ASSET PURCHASE AND SALE AGREEMENT

 

TABLE OF CONTENTS

 

			Page
ARTICLE I PURCHASE AND SALE			1
Section 1.1.	Purchase and Sale		1
Section 1.2.	Oil and Gas Assets		1
Section 1.3.	Other Assets		3
Section 1.4.	Assets Excluded		3
Section 1.5.	Effective Time		5
ARTICLE II PURCHASE PRICE			5
Section 2.1.	Purchase Price		5
Section 2.2.	Adjustments to Cash Consideration		5
Section 2.3.	Adjustments to Buyer Common Stock		7
Section 2.4.	Property Development Adjustments		8
Section 2.5.	Closing and Post-Closing Accounting Settlements		8
Section 2.6.	Payment of Adjusted Purchase Price		9
Section 2.7.	Transfer Taxes		10
Section 2.8.	Recordation and Conveyance Costs		10
Section 2.9.	Allocation of Purchase Price		10
ARTICLE III THE CLOSING			11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER			11
Section 4.1.	Organization and Existence		11
Section 4.2.	Power and Authority		11
Section 4.3.	Valid and Binding Agreement		11
Section 4.4.	Non-Contravention		11
Section 4.5.	Approvals		12
Section 4.6.	Pending Litigation		12
Section 4.7.	Production Marketing; Hedges		12
Section 4.8.	Permits		12
Section 4.9.	Payment of Expenses		13
Section 4.10.	Oil and Gas Operations; Compliance with Laws		13
Section 4.11.	Imbalances; Prepayments		13
Section 4.12.	Intellectual Property		13
Section 4.13.	Taxes		14
Section 4.14.	Payout Balances		14
Section 4.15.	Contracts		14
Section 4.16.	Equipment and Personal Property		14
Section 4.17.	Non-Consent Operations		15
Section 4.18.	Wells		15
Section 4.19.	Outstanding Capital Commitments		15
Section 4.20.	Restricted Securities		15
Section 4.21.	Accredited Investor; Investment Intent		15
Section 4.22.	Fees and Commissions		16
Section 4.23.	Disclaimer of Warranties		16

 

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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER			17
Section 5.1.	Organization and Existence		17
Section 5.2.	Power and Authority		17
Section 5.3.	Valid and Binding Agreement		17
Section 5.4.	Non-Contravention		17
Section 5.5.	Approvals		18
Section 5.6.	Pending Litigation		18
Section 5.7.	Knowledgeable Purchaser		18
Section 5.8.	Funds		18
Section 5.9.	SEC Reports; Financial Statements		18
Section 5.10.	Absence of Certain Changes		19
Section 5.11.	Buyer Common Stock		19
Section 5.12.	Qualified Leaseholder		20
Section 5.13.	Fees and Commissions		20
ARTICLE VI CERTAIN COVENANTS OF SELLER PENDING CLOSING			20
Section 6.1.	Access to Files		20
Section 6.2.	Access to Oil and Gas Assets		20
Section 6.3.	Conduct of Operations		21
Section 6.4.	Restrictions on Certain Actions		21
Section 6.5.	Payment of Expenses		22
Section 6.6.	Drilling Rigs		23
ARTICLE VII ADDITIONAL PRE-CLOSING AND POST-CLOSING AGREEMENTS OF BOTH PARTIES			23
Section 7.1.	Reasonable Best Efforts		23
Section 7.2.	Notice of Litigation		23
Section 7.3.	Notification of Certain Matters		23
Section 7.4.	Fees and Expenses		24
Section 7.5.	Confidentiality; Public Announcements		24
Section 7.6.	Casualty Loss Prior to Closing		24
Section 7.7.	Governmental Bonds		25
Section 7.8.	Assumed Obligations		25
Section 7.9.	Books and Records		25
Section 7.10.	Suspended Funds		25
Section 7.11.	Letters-in-Lieu		25
Section 7.12.	Logos and Names		25
Section 7.13.	Non-Solicitation of Employees		25
Section 7.14.	Transition of Operations		26
Section 7.15.	HSR Filing		26
Section 7.16.	Seller’s Maintenance of Liquid Assets		26
Section 7.17.	Financial Statements		27
Section 7.18.	Further Assurances		28
Section 7.19.	Buyer’s Assumption of Rig Contract		28
ARTICLE VIII TITLE MATTERS			28
Section 8.1.	Defensible Title		28
Section 8.2.	Purchase Price Adjustments for Title Defects		30
Section 8.3.	Cure of Post-Closing Title Defects		31

 

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Section 8.4.	Arbitration for Title Defects		31
Section 8.5.	Waiver of Title Defects		32
Section 8.6.	Preferential Rights and Consents		32
ARTICLE IX ENVIRONMENTAL MATTERS.			33
Section 9.1.	Environmental Obligations		33
Section 9.2.	Definitions of Environmental Defect		33
Section 9.3.	Waiver		34
Section 9.4.	Purchase Price Adjustments for Environmental Defects		34
Section 9.5.	Cure of Post-Closing Environmental Defects		35
Section 9.6.	Arbitration for Environmental Defects		35
Section 9.7.	Limitations		36
ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES			36
Section 10.1.	Conditions Precedent to the Obligations of Buyer		36
Section 10.2.	Conditions Precedent to the Obligations of Seller		38
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER			38
Section 11.1.	Termination		38
Section 11.2.	Effect of Termination		39
Section 11.3.	Amendment		40
Section 11.4.	Waiver		40
ARTICLE XII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION			40
Section 12.1.	Survival		40
Section 12.2.	Seller’s Indemnification Obligations		40
Section 12.3.	Buyer’s Indemnification Obligations		41
Section 12.4.	Net Amounts		42
Section 12.5.	Indemnification Proceedings		42
Section 12.6.	Indemnification Exclusive Remedy		43
Section 12.7.	Limited to Actual Damages		43
Section 12.8.	Indemnification Despite Negligence		43
Section 12.9.	Limits on Liability		43
ARTICLE XIII REGISTRATION REQUIREMENTS			43
Section 13.1.	Definitions		43
Section 13.2.	Registration of Buyer Common Stock		44
Section 13.3.	Obligations of the Buyer		44
Section 13.4.	Expense of Registration		45
Section 13.5.	Indemnification		45
Section 13.6.	Rule 144		46
ARTICLE XIV MISCELLANEOUS MATTERS			47
Section 14.1.	Notices		47
Section 14.2.	Entire Agreement		48
Section 14.3.	Injunctive Relief		48
Section 14.4.	Binding Effect; Assignment; No Third Party Benefit		48
Section 14.5.	Severability		48
Section 14.6.	GOVERNING LAW		48

 

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Section 14.7.	Counterparts		49
Section 14.8.	WAIVER OF CONSUMER RIGHTS		49
Section 14.9.	Like-Kind Exchange		49
Section 14.10.	Joinder		50
ARTICLE XV DEFINITIONS AND REFERENCES			50
Section 15.1.	Certain Defined Terms		50
Section 15.2.	Certain Additional Defined Terms		54
Section 15.3.	References, Titles and Construction		55

 

Exhibits:
Exhibit A	Wells
Exhibit B	Leases
Exhibit C	Excluded Assets
Exhibit D	Form of Transition Agreement
Exhibit E	Form of Assignment
Exhibit F	Form of Deed
Exhibit G	Form of Non-Foreign Affidavit
Schedules:
Schedule 1.3(a)		Vehicles
Schedule 2.2(a)(vi)		Lease Extensions
Schedule 2.4(a)		Active Wells
Schedule 2.4(b)		Wells being Drilled
Schedule I		Allocated Values
Seller Disclosure Schedule

 

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ASSET PURCHASE AND SALE AGREEMENT

 

THIS ASSET PURCHASE AND SALE AGREEMENT dated as of August 15, 2008, is by and between Cordillera Texas, L.P., a Texas limited partnership (“ Seller ”), and Forest Oil Corporation, a New York corporation (“ Buyer ”).

 

RECITALS:

 

A.             Seller desires to sell, assign and convey to Buyer, and Buyer desires to purchase and accept from Seller, certain oil and gas properties and related assets located in the State of Texas.

 

B.             Seller and Buyer deem it in their mutual best interests to execute and deliver this Agreement.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants and agreements contained herein, Seller and Buyer do hereby agree as follows:

 

ARTICLE I
Purchase and Sale

 

Section 1.1.            Purchase and Sale.   At the Closing, Seller shall sell, assign and convey the Assets, and Buyer shall purchase and pay for the Assets and assume the Assumed Obligations, all in accordance with the terms and conditions of this Agreement.

 

Section 1.2.            Oil and Gas Assets.   Subject to Section 1.4 , and in addition to those items set forth in Section 1.3 , Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, all of Seller’s right, title and interest in and to the following (the “Oil and Gas Assets”):

 

(a)            Any oil, gas, mineral and related properties and assets of any kind and nature, direct or indirect, including working, royalty and overriding interests, production payments, operating rights, and net profit interests;

 

(b)            Any Hydrocarbons and other minerals or revenues therefrom to the extent produced at and after the Effective Time, all other receivables and proceeds attributable to the Oil and Gas Assets at and after the Effective Time, and all Hydrocarbons in storage or within processing plants at the Effective Time;

 

(c)            All oil and gas wells related or incidental to the property, interests and rights referred to in Section 1.2(a)  (the “ Wells ”), including, but not limited to, those wells described in Exhibit A ;

 

(d)            All leasehold interests associated with or related to the property, interests and rights referred to in Section 1.2(a)  and 1.2(c)  (collectively, the “ Leases ”) and the lands related thereto (collectively, the “ Lands ”), including, but not limited to, those Leases created by the

 

 

leases described in Exhibit B , and the Permits and other agreements that relate to the Wells described in Exhibit A ;

 

(e)            All of the personal property, fixtures and improvements appurtenant or related to the Wells or the Leases or used or obtained in connection with the operation of the Wells or the Leases or with Seller’s production, treatment, sale or disposal of Hydrocarbons or water produced therefrom, including without limitation, pipelines, gathering systems and compression facilities appurtenant to or located upon the Lands;

 

(f)             All other property, rights, privileges, benefits and appurtenances in any way belonging to, incidental to, appertaining to, or necessary for the operation of the property, interests and rights described in Sections 1.2(a)  through 1.2(e) , including, to the extent transferable, all agreements, product purchase and sale contracts, surface leases, gas gathering contracts, salt water disposal leases and wells, processing agreements, compression agreements, equipment leases, Permits, gathering lines, rights-of-way, easements, operating licenses, farmouts and farmins, options, orders, pooling, spacing or consolidation agreements, unit agreements, communitization agreements, and operating agreements and all other agreements relating thereto;

 

(g)            The following books, records, accounts, files, information, and data in Seller’s possession, custody, or control (in electronic form or otherwise) that pertain in any material way to the operation of the foregoing assets (collectively, “ Records ”):

 

(i)             instruments and agreements that constitute, create, or govern the Leases, the Lands, the Wells, the Permits, the easements, rights-of-way, equipment, agreements and licenses described above;

 

(ii)            title opinions, abstracts of title, and title files for the Lands, the Leases and the Wells;

 

(iii)           drilling reports and logs relating to the Lands, the Leases, and the Wells;

 

(iv)           geological, paleontological, geophysical and chemical data and information, for the Lands, the Leases, and the Wells, to the extent such data, information and analyses are assignable by Seller;

 

(v)            to the extent not previously furnished by Seller to Buyer, any geological, geophysical, or seismic data, materials, or information related to the Oil and Gas Assets, including maps, records or other technical information related to or based upon any such data, materials or information, in all cases to the extent such data, materials, or information is assignable by Seller;

 

(vi)           revenue, expense, and royalty accounting for the Lands, the Leases, and the Wells;

 

(vii)          taxes associated with the Lands, the Leases, or the Wells; and

 

(viii)         information about Seller’s Hydrocarbon production, processing, storage, transportation, and sales, including all production and sales records;

 

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(h)            Any refund of costs, Taxes or expenses borne by Seller attributable to periods from and after the Effective Time;

 

(i)             Any and all proceeds from the settlements of contract disputes with purchasers of Hydrocarbons from the Oil and Gas Assets, including settlement of take-or-pay disputes, insofar as said proceeds are attributable to periods of time from and after the Effective Time;

 

(j)             Any and all proceeds from settlements with regard to reclassification of gas produced from the Oil and Gas Assets, insofar as said proceeds are attributable to periods of time from and after the Effective Time;

 

(k)            All claims (including insurance claims) and causes of action of Seller against one or more third parties arising from acts, omissions, or events occurring from and after the Effective Time and all claims under any joint interest audit attributable to any period from and after the Effective Time; and

 

(l)             All trade credits and other proceeds attributable to the Oil and Gas Assets with respect to all period after the Effective Time.

 

Section 1.3.            Other Assets.

 

(a)            Subject to Section 1.4 , and in addition to those items set forth in Section 1.2 , Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, all of Seller’s right, title and interest in and to the following (the “ Other Assets ”):

 

(i)             The equipment, personal property, computer hardware and software, inventory and other property comprising or used in connection with the Oil and Gas Assets and located in Seller’s office premises in Longview, Texas (the “ Longview Field Office ”); and

 

(ii)            The vehicles used in connection with the Oil and Gas Assets, as more fully described in Schedule 1.3(a) .

 

(b)            In addition to those items set forth in Section 1.2 , Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, all of Seller’s right, title and interest in and to the Designated Pre-Effective Time Benefits effective as of 5:00 p.m., local Denver, Colorado time, on the Survival Date (the “ Conversion Point ”), at which point the Designated Pre-Effective Time Benefits shall no longer be deemed as “Excluded Assets” under Section 1.4 and instead shall be treated as Assets for purposes hereof.  The “ Designated Pre-Effective Time Benefits ” shall mean the assets and properties of Seller referenced in subsections (a) , (b)(ii) , (c) , (d) , (e)  and (f)  of Section 1.4 in existence at the Conversion Point.  If requested by Buyer, Seller agrees to execute an assignment or other instrument in favor of Buyer reasonably acceptable to both parties to evidence the sale and assignment of the Designated Pre-Effective Time Benefits.

 

Section 1.4.            Assets Excluded.   Notwithstanding anything herein contained to the contrary (but subject to the terms of Section 1.3(b)  with respect to the Designated Pre-Effective

 

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Time Benefits), the Oil and Gas Assets and the Other Assets (collectively, the “Assets”) do not include, and there is hereby excepted and reserved unto Seller all other assets, properties, and business of Seller, including the following:

 

(a)            All trade credits and other proceeds attributable to the Oil and Gas Assets with respect to all periods prior to the Effective Time;

 

(b)            (i) All of Seller’s right, title, and interest in any oil, gas, or mineral leases, overriding royalties, production payments, net profits interests, fee mineral interests, fee royalty interests and other interests in oil, gas, and other minerals not expressly included in the definition of Oil and Gas Assets, and (ii) all oil, gas or other hydrocarbon production from or attributable to the Oil and Gas Assets with respect to all periods prior to the Effective Time, and all proceeds attributable thereto except for the marketable oil in storage described in Section 2.2(a)(i) ;

 

(c)            Any refund of costs, Taxes or expenses borne by Seller or Seller’s predecessors in title attributable to periods prior to the Effective Time;

 

(d)            Any and all proceeds from the settlements of contract disputes with purchasers of Hydrocarbons from the Oil and Gas Assets, including settlement of take-or-pay disputes, insofar as said proceeds are attributable to periods of time prior to the Effective Time;

 

(e)            Any and all proceeds from settlements with regard to reclassification of gas produced from the Oil and Gas Assets, insofar as said proceeds are attributable to periods of time prior to the Effective Time;

 

(f)             All claims (including insurance claims) and causes of action of Seller against one or more third parties arising from acts, omissions, or events occurring prior to the Effective Time and all claims under any joint interest audit attributable to any period prior to the Effective Time;

 

(g)            All limited liability company, limited partnership, financial, acquisition, tax and legal (other than title) books and records of Seller;

 

(h)            Any reserve data, materials or information, including reserve databases and interpretations related to or based upon any such data, materials or information;

 

(i)             All leases for office premises used by Seller, and all furniture, fixtures and equipment located at any office other than the Longview Field Office, including computers, telephone equipment and other similar items of tangible personal property;

 

(j)             All of Seller’s accounting or other administrative systems, computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property;

 

(k)            All documents and instruments of Seller that may be protected by an attorney-client privilege (exclusive of title opinions in respect of the Oil and Gas Assets);

 

(l)             All of the other assets described on Exhibit C , together with any rights, liabilities, or obligations associated with such assets;

 

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(m)           The Existing Hedges and all hedging transactions and any gains or losses attributable to any hedging activities, whether occurring before or after the Effective Time; and

 

(n)            All (i) correspondence or other documents or instruments of Seller relating to the transactions contemplated hereby or transactions for the acquisition or disposition of oil and gas properties prior to the Effective Time, (ii) lists of other prospective purchasers of Seller or the Oil and Gas Assets or other properties of Seller compiled by Seller, (iii) bids submitted to Seller by other prospective purchasers of Seller or the Oil and Gas Assets or other properties of Seller, (iv) analyses by Seller or any Affiliates thereof submitted by other prospective purchasers of Seller or the Oil and Gas Assets, and (v) correspondence between or among Seller or its Affiliates or their respective representatives with respect to, or with, any other prospective purchasers of Seller or the Oil and Gas Assets or any transactions for the acquisition or disposition of oil and gas properties prior to the Effective Time.

 

Subject to Section 1.3(b) , the properties and assets specified in the foregoing paragraphs (a)  through (n)  of this Section 1.4 are herein collectively called the “ Excluded Assets ”.

 

Section 1.5.            Effective Time.   Except as otherwise provided in Section 1.3(b)  with respect to the Pre-Effective Time Benefits, the purchase and sale of the Assets shall be effective as of July 1, 2008, at 7:00 a.m., at the location of the Oil and Gas Assets (the “Effective Time” ).

 

ARTICLE II
Purchase Price

 

Section 2.1.            Purchase Price.   In consideration of the sale of the Assets by Seller to Buyer, Buyer shall pay Seller $707,500,000 in cash (the “Cash Consideration” ) and shall issue to Seller an aggregate of 3,500,000 shares of Buyer’s common stock, par value $0.10 per share ( “Buyer Common Stock” and with the Cash Consideration, the “Purchase Price” ), which is quoted under the symbol “FST” on the New York Stock Exchange ( “NYSE” ).  The Purchase Price, as adjusted pursuant to this Article II and the other applicable provisions hereof, is herein called the “Adjusted Purchase Price” .

 

Section 2.2.            Adjustments to Cash Consideration.   The Cash Consideration shall be adjusted as follows:

 

(a)            The Cash Consideration shall be adjusted upward by the following:

 

(i)             the value of all marketable oil in storage above the pipeline connection as of the Effective Time and not previously sold by Seller that is attributable to the Oil and Gas Assets, such value to be the Average Price, less applicable royalties, burdens, Taxes and gravity adjustments;

 

(ii)            the following amounts paid by or on behalf of Seller in connection with the operation of the Oil and Gas Assets, in accordance with generally accepted accounting principles, attributable to the period after the Effective Time:

 

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(A)           all ad valorem, property, production, excise, severance and similar Taxes based upon or measured by the ownership of property or the production of Hydrocarbons or the receipt of proceeds therefrom, pursuant to the proration provided in Section 2.2(c) ;

 

(B)            all expenditures, rentals and other charges and expenses billed under applicable operating agreements, and in the absence of an operating agreement, expenses of the sort customarily billed under such agreements.  Seller shall be entitled to retain all amounts for reimbursement to the operator of indirect overhead expenses of the type typically provided for in per well or per month charges under the COPAS form of accounting procedure received (or invoiced) by Seller as operator to third party non-operators attributable to periods prior to the Closing Date;

 

(C)            an amount equal to all prepaid expenses attributable to the Oil and Gas Assets that are paid by or on behalf of Seller that are, in accordance with U.S. generally accepted accounting principles, attributable to the period after the Effective Time;

 

(D)           any capital costs actually paid by Seller that are not related to a Well listed on Schedule 2.4(a)  or Schedule 2.4(b) , and, with respect to capital costs incurred after the date of this Agreement, for which Seller has obtained written consent from Buyer pursuant to Section 6.4 if such consent is required; and

 

(E)            if the Closing has not occurred on or prior to September 30, 2008, and the conditions of Section 10.1 were satisfied on or prior to September 30, 2008, an amount equal to the interest which accrues at the Agreed Rate on an amount equal to $900,000,000 less the Deposit, from September 30, 2008 to the Closing Date;

 

(iii)           in the event that the amount of Imbalances as of the Effective Time attributable to underproduction (expressed on an Mcf basis) exceeds the amount of Imbalances as of the Effective Time attributable to overproduction (expressed on an Mcf basis), the amount determined by multiplying the difference between such amounts times $6.00;

 

(iv)           the amount, if any, required by Section 2.4 ;

 

(v)            the amount of any beneficial title discrepancy pursuant to Section 8.2(d) ;

 

(vi)           an amount equal to the aggregate cash paid in July 2008 by Seller to renew or extend Leases as set forth on Schedule 2.2(a)(vi) ; and

 

(vii)          any other amount agreed upon in writing by Seller and Buyer.

 

(b)            The Cash Consideration shall be adjusted downward by the following:

 

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(i)             proceeds received by Seller attributable to the Assets (including, but not limited to, sales of Hydrocarbons through the Closing Date) that are, in accordance with generally accepted accounting principles, attributable to the period of time from and after the Effective Time;

 

(ii)            to the extent not otherwise treated as an adjustment to the Cash Consideration in this Agreement, an amount equal to unpaid or unassessed ad valorem, property, production, severance and similar Taxes and assessments based upon or measured by the ownership of the Oil and Gas Assets that are attributable to periods of time prior to the Effective Time, pursuant to the proration provided in Section 2.2(c) ;

 

(iii)           an amount equal to the sum of all Title Defect and Environmental Defect adjustments made in accordance with Article VIII and Article IX ;

 

(iv)           an amount equal to the Allocated Value of any Oil and Gas Assets not sold to Buyer because of the exercise before Closing by a third party of a preferential right to purchase under Section 8.6 ;

 

(v)            an amount equal to all cash in, or attributable to, “Suspense Accounts” relative to the Oil and Gas Assets and held by Seller as set forth in Section 7.10 ;

 

(vi)           in the event that the amount of Imbalances as of the Effective Time attributable to overproduction (expressed on an Mcf basis) exceeds the amount of Imbalances as of the Effective Time attributable to underproduction (expressed on an Mcf basis), the amount determined by multiplying the difference between such amounts times $6.00; and

 

(vii)          any other amount agreed upon in writing by Seller and Buyer.

 

(c)            Any ad valorem, property, and similar Taxes and assessments on the Oil and Gas Assets shall be prorated upon the basis of the tax year for which assessed (unless undeterminable as of the Closing Date and then based upon the previous year’s ad valorem, property, production, excise, severance and similar Taxes and assessments with an adjustment to be made by payment between the parties to “true-up” such Taxes when the actual amount is determinable) and payable and apportioned between Seller and Buyer upon the basis of the actual number of days before and after the Effective Time in such year.  Any production, excise, severance or similar Taxes based on or measured by production from the Oil and Gas Assets shall be allocated (i) to Seller to the extent based on production occurring prior to the Effective Time, and (ii) to Buyer to the extent based on production occurring from and after the Effective Time.

 

(d)            It is Seller’s and Buyer’s intent that the adjustments under this Agreement to the Cash Consideration, and any components of such adjustments, shall not be applied or computed in a manner that results in a duplicative effect.

 

Section 2.3.            Adjustments to Buyer Common Stock.

 

(a)            In the event that the average of the per share closing sales prices of the Buyer Common Stock as reported by the NYSE for the ten Trading Days ending on the fifth Business

 

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Day prior to the Closing (the “ Average Closing Share Price ”) is less than $45.00 per share, in lieu of the number of shares of Buyer Common Stock provided in Section 2.1 , Buyer will issue to Seller an aggregate number of shares of Buyer Common Stock equal to $157,500,000 divided by the Average Closing Share Price.

 

(b)            In the event that the Average Closing Share Price is more than $65.00 per share, in lieu of the number of shares of Buyer Common Stock provided in Section 2.1 , Buyer will issue to Seller an aggregate number of shares of Buyer Common Stock equal to $227,500,000 divided by the Average Closing Share Price.

 

(c)            The share prices set forth in subsections (a)  and (b)  above shall be adjusted appropriately to reflect any stock dividends, stock combinations, stock splits, or reverse stock splits with respect to Buyer Common Stock.

 

(d)            Buyer will not issue any certificates for any fractional shares of Buyer Common Stock otherwise issuable pursuant to the transaction contemplated hereby.  In lieu of issuing such fractional shares, Buyer shall pay cash to Seller in respect of such fractional share.  Such cash payment shall be based on the Average Closing Share Price.

 

Section 2.4.            Property Development Adjustments.   The Cash Consideration shall be further increased by the amount of capital costs paid by, and not otherwise reimbursed to, Seller, not to exceed $38,000,000 to (a) complete the Wells listed on Schedule 2.4(a) , and (b) drill and complete the Wells listed on Schedule 2.4(b) , in each case regardless of when such capital costs are incurred by Seller.  For clarity, Seller shall remain fully and ultimately responsible for all drilling and sidetracking costs on the wells listed on Schedule 2.4(a)  regardless of when such costs are incurred by Seller.  For purposes of this Section 2.4, the descriptions contained in the authorities for expenditure for the applicable Wells shall be used to determine what constitutes drilling costs and what constitutes completion costs; provided that costs incurred in sidetracking Wells shall never constitute completion costs.

 

Section 2.5.            Closing and Post-Closing Accounting Settlements.

 

(a)            No later than five days prior to Closing, Seller shall present a proposed preliminary settlement statement (the “ Preliminary Settlement Statement ”) showing its preliminary calculation of the Purchase Price adjusted in accordance with Section 2.2 , Section 2.3 , and Section 2.4 .  Buyer shall advise Seller of any proposed changes or objections to the Preliminary Settlement Statement no less than two days prior to Closing and the parties shall thereafter diligently attempt to resolve all issues in regard to the Preliminary Settlement Statement on or before Closing.  If such matters cannot be resolved as of the Closing Date, the Adjusted Purchase Price paid to Seller on the Closing Date shall be the Adjusted Purchase Price set forth in the Preliminary Settlement Statement prepared by Seller and the matter shall be resolved in connection with the Final Settlement Statement.

 

(b)            On or before December 31, 2008, Seller shall prepare and deliver to Buyer, in accordance with this Agreement and U.S. generally accepted accounting principles, a statement (the “ Final Settlement Statement ”) setting forth each adjustment or payment that is in addition to or different from what was contained in the Preliminary Settlement Statement and showing the calculation of such adjustments. Immediately thereafter, Seller shall cooperate with and provide

 

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Buyer reasonable access to all details, documents, and personnel that Buyer reasonably requires in order to audit the Final Settlement Statement. Within thirty (30) days after receipt of the Final Settlement Statement, Buyer shall deliver to Seller a written report containing any changes that Buyer proposes be made to the Final Settlement Statement. The parties shall undertake to agree with respect to the amounts due pursuant to such post-closing adjustment no later than ten days after Seller has received Buyer’s proposed changes.  If (i) the additional adjustments result in a higher Adjusted Purchase Price than that paid by Buyer at Closing, Buyer shall pay in immediately available federal funds the amount of such difference to Seller or to Seller’s account (as designated by Seller), or (ii) the additional adjustments result in a lower Adjusted Purchase Price than that paid by Buyer at Closing, Seller shall pay in immediately available federal funds the amount of such difference to Buyer or to Buyer’s account (as designated by Buyer).

 

(c)            If a dispute arises under Section 2.5(b)  with respect to any additional adjustments (an “ Accounting Dispute ”) that the parties have been unable to resolve, then, at the written request of either Seller or Buyer (the “ Request Date ”), each of Seller and Buyer shall nominate and commit one of its senior officers to meet at a mutually agreed time and place not later than ten days after the Request Date to attempt to resolve same.  If such senior officers have been unable to resolve such Accounting Dispute within a period of 30 days after the Request Date, any party shall have the right, by written notice to the other specifying in reasonable detail the basis for the Accounting Dispute, to resolve the Accounting Dispute by submission thereof to a nationally recognized independent public accounting firm commonly considered as one of the “Big 4” and reasonably acceptable to Seller and Buyer, which firm shall serve as sole arbitrator (the “ Accounting Referee ”).  The scope of the Accounting Referee’s engagement shall be limited to the resolution of the items described in the notice of the Accounting Dispute given in accordance with the foregoing and the corresponding calculation of the adjustments pursuant to Section 2.2 , Section 2.3 , and Section 2.4 .  The Accounting Referee shall be instructed by the parties to resolve the Accounting Dispute as soon as reasonably practicable in light of the circumstances but in no event in excess of 15 days following the submission of the Accounting Dispute to the Accounting Referee.  The decision and award of the Accounting Referee shall be binding upon the parties as an award under the Federal Arbitration Act and final and nonappealable to the maximum extent permitted by law, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any party as a final judgment of such court.  The fees and expenses of the Accounting Referee shall be borne equally by Seller and Buyer.

 

Section 2.6.            Payment of Adjusted Purchase Price.   Subject to and in accordance with the terms and conditions of this Agreement, the Adjusted Purchase Price shall be paid to Seller as follows:

 

(a)            Contemporaneously with the execution and delivery of this Agreement, Buyer shall tender to Seller cash equal to $45,000,000 as a deposit (such amount, the “ Deposit ”).  The Deposit shall (i) be retained by Seller and applied against the Adjusted Purchase Price owing by Buyer at the Closing pursuant to Section 2.6(b) , (ii) retained by Seller pursuant to Section 11.2 or (iii) transferred from Seller to Buyer pursuant to Section 11.2 , as applicable.

 

(b)            At the Closing, Buyer shall pay to Seller cash equal to the Cash Consideration (as adjusted pursuant to this Agreement) less the Deposit.

 

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(c)            At the Closing, Buyer shall deliver to Seller a certificate or certificates representing the Buyer Common Stock (as adjusted pursuant to this Agreement), in the names and denominations as designated in a certificate delivered by Seller to Buyer at least ten Business Days prior to the Closing Date.  In the event of an adjustment pursuant to Section 2.3 of the number of shares of Common Stock to be issued to Seller at the Closing, Seller shall deliver an updated certificate to Buyer at least four Business Days prior to the Closing Date.  Seller acknowledges and agrees that it intends to designate on such certificate, and distribute shares of Buyer Common Stock at Closing to, certain members and beneficial owners of Cordillera Energy Partners II, LLC, a Colorado limited liability company (“ CEP II ”), which is the parent company of Seller, and that Buyer shall only be obligated to issue certificates to those Persons designated by Seller who have provided the information required by Section 10.1(j).

 

(d)            All cash payments by Buyer pursuant to this Section 2.6 shall be made in immediately available funds by confirmed wire transfer to a bank account designated by Seller.

 

Section 2.7.            Transfer Taxes.   As established by the representation in Section 4.13(d) , the Oil and Gas Assets constitute the entire operating assets of a separate division, branch or identifiable segment of Seller’s business within the meaning of Texas Comptroller’s Sales Tax Rule 34 Tex. Admin. Code § 3.316(d) and Texas Tax Code § 151.304(b)(2) and, accordingly, the sale of the Assets qualifies as an occasional sale pursuant to Texas Comptroller’s Sales Tax Rule 34 Tex. Admin. Code § 3.316 and Texas Tax Code § 151.304.  Buyer and Seller agree to cooperate with each other in good faith to establish the applicability of any available exemption.

 

Section 2.8.            Recordation and Conveyance Costs.   Buyer shall be solely responsible for filing and recording the Assignment and Deed and the cost of any documentary stamps or recordation fees, or similar payments, due on the recording of same.  Within 30 days after Closing, Buyer shall furnish Seller with all recording data and evidence of all required filings.

 

Section 2.9.            Allocation of Purchase Price.   The Adjusted Purchase Price represents the amount agreed upon by Buyer and Seller to be the aggregate fair market value of the Oil and Gas Assets and the Other Assets.  Buyer and Seller agree that the Purchase Price (plus any capitalized costs and fixed liabilities assumed by Seller or to which the Oil and Gas Assets are subject) shall be allocated among the Oil and Gas Assets and Other Assets in accordance with the Allocated Values set forth on Schedule I , and any adjustments to the Purchase Price shall be allocated in a manner consistent with Schedule I (which allocation is consistent with Section 1060 of the Code and the regulations promulgated thereunder (and any similar provision of state, local, or foreign law, as appropriate)).  The parties agree that the value of the Buyer Common Stock, for federal tax purposes, shall be the average of the highest and lowest prices of such stock on the Closing Date.  Buyer and Seller (or their applicable Affiliates) shall report the transactions contemplated hereby on all Tax Returns, including, but not limited to Form 8594, in a manner consistent with such Allocated Values.  If, contrary to the intent of the parties hereto as expressed in this Section 2.9 , any taxing authority makes or proposes an allocation different from the allocation determined under this Section 2.9 , Buyer and Seller shall cooperate with each other in good faith to contest such taxing authority’s allocation (or proposed allocation); provided, however, that, after consultation with the party adversely affected by such allocation (or proposed allocation), the other party hereto may file such protective claims or Tax Returns as may be reasonably required to protect its interests.

 

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ARTICLE III
THE CLOSING

 

Unless this Agreement shall have been terminated and the transactions contemplated hereby shall have been abandoned pursuant to Article XI , the closing of the transactions contemplated hereby (the “ Closing ”) shall take place (i) at the offices of Seller, Greenwood Village, Colorado, at 10:00 a.m. (local Greenwood Village, Colorado time) on September 30, 2008, or if the conditions in Article X to be satisfied prior to Closing have not yet been satisfied or waived on such date, as soon thereafter as such conditions have been satisfied or waived, or (ii) at such other time or place or on such other date as the parties hereto shall agree.  The date on which the Closing is required to take place is herein referred to as the “ Closing Date ”.  All Closing transactions shall be deemed to have occurred simultaneously.

 

ARTICLE IV
Representations and Warranties of Seller

 

Seller hereby represents and warrants to Buyer as follows:

 

Section 4.1.            Organization and Existence.   Seller is a limited partnership duly formed, validly existing, and in good standing under the laws of the State of Texas.

 

Section 4.2.            Power and Authority.   Seller has all requisite limited partnership power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action of Seller.

 

Section 4.3.            Valid and Binding Agreement.   This Agreement has been duly executed and delivered by Seller and constitutes, and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party has been, or when executed will be, duly executed and delivered by Seller and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Seller, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors’ rights generally and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.

 

Section 4.4.            Non-Contravention.   Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties, neither the execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party nor the consummation by it of the transactions contemplated hereby and thereby do and will (a) conflict with or result in a violation

 

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of any provision of Seller’s Governing Documents, (b) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other instrument or obligation to which Seller is a party or by which Seller or any of its properties may be bound, (c) result in the creation or imposition of any Lien upon the properties of Seller, or (d) violate any Applicable Law binding upon Seller, except, in the instance of clause (b)  or clause (c)  above, for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not, individually or in the aggregate, have a Material Adverse Effect.

 

Section 4.5.            Approvals.   Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties and for compliance with the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act” ), no consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Seller in connection with the execution, delivery, or performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party or the consummation by it of the transactions contemplated hereby and thereby, except for such consents, approvals, orders, authorizations, declarations, filings or registrations which, if not obtained or made (as applicable), would not, individually or in the aggregate, have a Material Adverse Effect.

 

Section 4.6.            Pending Litigation.   Except as listed on Section 4.6 of the Seller Disclosure Schedule, there are no Proceedings pending or, to Seller’s Knowledge, threatened, against or affecting Seller or the Oil and Gas Assets (including any actions challenging or pertaining to Seller’s title to any of the Oil and Gas Assets), or affecting the execution and delivery of this Agreement by Seller or the consummation of the transactions contemplated hereby by Seller.

 

Section 4.7.            Production Marketing; Hedges.   Except as set forth on Section 4.7 of the Seller Disclosure Schedule, there exist no agreements or arrangements for the sale of Hydrocarbons from the Oil and Gas Assets other than agreements or arrangements which are cancelable on 30  days or less notice without penalty or detriment or which involve the sale of de minimus amounts of Hydrocarbons.  Seller is presently receiving a price for all production from (or attributable to) each Oil and Gas Asset covered by a production sales contract as computed in accordance with the terms of such contract.  None of the Oil and Gas Assets are subject to a call on production at a price below the then current market price.  During Seller’s ownership of the Oil and Gas Assets, no third party has exercised a call on any of Seller’s production from the Oil and Gas Assets or otherwise given notice of a right to exercise a call on any of Seller’s production from the Oil and Gas Assets.  There exist no Hedges to which Seller or an Affiliate of Seller is a party that shall encumber or burden in any way the Oil and Gas Assets, Hydrocarbons from the Oil and Gas Assets, or Buyer after the Closing.

 

Section 4.8.            Permits.   Set forth on Section 4.8 of the Seller Disclosure Schedule is a list of all Wells which Seller is currently required by a Governmental Entity to plug and abandon.  To the Knowledge of Seller, Seller and each third party operator have all Permits

 

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necessary or appropriate to own and operate the Oil and Gas Assets as presently being owned and operated, and such Permits are in full force and effect and are transferable to Buyer or are subject to being routinely replaced by a license or Permit issued to Buyer as a successor owner of the Oil and Gas Assets.  Neither Seller nor, to Seller’s Knowledge, any third party operator, has received written notice of any violations in respect of any such Permits and, to Seller’s Knowledge, there are no violations in respect of any such Permit and no one has communicated to Seller that there are any violations in respect of any such Permit, except for such violations which would not reasonably be expected to have a Material Adverse Effect.

 

Section 4.9.            Payment of Expenses.   Except as provided in Section 4.9 of the Seller Disclosure Schedule, all expenses (including all rentals, bonuses, and royalties (other than royalties held in suspense in the ordinary course of business), bills for labor, materials and supplies used or furnished for use in connection with the Oil and Gas Assets, and all severance, production, ad valorem and other similar Taxes) relating to the ownership or operation by Seller of the Oil and Gas Assets, have been, and are being, paid (timely, and before the same become delinquent) by Seller, except such expenses and Taxes listed in Section 4.9 of the Seller Disclosure Schedule (which are expenses and Taxes being disputed in good faith by Seller and for which an adequate accounting reserve has been established by Seller).  Seller is not delinquent with respect to its obligations to bear costs and expenses relating to the development and operation of the Oil and Gas Assets.

 

Section 4.10.         Oil and Gas Operations; Compliance with Laws.   To the Knowledge of Seller, all Wells have been drilled, completed, operated, and (if produced) produced in accordance with any generally accepted oil and gas field practices and in compliance with applicable oil and gas leases and pooling and unit agreements. The ownership and operation of the Oil and Gas Assets by Seller and, to Seller’s Knowledge, by third party operators, have been in material compliance with all Applicable Laws.  Notwithstanding the foregoing, this Section 4.10 does not relate to environmental matters (including compliance with Environmental Laws or matters that would constitute Environmental Defects), it being agreed that such matters are covered by and dealt with in Article IX exclusively.

 

Section 4.11.         Imbalances; Prepayments.   Section 4.11 of the Seller Disclosure Schedule sets forth all Imbalances as of the date set forth in such Section with respect to the Oil and Gas Assets.  Seller, is not obligated and, to Seller’s Knowledge, no third party operator is obligated, by virtue of a take-or-pay payment, advance payment or other similar payment, to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Oil and Gas Assets at some future time without receiving payment therefor at or after the time of delivery.

 

Section 4.12.         Intellectual Property.   To the Knowledge of Seller, Seller owns or has valid licenses or other rights to use all patents, copyrights, trademarks, software, databases, geological data, geophysical data, engineering data, maps, interpretations and other technical information used by Seller in connection with its ownership and operation of the Oil and Gas Assets as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons.

 

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Section 4.13.         Taxes.

 

(a)            All ad valorem and severance Taxes due and payable for the Oil and Gas Assets have been paid.

 

(b)            With respect to Taxes related to the Oil and Gas Assets, (i) all material Tax Returns required to be filed on or before the date hereof by Seller have been timely filed with the appropriate Governmental Entity; (ii) such Tax Returns are true and correct in all material respects; (iii) all material Taxes reported on such Tax Returns have been paid, except those being contested in good faith; (iv) there are not currently in effect any extension or waiver by Seller of any statute of limitations of any jurisdiction regarding the assessment or collection of any such Tax; and (v) there are no administrative Proceedings or lawsuits pending against the Oil and Gas Assets or Seller with respect to the Oil and Gas Assets by any taxing authority.

 

(c)            None of the Oil and Gas Assets were bound as of the Effective Time or will be bound at Closing by any tax partnership agreement binding upon Seller or are otherwise deemed by Applicable Law or agreement to be held by a partnership for U.S. federal income tax purposes.

 

(d)            The Oil and Gas Assets constitute the entire operating assets of a separate division, branch or identifiable segment of Seller’s business within the meaning of Texas Comptroller’s Sales Tax Rule 34 Tex. Admin. Code § 3.316(d) and Texas Tax Code § 151.304(b)(2) and, accordingly, the sale of the Assets qualifies as an occasional sale pursuant to Texas Comptroller’s Sales Tax Rule 34 Tex. Admin. Code § 3.316 and Texas Tax Code § 151.304.

 

Section 4.14.         Payout Balances.   To the Knowledge of Seller, the Payout Balance for each Well operated by Seller is properly reflected on Section 4.14 of the Seller Disclosure Schedule as of the date specified on such schedule.

 

Section 4.15.         Contracts.   To Seller’s Knowledge, Seller, is not (nor will be with due notice, lapse of time or both) in default under any material contract that is part of the Assets.  To Seller’s Knowledge, all material contracts that are part of the Assets are in full force and effect.  There are no contracts with affiliates of Seller that will be binding on the Oil and Gas Assets after Closing.  No notice of default or breach has been received or delivered by Seller under any material contract that is part of the Assets, the resolution of which is currently outstanding, and no currently effective notices have been received by Seller of the exercise of any premature termination, price redetermination, market-out or curtailment of any material contract that is part of the Assets.

 

Section 4.16.         Equipment and Personal Property.

 

(a)            Except as set forth in Section 4.16(a) of the Seller Disclosure Schedule, all currently producing Wells and associated equipment included as a part of the Assets are, when considered in the aggregate, in an operable state of repair adequate to maintain normal operations in accordance with past practices, ordinary wear and tear excepted.

 

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(b)            The personal property, fixtures and improvements described in Section 1.2(e) , plus items of a similar nature rented or leased by Seller, constitute all of the personal property, fixtures and improvements used by Seller to operate the Oil and Gas Assets.

 

Section 4.17.         Non-Consent Operations.   Except as otherwise reflected in Exhibit A , Seller has not made any election to not participate in any operation or activities proposed with respect to the Oil and Gas Assets which could result in any interest of Seller in any of the Oil and Gas Assets becoming subject to a penalty or forfeiture as a result of such election.

 

Section 4.18.         Wells.   To Seller’s Knowledge, all Wells have been drilled and completed within the limits permitted by all applicable Leases, contracts, and pooling or unit agreements.  To Seller’s Knowledge, no Well is subject to penalties on allowables after the Effective Date because of any overproduction or any other violation of Applicable Laws.

 

Section 4.19.         Outstanding Capital Commitments.   As of the date of this Agreement, there are no outstanding authorizations for expenditure or other commitments for capital expenditures (except as expressly set forth in the terms of a contract) that are binding on Seller with respect to the Oil and Gas Assets and that Seller reasonably anticipates will individually require expenditures by the owner of the Oil and Gas Assets after the Effective Time in excess of $150,000, other than those set forth on Schedule 2.4(a) , Schedule 2.4(b) , and Section 6.3 of the Seller Disclosure Schedule.

 

Section 4.20.         Restricted Securities.   Seller understands that at Closing the issuance of the Buyer Common Stock will not have been registered pursuant to the Securities Act or any applicable state securities laws, that the Buyer Common Stock will be characterized as “restricted securities” under federal securities laws, and that under such laws and applicable regulations the Buyer Common Stock cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.

 

Section 4.21.         Accredited Investor; Investment Intent.   The investment decision with respect to entering into this Agreement and the acquisition of Buyer Common Stock has been made solely by Seller. Although Seller intends to distribute shares of Buyer Common Stock at Closing to certain members and beneficial owners of CEP II, which is the parent company of Seller, as contemplated by Section 2.6(c) , none of such Persons has participated in the foregoing investment decision.  Seller is a knowledgeable investor and acknowledges that it has received or had access to all information concerning Buyer that it required to make such investment decision and has had the ability to evaluate (and in fact has evaluated) such information. In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, except for the representations and warranties of Buyer in Article V , Seller has relied on its own independent due diligence investigation of Buyer and has been advised by and has relied solely on its own expertise and legal, land, tax, reservoir engineering, and other professional counsel concerning this transaction, the shares of Buyer Common Stock to be acquired pursuant to this Agreement and the value thereof. Each of Seller and any Persons to whom Seller intends to distribute the Buyer Common Stock as contemplated by Section 2.6(c)  is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act and is acquiring the Buyer Common Stock for its own account and not with the intent to make a distribution within the meaning of the Securities Act or a distribution thereof in violation of any other applicable securities laws.  Each of Seller and such Persons will hold the Buyer Common

 

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Stock for its own account for investment and not with a view to, or for sale or other disposition in connection with, any distribution of all or any part thereof within the meaning of the Securities Act, except in compliance with applicable federal and state securities laws.  Neither Seller nor any Persons to whom Seller intends to distribute the Buyer Common Stock as contemplated by Section 2.6(c)  is a Related Party of Buyer as defined in Paragraph 312.00 of the New York Stock Exchange Listed Company Manual or a Related Person of Buyer as defined in Item 404 of Regulation S-K under the Securities Act.

 

Section 4.22.         Fees and Commissions.   No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller for which Buyer would be liable or responsible.

 

Section 4.23.         Disclaimer of Warranties.   Other than those expressly set out in this Article IV or in the Assignment or Deed, Seller hereby expressly disclaims any and all representations or warranties with respect to the Oil and Gas Assets or the transactions contemplated hereby, and Buyer agrees that the Oil and Gas Assets are being sold by Seller “where is” and “as is”, with all faults.  Specifically as a part of (but not in limitation of) the foregoing, Buyer acknowledges that Seller has not made, and Seller hereby expressly disclaims, any representation or warranty (express, implied, under common law, by statute or otherwise) as to the title or condition of the Oil and Gas Assets (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS).  OTHER THAN THOSE EXPRESSLY SET OUT IN THIS ARTICLE IV , SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO (I) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME, OR DELIVERABILITY OF ANY OIL, GAS, OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER, OR ATTRIBUTABLE TO THE PROPERTIES, (II) THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, OR ENVIRONMENTAL CONDITION OF THE PROPERTIES, BOTH SURFACE AND SUBSURFACE, INCLUDING MATTERS RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS MATERIALS, SOLID WASTES, ASBESTOS OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”), OR (III) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE PROPERTIES OR ANY VALUE THEREOF.  OTHER THAN THOSE EXPRESSLY SET OUT IN THIS ARTICLE IV , SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY, OR IMPLIED, AS TO (A) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION, OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE PROPERTIES OR OTHERWISE CONSTITUTING A PORTION OF THE PROPERTIES; (B) THE PRESENCE, QUALITY, AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES; (C) THE ABILITY OF THE PROPERTIES TO PRODUCE HYDROCARBONS, INCLUDING PRODUCTION RATES, DECLINE RATES, AND RECOMPLETION OPPORTUNITIES; (D) IMBALANCE OR PAYOUT ACCOUNT INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS; (E) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTIES; (F) THE ENVIRONMENTAL

 

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CONDITION OF THE PROPERTIES; (G) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR; AND (H) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO BUYER BY SELLER OR OTHERWISE CONSTITUTING A PORTION OF THE PROPERTIES.  ANY DATA, INFORMATION, OR OTHER RECORDS FURNISHED BY SELLER ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF THE SAME IS AT BUYER’S SOLE RISK.

 

ARTICLE V
Representations and Warranties of Buyer

 

Buyer hereby represents and warrants to Seller as follows:

 

Section 5.1.            Organization and Existence.   Buyer is a corporation duly incorporated, legally existing and in good standing under the laws of the State of New York, and is qualified to do business and in good standing in the State of Texas.

 

Section 5.2.            Power and Authority.   Buyer has full corporate/ power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution, delivery, and performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action of Buyer.

 

Section 5.3.            Valid and Binding Agreement.   This Agreement has been duly executed and delivered by Buyer and constitutes, and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party has been, or when executed will be, duly executed and delivered by Buyer and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Buyer, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors’ rights generally, and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.

 

Section 5.4.            Non-Contravention.   The execution, delivery, and performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party and the consummation by it of the transactions contemplated hereby and thereby do not and will not (a) conflict with or result in a violation of any provision of Buyer’s Governing Documents, (b) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other instrument or obligation to which Buyer is a party or by which Buyer or any of its

 

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properties may be bound, (c) except as may be required under Buyer’s credit facility, result in the creation or imposition of any Lien upon the properties of Buyer, or (d) violate any Applicable Law binding upon Buyer, except in the instance of clause (b)  or clause (c)  above, for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not, individually or in the aggregate, have a Material Adverse Effect.

 

Section 5.5.            Approvals.   Other than compliance with the HSR Act, no consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Buyer in connection with the execution, delivery, or performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party or the consummation by it of the transactions contemplated hereby and thereby, except for such consents, approvals, orders, authorizations, declarations, filings or registrations which, if not obtained or made (as applicable), would not, individually or in the aggregate, have a Material Adverse Effect.

 

Section 5.6.            Pending Litigation.   There are no Proceedings pending or, to Buyer’s Knowledge, threatened against or affecting the execution and delivery of this Agreement by Buyer or the consummation of the transactions contemplated hereby by Buyer.

 

Section 5.7.            Knowledgeable Purchaser.   Buyer is a knowledgeable purchaser, owner and operator of oil and gas properties, and has the ability to evaluate (and in fact has evaluated) the Oil and Gas Assets for purchase.  Buyer is an “accredited investor,” within the meaning of Regulation D under the Securities Act, and is acquiring the Oil and Gas Assets for its own account and not with the intent to make a distribution within the meaning of the Securities Act or a distribution thereof in violation of any other applicable securities laws.  Buyer has had access to the Oil and Gas Assets, the officers and consultants of Seller, and the books, Records, and files of Seller relating to the Oil and Gas Assets.  In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, except for the representations and warranties of Seller in Article IV or in the Assignment or Deed, Buyer has relied on its own independent due diligence investigation of the Oil and Gas Assets and has been advised by and has relied solely on its own expertise and legal, land, tax, reservoir engineering, and other professional counsel concerning this transaction, the Oil and Gas Assets and the value thereof.

 

Section 5.8.            Funds.   Buyer has, and at the Closing will have, sufficient cash and other sources of immediately available funds, as are necessary in order to pay the Cash Consideration to Seller at the Closing and otherwise consummate the transactions contemplated hereby.

 

Section 5.9.            SEC Reports; Financial Statements.

 

(a)            Buyer has filed and made available to Seller all periodic reports, current reports, registration statements and proxy statements required to be filed by Buyer with the Securities and Exchange Commission (the “ SEC ”) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), since January 1, 2007.  All such required periodic reports, current reports, registration statements and proxy statements are referred to herein as the “ Buyer SEC Reports .” The Buyer SEC Reports (i) were filed on a timely basis, (ii) were prepared in all material respects in compliance with the applicable requirements of the Exchange Act and the rules and

 

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regulations of the SEC thereunder, and (iii) did not, at the time they were filed (except to the extent corrected by a subsequently filed Buyer 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 therein, in the light of the circumstances under which they were made, not misleading. Buyer is unaware of any fact or circumstance that could materially impair or prohibit the filing of the Registration Statement with the SEC as contemplated by this Agreement.

 

(b)            Each of the consolidated financial statements (including, in each case, any related notes and schedules) contained in the Buyer SEC Reports (i) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by the SEC on Form 10-Q under the Exchange Act), and (iii) fairly presented in all material respects the consolidated financial position of Buyer and its Subsidiaries as of the dates and the consolidated results of its operations and cash flows for the periods indicated, consistent with the books and records of Buyer and its Subsidiaries, except that the unaudited interim financial statements were subject to normal and recurring year-end adjustments that were not material.

 

(c)            Buyer is a “well-known seasoned issuer” and is eligible to use an “automatic shelf registration statement” (as those terms are defined in Rule 405 under the Securities Act) to register resales of the Buyer Common Stock.

 

Section 5.10.         Absence of Certain Changes.   Except as disclosed in the Buyer SEC Reports, since August 7, 2008, there has not been any Material Adverse Effect with respect to Buyer and its Subsidiaries, considered as a whole.

 

Section 5.11.         Buyer Common Stock.   Buyer has (i) 200,000,000 authorized shares of common stock (“Common Stock”), par value $.10 per share, of which as of July 31, 2008, 89,774,084 were issued and outstanding (including 1,889,195 shares of unvested restricted stock), (ii) issued and outstanding stock options to acquire 2,181,242 shares of Common Stock under all stock option plans and agreements as of June 30, 2008, and (iii) no warrants to purchase shares of Common Stock are outstanding under any agreement.  The issuance of the Buyer Common Stock pursuant to this Agreement has been duly authorized and upon consummation of the transactions contemplated by this Agreement, the Buyer Common Stock will have been validly issued, fully paid, non-assessable, and issued without application of preemptive rights, have the rights, preferences, and privileges specified in Buyer’s Restated Certificate of Incorporation, as amended, and will be free and clear of all liens and restrictions, other than the restrictions imposed by this Agreement and the Securities Act and state securities laws.  There are outstanding: (i) no securities of Buyer convertible into or exchangeable for shares of Common Stock, and (ii) except as described above and except for any stock units or similar instruments that Buyer may issue under its stock option plans and agreements, no options, warrants, calls, rights (including preemptive rights), commitments, or agreements to which Buyer is a party or by which it is bound, in any case obligating Buyer to issue, deliver, sell, purchase, redeem, or acquire, or cause to be issued, delivered, sold, purchased, redeemed, or acquired, any shares of Common Stock or obligating Buyer to grant, extend or enter into any such option, warrant, call, right, commitment, or agreement.

 

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Section 5.12.                          Qualified Leaseholder.   At Closing, Buyer will be in compliance with the bonding requirements of the State of Texas and other Governmental Entities, and after Closing, Buyer reasonably anticipates that it will continue to be able to meet such bonding requirements.

 

Section 5.13.                          Fees and Commissions.   No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer for which Seller would be liable or responsible.

 

ARTICLE VI

Certain Covenants of Seller Pending Closing

 

Section 6.1.                                 Access to Files.   Upon receipt of the Deposit, Seller will make available to Buyer for examination at Seller’s offices in Greenwood Village, Colorado, at such times that Buyer may reasonably request, including after business hours, upon reasonable notice to Seller, all title information, production information and other information relating to the Oil and Gas Assets, including without limitation, accounting files, production files, land files, lease files, well files, division order files, contract files and marketing files, and, subject to the consent and cooperation of third parties, will cooperate with Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information relating to the Assets as Buyer may reasonably desire, to the extent in each case that Seller may do so without violating legal constraints or any obligation of confidence or other contractual commitment of Seller to a third party.

 

Section 6.2.                                 Access to Oil and Gas Assets.   Upon receipt of Deposit, Seller shall permit Buyer’s authorized representative to conduct, at Buyer’s sole risk and expense, on-site inspections of the Oil and Gas Assets, including inspections for the purpose of identifying environmental matters as provided in Article IX below.  BUYER HEREBY INDEMNIFIES AND SHALL DEFEND AND HOLD SELLER, AFFILIATES THEREOF, AND ITS AND THEIR RESPECTIVE OWNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND ALL OF THE FOLLOWING CLAIMS ARISING FROM BUYER’S INSPECTING AND OBSERVING THE PROPERTIES:  (I) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF BUYER, ITS CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES, AND DAMAGE TO THE PROPERTY OF BUYER OR OTHERS ACTING ON BEHALF OF BUYER, EXCEPT FOR INJURIES OR DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER, AFFILIATES THEREOF OR ITS OR THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, CONSULTANTS, OR REPRESENTATIVES; AND (II) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF SELLER OR THIRD PARTIES, AND DAMAGE TO THE PROPERTY OF SELLER OR THIRD PARTIES, TO THE EXTENT CAUSED BY THE NEGLIGENCE, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT OF BUYER.  TO THE EXTENT PROVIDED ABOVE, THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF

 

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ANY OF THE INDEMNIFIED PARTIES.  THE PARTIES HERETO AGREE THAT THE FOREGOING COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.  Buyer may not conduct soil borings or laboratory analysis of soil or groundwater samples on or from the Oil and Gas Assets without the prior consent of Seller.  Prior to the Closing, Buyer shall not disclose any violations of Environmental Laws it discovers during its inspection to any third party, including governmental agencies, except as required by law and only then after giving Seller advance notice and an adequate opportunity to contest such disclosure.

 

Section 6.3.                                 Conduct of Operations.   From the date hereof until Closing, in the ordinary course of business and as would a prudent operator, Seller will (a) continue the routine operation of the Oil and Gas Assets; (b) operate the Oil and Gas Assets in material compliance with all Applicable Laws and Environmental Laws and in material compliance with all material contracts binding on Seller; (c) fulfill all material obligations under the material contracts binding on Seller and, in all material respects, under such Applicable Laws and Environmental Laws; (d) promptly provide to Buyer daily drilling, completion, and production reports and monthly lease operating statements; and (e) subject to the availability of rigs and other equipment and consistent with good oilfield practices, continue to expend capital and drill, rework, and recomplete Wells (i) in accordance with Seller’s development plan attached as Section 6.3 of the Seller Disclosure Schedule, and (ii) listed on Schedule 2.4(a)  and Schedule 2.4(b) .  In connection with the obligations of Seller in the preceding sentence and effective upon the Closing, BUYER HEREBY INDEMNIFIES AND SHALL DEFEND AND HOLD SELLER, AFFILIATES THEREOF, AND ITS AND THEIR RESPECTIVE OWNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS ARISING FROM SELLER’S OPERATION OF THE PROPERTIES BETWEEN THE DATE OF THIS AGREEMENT AND THE CLOSING DATE, INCLUDING CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF SELLER, ITS CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES, EXCEPT FOR INJURIES OR DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER, AFFILIATES THEREOF OR ITS OR THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, CONSULTANTS, OR REPRESENTATIVES.  TO THE EXTENT PROVIDED ABOVE, THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.  THE PARTIES HERETO AGREE THAT THE FOREGOING COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

 

Section 6.4.                                 Restrictions on Certain Actions.   From the date hereof until Closing, except (x) as set forth in Seller’s development plan attached as Section 6.3 of the Seller Disclosure Schedule, (y) for the completion of the Wells listed on Schedule 2.4(a) , and (z) for the drilling and completion of the Wells listed on Schedule