Document:

EX-10.1

 

Exhibit 10.1

			
	 
	THIRD AMENDMENT TO	 	 
	LOAN AND SECURITY AGREEMENT
	 	Wells Fargo Retail Finance, LLC, Agent
	 

Effective Date as of: June 30, 2005

Execution Date: July 15, 2005

THIS THIRD AMENDMENT (this “Third Amendment”) is made in consideration of the mutual covenants
contained herein and benefits to be derived herefrom to the Loan and Security Agreement (the “Loan
Agreement”) dated as of January 9, 2003 entered into by and among WELLS FARGO RETAIL FINANCE, LLC,
a Delaware limited liability company, as the arranger, collateral agent, and administrative agent
for the Lenders (in such capacity, together with its successors, if any, in such capacity, the
“Agent” and together with the Lenders, collectively, the “Lender Group”), and, on the other hand,
PARTY CITY CORPORATION, a Delaware corporation (the “Borrower”).

BACKGROUND:

The Borrower and the Lender Group are parties to the Loan Agreement, as amended by a certain First
Amendment Agreement dated as of February 10, 2005, and as further amended by a certain Second
Amendment Agreement dated as of June 20, 2005. At this time, the Borrower and the Lender Group
desire to further amend the Loan Agreement. Accordingly, it is hereby agreed by and between the
Borrower and the Lender Group, as follows:

Part 1. Amendment of Loan Agreement:

The Loan Agreement is amended as follows:

	1.	 	New Definitions. The following definitions are hereby inserted in their
appropriate alphabetical order into Section 1.1:

“Commitment Increase” has the meaning set forth in Section 2.2.

“Commitment Increase Date” has the meaning set forth in Section 2.2.

“Commitment Increase Fee” means an amount equal to 0.125% of the Commitment
Increase.

“Increased Maximum Revolver Amount” has the meaning set forth in Section
2.2.

	2.	 	Amended Definitions. The definitions of “Bank Product Obligations,” “Bank
Products,” “Bank Product Reserves,” “Maximum Revolver Amount,” and “Revolver Commitments” are
hereby deleted in their entirety, and the following revised definitions are hereby
respectively substituted in their places:

     “Bank Product Obligations” means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by
Borrower or its Subsidiaries to (i) Wells Fargo or its Affiliates, or (ii) any Lender or any of
their

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Affiliates, pursuant to or evidenced by the Bank Product Agreements and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising, and
including all such amounts that the Borrower is obligated to reimburse to Agent or
any member of the Lender Group as a result of Agent or such member of the Lender
Group purchasing participations or executing indemnities or reimbursement
obligations with respect to the Bank Products provided to Borrower or its
Subsidiaries pursuant to the Bank Product Agreements.

     “Bank Products” means any service or facility extended to Borrower or
its Subsidiaries by (i) Wells Fargo or any Affiliate of Wells Fargo, or (ii) any
Lender or any of their Affiliates, including: (a) credit cards, (b) credit card
processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f)
cash management, including controlled disbursement, accounts or services, or (g)
Hedge Agreements.

     “Bank Product Reserves” means, as of any date of determination, the
amount of reserves that Agent has established (based upon (i) Wells Fargo’s or its
Affiliate’s, or (ii) any Lender or any of their Affiliate’s, reasonable
determination of the credit exposure in respect of then extant Bank Products) for
Bank Products then provided or outstanding.

     “Maximum Revolver Amount” means (x) $65,000,000.00, or (y) if increased
pursuant to Section 2.2, below, the aggregate of (i) $65,000,000.00 and (ii) the
amount of each Commitment Increase.

     “Revolver Commitment” means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in each
case as such Dollar amounts may be increased in the event of any Commitment Increase
implemented in accordance with the provisions of Section 2.2, below, and as such
Dollar amounts are set forth beside such Lender’s name under the applicable heading
on Schedule C-1, as it may be amended from time to time as a result of any
Commitment Increase, or on the signature page of the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder in accordance with the
provisions of Section 14.1.

	3.	 	Reduction of Availability Block. The definition of “Availability Block” in
Section 1.1 is hereby amended by deleting the figure “$10,000,000.00” contained therein and
substituting the figure “$5,000,000.00” in its place.
	 
	4.	 	Reduction of LIBO Rate. The definition of “LIBO Rate Margin” in Section 1.1
is hereby amended by deleting the pricing grid contained therein, and substituting the
following pricing grid in its place:

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	 	 	 	 	 	 	LIBO Rate	 
	Level	 	 	Average Fiscal Quarter Excess Availability	 	Margin	 
	 	I	 	 	Greater than $8,000,000
	 	 	1.00	%
	II	 	Greater than $2,000,000 but less than or equal to
$8,000,000
	 	 	1.25	%
	III	 	Less than or equal to $2,000,000
	 	 	1.50	%

	 	 	The Borrower and the Lender Group agree that upon the effectiveness of this Third Amendment,
the LIBO Rate Margin under Level I will be in effect until adjusted on the first Business
Day of the Borrower’s next fiscal quarter after the effective date of this Third Amendment.
	 
	5.	 	Revision of Dollar Cap Restrictions on Permitted Acquisitions and Stock
Repurchases. The definition of “Permitted Acquisitions” in Section 1.1 is hereby deleted
in its entirety, and the following is inserted in its place:

     “Permitted Acquisition” means (i) an acquisition of the stock or assets
of a Person engaged in substantially the same business as that in which the Borrower
is engaged, provided that (a) prior to and after giving effect to any such
transaction, there is no Covenant Activation Event, (b) the Borrower provides the
Agent with sufficient prior notice and information regarding such acquisition that
Agent is able to (x) perfect a security interest in all acquired collateral and/or
(y) enter into such subordination or intercreditor agreement as Agent deems
necessary in its Permitted Discretion, (c) Borrower provides Agent with written
evidence satisfactory to the Agent that Borrower projects, on a good faith,
pro-forma basis, Excess Availability of at least $5,000,000 for the next six months,
such pro-forma forecast to be acceptable to the Agent in its Permitted Discretion,
and (d) the total amount spent by Borrower on Permitted Acquisitions under this
clause (i) in such fiscal year, including the proposed acquisition, does not exceed
$10,000,000 (provided, however, that if at the time of, and after giving effect to
the closing on any proposed acquisition, the Daily Balance is $0.00, then the
foregoing $10,000,000 limitation shall not apply), or (ii) the acquisition of Stock
of the Borrower by the Borrower, provided that (a) prior to and after giving effect
to any such transaction, the Borrower will have Excess Availability of at least
$10,000,000, and (b) Borrower provides Agent with written evidence satisfactory to
the Agent that Borrower projects, on a good faith, pro-forma basis, Excess
Availability of at least $10,000,000 for the six months after such proposed
transaction, such pro-forma forecast to be acceptable to the Agent in its Permitted
Discretion.

	6.	 	Revised Borrowing Base. Subsection 2.1(a) is hereby deleted in its entirety,
and the following is inserted in its place:

          (a) Subject to the terms and conditions of this Agreement, and
during the term of this Agreement, each Lender with a Revolver Commitment
agrees (severally, not jointly or jointly and severally) to make advances

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(“Advances”) to Borrower in an amount at any one time outstanding not to
exceed such Lender’s Pro Rata Share of an amount equal to the lesser of (i) the
Maximum Revolver Amount less the Availability Block less the Letter of Credit Usage,
or (ii) the Borrowing Base less the Letter of Credit Usage and the aggregate amount
of the Availability Reserves. For purposes of this Agreement, “Borrowing
Base”, as of any date of determination, shall mean an amount equal to the result
of:

     (A) the lesser of (i) 85% of the amount of Eligible Accounts
less the amount, if any, of the Dilution Reserve and (ii)
$8,000,000,

     plus

     (B) the lesser of (i) up to 85% of the amount of CIT Factoring
Receivables and (ii) $5,000,000; provided, however,
that the amount permitted under this clause (B) shall be $0.00 any
time (x) after the occurrence and during the continuance of a
default under the CIT Factoring Agreement or (y) after Borrower
delivers to, or receives from, CIT notice of termination (a
“Termination Notice”) under Section 16.1 of the CIT Factoring
Agreement; provided further, that, subject to all other
provisions and terms of this Agreement, Lenders shall continue to
make Advances against CIT Factoring Receivables in accordance with
this clause (B) during the sixty (60) day period after a Termination
Notice has been delivered by or received by Borrower so long as
Agent shall have received a copy of such Termination Notice and
written confirmation, satisfactory to the Agent, from CIT that (a)
no default has occurred and is continuing under the CIT Factoring
Agreement, and (b) the CIT Factoring Agreement, including without
limitation, the assumption by CIT of all “Credit Risk” (as therein
defined) thereunder remains and shall remain in full force and
effect with respect to all CIT Factoring Receivables during such
sixty (60) day period,; and provided further, that the
Borrower may at any time after January 1, 2006 request, and the
Agent may, in its sole discretion, grant, an increase to the
foregoing “$5,000,000.00” cap up to an amount not to exceed an
amount equal to 10% of the then existing Maximum Revolver Amount,

     plus

     (C) 90% of the Net Retail Liquidation Value of Eligible
Inventory plus the lesser of (1) 90% of the Net Retail Liquidation
Value of Eligible In-Transit Inventory and (2) $5,000,000,

     minus

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     (D) the Availability Block,

     minus

     (E) the aggregate amount of Reserves, if any, established by
Agent under Section 2.1(b).

	7.	 	Option to Increase Maximum Revolver Amount. Section 2.2, “Intentionally
Omitted,” is hereby deleted and the following is inserted in its place:

2.2 Increase in Maximum Revolver Amount and Revolver Commitments.

(a) Increase in Maximum Revolver Amount. Provided that no Event of Default has
occurred and is continuing, the Borrower shall have the right at any time, and from
time to time prior to June 30, 2007 and upon not less than Five (5) Business Days
prior written notice to the Agent, to elect to increase the Maximum Revolver Amount
by up to $15,000,000.00 (in increments on any one occasion of not less than
$5,000,000.00) (a “Commitment Increase”) from the existing aggregate amount
of $65,000,000.00 to an aggregate amount of not greater than $80,000,000.00 (the
“Increased Maximum Revolver Amount”). All existing Lenders shall assume
their respective Pro Rata Share of each such requested increase and their respective
Revolver Commitments shall be correspondingly increased.

(b) Increase Conditions. No Commitment Increase shall become effective unless and
until each of the following conditions have been satisfied:

     (1) The Borrowers shall have paid the Agent for the ratable benefit of the
Lenders the applicable Commitment Increase Fee with respect to each Commitment
Increase;

     (2) A note will be issued at the Borrowers’ expense, to each Lender, to the
extent necessary to reflect the new Commitments of such Lenders; and

     (3) The Borrowers shall have delivered such other instruments, documents and
agreements with respect to each Commitment Increase as the Agent may reasonably have
requested.

(c) Commitment Increase Date. The Agent shall promptly notify each Lender as to the
effectiveness of each Commitment Increase (with the date of such effectiveness being
referred to herein as the “Commitment Increase Date”), and at such time (i)
the Maximum Revolver Amount under, and for all purposes of, this Agreement shall be
increased by the aggregate amount of the subject Commitment Increase, (ii) the
increased Commitments shall be deemed effective, without further action, to reflect
the revised Commitments of the Lenders, and (iii) this Agreement
shall be deemed amended, without further action, to the extent necessary to reflect
such Increased Maximum Revolver Amount.

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	8.	 	Revision to Waterfall. Subsection 2.4(b)(i) is hereby amended by deleting
subparagraphs “(K)” and “(L)” therein, and inserting the following new subparagraphs in their
respective places, and by inserting the following new subparagraph “(M)” in its appropriate
alphabetical order:

(K) eleventh, to pay any other Obligations (including Bank Product Obligations, but
only those owed to Wells Fargo or any Affiliate of Wells Fargo) until paid in full,
and

(L) twelfth, to pay any Bank Product Obligations owed to any Lender or any of their
Affiliates until paid in full, and

(M) thirteenth, to Borrower (to be wired to the Designated Account) or such other
Person entitled thereto under applicable law.

	9.	 	Revisions to Cash Dominion.

	 	a.	 	Subsection 2.7(b) is hereby deleted in its entirety, and the following is
inserted in its place:

(b) (1) Borrower shall establish and maintain Cash Management Agreements with Agent
and each Cash Management Bank. Each such Cash Management Agreement shall be a
Control Agreement and each Control Agreement shall provide, among other things, that
(i) upon notice from Agent, the applicable Cash Management Bank will comply with
instructions of Agent directing the disposition of funds in the account without
further consent of the Borrower, (ii) the applicable Cash Management Bank has no
rights of setoff or recoupment or any other claim against the applicable account,
other than for payment of its service fees and other charges directly related to the
administration of such account and for returned checks or other items of payment,
and (iii) upon notice from the Agent after the occurrence of a “Cash Dominion
Event,” as provided in subparagraph (b)(2), below, it immediately will forward by
daily sweep all amounts in the applicable account to the Agent’s Account or
appropriate Cash Management Account (as applicable), provided that, each of the
local DDAs for the retail stores (but not the Cash Management Accounts) may retain
the following amounts as overdraft protection: (i) during September 23rd through
November 7th of each year, an average of $1,100 per DDA and (ii) at all other times
an average of $500 per DDA.

     (2) At any time after the occurrence of an Event of Default or that Excess
Availability either (a) falls below $15,000,000.00 for five (5) consecutive days, or
(b) ever falls below $10,000,000.00 (herein, a “Cash Dominion Event”), the
Agent may provide notice to the Cash Management Banks pursuant to the Cash
Management Agreements that the daily sweep of all amounts in the applicable accounts
is to be implemented. The daily sweep shall remain in effect until such
time as the Borrower has thereafter maintained Excess Availability of at least
$20,000,000.00 at all times for thirty (30) consecutive days, at which time the
Agent

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shall, upon request of the Borrower, provide notice to the Cash Management
Banks to suspend the daily sweep of the applicable accounts.

	 	b.	 	Section 2.8 is hereby deleted in its entirety, and the following is inserted in
its place:

2.8. Crediting Payments; Float Charge. The receipt of any payment item by
Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the
Cash Management Agreements or otherwise) shall not be considered a payment on
account unless such payment item is a wire transfer of immediately available federal
funds made to the Agent’s Account or unless and until such payment item is honored
when presented for payment. Should any payment item not be honored when presented
for payment, then Borrower shall be deemed not to have made such payment and
interest shall be calculated accordingly. Anything to the contrary contained herein
notwithstanding, any payment item shall be deemed received by Agent only if it is
received into the Agent’s Account on a Business Day on or before 2:00 p.m. (Boston,
Massachusetts time). If any payment item is received into the Agent’s Account on a
non-Business Day or after 2:00 p.m. (Boston, Massachusetts time) on a Business Day,
it shall be deemed to have been received by Agent as of the opening of business on
the immediately following Business Day. From and after a Cash Dominion Event, and
unless and until the Cash Dominion Event has been relieved in accordance with
Subsection 2.7(b)(2), Agent shall be entitled to charge Borrower for 1 Business Day
of ‘clearance’ or ‘float’ at the rate applicable to Base Rate Loans under
Section 2.6 on all Collections that are received by Borrower (regardless of
whether forwarded by the Cash Management Banks to Agent). This across-the-board 1
Business Day clearance or float charge on all Collections after the occurrence of a
Cash Dominion Event is acknowledged by the parties to constitute an integral aspect
of the pricing of the financing of Borrower; the effect of such clearance or float
charge being the equivalent of charging 1 Business Day of interest on such
Collections. The parties acknowledge and agree that the economic benefit of the
foregoing provisions of this Section 2.8 shall be for the exclusive benefit
of Agent.

	10.	 	Modification of Unused Line Fee. Subsection 2.11(a) is hereby deleted in its
entirety, and the following is inserted in its place:

(a) Unused Line Fee. On the first day of each month during the term of this
Agreement, an unused line fee in an amount equal to 0.20% (but 0.15% for that
portion of the of the Maximum Revolver Amount in excess of $65,000,000.00 as a
result of one or more Commitment Increases) minus the Average Total Revolver
Outstandings.

	11.	 	Increase to Letter of Credit Sublimit. Subsection 2.12(a)(i) is hereby
amended by deleting the figure “$10,000,000.00” contained therein, and substituting the figure
“$20,000,000.00” in its place.

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	12.	 	Deletion of Letter of Credit Issuance Fees. Subsection 2.12(e) is hereby
deleted in its entirety, and the following is inserted in its place:

(e) Any and all charges, commissions, fees (other than issuance charges, otherwise
normally assessed by the Underlying Issuer, which shall not be assessed, nor be
reimbursable by the Borrower), and costs incurred by the Issuing Lender relating to
Underlying Letters of Credit shall be Lender Group Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to Agent for the account
of the Issuing Lender; it being acknowledged and agreed by each Borrower that, as of
the Closing Date, the Underlying Issuer imposes a schedule of charges for
amendments, extensions, drawings, and renewals.

	13.	 	Extension of Maturity Date. Section 3.4 is hereby amended by deleting the
date “April 30, 2006” contained therein and inserting the date “June 30, 2009” in its place.
	 
	14.	 	Limitation on Appraisals and Audits.

	 	a.	 	Appraisals. Subsection 4.8(b) is hereby deleted in its entirety, and the
following is inserted in its place:

(b) Agent may from time to time obtain or conduct, at Borrower’s expense, appraisals
of the Borrower’s Inventory conducted by such appraisers as are satisfactory to
Agent, provided that prior to the occurrence of an Event of Default, and so long as
the Borrower has maintained Excess Availability at all times of at least
$10,000,000.00, the Borrower shall only be required to pay for one such appraisal
per fiscal year. If, however, the Borrower has not maintained Excess Availability
of at least $10,000,000.00 at all times, the Borrower may be required to pay for two
such appraisals per fiscal year, until such time as the Borrower thereafter has
maintained Excess Availability of at least $10,000,000.00 at all times for six (6)
consecutive months, at which time the Borrower’s payment obligation shall revert to
one such appraisal per fiscal year; and if, however, an Event of Default has
occurred, the Borrower may be required to pay for all appraisals obtained by the
Agent. Notwithstanding the foregoing, the Agent may, at its expense, from time to
time obtain additional appraisals as the Agent in its Permitted Discretion
determines to be necessary or appropriate. The Borrower acknowledges and agrees
that the results of any such appraisal may be used for the purpose of redetermining
the Net Liquidation Value of the Eligible Inventory portion of the Collateral and,
as a result, redetermining the Borrowing Base.

	 	b.	 	Audits. Subsection 4.8(c) is hereby deleted in its entirety, and the following
is inserted in its place:

(c) Agent may from time to time conduct commercial finance audits at Borrower’s
expense of Borrower’s Books, provided that prior to the occurrence of an Event of
Default, and so long as the Borrower has maintained Excess Availability at all times
of at least $10,000,000.00, the Borrower shall only be required to pay for one such
audit per fiscal year. If, however, the Borrower has not maintained Excess
Availability of at least $10,000,000.00 at all times, the Borrower may be required
to pay for two such audits per fiscal year until such time as the Borrower
thereafter has maintained Excess

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Availability of at least $10,000,000.00 at all
times for six (6) consecutive months, at which time the Borrower’s payment
obligation shall revert to one such audit per fiscal year; and if, however, an Event
of Default has occurred, the Borrower may be required to pay for all audits obtained
by the Agent. Notwithstanding the foregoing, the Agent may, at its expense, from
time to time obtain additional audits as the Agent in its Permitted Discretion
determines to be necessary or appropriate.

	15.	 	Delivery of Business Plan. Subsection 6.3(c) is hereby deleted its entirety,
and the following is inserted in its place:

(c) as soon as available, but in any event within 45 days after the start of the
Borrower’s fiscal years, copies of the Borrower’s Business Plan for the forthcoming
fiscal year, month by month, in form and substance satisfactory to the Agent.

	16.	 	Revised Collateral Reporting Requirements.

	 	a.	 	Schedule 6.2 to the Loan Agreement, “Collateral Reporting,” is hereby deleted,
and a revised Schedule 6.2 in the form annexed hereto is inserted in its place.
	 
	 	b.	 	Exhibit B-1 to the Loan Agreement, “Borrowing Base Certificate,” is hereby
deleted, and a revised Exhibit B-1 in the form annexed hereto is inserted in
its place.

	17.	 	Removal of Restrictions on Unsecured Indebtedness. Section 7.1 is hereby
deleted in its entirety, and the following is inserted in its place:

7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any secured
Indebtedness, except:

     (a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit;

     (b) Indebtedness set forth on Schedule 5.20 which schedule indicates
whether such Indebtedness is secured;

     (c) Permitted Purchase Money Indebtedness;

     (d) Refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions of
such refinancings, renewals, or extensions do not, in Agent’s reasonable judgment,
materially impair the prospects of repayment of the Obligations by Borrower or

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materially impair Borrower’s creditworthiness, (ii) such refinancings, renewals, or
extensions do not result in an increase in the principal amount of the Indebtedness
so refinanced, renewed, or extended or add one or more of the Borrower as liable
with respect thereto if such additional Borrower were not liable with respect to the
original Indebtedness, (iii) such refinancings, renewals, or extensions do not
result in a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, nor are they on terms or conditions, that, taken
as a whole, are materially more burdensome or restrictive to the Borrower, and (iv)
if the Indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Obligations, then the terms and conditions of the
refinancing, renewal, or extension Indebtedness must be include subordination terms
and conditions that are at least as favorable to the Lender Group as those that were
applicable to the refinanced, renewed, or extended Indebtedness;

     (e) Indebtedness composing Permitted Investments; and

     (f) Indebtedness arising in connection with Permitted Acquisitions in an amount
not to exceed $10,000,000 in any fiscal year.

     Notwithstanding anything to the contrary, and for the elimination of doubt,
nothing contained in this Section 7.1 shall limit the right of the Borrower
to incur unsecured Indebtedness (“Permitted Unsecured Indebtedness”) in the ordinary
course of the Borrower’s business, and otherwise, so long as no Event of Default has
occurred and shall be continuing.

	18.	 	Permitted Payments: Section 7.8(a) is hereby deleted in its entirety and the
following is inserted in its place:

     (a) Except in connection with a refinancing permitted by Section 7.1(d),
prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of the
Borrower, other than (i) the Obligations in accordance with this Agreement and (ii)
regularly scheduled payments of principal of and interest on Permitted Unsecured
Indebtedness so long as no Event of Default shall have occurred and be continuing or
would occur after giving effect thereto, and”

	19.	 	Revised Notice Provisions. Section 12 is hereby amended by deleting the
notice addresses set forth therein, and substituting the following in their place:

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	 	If to Borrower:
	 	PARTY CITY CORPORATION
	 

	 	 	 	400 Commons Way
	 

	 	 	 	Rockaway, NJ 07866
	 

	 	 	 	Attn: Gregg Melnick
	 

	 	 	 	Fax No.: 973-983-8853
	 
	 	 	 	 
	 

	 	With copies to:
	 	Counsel to the Borrower:
	 

	 	 	 	LATHAM & WATKINS
	 

	 	 	 	885 Third Avenue, Suite 1000
	 

	 	 	 	New York, NY 10022-4802
	 

	 	 	 	Attn: Raymond Lin
	 

	 	 	 	Fax No.: 212-751-4864
	 
	 	 	 	 
	 

	 	If to Agent or
	 	WELLS FARGO RETAIL FINANCE, LLC
	 

	 	to Lender Group:	 	One Boston Place, 19th Floor
	 

	 	 	 	Boston, MA 02108
	 

	 	 	 	Attn: Lynn Whitmore
	 

	 	 	 	Fax No.: 617-722-9485
	 
	 	 	 	 
	 

	 	with copies to:
	 	Counsel to the Agent:
	 

	 	 	 	RIEMER & BRAUNSTEIN LLP
	 

	 	 	 	Three Center Plaza
	 

	 	 	 	Boston, MA 02108
	 

	 	 	 	Attn: Donald E. Rothman
	 

	 	 	 	Fax No.: 617-692-3556
	 
	 	 	 	 
	 

	 	 	 	BANK OF AMERICA, N.A.
	 

	 	 	 	40 Broad Street
	 

	 	 	 	Boston, MA 02109
	 

	 	 	 	Attn: Christine Hutchinson
	 

	 	 	 	Fax No.: 617-434-4339
	 
	 	 	 	 
	 

	 	and:
	 	BROWN RUDNICK BERLACK ISRAELS LLP
	 

	 	 	 	One Financial Center
	 

	 	 	 	Boston, MA 02111
	 

	 	 	 	Attn: Steven B. Levine, Esq.
	 

	 	 	 	Fax No.: 617-856-8201

	20.	 	Amendments . Section 15.1 is hereby amended by inserting the following
sentence at the end thereof:

“Notwithstanding the foregoing, technical and conforming modifications may be
made without the consent of the Required Lenders to the extent necessary to
integrate any Increased Commitments on substantially identical terms as the Advances
in existence on the applicable Increased Commitment Date.”

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	21.	 	Successor Counsel to Agent. Section 16.19 is hereby deleted in its entirety,
and the following is inserted in its place:

In connection with the negotiation, drafting, and execution of this Agreement and
the other Loan Documents, or in connection with future legal representation relating
to loan administration, amendments, modifications, waivers, or enforcement of
remedies, Riemer & Braunstein LLP (“R&B”) only has represented and only shall
represent WFRF in its capacity as Agent and as a Lender. Each other Lender hereby
acknowledges that R&B does not represent it in connection with any such matters.

Part 2. Ratification of Loan Documents. No Claims against the Agents and the Lenders:

	1.     	Except as provided herein, all terms and conditions of the Loan Agreement and each of
the other Loan Documents remain in full force and effect. The Borrower hereby ratifies,
confirms, and re-affirms all terms and provisions of the Loan Documents.
	 
	2.     	The Borrower represents and warrants that no Event of Default exists as of the date of
this Third Amendment.
	 
	3.  	The Borrower acknowledges and agrees that there is no basis nor set of facts on which
any amount (or any portion thereof) owed by the Borrower under any Loan Document could be
reduced, offset, waived, or forgiven, by rescission or otherwise; nor is there any claim,
counterclaim, off set, or defense (or other right, remedy, or basis having a similar effect)
available to the Borrower with regard thereto; nor is there any basis on which the terms and
conditions of any of the Obligations could be claimed to be other than as stated on the
written instruments which evidence such Obligations. The Borrower hereby WAIVES and RELEASES
the Agent, the Lenders, and their respective officers, directors, employees, attorneys,
representatives, predecessors, successors, and assigns from all claims and counterclaims
through the date of execution of this Third Amendment, except any such claim or counterclaim
which shall be found by a court of final jurisdiction to have been due to the gross negligence
or willful misconduct of the Agent, the Lenders or their respective officers,
directors, employees, attorneys, representatives, predecessors, successors, and assigns.

Part 3. Conditions:

	1.	 	Conditions Precedent. The effectiveness of this Third Amendment is
conditioned upon the prior satisfaction of each and all of the following conditions precedent:

	 	a. 	 	Due execution of a copy of this Third Amendment by each of the Borrower, the
Agent, each Lender, and the Guarantor.
	 
	 	b. 	 	Reimbursement by the Borrower to the Agent and the Lenders of all reasonable
costs, expenses, and attorneys’ fees incurred in connection with the negotiation and
preparation of this Third Amendment, and all documents, instruments, and agreements
incidental hereto. The Agent is hereby authorized to make an Advance for the purpose
of effecting the foregoing reimbursement.

- 12 -

 

	 	     c.	 	Delivery by the Borrower to the Agent of the Borrower’s updated annual
projections, income statements, balance sheets, and statements of cash flow with
respect to the current fiscal year.

	2.	 	Conditions Subsequent.

	 	     a.	 	In consideration of the Agent’s and the Lenders’ agreement to enter into this
Third Amendment, the Borrower shall pay to the Agent for the ratable benefit of the
Lenders a commitment and amendment fee in the amount of $162,500.00. The commitment
and amendment fee shall be fully earned as of, and shall be paid by the Borrower upon
the earlier of (i) the occurrence of any Event of Default, or (ii) July 15, 2006.
	 
	 	     b.	 	On or before August 17, 2005, the Borrower shall deliver to the Agent the
Borrower’s updated month by month projections, income statements, balance sheets, and
statements of cash flow with respect to the current fiscal year.

Part 4. Miscellaneous:

	1.	 	Unless otherwise defined herein, capitalized terms used in this Third Amendment which
are defined in the Loan Agreement are used as so defined.
	 
	2.	 	This Third Amendment may be executed in counterparts, each of which when so executed
and delivered shall be an original, and all of which together shall constitute one agreement.
	 
	3.	 	This Third Amendment expresses the entire understanding of the parties with respect to
the transactions contemplated hereby. No prior negotiations or discussions shall limit,
modify, or otherwise affect the provisions hereof.
	 
	4.	 	Any determination that any provision of this Third Amendment or any application hereof
is invalid, illegal, or unenforceable in any respect and in any instance shall not affect the
validity, legality, or enforceability of such provision in any other instance, or the
validity, legality, or enforceability of any other provisions of this Third Amendment.
	 
	5.	 	In connection with the interpretation of this Third Amendment and all other documents,
instruments, and agreements incidental hereto:

	 	     a.	 	All rights and obligations hereunder and thereunder, including matters of
construction, validity, and performance, shall be governed by and construed in
accordance with the law of the State of New York and are intended to take effect as
sealed instruments.
	 
	 	     b.	 	The captions of this Third Amendment are for convenience purposes only, and
shall not be used in construing the intent of the Agent, the Lenders, and the Borrower
under this Third Amendment.

- 13 -

 

	 	c.	 	In the event of any inconsistency between the provisions of this Third
Amendment and any of the other Loan Documents or other agreements entered into by and
between the Agent, the Lenders, and the Borrower, the provisions of this Third
Amendment shall govern and control.
	 
	 	d.	 	The Agent, the Lenders, and the Borrower have prepared this Third Amendment and
all documents, instruments, and agreements incidental hereto with the aid and
assistance of their respective counsel. Accordingly, all of them shall be deemed to
have been drafted mutually by the Agent, the Lenders, and the Borrower and shall not be
construed against any party.

Signatures follow

- 14 -

 

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed and
delivered as of the date set forth above.

	 	 	 	 	 
	 	 	PARTY CITY CORPORATION,
a Delaware corporation
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 	 	WELLS FARGO RETAIL FINANCE, LLC,
a Delaware limited liability company, as Agent and as a Lender
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:
	 	Lynn S. Whitmore
	 

	 	Title:
	 	Vice President
	 
	 	 	 	 
	 	 	BANK OF AMERICA, N.A.,
formerly known as Fleet Retail Finance Inc., a Delaware
corporation, as a Lender
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

- 15 -

 

	 	 	 	 	 
	Acknowledged, agreed, and assented to by:	 	 
	 
	 	 	 	 
	PARTY CITY MICHIGAN, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	

	 	 
	Name:
	 	 	 	 
	Title:
	 	 	 	 

- 16 -

 

SCHEDULE 6.2

Collateral Reporting

     Borrower shall provide Agent and the Lenders with the following documents at the
following times in form satisfactory to Agent:

	(a)	 	Daily Cash Balance. Borrower shall provide to Agent and confirm in writing at the
close of each Business Day, an updated cash balance figure.
	 
	(b)	 	Borrowing Base Certificate. Absent an event of default and provided the Borrower is
maintaining at least $15,000,000 of Excess Availability, Borrower shall be required to provide
a signed Borrowing Base Certificate (in the form of
Exhibit B-1, as such form may be
revised from time to time by Agent) on a monthly basis, on the Wednesday of the week following
each fiscal month end. In the event that Excess Availability is less than $15,000,000,
Borrower shall provide a signed Borrowing Base Certificate on the Wednesday of each week. In
the event that Revolver Usage is $0, and the amount of the Letter of Credit Usage is less than
$8,000,000 and the Borrower’s Inventory level is at least $70,000,000, no Borrowing Base
Certificate shall be required. Such Certificate may be sent to Lenders electronically (with
an electronic signature) or by facsimile transmission, provided, that in each case,
upon request by Agent, the original thereof is forwarded to Agent on the date of such
transmission. No adjustments to the Borrowing Base Certificate may be made without supporting
documentation and such other documentation as may be reasonably requested by Agent from time
to time.
	 
	(c)	 	Weekly Reports. In the event that a weekly Borrowing Base Certificate is to be
provided, weekly, not later than Wednesday for the immediately preceding fiscal week:

	 	(i)	 	Inventory report with supporting documentation for the Borrowing Base
Certificate and a roll forward of Inventory.

	(d)	 	Monthly Reports. Monthly, Borrower shall provide to the Lenders original
counterparts of (each in such form as Agent from time to time may specify):

	 	(i)	 	Within 15 days of the end of each month for the immediately preceding month:

	 	(A)	 	Month end Inventory summary by
merchandise class with perpetual inventory report

	 	(ii)	 	Third party credit card receivable report with supporting documentation for the
Borrowing Base Certificate;
	 
	 	(iii)	 	CIT Credit Decision Report with supporting documentation for the Borrowing
Base Certificate.exv10wa

 

Exhibit 10.A

STOCK PURCHASE AGREEMENT

     This Stock Purchase Agreement (the “Agreement”) is made and entered into this
18th day of July, 2005, among the parties identified on Exhibit “A”
(collectively, the “Sellers” and individually a “Seller”), El Paso Production
Holding Company, a Delaware corporation (the “Purchaser”), and Medicine Bow Energy
Corporation, a Delaware corporation (the “Company”).

RECITALS

     A. WHEREAS, Sellers are the owners of 100% of the equity securities, warrants and any other
stock rights of the Company outstanding on the date set forth above prior to the Closing, including
Class A Common Stock (including, without limitation, all shares of Class A Common Stock issuable
upon conversion of the Series “A” Redeemable Convertible Preferred Stock), Series “A” Redeemable
Convertible Preferred Stock, Class A-12.5 Common Stock, Class A-25 Common Stock and the Class A
Common Stock Warrant (collectively, the “Shares”) in the amounts set forth next to each
Seller’s name on Exhibit “B”; and

     B. WHEREAS, Purchaser desires to purchase all (100%) of Sellers’ Shares and Sellers desire to
sell such Shares for the Aggregate Purchase Price in accordance with the terms and conditions of
this Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals, the agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:

     1. Agreement of Sale and Purchase of Shares. Subject to the terms and conditions
contained in this Agreement, Sellers shall sell to Purchaser and Purchaser shall purchase from
Sellers all of the Shares identified on Exhibit “B”.

     2. Purchase Price; Closing.

     a. Purchase Price. Subject to the terms and conditions contained in this
Agreement, on the Closing Date, the Purchaser shall pay to the Sellers, in the aggregate, an
amount equal to $814,200,000.00, subject to adjustment as provided in the next succeeding
sentence and Section 3 (the “Aggregate Purchase Price”), in consideration
for the Shares. The Aggregate Purchase Price shall be reduced on a dollar-for-dollar basis
by (1) the total amount (the “Bonus Plan Payout Amount”) payable in cash to
participants in the “bonus pool” portion of the Company’s 2004 Equity Incentive Plan (the
“Bonus Pool”) in connection with the consummation of the transactions contemplated
by this Agreement (which, for the avoidance of doubt, does not include any amounts payable
in respect of the Shares (including, without limitation, those issued pursuant to the
Company’s 2004 Equity Incentive Plan) pursuant to the immediately preceding sentence), which
amount will be (A) provided in writing by the Company to

 

 

the Purchaser not less than two business days prior to the Closing Date and (B) paid by
the Purchaser on the Closing Date pursuant to Section 11(b)(II) and (2) the Accrued
Tax Amount. The Aggregate Purchase Price (as adjusted pursuant to this Section 2(a)
and Section 3), less the Bonus Plan Payout Amount and the Accrued Tax Amount, is
herein referred to as the “Share Purchase Price.”

     b. Closing. The closing of this transaction shall be held at 9:00 a.m. on
Wednesday, August 31, 2005, or, if the conditions set forth in Section 10 have not
been satisfied by that date, two business days after the date on which the last of the
conditions set forth in Section 10 shall have been satisfied or waived, in the
offices of the Company at 1225 Seventeenth Street, Suite 1900, Denver, Colorado 80202, or at
such other time, place or method to be mutually agreed upon by the Parties (hereinafter, the
“Closing” or “Closing Date”).

     c. Withholding Rights. The Purchaser (in consummating the transactions
contemplated by this Agreement) and the Company (from and after the Closing Date) shall be
entitled to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any officer or employee of the Company (or any investment vehicle controlled by
such officer or employee or formed by such officer or employee for estate planning purposes)
such amounts as the Purchaser or the Company may be required to deduct and withhold with
respect to the making of such payment under any provision of federal, state, local or
foreign tax law. If the Purchaser or the Company so withholds amounts, such amounts shall
be remitted to the appropriate tax authority and treated for all purposes of this Agreement
as having been paid to the Person in respect of whom the Purchaser or the Company made such
deduction or withholding.

     3. Title Defects and Environmental Defects.

     a. Title Defects. As soon as reasonably practicable (and on an ongoing basis),
but no later than 5:00 p.m. MDT on Wednesday, August 24, 2005 (the “Objection
Deadline”), the Purchaser may notify the Sellers in writing of Title Defects affecting
assets of the Company, its Subsidiaries or Four Star. The Purchaser’s notice asserting
Title Defects shall include a reasonably detailed description and explanation (including any
available supporting documentation) of each Title Defect claimed, the assets affected, and
the value that the Purchaser in good faith attributes to the Title Defect, which shall not
exceed the Allocated Value of such property. The Purchaser and the Sellers shall meet
periodically to attempt to agree on resolution with respect to Title Defects. The Sellers
shall have the right, but not the obligation, to attempt, at their sole cost, to cure or
remove any Title Defects. The Sellers’ election to attempt to cure a Title Defect shall not
constitute a waiver of Sellers’ right to dispute the existence, nature or value of, or cost
to cure, the Title Defect. In the event that any Title Defect(s) as to which the Purchaser
has given the Sellers timely notice as provided in this Section 3(a) are not
remedied or cured prior to Closing, then, subject to the other provisions of this
Section 3, the Aggregate Purchase Price shall be reduced by the aggregate value of
all such uncured Title Defects, determined as follows: (1) where the Sellers agree in
writing with the value of the Title Defect as set forth in the Purchaser’s notice, that
value shall be the value of the Title Defect; (2) if the Title Defect is a lien, encumbrance
or other charge

Page 2 of 38

 

upon a property which is undisputed and liquidated in amount, then the value of the
Title Defect shall be the lesser of (A) the Allocated Value of such property or (B) the
amount necessary to be paid to the obligee to remove the Title Defect from the interest of
the Company, its Subsidiaries or, in the case of Four Star, the percentage equity interest
of MBOW Four Star Corporation in Four Star multipled by Four Star’s interest, as applicable,
in the affected property; (3) if the Allocated Value for a property is positive and the
Title Defect represents a discrepancy between the Net Revenue Interest for such property and
the Net Revenue Interest for that property stated on Exhibit “C”, then the value of
such Title Defect shall be the product of the Allocated Value for such property multiplied
by a fraction, the numerator of which is the decrease in Net Revenue Interest and the
denominator of which is the Net Revenue Interest stated on Exhibit “C” (it being
understood that if such reduction in Net Revenue Interest is not accompanied by a
proportionate decrease in the Working Interest then such descrepency shall constitute a
separate Title Defect); and (4) if the Title Defect represents an obligation, encumbrance,
burden or charge upon or other defect in title to the affected property of a type not
described in subsections (1), (2) or (3) above, the value of the Title Defect shall be
determined by taking into account the Allocated Value for the property so affected, the
portion of the property affected by the Title Defect, the legal effect of the Title Defect,
the potential economic effect of the Title Defect over the life of the affected property,
and such other factors as are appropriate to make a proper evaluation, in each case net to
the interest, as represented on Exhibit “C”, of the Company, its Subsidiaries or, in
the case of Four Star, the percentage equity interest of MBOW Four Star Corporation in Four
Star multipled by Four Star’s interest, as applicable, in the affected property.

     b. Environmental Defects. As soon as reasonably practicable (and on an ongoing
basis), but no later than the Objection Deadline, the Purchaser may notify the Sellers in
writing of any Environmental Defects. The Purchaser’s notice asserting Environmental
Defects must include a reasonably detailed description and explanation (including any
available supporting documentation) of each Environmental Defect claimed, the properties
affected, and the value (net to the interest of the Company, its Subsidiaries or, in the
case of Four Star, MBOW Four Star Corporation’s percentage equity interest in Four Star
multiplied by Four Star’s interest, as applicable, in the affected property) that the
Purchaser in good faith attributes to the Environmental Defect. The Purchaser and the
Sellers shall meet periodically to attempt to agree on resolution with respect to
Environmental Defects. The Sellers shall have the right, but not the obligation, to
attempt, at their sole cost, to cure or remove any alleged Environmental Defects. Sellers’
election to attempt to cure an Environmental Defect shall not constitute a waiver of
Sellers’ right to dispute the existence, nature, or value of, or cost to cure, the
Environmental Defect. In the event that any Environmental Defect(s) as to which the
Purchaser has given the Sellers timely notice as provided in this Section 3(b) are
not remedied or cured prior to Closing, then, subject to the other provisions of this
Section 3, the Aggregate Purchase Price shall be reduced by the aggregate value of
all such uncured Environmental Defects, taking into account the following (in each case, net
to the interest of the Company, its Subsidiaries or, in the case of Four Star, the
percentage equity interest of MBOW Four Star Corporation in Four Star multipled by Four
Star’s interest, as applicable in the affected property): (1) the legal effect of the
Environmental Defects, including, but not limited to, potential fines and penalties which
may be incurred until

Page 3 of 38

 

such time as the Environmental Defects are remedied; (2) the potential economic effect
of the Environmental Defects and the potential remedy over the life of the affected assets;
(3) the estimated costs and expenses to correct such Environmental Defects in the most cost
effective manner reasonably available, consistent with Environmental Laws, taking into
account that non-permanent remedies (such as mechanisms to contain or stabilize hazardous
materials including monitoring site conditions, natural attenuation, risk-based corrective
action, institutional controls or other appropriate restrictions on the use of property,
caps, dikes, encapsulation, leachate collection systems, etc.) may be the most cost
effective manner reasonably available; and (4) such other factors as are necessary to make a
proper evaluation.

     c. Title Benefits. Should Sellers discover any Title Benefit prior to Closing,
Sellers shall (as soon as practicable but in any case at least two business days prior to
the Closing Date) deliver to the Purchaser a notice that includes (1) a specific description
of the Title Benefit and the properties affected and (2) the Sellers’ good faith estimate of
the amount by which the value of the interest of the Company, its Subsidiaries or, in the
case of Four Star, the percentage equity interest of MBOW Four Star Corporation in Four Star
multipled by Four Star’s interest, as applicable, in the affected property has been
increased as a result of such Title Benefit. The value of all timely asserted Title
Benefits shall be offset against the value of the Title Defects and Environmental Defects,
but in no event shall the Aggregate Purchase Price be increased due to any Title Benefit.
The aggregate value (determined in accordance with Section 3(a) and Section
3(b)) of all timely asserted Title Defects and Environmental Defects (excluding De
Minimis Defects) that remain uncured at Closing, net of the value of all Title Benefits
timely asserted by the Sellers, is referred to herein as the “Net Defect Amount.”
If the value of all timely asserted Title Benefits exceeds the value of all timely asserted
Title Defects and Environmental Defects, then the Net Defect Amount shall be zero.

     d. Defect Threshold and Defect Deductible. Notwithstanding anything contained
in this Agreement to the contrary, the Purchaser shall not be entitled to an Aggregate
Purchase Price reduction for any individual Title Defect or Environmental Defect that has a
value (determined in accordance with Section 3(a) or Section 3(b)) of less
than $25,000 (a “De Minimis Defect”). In addition, notwithstanding anything
contained in this Agreement to the contrary, the Purchaser shall not be entitled to an
Aggregate Purchase Price reduction for Title Defects pursuant to Section 3(a) or for
Environmental Defects pursuant to Section 3(b) unless the Net Defect Amount exceeds
$20,000,000 (the “Defect Threshold”). If the Net Defect Amount exceeds the Defect
Threshold, then the Aggregate Purchase Price shall be reduced by the amount by which the Net
Defect Amount exceeds $10,000,000 (the “Defect Deductible”).

     e. Chevron Corp. Indemnification. Notwithstanding any other provision hereof,
the Aggregate Purchase Price shall not be reduced for Title Defects or Environmental Defects
with respect to the assets of Four Star to the extent that the Company or its Subsidiaries
are entitled to valid and enforceable indemnification from Chevron Corp. or its controlled
affiliates for such Title Defect(s) or Environmental Defect(s), as the case may be, under
the agreements pursuant to which such assets were sold or contributed to Four Star or its
predecessors (collectively, the “Chevron 

Page 4 of 38

 

Indemnified Defects”), nor shall the value of the Chevron Indemnified Defects
be included in the Net Defect Amount or considered in determining whether the Defect
Threshold has been met.

     f. Disagreements as to Defect Amount. If the Sellers and the Purchaser are
unable to mutually agree upon the Net Defect Amount at least two business days prior to the
Closing Date, and if the Purchaser’s good faith estimate of the Net Defect Amount exceeds
the Defect Threshold, then at the Closing (1) the portion of the Aggregate Purchase Price
payable at Closing shall be reduced by the Purchaser’s good faith estimate of the Net Defect
Amount minus the Defect Deductible and (2) the Purchaser shall deliver to an escrow agent
mutually acceptable to the Parties the excess of the Purchaser’s good faith estimates, over
the Sellers’ good faith estimates, of the total reduction to the Aggregate Purchase Price
attributable to Title Defects, Title Benefits, Environmental Defects and the Net Defect
Amount. The disputed Title Defects, Title Benefits, Environmental Defects and Net Defect
Amount shall be resolved post-Closing by arbitration conducted pursuant to Section
15(f). All amounts escrowed pursuant to this Section 3(f) shall be distributed
by the escrow agent to the Sellers and/or the Purchaser, and the Aggregate Purchase Price
shall be adjusted, in accordance with the arbitration decision reached in accordance with
Section 15(f).

     g. Post-Closing Curative. Provided that the Net Defect Amount exceeds the
Defect Threshold, the Sellers shall have 90 days following the Closing Date to attempt to
cure any Title Defect or Environmental Defect. Any disputes as to whether a Title Defect or
Environmental Defect has been cured shall be submitted to arbitration conducted pursuant to
Section 15(f). With respect to any Title Defect or Environmental Defect that the
Sellers are able to cure, in whole or in part, within such 90-day period following the
Closing Date, the reduction in the Aggregate Purchase Price made at Closing with respect to
such Title Defect or Environmental Defect shall be adjusted to reflect such curative, and
the Sellers shall be entitled to periodic distributions from the escrow agent of amounts
related to such cured Title Defects or Environmental Defects. In the event that the total
amount owed to the Sellers as a result of post-closing curatives pursuant to this
Section 3(g) exceeds the total amount deposited with the escrow agent pursuant to
Section 3(f), then the Purchaser shall pay the Sellers the amount of such excess,
and the Purchaser shall cause the release of any amounts held in escrow to the Sellers,
within five business days after the end of the 90-day post-closing cure period (or, if
defect disputes are submitted to arbitration pursuant to Section 15(f), within five
business days after the final decision of the arbitrators). If, at the end of the 90-day
post-closing cure period, the aggregate value of all remaining Title Defects and
Environmental Defects no longer exceeds the Defect Deductible, then the reduction of the
Aggregate Purchase Price for Title Defects and Environmental Defects made at Closing will be
reversed, and (after giving full effect to any distributions previously made to the Sellers
from the escrow account established pursuant to Section 3(f)) the Purchaser shall
pay the full amount of the reduction in the Aggregate Purchase Price remaining in respect of
such Title Defects and Environmental Defects to the Sellers.

     h. Waiver of Title and Environmental Defects Not Asserted. Subject to the
exception set forth in Section 13(c), the Purchaser waives for all purposes all
objections

Page 5 of 38

 

and rights to any adjustment under this Section 3 relating to any Title Defects
or Environmental Defects unless raised by proper notice delivered on or before the Objection
Deadline.

     4. Seller’s Representations And Warranties. Each Seller hereby severally and not
jointly represents and warrants to Purchaser, with respect to itself/himself/herself, as follows:

     a. Organization and Standing. To the extent Seller is a corporation,
partnership, limited liability company or other business entity formed under the laws of any
state, Seller is duly organized, validly existing and in good standing under the laws of the
state of its organization and in such other jurisdictions necessary for the consummation of
this Agreement.

     b. Power. Seller has all requisite power and authority to carry on its
business as presently conducted and to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement does not, and the fulfillment of
and compliance with the terms and conditions hereof will not, violate, or be in conflict
with, any provision of its governing documents, to the extent applicable, or any provision
of any agreement or instrument to which it is a party or by which it is bound, or to any
judgment, decree, order, statute, rule or regulation applicable to it. No authorizations,
consents or approvals of, or notices to or filings with, any third party or governmental
authority are necessary for the consummation by Seller of the transactions contemplated
hereby, except for such authorizations, consents or approvals as shall have been obtained or
such notices or filings as shall have been accepted before the Closing Date.

     c. Authorization and Enforceability. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite actions of the Seller. This Agreement constitutes the legal,
valid and binding obligation of the Seller and is enforceable in accordance with its terms,
subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and
other laws for the protection of creditors generally, as well as to general principles of
equity, regardless of whether such enforceability is considered in a proceeding in equity or
at law.

     d. Title to Shares. Seller owns the Shares shown next to its/his/her name on
Exhibit “B” and, at Closing, will convey to Purchaser good and indefeasible title to
its/his/her Shares free and clear of any and all liens, mortgages, claims, encumbrances,
pledges or security interests and all other defects of title or other matters whatsoever
(other than those arising under federal and state securities laws).

     e. Liability for Brokers’ Fees. Seller has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which the Purchaser or the Company shall have any
responsibility.

Page 6 of 38

 

     5. Seller’s Representations and Warranties Concerning the Company. Each Seller hereby
severally and not jointly represents and warrants to the Purchaser that the statements contained in
this Section 5 are true and correct as of the date of this Agreement.

     a. Organization and Standing. The Company and its Subsidiaries are
corporations formed under the laws of the state of Delaware and each such corporation is (1)
duly organized, validly existing and in good standing under the laws of the state of
Delaware and (2) duly qualified to do business as a foreign corporation and in good standing
in each jurisdiction where the character of the properties owned or leased by it or the
nature of its activities make such qualification necessary.

     b. Power. The Company and its Subsidiaries have all requisite power and
authority to carry on their businesses as presently conducted and to enter into and perform
their obligations under this Agreement. Except as set forth on Schedule 5(b), the
execution and delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement will not: (1) violate or conflict with any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling or other restriction
of any governmental authority or court to which the Company or its Subsidiaries are subject
or any provision of the certificates of incorporation or bylaws of the Company or its
Subsidiaries or any agreement among the stockholders of any such corporation; or (2)
violate, conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify, cancel or
receive any payment under, require any notice of consent under, or result in the imposition
of any lien, claim or encumbrance upon any of the assets of the Company or its Subsidiaries
under, any agreement, contract, lease, license, instrument or other arrangement to which the
Company or its Subsidiaries are a party, by which the Company or its Subsidiaries are bound
or to which the assets of the Company or its Subsidiaries are subject. Except as set forth
on Schedule 5(b), none of the Company or its Subsidiaries is required to give any
notice to, make any filing with, or obtain any authorization, consent or approval of, any
third party or any governmental authority in order to execute and deliver this Agreement or
consummate the transactions contemplated hereby.

     c. Capitalization. The Company’s authorized capital stock consists of 750,000
shares of which (1) 439,165 shares are authorized as Class A Common Stock, par value $1.00
per share (“Class A Common Stock”), (2) 24,903 shares are authorized as Class A-12.5
Common Stock, par value $0.001 per share (“Class A-12.5 Common Stock”), (3) 35,932
shares are authorized as Class A-25 Common Stock, par value $0.001 per share (“Class
A-25 Common Stock”) and (4) 250,000 shares are authorized as Preferred Stock, par value
$1.00 per share, of which 65,000 shares have been designated Redeemable Convertible
Preferred Stock, Series A (“Series A Preferred Stock”). As of the date hereof,
there are 249,359 shares of Class A Common Stock issued and outstanding, 21,168 shares of
Class A-12.5 Common Stock issued and outstanding, 30,542 shares of Class A-25 Common Stock
issued and outstanding and 30,012 shares of Series A Preferred Stock issued and outstanding.
In addition, 3,735 shares of authorized but unissued Class A-12.5 Common Stock and 5,390
shares of authorized but unissued Class A-25 Common Stock provide the basis for the value of
the

Page 7 of 38

 

Bonus Plan Payout Amount. The holder of the Series A Preferred Stock holds a warrant
(the “Warrant”) that entitles such holder to purchase 10,000 shares of Class A
Common Stock at the Exercise Price (as defined in the Warrant) in the event that the Company
optionally redeems (as described in Section 5(b) of the Second Amended and Restated
Certificate of Designations of the Company) the Series A Preferred Stock. All outstanding
shares have been validly issued, are fully paid and non-assessable, were not issued in
violation of the terms of any contract binding upon the Company and were issued in
compliance with all governing documents of the Company. Except as set forth on Schedule
5(c), there are no outstanding subscriptions, options, warrants, conversion rights,
convertible securities, preemptive rights, preferential rights (contractual or otherwise) or
agreements of any kind for the purchase or sale of equity securities of the Company or any
of its Subsidiaries. At Closing, the Purchaser will acquire 100% of the issued and
outstanding shares of capital stock or other equity securities of the Company.

     d. Subsidiaries. The Company owns 100% of all of the outstanding capital stock
of Medicine Bow Operating Company, a Delaware corporation, and MBOW Four Star Corporation, a
Delaware corporation.

     e. MBOW Four Star Corporation. The only assets of the Company’s subsidiary,
MBOW Four Star Corporation, are (1) not less than 453 Class A common shares, 215 Class B
common shares and 25 Class C common shares, of which 100 common shares identified herein as
Class A common shares are subject to redesignation as between Class A common shares and
Class B common shares, (collectively, the “Four Star Shares”) of Four Star Oil & Gas
Company, a Delaware corporation (“Four Star”), and (2) those agreements set forth on
Schedule 5(e). The Four Star Shares represent not less than 38.63% of the total
outstanding equity securities of Four Star. No shares of preferred stock or Class B
preferred stock of Four Star are outstanding. MBOW Four Star Corporation has good and
indefeasible title to, and legal and beneficial ownership of, the Four Star Shares, free and
clear of any and all liens, mortgages, claims, encumbrances, other pledges or security
interests and all other defects of title or other matters whatsoever other than (1) any
obligations that arise under the Four Star Stockholders Agreement or the Credit Facility and
(2) those arising under federal and state securities laws. Except as set forth on
Schedule 5(e), there are no outstanding subscriptions, options, warrants, conversion
rights, convertible securities, preemptive rights, preferential rights (contractual or
otherwise) or agreements of any kind for the purchase or sale of equity securities of MBOW
Four Star Corporation. At Closing, the Purchaser will own 100% of the issued and
outstanding equity securities of MBOW Four Star Corporation.

     f. Financial Statements. Attached hereto as Schedule 5(f) are the
following financial statements (collectively, the “Financial Statements”): (1)
audited consolidated balance sheets of the Company and its Subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of operations, shareholders’ equity,
and cash flows of the Company and its Subsidiaries for the year ended December 31, 2004; and
(2) an unaudited consolidated balance sheet of the Company as of June 30, 2005, and related
consolidated statements of operations and cash flows for the six months then ended (the
“Most Recent Period End”). The Financial Statements at and for the six-month period

Page 8 of 38

 

ended June 30, 2005, are herein referred to as the “Most Recent Financial
Statements.” The Financial Statements (including the notes thereto) have been prepared
in accordance with GAAP in all material respects applied on a consistent basis throughout
the periods covered thereby and present fairly, in all material respects, the consolidated
financial position of the Company and its Subsidiaries as of such dates and the results of
operations for such periods, and are consistent with the books and records of the operations
for such periods, and are consistent with the books and records of the Company;
provided, however, that the Most Recent Financial Statements are subject to
normal year-end adjustments and lack footnotes and other presentation items.

     g. Events Subsequent to Most Recent Period End. Since the date of the Most
Recent Financial Statements, excluding distributions made to the holders of the Class A
Preferred Stock in the ordinary course, there have not been any (1) distributions by the
Company to the holders of its equity securities or (2) changes in the assets, condition,
affairs (financial or otherwise) or business prospects of the Company and its Subsidiaries,
taken as a whole, which have had or would be reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.

     h. Legal Compliance. Except as set forth on Schedule 5(h), the Company
and each of the Subsidiaries (1) are in substantial compliance with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) and (2) have or have timely applied for all permits,
licenses, certificates of authority, orders and approvals of, and have made all filings and
applications with, federal, state, and local regulatory bodies required to carry on their
current operations in the ordinary course of business.

     i. Tax Matters.

     I. Except as set forth on Schedule 5(i), the Company, each of its
Subsidiaries and each affiliated, consolidated, combined or unitary group of which
the Company or any of its Subsidiaries is or has been a member (an “Affiliated
Group”), has filed timely with the appropriate taxing authorities all Tax
Returns required to be filed by the Company, its Subsidiaries or any Affiliated
Group. Each such Tax Return is true, correct and complete in all material respects.
All Taxes of the Company and its Subsidiaries that are due and payable have been
timely paid in full. The unpaid Taxes of the Company and its Subsidiaries did not,
as of the Most Recent Period End, exceed the reserve for Tax liability (excluding
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth or included in the Most Recent Financial Statements,
and do not exceed the reserve as adjusted for passage of time through the Closing
Date in accordance with the past custom of the Company and its Subsidiaries in
filing their Tax Returns.

     II. There is no action, suit, proceeding, investigation, audit, claim or
assessment pending or threatened with respect to the Company or its Subsidiaries
with respect to a liability for Taxes or with respect to any Tax Return. No
deficiency for any Tax has been assessed with respect to the Company or its

Page 9 of 38

 

Subsidiaries which has not been paid in full. There are no liens for Taxes
upon the assets or properties of the Company or its Subsidiaries other than liens
for Taxes not yet due and payable and for which adequate reserves have been
established in the Financial Statements.

     III. Each of the Company and its Subsidiaries has withheld and timely paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, member or other third
party.

     IV. There are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax Returns
of the Company or its Subsidiaries.

     V. None of the Company or its Subsidiaries is a party to, is bound by, or has
any obligation under, any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement, and none of the Company or its Subsidiaries has any
potential liabilities or obligations to any Person as a result of, or pursuant to,
any such agreement, contract or arrangement. None of the Company or its
Subsidiaries has any liability for Taxes of another Person by contract or otherwise.

     j. Material Agreements. Schedule 5(j) lists all (1) governing
documents of the Company and its Subsidiaries (including, without limitation, certificates
of incorporation, certificates of designation, bylaws, stockholder agreements, investor
rights agreements and other similar instruments), (2) contracts with Persons who will be
affiliates of the Company immediately prior to Closing that will be binding on the Company
or its Subsidiaries (or the assets of the Company or its Subsidiaries) after Closing, (3)
agreements for the sale or purchase of hydrocarbons produced from or attributable to the
assets of the Company or its Subsidiaries, except for agreements that expire by their terms
or may be terminated without penalty within 30 days after the Closing Date, (4) instruments
that create any area of mutual interest, except for areas of mutual interest created under
joint operating agreements, (5) instruments that create or evidence an asset purchase or
sale agreement that has not been consummated as of the date hereof, (6) contracts to which
the Company or any Subsidiary is a party, the performance of which will involve
consideration in excess of $100,000.00 per year or (7) any other agreement not described in
(1) through (6) above the existence or loss of which has had or would be reasonably likely
to have a Material Adverse Effect (collectively, the “Material Agreements”). The
Company has made available to the Purchaser a copy of each Material Agreement and all minute
books of the Company and its Subsidiaries, the copies of which are true, accurate and
complete in all material respects. With respect to each Material Agreement, the Company is
not in breach or default of the terms and conditions of such agreement.

     k. Litigation. Schedule 5(k) sets forth each instance in which the
Company or any Subsidiary (1) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge, or (2) is a party to any action, suit, proceeding, hearing, or
investigation

Page 10 of 38

 

of, in, or before any court or quasi judicial or administrative agency of any
jurisdiction, or (3) has been threatened to be sued or made a party to any such proceeding.

     l. Liability for Brokers’ Fees. Except as set forth on Schedule 5(l),
neither the Company nor its Subsidiaries have incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this
Agreement for which the Purchaser or the Company shall have any responsibility.

     m. Insurance. Schedule 5(m) describes all contracts of insurance
maintained by the Company, which are in full force and effect, and all premiums due and
owing in connection with such policies have been paid. The Company has given notice or has
otherwise presented every material claim known to the Company to be covered by insurance
under its insurance policies or contracts in a timely fashion.

     n. Labor Matters and Employee Benefit Plans. Except as shown on Schedule
5(n) hereto:

     I. Schedule 5(n)(I) lists all Benefit Plans. With respect to each such
Benefit Plan, Seller has made available to Purchaser true and accurate copies of (1)
the most recent plan documents and any amendments thereto, (2) the most recent
summary plan description and all related summaries of material modification and (3)
for any Benefit Plan intended to be qualified under Section 401(a) of the Code, (A)
a copy of the most recent annual report (Form 5500 Series) filed with the IRS and
(B) the most recent favorable determination letter received from the IRS. All
Benefit Plans and their related trusts have been and are maintained in accordance
with each such plan’s terms and in operation in compliance with the requirements of
all applicable federal and state statutes and regulations. Each Benefit Plan
intended to be qualified under Section 401 of the Code has received a favorable
determination or opinion letter(s) from the IRS as to its qualified status, and no
fact or event has occurred since the date of such letter(s) that could reasonably be
expected to adversely affect the qualified status of any such Benefit Plan. Each of
the Benefit Plans can be terminated in accordance with its terms and without
liability to the Company or any of its Subsidiaries other than for ordinary
administration expenses, benefits accrued or, with respect to welfare benefit plans,
claims incurred thereunder through the date of such termination, and the
transactions contemplated by this Agreement will not result in the imposition of any
restrictions, limitations or penalty on the right to amend or terminate any Benefit
Plan.

     II. Neither the Company nor any ERISA Affiliate has ever established,
maintained, contributed to or had any liability or obligation to contribute to (1)
any pension plan that is subject to section 412 of the Code or Title IV of ERISA,
(2) any multiemployer plan within the meaning of Section 3(37) of ERISA or (3) any
Benefit Plan providing medical, health, or other welfare-type benefits for retired
or terminated Company Employees other than in accordance with COBRA or any similar
state or local laws.

Page 11 of 38

 

     III. The Company is not a party to, nor has it ever been a party to, any
collective bargaining agreement.

     IV. Except pursuant to the Company’s 2004 Equity Incentive Plan as described in
Section 7(b), the execution and delivery of, and the performance of the
transactions contemplated by, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Benefit Plan, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect to
any current or former employee of the Company or its Subsidiaries.

     V. The Company has made no agreement with any Person, including, but not
limited to, the holders of the Class A-12.5 Common Stock and the Class A-25 Common
Stock and participants in the Bonus Pool regarding the tax treatment of the Class
A-12.5 Common Stock, the Class A-25 Common Stock or amounts received in respect of
the Bonus Plan Payout Amount, nor does the Company have any obligation to “gross-up”
any Person, including, but not limited to, the holders of the Class A-12.5 Common
Stock and the Class A-25 Common Stock and participants in the Bonus Pool for any
income or excise tax or penalty that may be imposed on such Person.

     o. Credit Facility. Since the date of the Most Recent Financial Statements,
the Company has not made any borrowings under its Credit Facility except for borrowings (1)
in the ordinary course of business or (2) for items described on Schedule 5(o).

     p. Hedging Transactions. Schedule 5(p) sets forth all obligations
(including, without limitation, any obligations relating to the posting of collateral and
the actual amounts posted as collateral, whether in the form of cash, letters of credit or
otherwise, in respect of such obligations) of the Company and its Subsidiaries
(collectively, “Hedge Obligations”) in respect of any futures, hedges, swaps,
collars, puts, calls, floors, caps, options, forward sales, forward purchases or other
contracts or derivative securities that are intended to benefit from, relate to or reduce or
eliminate the risk of fluctuations in the price of commodities (including, without
limitation, hydrocarbons), interest rates, currencies or securities (collectively,
“Hedge Transactions”). The Company and its Subsidiaries are not in breach or
violation of any Hedge Obligation. The Company and its Subsidiaries have not entered into
any Hedge Transaction for the purposes of speculation.

     q. Gas Imbalances. Except as set forth on Schedule 5(q), (1) there are
no aggregate production, pipeline transportation or processing imbalances or penalties
existing with respect to the Company, its Subsidiaries or their oil and gas properties and
interests (collectively, “Operating Interests”) and (2) neither the Company nor its
Subsidiaries have received a deficiency payment under any gas contracts for which any party
has a right to take deficiency gas from the Company or its Subsidiaries, nor have

Page 12 of 38

 

the Company or its Subsidiaries received any payments for production which are subject
to refund or recoupment out of future production.

     r. Prepaid Gas Obligations. Except as set forth on Schedule 5(r),
neither the Company nor its Subsidiaries are subject to any “take or pay” arrangement,
production payment arrangement, gas balancing agreement (other than under joint operating
agreements) or otherwise required to deliver or to suffer the delivery of hydrocarbons
produced in connection with any of the Operating Interests at some future time (or make a
cash payment in lieu thereof) without then or thereafter receiving full payment therefor and
without deduction or credit on account of such arrangement from the price that would
otherwise be received.

     s. Preferential Rights; Restrictions on Transfer. Except as set forth on
Schedule 5(s), there are no preferential rights to purchase or other similar rights
or restrictions on assignment, including requirements for consents from third parties to
assignment, affecting the Operating Interests or Wells that would be applicable to, or
required for the consummation of, the transactions contemplated by this Agreement, and the
transactions contemplated by this Agreement will not create in any individual or entity any
option to purchase, preferential right to purchase or similar rights with respect to the
Operating Interests.

     t. Calls on Production. Except as set forth on Schedule 5(t), there
are no calls on production (whether or not exercised) or other similar marketing
restrictions affecting the Operating Interests, nor will the transactions contemplated by
this Agreement create any such calls on production.

     u. No Undisclosed Liabilities. Except for liabilities incurred or paid (1)
after the date of the Most Recent Financial Statements but before the date of this Agreement
and (2) after the date of this Agreement that do not violate Section 8, there are no
liabilities, debts or obligations of the Company or its Subsidiaries of any kind, whether
accrued, absolute, contingent, inchoate or otherwise (and there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against the Company or its Subsidiaries giving rise to any such debt, liability or
obligation) including any taxes which are due and payable as of the date hereof or any
governmental charges or penalties, interest or fines, except for liabilities (A) reflected
on or reserved against in the Financial Statements or otherwise disclosed in the notes
thereto or (B) set forth on Schedule 5(u).

     v. No Known Material Adverse Effects with Regard to Four Star. To the
knowledge of the Sellers, since the date of the Most Recent Financial Statements, there has
not been, with respect to the oil and gas properties and operations of Four Star, any fact,
circumstances or events which, individually or in the aggregate, would constitute a Material
Adverse Change nor will the transactions contemplated by this Agreement violate any
governing documents of Four Star of which the Sellers are actually aware (including, without
limitation, its certificate of incorporation, the certificates of designations for its
preferred shares, its bylaws or its stockholders agreement) or any

Page 13 of 38

 

agreements relating to Four Star (1) as to which MBOW Four Star Corporation is a party
and (2) of which the Sellers are actually aware.

     6. Purchaser’s Representations. Purchaser represents and warrants to Sellers and
Company as of the date hereof and at Closing as follows:

     a. Organization and Standing. Purchaser is a corporation, formed under the
laws of the state of Delaware, and is duly organized, validly existing and in good standing
under the laws of Delaware and in such other jurisdictions necessary for the consummation of
this Agreement.

     b. Power. Purchaser has all requisite power and authority to carry on its
business as presently conducted and to enter into this Agreement. The execution and
delivery of this Agreement does not, and the fulfillment of and compliance with the terms
and conditions hereof will not, as of Closing, violate, or be in conflict with, any material
provision of its governing documents, when applicable, or any material provision of any
agreement or instrument to which it is a party or by which it is bound, or to any judgment,
decree, order, statute, rule or regulation applicable to it. Except for the actions
described in Section 7(c), the Purchaser is not required to give any notice to, make
any filing with, or obtain any authorization, consent or approval of, any third party or any
governmental authority in order to execute and deliver this Agreement or consummate the
transactions contemplated hereby.

     c. Authorization and Enforceability. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite action of the Purchaser and its parent, if any. This Agreement
constitutes the legal, valid and binding obligation of the Purchaser, and is enforceable in
accordance with its terms, subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws for the protection of creditors generally, as well
as to general principles of equity, regardless whether such enforceability is considered in
a proceeding in equity or at law.

     d. Acquisition Not for Distribution Purposes. Purchaser is acquiring the
Shares for investment purposes and not with a view to distribution.

     e. Restriction on Transfers. Purchaser acknowledges that the Shares are not
registered under the Securities Act of 1933, as amended. Purchaser will not sell, transfer
or otherwise dispose of the Shares in violation of the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, or the rules promulgated thereunder,
including Rule 144 under the Securities Act of 1933, as amended.

     f. Funding. The Purchaser has available and will have available at Closing
adequate funds or the means to obtain adequate funds in an aggregate amount sufficient to
pay (1) all amounts required to be paid by the Purchaser under this Agreement and (2) all
expenses which have been or will be incurred by the Purchaser in connection with this
Agreement and the consummation of the transactions contemplated hereby.

Page 14 of 38

 

     g. Liability for Brokers’ Fees. Purchaser has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the transaction
contemplated by this Agreement for which any Seller shall have any responsibility.

     7. Covenants.

     a. Independent Evaluation; Access. Purchaser is experienced and knowledgeable
in the oil and gas business. Purchaser is aware of risks associated with the oil and gas
business and, specifically, the Company’s and Four Star’s business, operations and assets
and has formed its own judgment as to the value of the Shares. Purchaser is relying upon
its own judgment and decision in entering into and consummating the transaction. Between
the execution date and the Closing Date, the Company shall use commercially reasonable
efforts, upon the request of the Purchaser, to assist Purchaser in the examination of the
files, records, weekly accounts payable check runs, minute books, information and data
regarding the business of the Company and its Subsidiaries and the records, information and
data in the Company’s possession regarding Four Star (collectively, the “Records”),
in addition to information that is available to the public. Except as provided in
Section 5(j), Purchaser acknowledges and agrees that neither the Company nor its
Subsidiaries, directors, officers or employees nor Sellers have made any representations or
warranties, express or implied, written or oral, as to the accuracy of the Records. Except
for the representations and warranties of Sellers contained in this Agreement, Sellers have
not made any representation or warranty to Purchaser including any estimate with respect to
the value of the assets of the Company, its Subsidiaries or Four Star or reserves or any
projections as to events that could or could not occur. In entering into this Agreement,
Purchaser acknowledges and affirms that it has relied and will rely solely on the terms,
representations and warranties of this Agreement and upon its independent analysis,
evaluation and investigation of, and judgment with respect to, the business, economic,
legal, tax or other consequences of this transaction including its own estimate and
appraisal of the extent and value of the petroleum, natural gas and other reserves
attributable to the assets of the Company, its Subsidiaries and Four Star. Purchaser’s
representatives will be given full access and the opportunity to conduct a Phase I
Environmental Inspection and equipment inventory and to visit with personnel and physically
examine the assets and operations of the Company and its Subsidiaries. Purchaser may not
conduct testing or sampling of soil, ground water, surface water or other media or materials
during such inspection without the prior written consent of the Majority of Sellers, such
consent not to be unreasonably withheld or delayed. No Seller shall have any liability to
Purchaser or its affiliates, agents, representatives or employees resulting from any use,
authorized or unauthorized, of the Records or other information relating to the Company, its
Subsidiaries or Four Star. Nothing contained in this Section 7(a) shall serve to
mitigate or modify the operation of Section 3 or the scope or effect of the
representations and warranties set forth in Section 4 or Section 5 in any
respect.

     b. Treatment of Equity Incentive Plan. The Sellers and the Company agree that
the Company’s 2004 Equity Incentive Plan provides for cash bonus payments to participants in
the Bonus Pool in an aggregate amount equal to the value of the Authorized But Unissued
Class A-12.5 Common Stock and Authorized But Unissued

Page 15 of 38

 

Class A-25 Common Stock, as such terms are defined and determined pursuant to the
Company’s 2004 Equity Incentive Plan. Prior to the Closing, the Company shall determine the
value of the Bonus Plan Payout Amount and the allocation of the Bonus Plan Payout Amount to
the individual participants in the Bonus Pool accordance with the terms and conditions of
the Company’s 2004 Equity Incentive Plan, and the Company shall provide such allocation to
the Purchaser at least two business days prior to Closing. Sellers shall use commercially
reasonable efforts to cause (1) the Company’s 2004 Equity Incentive Plan to be cancelled
simultaneous with the Closing, and (2) the holders of Class A-12.5 Common Stock and Class
A-25 Common Stock and the participants in the Bonus Pool to have no further rights under the
Company’s 2004 Equity Incentive Plan other than the right to receive the consideration
provided for by this Agreement on the Closing Date. To the extent that any payment to a
participant in the Company’s 2004 Equity Incentive Plan could reasonably be expected to be
an “excess parachute payment” to a “disqualified individual” as such terms are defined in
Section 280G of the Code, the Sellers agree to use their reasonable best efforts to obtain,
prior to the Closing, the agreement of the individuals otherwise entitled to receive such
payment that (1) neither the Purchaser nor the Company will have any obligation to make such
payment and (2) such payment will not be made, in each case absent stockholder approval upon
full disclosure pursuant to the requirements of Section 280G(b)(5) and the regulations
issued pursuant thereto.

     c. HSR Clearance. Upon execution of this Agreement, and to the extent
applicable, both Parties (and, to the extent appropriate, El Paso Corporation) as promptly
as possible shall file with the Federal Trade Commission and/or the Department of Justice,
as applicable, the required notification and report forms due under the Hart-Scott-Rodino
Antitrust Improvement Acts of 1976 (“HSR Act”) and shall as promptly as practicable
furnish any supplemental information that may be requested in connection therewith. Each
Party (and, to the extent appropriate, El Paso Corporation) shall take all reasonable steps
to achieve early termination of applicable HSR Act waiting periods. To the extent required,
the Company shall use its commercially reasonable efforts to cause Four Star to provide all
information and make all filings required to be provided or made by Four Star to secure the
requisite approvals under the HSR Act. The cost of all filings by the Parties pursuant to
the HSR Act shall be borne 50% by the Company and 50% by the Purchaser.

     d. Termination of Subscription Agreement and Cancellation of Warrant. On the
Closing Date, the Company and each Seller that is a party to the Subscription Agreement
shall enter into an agreement to terminate the Subscription Agreement, and the holder of the
Warrant shall deliver the unexercised Warrant, stamped “CANCELLED,” to the Purchaser at the
Closing.

     e. Series A Preferred Stock and Warrant. In compliance with the certificate of
designations governing the Series A Preferred Stock, the Company shall not optionally redeem
any shares of Series A Preferred Stock. In compliance with the terms of the Warrant, the
holder of the Warrant shall not exercise any portion thereof.

Page 16 of 38

 

     f. Assignment of Certain Leases. The Company and Medicine Bow Operating
Company are the beneficial owners of certain oil and gas leases which have been acquired on
their behalf by brokers or agents. Each of the Company and Medicine Bow Operating Company
shall use commercially reasonable efforts to cause its brokers and agents to deliver
recordable assignments of such oil and gas leases to the Company or Medicine Bow Operating
Company, as the case may be, prior to Closing.

     g. Notifications by Purchaser of Breach. To the extent that the Purchaser
actually becomes aware, prior to Closing, of breaches of the representations set forth in
Section 4 and Section 5 that would, in the Purchaser’s reasonable judgment,
collectively constitute a Material Adverse Change, then the Purchaser shall promptly notify
the Sellers of such discovery.

     8. Operation of Business. From the date hereof until the Closing Date, the Company
will not, without the written consent of Purchaser (which consent shall not be unreasonably
withheld, conditioned or delayed), except as expressly contemplated by this Agreement, engage in
any practice, take any action, or enter into any transaction outside the ordinary course of
business. Without limiting the generality of the foregoing, from the date hereof until the Closing
Date, the Company will not, without the written consent of Purchaser (which consent shall not be
unreasonably withheld, conditioned or delayed), do any of the following:

     a. amend or otherwise change its charter or bylaws or equivalent governing documents;

     b. make or commit to make any capital expenditure or group of related capital
expenditures in excess of $100,000.00 individually or $500,000.00 in the aggregate that is
not provided for in the Company’s June 30, 2005 Reserve Report provided to the Purchaser;

     c. issue, sell, pledge, dispose of, grant, encumber or authorize the issuance, sale,
pledge, disposition, grant or encumbrance of (1) any shares of capital stock of any class of
the Company or any Subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company or any
Subsidiary, or (2) any assets and properties material to the Company, except for (A) sales
of oil, gas, or natural gas liquids in the ordinary course of business, or (B) pledges of
assets and properties required by any financing documents to which the Company is a party on
the date hereof;

     d. acquire or dispose of (including, without limitation, by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business organization
or any division thereof or any material amount of assets, except for acquisitions of assets
having an aggregate fair market value of less than $500,000.00 in the ordinary course of
business;

     e. incur any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,

Page 17 of 38

 

the obligations of any individual or entity, or make any loans or advances, except
borrowings under the Credit Facility consistent with Exhibit “D”;

     f. increase the compensation payable or to become payable to, or grant any severance or
termination pay to, its officers, employees, directors or consultants, except pursuant to
existing contractual arrangements, or existing compensation plans, or enter into any
employment, consulting or severance agreement with, any director, officer or other employee
or consultant of the Company, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, compensation, stock option, restricted stock (except
pursuant to the Company’s 2004 Equity Incentive Plan as described in Section 7(b)),
pension, retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any director,
officer, employee or consultant except, in each case, for actions resulting from the normal
application of the Company’s policies, consistent with past practice;

     g. except for distributions made to holders of shares of Series A Preferred Stock in
the ordinary course, declare, set aside or pay any dividend or make any other distribution
to shareholders;

     h. amend in any material respect any Material Agreement or terminate any Material
Agreement prior to the expiration of the term thereof;

     i. commence or file any action, suit, or proceeding before any court or governmental
agency or authority, or enter into any consent or settlement with respect to any action,
claim, proceeding, litigation or investigation, in each case other than in the ordinary
course of business;

     j. pay, discharge or satisfy any material claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) other than (1) the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against on the
Financial Statements, (2) payments under the Credit Facility or (3) payments of current
liabilities (A) in the ordinary course of business and (B) consistent with the Current
General and Administrative Budget of the Company set forth in Exhibit “D”, in each
case which do not bestow any personal benefits to the directors, officers, employees,
stockholders or affiliates of the Company or its Subsidiaries that are materially
inconsistent with past benefits bestowed on such individuals or entities;

     k. make or change any tax election or change any method of accounting or accounting
practice;

     l. introduce any methods of management or operation with respect to any or all of the
Operating Interests that are materially inconsistent with past practices;

     m. voluntarily relinquish its position as operator of any Well or abandon any Well
other than as required by law or contract;

Page 18 of 38

 

     n. enter into any agreement or arrangement transferring, selling or encumbering any of
the Operating Interests (other than pursuant to any agreements or arrangements existing on
the date hereof);

     o. enter into any new sales contract or supply contract which cannot be cancelled on 30
days’ prior notice;

     p. enter into any financing lease obligation; or

     q. commit or agree to any of the foregoing.

In furtherance of the foregoing, the Purchaser shall periodically make available to the Company a
representative of the Purchaser, and the Company shall provide work space in its principal
corporate offices during its normal business hours for a representative of the Purchaser, which
Purchaser representative will facilitate any consent required by the Purchaser hereunder. The
Company agrees that it will promptly inform such Purchaser representative of any practices,
activities or transactions that might require consent by the Purchaser hereunder and will afford
such Purchaser representative reasonable access to any books and records necessary for such consent
to be made on an informed basis.

     9. Further Assurances. Subject to the terms and conditions herein provided, each
Party shall take, or cause to be taken, all actions and shall do, or cause to be done, all things
necessary, appropriate or desirable under any applicable laws or under applicable governing
agreements to consummate and make effective the transactions contemplated by this Agreement,
including using reasonable efforts to obtain all necessary waivers, consents and approvals and
effecting all necessary registrations and filings. Each Party shall take, or cause to be taken,
all action or shall do, or cause to be done, all things necessary, appropriate or desirable to
cause the covenants and conditions applicable to the transactions contemplated hereby to be
performed or satisfied as soon as practicable. In addition, if any governmental authority shall
have issued any order, decree, ruling or injunction, or taken any other action that would have the
effect of restraining, enjoining or otherwise prohibiting or preventing the consummation of the
transactions contemplated hereby, each of the Parties shall use reasonable efforts to have such
order, decree, ruling or injunction or other action declared ineffective as soon as practicable.
With respect to all actions required to be taken by the Company pursuant to this Agreement
(including, without limitation, under Section 7, Section 8 and this Section
9), each of the Sellers shall take, or cause to be taken, all action and shall do, or cause to
be done, all things necessary, appropriate or desirable to cause the Company to take those actions.
Subsequent to the Closing, each Seller, without the necessity of any further consideration
whatsoever, will execute and deliver such further instruments and take such additional actions as
the Purchaser may reasonably request to confirm or further evidence the transactions contemplated
hereby. In addition to the foregoing, the Company shall use its reasonable efforts in conjunction
with the Purchaser’s efforts to cause those individuals who serve an accounting or finance function
at the Company and the Company’s independent accountants to assist the Purchaser, at the
Purchaser’s expense, in preparing the pro forma financial information that will be required to be
filed by the Purchaser on Form 8-K/A after the consummation of the transactions contemplated by
this Agreement.

Page 19 of 38

 

     10. Conditions to Proceed with Closing. The obligation of the Parties to proceed with
Closing shall be subject to the satisfaction or waiver, on or before the Closing Date, of the
following conditions:

     a. Conditions to the Parties’ Obligation to Proceed with Closing. The
obligation of the Sellers and Purchaser to proceed with Closing shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following condition: all
authorizations, consents, orders, declarations or approvals of, or filings with or
terminations or expirations of waiting periods imposed by (including, without limitation,
expiration of any waiting period pursuant to the HSR Act), any governmental entity or
regulatory authority, which the failure to obtain, make or occur would have the effect of
making the transactions contemplated by this Agreement illegal or would have (or would be
reasonably likely to have) a Material Adverse Effect on the Company or the Purchaser
assuming the transactions contemplated by this Agreement had taken place, shall have been
obtained, made or occurred on or before the Closing Date.

     b. Conditions to the Purchaser’s Obligation to Proceed with Closing. The
obligation of the Purchaser to proceed with Closing shall be subject to the satisfaction or
waiver, on or before the Closing Date, of the following conditions:

     I. Ownership Representations. The representations and warranties set
forth in Section 4(d), Section 5(c), Section 5(d) and
Section 5(e) (the “Ownership Representations”) and in Section
5(v) shall be true and correct in all respects at Closing.

     II. Covenant Compliance. The Company and the Sellers shall have
complied in all material respects with those covenants contained in this Agreement
that are applicable to them.

     III. Non-Ownership Representations. Except for (1) the Ownership
Representations and (2) the representation and warranty set forth in Section
5(v), all of the representations and warranties set forth in Section 4
and Section 5 (collectively, the “Non-Ownership Representations”)
shall be true and correct in all respects at Closing, except to the extent that the
circumstances causing the Non-Ownership Representations not to be true and correct
in all respects (disregarding all qualifications contained therein regarding
materiality) would not, individually or in the aggregate, constitute a Material
Adverse Change.

     IV. 100% Delivered. The Sellers shall be in a position to deliver 100%
of the issued and outstanding equity securities of the Company to the Purchaser
pursuant to Section 11(a)(I).

     V. Seller Certificates. The Purchaser shall have received from each
Seller an unqualified certificate covering those items addressed in Section
11(a)(II).

     VI. Legal Opinions. The Purchaser shall have received a legal opinion
or legal opinions from counsel reasonably acceptable to the Purchaser, in form

Page 20 of 38

 

and substance reasonably satisfactory to the Purchaser and its counsel, as to
the due authorization of the Person executing this Agreement on behalf of each
Seller that is an entity to execute and deliver this Agreement on behalf of such
Seller, such opinions to be substantially in the form of Exhibit “E”.

     VII. Waiver/Release from Equity Plan Participants. Each participant in
the Company’s 2004 Equity Incentive Plan (including each participant in the Bonus
Pool and each holder of shares of Class A-12.5 Common Stock or Class A-25 Common
Stock) shall have delivered to the Purchaser and the Company a full waiver and
release, in form and substance reasonably satisfactory to the Purchaser, of any
claims arising under the Company’s 2004 Equity Incentive Plan effective upon the
Closing.

     VIII. Resignations. Each director and officer of the Company and its
Subsidiaries shall have delivered to the Purchaser a letter of voluntary resignation
from such positions with the Company and its Subsidiaries effective as of the
Closing (and, in the case of any officer party to an employment agreement with the
Company, such letter shall acknowledge that such resignation constitutes a
termination of such agreement by the employee “without cause” for purposes of such
agreement). Each director of Four Star designated by MBOW Four Star Corporation
shall have delivered a letter of voluntary resignation from such position with Four
Star effective upon the Closing.

     IX. Casualty Loss. No Operating Interests, Wells or other oil and gas
interests of the Company, its Subsidiaries or Four Star shall have been destroyed by
any natural event (including, without limitation, any storm, flood, hurricane,
washout, landslide, earthquake, lightning, fire or other act of God) or other
casualty or been taken in condemnation or under right of eminent domain, except for
such destructions, casualties or takings as would not, individually or in the
aggregate, constitute a Material Adverse Change.

     X. Environmental Compliance. Except for Environmental Defects arising
before the Objection Deadline, and except as would not, individually or in the
aggregate, constitute a Material Adverse Change, the Company and its Subsidiaries
shall (1) be in possession of all Environmental Approvals needed to carry on their
current operations, (2) be in compliance with all Environmental Laws and (3) not
have received any demand or notice with respect to any non-compliance with
Environmental Laws.

     XI. Remedial HSR Act Filings. The Company shall have made all filings
with the Federal Trade Commission and/or the Department of Justice, as applicable,
under the HSR Act as shall be required, in the Purchaser’s reasonable judgment, to
remedy potential failures to file in respect of historic acquisitions of a portion
of the Four Star Shares, and such remedial filings shall have been accepted by the
Federal Trade Commission and/or the Department of Justice, except to the extent such
non-acceptance would not constitute a Material Adverse Change.

Page 21 of 38

 

     XII. Financial Advisor Acknowledgments. Petrie Parkman & Co. shall
have executed and delivered to the Purchaser a letter acknowledging that (1) all
amounts owed by the Company to Petrie Parkman & Co. in connection with the
transactions contemplated by this Agreement pursuant to the engagement letter
between Petrie Parkman & Co. and the Company dated as of April 7, 2005 (excluding
any amounts owed in respect of unreimbursed out-of-pocket expenses) have been paid
at Closing and (2) no other amounts will be owed by the Company to Petrie Parkman &
Co. (except for any amounts owed in satisfaction of any indemnification obligation
arising under the engagement letter dated as of April 7, 2005) in respect of any
future transactions, whether pursuant to the aforementioned engagement letter or
otherwise. Rivington Capital Advisors, LLC shall have executed and delivered to the
Purchaser a letter acknowledging that (1) all amounts owed by the Company to
Rivington Capital Advisors, LLC in connection with the transactions contemplated by
this Agreement or any transactions consummated prior to Closing pursuant to the
engagement letters between Rivington Capital Advisors, LLC and the Company dated as
of April 7, 2005 and April 29, 2005 (excluding any amounts owed in respect of
unreimbursed out-of-pocket expenses) have been paid at or prior to Closing and (2)
no other amounts will be owed by the Company to Rivington Capital Advisors, LLC
(except for any amounts owed in satisfaction of any indemnification obligation
arising under the engagement letters dated as of April 7, 2005 and April 29, 2005)
in respect of any future transactions, whether pursuant to the aforementioned
engagement letters or otherwise.

     XIII. Spousal Consents. The spouse of each Seller that is an
individual shall have executed and delivered to the Purchaser a written instrument
substantially the form attached hereto as Exhibit “F”.

     XIV. Peters Consent. Oscar L. Peters shall have executed and delivered
to the Purchaser a written instrument acknowledging that, for purposes of the letter
agreement between the Company and Mr. Peters dated as of January 7, 2005, the
transactions contemplated by this Agreement shall not constitute a “Change of
Control” that would entitle Mr. Peters to any lump-sum payment from the Company.
Notwithstanding the foregoing, it is the understanding of the Parties that (1) the
Equity Incentive Committee under the Company’s 2004 Equity Incentive Plan will cause
Mr. Peters to participate in the Bonus Plan Payout Amount to the full extent of the
lump-sum payment to which he would have been entitled upon a “Change of Control”
under the aforementioned letter agreement and (2) if Mr. Peters fails to deliver the
written instrument described in the preceding sentence, then the condition to
closing set forth in this Section 10(b)(XIV) shall be satisfied if the
Aggregate Purchase Price is reduced by the amount of the lump-sum payment to which
Mr. Peters will be entitled under the aforementioned letter agreement as a result of
the consummation of the transactions contemplated by this Agreement.

     XV. Extension of Services Agreement. The Company shall have delivered
to the Purchaser a written agreement, signed on behalf of both Texaco

Page 22 of 38

 

Exploration and Production Inc. (or any other appropriate controlled affiliate
of Chevron Corp.) and Four Star, extending that certain Services Agreement, dated as
of November 1, 1999 (the “Services Agreement”), between Texaco Exploration
and Production Inc. and Four Star, through December 31, 2005, which extension shall
be on terms consistent in all material respects with those set forth in the Services
Agreement.

     c. Conditions to the Sellers’ Obligation to Proceed with Closing. The
obligation of the Sellers to proceed with Closing shall be subject to the satisfaction or
waiver, on or before the Closing Date, of the following:

     I. Representations and Warranties. The representations and warranties
set forth in Section 6 shall be true and correct in all respects at Closing
and the Purchaser shall have complied in all material respects with those covenants
contained in this Agreement that are applicable to it, except in each case as would
not negatively impact the ability of the Purchaser to consummate the transactions
contemplated by this Agreement.

     II. Payment of Share Purchase Price. Purchaser shall be in a position
to pay, simultaneously with the Closing, the Share Purchase Price.

     III. Payment of Bonus Plan Payout Amount. Purchaser shall be in a
position to pay, simultaneously with the Closing, the Bonus Plan Payout Amount.

     IV. Waiver of Non-Competition Covenant. Purchaser shall have delivered
to each officer of the Company who is a party to an employment agreement with the

Company a letter waiving such officer’s compliance with the non-competition covenant
set forth in such agreement; provided, however, that the compliance
by Mitchell L. Solich of the non-solicitation covenant set forth in his employment
agreement shall not be so waived.

     11. Actions to be Taken At Closing.

     a. Sellers’ Actions at Closing. At the Closing, each Seller shall execute,
acknowledge and (upon payment of the funds specified in Section 11(b)(I) and
Section 11(b)(II)) deliver to the Purchaser the following:

     I. Transfer of Shares. The original stock certificates representing
such Seller’s Shares, duly endorsed for transfer (or accompanied by duly executed
stock transfer powers separate from the certificate);

     II. Certificate. A certificate, as to such Seller, certifying that (1)
the representation and warranty set forth in Section 4(d) as to such Seller
is true and correct in all respects as of the Closing Date, (2) the Ownership
Representations (other than the representation and warranty set forth in Section
4(d) as to such Seller) are true and correct in all respects as of the Closing
Date, (3) the representation and warranty set forth in Section 5(v) is true
and correct in all respects as of the Closing Date, (4) the Non-Ownership
Representations (in the

Page 23 of 38

 

case of the representations and warranties set forth in Section 4(a),
Section 4(b), Section 4(c) and Section 4(e), as to such
Seller) are true and correct in all respects as of the Closing Date, except to the
extent that the circumstances causing the Non-Ownership Representations not to be
true and correct in all respects would not, individually or in the aggregate,
constitute a Material Adverse Change, and (5) such Seller has complied with the
covenants to which it is subject under this Agreement in all material respects.

     III. Other Necessary Instruments. All other instruments as may be
reasonably required to consummate the agreements of the Parties hereunder.

     b. Purchaser’s Actions at Closing. At Closing, upon the tendering of all of
the Shares, Purchaser shall:

     I. Payment of the Share Purchase Price. Pay to the Sellers, by wire
transfer of immediately available funds, the Share Purchase Price;

     II. Payment of the Bonus Plan Payout Amount. Pay to the Company’s
third party payroll provider, by wire transfer of immediately available funds, the
Bonus Plan Payout Amount to enable such provider to pay to each participant in the
Bonus Pool who has delivered a waiver and release pursuant to Section
10(b)(VII) the portion of the total Bonus Pool Payout Amount to which such
participant is entitled; and

     III. Certificate. Deliver a certificate certifying that the
representations and warranties provided hereunder by the Purchaser are accurate and
true in all material respects as of the Closing and that the Purchaser has complied
with the covenants to which it is subject under this Agreement in all material
respects, except in each case as would not negatively impact the ability of the
Purchaser to consummate the transactions contemplated by this Agreement.

     IV. Payment of Financial Advisors. Pay to Petrie Parkman & Co. and
Rivington Capital Advisors, LLC, by wire transfer of immediately available funds,
the amounts to which such firms are entitled in connection with the consummation of
the transactions contemplated by this Agreement pursuant to their engagement letters
with the Company dated April 7, 2005.

     12. Expiration of Representations, Warranties and Covenants. Except for the Ownership
Representations and the representations made by the Purchaser in Section 6, which shall
survive indefinitely, the representations and warranties of the Sellers contained herein, and any
certificate delivered hereunder, to the extent that such certificate relates to such
representations and warranties, shall expire at Closing. All covenants and other agreements
contained herein shall survive indefinitely, except for the following: (1) Section 7 shall
expire at Closing, except for Section 7(a) and Section 7(g), both of which shall
survive indefinitely, (2) Section 8 shall expire on the two-year anniversary of the Closing
Date, (3) Section 9 shall expire at Closing, except for the fourth sentence thereof (solely
as it relates to the Sellers’ obligation to cause the Company to comply with Section 8) and
the fifth sentence thereof, both of which shall

Page 24 of 38

 

expire on the two-year anniversary of the Closing Date, (4) Section 10 shall expire at
Closing, and (5) any certificates delivered pursuant to Section 11(a)(II) (but only to the
extent such certificates relate to the Ownership Representations and the Surviving Covenants) shall
expire on the two-year anniversary of the Closing Date (the covenants and other agreements which
shall survive the Closing being referred to as the “Surviving Covenants”).

     13. Indemnification.

     a. Indemnification. Each Seller severally but not jointly covenants and agrees
that it will indemnify, defend and hold harmless the Purchaser, the Company and their
respective officers, directors, employees, agents, representatives and affiliates
(collectively, the “Purchaser Indemnified Parties”) from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, losses,
liabilities, diminutions of value, costs and expenses (including, without limitation,
reasonable attorneys’ fees) (collectively, “Losses”) arising directly or indirectly
from, as a result of or in connection with any breach of the Ownership Representations and
the Surviving Covenants. In respect of the indemnification obligation set forth in the
immediately preceding sentence, (1) no Seller shall be liable for any other Seller’s breach
of Section 4(d), Section 11(a)(I) or the certificate delivered by any other
Seller pursuant to Section 11(a)(II) or for fraud committed by any other Seller, (2)
the liability of each Seller for all claims hereunder shall be limited in amount to the
amount labeled “Distribution Amount” on Exhibit “B” for each Seller (subject to
adjustment pursuant to Section 3) and (3) (A) each Seller shall be solely liable for
such Seller’s breach of Section 4(d), Section 11(a)(I) or the certificate
delivered by such Seller pursuant to Section 11(a)(II) (to the extent that such
certificate relates to such Seller’s compliance with Section 4(d) and Section
11(a)(I)) or for fraud committed by such Seller and (B) any Seller’s liability for
breaches of any of the Ownership Representations (other than Section 4(d)) or for
breaches of the Surviving Covenants shall be limited to all Losses resulting from such
breach multiplied by such Seller’s Sharing Ratio. Any claim for indemnification pursuant to
this Section 13(a) based on the breach of a covenant that survives the Closing for a
finite period must be asserted by the Purchaser or a Purchaser Indemnified Party on or
before the expiration of such finite period for such claim to be enforceable.

     b. Exclusive Remedy for Breaches of Representations, Warranties and Covenants.
Except as specifically set forth in Section 13(a) and the rights of the Purchaser
pursuant to any instrument delivered pursuant to Section 10(b) (except for the
certificates described in Section 10(b)(V)), effective upon the Closing of the
transactions contemplated by this Agreement, in the absence of fraud on the part of a Seller
in connection with the negotiation, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby (to the extent determined by a final
judgment of a court of competent jurisdiction), the Purchaser, on behalf of itself and the
Purchaser Indemnified Parties, waives any rights and/or claims it or any other Purchaser
Indemnified Party may have against any Seller, whether in law or equity (except as relates
to adjustments to the Aggregate Purchase Price in accordance with

Page 25 of 38

 

Section 3) for any Seller’s breach of a representation or warranty contained in
this Agreement and for breaches of any covenant or other agreement, including, without
limitation, claims for contribution or other rights of recovery arising out of or relating
to any Environmental Laws, claims for breach of contract, breach of implied covenants,
negligent misrepresentation and all other claims for breach of duty. For the avoidance of
doubt, Section 13(a) sets forth the exclusive remedies available to the Purchaser or
the Purchaser Indemnified Parties for any breach by the Sellers of this Agreement.

     c. NOTHING RELATING TO (1) THE EXPIRATION OF ANY REPRESENTATION, WARRANTY, COVENANT OR
AGREEMENT SET FORTH IN THIS AGREEMENT, (2) THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS
AGREEMENT, (3) THE EXCLUSIVENESS OF ANY REMEDIES UNDER THIS AGREEMENT OR (4) ANY OTHER
MATTER SHALL BE DEEMED TO BE A WAIVER OF ANY RIGHT OR CLAIM THAT ANY PARTY MAY HAVE AGAINST
ANY OTHER PARTY IN RESPECT OF SUCH PARTY’S FRAUD.

     d. Breaches of MBOW Four Star Corporation Representation. Before seeking
indemnification pursuant to Section 13(a) for a breach by any Seller of the
representations set forth in Section 5(e), the Purchaser shall first pursue any
valid claim for indemnification from Chevron Corp. or its controlled affiliates relating to
the subject matter of such breach.

     14. Termination of Agreement. This Agreement may be terminated as provided below:

     a. by mutual written consent of the Purchaser and the Majority of Sellers at any time
prior to the Closing;

     b. by the Purchaser if the Closing shall not have occurred on or before September 30,
2005 for any reason not primarily attributable to the breach by the Purchaser of any
representations, warranties or covenants contained in this Agreement;

     c. by the Purchaser if the Sellers have breached an Ownership Representation or the
representation in Section 5(v) in any respect, the Purchaser has notified the
Sellers of the breach, and the breach has continued without cure for a period of 10 business
days after the notice of breach;

     d. by the Purchaser if the Sellers have breached a Non-Ownership Representation or any
covenant in this Agreement in any respect and the breach has continued without cure for a
period of 10 business days after the notice of breach, except to the extent that the breach
of any Non-Ownership Representation or covenant (disregarding all qualifications contained
therein regarding materiality) would not, individually or in the aggregate, constitute a
Material Adverse Change;

     e. by the Purchaser if the Net Defect Amount that is uncured as of the Closing Date
exceeds $80,000,000.00;

Page 26 of 38

 

     f. by the Majority of Sellers if the Closing shall not have occurred on or before
September 30, 2005 for any reason not primarily attributable to the breach by the Sellers or
the Company of any representations, warranties or covenants contained in this Agreement;

     g. by the Majority of Sellers if the Purchaser has breached any representation,
warranty, or covenant contained in this Agreement in any material respect, the Sellers have
notified the Purchaser of the breach, and the breach has continued without cure for a period
of 10 business days after the notice of breach; or

     h. by the Majority of Sellers if the Net Defect Amount that is uncured as of the
Closing Date exceeds $80,000,000.00.

If this Agreement is terminated (1) by mutual written consent of the Purchaser and the Majority of
Sellers pursuant to Section 14(a), (2) by the Purchaser pursuant to Section 14(e)
or (3) by the Majority of Sellers pursuant to Section 14(h), then all rights and
obligations of the Parties hereunder shall terminate without any liability of any Party to any
other Party. Termination pursuant to Section 14(b), Section 14(c), Section
14(d), Section 14(f) or Section 14(g) shall not relieve any Party from any
liability for a willful and material breach by such Party of its covenants and agreements set forth
in this Agreement, and all rights and remedies at law or in equity of the non-breaching Party in
respect of such breach shall be preserved.

     15. General Provisions.

     a. Entire Agreement. This Agreement together with the Schedules and Exhibits
contains the entire understanding of the Parties with regard to the subject matter hereof
and no warranties, representations, promises or agreements have been made between the
Parties other than as expressly herein set forth. This Agreement supersedes any previous
agreement or understanding between the Parties and cannot be modified or amended except in a
writing executed by the Purchaser and the Majority of Sellers.

     b. Binding Effect. Upon execution, this Agreement shall be binding and fully
enforceable and shall inure to the benefit of the Parties hereto, their successors, assigns,
personal representatives and heirs.

     c. Notices. All notices as may be required by this Agreement shall be deemed
given if delivered personally or sent by facsimile during normal business hours of the
recipient, the next business day if sent by overnight courier, or upon receipt if sent by
U.S. Mail to the respective parties at the addresses set forth below:

     To Sellers: See Exhibit “A”

     To
Purchaser: El Paso Production Holding Company

1001 Louisiana Street

Houston, Texas 77002

Fax: (713) 420-6472

ATTN: Thomas M. Hart III

Page 27 of 38

 

With a copies to:

El Paso Production Holding Company

1001 Louisiana Street

Houston, Texas 77002

Fax: (713) 420-6475

ATTN: Eric L. Harry

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

Fax: (713) 220-4285

ATTN: John B. Clutterbuck

            Peter C. Bowden

     To
Company: Medicine Bow Energy Corporation

1225 17th Street, Suite 1900

Denver, Colorado 80202

Fax: (303) 298-5377

ATTN: Mitchell L. Solich

     d. Severability. In the event that any of the provisions, or portions thereof,
of this Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby and effect shall be given to the intent manifested by
the provisions, or portions thereof, held to be enforceable and valid.

     e. Governing Law; Waiver of Jury Trial. This Agreement shall be governed by
and construed under the laws of the State of Delaware without regard to its choice of law
provisions that would apply the law of any other state. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

     f. Arbitration of Net Defect Amount Disputes. After Closing, disputed Title
Defects, Title Benefits and Environmental Defects, any disputes relating to the Net Defect
Amount and any disputes as to whether any Title Defect or Environmental Defect has been
cured (collectively, “Arbitrable Disputes”) shall be submitted to binding
arbitration conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the “AAA”), as supplemented to the extent necessary to
determine any procedural appeal questions arising under the Federal Arbitration Act (Title 9
of the United States Code). If there is any inconsistency between this Section
15(f) and the Commercial Arbitration Rules or the Federal Arbitration Act, then this
Section 15(f) shall control. Arbitration shall be initiated by the Claimant (as
defined below) serving written notice on the Respondent (as defined below) that the Claimant

Page 28 of 38

 

elects to refer the Arbitrable Dispute to binding arbitration. Unless otherwise agreed
by the Parties, a panel of three neutral arbitrators will decide the Arbitrable Dispute.
The Parties shall select the arbitrators as follows: (1) the Party commencing the
arbitration proceeding (the “Claimant”) shall select one arbitrator and shall notify
the other Party (the “Respondent”) in writing of its selection at the time the
Claimant commences the arbitration proceeding; (2) the Respondent shall select one
arbitrator and, within 30 days after receipt of the Claimant’s designation of arbitrator,
shall notify the Claimant in writing of its selection; (3) if the Respondent fails or
refuses to designate an arbitrator within such period, the Claimant may request the
administrator of the Houston office of the AAA to provide the Parties with a list of
potential arbitrators in accordance with, and the second arbitrator shall be determined
pursuant to, Article 7 of the Commercial Arbitration Rules of AAA; (4) The two arbitrators
so chosen shall select a third arbitrator within 30 days after appointment of the second
arbitrator; and (5) if the Party-appointed arbitrators cannot reach agreement upon the third
arbitrator within the 30-day period, the administrator of the Houston office of the AAA
shall provide the Parties with a list of potential arbitrators in accordance with, and the
third arbitrator shall be determined pursuant to, Article 7 of the Commercial Arbitration
Rules of AAA. All arbitrators must (1) be neutral persons who have never been officers,
directors, employees, or consultants or had other business relationships with the Parties or
any of their Affiliates, officers, directors or employees, and (2) have not less than
fifteen (15) years recent experience in the U.S. oil and gas industry relevant to the
matters in dispute. The arbitration hearing will be conducted in Houston, Texas, and shall
commence as soon as practicable after the selection of the third arbitrator. The Parties
and the arbitrators shall proceed diligently and in good faith so that the arbitrators’
determination can be made as promptly as possible. The arbitrators may consult with and
engage disinterested third parties to advise the arbitrators, including, without limitation,
petroleum engineers, petroleum landmen, and environmental engineers and consultants, as
appropriate. The arbitrators’ determination shall be made in writing, including findings of
fact and conclusions of law, within 45 days after submission of the matters in dispute.
Judgment may be entered on the award, and the award may be judicially enforced. Except as
provided in the Federal Arbitration Act, the decision of the arbitrators shall be binding on
and non-appealable by the Parties. The arbitrators shall act for the limited purpose of
resolving the specific disputed Title Defects, Title Benefits and Environmental Defects, any
disputes relating to the Net Defect Amount and any disputes as to whether any Title Defect
or Environmental Defect has been cured and may not award damages, interest or penalties with
respect to any matter. Further, the arbitrators shall have no right or authority to grant
or award indirect, consequential, punitive or exemplary damages of any kind. The Parties
shall each bear their own legal fees and other costs of presenting their case. The Sellers,
on the one hand, and the Purchasers, on the other hand, shall each pay 50% of the fees and
expenses of the arbitrators.

     g. Counterparts; Facsimile Signatures. This Agreement may be executed in any
number of counterparts and each such counterpart shall be considered an original and an
enforceable agreement. Facsimile and electronic signatures to this Agreement shall be
valid.

Page 29 of 38

 

     h. Notice of Developments. Each Party will give prompt written notice to the
others of any material breach of any of its representations, warranties and covenants
contained herein.

     i. Exclusivity. Prior to the earlier to occur of (1) the Closing and (2) the
termination of this Agreement, Sellers will not (and the Sellers will not cause or permit
the Company or any representatives, advisors, agents or controlled affiliates of any Seller
or the Company to) intentionally solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any of the issued and
outstanding capital stock of the Company, its Subsidiaries or the Four Star Shares or assets
of the Company or its Subsidiaries having a fair market value in excess of $5,000,000.00
(including any acquisition structured as a merger, consolidation, share exchange or other
business combination or recapitalization).

     j. Post-Closing Covenants. After Closing, if any further action is necessary
to carry out the purposes of this Agreement, each of the Parties will take such further
action as any other Party reasonably may request, all at the sole cost and expense of the
requesting Party. If any Party is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with
any transaction on or prior to the Closing Date involving the Company, each of the other
Parties shall cooperate with it and its counsel in the defense or contest, all at the sole
cost and expense of the contesting or defending Party.

     k. Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of the Purchaser and the Company;
provided, however, that any Party may make any public disclosure it believes
in good faith is required by applicable law, or any listing or trading agreement concerning
its publicly-traded securities (in which case the disclosing Party will use its reasonable
best efforts to advise the other Parties prior to making the disclosure).

     l. No Third Party Beneficiaries. Except as provided in Section 7(b),
this Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns.

     m. Expenses. Notwithstanding anything contained herein, all fees, costs, and
expenses for investment advisors, attorneys and accountants retained by the Company to
facilitate the transactions contemplated by this Agreement shall be paid by the Company.
All fees, costs, and expenses incurred by the Purchaser in connection with the transactions
contemplated by this Agreement shall be paid by the Purchaser.

     n. Limitation of Damages; Enforcement of Agreement. There shall be no
liability under this Agreement for consequential, special, punitive or exemplary damages.
The Parties agree that irreparable damage may occur in the event that any of the provisions
of this Agreement were not performed in accordance with its specific terms. Accordingly,
the Parties agree that each Party may be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to specifically enforce the terms

Page 30 of 38

 

and provisions of this Agreement in any appropriate court, the foregoing being in
addition to (and not to the exclusion of) any other remedy to which a Party may be entitled
at law or in equity.

     o. Disclosure Generally. Notwithstanding anything to the contrary contained in
the Disclosure Schedules or in this Agreement, the information and disclosures contained in
any Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in any
other Disclosure Schedule as though fully set forth in such Disclosure Schedule for which
applicability of such information and disclosure is reasonably apparent on its face. The
fact that any item of information is disclosed in any Disclosure Schedule shall not be
construed to mean that such information is required to be disclosed by this Agreement. Such
information and the dollar thresholds set forth herein shall not be used as a basis for
interpreting the terms “material” or “Material Adverse Effect” or other similar terms in
this Agreement.

     p. Legal Representation. In any dispute arising under or in connection with
this Agreement, without limitation, the Sellers, or any one of them, may retain the firm of
Gibson, Dunn & Crutcher LLP to represent them in such matter, and the Purchaser hereby
irrevocably waives and consents to any such representation in any such matter.

     16. Definitions.

     a. “AAA” is defined in Section 15(f).

     b. “Accrued Tax Amount” means the amount, if any, of the accrued but unpaid federal
income taxes of the Company and its Subsidiaries as of the Closing Date, which amount shall
be estimated by the Parties in good faith at least two business days prior to the Closing
Date in accordance with the Company’s past custom and practices and shall be net of any
reserves for federal income tax liabilities (excluding any reserves for deferred Taxes
established to reflect timing differences between book and Tax income) set forth or included
in the Most Recent Financial Statements.

     c. “Affiliated Group” is defined in Section 5(i)(I).

     d. “Aggregate Purchase Price” is defined in Section 2(a).

     e. “Allocated Value” means, with respect to an asset of the Company, its Subsidiaries
or Four Star, the portion of the Aggregate Purchase Price allocated to such asset as set
forth in Exhibit “C”.

     f. “Arbitrable Dispute” is defined in Section 15(f).

     g. “Authorized But Unissued Class 12.5 Common Stock” and “Authorized But Unissued Class
25 Common Stock” shall have the meanings set forth in the Company’s 2004 Equity Incentive
Plan.

     h. “Benefit Plan(s)” means any Pension Plan, Welfare Plan, bonus, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock option,

Page 31 of 38

 

phantom stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, dependent care, cafeteria, employee assistance, scholarship,
employment or other similar agreement, plan, program, arrangement or understanding (whether
or not covered under Section 3(3) of ERISA and whether or not legally binding) that is
sponsored, maintained or contributed to by the Company or any ERISA Affiliate.

     i. “Bonus Plan Payout Amount” is defined in Section 2(a).

     j. “Bonus Pool” is defined in Section 2(a).

     k. “Chevron Indemnified Defects” is defined in Section 3(e).

     l. “Claimant” is defined in Section 15(f).

     m. “Closing” or “Closing Date” shall have the meaning set forth in Section 2.

     n. “COBRA” means the provisions of the Code and ERISA pertaining to the Consolidated
Omnibus Budget and Reconciliation Act of 1986 as amended, including the provisions of
Section 4980B of the Code and Sections 601 – 608 of ERISA.

     o. “Code” means the Internal Revenue Code of 1986, as amended.

     p. “Company” means Medicine Bow Energy Corporation.

     q. “Company Employee” means a common law employee of the Company or any ERISA
Affiliate.

     r. “Credit Facility” means that certain Second Amended and Restated Credit Agreement
dated December 1, 2003, by and among BNP Paribas, U.S. Bank National Association, Union Bank
of California, the Senior Lenders Signatory thereto, and the Company and its Subsidiaries,
including all amendments thereto.

     s. “CSFB Shareholders” is defined on Exhibit “A”.

     t. “Current General and Administrative Budget of the Company” is set forth in
Exhibit “F”.

     u. “Defect Deductible” is defined in Section 3(d).

     v. “Defect Threshold” is defined in Section 3(d).

     w. “Defensible Title” means, as to an asset, such title of the Company, its
Subsidiaries or Four Star, as applicable, that: (1) is deducible of record from the records
of the county in which the property is located, and (A) in the case of federal leases, from
the records of the applicable office of the Bureau of Lands Management or Minerals
Management Service, or (B) in the case of state leases, from the applicable records of the
applicable state land office; (2) entitles the Company, its Subsidiaries or, in the case of
Four Star, the percentage equity interest of MBOW Four Star Corporation in Four Star, as

Page 32 of 38

 

applicable, to receive not less than the “Net Revenue Interest” set forth in
Exhibit “C” as to such asset, without reduction, suspension or termination
throughout the productive life of such asset; (3) obligates the Company, its Subsidiaries
or, in the case of Four Star, the percentage equity interest of MBOW Four Star Corporation
in Four Star multiplied by Four Star’s interest, as applicable, to bear costs and expenses
relating to operations on and the maintenance and development of such asset in an amount not
greater than the “Working Interest” set forth in Exhibit “C” with respect to such
asset, without increase for the productive life of such asset (unless there is a
corresponding and proportionate increase in Net Revenue Interest with respect to such
asset); and (4) is free and clear of liens and material encumbrances and defects, except for
Permitted Encumbrances.

     x. “De Minimis Defect” is defined in Section 3(d).

     y. “Distribution Amount” is set forth in Exhibit “B”.

     z. “EnCap Shareholders” is defined on Exhibit “A”.

     aa. “Environmental Approvals” means all applicable permits, licenses, authorizations
and approvals required by governmental authorities pursuant to any Environmental Law.

     bb. “Environmental Defect” means any non-compliance by the Company, its Subsidiaries or
Four Star with Environmental Laws.

     cc. “Environmental Laws” means all applicable federal, state or local laws, statutes,
codes, ordinances, permits, licenses, rules, regulations and common law in effect as of the
date hereof, and any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment, relating to the environment or
to the emission, discharge, release, threatened release, use, treatment, storage, disposal,
transportation or handling of pollutants, contaminants or industrial, toxic or hazardous
substances, wastes or materials. Environmental Laws include, but are not limited to: the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Water Act, the
Clean Air Act, the Federal Water Pollution Control Act, the Oil Pollution Control Act, the
Endangered Species Act, and the Safe Drinking Water Act, as such acts may have been amended
or supplemented from time to time, the state and local counterparts or equivalents of all
such acts, and all rules, regulations and orders adopted under any such statutes.

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

     ee. “ERISA Affiliate” means any corporation or other entity that is required to be
aggregated with the Company or any of its Subsidiaries under Section 414 (b), (c) or (m) of
the Code.

     ff. “Financial Statements” is defined in Section 5(f).

Page 33 of 38

 

     gg. “Four Star” is defined in Section 5(e).

     hh. “Four Star Shares” is defined in Section 5(e).

     ii. “Four Star Stockholders Agreement” means that certain Stockholders Agreement dated
as of November 1, 1999, by and between Texaco Inc. (predecessor to ChevronTexaco Global
Energy Inc.), Edison Mission Energy Oil & Gas (predecessor by way of merger to MBOW Four
Star Corporation), Texaco Exploration and Production Inc. (predecessor to Chevron U.S.A.
Inc.), Texaco Nederland B.V., Four Star Oil & Gas Holdings (predecessor by way of merger to
Four Star Oil & Gas Company) and Four Star Oil & Gas Company, as further amended,
supplemented or modified from time to time in accordance with the terms thereof.

     jj. “GAAP” means United States generally accepted accounting principles in effect from
time to time.

     kk. “Hedge Obligations” is defined in Section 5(p).

     ll. “Hedge Transactions” is defined in Section 5(p).

     mm. “HSR Act” is defined in Section 7(c).

     nn. “IRS” means the Internal Revenue Service.

     oo. “Kayne Anderson Shareholder” is defined on Exhibit “A”.

     pp. “Liberty Shareholder” is defined on Exhibit “A”.

     qq. “Losses” is defined in Section 13(a).

     rr. “Majority of Sellers” means Sellers representing greater than fifty percent (50%)
of the Shares provided that the Majority of the Seller shall include the EnCap Shareholders
and the CSFB Shareholders.

     ss. “Material Adverse Change” means any actions, suits, arbitrations, proceedings,
facts, circumstances, events, conditions or developments that, individually or in the
aggregate, have had or would be reasonably likely to have a Material Adverse Effect.

     tt. “Material Adverse Effect” means any material adverse effect on the business,
operations, assets, financial condition or business prospects of the Company and its
Subsidiaries, taken as a whole, except for any such effects resulting from changes affecting
the United States economy, financial and capital markets or the oil and gas industry in
general, or changes in the prices generally paid for oil, natural gas or equivalents;
provided, however, that no circumstances arising as a result of the
announcement or consummation of the transactions contemplated by this Agreement shall
constitute a Material Adverse Effect.

Page 34 of 38

 

     uu. “Most Recent Financial Statements” is defined in Section 5(f).

     vv. “Most Recent Period End” is defined in Section 5(f).

     ww. “Material Agreements” shall have the meaning set forth in Section 5(j).

     xx. “Net Defect Amount” is defined in Section 3(c).

     yy. “Net Revenue Interest” is set forth in Exhibit “C”.

     zz. “Non-Ownership Representations” is defined in Section 10(b).

     aaa. “Objection Deadline” is defined in Section 3(a).

     bbb. “Operating Interests” is defined in Section 5(q).

     ccc. “Ownership Representations” is defined in Section 10(b)(I).

     ddd. “Party” and “Parties” shall mean the Purchaser, the Company and each Seller.

      eee. “Pension Plan(s)” means any “employee pension benefit plan as such term is defined
in Section 3(2) of ERISA.

      fff. “Permitted Encumbrances” means, with respect to any asset, any and all of the
following: (1) royalties, overriding royalties, production payments, reversionary interests,
convertible interests, net profits interests and similar burdens encumbering an asset, to
the extent the net cumulative effect of such burdens does not operate to reduce the
Company’s or its Subsidiaries’ Net Revenue Interest in such asset, or, in the case of Four
Star, Four Star’s Net Revenue Interest in such asset multiplied by the percentage equity
interest of MBOW Four Star Corporation in Four Star, to less than that set forth in
Exhibit “C” or increase the Company’s or its Subsidiaries’ Working Interest in such
asset, or, in the case of Four Star, Four Star’s Working Interest in such asset multiplied
by the percentage equity interest of MBOW Four Star Corporation in Four Star, above that set
forth in Exhibit “C” without a corresponding and proportionate increase in the
associated Net Revenue Interest; (2) consents to assignment and similar contractual
provisions affecting transfer of the asset, provided that such consents, if
applicable, have been obtained prior to Closing; (3) preferential rights to purchase and
similar contractual provisions affecting the asset, provided that such preferential
rights, if applicable, have expired or been waived prior to Closing; (4) rights reserved to
or vested in a governmental entity having jurisdiction to control or regulate the asset, and
all applicable laws of such governmental entities or authorities; (5) easements,
rights-of-way, servitudes, sub-surface leases, equipment, pipelines, and utility lines on,
over and through the asset, provided that they do not materially interfere with the
operation of the asset in the manner such operations were conducted as of the Closing; (6)
terms and conditions of unitization, communitization, and pooling agreements, and any other
similar agreements affecting the asset, provided that they do not (A) reduce the
Company’s or its Subsidiaries’ Net Revenue Interest in the asset, or, in the case of Four
Star, Four Star’s

Page 35 of 38

 

Net Revenue Interest in the asset multiplied by multiplied by the percentage equity
interest of MBOW Four Star Corporation in Four Star, to less than that set forth on
Exhibit “C” or increase the Company’s or its Subsidiaries’ Working Interest in the
asset, or, in the case of Four Star, Four Star’s Working Interest in the asset multiplied by
the percentage equity interest of MBOW Four Star Corporation in Four Star above that set
forth on Exhibit “C” (unless there is a corresponding and proportionate increase in
the associated Net Revenue Interest), or (B) materially interfere with the operation of the
properties of the Company, its Subsidiaries or Four Star in the manner such operations were
conducted as of Closing; (7) terms and conditions of governmental licenses and permits
affecting the asset; (8) liens for taxes or assessments not yet delinquent or, if
delinquent, being contested in good faith in the ordinary course of business; (9) liens of
operators relating to obligations not yet delinquent or, if delinquent, being contested in
good faith in the ordinary course of business; (10) mortgages, deeds of trust, liens,
pledges, encumbrances and security interests arising under the Credit Facility; (11) any
alleged Title Defects that have been waived by the Purchaser in writing or not asserted on
or before the expiration of the Objection Period; and (12) such defects or irregularities in
the title to the asset that do not materially interfere with the ownership, operation, value
or use of the asset affected thereby and that would not be considered material when applying
general standards in the oil and gas industry.

     ggg. “Person” means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, enterprise, unincorporated
organization, or governmental entity.

     hhh. “Phase I Environmental Inspection” means an assessment of the Company’s compliance
with Environmental Laws consisting of examination of the Company’s files and public
documents, interviews of personnel of the Company and of other appropriate persons, visual
inspection of Company property, and NORM and asbestos surveys.

     iii. “Purchaser Indemnified Parties” is defined in Section 13.

     jjj. “Records” is defined in Section 7(a).

     kkk. “Respondent” is defined in Section 15(f).

     lll. “Services Agreement” is defined in Section 10(b)(XV).

     mmm. “Share Purchase Price” is defined in Section 2(a).

     nnn. “Shares” shall have the meaning set forth in Paragraph A.

     ooo. “Sharing Ratio” shall be as set forth in Exhibit “B”.

     ppp. “Subscription Agreement” means that certain Subscription Agreement dated as of
December 3, 2003, by and between the Company and the EnCap Shareholders, the CSFB
Shareholders, the Liberty Shareholder and the Kayne Anderson Shareholder.

Page 36 of 38

 

     qqq. “Subsidiary” or “Subsidiaries” means Medicine Bow Operating Company and MBOW Four
Star Corporation. The terms “Subsidiary” and “Subsidiaries” do no include Four Star.

     rrr. “Surviving Covenants” is defined in Section 12(a).

     sss. “Tax” or “Taxes” means any and all taxes, including any interest, penalties or
other additions to tax that may become payable in respect thereof, imposed by any federal,
state, local or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the foregoing, all
income or profits taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, severance taxes, license charges, taxes on stock, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers’ compensation and other obligations of the same
or of a similar nature to any of the foregoing.

     ttt. “Tax Return” means any report, return (including any information return),
declaration, statement, bill, schedule, claim for refund or written information required to
be supplied to a federal, state, local or foreign taxing authority in connection with Taxes,
including any amendments thereof or any schedule or attachment thereto.

     uuu. “Title Benefit” means an (1) increase in the Company’s or its Subsidiaries’ Net
Revenue Interest in a property, or, in the case of Four Star, Four Star’s Net Revenue
Interest in a property multiplied by the percentage equity interest of MBOW Four Star
Corporation in Four Star, above that set forth in Exhibit “C” without a greater than
proportionate increase in the Working Interest above that shown in Exhibit “C” or
(2) a decrease in the Company’s or its Subsidiaries’ Working Interest in a property, or, in
the case of Four Star, Four Star’s Working Interest in a property multiplied by the
percentage equity interest of MBOW Four Star Corporation in Four Star, below that set forth
in Exhibit “C” without a decrease in the Net Revenue Interest for such property
below that shown in Exhibit “C”, which, in each case, increases the value of the
interest of the Company, its Subsidiaries or Four Star, as applicable, in the affected
property by more than $25,000.

     vvv. “Title Defect” means any lien, encumbrance or encroachment on, irregularity or
defect in or objection to title to an asset, other than a Permitted Encumbrance, that alone
or in combination with other Title Defects causes title to such asset to be less than
Defensible Title.

     www. “Warrant” is defined in Section 5(c).

     xxx. “Welfare Plan(s)” means any employee pension benefit plan” as such term is defined
in Section 3(2) of ERISA.

     yyy. “Wells” means all oil and gas wells operated by the Company and its Subsidiaries
or Four Star.

Page 37 of 38

 

     zzz. “Working Interest” is set forth in Exhibit “C”.

[SIGNATURES ON NEXT PAGE]

Page 38 of 38

 

PURCHASER:

EL PASO PRODUCTION HOLDING COMPANY

	 	 	 	 	 
	By:

	 	/s/ Thomas M. Hart III
	 	 
	 

	 	 	 	 
	Name:

	 	Thomas M. Hart III	 	 
	Title:

	 	Vice President	 	 
	Date:

	 	July 18, 2005	 	 

 

 

COMPANY:

MEDICINE BOW ENERGY CORPORATION

	 	 	 	 	 
	By:

	 	/s/ Mitchell L. Solich
	 	 
	 

	 	 	 	 
	Name:

	 	Mitchell L. Solich	 	 
	Title:

	 	President & Chief Executive Officer	 	 
	Date:

	 	July 18, 2005	 	 

 

 

SELLER:

ENCAP ENERGY CAPITAL FUND IV, L.P.

	 	 	 	 	 	 	 	 	 	 	 
	By:	 	EnCap Equity Fund IV GP, L.P., General Partner  
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	EnCap Investments L.P., General Partner of EnCap Equity Fund IV GP, L.P.
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	EnCap Investments GP, L.L.C., General Partner of EnCap
	 	 	 	 	 	 	Investments L.P.
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ D. Martin Phillips	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	D. Martin Phillips,	 	 
	 

	 	 	 	 	 	Title:
	 	Senior Managing Director	 	 
	 

	 	 	 	 	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

ENCAP ENERGY CAPITAL FUND IV-B, L.P.

	 	 	 	 	 	 	 	 	 	 	 
	By:	 	EnCap Equity Fund IV GP, L.P., General Partner  
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	EnCap Investments L.P., General Partner of EnCap Equity Fund IV GP, L.P.
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	EnCap Investments GP, L.L.C., General Partner of EnCap Investments L.P.
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ D. Martin Phillips	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	D. Martin Phillips,	 	 
	 

	 	 	 	 	 	Title:
	 	Senior Managing Director	 	 
	 

	 	 	 	 	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

DLJ MERCHANT BANKING PARTNERS III, L.P.

	 	 	 	 	 	 	 
	By:	 	DLJ Merchant Banking III, Inc., its Managing General Partner  
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kenneth J. Lohsen	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kenneth J. Lohsen	 	 
	 

	 	Title:
	 	Vice President	 	 
	 

	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

DLJ MERCHANT BANKING III, INC. (AS ADVISORY GENERAL PARTNER ON BEHALF OF DLJ OFFSHORE PARTNERS
III-2, C.V. AND AS ATTORNEY-IN-FACT FOR DLJ MERCHANT BANKING III, L.P., AS ASSOCIATE GENERAL
PARTNER OF DLJ OFFSHORE PARTNERS III-2, C.V.)

	 	 	 	 	 
	By:

	 	/s/ Kenneth J. Lohsen
	 	 
	 

	 	 	 	 
	Name:

	 	Kenneth J. Lohsen	 	 
	Title:

	 	Vice President	 	 
	Date:

	 	July 18, 2005	 	 

 

 

SELLER:

DLJ MERCHANT BANKING III, INC. (AS ADVISORY GENERAL PARTNER ON BEHALF OF DLJ OFFSHORE PARTNERS
III-1, C.V. AND AS ATTORNEY-IN-FACT FOR DLJ MERCHANT BANKING III, L.P., AS ASSOCIATE GENERAL
PARTNER OF DLJ OFFSHORE PARTNERS III-1, C.V.)

	 	 	 	 	 
	By:

	 	/s/ Kenneth J. Lohsen
	 	 
	 

	 	 	 	 
	Name:

	 	Kenneth J. Lohsen	 	 
	Title:

	 	Vice President	 	 
	Date:

	 	July 18, 2005	 	 

 

 

SELLER:

DLJ OFFSHORE PARTNERS III, C.V.

	 	 	 	 	 
	By:	 	DLJ Merchant Banking III, Inc., its Advisory General Partner  
	 
	 	 	 	 
	By:

	 	/s/ Kenneth J. Lohsen	 	 
	 

	 	 	 	 
	Name:

	 	Kenneth J. Lohsen	 	 
	Title:

	 	Vice President	 	 
	Date:

	 	July 18, 2005	 	 

 

 

SELLER:

DLJ MB PARTNERS III GMBH & CO. KG

	 	 	 	 	 	 	 	 	 
	By:	 	DLJ Merchant Banking III, L.P., its Managing Limited Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	DLJ Merchant Banking III, Inc., its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Kenneth J. Lohsen	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Kenneth J. Lohsen	 	 
	 

	 	 	 	Title:
	 	Vice President	 	 
	 

	 	 	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

MILLENNIUM PARTNERS II, L.P.

	 	 	 	 	 	 	 
	By:	 	DLJ Merchant Banking III, Inc., its Managing General Partner  
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kenneth J. Lohsen	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kenneth J. Lohsen	 	 
	 

	 	Title:
	 	Vice President	 	 
	 

	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

MBP III PLAN INVESTORS, L.P.

	 	 	 	 	 	 	 
	By:	 	DLJ LBO Plans Management Corporation II, its General Partner  
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kenneth J. Lohsen	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kenneth J. Lohsen	 	 
	 

	 	Title:
	 	Vice President	 	 
	 

	 	Date:
	 	July 18, 2005	 	 

 

 

SELLER:

KELLEN HOLDINGS, LLC

	 	 	 	 	 
	By:

	 	/s/ Gregory S. Morzano

	 	 
	 

	 	 	 	 
	Name:

	 	Gregory S. Morzano	 	 
	Title:

	 	Vice President	 	 
	Date:

	 	July 18, 2005	 	 

 

 

	 	 	 	 	 
	 	SELLER: 

MORRISON ENTERPRISES

 	 
	 	By:  	 	/s/ Kenneth Morrison
 	 
	 	Name:  	 	Kenneth Morrison 	 
		Title:  
Date: 	 	Business Manager
July 18, 2005 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 	 	 
	SELLER:
	 
	 	 	 	 	 	 
	KAYNE ANDERSON ENERGY FUND II, L.P.
	 
	 	 	 	 	 	 
	By:	 	Kayne Anderson Capital Advisors, L.P., its General Partner
	 
	 	 	 	 	 	 
	 	 	By:	 	Kayne Anderson Investment Management, Inc., its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Daniel M. Weingeist
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Daniel M. Weingeist
	 

	 	 	 	Title:
	 	Managing Director
	 

	 	 	 	Date:
	 	July 18, 2005

 

 

	 	 	 	 	 
	 	SELLER:

GREEN BAY PACKAGING, INC.

 	 
	 	By:  	 	/s/ William F. Kress
 	 
	 	Name:  	 	William F. Kress 	 
		Title:  
Date: 	 	President & Chief Executive Officer
July 18, 2005 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

MITCHELL L. SOLICH

 	 
	 	/s/ Mitchell L. Solich
 	 
	 	Date: July 18, 2005 	 
	 	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

CHRISTOPHER R. WAGNER

 	 
	 	/s/ Christopher R. Wagner
 	 
	 	Date: July 18, 2005 	 
	 	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

GEOFF C. SOLICH

 	 
	 	/s/ Geoff C. Solich
 	 
	 	Date: July 18, 2005 	 
	 	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

RAWHIDE LLC

 	 
	 	By:  	 	/s/ Mitchell L. Solich
 	 
	 	Name:  	 	Mitchell L. Solich 	 
		Title:  
Date: 	 	Manager
July 18, 2005 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

PONDEROSA ENERGY HOLDINGS, LLC

 	 
	 	By:  	 	/s/ Geoff C. Solich
 	 
	 	Name:  	 	Geoff C. Solich 	 
		Title:  
Date: 	 	Manager
July 18, 2005 
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

ERDOLMAN LLC

 	 
	 	By:  	 	/s/ Roger M. Flahive
 	 
	 	Name:  	 	Roger M. Flahive 	 
	 	Title:  
Date: 	 	Manager
July 18, 2005
	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

BUCKEYE VENTURES LLC

 	 
	 	By:  	 	/s/ Joseph M. Brooker
 	 
	 	Name:  	 	Joseph M. Brooker 	 
	 	Title:  
Date: 	 	Manager
July 18, 2005	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	SELLER:

OIL PATCH INVESTMENTS, LLC

 	 
	 	By:  	 	/s/ Dan R. Taylor
 	 
	 	Name:  	 	Dan R. Taylor 	 
	 	Title:  
Date: 	 	Manager
July 18, 2005

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}]]