Wells are being received by Chaparral and the Subsidiaries in a timely manner and are not being held in suspense for any reason (except for amounts held in suspense in the ordinary course of business consistent with past practices);

(vi) No Person has any call on, option to purchase, or similar rights with respect to the Oil and Gas Interests, other than rights of reassignment prior to surrender or abandonment, and upon consummation of the transactions contemplated by this Agreement, Chaparral and the Subsidiaries will have the right to market production from the Oil and Gas Interests on terms no less favorable than the terms upon which Chaparral and the Subsidiaries are currently marketing such production; and

(vii) All royalties, overriding royalties, compensatory royalties and other payments due from or in respect of Hydrocarbon production with respect to Oil and Gas Interests owned by Chaparral or a Subsidiary have been or will be, prior to the Closing Date, properly and correctly paid or provided for in all material respects, except for those for which Chaparral or any Subsidiary has a valid right to suspend and for which Chaparral or such Subsidiary has created appropriate suspense accounts.

(s) Hydrocarbon Sales and Purchase Agreements . As used herein, “ Hydrocarbon Purchase Agreement ” shall mean any material sales agreement, purchase contract, or marketing agreement that is currently in effect and under which Chaparral or any Subsidiary is a buyer of Hydrocarbons for resale. As used herein, “ Hydrocarbon Sales Agreement ” shall mean any material sales agreement, purchase contract, or marketing agreement that is currently in effect and under which Chaparral or any Subsidiary is a seller of Hydrocarbons.

(i) None of the Hydrocarbon Sales Agreements or Hydrocarbon Purchase Agreements of Chaparral or any Subsidiary (collectively, the “ Hydrocarbon Agreements ”) has required, or will require as of or after the Closing Date, Chaparral or such Subsidiary to (A) have sold or delivered, or to sell or deliver, Hydrocarbons for a price materially less than the market value price that would have been, or would be, received pursuant to any arm’s-length contract with an unaffiliated third-party purchaser; or (B) to have purchased or received, or to purchase or receive, Hydrocarbons for a price materially greater than the market value price that would have been, or would be, paid pursuant to an arm’s-length contract with an unaffiliated third-party seller;

(ii) Each of the Hydrocarbon Agreements is valid, binding, and in full force and effect, and to the knowledge of Chaparral or any Subsidiary, (A) no party is in material breach or default of any Hydrocarbon Agreement, and (B) no event has occurred that with notice or lapse of time (or both) would constitute a material breach or default or permit termination, modification, or acceleration under any Hydrocarbon Agreement;

(iii) There have been no material claims from any third party for any price reduction or increase or volume reduction or increase under any of the Hydrocarbon Agreements, and neither Chaparral nor any

 

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Subsidiary has made any material claims for any price reduction or increase or volume reduction or increase under any of the Hydrocarbon Agreements, other than in the ordinary course of business consistent with past practices;

(iv) Payments for Hydrocarbons sold pursuant to each Hydrocarbon Sales Agreement have been made materially in accordance with prices or price-setting mechanisms set forth in such Hydrocarbon Sales Agreements;

(v) No purchaser under any Hydrocarbon Sales Agreement, or the operator of any property where neither Chaparral nor any Subsidiary is the designated operator, has notified Chaparral or any Subsidiary (or, to the knowledge of Chaparral and the Subsidiaries, the operator of any property where neither Chaparral nor any Subsidiary is the designated operator) of its intent to cancel, terminate, or renegotiate any Hydrocarbon Sales Agreement or otherwise to fail and refuse to take and pay for Hydrocarbons in the quantities and at the price set out in any Hydrocarbon Sales Agreement, whether such failure or refusal was pursuant to any force majeure, market out, or similar provisions contained in such Hydrocarbon Sales Agreement or otherwise, except where such cancellation or termination could not reasonably be expected to result in a Material Adverse Effect;

(vi) Neither Chaparral nor any Subsidiary is obligated in any Hydrocarbon Sales Agreement by virtue of any prepayment arrangement, a “take-or-pay” or similar provision, a production payment, or any other arrangements to deliver Hydrocarbons produced from an Oil and Gas Interest of Chaparral or any Subsidiary at some future time without then or thereafter receiving payment therefor;

(vii) The information heretofore provided to Parent contains, in all material respects, a true and correct calculation of Chaparral’s and each Subsidiary’s gas balancing positions as of the dates shown therein; and

(viii) The Hydrocarbon Agreements are of the type generally found in the oil and gas industry, do not, individually or in the aggregate, contain unusual or unduly burdensome provisions that would, individually or in the aggregate, result in a Material Adverse Effect, and are in form and substance considered normal within the oil and gas industry.

2.20 Employee Matters .

(a) During the past 5 years, there has been: (i) to the knowledge of Chaparral, no labor union organizing or attempting to organize any employee of Chaparral or any Subsidiary into one or more collective bargaining units; and (ii) no labor dispute, strike, work slowdown, work stoppage, lock out or other collective labor action by or with respect to any employees, managers or consultants of Chaparral or any Subsidiary pending or, to Chaparral’s knowledge, threatened against Chaparral or any Subsidiary. Neither Chaparral nor any Subsidiary is a party to, or bound by, any collective bargaining agreement or other agreement with any labor organization applicable to the employees, managers or consultants of Chaparral or any Subsidiary and no such agreement is currently being negotiated.

(b) Except as would not reasonably be expected to result in a Material Adverse Effect, Chaparral and each Subsidiary: (i) is in compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment, health and safety and wages and hours, including Laws relating to discrimination, disability, labor relations, hours of work, payment of wages and overtime wages, pay equity, immigration, workers compensation, working conditions, employee scheduling, occupational safety and health, family and medical leave, and employee terminations, (ii) have not, during the past 5 years, received written notice, or to the knowledge of Chaparral any other form of notice, that there is any unfair labor practice charge or complaint against Chaparral or any Subsidiary pending, (iii) is not liable for any arrears of wages or any penalty for failure to comply with any of the foregoing and (iv) is not liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the ordinary course of business and consistent with past practice). Except as would

 

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not reasonably be expected to have a Material Adverse Effect, there are no complaints, lawsuits, arbitrations, administrative proceedings, or other Actions pending or, to the knowledge of Chaparral, threatened against Chaparral or any Subsidiary or any of their respective employees, managers, consultants or former employees brought by or on behalf of any applicant for employment, any current or former employee, any Person alleging to be a current or former employee, any class of the foregoing, or any Governmental Authority, relating to any such Law or regulation, or alleging breach of any express or implied contract of employment, wrongful termination of employment, or alleging any other discriminatory, wrongful or tortious conduct in connection with the employment relationship.

2.21 Environmental Matters . Except as set forth on Section 2.21 of the Chaparral Disclosure Schedules:

(a) Neither Chaparral nor any Subsidiary is the subject of any pending Order, judgment or written claim asserted or arising under any Environmental Law that has or would reasonably be expected to have a Material Adverse Effect.

(b) Neither Chaparral nor any Subsidiary has entered into any negotiations or agreements with any Person under any Environmental Law, which has or would reasonably be expected to have a Material Adverse Effect.

(c) To the knowledge of Chaparral, Chaparral and each Subsidiary, and the ownership and operation of all assets in which Chaparral or any Subsidiary has an ownership interest, are in compliance with all applicable Environmental Laws, including obtaining and complying with all permits or authorizations required pursuant to Environmental Laws, except where such failure to be comply with Environmental Laws would not reasonably be expected to have a Material Adverse Effect

(d) To the knowledge of Chaparral, there are no conditions existing on, in, at, under, or about or resulting from the past or present operations of Chaparral or any Subsidiary or any other party that may give rise to any on-site or off-site investigation or remedial obligations of Chaparral or any Subsidiary under any Environmental Laws, except where such investigation or remedial obligation would not reasonably be expected to have a Material Adverse Effect.

(e) To the knowledge of Chaparral, neither Chaparral nor any Subsidiary currently owns or operates, nor in the past has it owned or operated, any property that is on the United States Environmental Protection Agency’s National Priorities List or the Environmental Protection Agency’s CERCLIS list;

(f) To the knowledge of Chaparral, all RCRA regulated hazardous waste for which Chaparral or any Subsidiary was the RCRA generator, has been managed in compliance with the applicable provisions of RCRA and any other Environmental Laws.

(g) To the knowledge of Chaparral, no lien, deed notice or use restriction has been recorded pursuant to any Environmental Law with respect to the assets of Chaparral or any Subsidiary;

(h) As used in this Agreement, the term “ Environmental Laws ” means all applicable: (i) federal statutes regulating or prescribing restrictions regarding the environment (air, water, land, animal and plant life), including but not limited to the following, as amended: the Clean Air Act, Clean Water Act, Comprehensive Environmental Response, Compensation and Liability Act, Emergency Planning and Community Right-to-Know Act, Endangered Species Act, Hazardous Materials Transportation Act, Migratory Bird Treaty Act, National Environmental Policy Act, Occupational Safety and Health Act, Oil Pollution Act of 1990, Resource Conservation and Recovery Act (“ RCRA ”), Safe Drinking Water Act, and Toxic Substances Control Act; (ii) any applicable regulations promulgated pursuant to such federal statutes; (iii) any applicable state law counterparts of such federal statutes and the regulations promulgated thereunder; and (iv) any other applicable state, local statutes, rules, regulations or ordinances, or tribal authority, regulating the use of or affecting the environment, each as currently in effect on the date of this Agreement.

 

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Notwithstanding anything to the contrary contained elsewhere in this Agreement, Chaparral makes no representation or warranty related to any Environmental Laws, except for those representations and warranties set forth in this Section 2.21.

2.22 Transactions with Affiliates . Other than transactions entered into in the ordinary course of business with Chesapeake Energy Corporation and its subsidiaries and affiliates (collectively, “ Chesapeake ”), Section 2.22 of the Chaparral Disclosure Schedules sets forth a true, correct and complete list of the contracts or arrangements in existence as of the date of this Agreement under which there are any existing or future liabilities or obligations between Chaparral or any Subsidiary, on the one hand, and, on the other hand, any: (i) present or former employee, manager, officer or director of Chaparral or any Subsidiary, or any family member of any of the foregoing or (ii) record or beneficial owner of more than 5% of Chaparral’s outstanding capital stock as of the date hereof (each, a “ Chaparral Affiliate Transaction ”).

2.23 Insurance . Chaparral and each Subsidiary are covered by valid and currently effective insurance policies issued in favor of Chaparral or such Subsidiary that are customary for companies of similar size in the industry and locales in which Chaparral or such Subsidiary operates to insure their respective operations and the loss(es) therefrom. Section 2.23 of the Chaparral Disclosure Schedules sets forth a true, correct and complete list of all material insurance policies, and their respective coverage amounts, premiums and deductibles, maintained by Chaparral or any Subsidiary. With respect to each current insurance policy: (i) the policy is in full force and effect and all premiums due thereon have been paid, (ii) Chaparral or any Subsidiary, as applicable, is not in any material respect, in breach of or default under, and Chaparral or any Subsidiary, as applicable, has not taken any action or failed to take any action which, with notice or the lapse of time or both, would constitute such a breach or default, or permit termination or modification of, any such policy, (iii) to the knowledge of Chaparral, no insurer on any such policy has been declared insolvent or placed in receivership, conservatorship or liquidation, and (iv) no notice of cancellation or termination has been received with respect to any such policy, and Chaparral knows of no reason any such insurance policy would be cancelled or modified in any material respect as a result of the transactions contemplated hereby.

2.24 Books and Records . All of the books and records of Chaparral and the Subsidiaries are complete and accurate in all material respects and have been maintained in the ordinary course consistent with past practices and in accordance with applicable Laws and standard industry practices with regard to the maintenance of such books and records. The records, systems, controls, data and information of Chaparral and the Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the control of Chaparral or the applicable Subsidiary.

2.25 Bankruptcy . Neither Chaparral nor any Subsidiary has: (i) commenced a voluntary case, or had entered against it a petition, for relief under the federal bankruptcy code or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors; (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non judicial proceedings, to hold, administer or liquidate all or substantially all of its property; or (iii) made an assignment for the benefit of creditors. Chaparral and the Subsidiaries are able to pay their debts as the same become due in the ordinary course of their respective business consistent with past practices.

2.26 Information Supplied . None of the information supplied or to be supplied by Chaparral for inclusion or incorporation by reference: (a) in any Current Report on Form 8-K or any other report, form, registration, or other filing made with any Governmental Authority with respect to the transactions contemplated hereby or (b) in the Proxy Statement, in either case, will, at the date the Proxy Statement is first mailed to Parent’s stockholders and warrantholders or at the time of the Stockholder Meeting (as defined in Section 5.7) and Warrantholder Meeting (as defined in Section 5.7), 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. Notwithstanding the foregoing, Chaparral makes no

 

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representation, warranty or covenant with respect to any information supplied by Parent which is contained in the Proxy Statement or other filing made in connection with the transactions contemplated by this Agreement.

2.27 Illegal Payments . Neither Chaparral nor any Subsidiary or, to the knowledge of Chaparral, any officer, director, manager, agent or employee of Chaparral or any Subsidiary has: (a) used any funds of Chaparral or any Subsidiary for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any payment in violation of applicable Law to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (c) made any other payment in violation of applicable Law.

2.28 Notes and Accounts Receivable . All notes and accounts receivable of Chaparral and the Subsidiaries are reflected properly on their books and records, are valid receivables and, to Chaparral’s knowledge, will be collected in accordance with their terms at their recorded amounts subject to the allowances as set forth in the Chaparral Financials.

2.29 Money Laundering Laws . The operations of Chaparral and the Subsidiaries are and have been conducted at all times in compliance with laundering statutes in all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority and no action involving Chaparral or any Subsidiary with respect to such statutes, rules and regulations is pending or threatened.

2.30 Antitakeover Statutes . The transactions contemplated by this Agreement are not subject to the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transactions,” “business combination” or other antitakeover Laws and regulations applicable to Chaparral or any Subsidiary.

2.31 Suppliers . No supplier of Chaparral or any Subsidiary has cancelled or otherwise terminated any contract with Chaparral or any Subsidiary prior to the expiration of the contract term, or made any threat to Chaparral or any Subsidiary to cancel, reduce the supply or otherwise terminate its relationship with Chaparral or any Subsidiary, except for such cancellations or terminations that would not reasonably be expected to have a Material Adverse Effect. Neither Chaparral nor any Subsidiary has: (i) breached any material agreement with or (ii) engaged in any fraudulent conduct with respect to, any supplier of Chaparral or any Subsidiary.

2.32 Negotiations . Chaparral has suspended or terminated, and has the legal right to terminate or suspend, all negotiations and discussions of any acquisition, merger, consolidation or sale of all or substantially all of the assets or equity interests of Chaparral or any Subsidiary with Persons other than Parent.

2.33 Reserve Reports . The reserve reports of Cawley, Gillespie & Associates, Inc. and Ryder Scott Company, L.P., as independent petroleum engineers (the “ Engineers ”) relating to the estimated proved reserves of Chaparral and the Subsidiaries as of June 30, 2009 delivered to Parent prior the execution hereof are referred to herein as the “ Reserve Reports ”. The information underlying the estimates of such reserves supplied by Chaparral to the Engineers, for the purposes of preparing the Reserve Reports, was true and correct in all material respects on the date of such Reserve Reports; the estimates of future capital expenditures and other future exploration and development costs supplied to the Engineers were prepared in good faith and with a reasonable basis; the information provided to the Engineers for purposes of preparing the Reserve Reports was prepared in all material respects in accordance with customary industry practices; the Engineers were, as of the date of the Reserve Reports, and are, as of the date hereof, independent petroleum engineers with respect to Chaparral and the Subsidiaries; and the estimates of such reserves and the present value of the future net cash flows therefrom as described and reflected in the Reserve Reports comply in all material respects with Regulation S-X. Chaparral and the Subsidiaries are not aware of any impairments to the accuracy of the Reserve Reports as of the date of their preparation and submission to Chaparral.

2.34 Chaparral SEC Filings . Chaparral has filed all forms, reports, schedules, registration statements and other documents required to be filed or furnished by Chaparral with the SEC since January 1, 2008 under the

 

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Exchange Act or the Securities Act of 1933, as amended (“ Securities Act ”), together with any amendments, restatements or supplements thereto (collectively, the “ Chaparral SEC Reports ”) and all certifications and statements required by Rules 13A-14 or 15d-14 under the Exchange Act or 18 U.S.C. § 1350 (Section 906) of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes Oxley Act ”) (collectively, the “ Certifications ”), and will file all such Chaparral SEC Reports, Certifications and other documents required to be filed subsequent to the date of this Agreement. Chaparral SEC Reports (y) were prepared in all material respects in accordance with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder and (z) did not at the time they were filed with the SEC (except to the extent that information contained in any Chaparral SEC Report has been revised or superseded by a later filed Chaparral SEC Report) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Certifications are each true and correct. Chaparral maintains disclosure controls and procedures required by Rules 13a-15(e) or 15d-15(e) under the Exchange Act. The directors and executive officers of Chaparral are not required to file with the SEC any statements required by Section 16(a) of the Exchange Act and the rules and regulations thereunder. As used in this Section 2.34, the term “file” shall be broadly construed to include any manner permitted by SEC rules and regulations in which a document or information is furnished, supplied or otherwise made available to the SEC.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

The following representations and warranties by Parent and Merger Sub to Chaparral are qualified by the Parent disclosure schedules, which sets forth certain disclosures concerning Parent and Merger Sub (the “ Parent Disclosure Schedules ”). Except as disclosed in the Parent Disclosure Schedules, Parent and Merger Sub hereby jointly and severally represent and warrant to Chaparral as follows:

3.1 Due Organization and Good Standing . Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of Parent and Merger Sub is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect. Parent has heretofore made available to Chaparral accurate and complete copies of Parent’s Certificate of Incorporation, as amended (the “ Certificate of Incorporation ”) and bylaws (the “ Parent Organizational Documents ”) and the equivalent organizational documents of Merger Sub (the “ Merger Sub Organizational Documents ”), each as currently in effect. Neither Parent nor Merger Sub is in violation of any provision of the Parent Organizational Documents or the Merger Sub Organizational Documents, as applicable.

3.2 Capitalization of Parent .

(a) The authorized capital stock of Parent consists of 150,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of the date hereof and immediately prior to the Closing, (i) 56,250,000 shares of Parent Common Stock either issued alone or as part of a Unit, (ii) 63,100,000 warrants (the “ Warrants ”) either issued alone or as part of Unit, (iii) 45,000,000 units, each comprised of one (1) share of Parent Common Stock and one (1) Warrant (the “ Units ”), and (iv) no shares of preferred stock are or will be issued and outstanding, without giving effect to any change in the number of issued and outstanding Warrants resulting from the Warrant Redemption or any change in the number of issued and outstanding shares of Parent Common Stock or Warrants resulting from Parent repurchase, redemption, restructure, exchange or conversion of Parent Common Stock and/or Warrants. Except as set forth above, no shares of capital stock or other voting securities of Parent are issued, reserved for issuance

 

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or outstanding. All outstanding shares of Parent Common Stock are duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, the Parent Organizational Documents or any contract to which Parent is a party. To the knowledge of Parent, none of the outstanding securities of Parent has been issued in violation of any foreign, federal or state securities Laws.

(b) None of the Warrants issued and outstanding, other than the 15,600,000 common stock purchase warrants purchased by the Sponsor as part of a private placement immediately after Parent’s IPO (the “ URI Warrants ”), has a cashless exercise feature, and, except for the 2,500,000 warrants granted to the Sponsor to purchase Parent Common Stock at an exercise price of $12.50 per share (“ Sponsor Warrants”) , each of the Warrants has an exercise price of $7.00 per share. Upon exercise of any of the Warrants, other than the URI Warrants, the cash paid for the exercise price will be paid directly to Parent.

(c) Except for the Warrants, and other than the redemption rights set forth in the Prospectus (as defined in Section 8.1) and except as set forth herein, there are no (i) outstanding options, warrants, puts, calls, convertible securities, preemptive or similar rights, (ii) bonds, debentures, notes or other indebtedness having general voting rights or that are convertible or exchangeable into securities having such rights, or (iii) subscriptions or other rights, agreements, arrangements, contracts or commitments of any character, relating to the issued or unissued Parent Common Stock or obligating Parent or Merger Sub to issue, transfer, deliver or sell or cause to be issued, transferred, delivered, sold or repurchased any options or Parent Common Stock or securities convertible into or exchangeable for such shares, or obligating Parent or Merger Sub to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment for such Parent Common Stock. Other than as contemplated by this Agreement and the redemption rights set forth in the Prospectus, there are no outstanding obligations of Parent or Merger Sub to repurchase, redeem or otherwise acquire any shares of Parent Common Stock or Warrants of Parent or Merger Sub.

(d) There are no stockholders or members agreements, voting trusts or other agreements or understandings to which the Sponsor, Parent or Merger Sub is a party with respect to the voting of any equity interest or the capital stock or equity interests of Parent or any Merger Sub.

(e) No Indebtedness of Parent or Merger Sub contains any restriction upon: (i) the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness by Parent or Merger Sub or (iii) the ability of Parent or Merger Sub to grant any Encumbrance on its properties or assets.

(f) Since the date of Parent’s formation, other than a stock dividend of 2.3-for-one which was effective as of November 30, 2007, neither Parent nor Merger Sub has declared or paid any distribution or dividend in respect of the Parent Common Stock.

3.3 Merger Sub .

(a) All the outstanding shares of common stock in Merger Sub have been validly issued and are fully paid and nonassessable and owned by Parent, free and clear of all Encumbrances.

(b) Except for 100% of the common stock of Merger Sub, Parent does not as of the date hereof own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.

(c) Since the date of its formation, Merger Sub has not carried on any business or conducted any operations other than the execution of this Agreement, and the performance of its obligations hereunder. Merger Sub was incorporated solely for the consummation of the transactions contemplated hereby.

3.4 Authorization; Binding Agreement . Parent and Merger Sub have all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby,

 

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(i) have been duly and validly authorized by the Board of Directors of Parent and Merger Sub, and (ii) no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated hereby, other than receipt of the Required Parent Vote (as defined herein). The affirmative vote of the stockholders of Parent holding at least a majority of the issued and outstanding Parent Common Stock of Parent (the “ Required Parent Vote ”) is necessary to approve and adopt this Agreement, all Proxy Matters (as defined in Section 5.7) (except the Warrantholder Proposal (as defined herein)) and to consummate the transactions contemplated hereby and thereby (including the Merger) and the Required Warrantholder Vote (as defined herein) is required to approve the Warrantholder Proposal, provided , however , that stockholders of Parent holding forty percent (40%) or more of the shares of Parent Common Stock sold in Parent’s initial public offering shall not have voted against the Merger and exercised their redemption rights under the Certificate of Incorporation to redeem their shares of Parent Common Stock into a cash payment from the trust fund established by Parent for the benefit of its public stockholders (the “ Trust Fund ”). This Agreement has been duly and validly executed and delivered by each of Parent and Merger Sub and (assuming the due authorization, execution and delivery hereof by Chaparral) constitutes the legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms, subject to the Enforceability Exceptions.

3.5 Governmental Approvals . No Consent of or with any Governmental Authority on the part of Parent or Merger Sub is required to be obtained or made in connection with the execution, delivery or performance by Parent and Merger Sub of this Agreement or the consummation by Parent and Merger Sub of the transactions contemplated hereby (including the Merger) other than (i) the filing of the Certificate of Merger with the DE Secretary of State in accordance with the DGCL, (ii) such filings as may be required with the SEC and foreign and state securities Laws administrators, (iii) pursuant to Antitrust Laws, (iv) the filing of the Proxy Statement with, and the acceptance thereof by, the SEC, and (v) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect.

3.6 No Violations . The execution and delivery by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby, and compliance by Parent and Merger Sub with any of the provisions hereof, will not (i) conflict with or violate any provision of the certificate of incorporation or bylaws or other governing instruments of Parent or Merger Sub, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment or acceleration) under, any Parent Material Contract to which Parent or Merger Sub is a party or by which its assets are bound, (iii) result (immediately or with the passage of time or otherwise) in the creation or imposition of any Encumbrance upon any of the properties, rights or assets of Parent or Merger Sub or (iv) subject to obtaining the Consents from Governmental Authorities, and the waiting periods referred to therein having expired, and any condition precedent to such Consent having been satisfied, conflict with, contravene or violate in any respect any Law to which Parent or Merger Sub or any of their respective assets or properties is subject, except, in the case of clauses (ii), (iii) and (iv) above, for any deviations from the foregoing that would not reasonably be expected to have a Material Adverse Effect.

3.7 SEC Filings and Parent Financial Statements .

(a) Parent has filed all forms, reports, schedules, registration statements and other documents required to be filed or furnished by Parent with the SEC since June 25, 2007 under the Exchange Act or the Securities Act, together with any amendments, restatements or supplements thereto (collectively, the “ Parent SEC Reports ”) and all Certifications, and will file all such Parent SEC Reports, Certifications and other documents required to be filed through the Closing Date. The Parent SEC Reports (y) were prepared in all material respects in accordance with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder and (z) did not at the time they were filed with the SEC (except to the extent that information contained in any Parent SEC Report has been revised or superseded by a later filed Parent SEC Report) contain any untrue statement of a material fact or omit to

 

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state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Certifications are each true and correct. Parent maintains disclosure controls and procedures required by Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Each director and executive officer of Parent has filed with the SEC on a timely basis all statements required by Section 16(a) of the Exchange Act and the rules and regulations thereunder since the date of Parent’s formation. As used in this Section 3.7, the term “file” shall be broadly construed to include any manner permitted by SEC rules and regulations in which a document or information is furnished, supplied or otherwise made available to the SEC.

(b) The financial statements and notes contained or incorporated by reference in the Parent SEC Reports (“ Parent Financials ”) fairly present in all material respects the consolidated financial condition and the results of operations, changes in stockholders’ equity, and cash flow of Parent and Merger Sub as at the respective dates of and for the periods referred to in such financial statements, all in accordance with (i) GAAP and (ii) Regulation S-X and the omission of notes to the extent permitted by Regulation S-X. Neither Parent nor Merger Sub has any off-balance sheet arrangements. The Parent Financials, to the extent required for inclusion in the Proxy Statement, comply in all material respects with the Exchange Act, Regulation S-X and the published general rules and regulations of the SEC.

(c) Neither Parent nor Merger Sub, or any manager, director, officer or employee of Parent or Merger Sub has received any complaint, allegation, assertion or claim, whether or not in writing, regarding the accounting or auditing practices, procedures, methodologies or methods of Parent or Merger Sub or their respective internal accounting controls, including any complaint, allegation, assertion or claim that Parent or Merger Sub has engaged in questionable accounting or auditing practices. No attorney representing Parent or Merger Sub, whether or not employed by Parent or Merger Sub, has reported evidence of any violation of consumer protection or securities Laws, breach of fiduciary duty or similar violation by Parent or any of its officers, directors, employees or agents to the Board of Directors or any committee thereof or to any director or executive officer of Parent.

(d) Merger Sub has never been subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act.

3.8 Absence of Undisclosed Liabilities . Except as and to the extent reflected or reserved against in the Parent Financials, neither Parent nor Merger Sub has incurred any liabilities or obligations of the type required to be reflected on a balance sheet in accordance with GAAP that is not adequately reflected or reserved on or provided for in the Parent Financials, other than liabilities of the type required to be reflected on a balance sheet in accordance with GAAP that have been incurred since December 31, 2007 in the ordinary course of business consistent with past practices.

3.9 Compliance with Laws . Parent and Merger Sub are each in compliance with all Laws applicable to them and the conduct of their respective businesses as currently conducted and as proposed to be conducted following consummation of the Merger. Neither Parent nor Merger Sub is in conflict with, or in default or violation of, nor since June 25, 2007 have either of them received any notice of any conflict with, or default or violation of, (A) any applicable Law by which Parent or Merger Sub or any their respective property or assets is bound or affected, or (B) any Parent Material Contract to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any property, asset or right of Parent or Merger Sub is bound or affected, except, in each case, for any such conflicts, defaults or violations that would not reasonably be expected to have a Material Adverse Effect. Notwithstanding the generality of the foregoing, (x) since June 25, 2007, Parent and Merger Sub have given or made all required notices, submissions, reports or other filings under applicable Laws and (y) all contracts, agreements, arrangements and transactions in effect between Parent, Merger Sub and any affiliate are in compliance in all material respects with the requirements of all applicable Laws. There is no pending or, to the knowledge of Parent, threatened proceeding or investigation to which Parent or Merger Sub is subject before any Governmental Authority regarding whether Parent or Merger Sub has violated in any material respect any applicable Laws. Neither Parent nor Merger Sub has received notice since June 25, 2007 of any material

 

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violation of, or noncompliance with, any Law applicable to Parent or Merger Sub or directing Parent or Merger Sub to take any remedial action with respect to such applicable Law or otherwise, and no material deficiencies of Parent or Merger Sub have been asserted by any Governmental Authority with respect to possible violations of any applicable Laws. Since June 25, 2007, Parent and Merger Sub have filed all material reports, statements, documents, registrations, filings or submissions required to be filed with any regulatory or Governmental Authority, and all such reports, registrations, filings and submissions are in compliance (and complied at the relevant time) with applicable Law and no material deficiencies have been asserted by any such Governmental Authority with respect to any reports, statements, documents, registrations, filings or submissions required to be filed with respect to Parent or Merger Sub with any Governmental Authority that have not been remedied.

3.10 Regulatory Agreements; Permits; Qualifications .

(a) There are no (1) written agreements, consent agreements, memoranda of understanding, commitment letters, cease and desist orders, or similar undertakings to which Parent or Merger Sub is a party, on the one hand, and any Governmental Authority is a party or addressee, on the other hand, (2) Orders or directives of or supervisory letters from a Governmental Authority specifically with respect to Parent or Merger Sub or any property or asset owned by such party, or (3) resolutions or policies or procedures adopted by Parent or Merger Sub at the request of a Governmental Authority, that (A) limit in any material respect the ability of Parent or Merger Sub to conduct its business as currently being conducted or (B) in any manner relate to the ability of Parent or Merger Sub to pay dividends or otherwise materially restrict the conduct of business of Parent or Merger Sub in any respect.

(b) Parent and Merger Sub hold all permits, licenses, franchises, grants, authorizations, consents, exceptions, variances, exemptions, orders and other governmental authorizations, certificates, consents and approvals necessary to lawfully conduct their businesses as presently conducted and contemplated to be conducted, and to own, lease and operate their assets and properties (collectively, the “ Parent Permits ”), all of which are in full force and effect, and no suspension or cancellation of any of the Parent Permits is pending or, to the knowledge of Parent, threatened, except where the failure of any Parent Permits to have been in full force and effect, or the suspension or cancellation of any of the Parent Permits, would not reasonably be expected to have a Material Adverse Effect. Parent and Merger Sub are not in violation in any material respect of the terms of any Parent Permit.

(c) No investigation, review or market conduct examination by any Governmental Authority with respect to Parent or Merger Sub, or any affiliate thereof, is pending or, to the knowledge of Parent, threatened, nor does Parent have knowledge of any Governmental Authority’s intention to conduct any such investigation or review.

(d) At no time has Parent or Merger Sub, nor any affiliate thereof with the power to direct or cause the direction of the management or policies of Parent or Merger Sub, filed for relief in bankruptcy or had entered against it an order for relief in bankruptcy.

3.11 Absence of Certain Changes . Except as set forth in Section 3.11 of the Parent Disclosure Schedules (and excluding the Merger), since their respective dates of incorporation, Parent and Merger Sub have conducted their respective businesses in the ordinary course of business consistent with past practice and there has not been any fact, change, effect, occurrence, event, development or state of circumstances that has had or would reasonably be expected to have a Material Adverse Effect.

3.12 Taxes and Returns . Except as would not reasonably be expected to have a Material Adverse Effect:

(a) Parent has or will have timely filed, or caused to be timely filed, all material Tax Returns required to be filed by it or Merger Sub (taking into account all available extensions), which such Tax Returns are true, accurate, correct and complete in all material respects, and has paid, collected or withheld, or caused to be paid, collected or withheld, all material Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the Parent Financials have been established in accordance with GAAP.

 

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Section 3.12 of the Parent Disclosure Schedules sets forth each jurisdiction where Parent and Merger Sub files or is required to file a Tax Return. There are no claims, assessments, audits, examinations, investigations or other proceedings pending against Parent or Merger Sub in respect of any Tax, and neither Parent nor Merger Sub has been notified in writing of any proposed Tax claims or assessments against Parent or Merger Sub (other than, in each case, claims or assessments for which adequate reserves in the Parent Financials have been established in accordance with GAAP or are immaterial in amount). There are no material Encumbrances with respect to any Taxes upon any of Parent’s or Merger Sub’s assets, other than (i) Taxes, the payment of which is not yet due, or (ii) Taxes or charges being contested in good faith by appropriate proceedings and for which adequate reserves in the Parent Financials have been established in accordance with GAAP. Neither Parent nor Merger Sub has any outstanding waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by Parent or Merger Sub for any extension of time within which to file any Tax Return or within which to pay any Taxes shown to be due on any Tax Return.

(b) Neither Parent nor Merger Sub has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of securities (to any Person or entity that is not a member of the consolidated group of which Parent is the common parent corporation) qualifying for, or intended to qualify for, Tax-free treatment under Section 355 of the Code (i) within the two-year period ending on the date hereof or (ii) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(c) Neither Parent nor Merger Sub is or (i) has been at any time within the five-year period ending on the date hereof a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code and (ii) has ever been a member of any consolidated, combined, unitary or affiliated group of corporations for any Tax purposes other than a group of which Parent is or was the common parent corporation.

(d) Neither Parent nor Merger Sub has made any change in accounting method or received a ruling from, or signed an agreement with, any taxing authority.

(e) Parent is not a party to any contract, agreement, plan or arrangement that, individually or collectively, could reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to Sections 280G or 162(m) of the Code.

(f) Neither Parent nor Merger Sub participated in, or sold, distributed or otherwise promoted, any “reportable transaction,” as defined in Treasury Regulation Section 1.6011-4.

(g) Neither Parent nor Merger Sub has taken any action that would reasonably be expected to give rise to (i) a “deferred intercompany transaction” within the meaning of Treasury Regulation Section 1.1502-13 or an “excess loss account” within the meaning of Treasury Regulation Section 1.1502-19, or (ii) the recognition of a deferred intercompany transaction.

(h) Since August 31, 2008, neither Parent nor Merger Sub have (i) changed any Tax accounting methods, policies or procedures except as required by a change in Law, (ii) made, revoked, or amended any material Tax election, (iii) filed any amended Tax Returns or claim for refund, or (iv) entered into any closing agreement affecting or otherwise settled or compromised any material Tax liability or refund.

3.13 Restrictions on Business Activities . There is no agreement or Order binding upon Parent or Merger Sub which has or could reasonably be expected to have the effect of prohibiting, preventing, restricting or impairing in any respect any business practice of Parent or Merger Sub as their businesses are currently conducted, any acquisition of property by Parent or Merger Sub, the conduct of business by Parent or Merger Sub as currently conducted, or restricting in any material respect the ability of Parent or Merger Sub from engaging in business as currently conducted or from competing with other parties.

 

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3.14 Employee Benefit Plans . Parent does not maintain, and has no liability under, any Benefit Plan, and neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any director or employee of Parent, or (ii) result in the acceleration of the time of payment or vesting of any such benefits.

3.15 Employee Matters . Neither Parent nor Merger Sub has ever had any employees.

3.16 Material Contracts .

(a) Except as set forth in the Parent SEC Reports filed prior to the date hereof or in the Prospectus, or on Section 3.16(a) of the Parent Disclosure Schedules, there are no contracts, agreements, leases, mortgages, indentures, notes, bonds, liens, license, permit, franchise, purchase orders, sales orders or other understandings, commitments or obligations (including without limitation outstanding offers or proposals) of any kind, whether written or oral, to which Parent is a party or by or to which any of the properties or assets of Parent may be bound, subject or affected, which either (i) creates or imposes a liability greater than $100,000, or (ii) may not be cancelled by Parent on less than 60 days’ prior notice (the “ Parent Material Contracts ”). All Parent Material Contracts have been made available to Chaparral, and are set forth in Section 3.16(a) of the Parent Disclosure Schedules other than those that are exhibits to the Parent SEC Reports.

(b) With respect to each Parent Material Contract: (i) the Parent Material Contract was entered into at arms’ length and in the ordinary course of business consistent with past practices; (ii) the Parent Material Contract is legal, valid, binding and enforceable in all material respects against Parent or Merger Sub and, to Parent’s knowledge, the other party thereto, and in full force and effect (except as such enforcement may be limited by the Enforceability Exceptions); (iii) neither Parent nor Merger Sub is in breach or default in any material respect, and no event has occurred that with the passage of time or giving of notice or both would constitute such a breach or default by Parent or Merger Sub, or permit termination or acceleration by the other party, under the Parent Material Contract; and (iv) to Parent’s knowledge, no other party to the Parent Material Contract is in breach or default in any material respect, and no event has occurred that with the passage of time or giving of notice or both would constitute such a breach or default by such other party, or permit termination or acceleration by Parent or Merger Sub, under any Parent Material Contract.

3.17 Litigation . There is no Action pending or, to the knowledge of Parent, threatened before any arbitrator, agency, court or tribunal, foreign or domestic, or, to the knowledge of Parent, threatened against Parent, Merger Sub or any of their respective properties, rights or assets or, any of their respective officers, directors, partners, managers or members (in their capacities as such). There is no Order binding against Parent, Merger Sub or any of their respective properties, rights or assets or any of their respective officers, directors, partners, managers or members (in their capacities as such). There is no material Action that Parent or Merger Sub has pending against other parties.

3.18 Transactions with Affiliates . Section 3.18 of the Parent Disclosure Schedules sets forth a true, correct and complete list of the contracts or arrangements that are in existence as of the date of this Agreement under which there are any existing or future liabilities or obligations between Parent or Merger Sub, on the one hand, and, on the other hand, any (i) present or former director, officer, employee or affiliate of either Parent or Merger Sub, or any family member of any of the foregoing, or (ii) record or beneficial owner of more than 5% of the outstanding Parent Common Stock as of the date hereof (each, a “ Parent Affiliate Transaction ”).

3.19 Investment Company Act . Parent is not an “investment company” or a person directly or indirectly “controlled” by or acting on behalf of an “investment company”, in each case within the meaning of the Investment Company Act of 1940, as amended.

3.20 Books and Records . All of the books and records of Parent and Merger Sub are complete and accurate in all material respects and have been maintained in the ordinary course consistent with past practices and in

 

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accordance with applicable Laws and standard industry practices with regard to the maintenance of such books and records. The records, systems, controls, data and information of Parent and Merger Sub are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the control of Parent.

3.21 Finders and Investment Bankers . Except for the fees set forth in Section 3.21 of the Parent Disclosure Schedules, the fees of which will be borne by Parent and paid from funds available to it in the Trust Fund, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Parent or Merger Sub.

3.22 Information Supplied . None of the information supplied or to be supplied by Parent or Merger Sub for inclusion or incorporation by reference in (a) any Current Report on Form 8-K or any other report, form, registration, or other filing made with any Governmental Authority with respect to the transactions contemplated hereby or (b) the Proxy Statement will, at the date it is first mailed to Parent’s stockholders and warrantholders or at the time of the Stockholder Meeting or Warrantholder Meeting, respectively, 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 and the rules and regulations thereunder, except that no representation is made by Parent with respect to statements made or incorporated by reference therein based solely on information supplied by Chaparral in writing for inclusion or incorporation by reference in the Proxy Statement. None of the information supplied or to be supplied by Parent or Merger Sub for inclusion in the Proxy Statement shall, at the time such document is filed, at the time amended or supplemented, or at the time the Proxy Statement is declared effective by the SEC, 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 were made, not misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Securities Act. Notwithstanding the foregoing, Parent makes no representation, warranty or covenant with respect to any information supplied by Chaparral which is contained in the Proxy Statement.

3.23 Trust Fund . As of September 30, 2009, Parent had $452,386,928.22 in the Trust Fund, invested in U.S. government securities in a trust account at Banc of America Investment Services, Inc. (the “ Trust Account ”), held in trust by Continental Stock Transfer & Trust Company (the “ Trustee ”) pursuant to the Investment Management Trust Account Agreement between Parent and Trustee (the “ Trust Agreement ”). Upon consummation of the Merger and notice thereof to the Trustee and disbursement from the Trust Account by the Trustee, the Trust Account will terminate and the Trustee shall thereupon be obligated to release as promptly as practicable to Parent the Trust Fund held in the Trust Account and, after deducting any funds paid to stockholders of Parent holding shares of Parent Common Stock sold in Parent’s initial public offering who shall have voted against the Merger and demanded that Parent redeem their shares of Parent Common Stock into cash pursuant to the Certificate of Incorporation and payment of, or reservation of payment for: (1) any taxes then due and owing, (2) any deferred underwriting compensation to Deutsche Bank Securities Inc. and Maxim Group LLC, as set forth in Section 3.21 of the Parent Disclosure Schedules (3) any reasonable fees and expenses payable to Parent’s attorneys, accountants and other advisors, (4) transactional fees and expenses including without limitation printer fees and proxy solicitation fees, and (5) the redemption consideration such Trust Fund will be free of any Encumbrances whatsoever, and will be available for use in the businesses of Parent and Chaparral.

3.24 Intellectual Property . Parent and Merger Sub do not own, license or otherwise have any right, title or interest in any Intellectual Property.

3.25 Real Property . Other than as set forth in public filings of Parent made with the SEC, Parent and Merger Sub do not own or lease any real property, and have no commitments or obligations to purchase or lease real property either prior to or after the Effective Time.

 

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3.26 Environmental Matters . Except for such matters that are not reasonably expected to have a Material Adverse Effect, Parent and Merger Sub: (i) have, to the knowledge of Parent, complied with all applicable Environmental Laws; (ii) have not received any notice, demand, letter, claim or request for information alleging that Parent or Merger Sub may be in violation of or liable under any Environmental Law; and (iii) are not subject to any Order or other arrangement with any Governmental Authority or subject to any indemnity or other agreement with any third party relating to Liability under any Environmental Law.

3.27 Insurance . Set forth on Section 3.27 of the Parent Disclosure Schedules is a complete list of all liability insurance coverage maintained by Parent and Merger Sub which coverage is in full force and effect.

3.28 Bankruptcy . Neither Parent nor Merger Sub has: (i) commenced a voluntary case, or had entered against it a petition, for relief under the federal bankruptcy code or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors; (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non judicial proceedings, to hold, administer and/or liquidate all or substantially all of its property; or (iii) made an assignment for the benefit of creditors.

3.29 NYSE Amex Quotation . Parent Common Stock, Units and Warrants are listed for trading on the NYSE Amex (the “ NYSEA ”). Except as set forth on Section 3.29 of the Parent Disclosure Schedules, there is no action or proceeding pending or, to Parent’s knowledge, threatened against Parent by the NYSEA with respect to any intention by such entity to prohibit or terminate the listing of Parent Common Stock, Units or Warrants on the NYSEA.

3.30 Registration of Parent Common Stock, Units and Warrants . The Parent Common Stock, Units and the Warrants are registered pursuant to Section 12(b) of the Exchange Act, and Parent has taken no action designed to, or which is likely to have the effect of, terminating the registration of the Parent Common Stock, Units or Warrants under the Exchange Act nor has Parent received any notification that the SEC is contemplating terminating such registration. Parent is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such registration requirements.

ARTICLE IV

COVENANTS

4.1 Conduct of Business of Chaparral .

(a) Unless Parent shall otherwise consent in writing (such consent not to be unreasonably withheld), during the period from the date of this Agreement to the Effective Time, except as expressly contemplated by this Agreement or as set forth on Section 4.1 of the Chaparral Disclosure Schedules: (i) Chaparral and the Subsidiaries shall conduct their respective business, in all material respects, in the ordinary course of business consistent with past practice, (ii) Chaparral and the Subsidiaries shall use commercially reasonable efforts consistent with the foregoing to preserve intact, in all material respects, its business organization, to keep available the services of its managers, directors, officers, key employees and consultants, to maintain, in all material respects, existing relationships with all Persons with whom it does significant business, and to preserve the possession, control and condition of its assets, (iii) Chaparral and the Subsidiaries shall use commercially reasonable efforts to continue to maintain, in all material respects, its respective assets, properties, rights and operations in accordance with present practice in a condition suitable for their current use and (iv) Chaparral and the Subsidiaries shall use commercially reasonable efforts consistent with the foregoing to conduct its business in compliance with applicable Laws in all material respects, including without limitation the timely filing of all reports, forms or other documents with the SEC required to be filed with the SEC by Chaparral pursuant to the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, and to preserve intact the business organization of Chaparral and the Subsidiaries.

 

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(b) Without limiting the generality of the foregoing clause (a), except as set forth on Section 4.1 of the Chaparral Disclosure Schedules, during the period from the date of this Agreement to the Effective Time, and other than as contemplated hereby, neither Chaparral nor any Subsidiary will (except as specifically contemplated by the terms of this Agreement), without the prior written consent of Parent (such consent not to be unreasonably withheld):

(i) amend, waive or otherwise change, in any respect, its certificate of incorporation, bylaws, or other organizational documents or enter into any stockholder, membership, partnership or other agreement;

(ii) authorize for redemption or issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any Chaparral Common Stock, any shares of capital stock or other securities or other equity interests or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell Chaparral Common Stock, any shares of capital stock or other securities or other equity interests, including any securities convertible into or exchangeable for Chaparral Common Stock or equity interests in any Subsidiary;

(iii) split, combine, recapitalize or reclassify any of the Chaparral Common Stock or equity interests in any Subsidiary or issue any other securities in respect thereof, or declare, pay or set aside any distribution or other dividend (whether in cash, equity or property or any combination thereof) in respect of the Chaparral Common Stock or equity interests in any Subsidiary, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of the Chaparral Common Stock or equity interests in any Subsidiary;

(iv) incur, create, assume, prepay or otherwise become liable for any Indebtedness (directly, contingently or otherwise), make a loan or advance to or investment in any third party, or guarantee or endorse any indebtedness, liability or obligation of any Person, other than as permitted under the terms of the Chaparral Credit Agreement and the Chaparral Indentures. As used in this Agreement “ Chaparral Indentures ” means (i) that certain Indenture for 8  ¹ / 2 % Senior Notes due 2015, dated as of December 1, 2005, among Chaparral, its Subsidiaries parties thereto as guarantors and Wells Fargo Bank, National Association, as Trustee, (ii) that certain Indenture for 8  ⁷ / 8 % Senior Notes due 2017, dated as of January 18, 2007, among Chaparral, the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee and (iii) all amendments and supplements thereto;

(v) increase the wages, salaries or compensation of any of its current or former consultants, officers, managers or directors by more than five percent (5%), or increase bonuses for the foregoing individuals for fiscal year 2009 in an aggregate amount greater than 120% of the amounts paid to such individuals in fiscal year 2008, or increase other benefits of any of the foregoing individuals, or enter into, establish, amend or terminate any Chaparral Benefit Plan or any other employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity or equity-related, pension, retirement, consulting, vacation, severance, separation, termination, deferred compensation, fringe, perquisite or other compensation or benefit plan, policy, program, agreement, trust, fund or other arrangement with, for or in respect of any current or former consultant, officer, manager or director, in each case other than in the ordinary course of business consistent with past practice or other than as required by applicable Law or pursuant to the terms of any Chaparral Benefit Plan or Chaparral Material Contract in effect on the date of this Agreement;

(vi) make or rescind any material election relating to Taxes, settle any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, or make any material change in its accounting or Tax policies or procedures, in each case except as required by applicable Law or GAAP;

(vii) other than in the ordinary course of business consistent with past practice and in compliance with the terms of the Chaparral Credit Agreement , transfer or license to any Person or otherwise

 

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extend, materially amend or modify, permit to lapse or fail to preserve any of the Chaparral Intellectual Property or Licensed Intellectual Property, other than nonexclusive licenses, or disclose to any Person who has not entered into a confidentiality agreement any material trade secrets;

(viii) other than in the ordinary course of business consistent with past practice and in compliance with the terms of the Chaparral Credit Agreement, terminate or waive or assign any material right under any Chaparral Material Contract or enter into any Chaparral Material Contract ((in the event any such contract is entered into, Chaparral will, within seven (7) days of execution of same, provide a fully executed copy thereof to Parent);

(ix) other than in the ordinary course of business consistent with past practices and in compliance with the terms of the Chaparral Credit Agreement, establish any subsidiary or enter into any new line of business;

(x) other than in the ordinary course of business consistent with past practices and in compliance with the terms of the Chaparral Credit Agreement, make any capital expenditures, or commit to make capital expenditures for any period following the Effective Time;

(xi) fail to maintain its books, accounts and records in all material respects in the ordinary course of business consistent with past practice;

(xii) fail to use commercially reasonable efforts to keep in force insurance policies or replacement or revised policies providing insurance coverage with respect to the assets, operations and activities of Chaparral in an amount and scope of coverage as are currently in effect;

(xiii) other than as required to be in compliance with SEC rules and regulations or with GAAP, or as approved by Chaparral’s outside auditors, revalue any of its material assets or make any change in accounting methods, principles or practices;

(xiv) other than in the ordinary course of business consistent with past practices and in compliance with the terms of the Chaparral Credit Agreement, waive, release, assign, settle or compromise any Action (including any third-party Action relating to this Agreement or the transactions contemplated hereby, including the Merger), or otherwise pay, discharge or satisfy any claims, liabilities or obligations other than in the ordinary course of business consistent with past practice and in compliance with the terms of the Chaparral Credit Agreement, unless such amount has been reserved in the Chaparral Financials;

(xv) close or materially reduce Chaparral’s or any Subsidiary’s activities;

(xvi) acquire, including by merger, consolidation, acquisition of stock or assets, or any other form of business combination, any corporation, partnership, limited liability company, other business organization or any division thereof, other than in the ordinary course of business consistent with past practice and in compliance with the terms of the Chaparral Credit Agreement;

(xvii) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, except as otherwise permitted hereunder;

(xviii) voluntarily incur any material liability or obligation (whether absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice, except as otherwise permitted hereunder;

(xix) sell, lease, license, transfer, exchange or swap, mortgage or otherwise pledge or encumber (including securitizations), or otherwise dispose of any material portion of its properties, assets or rights, other than in the ordinary course of business consistent with past practice and in compliance with the terms of the Chaparral Credit Agreement;

(xx) enter into any agreement, understanding or arrangement with respect to the voting of the Chaparral Common Stock or equity interests of any Subsidiary;

 

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(xxi) take any action that would reasonably be expected to delay or impair the obtaining of any consents or approvals of any Governmental Authority to be obtained in connection with this Agreement;

(xxii) other than in the ordinary course of business consistent with past practices and in compliance with the terms of the Chaparral Credit Agreement, enter into any material contract or otherwise take any material action with respect to (A) any real estate transaction or (B) the opening or construction of any additional facilities or locations;

(xxiii) other than transactions entered into in the ordinary course of business with Chesapeake enter into, amend, waive or terminate (other than terminations in accordance with their terms) any Chaparral Affiliate Transaction;

(xxiv) enter into any Benefit Plan or any employment, severance, or change of control agreement; or

(xxv) authorize or agree orally or in writing to do any of the foregoing actions.

4.2 Access and Information; Confidentiality .

(a) Between the date of this Agreement and the Effective Time, each Party shall give, and shall direct its accountants and legal counsel to give, the other Party and its Representatives, at reasonable times and upon reasonable intervals and notice, access to all offices and other facilities and to all employees, properties, contracts, agreements, commitments, books and records of or pertaining to such Party and its subsidiaries (including Tax Returns, internal work papers, client files, client contracts and director service agreements) and such financial and operating data and other information, all of the foregoing as the requesting Party or its Representatives may reasonably request regarding such Party’s business, assets, liabilities, employees and other aspects (including unaudited quarterly financial statements, including a consolidated quarterly balance sheet and income statement, in the form such financial statements have been delivered to the other Party prior to the date hereof) and instruct such Party’s Representatives to cooperate with the requesting Party in its investigation (including by reading available independent public accountant’s work papers) and to provide a copy of, or make available, each material report, schedule and other document filed or received pursuant to the requirements of applicable securities Laws; provided that the requesting Party shall conduct any such activities in such a manner as not to interfere unreasonably with the business or operations of the Party providing such information. Neither Parent nor any of its officers, employees or Representatives (as defined herein), shall conduct any environmental testing or sampling on any of the business or property sites of Chaparral or its Subsidiaries without the prior written consent of Chaparral, which consent shall not be unreasonably withheld. Parent agrees to indemnify and hold Chaparral and its Subsidiaries harmless from any and all claims and liabilities, including costs and expenses for loss, injury to or death of any Parent Representative and any loss, damage to or destruction of any property owned by Chaparral or its Subsidiaries or others (including claims or liabilities for loss of use of any property) resulting directly or indirectly from the action or inaction of any of Parent’s Representatives (and not resulting from the gross negligence or willful misconduct of Chaparral, it Subsidiaries or their respective directors, managers, officers, employees and agents) during any visit to the business or property sites of Chaparral or its Subsidiaries prior to the completion of the Merger, whether pursuant to this Section 4.2 or otherwise. Chaparral agrees to indemnify and hold Parent and Merger Sub harmless from any and all claims and liabilities, including costs and expenses for loss, injury to or death of any Chaparral Representative and any loss, damage to or destruction of any property owned by Parent, Merger Sub or others (including claims or liabilities for loss of use of any property) resulting directly or indirectly (and not resulting from the gross negligence or willful misconduct of Parent, Merger Sub or their respective directors, officers, employees and agents) from the action or inaction of any of Chaparral’s Representatives during any visit to the business or property sites of Parent or Merger Sub prior to the completion of the Merger, whether pursuant to this Section 4.2 or otherwise.

(b) Intentionally Omitted.

 

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(c) All information obtained by Chaparral, on the one hand, and Parent or Merger Sub, on the other hand, pursuant to this Agreement shall be kept confidential in accordance with and subject to the Confidentiality Agreement, dated August 14, 2009, between Parent and Chaparral (the “ Confidentiality Agreement ”). The Parties acknowledge and agree that the provisions, terms, conditions, restrictions and limitations of the Confidentiality Agreement dated August 14, 2009 between Parent and Chaparral, including without limitation, paragraph 11 thereof, (1) shall continue in full force and effect notwithstanding the execution of this Agreement and (2) are fully incorporated into and made a part of this Agreement as if fully set forth herein.

(d) The terms and conditions of the Merger are strictly confidential and the Parties hereby agree that they and their respective representatives, including without limitation, shareholders, directors, officers, members, employees, partners, representatives or advisors, shall not disclose to the public or to any third party the existence or terms of the Merger other than with the express prior written consent of the other Parties, except as the Parties may otherwise agree or as may be required by applicable Law, rule or regulation, or at the request of any governmental, judicial, regulatory or supervisory authority having jurisdiction over a party or any of its representatives, control persons or affiliates (including, without limitation, the rules or regulations of the SEC or FINRA), or as may be required to defend any action brought against such party in connection with the Merger. If a Party is so required to make such a disclosure, it must first provide to the other Parties the content of the proposed disclosure, the reasons the disclosure is required, and the time and place that the disclosure will be made. In such event, the Parties will work together to draft a disclosure which is acceptable to both parties.

4.3 No Solicitation .

(a) For purposes of this Agreement, “ Acquisition Proposal ” means (other than the Merger) any inquiry, proposal or offer, or any indication of interest in making an offer or proposal, from any Person or group, at any time relating to a merger, reorganization, recapitalization, consolidation, asset sale, share exchange, business combination or similar transaction, including any single or multi-step transaction or series of related transactions involving Chaparral, any Subsidiary, Parent or Merger Sub on the one hand and any third party on the other hand or acquisition or purchase of assets of or by Chaparral, Parent or Merger Sub representing 50% or more of such Person’s assets or business. Without limiting the foregoing, the term Acquisition Proposal includes any inquiry, proposal or offer made or received by Parent, Merger Sub, or Chaparral or any Subsidiary or any indication of interest in same by Parent, Merger Sub, or Chaparral to any third-party at any time relating to a merger, reorganization, recapitalization, consolidation, asset sale, share exchange, business combination or similar transaction, including any single or multi-step transaction or series of related transactions with Parent, Merger Sub, Chaparral or any Subsidiary or any of their respective affiliates.

(b) In order to induce Chaparral and Parent to continue to expend management time and financial resources in furtherance of the transactions contemplated hereby, from the date hereof until December 14, 2009, none of Chaparral, any Subsidiary, Parent or Merger Sub shall (unless otherwise required by applicable Law), directly or indirectly, and shall not, directly or indirectly, authorize or permit any officer, manager, director, employee, accountant, consultant, legal counsel, financial advisor, agent or other representative of such Person (collectively, the “ Representatives ”) to: (i) solicit, encourage, assist, initiate or facilitate the making, submission or announcement of any Acquisition Proposal, (ii) furnish any non-public information regarding Chaparral or any Subsidiary, Parent, Merger Sub or the Merger to any Person or group (other than a Party to this Agreement or their Representatives) in connection with or in response to an Acquisition Proposal, (iii) engage, participate in or continue discussions or negotiations with any Person or group with respect to, or which could be expected to lead to, an Acquisition Proposal, (iv) withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to Chaparral or Parent, the approval of this Agreement or the Merger or the recommendation by the Board of Directors of Chaparral or Parent that its respective stockholders adopt this Agreement, (v) approve, endorse or recommend, or publicly propose to approve, endorse or recommend, any Acquisition Proposal,

 

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(vi) discuss, negotiate or enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Acquisition Proposal, or (vii) release any third party from, or waive any provision of, any confidentiality agreement to which Chaparral or any Subsidiary or Parent or Merger Sub is a party (except as may be permitted pursuant to the Confidentiality Agreement). Without limiting the foregoing, each Party agrees it shall be responsible for the actions of its Representatives that would constitute a violation of the restrictions set forth in this Section 4.3 if done by such Party. Each Party shall promptly inform its Representatives of the obligations undertaken in this Section 4.3.

(c) Each Party shall notify the other Party hereto promptly (and in any event within 48 hours) orally and in writing of the receipt by such Party or any of its Representatives of: (i) any bona fide inquiries, proposals or offers, requests for information or requests for discussions or negotiations regarding or constituting any Acquisition Proposal or any bona fide inquiries, proposals or offers, requests for information or requests for discussions or negotiations that could be expected to result in an Acquisition Proposal and (ii) any request for non-public information relating to such Party, specifying in each case the material terms and conditions thereof (including a copy thereof if in writing) and the identity of the party making such inquiry, proposal, offer or request for information. Each Party shall keep the other Party hereto promptly informed of the status of any such inquiries, proposals, offers or requests for information. From and after the date of this Agreement, each Party shall immediately cease and cause to be terminated any solicitations, discussions or negotiations with any parties with respect to any Acquisition Proposal and shall direct, and use its commercially reasonable efforts to cause, its Representatives to cease and terminate any such solicitations, discussions or negotiations.

4.4 Intentionally Omitted.

4.5 Stockholder Litigation . Parent shall give Chaparral the opportunity to participate in, subject to a customary joint defense agreement, any stockholder litigation against Parent, its managers, directors or officers relating to the Merger or any other transactions contemplated hereby; provided , however , that no settlement of any such litigation shall be agreed to without Parent’s consent.

4.6 Conduct of Business of Parent .

(a) Unless Chaparral shall otherwise consent in writing (such consent not to be unreasonably withheld), during the period from the date of this Agreement to the Effective Time, except as specifically contemplated by the terms of this Agreement: (i) Parent and Merger Sub shall conduct their respective business in, and shall not take any action other than in, the ordinary course of business consistent with past practice, (ii) Parent and Merger Sub shall use commercially reasonable efforts to continue to maintain, in all material respects, their respective assets, properties, rights and operations in accordance with present practice in a condition suitable for their current use and (iii) Parent and Merger Sub shall use commercially reasonable efforts consistent with the foregoing to conduct the business of Parent and Merger Sub in compliance with applicable Laws in all material respects, including without limitation the timely filing of all reports, forms or other documents with the SEC required to be filed with the SEC by Parent pursuant to the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, and to preserve intact the business organization of Parent.

(b) Without limiting the generality of the foregoing clause (a), during the period from the date of this Agreement to the Effective Time, neither Parent nor Merger Sub will (except as specifically contemplated by this Agreement), without the prior written consent of Chaparral (such consent not to be unreasonably withheld):

(i) except as contemplated by Section 3.2(a) , the Proxy Statement and/or this Agreement, authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any shares of, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell Parent Common Stock (including upon exercise of any outstanding option, warrant or similar right to acquire such Parent Common Stock), any other shares of capital stock or other securities or equity interests, including any securities convertible into or exchangeable for Parent

 

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Common Stock or equity interest of any class and any other equity-based awards or alter in any way its outstanding securities or make any changes in outstanding shares of capital stock or its capitalization, whether by means of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise or agree to register under the Securities Act any capital stock of Parent or Merger Sub;

(ii) incur, create, assume, prepay or otherwise become liable for any Indebtedness (directly, contingently or otherwise), make a loan or advance to or investment in any third party, or guarantee or endorse any indebtedness, liability or obligation of any Person or subject any of its assets, properties or rights, or any part thereof to any Encumbrances or other limitation or restriction;

(iii) make any change in any Parent Organizational Documents or any Merger Sub Organizational Documents;

(iv) except as contemplated by this Agreement, redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of the capital stock, membership interests or other ownership interests of Parent or Merger Sub;

(v) except in the ordinary course of business consistent with past practice, acquire, lease or sublease any material tangible assets, raw material or properties (including real property);

(vi) except for the Long-Term Incentive Plan, enter into any Benefit Plan or any employment, severance, or change of control agreement;

(vii) make any capital expenditures, or commit to make capital expenditures for any period following the Effective Time;

(viii) make or rescind any material election relating to Taxes, settle any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, file any amended Tax Return or claim for refund, or make any change in its accounting or Tax policies or procedures, in each case except as required by applicable Law or GAAP;

(ix) other than in the ordinary course of business consistent with past practice or as contemplated hereunder, and other than for legal, accounting, fairness opinion and other fees to be incurred in connection with the transactions contemplated hereunder, terminate or waive or assign any material right under any Parent Material Contract or enter into any contract involving amounts potentially exceeding $25,000 (in the event any such contract is entered into, Parent will, within seven (7) days of execution of same provide a fully executed copy thereof to Chaparral);

(x) fail to maintain its books, accounts and records in all material respects in the ordinary course of business consistent with past practice;

(xi) establish any subsidiary (other than as contemplated hereby) or enter into any new line of business;

(xii) fail to use commercially reasonable efforts to keep in force insurance policies or replacement or revised policies providing insurance coverage with respect to the assets, operations and activities of Parent and Merger Sub in an amount and scope of coverage as are currently in effect;

(xiii) revalue any of its material assets or make any change in accounting methods, principles or practices, except as required by GAAP and approved by Parent’s outside auditors;

(xiv) waive, release, assign, settle or compromise any Action (including any third-party Action relating to this Agreement or the transactions contemplated hereby, including the Merger), other than waivers, releases, assignments, settlements or compromises that involve only the payment of monetary damages (and not the imposition of equitable relief on, or the admission of wrongdoing by, Parent or Merger Sub) not in excess of $50,000 individually or in the aggregate, or otherwise pay, discharge or satisfy any claims, liabilities or obligations other than in the ordinary course of business consistent with

 

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past practice, unless such amount has been reserved in the Parent financial statements included in the Parent SEC Reports;

(xv) acquire, including by merger, consolidation, acquisition of stock or assets, or any other form of business combination, any corporation, partnership, limited liability company, other business organization or any division thereof, or any material amount of assets;

(xvi) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;

(xvii) voluntarily incur any material liability or obligation (whether absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice;

(xviii) sell, lease, license, transfer, exchange or swap, mortgage or otherwise pledge or encumber (including securitizations), or otherwise dispose of any material portion of its properties, assets or rights;

(xix) take any action that would reasonably be expected to delay or impair the obtaining of any Consents of any Governmental Authority to be obtained in connection with this Agreement;

(xx) enter into, amend, waive or terminate (other than terminations in accordance with their terms) any Parent Affiliate Transaction; or

(xxi) authorize or agree to do any of the foregoing actions.

4.7 Market Standoff Agreement . Chaparral shall have the right to participate on an equal basis with the Sponsor with respect to any transactions in which the Sponsor acquires any securities of Parent; provided, that Chaparral shall vote any shares of Parent Common Stock or Warrants acquired in such transactions in favor of the Proxy Matters. Except as set forth above, prior to the Closing, none of Chaparral or any officer, director, stockholder or affiliate of Chaparral or any Subsidiary shall purchase, sell, make any short sale of, loan, grant any option for the purchase of, or otherwise purchase or dispose of any securities of Parent without the prior written consent of Parent.

ARTICLE V

ADDITIONAL COVENANTS OF THE PARTIES

5.1 Notification of Certain Matters . Each of Parent and Chaparral shall give prompt notice to the other (and, if in writing, furnish copies of) if any of the following occurs after the date of this Agreement: (i) there has been a material failure on the part of the Party providing the notice to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (ii) receipt of any notice or other communication in writing from any third party alleging that the Consent of such third party is or may be required in connection with the transactions contemplated by this Agreement, (including the Merger or as a result of the transactions contemplated hereby) or any non-compliance with any Law; (iii) receipt of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement (including the Merger or as a result of the transactions contemplated hereby); (iv) the discovery of any fact or circumstance that, or the occurrence or non-occurrence of any event the occurrence or non-occurrence of which, would reasonably be expected to cause or result in any of the conditions to the Merger set forth in Article VI not being satisfied or the satisfaction of those conditions being materially delayed; or (v) the commencement or threat, in writing, of any Action against any Party or any of its affiliates, or any of their respective properties or assets, or, to the knowledge of Chaparral or Parent, as applicable, any officer, director, partner, member or manager, in his or her capacity as such, of Chaparral or Parent, as applicable, or any of their affiliates with respect to the consummation of the Merger. No such notice to any Party shall constitute an acknowledgement or admission by the Party providing notice regarding whether or not any of the conditions to Closing or to the

 

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consummation of the Merger have been satisfied or in determining whether or not any of the representations, warranties or covenants contained