Document:

exv10w8

Exhibit 10.8

Execution Version

AGREEMENT AND PLAN OF MERGER

By and Among

ALTA MESA HOLDINGS, LP,

ALTA MESA ACQUISITION SUB, LLC

and

THE MERIDIAN RESOURCE CORPORATION

Dated December 22, 2009

 

 

Execution Version

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 

	Article I. CERTAIN DEFINED TERMS	 	 	1	 
	 	Section 1.1	 	Certain Defined Terms
	 	 	1	 
	Article II. THE MERGER	 	 	7	 
	 	Section 2.1	 	The Merger
	 	 	7	 
	 	Section 2.2	 	Effective Time of the Merger
	 	 	7	 
	Article III. THE SURVIVING COMPANY	 	 	8	 
	 	Section 3.1	 	Certificate of Formation
	 	 	8	 
	 	Section 3.2	 	Charter Documents
	 	 	8	 
	 	Section 3.3	 	Directors and Officers
	 	 	8	 
	Article IV. CONVERSION OF SHARES	 	 	8	 
	 	Section 4.1	 	Conversion of Capital Stock
	 	 	8	 
	 	Section 4.2	 	Surrender and Payment
	 	 	9	 
	 	Section 4.3	 	Stock Options; Warrants
	 	 	10	 
	 	Section 4.4	 	Dissenting Shares
	 	 	11	 
	 	Section 4.5	 	Closing
	 	 	12	 
	Article V. REPRESENTATIONS AND WARRANTIES OF TARGET	 	 	12	 
	 	Section 5.1	 	Organization and Qualification
	 	 	12	 
	 	Section 5.2	 	Capitalization
	 	 	13	 
	 	Section 5.3	 	Authority
	 	 	14	 
	 	Section 5.4	 	Consents and Approvals; No Violation
	 	 	14	 
	 	Section 5.5	 	Target SEC Reports
	 	 	15	 
	 	Section 5.6	 	Target Financial Statements
	 	 	16	 
	 	Section 5.7	 	Absence of Undisclosed Liabilities; Liabilities as of Year End
	 	 	16	 
	 	Section 5.8	 	Absence of Certain Changes
	 	 	16	 
	 	Section 5.9	 	Taxes
	 	 	17	 
	 	Section 5.10	 	Litigation
	 	 	18	 
	 	Section 5.11	 	Employee Benefit Plans; ERISA
	 	 	19	 
	 	Section 5.12	 	Environmental Matters
	 	 	20	 
	 	Section 5.13	 	Compliance with Applicable Laws
	 	 	21	 
	 	Section 5.14	 	Insurance
	 	 	22	 
	 	Section 5.15	 	Labor Matters; Employees
	 	 	22	 
	 	Section 5.16	 	Reserve Reports
	 	 	23	 
	 	Section 5.17	 	[Reserved]
	 	 	23	 
	 	Section 5.18	 	Material Contracts
	 	 	23	 
	 	Section 5.19	 	Required Shareholder Vote; Board Action
	 	 	24	 
	 	Section 5.20	 	Proxy Statement
	 	 	25	 
	 	Section 5.21	 	Intellectual Property
	 	 	25	 
	 	Section 5.22	 	Hedging
	 	 	25	 
	 	Section 5.23	 	Brokers
	 	 	25	 
	 	Section 5.24	 	Fairness Opinion
	 	 	26	 
	 	Section 5.25	 	Takeover Laws
	 	 	26	 
	 	Section 5.26	 	Net Profits Interest Agreements; Reeves/Mayell Agreements
	 	 	26	 
	 	Section 5.27	 	Forbearances
	 	 	27	 
	 	Section 5.28	 	Gas Balancing and Take-or-Pay Contracts
	 	 	29	 

i

 

	 	 	 	 	 	 	 	 	 

	 	Section 5.29	 	Production Requirements
	 	 	29	 
	 	Section 5.30	 	Well Bonus Plans
	 	 	29	 
	 	Section 5.31	 	Interested Party Transactions
	 	 	30	 
	 	Section 5.32	 	No Other Representations or Warranties
	 	 	30	 
	Article VI. REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES	 	 	30	 
	 	Section 6.1	 	Organization and Qualification
	 	 	30	 
	 	Section 6.2	 	Authority
	 	 	30	 
	 	Section 6.3	 	Merger Sub
	 	 	31	 
	 	Section 6.4	 	No Violation
	 	 	31	 
	 	Section 6.5	 	Brokers
	 	 	31	 
	 	Section 6.6	 	Parent Information
	 	 	31	 
	 	Section 6.7	 	Target Stock
	 	 	32	 
	 	Section 6.8	 	Financing
	 	 	32	 
	 	Section 6.9	 	No Other Representations or Warranties
	 	 	32	 
	Article VII. CONDUCT OF BUSINESS PENDING THE MERGER	 	 	32	 
	 	Section 7.1	 	Conduct of Business by Target Pending the Merger
	 	 	32	 
	Article VIII. ADDITIONAL AGREEMENTS	 	 	36	 
	 	Section 8.1	 	Preparation of the Proxy Statement
	 	 	36	 
	 	Section 8.2	 	Shareholders Meeting; Recommendations
	 	 	37	 
	 	Section 8.3	 	Access to Information; Confidentiality
	 	 	38	 
	 	Section 8.4	 	No Solicitation
	 	 	38	 
	 	Section 8.5	 	Directors’ and Officers’ Indemnification and Insurance
	 	 	42	 
	 	Section 8.6	 	Further Assurances
	 	 	43	 
	 	Section 8.7	 	Expenses
	 	 	43	 
	 	Section 8.8	 	Cooperation
	 	 	43	 
	 	Section 8.9	 	Publicity
	 	 	44	 
	 	Section 8.10	 	Additional Actions
	 	 	44	 
	 	Section 8.11	 	Filings
	 	 	44	 
	 	Section 8.12	 	Consents
	 	 	44	 
	 	Section 8.13	 	Employee Matters
	 	 	44	 
	 	Section 8.14	 	Notice of Certain Events
	 	 	45	 
	 	Section 8.15	 	Site Inspections
	 	 	46	 
	 	Section 8.16	 	Shareholder Litigation
	 	 	46	 
	 	Section 8.17	 	Financing
	 	 	46	 
	 	Section 8.18	 	[Reserved]
	 	 	47	 
	 	Section 8.19	 	Shell Settlement
	 	 	47	 
	Article IX. CONDITIONS TO CONSUMMATION OF THE MERGER	 	 	47	 
	 	Section 9.1	 	Conditions to the Obligation of Each Party
	 	 	47	 
	 	Section 9.2	 	Conditions to the Obligations of the Parent Parties
	 	 	47	 
	 	Section 9.3	 	Conditions to the Obligations of the Target
	 	 	48	 
	Article X. SURVIVAL	 	 	49	 
	 	Section 10.1	 	Survival of Representations and Warranties
	 	 	49	 
	 	Section 10.2	 	Survival of Covenants and Agreements
	 	 	49	 
	Article XI. TERMINATION, AMENDMENT AND WAIVER	 	 	49	 
	 	Section 11.1	 	Termination
	 	 	49	 
	 	Section 11.2	 	Notice of Termination; Effect of Termination
	 	 	51	 

ii

 

	 	 	 	 	 	 	 	 	 

	 	Section 11.3	 	Expenses and Other Payments
	 	 	51	 
	Article XII. MISCELLANEOUS	 	 	53	 
	 	Section 12.1	 	Notices
	 	 	53	 
	 	Section 12.2	 	Severability
	 	 	54	 
	 	Section 12.3	 	Assignment
	 	 	54	 
	 	Section 12.4	 	Interpretation
	 	 	55	 
	 	Section 12.5	 	Counterparts
	 	 	55	 
	 	Section 12.6	 	Entire Agreement
	 	 	55	 
	 	Section 12.7	 	Governing Law
	 	 	55	 
	 	Section 12.8	 	Submission to Jurisdiction
	 	 	55	 
	 	Section 12.9	 	Attorneys’ Fees
	 	 	55	 
	 	Section 12.10	 	No Third Party Beneficiaries
	 	 	55	 
	 	Section 12.11	 	Disclosure Schedules
	 	 	55	 
	 	Section 12.12	 	Amendments and Supplements
	 	 	56	 
	 	Section 12.13	 	Extensions, Waivers, etc.
	 	 	56	 
	 	Section 12.14	 	Specific Performance; Additional Remedies
	 	 	56	 

	 	 	 

	Exhibit A

	 	Form of Voting Agreement
	Exhibit B

	 	Form of Option Waiver, Cancellation and Release Agreement

iii

 

INDEX OF DEFINED TERMS

	 	 	 	 	 
	Term	 	Section	 
	Acquisition Proposal
	 	 	1.1	 
	Affiliate
	 	 	1.1	 
	Affiliate Transaction
	 	 	5.31	 
	Aggregate Cost Overrun
	 	 	7.1(b)(x)	
	Agreement
	 	Preamble	 
	AMI
	 	 	5.26(b)	
	Ancillary Agreements
	 	 	5.3	 
	Assessment
	 	 	8.15	 
	Audit
	 	 	1.1	 
	Book Entry Shares
	 	 	4.1(a)	
	Business Day
	 	 	1.1	 
	Business Employee
	 	 	1.1	 
	Cairn
	 	 	1.1	 
	Cancelled Excepted Option
	 	 	4.3(c)	
	Change in the Target Recommendation
	 	 	8.4(a)	
	Charter Documents
	 	 	3.2	 
	CIT Credit Agreement
	 	 	5.27(c)	
	CIT Forbearance and Amendment Agreement
	 	 	5.27(c)	
	Closing
	 	 	4.5	 
	Closing Date
	 	 	4.5	 
	Code
	 	 	1.1	 
	Confidentiality Agreement
	 	 	8.3	 
	Customary Post-Closing Consents
	 	 	1.1	 
	D&O Insurance
	 	 	8.5(d)	
	Dissenting Shares
	 	 	4.4(a)	
	Effective Time
	 	 	2.2	 
	Enforceability Exception
	 	 	1.1	 
	Engagement Letters
	 	 	1.1	 
	Environmental Laws
	 	 	1.1	 
	ERISA
	 	 	1.1	 
	Excepted Options
	 	 	4.3(a)	
	Exchange Act
	 	 	1.1	 
	Exchange Agent
	 	 	4.2(a)	
	Exchange Fund
	 	 	4.2(a)	
	Exclusivity Arrangements
	 	 	1.1	 
	Existing Derivative Transactions
	 	 	5.22	 
	Expenses
	 	 	1.1	 
	Fairness Opinion
	 	 	5.24	 
	FEMT
	 	 	5.27(b)	
	Fortis
	 	 	5.27(a)	
	Fortis Forbearance Agreement
	 	 	5.27(a)	
	Fortis Hedging Agreement
	 	 	5.27(b)	
	GAAP
	 	 	1.1	 
	Governmental Authority
	 	 	1.1	 
	Hazardous Substances
	 	 	1.1	 
	Hedging Agreements
	 	 	5.27(b)	
	Hedging Forbearance Agreement
	 	 	5.27(b)	
	HSR Act
	 	 	1.1	 
	Hydrocarbons
	 	 	1.1	 
	Indemnified Liabilities
	 	 	8.5(b)	
	Indemnified Party
	 	 	8.5(b)	
	Intellectual Property
	 	 	1.1	 
	JAR
	 	 	1.1	 
	JP Morgan
	 	 	1.1	 
	Knowledge of Target
	 	 	1.1	 
	Liens
	 	 	1.1	 
	LOP
	 	 	1.1	 
	Material Production Decline
	 	 	1.1	 
	Mayell
	 	 	5.26(a)	
	Mayell NPI Agreement
	 	 	5.26(b)	
	Merger
	 	Recitals	 
	Merger Consideration
	 	 	4.1(a)	
	Merger Sub
	 	Preamble	 
	Morgan Keegan
	 	 	1.1	 
	NPI Agreements
	 	 	5.26(b)	
	Oil and Gas Interests
	 	 	1.1	 
	Option Waiver, Cancellation and Release Agreement
	 	 	4.3(c)	
	Orion
	 	 	5.27(d)	
	Orion Forbearance and Amendment Agreement
	 	 	5.27(d)	
	Parent
	 	Preamble	 
	Parent Breach
	 	 	11.1(d)	
	Parent Material Adverse Effect
	 	 	1.1	 
	Parent Parties
	 	Preamble	 
	PCBs
	 	 	5.12(f)	
	Permits
	 	 	1.1	 
	Person
	 	 	1.1	 
	Proceeding
	 	 	8.5(b)	
	Proved Developed Producing
	 	 	1.1	 
	Proxy Statement
	 	 	8.1(a)	
	Reeves
	 	 	5.26(a)	
	Reeves NPI Agreement
	 	 	5.26(b)	
	Reeves Release
	 	 	5.26(c)	
	Representatives
	 	 	8.3	 
	Rivington
	 	 	1.1	 
	Sarbanes-Oxley Act
	 	 	1.1	 
	SEC
	 	 	1.1	 
	Securities Act
	 	 	1.1	 
	Subsidiary
	 	 	1.1	 
	Severance Package Table
	 	 	5.11(e)	
	Stock Certificate
	 	 	4.1(a)	
	Superior Proposal
	 	 	1.1	 
	Surviving Company
	 	 	2.1	 
	Sydson
	 	 	1.1	 
	Target
	 	Preamble	 
	Target Acquisition Contract
	 	 	8.4(a)	
	Target Benefit Plan
	 	 	1.1	 
	Target Breach
	 	 	11.1(e)	
	Target CIT Lenders
	 	 	5.27(c)	
	Target Common Shares
	 	 	4.1(a)	
	Target Credit Agreement
	 	 	5.27(a)	

iv

 

	 	 	 	 	 
	Term	 	Section	 
	Target Disclosure Schedule
	 	Article V	 
	Target Employee Agreement
	 	 	1.1	 
	Target Employees
	 	 	5.11(e)	
	Target ERISA Affiliate
	 	 	1.1	 
	Target Lenders
	 	 	5.27(a)	
	Target Material Adverse Effect
	 	 	1.1	 
	Target Material Contract
	 	 	1.1	 
	Target Options
	 	 	4.3(a)	
	Target Preferred Shares
	 	 	5.2(a)	
	Target Recommendation
	 	 	5.19(b)	
	Target Reserve Report
	 	 	5.16(a)	
	Target SEC Reports
	 	 	1.1	 
	Target Shareholders
	 	 	1.1	 
	Target Shareholders’ Approval
	 	 	5.19(a)	
	Target Shareholders Meeting
	 	 	8.2	 
	Target Warrants
	 	 	4.3(b)	
	Tax Authority
	 	 	1.1	 
	Tax Returns
	 	 	1.1	 
	Taxes
	 	 	1.1	 
	TBCA
	 	 	1.1	 
	TBOC
	 	 	1.1	 
	Termination Date
	 	 	11.1(b)	
	Termination Fee
	 	 	1.1	 
	TODD
	 	 	1.1	 
	Transactions
	 	 	4.5	 
	Voting Agreement
	 	Recitals	 
	WARN Act
	 	 	5.15(b)	
	Well Bonus Plans
	 	 	5.30	 

v

 

AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger (this “Agreement”) dated December 22, 2009, is entered into
by and among ALTA MESA HOLDINGS, LP, a Texas limited partnership (“Parent”), ALTA MESA ACQUISITION
SUB, LLC, a Texas limited liability company (“Merger Sub,” and, together with Parent, the “Parent
Parties”), and THE MERIDIAN RESOURCE CORPORATION, a Texas corporation (“Target”).

RECITALS

     The respective boards of directors or other governing bodies of Parent, Merger Sub and Target
deem it advisable and in the best interests of their respective entities, partners and members that
Target merge with and into Merger Sub (the “Merger”) upon the terms and subject to the conditions
set forth in this Agreement, and such boards of directors and governing bodies have approved this
Agreement and the Merger.

     Concurrently with the execution of this Agreement as a condition and inducement to the Parent
Parties entering into this Agreement and agreeing to perform their respective obligations
hereunder, each director and executive officer of Target has executed and delivered to Parent a
voting agreement in the form attached hereto as Exhibit A (individually, a “Voting
Agreement” and, collectively, the “Voting Agreements”) pursuant to which they have each agreed,
subject to the terms and conditions therein, to vote their Target Common Shares in favor of the
Transactions.

     In consideration of the premises and the representations, warranties and agreements contained
in this Agreement, the parties to this Agreement agree as follows:

ARTICLE I.

CERTAIN DEFINED TERMS

     Section 1.1 Certain Defined Terms. The following terms which are capitalized and used in this
Agreement have the meanings set forth below:

     “Acquisition Proposal” means any offer or proposal by any third party concerning any (i)
merger, consolidation, share exchange, tender offer, recapitalization, other business combination
or similar transaction directly or indirectly involving Target, or any of its Subsidiaries,
pursuant to which such Person would own fifty percent (50%) or more of the consolidated assets,
revenues or net income of Target, and its Subsidiaries, taken as a whole, (ii) sale, lease, license
or other disposition directly or indirectly by merger, consolidation, business combination, share
exchange, joint venture or otherwise, of assets of Target, (including equity interests of any of
its Subsidiaries) or any Subsidiary of Target, representing fifty percent (50%) or more of the
consolidated assets, revenues or net income of Target and its Subsidiaries, taken as a whole, in
each case in a single transaction or series of transactions, (iii) issuance or sale or other
disposition (including by way of merger, consolidation, business combination, share exchange, joint
venture or similar transaction) of equity interests representing fifty percent (50%) or more of the
voting power of Target, (iv) transaction or series of transactions in which any Person would
acquire beneficial ownership or the right to acquire beneficial ownership of equity

1

 

interests representing fifty percent (50%) or more of the voting power of Target, or (v) any
combination of the foregoing.

     “Affiliate” means, when used with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person. As used in the
definition of “Affiliate,” the term “control” means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, partnership or other ownership interests, by contract or
otherwise.

     “Audit” means any audit, assessment of Taxes, other examination by any Tax Authority,
proceeding or appeal of such proceeding relating to Taxes.

     “Business Day” means any day other than a Saturday or Sunday, or a day on which banking
institutions in the State of Texas are authorized or obligated by law or executive order to close.

     “Business Employee” means an individual who is employed by Target immediately prior to the
Effective Time and who thereafter remains or becomes an employee of Merger Sub or an Affiliate of
Merger Sub.

     “Cairn” means Cairn Energy USA, Inc., a wholly owned Subsidiary of Target.

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

     “Customary Post-Closing Consents” means approvals that are ministerial in nature and are
customarily obtained from Governmental Authorities after the Effective Time in connection with
transactions of the same nature as are contemplated hereby.

     “Enforceability Exception” means the effects of bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting the rights of creditors and of general
principles of equity.

     “Engagement Letters” means (i) that engagement letter, dated May 14, 2009, between Rivington
and Target, as amended, (ii) that engagement letter, dated July 22, 2008, between JP Morgan and
Target, as amended, and (iii) that engagement letter, dated November 2, 2009, between Morgan Keegan
and Target.

     “Environmental Laws” means all applicable federal, state and local statutes, ordinances,
restrictions, licenses, rules, orders, regulations, permit conditions, injunctive obligations,
standards, and legal requirements relating to the protection of the environment, the presence or
release of Hazardous Substances and human health and safety, including the common law and the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et
seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. §
2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), and
the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.),

2

 

as each is currently amended, and the regulations promulgated pursuant thereto, and all
analogous state and local laws.

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

     “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     “Exclusivity Arrangements” means any agreement, provision or covenant limiting the ability of
Target or its Subsidiaries to (i) sell products or services, (ii) engage in a line of business,
(iii) establish or maintain contacts related to its business in a geographic area or (iv) obtain
services from any Person or limiting such Person’s ability to provide products or services to
Target or its Subsidiaries.

     “Expenses” shall include all reasonable out-of-pocket expenses (including all reasonable fees
and expenses of outside counsel, accountants, financing sources, investment bankers, experts and
consultants to a party hereto and its Affiliates) incurred by a party or on its behalf in
connection with or related to the due diligence, authorization, preparation, negotiation, execution
and performance of this Agreement, the preparation, printing, filing and mailing of the Proxy
Statement, the solicitation of shareholder approvals, requisite HSR filings and all other matters
related to the consummation of the Transactions (subject to reasonable documentation).

     “GAAP” means generally accepted accounting principles in the United States.

     “Governmental Authority” means any governmental agency or authority (including a court) of the
United States, any other country, or any domestic or foreign state, and any political subdivision
thereof, and shall include any multinational authority having governmental or quasi-governmental
powers.

     “Hazardous Substances” means any chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, hazardous materials, petroleum, petroleum products or any
substance regulated under any Environmental Law.

     “HSR Act” means the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976.

     “Hydrocarbons” means oil, condensate, natural gas, casinghead gas and other liquid or gaseous
hydrocarbons.

     “Intellectual Property” means all patents, patent rights, trademarks, rights, trade names,
trade name rights, service marks, service mark rights, copyrights, technology, know-how, processes
and other proprietary intellectual property rights and computer programs.

     “JAR” means JAR Resource Holdings, LP.

     “JP Morgan” means J.P. Morgan Securities Inc.

     “knowledge of Target” and similar terms mean the current knowledge of: Paul D. Ching,
President, Chief Executive Officer and Chairman of the Board of Directors; Lloyd V. DeLano,

3

 

Senior Vice President, Chief Accounting Officer and Secretary; Alan S. Pennington, Vice
President-Business Development — TMRX; A. Dale Breaux, Vice President-Operations — TMRX; Steven
G. Ives, Vice President and Ethel Porciaux, Land Coordinator.

     “Liens” means all liens, mortgages, pledges, security interests, encumbrances, claims or
charges of any kind.

     “LOP” means Louisiana Onshore Properties LLC, a wholly owned Subsidiary of Target.

     “Material Production Decline” means a decline of ten percent (10%) or more in the monthly
aggregate average daily production rate of the Oil and Gas Interests of Target, as compared to
those monthly aggregate reserves classified as “Proved Developed Producing” reserves in the Target
Reserve Report; provided that, with respect to any wells identified as producing Hydrocarbons in
the Target Reserve Report, if Target or any of its Subsidiaries takes any action with respect to
any such well that is (i) outside the ordinary course of business (except to the extent in
accordance with the standards applicable to a prudent operator) or (ii) inconsistent with the
productive behavior thereof as contemplated by the third party engineering firm who prepared the
Target Reserve Report, and any such action would or could be reasonably likely to cause an increase
in production from any wells identified as producing Hydrocarbons in the Target Reserve Report,
then such increases in production shall be disregarded for purposes of this definition.

     “Morgan Keegan” means Morgan Keegan & Company, Inc.

     “Oil and Gas Interests” means direct and indirect interests in and rights with respect to oil,
gas, mineral, and related properties and assets of any kind and nature, direct or indirect,
including working, leasehold and mineral interests and operating rights and royalties, overriding
royalties, production payments, net profit interests and other non-working interests and
non-operating interests; all interests in rights with respect to Hydrocarbons and other minerals or
revenues therefrom, all contracts in connection therewith and claims and rights thereto (including
all oil and gas leases, operating agreements, unitization and pooling agreements and orders,
division orders, transfer orders, mineral deeds, royalty deeds, oil and gas sales, exchange and
processing contracts and agreements, and in each case, interests thereunder), surface interests,
fee interests, reversionary interests, reservations, and concessions; all easements, rights of way,
licenses, permits, leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing; and all interests in equipment and machinery (including
wells, well equipment and machinery), oil and gas production, gathering, transmission, treating,
processing, and storage facilities (including tanks, tank batteries, pipelines, and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing plants, refineries, and
other tangible personal property and fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing.

     “Parent Material Adverse Effect” means any material adverse effect on the ability of Parent or
Merger Sub to timely consummate the Merger and the Transactions.

4

 

     “Permits” means permits, licenses, certificates, consents, approvals, entitlements, plans,
surveys, relocation plans, environmental impact reports and other authorizations of Governmental
Authorities.

     “Person” means an individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including any Governmental Authority.

     “Rivington” means Rivington Capital Advisors, LLC.

     “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.

     “SEC” means the U.S. Securities and Exchange Commission.

     “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

     “Subsidiary” means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) at least a majority of the securities or other
interests having by their terms voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other organization is
directly or indirectly beneficially owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries, or (ii) such party or any
Subsidiary of such party is a general partner of a partnership or a manager of a limited liability
company.

     “Superior Proposal” means, with respect to Target, a bona fide written Acquisition Proposal
that the Target Board determines in good faith (after consultation with Target’s financial advisor
and outside legal counsel) to be (i) more favorable to the Target Shareholders than the Merger, and
(ii) reasonably expected to be consummated, taking into consideration the timing, conditionality,
legal, regulatory and other aspects of such Acquisition Proposal.

     “Sydson” means Sydson Energy, Inc.

     “Target Benefit Plan” means any individual or group employee benefit plans or arrangements of
any type (including plans described in Section 3(3) of ERISA), sponsored, maintained or contributed
to by Target or a Target ERISA Affiliate within six (6) years prior to the Effective Time.

     “Target Employee Agreement” means any employment, severance or similar agreement with respect
to which Target or any Target ERISA Affiliate has any current or future obligation or liability.

     “Target ERISA Affiliate” means any trade or business, whether or not incorporated, which
together with Target would, on the date of this Agreement, be deemed a “single employer” within the
meaning of Section 414(b), (c) or (m) of the Code or Section 4001(b)(1) of ERISA.

5

 

     “Target Material Adverse Effect” means any event, circumstance, condition, development or
occurrence causing, resulting in or having (or with the passage of time likely to cause, result in
or have) a material adverse effect on the financial condition, business, assets, properties or
results of operations of Target and its Subsidiaries, taken as a whole, including but not limited
to any of the following: a Material Production Decline, the bankruptcy of Target or any of its
Subsidiaries, uninsured casualty losses of Target and its Subsidiaries in excess of $1,000,000 in
the aggregate, the initiation of litigation or an arbitration proceeding against Target or any of
its Subsidiaries that could reasonably result in damages in excess of $1,000,000, the initiation of
an investigation by the SEC, and the initiation of foreclosure proceedings against any of Target’s
or its Subsidiaries’ assets or the delivery of a notice of cross default by any of Target’s or its
Subsidiaries’ lenders; provided that in no event shall any of the following be deemed to
constitute or be taken into account in determining a Target Material Adverse Effect: (i) general
business or economic conditions or the capital, financial, banking or currency markets, or changes
therein; (ii) conditions generally affecting the industry in which any of the Target or any of its
Subsidiaries operate or changes therein, including the market price of oil or natural gas or
changes thereof; (iii) the negotiation, execution, announcement, or pendency or performance of this
Agreement or any of the Transactions contemplated hereby, including any change in the relationship
of the Target or any of its Subsidiaries with their respective employees, customers, suppliers,
investors and contractual counterparties, and any litigation resulting therefrom; (iv) (A) any
action or omission required or permitted by this Agreement or (B) any action taken at the request
of Parent; (v) any action taken by Parent or Merger Sub; (vi) any change in the market price for or
trading volume of the Target’s stock; (vii) any changes in laws or applicable accounting
regulations or principles, or interpretations thereof; and (viii) the commencement, continuation or
escalation of war, terrorism or hostilities, or natural disasters or political events.

     “Target Material Contract” means each contract, lease, indenture, agreement, arrangement or
understanding to which Target or any of its Subsidiaries is subject that is currently in effect and
is of a type that would be required to be included as an exhibit to a Form S-1 registration
statement pursuant to the rules and regulations of the SEC if such a registration statement were
filed by Target.

     “Target SEC Reports” means each form, registration statement, report, schedule, proxy or
information statement and other document (including exhibits and amendments thereto) required to be
filed by the Target with the SEC since January 1, 2009 under the Securities Act or the Exchange
Act.

     “Target Shareholders” shall mean the holders of Target Common Shares.

     “Tax Authority” means the Internal Revenue Service and any other domestic or foreign
Governmental Authority responsible for the administration of any Taxes.

     “Tax Returns” means all Federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any amended Tax Return relating
to Taxes.

6

 

     “Taxes” means (i) any and all taxes, customs, duties, tariffs, imposts, charges, deficiencies,
assessments, levies or other like governmental charges, including, without limitation, income,
gross receipts, excise, real or personal property, ad valorem, value added, estimated, alternative
minimum, stamp, sales, withholding, social security, occupation, use, service, service use,
license, net worth, payroll, franchise, transfer and recording taxes and charges, imposed by any
Tax Authority, whether computed on a separate, consolidated, unitary, combined or any other basis;
and such term shall include any interest, fines, penalties or additional amounts attributable to,
or imposed upon, or with respect to, any such amounts, (ii) any liability for the payment of any
amounts described in (i) as a result of being a member of an affiliated, consolidated, combined,
unitary, or similar group or as a result of transferor or successor liability, and (iii) any
liability for the payment of any amounts as a result of being a party to any tax sharing agreement
or as a result of any obligation to indemnify any other person with respect to the payment of any
amounts of the type described in clauses (i) or (ii).

     “TBCA” means the Texas Business Corporations Act, as amended, as applicable to the Target,
Parent Parties and the Transactions.

     “TBOC” means the Texas Business Organizations Code, as amended, as applicable to Target,
Parent Parties and the Transactions.

     “Termination Fee” means $3,000,000.

     “TMRX” means The Meridian Resource & Exploration LLC, a wholly owned Subsidiary of Target.

     “TODD” means Texas Oil Distribution & Development, Inc.

ARTICLE II.

THE MERGER

     Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective
Time, Target shall merge with and into Merger Sub and the separate corporate existence of Target
shall thereupon cease and Merger Sub shall be the surviving company in the Merger (sometimes
referred to herein as the “Surviving Company”). The Merger shall have the effects set forth in
Article 5.06 of the TBCA and Section 10.008 of the TBOC, including the Surviving Company’s
succession to and assumption of all rights and obligations of Target.

     Section 2.2 Effective Time of the Merger. The Merger shall become effective (the “Effective
Time”) upon the later of (i) the date of filing of a properly executed Certificate of Merger
relating to the Merger with the Secretary of State of Texas in accordance with the TBOC, and (ii)
at such later time as the parties shall agree and set forth in such Certificate of Merger. The
filing of the Certificate of Merger referred to above shall be made as soon as practicable on the
Closing Date set forth in Section 4.5.

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ARTICLE III.

THE SURVIVING COMPANY

     Section 3.1 Certificate of Formation. The Certificate of Formation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of Formation of the Surviving
Company at and after the Effective Time until thereafter amended in accordance with the terms
thereof and the TBOC.

     Section 3.2 Charter Documents. The organizational documents, including the company agreement,
of Merger Sub (the “Charter Documents”) as in effect immediately prior to the Effective Time shall
be the Charter Documents of the Surviving Company at and after the Effective Time, and thereafter
may be amended in accordance with their terms and as provided by the Surviving Company’s Charter
Documents and the TBOC.

     Section 3.3 Directors and Officers. At and after the Effective Time, the directors and
officers of Merger Sub shall be the directors and officers of the Surviving Company until their
respective successors have been duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Surviving Company’s Charter Documents and the
TBOC.

ARTICLE IV.

CONVERSION OF SHARES

     Section 4.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any capital stock described below:

     (a) All shares of issued and outstanding common stock of Target, par value $.01 per
share (“Target Common Shares”) (other than (i) Target Common Shares held by Parent, Merger
Sub or any wholly owned Subsidiary of Parent or Merger Sub, (ii) the Dissenting Shares and
(iii) Target Common Shares held in Target’s treasury), shall be converted into the right to
receive an amount in cash, without interest, equal to $0.29 per Target Common Share (the
“Merger Consideration”). At the Effective Time, all Target Common Shares converted into
Merger Consideration pursuant to this Section 4.1 shall cease to be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and each holder of a
certificate (“Stock Certificate”) or of non-certificated Target Common Shares represented by
a book entry (the “Book Entry Shares”) that, immediately prior to the Effective Time
represented such Target Common Shares shall cease to have any rights with respect thereto,
except the right to receive Merger Consideration, without interest.

     (b) Each Target Common Share issued and held in Target’s treasury shall (i) cease to be
outstanding, (ii) be canceled and retired without payment of any consideration therefor, and
(iii) cease to exist.

     (c) With respect to the Dissenting Shares, subject to Section 4.4, such
Dissenting Shares, by virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be canceled and retired and shall cease to
exist, and each Dissenting Shareholder shall thereafter cease to have any rights

8

 

with respect to such Dissenting Shares, except the rights, if any, as are granted by
Article 5.13 of the TBCA or Subchapter H of Chapter 10 of the TBOC, as applicable.

     (d) Each Target Common Share held by Parent, Merger Sub or any other Subsidiary of
Parent shall (i) cease to be outstanding, (ii) be canceled and retired without payment of
any consideration therefor, and (iii) cease to exist.

     (e) All of the membership interest of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into the membership interest of the Surviving
Company with the same rights, powers and privileges as the membership interest so converted
and shall constitute the only outstanding membership interest of the Surviving Company.

     Section 4.2 Surrender and Payment

     (a) Parent and Target shall authorize a transfer agent, commercial bank or trust
company reasonably acceptable to both parties to act as exchange agent under this Agreement
(the “Exchange Agent”) for payment of the Merger Consideration upon surrender of Stock
Certificates and Book Entry Shares representing the Target Common Shares. At or prior to
the Effective Time, Parent or Merger Sub shall deposit with the Exchange Agent for the
benefit of the holders of Target Common Shares, cash in an amount equal to the aggregate
amount of Merger Consideration to which holders of Target Common Shares shall be entitled at
the Effective Time pursuant to Section 4.1 in exchange for outstanding Target Common
Shares (such amounts being hereinafter referred to as the “Exchange Fund”). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration in
exchange for surrendered Stock Certificates or Book Entry Shares pursuant to Section
4.1 out of the Exchange Fund. Except as contemplated by Section 4.2(d), the
Exchange Fund shall not be used for any other purpose.

     (b) Promptly but in any event within five (5) Business Days after the Effective Time,
the Surviving Company shall cause the Exchange Agent to send to each holder of record of
Stock Certificates or Book Entry Shares a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and title with
respect to the Stock Certificates or Book Entry Shares shall pass, only upon proper delivery
of the Stock Certificates or Book Entry Shares to the Exchange Agent, and which shall be in
a form reasonably acceptable to Target), and instructions for use in effecting the surrender
of Stock Certificates or Book Entry Shares for payment therefor in accordance herewith.
Upon proper surrender of a Stock Certificate or Book Entry Shares for exchange and
cancellation to the Exchange Agent, together with such properly completed letter of
transmittal, duly executed, the holder of such Stock Certificate or Book Entry Shares shall
be entitled to receive in exchange therefor the amount of Merger Consideration provided in
Section 4.1(a), and the Stock Certificate or Book Entry Shares so surrendered shall
forthwith be cancelled.

     (c) If any portion of the Merger Consideration is to be issued or paid to a Person
other than the registered holder of Target Common Shares represented by the

9

 

Stock Certificates or Book Entry Shares surrendered in exchange therefor, no such
issuance or payment shall be made unless (i) the Stock Certificates or Book Entry Shares so
surrendered have been properly endorsed or otherwise be in proper form for transfer and (ii)
the Person requesting such issuance has paid to the Exchange Agent any transfer or other
Taxes required as a result of such issuance to a Person other than the registered holder or
establish to the Exchange Agent’s satisfaction that such tax has been paid or is not
applicable.

     (d) Any portion of the Exchange Fund that remains unclaimed by the holders of Target
Common Shares one (1) year after the Effective Time shall be returned to Merger Sub, upon
demand, and any such holder who has not exchanged such holder’s Target Common Shares in
accordance with this section prior to that time shall thereafter look only to the Surviving
Company, as a general creditor thereof, to exchange such Target Common Shares or to pay
amounts to which such holder is entitled pursuant to Section 4.1. If outstanding
Target Common Shares are not surrendered prior to six (6) years after the Effective Time
(or, in any particular case, prior to such earlier date on which any Merger Consideration
issuable or payable upon the surrender of such Target Common Shares would otherwise escheat
to or become the property of any Governmental Authority), the Merger Consideration issuable
or payable upon the surrender of such Target Common Shares shall, to the extent permitted by
applicable law, become the property of the Surviving Company, free and clear of all claims
or interest of any Person previously entitled thereto. Notwithstanding the foregoing, none
of Parent, Merger Sub, Target or the Surviving Company shall be liable to any holder of
Target Common Shares for any amount paid, or Merger Consideration delivered, to a public
official pursuant to applicable abandoned property, escheat or similar laws.

     (e) If any Stock Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Stock Certificate is lost, stolen or
destroyed and, if required by the Surviving Company, the posting by such Person of a bond in
such reasonable amount as the Surviving Company may direct as indemnity against any claim
that may be made against it with respect to such Stock Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Stock Certificate the Merger
Consideration in respect thereof pursuant to this Agreement.

     Section 4.3 Stock Options; Warrants

     (a) Except with respect to the stock options set forth on Section 4.3(a) of the Target
Disclosure Schedule (the “Excepted Options”), Target represents and warrants that each stock
option of Target (the “Target Options”) that is not fully exercisable as of the date of this
Agreement will automatically become fully vested and exercisable immediately prior to the
Effective Time pursuant to the terms of the applicable employee benefit plan and other
agreements. The consideration for the cancellation of each Target Option shall be (x) the
amount by which the Merger Consideration exceeds the per share exercise price of such Target
Option multiplied by (y) the number of Target Common Shares covered by the outstanding
portion of the cancelled Target Option; provided that if the exercise price of such Target
Option is equal to or greater than the Merger Consideration, such Target Option shall be
cancelled without any cash payment being

10

 

made in respect thereof. Any payment made pursuant to this Section 4.3(a)
shall be reduced by any income or employment Tax withholding required under (i) any
applicable state or local Tax laws or (ii) any other applicable laws. Each Target Option
shall be cancelled and no longer be outstanding at or immediately prior to the Effective
Time. The Surviving Company shall pay such consideration to the holders of Target Options
promptly after the Effective Time, but in no event more than two (2) Business Days after the
Effective Time. Target will take any and all actions necessary on or before the Effective
Time to terminate all Excepted Options as provided in Section 4.3(c).

     (b) Target shall cause each warrant of Target (the “Target Warrants”) to become fully
exercisable immediately prior to the Effective Time. The consideration for the cancellation
of each Target Warrant shall be (x) the amount by which the Merger Consideration exceeds the
per share exercise price of such Target Warrant multiplied by (y) the number of Target
Common Shares covered by the outstanding portion of the cancelled Target Warrant. Each
Target Warrant shall be cancelled and no longer be outstanding at or immediately prior to
the Effective Time. The Surviving Company shall pay such consideration to the holders of
Target Warrants promptly after the Effective Time, but in no event more than two (2)
Business Days after the Effective Time.

     (c) With respect to the Excepted Options, each Excepted Option that is not fully
exercisable and that is outstanding immediately prior to the Effective Time, will
automatically become fully vested and exercisable immediately prior to the Effective Time.
Prior to the Effective Time, Target shall cause each holder of an Excepted Option to enter
into a written agreement, substantially in the form attached hereto as Exhibit B,
pursuant to which the aggregate number of such Excepted Options will be canceled at the
Effective Time and converted into the right to receive a $10.00 cash payment, without
interest (the “Option Waiver, Cancellation and Release Agreement”). Each optionholder who
holds an Excepted Option that has been canceled (a “Cancelled Excepted Option”) shall have
no rights with respect to such Cancelled Excepted Option to receive any other consideration
in connection with the Merger or otherwise. Any payments made to a holder of an Excepted
Option will be reduced by any income or employment Tax withholding required under (x) the
Code, (y) any applicable state or local Tax laws, or (z) any other applicable laws. To the
extent that any amounts are so withheld, those amounts shall be treated as having been paid
to the holder of a Cancelled Excepted Option for all purposes under this Agreement. Target
shall make the payments in respect of the Cancelled Excepted Options as promptly as
practicable following the cancellation of such Cancelled Excepted Options as contemplated by
this Section 4.3(c).

     Section 4.4 Dissenting Shares

     (a) Notwithstanding Section 4.1(a), Target Common Shares that are held by any holder
who has exercised such holder’s right to demand appraisal for such shares in accordance with
the TBCA or TBOC (the “Dissenting Shares”) shall not be converted into the right to receive
the Merger Consideration (unless such holder fails to perfect or withdraws or otherwise
loses the right to appraisal). Holders of Dissenting Shares shall have those rights, but
only those rights, of holders who perfect their appraisal rights pursuant to the TBCA or
TBOC, as applicable; provided, however, that any holder of

11

 

Dissenting Shares who shall have failed to perfect or shall have withdrawn or lost his
rights to appraisal of such Dissenting Shares, in each case under the TBCA or TBOC, as
applicable, shall forfeit the right to appraisal of such Dissenting Shares, and such
Dissenting Shares shall be treated as if they had been converted into the right to receive,
as of the Effective Time, the Merger Consideration, without interest. Notwithstanding
anything to the contrary contained in this section, if the Merger is terminated, rescinded
or abandoned, then the right of any Target Shareholder to be paid the fair value of such
shareholder’s Dissenting Shares shall cease. The Surviving Company shall comply with all of
its obligations under the TBCA or TBOC, as applicable, with respect to holders of Dissenting
Shares.

     (b) Target shall give the Parent Parties (i) prompt written notice of any demands for
appraisal, any withdrawals of such demands received by Target and any other related
instruments served pursuant to the TBCA or TBOC, as applicable, and received by Target, and
(ii) the right to participate in all negotiations and proceedings with respect to demands
for appraisal under the TBCA or TBOC, as applicable. Target shall not, except with the
prior written consent of the Parent, voluntarily make any payment with respect to any
demands for appraisal or offer to settle or settle any such demands.

     Section 4.5 Closing. The closing (the “Closing”) of the transactions contemplated by this
Agreement (the “Transactions”) shall take place as soon as practicable, and in any event not later
than one (1) Business Day following the date on which the conditions to the Closing set forth in
Article IX (excluding conditions that, by their terms, cannot be satisfied until the
Closing, but subject to the satisfaction or waiver of such conditions at the Closing) have been
satisfied or waived or at such other place, time and date as the parties hereto may agree in
writing (the “Closing Date”). The Closing shall take place at the offices of Haynes and Boone,
LLP, 1221 McKinney Street, Suite 2100, Houston, Texas, 77010 on the Closing Date.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES OF TARGET

     Except as disclosed in the disclosure letter, dated as of the date of this Agreement and
delivered to Parent in connection with the execution and delivery of this Agreement (the “Target
Disclosure Schedule”), which disclosure shall be subject to Section 12.11 hereof, the
Target represents and warrants to the Parent Parties as follows:

     Section 5.1 Organization and Qualification

     (a) Target is a corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has the corporate power to own, use or lease its properties
and to carry on its business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the failure to be so duly qualified
and in good standing would reasonably be expected to have a Target Material Adverse Effect.
Target has made available to the Parent Parties a complete and correct copy of its articles
of incorporation and bylaws (or similar organizational documents), each as amended to the
date hereof. Target is not in violation of any

12

 

provision of its articles of incorporation or bylaws (or similar organizational
documents), except for any such violation as would not reasonably be expected to have a
Target Material Adverse Effect.

     (b) Section 5.1(b) of the Target Disclosure Schedule lists, as of the date hereof, the
name and jurisdiction of organization of each Subsidiary of Target and the jurisdictions in
which each such Subsidiary is qualified or holds licenses to do business as a foreign
corporation or other organization. Each such Subsidiary is a corporation or other
organization duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has the requisite corporate power to own, use or lease its
properties and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the failure to be so duly
qualified and in good standing would reasonably be expected to have a Target Material
Adverse Effect. Target has made available to the Parent Parties a complete and correct copy
of the articles of incorporation and bylaws (or similar organizational documents) of each of
Target’s Subsidiaries, each as amended to the date hereof. No Subsidiary of Target is in
violation of any provision of its articles of incorporation or bylaws (or similar
organizational documents) except for any such violation as would not reasonably be expected
to have a Target Material Adverse Effect. Other than Target’s Subsidiaries, Target does not
beneficially own or control, directly or indirectly, five percent (5%) or more of any class
of equity or similar securities of any corporation or other organization, whether
incorporated or unincorporated.

     Section 5.2 Capitalization

     (a) The authorized capital stock of Target consists of 200,000,000 Target Common Shares
and 25,000,000 shares of preferred stock, par value $1.00 per share (“Target Preferred
Shares”). As of December 17, 2009, (i) 92,475,527 Target Common Shares were issued and
outstanding, (ii) no Target Preferred Shares were issued and outstanding, (iii) stock
options to acquire 449,000 Target Common Shares were outstanding under all stock option
plans and agreements of Target and all such options have an exercise price in excess of the
Merger Consideration, and (iv) 3,300,998 warrants of Target were outstanding, of which
1,428,000 of such warrants have an exercise price of $5.85 and, if unexercised, will expire
on December 29, 2009. There are no bonds, debentures, notes or other indebtedness issued or
outstanding having the right to vote with the Target Shareholders, whether together or as a
separate class, on any matters on which the Target Shareholders may vote. All of the
outstanding Target Common Shares are validly issued, fully paid and nonassessable, and free
of preemptive rights. Except as set forth above or in Section 5.2(a) of the Target
Disclosure Schedule, and other than this Agreement, as of the date hereof, there are no
outstanding subscriptions, options, rights, warrants, convertible securities, stock
appreciation rights, phantom equity, or other agreements or commitments (including “rights
plans” or “poison pills”) obligating Target to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class. Except for the Voting
Agreements, there are no agreements, arrangements or other understandings to which Target is
a party with respect to the right to vote any shares of capital stock of Target.

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     (b) Except as set forth in Section 5.2(b) of the Target Disclosure Schedule, Target is,
directly or indirectly, the record and beneficial owner of all of the outstanding shares of
capital stock of each Subsidiary of Target, there are no irrevocable proxies with respect to
any such shares, and no equity securities of any Subsidiary of Target are or may become
required to be issued because of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights convertible
into or exchangeable or exercisable for, any shares of capital stock of any Subsidiary of
Target. As of the date hereof, there are no contracts, commitments, understandings or
arrangements by which Target or any Subsidiary of Target is or may be bound to issue
additional shares of capital stock of any Subsidiary of Target or securities convertible
into or exchangeable or exercisable for any such shares. Except as set forth in Section
5.2(b) of the Target Disclosure Schedule, all of such shares Target owns are validly issued,
fully paid and nonassessable and are owned by it free and clear of all Liens, other than
Liens imposed by applicable securities laws.

     Section 5.3 Authority. Target has all necessary corporate power and authority to execute and
deliver this Agreement and any ancillary agreements relating to the Transactions to which Target is
or will be a party (the “Ancillary Agreements”) and, subject to obtaining the Target Shareholders’
Approval, to consummate the Transactions. The execution, delivery and performance of this
Agreement and the Ancillary Agreements to which Target is or will be a party and the consummation
of the Transactions have been duly and validly authorized by Target’s Board of Directors, and no
other corporate proceedings on the part of Target are necessary to authorize this Agreement and the
Ancillary Agreements to which Target is or will be a party or to consummate the Transactions, other
than the Target Shareholders’ Approval and the filing of the Certificate of Merger, in each case,
pursuant to the requirements of the TBOC and TBCA, as applicable. This Agreement has been, and the
Ancillary Agreements to which Target is or will be a party are, or upon execution will be, duly and
validly executed and delivered by Target and, assuming the due authorization, execution and
delivery hereof and thereof by the other parties hereto and thereto, constitutes, or upon execution
will constitute, valid and binding obligations of Target enforceable against Target in accordance
with their respective terms, except as such enforceability may be subject to the effects of the
Enforceability Exception.

     Section 5.4 Consents and Approvals; No Violation. The execution and delivery of this
Agreement by Target, the consummation of the Transactions by Target and the performance by Target
of its obligations hereunder will not:

     (a) subject to receipt of the Target Shareholders’ Approval, conflict with any
provision of Target’s articles of incorporation or bylaws, as amended, or other similar
organizational documents of any of its Subsidiaries;

     (b) subject to obtaining the Target Shareholders’ Approval and the filing of the
Certificate of Merger with the Secretary of State of Texas, require any consent, waiver,
approval, order, authorization or permit of, or registration, filing with or notification
to, (i) any Governmental Authority, except for applicable requirements of the HSR Act, the
Securities Act, the Securities Exchange Act, state laws relating to takeovers, if
applicable, state securities or blue sky laws, except as set forth in

14

 

Section 5.4(b) of the Target Disclosure Schedule and except for Customary Post-Closing Consents
or (ii) except as set forth in Section 5.4(b) of the Target Disclosure Schedule, any third
party other than a Governmental Authority, other than such non-Governmental Authority third
party consents, waivers, approvals, orders, authorizations and Permits that would not (i)
impair in any material respect the ability of Target or any of its Subsidiaries, as the case
may be, to perform its obligations under this Agreement or any Ancillary Agreement or (ii)
prevent the consummation of any of the Transactions;

     (c) except as set forth in Section 5.4(c) of the Target Disclosure Schedule, result in
any violation of or the breach of or constitute a default (with notice or lapse of time or
both) under, or give rise to any right of termination, cancellation or acceleration or
guaranteed payments or a loss of a material benefit under, any of the terms, conditions or
provisions of any note, lease, mortgage, license, agreement or other instrument or
obligation to which Target, or any of its Subsidiaries, is a party or by which Target or any
of its Subsidiaries or any of their respective properties or assets may be bound, except for
such violations, breaches, defaults, or rights of termination, cancellation or acceleration,
or losses as to which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not (i) materially impair the ability of Target or
any of its Subsidiaries to perform their obligations under this Agreement or any Ancillary
Agreement or (ii) prevent the consummation of any of the Transactions;

     (d) except as set forth in Section 5.4(d) of the Target Disclosure Schedule, violate
the provisions of any order, writ, injunction, judgment, decree, statute, rule or regulation
applicable to Target or any of its Subsidiaries; or

     (e) except as set forth in Section 5.4(e) of the Target Disclosure Schedule, result in
the creation of any Liens upon any shares of capital stock or properties or assets of Target
or any of its Subsidiaries under any agreement or instrument to which Target or any of its
Subsidiaries is a party or by which Target or any of its Subsidiaries or any of their
properties or assets is bound.

     Section 5.5 Target SEC Reports

     (a) Target has filed with the SEC true and complete copies of the Target SEC Reports.
As of the respective dates the Target SEC Reports were filed or, if any Target SEC Reports
were amended, as of the date such amendment was filed, each Target SEC Report: (i) included
all financial statements, schedules and exhibits required to be included therein, (ii)
complied in all material respects with all applicable requirements of the Securities Act and
the Exchange Act, as the case may be, and (iii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they were
made, not misleading. No event since the date of the last Target SEC Report has occurred
that would require Target to file a current report on Form 8-K other than the execution of
this Agreement and the agreements referred to in Section 5.26 and Section
5.27 and executed concurrently with this Agreement.

15

 

     (b) The chief executive officer and principal financial officer of Target have made all
certifications (without qualification or exceptions to the matters certified) required by,
and would be able to make such certifications (without qualification or exception to the
matters certified) as of the date hereof as if required to be made as of the date hereof
pursuant to, the Sarbanes-Oxley Act and any related rules and regulations promulgated by the
SEC, and the statements contained in any such certifications are complete and correct;
neither Target nor its officers have received notice from any Governmental Authority
questioning or challenging the accuracy, completeness, form or manner of filing or
submission of such certification. Target maintains “disclosure controls and procedures” (as
defined in Rule 13a-14(c) under the Exchange Act); such disclosure controls and procedures
are effective to ensure that all material information concerning Target and its Subsidiaries
is made known on a timely basis to the individuals responsible for preparing Target SEC
Reports and other public disclosures and Target is otherwise in compliance with all
applicable effective provisions of the Sarbanes-Oxley Act and any related rules and
regulations promulgated by the SEC.

     Section 5.6 Target Financial Statements. Each of the audited consolidated financial
statements and unaudited consolidated interim financial statements of Target (including any related
notes and schedules) included (or incorporated by reference) in its annual reports on Form 10-K for
each of the three fiscal years ended December 31, 2006, 2007 and 2008 and its quarterly reports on
Form 10-Q for its fiscal quarters ended March 31, June 30 and September 30, 2009 have been prepared
from, and are in accordance with, the books and records of Target and its consolidated
Subsidiaries, comply in all material respects with GAAP and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on
a consistent basis (except as may be indicated in the notes thereto and subject, in the case of
quarterly financial statements, to normal and recurring year-end adjustments) and fairly present,
in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of Target and its Subsidiaries as of the date thereof
and the consolidated results of operations and cash flows (and changes in financial position, if
any) of Target and its Subsidiaries for the periods presented therein (subject to normal year-end
adjustments and the absence of financial footnotes in the case of any unaudited interim financial
statements).

     Section 5.7 Absence of Undisclosed Liabilities; Liabilities as of Year End. Except (a) as set
forth in Section 5.7 of the Target Disclosure Schedule, (b) as reflected, reserved for or disclosed
in the Target SEC Reports filed and publicly available prior to the date hereof, (c) for
liabilities and obligations incurred in the ordinary course of business and consistent with past
practice since September 30, 2009, and (d) liabilities and obligations incurred in connection with
this Agreement and the Transactions, neither Target nor any of its Subsidiaries have incurred any
material liabilities or obligations of any nature (contingent or otherwise) that would be required
by GAAP to be reflected on a consolidated balance sheet of Target and its Subsidiaries or the notes
thereto which are not reflected.

     Section 5.8 Absence of Certain Changes. Except (a) as disclosed in the Target SEC Reports
filed and publicly available prior to the date hereof, (b) as set forth in Section 5.8 of the
Target Disclosure Schedule or (c) as contemplated by this Agreement, from December 31, 2008 to the
date hereof (i) Target and its Subsidiaries have conducted their respective businesses

16

 

only in the ordinary course of business, (ii) there has not been a Target Material Adverse
Effect, (iii) there has not been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Target, or any repurchase, redemption
or other acquisition by Target or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, Target or any of its Subsidiaries,
(iv) there has not been any amendment of any term of any outstanding security of Target or any of
its Subsidiaries, and (v) there has not been any change in any method of accounting or accounting
practice by Target or any of its Subsidiaries, except for any such change required because of a
concurrent change in GAAP or to conform a Subsidiary’s accounting policies and practices to those
of Target.

     Section 5.9 Taxes. Except as otherwise disclosed in Section 5.9 of the Target Disclosure
Schedule:

     (a) Target and each of its Subsidiaries have timely filed (or have had timely filed on
their behalf) or will file or cause to be timely filed, all material Tax Returns required
by applicable law to be filed by any of them prior to or as of the Closing Date taking into
account all extensions of time to file. As of the time of filing, the foregoing Tax Returns
correctly reflected the material facts regarding the income, business, assets, operations,
activities, status, or other matters of Target and its Subsidiaries. Such material Tax
Returns are true, correct and complete.

     (b) Target and each of its Subsidiaries have paid (or have had paid on their behalf),
or will pay or cause to be paid on or before the Closing Date, or where payment is not yet
due, have established (or have had established on their behalf), or will establish or cause
to be established on or before the Closing Date, an adequate accrual for, all Taxes due with
respect to any period ending prior to or as of the Closing Date; provided, however, no
amount shall be included in such accrual for any Taxes which may arise as a result of the
consummation of the Merger. Target and each of its Subsidiaries have withheld and paid all
Taxes required to have been withheld and paid in connection with any amounts paid or owing
to any employee, independent contractor, creditor, shareholder, or other third party.

     (c) No Audit by a Tax Authority is pending or to the knowledge of Target, threatened,
with respect to any material Tax Returns filed by, or material Taxes due from, Target or any
of its Subsidiaries. No issue has been raised by any Tax Authority in any Audit of Target
or any of its Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any period not so audited.
No material deficiency or adjustment for any Taxes has been, proposed, asserted, assessed
or to the knowledge of Target, threatened, against Target or any of its Subsidiaries. There
are no Liens for Taxes upon the assets of Target or any of its Subsidiaries, except Liens
for current Taxes not yet delinquent.

     (d) Neither Target nor any of its Subsidiaries has given or been requested to give any
waiver of statutes of limitations relating to the payment of Taxes or have executed powers
of attorney with respect to Tax matters, which will be outstanding as of the Closing Date.

17

 

     (e) Neither Target nor any of its Subsidiaries is a party to any agreement or
understanding providing for the allocation or sharing of Taxes, other than with respect to
each other.

     (f) Except for the group of which it is currently a member, during the last six (6)
years neither Target nor any Subsidiary thereof has been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code.

     (g) Neither Target nor any of its Subsidiaries has agreed or, to the knowledge of
Target, will be required to make any adjustment under Section 481(a) of the Code by reason
of change in accounting method or otherwise.

     (h) During the last two (2) years, neither Target nor any of its Subsidiaries has
distributed stock of another Person, or has had its stock distributed by another Person in a
transaction that was purported or intended to be governed in whole or in part by Code
Section 355 or 361.

     (i) Neither Target nor any of its Subsidiaries has assets subject to a lease to a “tax
exempt entity” within the meaning of Section 168(h)(2) of the Code.

     (j) Each of Target and each of its Subsidiaries has made available to the Parent
Parties correct and complete copies of (i) all of their Tax Returns filed within the past
five (5) years, (ii) all Audit reports, letter rulings, technical advice memoranda and
similar documents issued by a Governmental Authority within the past five (5) years relating
to the federal, state, local or foreign Taxes due from or with respect to any of them and
(iii) any closing letters or agreements with respect to Taxes entered into by any of them
with any Tax Authorities within the past five (5) years.

     Section 5.10 Litigation. Except as disclosed in the Target SEC Reports filed and publicly
available prior to the date hereof or Section 5.10 of the Target Disclosure Schedule, there is no
material suit, claim, action, proceeding or investigation pending or, to the knowledge of Target,
threatened against or directly affecting Target, any Subsidiaries of Target or any of the directors
or officers of Target or any of its Subsidiaries in their capacity as such, nor is there any
reasonable basis therefore. Except as disclosed on the Target SEC Reports filed and publicly
available prior to the date hereof or Section 5.10 of the Target Disclosure Schedule, neither
Target nor any of its Subsidiaries, nor any officer, director or employee of Target or any of its
Subsidiaries has been permanently or temporarily enjoined by any order, judgment or decree of any
court or any other Governmental Authority from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of Target or such Subsidiary nor, to the
knowledge of Target, is Target, any of its Subsidiaries or any officer, director or employee of
Target or any of its Subsidiaries under investigation by any Governmental Authority. Except as
disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or
Section 5.10 of the Target Disclosure Schedule, there is no order, judgment or decree of any court
or other tribunal or other agency extant enjoining or requiring Target or any of its Subsidiaries
to take any action of any kind with respect to its business, assets or properties.

18

 

     Section 5.11 Employee Benefit Plans; ERISA

     (a) Section 5.11(a)(1) of the Target Disclosure Schedule contains a true and complete
list of the Target Benefit Plans (other than the Target Employee Agreements) and Section
5.11(a)(2) of the Target Disclosure Schedule lists each Target Employee Agreement.

     (b) Except as set forth in Section 5.11(b) of the Target Disclosure Schedule, with
respect to each Target Benefit Plan: (i) if intended to qualify under Section 401(a) or
401(k) of the Code, such plan satisfies in all material respects the requirements of such
Section, Target or a Target ERISA Affiliate has received a favorable determination letter
from the Internal Revenue Service with respect to such plan’s qualification under Section
401(a) of the Code, and such plan’s related trust has been determined to be exempt from tax
under Section 501(a) of the Code and, to the knowledge of Target, nothing has occurred since
the date of such letter which would reasonably be expected to adversely affect such
qualification or exemption; (ii) each such plan has been administered in all material
respects in substantial compliance with its terms and applicable law; (iii) neither Target
nor any Target ERISA Affiliate has engaged in, and to the knowledge of Target no other
Person has engaged in, any transaction or acted or failed to act in any manner that would
subject Target or any Target ERISA Affiliate to any liability for a breach of fiduciary duty
under ERISA that would result in a Target Material Adverse Effect; (iv) no disputes are
pending or, to the knowledge of Target, threatened; (v) neither Target nor any Target ERISA
Affiliate has engaged in, and to the knowledge of Target no other Person has engaged in, any
transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for
which no exemption exists under Section 408 of ERISA or Section 4975(c) of the Code or
Section 4975(d) of the Code; (vi) contributions due under a plan subject to Section 401(a)
of the Code have been made on a timely basis, and (vii) such plan may be terminated on a
prospective basis without any continuing liability for benefits other than benefits accrued
to the date of such termination. Contributions made under any Target Benefit Plan that is
subject to Section 401(a) of the Code that are deductible under Section 404 of the Code have
satisfied the requirements for deduction under Section 404 of the Code, and all
contributions which are required and which have not been made have been properly recorded on
the books of Target or a Target ERISA Affiliate.

     (c) Neither Target nor any Target ERISA Affiliate has ever adopted, established,
maintained or contributed to, or has any liability with respect to, a plan that is subject
to Title IV of ERISA, Part 3 of Title I of ERISA or Section 412 of the Code. No Target
Benefit Plan is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) or a
“multiple employer plan” (within the meaning of Section 413(c) of the Code). No event has
occurred with respect to Target or a Target ERISA Affiliate in connection with which Target
could be subject to any liability, lien or encumbrance that would result in a Target
Material Adverse Effect with respect to any Target Benefit Plan or any employee benefit plan
described in Section 3(3) of ERISA maintained, sponsored or contributed to by a Target ERISA
Affiliate under ERISA or the Code, except for regular contributions and benefit payments in
the ordinary course of plan business.

19

 

     (d) Except as set forth in Section 5.11(d) of the Target Disclosure Schedule, no
present or former employees of Target or any of its Subsidiaries are covered by any Target
Employee Agreements or other plans for which Target has any liability that provide or will
provide severance pay, post-termination health or life insurance benefits (except as
required pursuant to Section 4980(B) of the Code) or any similar benefits, and the
consummation of the Transactions shall not cause any payments or benefits to any employee of
Target or any of its Subsidiaries to be either subject to an excise tax or non-deductible to
Target under Sections 4999 and 280G of the Code, respectively.

     (e) Attached as Section 5.11(e) of the Target Disclosure Schedule is a current list of
Target’s employees (the “Target Employees”), and a severance package table (the “Severance
Package Table”) which lists the maximum amount of all cash amounts as of the date of this
Agreement that Target is obligated to pay to Target Employees pursuant to severance
arrangements.

     Section 5.12 Environmental Matters. Except (i) as set forth in Section 5.12 of the Target
Disclosure Schedule and (ii) with respect to any matters that would not reasonably be expected to
result in a Target Material Adverse Effect:

     (a) The businesses of Target and its Subsidiaries have been and are operated in
compliance with all Environmental Laws.

     (b) Neither Target nor any of its Subsidiaries has caused or allowed the generation,
treatment, manufacture, processing, distribution, use, storage, discharge, release,
disposal, transport or handling of any Hazardous Substances, except in compliance with all
Environmental Laws, and no generation, treatment, manufacture, processing, distribution,
use, storage, discharge, release, disposal, transport or handling of any Hazardous
Substances has occurred at any property or facility owned, leased or operated by Target for
any of its Subsidiaries except in compliance with all Environmental Laws.

     (c) Neither Target nor any of its Subsidiaries has received any written notice from any
Governmental Authority or third party or, to the knowledge of Target, any other
communication alleging or concerning any violation by Target or any of its Subsidiaries of,
or responsibility, obligation or liability of Target or any of its Subsidiaries under, any
Environmental Law. There are no pending, or to the knowledge of Target, threatened, claims,
suits, actions, proceedings or investigations with respect to any violation of, or
responsibility, obligation or liability under, any Environmental Law or the release of any
Hazardous Substances on, at or under any property or facility owned, leased, or operated by
Target or any of its Subsidiaries, nor does Target have any knowledge of any fact or
condition that could give rise to such a claim, suit, action, proceeding or investigation.

     (d) Neither Target nor any of its Subsidiaries has received any notice that it has been
identified by the U.S. Environmental Protection Agency, or any similar state authority, as a
potentially responsible party under the Comprehensive Environmental Response Compensation
and Liability Act (CERCLA) or any similar or analogous state

20

 

law and neither Target nor any of its Subsidiaries has received any request for
information issued under CERCLA.

     (e) Target and its Subsidiaries have obtained and are in compliance with Permits under
all Environmental Laws required for the operation of the businesses of Target and its
Subsidiaries as currently conducted; there are no pending or, to the knowledge of Target,
threatened, actions, proceedings or investigations alleging violations of or seeking to
modify, revoke or deny renewal of any of such Permits; and Target does not have knowledge of
any fact or condition that is reasonably likely to give rise to any action, proceeding or
investigation regarding the violation of or seeking to modify, revoke or deny renewal of any
of such Permits. All such Permits are listed on Section 5.12(e) of the Target Disclosure
Schedule.

     (f) Except as described in Section 5.12(e), without in any way limiting the
generality of the foregoing, (i) to Target’s knowledge, all offsite locations where Target
or any of its Subsidiaries has transported, released, discharged, stored, disposed or
arranged for the disposal of Hazardous Substances are licensed and operating as required by
law and (ii) no polychlorinated biphenyls (“PCBs”), PCB-containing items, underground
storage tanks, asbestos-containing materials, or radioactive materials are used or stored at
any property owned, leased or operated by Target or any of its Subsidiaries except in
compliance with Environmental Laws.

     (g) The Target has provided to Parent copies of all audits, studies, reports, analyses
and results of investigations which relate to environmental issues or compliance by Target
and its Subsidiaries with applicable Environmental Laws that are in the possession of the
Target or its Subsidiaries and created within the past two (2) years.

     (h) No claims have been asserted or, to Target’s knowledge, threatened to be asserted
against Target or its Subsidiaries for any personal injury (including wrongful death) or
property damage (real or personal) arising out of alleged exposure or otherwise related to
Hazardous Substances used, handled, generated, transported or disposed by Target or its
Subsidiaries.

     Section 5.13 Compliance with Applicable Laws

     (a) Except for Customary Post-Closing Consents, Target and each of its Subsidiaries
hold all material Permits necessary for the lawful conduct of their respective businesses,
as now conducted, and such businesses are not being, and neither Target nor any of its
Subsidiaries have received any notice from any Person that any such business has been or is
being, conducted in violation of any applicable law, ordinance or regulation (including any
applicable law, ordinance or regulation relating to occupational health and safety) that is
material to the operation of the business as now conducted, provided, however, no
representation or warranty in this section is made with respect to Environmental Laws, which
are covered exclusively in Section 5.12.

     (b) Neither Target, any Subsidiary of Target, nor, to the knowledge of Target, any
director, officer, agent, employee or other Person acting on behalf of Target or any of

21

 

its Subsidiaries, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others, or established or maintained any unlawful or
unrecorded funds in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any other domestic or foreign law.

     Section 5.14 Insurance. Section 5.14 of the Target Disclosure Schedule lists each insurance
policy of Target and its Subsidiaries currently in effect. Target has made available to the Parent
Parties a true, complete and correct copy of each such policy or the binder therefor. With respect
to each such insurance policy or binder none of Target, any of its Subsidiaries or, to Target’s
knowledge, any other party to the policy is in material breach or default thereunder (including
with respect to the payment of premiums or the giving of notices), and Target does not know of any
occurrence or any event which (with notice or the lapse of time or both) would constitute such a
material breach or default or permit termination, modification or acceleration under the policy.
Section 5.14 of the Target Disclosure Schedule describes any self-insurance arrangements affecting
Target or its Subsidiaries. To Target’s knowledge, the insurance policies listed in Section 5.14
of the Target Disclosure Schedule include all material policies which are required in connection
with the operation of the businesses of Target and its Subsidiaries as currently conducted by
applicable laws and all agreements relating to Target and its Subsidiaries.

     Section 5.15 Labor Matters; Employees

     (a) Except as set forth in Section 5.15 of the Target Disclosure Schedule, (i) there is
no labor strike, dispute, slowdown, work stoppage or lockout actually pending or, to the
knowledge of Target, threatened against or affecting Target or any of its Subsidiaries and,
during the past five (5) years, there has not been any such action, (ii) none of Target or
any of its Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of Target or any of its
Subsidiaries, (iii) none of the employees of Target or any of its Subsidiaries are
represented by any labor organization and none of Target or any of its Subsidiaries have any
knowledge of any current union organizing activities among the employees of Target or any of
its Subsidiaries nor does any question concerning representation exist concerning such
employees, (iv) Target and its Subsidiaries have each at all times been in material
compliance with all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety and health, and
are not engaged in any unfair labor practices as defined in the National Labor Relations Act
or other applicable law, ordinance or regulation, (v) there is no unfair labor practice
charge or complaint against Target or any of its Subsidiaries pending or, to the knowledge
of Target, threatened before the National Labor Relations Board or any similar state or
foreign agency, (vi) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to Target or any of
its Subsidiaries, (vii) neither the Occupational Safety and Health Administration nor any
other federal or state agency has threatened to file any citation, and there are no pending
citations, relating to Target or any of its Subsidiaries, and (viii) to Target’s knowledge,
there is no employee or governmental claim or investigation, including any charges to the

22

 

Equal Employment
Opportunity Commission or state employment practice agency, investigations regarding
Fair Labor Standards Act compliance, audits by the Office of Federal Contractor Compliance
Programs, Workers’ Compensation claims, sexual harassment complaints or demand letters or
threatened claims.

     (b) Since the enactment of the Worker Adjustment and Retraining Notification Act of
1988 (“WARN Act”), none of Target or any of its Subsidiaries have effectuated (i) a “plant
closing” (as defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of Target or any of
its Subsidiaries, or (ii) a “mass layoff” (as defined in the WARN Act) affecting any site of
employment or facility of Target or any of its Subsidiaries, nor has Target or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state or local law.

     Section 5.16 Reserve Reports

     (a) All information (including the statement of the percentage of reserves from the oil
and gas wells and other interests evaluated therein to which Target or its Subsidiaries are
entitled and the percentage of the costs and expenses related to such wells or interests to
be borne by Target or its Subsidiaries) supplied to T. J. Smith & Co., Inc. by or on behalf
of Target and its Subsidiaries that was material to such firm’s estimates of proved oil and
gas reserves attributable to the Oil and Gas Interests of Target in connection with the
preparation of the proved oil and gas reserve reports concerning the Oil and Gas Interests
of Target and its Subsidiaries as of January 1, 2009 and prepared by such engineering firm
(the “Target Reserve Report”) was (at the time supplied or as modified or amended prior to
the issuance of the Target Reserve Report) true and correct in all material respects and
Target has no knowledge of any material errors in such information that existed at the time
of such issuance. Except for (i) changes generally affecting the oil and gas industry
(including changes in commodity prices), (ii) changes reflected in the interim reserve
report prepared by Target, dated October 1, 2009, a copy of which has been provided to
Parent, and (iii) other normal adjustments since that date, including, but not limited to,
production, there has been no material change in respect of the matters addressed in the
Target Reserve Report.

     (b) Set forth in Section 5.16(b) of the Target Disclosure Schedule is a list of all
material Oil and Gas Interests that were included in the Target Reserve Report that have
been disposed of prior to the date hereof.

     Section 5.17 [Reserved]

     Section 5.18 Material Contracts

     (a) Set forth in Section 5.18(a) of the Target Disclosure Schedule is a list of each
Target Material Contract that has not been filed and made publicly available in a Target SEC
Report at least two (2) days prior to the date hereof, except for agreements

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referred to in Section 5.26 and Section 5.27 and executed concurrently
with this Agreement.

     (b) Except as set forth in Section 5.18(b) of the Target Disclosure Schedule or the
Target SEC Reports filed and publicly available prior to the date hereof, the Oil and Gas
Interests of Target and its Subsidiaries are not subject to (i) any instrument or agreement
evidencing or related to indebtedness for borrowed money, whether directly or indirectly, or
(ii) any agreement not entered into in the ordinary course of business in which the amount
involved is in excess of $500,000. In addition, (A) all Target Material Contracts are the
valid and legally binding obligations of Target and, to the knowledge of Target, each of the
other parties thereto, and are enforceable in accordance with their respective terms, except
as such enforceability may be subject to the Enforceability Exception; (B) except as set
forth in the Target SEC Reports filed and publicly available prior to the date hereof,
Target is not in material breach or default with respect to, and to the knowledge of Target,
no other party to any Target Material Contract is in material breach or default with respect
to, its obligations thereunder, including with respect to payments or otherwise; (C) no
party to any Target Material Contract has given notice of any action to terminate, cancel,
rescind or procure a judicial reformation thereof; and (D) except as set forth in the Target
SEC Reports filed and publicly available prior to the date hereof no Target Material
Contract contains any provision that prevents Target or any of its Subsidiaries from owning,
managing and operating the Oil and Gas Interests of Target and its Subsidiaries in
accordance with historical practices.

     (c) As of the date hereof, except as set forth in Section 5.18(c) of the Target
Disclosure Schedule, with respect to authorizations for expenditure executed after December
31, 2008, (i) there are no outstanding calls for payments in excess of $250,000 that are due
or that Target or its Subsidiaries are committed to make that have not been made; (ii) there
are no operations with respect to which Target or its Subsidiaries have become a
non-consenting party; and (iii) there are no commitments for the material expenditure of
funds for drilling or other capital projects other than projects with respect to which a
third party operator is not required under the applicable operating agreement to seek
consent.

     (d) Except as set forth in Section 5.18(d) of the Target Disclosure Schedule, (i) there
are no provisions applicable to the Oil and Gas Interests of Target and its Subsidiaries
which increase the royalty percentage of the lessor thereunder; and (ii) none of the Oil and
Gas Interests of Target and its Subsidiaries are limited by terms fixed by a certain number
of years (other than primary terms under oil and gas leases).

     Section 5.19 Required Shareholder Vote; Board Action.

     (a) The affirmative vote of holders of at least two-thirds of the Target Common Shares
(the “Target Shareholders’ Approval”) is the only vote necessary by the Target Shareholders
for the approval of this Agreement and the Merger.

     (b) On or prior to the date of this Agreement, the Board of Directors of Target has
unanimously (i) determined that this Agreement, the Merger, the Ancillary

24

 

Agreements, the Voting Agreements and the other Transactions are advisable and in the
best interests of Target and the Target Shareholders, (ii) approved and declared advisable
this Agreement, the Merger, the Ancillary Agreements, the Voting Agreements and the other
Transactions and (iii) resolved to recommend that the Agreement and the Merger be approved
by the Target Shareholders (the “Target Recommendation”).

     Section 5.20 Proxy Statement. None of the information to be supplied by Target for inclusion
in the Proxy Statement relating to the Target Shareholder Meeting, to be filed by Target with the
SEC, and any amendments or supplements thereto, will, at the time of filing, at the time the Proxy
Statement or any amendment or supplement thereto is first mailed to the Target shareholders, and at
the time of the Target Shareholder Meeting and at the Effective Time (taking into account all
additional definitive proxy materials filed by the Target subsequent to the mailing of the Proxy
Statement), contain any untrue statement of a material fact or omit to state any material fact
required to be made therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, except that no representation or
warranty is made by the Target with respect to statements made or incorporated by reference therein
based on information supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or
incorporation by reference in the Proxy Statement.

     Section 5.21 Intellectual Property. Target or its Subsidiaries own, or are licensed or
otherwise have the right to use, all Intellectual Property currently used in the conduct of the
business of Target and its Subsidiaries. No Person has notified either Target or any of its
Subsidiaries in writing and Target does not have any knowledge that their use of the Intellectual
Property infringes on the rights of any Person, and, to Target’s knowledge, no Person is infringing
on any right of Target or any of its Subsidiaries with respect to any such Intellectual Property.
No claims are pending or, to Target’s knowledge, threatened that Target or any of its Subsidiaries
is infringing or otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property. No material software license will terminate by its terms due to the Merger,
and all software licenses material to the business of Target will transfer to the Surviving Company
pursuant to the Merger.

     Section 5.22 Hedging. Section 5.22 of the Target Disclosure Schedule sets forth for the
periods shown obligations of Target and each of its Subsidiaries for the delivery of Hydrocarbons
attributable to any of the properties of Target or any of its Subsidiaries in the future on account
of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being
entitled to receive full value therefor. Except as set forth in Section 5.22 of the Target
Disclosure Schedule, as of the date hereof, neither Target nor any of its Subsidiaries is bound by
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to
benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of
commodities, including Hydrocarbons, or securities (“Existing Derivative Transactions”).

     Section 5.23 Brokers. No broker, finder or investment banker (other than Rivington, JP Morgan
and Morgan Keegan, the fees and expenses of which will be paid by Target) is entitled to any
brokerage, finder’s fee or other fee or commission payable by Target or any of its Subsidiaries in
connection with the Transactions based upon arrangements made by and on behalf of Target or any of
its Subsidiaries.

25

 

     Section 5.24 Fairness Opinion. Target’s Board of Directors has received a written opinion (or oral
opinion to be confirmed in writing) from Morgan Keegan to the effect that, as of the date of such
opinion, the Merger Consideration is fair, from a financial point of view, to the Target
Shareholders (the “Fairness Opinion”). True and complete copies of the Fairness Opinion have been
given to the Parent Parties for informational purposes only, and Morgan Keegan has agreed to the
inclusion of the Fairness Opinion in the Proxy Statement for the Target Shareholder Meeting.

     Section 5.25 Takeover Laws. Assuming the representation and warranty set forth in Section 6.7 is
true, no “fair price”, “moratorium”, “control share acquisition” or other similar antitakeover
statute or regulation enacted under state or federal laws in the United States applicable to Target
is applicable to the Merger or the Transactions.

     Section 5.26 Net Profits Interest Agreements; Reeves/Mayell Agreements

     (a) Except as set forth in this Section 5.26 and as set forth in Section
5.26(a) of the Target Disclosure Schedule:

	 	(i)	 	there are no net profits interest agreements
between Target or any of its Subsidiaries and any other Person,
	 
	 	(ii)	 	by the Termination Agreement dated April 29,
2008, between Target and Joseph A. Reeves, Jr. (“Reeves”), Target has
terminated, except to the extent that such net profit interests were
modified and recognized as vested therein, the agreement between Target
and Reeves, dated June 27, 1995 (effective January 1, 1994), as amended
by that certain “AMENDMENT TO AGREEMENT DATED JUNE 27, 1995”, said
amendment having been filed of record under document number 20090356605
in the public records of Harris County, Texas,
	 
	 	(iii)	 	by the Termination Agreement dated April 29,
2008, between Target and Michael J. Mayell (“Mayell”), Target has
terminated, except to the extent that such net profit interests were
modified and recognized as vested therein, the agreement between Target
and Mayell, dated June 27, 1995 (effective January 1, 1994), as amended
by that certain “AMENDMENT TO AGREEMENT DATED JUNE 27, 1995”, said
amendment having been filed of record under document number 20090356606
in the public records of Harris County, Texas,
	 
	 	(iv)	 	any and all net profits interests owned or
controlled by Reeves and Mayell, or assigns of Reeves and Mayell, have
specifically been excluded from the Target Reserve Report,
	 
	 	(v)	 	there are no other net profit interests owned
or controlled by Reeves or Mayell, or which Reeves and Mayell or
assigns of
Reeves and Mayell have the right to acquire, pursuant to

26

 

	 	 	 	agreements
that are or were in effect with Target or any of its Subsidiaries,
and
	 
	 	(vi)	 	Target has no contractual duty to obtain the
approval of Reeves or Mayell, or assigns of Reeves and Mayell, for any
sales transactions of all or part of Target’s interests, including
without limitation, third party sales, farmouts, joint venture
agreements or any other conveyance transaction.

     (b) Each of the (i) Omnibus Agreement Relating to Assigned Interests, dated as of
December 22, 2009, among Reeves, Target, TMRX, TODD, JAR, LOP and Cairn (the “Reeves NPI
Agreement”) and (ii) Agreement With Cross-Release, dated as of December 17, 2009, among
Mayell, Target, TMRX, Sydson, LOP and Cairn (the “Mayell NPI Agreement,” and, together with
the Reeves NPI Agreement, the “NPI Agreements”) is the valid and legally binding obligation
of Target and, to the knowledge of Target, each of the other parties thereto and is
enforceable in accordance with its terms, except as such enforceability may be subject to
the Enforceability Exception. Target is not in material breach or default with respect to,
and to the knowledge of Target, no other party to any NPI Agreement is in material breach or
default with respect to, its obligations thereunder. Target has made available to the
Parent Parties true, complete and correct copies of the NPI Agreements.

     (c) The Settlement and Release Agreement, dated as of December 22, 2009, among Target,
TODD, JAR and Reeves (the “Reeves Release”) is the valid and legally binding obligations of
Target and, to the knowledge of Target, each of the other parties thereto, and is
enforceable in accordance with its terms, except as such enforceability may be subject to
the Enforceability Exception. Target is not in material breach or default with respect to,
and to the knowledge of Target, no other party to the Reeves Release is in material breach
or default with respect to, its obligations thereunder. Target has made available to the
Parent Parties a true, complete and correct copy of the Reeves Release.

     Section 5.27 Forbearances

     (a) Credit Facility Forbearance. The Forbearance and Amendment Agreement, dated as of
September 3, 2009, the First Amendment to Forbearance and Amendment Agreement, dated as of
September 30, 2009, the Second Amendment to Forbearance and Amendment Agreement, dated
October 2, 2009, the Third Amendment to Forbearance and Amendment Agreement, dated as of
October 20, 2009, the Fourth Amendment to Forbearance and Amendment Agreement, dated as of
November 13, 2009, the Fifth Amendment to Forbearance and Amendment Agreement, dated as of
November 20, 2009, the Sixth Amendment to Forbearance and Amendment Agreement, dated as of
November 30, 2009, the Seventh Amendment to Forbearance and Amendment Agreement, dated as of
December 2, 2009, the Eighth Amendment to Forbearance and Amendment Agreement, dated as of
December 4, 2009, the Ninth Amendment to Forbearance and Amendment Agreement, dated as of
December 14, 2009,
the Tenth Amendment to Forbearance and Amendment Agreement, dated as of December

27

 

21, 2009, and the Eleventh Amendment to Forbearance and Amendment Agreement, dated as of the
date of this Agreement (collectively, and as may be subsequently amended from time to time,
the “Fortis Forbearance Agreement”), among Target, certain of its Subsidiaries, Fortis
Capital Corp., as administrative agent, and the several banks, financial institutions and
other entities from time to time parties thereto (collectively, the “Target Lenders”),
amending that certain Amended and Restated Credit Agreement, dated as of December 23, 2004,
as amended, among Target, Fortis Capital Corp. (“Fortis”), as administrative agent, and the
lenders party thereto (“Target Credit Agreement”) are in effect. Except as set forth in
Section 5.27(a) of the Target Disclosure Schedule, no default or event of default under the
Target Credit Agreement has occurred, other than as set forth in the Fortis Forbearance
Agreement, and no Target Lender has sent a default or cross-default notice to Target.
Target is in compliance with all of its covenants under the Fortis Forbearance Agreement,
and has obtained the consent of the Target Lenders to the Transactions.

     (b) Hedging Agreements Forbearance. The (i) ISDA Master Agreement, dated as of August
9, 2007, between The Bank of Nova Scotia and Target, and the ISDA Schedule thereto, and (ii)
ISDA 2002 Master Agreement, dated October 28, 2004, between Fortis Energy LLC and Target,
the Schedule thereto and the ISDA Credit Support Annex to such Schedule (“Fortis Hedging
Agreement”, and collectively, the “Hedging Agreements”) are in effect. Target and certain
of its Subsidiaries on the one hand, and Fortis and Fortis Energy Marketing & Trading GP on
the other hand, have entered into a forbearance agreement with respect to the Fortis Hedging
Agreement, and the First Amendment to Forbearance Agreement, dated as of December 4, 2009,
the Second Amendment to Forbearance Agreement, dated as of December 14, 2009, and the Third
Amendment to Forbearance Agreement, dated as of December 16, 2009 (collectively, and as may
be subsequently amended from time to time, the “Hedging Forbearance Agreement”). Except as
set forth in Section 5.27(b) of the Target Disclosure Schedule, no default or event of
default under the Hedging Agreements has occurred, other than as set forth in the Hedging
Forbearance Agreement, and Target has not received a default or cross-default notice with
respect to any of the Hedging Agreements. Target is in compliance with all of its covenants
under the Hedging Forbearance Agreement.

     (c) CIT Forbearance. The Forbearance and Amendment Agreement, dated as of September 3,
2009, and the First Amendment to Forbearance and Amendment Agreement, dated as of December
4, 2009, the Second Amendment to Forbearance and Amendment Agreement, dated as of December
14, 2009, the Third Amendment to Forbearance and Amendment Agreement, dated as of December
21, 2009, and the Fourth Amendment to Forbearance and Amendment Agreement, dated as of the
date of this Agreement (collectively, and as may be subsequently amended from time to time,
the “CIT Forbearance and Amendment Agreement”), among Target, certain of its Subsidiaries,
and The CIT Group/Equipment Financing, Inc., as administrative agent and lender (“Target CIT
Lenders”), amending that certain Credit Agreement, dated as of May 2, 2008, as amended,
among TMR Drilling Corporation, The CIT Group/Equipment Financing, Inc., as administrative
agent, and the lenders party thereto (“CIT Credit
Agreement”) are in effect. Except as set forth in Section 5.27(c) of the Target
Disclosure

28

 

Schedule, no default or event of default under the CIT Credit Agreement has
occurred, other than as set forth in the CIT Forbearance and Amendment Agreement, and no
Target CIT Lender has sent a default or cross-default notice to Target. Target is in
compliance with all of its covenants under the CIT Forbearance and Amendment Agreement and
has obtained from the Target CIT Lenders their consent to the Transactions and their
agreement that the Surviving Company shall succeed to the CIT Forbearance and Amendment
Agreement and the CIT Credit Agreement pursuant to their terms.

     (d) Orion Forbearance. The Forbearance and Amendment Agreement, dated as of September
3, 2009 (“Orion Forbearance and Amendment Agreement”), among Target, certain of its
Subsidiaries, and Orion Drilling Company LLC, successor to Orion Drilling Company, LP
(collectively, “Orion”) is in effect. Except as set forth in Section 5.27(d) of the Target
Disclosure Schedule, no default or event of default under the Orion Forbearance and
Amendment Agreement and the other agreements referenced therein has occurred, other than as
set forth in the Orion Forbearance and Amendment Agreement, and Orion has not sent a default
or cross-default notice to Target. Target is in compliance with all of its covenants under
the Orion Forbearance and Amendment Agreement and has obtained from Orion its consent (if
required) to the Transactions, and the Surviving Company has the right to succeed to the
Orion Forbearance and Amendment Agreement and related agreements pursuant to their terms.

     (e) Extension. Target has entered into an agreement with the Target Lenders to extend
the Fortis Forbearance Agreement until the Effective Time.

     Section 5.28 Gas Balancing and Take-or-Pay Contracts. Except as set forth in Section 5.28 of the Target
Disclosure Schedule, neither Target nor any of its Subsidiaries, or any Oil and Gas Interests of
any of them, is subject to or encumbered by a balancing, take-or-pay/make-up, deferred production,
Hydrocarbon banking or other arrangement under which one or more third parties may take a portion
of the Hydrocarbons produced without full payment therefor, in cash or immediately available funds
at the market price or value thereof, as a result of Hydrocarbons having been taken from, or as a
result of other actions or inactions with respect to, such Oil and Gas Interests.

     Section 5.29 Production Requirements. None of the production of Hydrocarbons which have heretofore been
produced from the Oil and Gas Interests of Target or its Subsidiaries has been in excess of
allowable production quotas allowed or permitted to such Oil and Gas Interests by any applicable
regulatory authority so as to subject, after the Effective Time, any well located thereon to
restrictions or penalties on allowables for overproduction.

     Section 5.30 Well Bonus Plans. Section 5.30 of the Target Disclosure Schedule sets forth, with respect to
each of the TMRC Geoscientist Well Bonus Plan, TMRC Management Well Bonus Plan and the TMRC TMR
Employees Trust Well Bonus Plan (collectively, the “Well Bonus Plans”) (a) all Oil and Gas
Interests subject to each such Well Bonus Plan as of the date hereof, (b) each current or former
Target Employee that has been granted an award under each such Well Bonus Plan, which award is
currently accruing payments of net profits interests (as defined in each of the respective Well
Bonus Plans) thereunder and (c) the percentage of such net
profits interest awarded to each such Target Employee. Subject to Section
8.13(a), such net

29

 

profits interests will continue to accrue in accordance with the Well Bonus
Plans until the Effective Time, and will continue to accrue after the Effective Time if the
Surviving Company adopts the Well Bonus Plans.

     Section 5.31 Interested Party Transactions. Except as set forth in the Target SEC Reports filed prior to
the date hereof, Target Benefit Plans or Target Employee Agreements, Section 5.31 of the Target
Disclosure Schedule sets forth a correct and complete list of the contracts or arrangements that
are in existence as of the date of this Agreement under which any of Target or its Subsidiaries has
any existing or future liabilities between any of Target or its Subsidiaries, on the one hand, and,
on the other hand, any (a) present or former officer or director of any of Target or its
Subsidiaries or any Person that has served as such an officer or director within the past two (2)
years or any of such officer’s or director’s immediate family members, (b) record or beneficial
owner of more than five percent (5%) of Target’s Common Shares as of the date hereof, or (c) to the
knowledge of Target, any Affiliate of any such officer, director or owner (other than Target or its
Subsidiaries) (each an “Affiliate Transaction”). Target has provided or made available to Parent
correct and complete copies of each such contract or other relevant documentation (including any
amendments or modifications thereto) providing for each Affiliate Transaction.

     Section 5.32 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article V, neither the Target nor any other Person makes any
other express or implied representation or warranty on behalf of the Target or any of its
Affiliates in connection with this Agreement or the Transactions.

ARTICLE VI.

REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES

     The Parent Parties hereby represent and warrant to Target as follows:

     Section 6.1 Organization and Qualification. Parent is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Texas. Merger Sub is a limited
liability company duly organized, validly existing and in good standing under the laws of the State
of Texas.

     Section 6.2 Authority. Each of Parent and Merger Sub has all necessary power and authority to execute and
deliver this Agreement and any Ancillary Agreements to which it is or will be a party and to
consummate the Transactions. The execution, delivery and performance of this Agreement and the
Ancillary Agreements to which Parent or Merger Sub are or will be a party and the consummation of
the Transactions have been duly and validly authorized by the governing bodies of Parent and Merger
Sub and no other proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement and the Ancillary Agreement to which Parent or Merger Sub are or will be a party or to
consummate the Transactions, other than the filing of the Certificate of Merger pursuant to the
requirements of the TBOC or the TBCA. Parent, as the sole member of Merger Sub has adopted and
approved this Agreement, including the Merger. This Agreement has been, and the Ancillary
Agreements to which Parent or Merger Sub are or will be a party are, or upon execution will be,
duly and validly executed and delivered
by each of the Parent Parties and, assuming the due authorization, execution and delivery
hereof

30

 

and thereof by the other parties hereto and thereto, constitutes or upon execution will
constitute, the valid and binding obligations of each of the Parent Parties enforceable against
such Persons in accordance with their respective terms, except for the Enforceability Exception.

     Section 6.3 Merger Sub. Merger Sub was formed solely for the purpose of engaging in the Transactions.
All of the outstanding membership interests of Merger Sub are owned directly by Parent. As of the
date of this Agreement and the Effective Time, except for obligations or liabilities incurred in
connection with its formation or organization and the Transactions, Merger Sub has not and will not
have incurred, directly or indirectly, through any Subsidiary or Affiliate, any obligations or
liabilities or engaged in any business activities of any type whatsoever or entered into any
agreements or arrangements with any Person, except as would not reasonably be expected to have a
material adverse effect on the ability of Merger Sub to timely consummate the Transactions. The
organizational documents of Merger Sub provided to Target by Parent are true and correct copies of
the organizational documents in effect for Merger Sub on the date of this Agreement.

     Section 6.4 No Violation. The execution and delivery of this Agreement, the consummation of
the Transactions and the performance by the Parent Parties of their respective obligations
hereunder will not:

     (a) conflict with any provision of Parent or Merger Sub’s organizational documents, as
amended;

     (b) result in any violation of or the breach of or constitute a default (with notice or
lapse of time or both) under, or give rise to any right of termination, cancellation or
acceleration or guaranteed payments or a loss of a material benefit under, any of the terms,
conditions or provisions of any note, lease, mortgage, license, agreement or other
instrument or obligation to which Parent, Merger Sub, or any of their respective
Subsidiaries, is a party or by which Parent, Merger Sub or any of their respective
Subsidiaries or any of their respective properties or assets may be bound, except for such
violations, breaches, defaults, or rights of termination, cancellation or acceleration, or
losses as to which requisite waivers or consents have been obtained or which, individually
or in the aggregate, would not (i) materially impair the ability of Parent, Merger Sub, or
any of their respective Subsidiaries to perform their obligations under this Agreement or
any Ancillary Agreement or (ii) prevent the consummation of any of the Transactions.

     Section 6.5 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s fee or
other fee or commission payable by Parent or any of its Affiliates in connection with the
Transactions based upon arrangements made by and on behalf of Parent or any of its Affiliates.

     Section 6.6 Parent Information. None of the information to be supplied by or on behalf of Parent or
Merger Sub for inclusion in the Proxy Statement relating to the Target Shareholder Meeting, to be
filed by Target with the SEC, and any amendments or supplements thereto, will, at the time of the
filing, at the time the Proxy Statement or any amendment or
supplement thereto is first mailed to the Target Shareholders, and at the time of the Target

31

 

Shareholder Meeting and at the Effective Time (taking into account all additional definitive proxy
materials filed by Target subsequent to such mailing of the Proxy Statement), contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation or warranty is made by Parent or Merger
Sub with respect to statements made or incorporated by reference therein based on information
supplied by or on behalf of Target for inclusion or incorporation by reference in the Proxy
Statement.

     Section 6.7 Target Stock. None of Parent, Merger Sub, or their respective Affiliates (i) owns (directly
or indirectly, beneficially or of record) any securities of the Target or (ii) holds any right to
acquire, hold, vote or dispose of any securities in the Target, except as contemplated by the
Voting Agreements. Neither Parent nor Merger Sub is an “affiliated shareholder” of the Target as
defined in Section 13.02A.(2) of the TBCA and Section 21.602 of the TBOC. Parent and Merger Sub
represent and warrant that as of the date hereof, more than three (3) years has lapsed since any
Affiliate of Parent or Merger Sub first became an “affiliated shareholder” in the Target as defined
in Section 13.02A.(2) of the TBCA and Section 21.602 of the TBOC.

     Section 6.8 Financing. Parent has sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to cause Merger Sub to make payment of the aggregate
Merger Consideration by Merger Sub under the Merger and all related fees and expenses and to
otherwise consummate the Transactions. Parent acknowledges that obtaining of any financing is not
a condition to closing.

     Section 6.9 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article VI, neither Parent, Merger Sub nor any other Person
makes any other express or implied representation or warranty on behalf of Parent or Merger Sub or
any of their respective Affiliates in connection with this Agreement or the Transactions.

ARTICLE VII.

CONDUCT OF BUSINESS PENDING THE MERGER

     Section 7.1 Conduct of Business by Target Pending the Merger.

     (a) From the date hereof until the earlier of the termination of this Agreement or the
Effective Time, except (i) as set forth in Section 7.1(a) of the Target Disclosure Schedule,
(ii) as required, expressly contemplated or permitted by this Agreement, (iii) as required
by applicable law, or (iv) with the prior written consent of Parent (which consent shall not
be unreasonably withheld, conditioned or delayed), Target (A) shall conduct its business in
the ordinary course and (B) shall use all commercially reasonable efforts to preserve intact
its business organizations and relationships with third parties and to keep available the
services of its present officers and key employees, subject to the terms of this Agreement.

32

 

     (b) During the period from the date of this Agreement and continuing until the earlier
of the termination of this Agreement or the Effective Time, except (i) as set forth in
Section 7.1(b) of the Target Disclosure Schedule, (ii) as required, expressly contemplated
or permitted by this Agreement, (iii) as required by applicable law, or (iv) with the prior
written consent of Parent (which consent shall not be unreasonably withheld, conditioned or
delayed), the Target shall not, and shall not permit any of its Subsidiaries to:

          (i) cause or permit any change to its articles of incorporation or bylaws (or similar
organizational documents);

          (ii) (A) declare, set aside or pay any dividend or other distribution with respect to
any shares of capital stock of Target, or (B) repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other securities of, or other ownership interests in,
Target, except (1) from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any termination of
service to it or any of its Subsidiaries, and (2) the acceptance of Target Common Shares in
payment of the exercise price or withholding Taxes incurred by any holder in connection with
the exercise of options or the lapse of restrictions on restricted shares;

          (iii) merge or consolidate with any other Person or acquire capital assets other than
Oil and Gas Interests of any other Person for aggregate consideration in excess of $100,000
in any single transaction (or series of transactions), or enter a new line of business or
commence business operations in any country in which Target or any of its Subsidiaries is
not operating as of the date hereof;

          (iv) sell, lease, license or otherwise surrender, relinquish or dispose of or grant any
Liens with respect to, any assets or properties (other than to Merger Sub and its direct and
indirect wholly owned Subsidiaries) with an aggregate fair market value exceeding $100,000
in any single transaction (or series of transactions) (other than sales of Hydrocarbons in
the ordinary course of business), except pursuant to Target Material Contracts in force on
the date of this Agreement;

          (v) settle any Audit that would require Target to make any material payment to a
Governmental Authority, make or change any material Tax election or file any material
amended Tax Return, except in the ordinary course of business;

          (vi) Except as otherwise permitted by this Agreement or as set forth in Section 7.1(b)
of the Target Disclosure Schedule, Target shall not, and shall not permit any of its
Subsidiaries to, issue any securities (whether through the issuance or granting of options,
warrants, rights or otherwise and except pursuant to existing obligations disclosed in the
Target SEC Reports filed and publicly available prior to the date hereof or the Target
Disclosure Schedule), enter into any amendment of any term of any outstanding security of
Target or of any of its Subsidiaries, fail to make any required contribution to any Target
Benefit Plan, increase compensation, bonus (except for compensation or bonuses as set forth
in Section 7.1(b) of the Target Disclosure Schedule)

33

 

or other benefits payable to (except for payments pursuant to 401(k) plans), or modify
or amend any employment agreements or severance agreements with, any executive officer or
former employee or enter into any settlement or consent with respect to any pending
litigation in excess of $100,000 other than settlements in the ordinary course of business;

          (vii) change any method of accounting or accounting practice by Target or any of its
Subsidiaries except for any such change required by GAAP or the rules and regulations
promulgated by the SEC;

          (viii) take any action that would give rise to a claim under the WARN Act or any
similar state law or regulation because of a “plant closing” or “mass layoff” (each as
defined in the WARN Act) without in good faith attempting to comply with the WARN Act;

          (ix) amend or otherwise change the terms of any arrangements of the type described in
Section 5.23, except to the extent that any such amendment or change would result in
terms more favorable to Target;

          (x) become bound or obligated to make any expenditure, capital expenditure, participate
in any operation, or consent to participate in any operation, with respect to any Oil and
Gas Interests that will, in the aggregate, cost in excess of $250,000 over the total amount
budgeted in the budget set forth in Section 7.1(b) of the Target Disclosure Schedule (the
“Aggregate Cost Overrun”), and except for utilization of the Aggregate Cost Overrun, neither
Target nor any of its Subsidiaries shall, with respect to any of the individual projects set
forth in Section 7.1(b) of the Target Disclosure Schedule, become bound to or expend funds
in excess of the amount budgeted for such project as set forth in Section 7.1(b) of the
Target Disclosure Schedule;

          (xi) fail to timely meet their royalty payment obligations in connection with their
respective oil and gas leases;

          (xii) (A) enter into any futures, hedge, swap, collar, put, call, floor, cap, option or
other contracts that are intended to benefit from or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons or securities, other than
in the ordinary course of business in accordance with Target’s current policies and as
contemplated by this Agreement, or (B) enter into any fixed price commodity sales agreements
with a duration of more than three (3) months, other than in the ordinary course of business
in accordance with Target’s current policies;

          (xiii) (i) adopt, amend (other than amendments that reduce the amounts payable by
Target or any Subsidiary, or amendments required by law to preserve the qualified status of
a Target Benefit Plan or otherwise comply with ERISA, the Code or other applicable law) or
assume any obligation to contribute to any employee benefit plan or arrangement of any type
or collective bargaining agreement or enter into any employment, severance or similar
contract with any Person (including contracts with management of Target or any Subsidiary
that might require that payments be made upon consummation of the Transactions) or amend any
such existing contracts to increase any

34

 

amounts payable thereunder or benefits provided thereunder, (ii) engage in any
transaction (either acting alone or in conjunction with any Target Benefit Plan or trust
created thereunder) in connection with which Target or any Subsidiary would reasonably be
expected to be subject (directly or indirectly) to either a civil penalty assessed pursuant
to subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter
43 of Subtitle D of the Code, (iii) terminate any Target Benefit Plan in a manner, or take
any other action with respect to any Target Benefit Plan, that could result in the liability
of Target or any Subsidiary to any person, (iv) take any action that could adversely affect
the qualification of any Target Benefit Plan or its compliance with the applicable
requirements of ERISA, (v) fail to make full payment when due of all amounts which, under
the provisions of any Target Benefit Plan, any agreement relating thereto or applicable law,
Target or any Subsidiary is required to pay as contributions thereto or (vi) fail to file,
on a timely basis, all reports and forms required by federal regulations with respect to any
Target Benefit Plan;

          (xiv) (A) approve an increase in salary for any Target Employees, or (B) terminate any
Target Employee entitled to any severance payment upon such termination, (C) or enter into,
renew, permit to extend or amend any employment, severance, termination or similar agreement
or arrangement with any director, officer, employee or consultant;

          (xv) permit any of its Subsidiaries to organize or acquire any Person that could become
a Subsidiary;

          (xvi) permit any of its Subsidiaries to enter into any commitment or agreement to
license or purchase seismic data, other than pursuant to agreements or commitments existing
on the date hereof;

          (xvii) (A) enter into any Exclusivity Arrangements that would be applicable after the
Closing Date to Parent and its Subsidiaries or (B) other than in the ordinary course of
business, (1) amend or modify in any material respect or terminate any Target Material
Contract or (2) waive, release or assign any material rights, claims or benefits of Target
and its Subsidiaries under any Target Material Contract;

          (xviii) except for the payment of any deductible under an existing insurance policy (or
a commercially reasonable substitute for a company engaged in businesses similar to those of
Target and its Subsidiaries) with respect to a claim that is being settled by such insurance
company, settle, pay, compromise or discharge any claim that (A) requires any payment by
Target and its Subsidiaries in excess of $100,000 in the aggregate or (B) involves any
restrictions on the conduct of Target or its Subsidiaries or any of its Affiliates’ business
or other equitable remedies that materially adversely affect the business of Target and its
Subsidiaries, and Target and its Subsidiaries shall not settle, pay, compromise or discharge
any claim against Target and its Subsidiaries with respect to or arising out of the
Transactions;

          (xix) incur, create, assume, modify, guarantee or otherwise become liable for any
obligation for borrowed money, purchase money indebtedness or any

35

 

obligation of any other Person, whether or not evidenced by a note, bond, debenture,
guarantee, indemnity or similar instrument, except for (A) borrowings and renewals,
amendments, extensions or increases thereof under credit lines existing at the date of this
Agreement, (B) trade payables incurred in the ordinary course of business consistent with
past practice, (C) indebtedness with any Subsidiary, (D) obligations under Existing
Derivative Transactions, and (E) other obligations not exceeding $100,000 in the aggregate
outstanding at any one time;

          (xx) sublet, sublease, assign, extend, terminate or otherwise modify the material terms
of the commercial real estate lease for the property located at 1401 Enclave Parkway,
Houston, Texas 77077 used for the offices of Target and its Subsidiaries;

          (xxi) pay, discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) prior to the same being
due in excess of $100,000 in the aggregate, other than pursuant to mandatory terms of any
agreement, understanding or arrangement as in effect on the date hereof;

          (xxii) fail to continuously maintain in full force and effect its current insurance or
a commercially reasonable substitute for a company engaged in business similar to those of
Target and its Subsidiaries.

          (xxiii) adopt a plan of complete or partial liquidation, dissolution, or
reorganization; and

          (xxiv) agree or commit to do any of the foregoing.

ARTICLE VIII.

ADDITIONAL AGREEMENTS

     Section 8.1 Preparation of the Proxy Statement

     (a) As promptly as is practicable following the date of this Agreement, Target shall
prepare a proxy statement (together with any amendments thereof or supplements thereto, the
“Proxy Statement”) in order to seek the Target Shareholders’ Approval. The Proxy Statement
shall comply as to form in all material respects with the applicable provisions of the
Exchange Act and other applicable law. Each of Parent and Target also agrees to use
reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits
and approvals required to carry out the Transactions. Target shall respond to any comments
from the SEC as promptly as practicable following the receipt of such comments. Target will
use its reasonable best efforts to cause the SEC to complete its review of the Proxy
Statement as promptly as is practicable after such filing, and Target shall use its
reasonable best efforts to cause the Proxy Statement to be mailed to the holders of Target
Common Shares as promptly as is practicable after the SEC shall have notified Target that it
has no further comments regarding the Proxy Statement.

     (b) No filing of or amendment or supplement to the Proxy Statement and all responses to
requests for additional information and replies to comments prior to these

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being filed with or sent to the SEC will be made by Target, without providing Parent
and its counsel a reasonable opportunity to review and comment thereon prior to its being
filed with the SEC. Target agrees, as to itself and its Subsidiaries, that none of the
information supplied or to be supplied by it for inclusion or incorporation by reference in
the Proxy Statement and any amendment or supplement thereto will, at the date of mailing to
shareholders and at the time of the Target Shareholder Meeting contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which such
statement was made, not misleading. If at any time prior to the Effective Time, any
information relating to Target, or any of its Affiliates, directors or officers, should be
determined by Target to have rendered the Proxy Statement misleading in any material way
(whether as a result of the misstatement of a material fact or the omission of a material
fact), Target shall promptly prepare and file with the SEC an amendment or supplement to the
Proxy Statement, so that the Proxy Statement would not include any misstatement of a
material fact or omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Target shall
promptly notify the Parent of such material misstatement or omission and an appropriate
amendment or supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the shareholders of Target. Target shall
notify Parent promptly of the receipt of any comments from the SEC and of any request by the
SEC or the staff of the SEC for amendments or supplements to the Proxy Statement or for
additional information and shall supply Parent with (i) copies of all correspondence and a
description of all material oral discussions between it or any of its respective
Representatives, on the one hand, and the SEC or the staff of the SEC, on the other hand,
with respect to the Proxy Statement or the Merger and (ii) copies of all orders of the SEC
relating to the Proxy Statement.

     Section 8.2 Shareholders Meeting; Recommendations. Subject to Section 8.4, Target shall take all
actions necessary under applicable law to call, give notice of, convene and hold a meeting of the
Target Shareholders (the “Target Shareholders Meeting”) as soon as reasonably practicable following
the date of this Agreement for the purpose of securing the Target Shareholders’ Approval. Target
shall consult with Parent regarding the date of the meeting and use its reasonable best efforts to
have the Target Shareholder Meeting be a date not more than forty-five (45) days following the
mailing of the Proxy Statement. The Proxy Statement shall (i) state that the Target Board has
unanimously (x) approved this Agreement and the Transactions, (y) determined that this Agreement
and the Transactions are advisable and in the best interests of Target and its shareholders, and
(z) include the Target Recommendation (except to the extent that Target effects a Change in the
Target Recommendation in accordance with Section 8.4 of this Agreement) and (ii) include
the written opinion of Morgan Keegan, a Target financial advisor, as of the date of this Agreement,
as to the fairness from a financial perspective of the Merger Consideration to be received by the
holders of Target Common Shares pursuant to this Agreement. Target shall use its reasonable best
efforts to solicit from shareholders of Target votes in favor of the Target Shareholders’ Approval.
The Target Board shall not effect a Change in the Target Recommendation except pursuant to and
solely as permitted by Section 8.4. Notwithstanding any Change in the Target
Recommendation, unless this Agreement has been terminated pursuant to the terms hereof, this
Agreement shall be

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submitted to the shareholders of Target at the Target Shareholder Meeting and nothing
contained herein shall be deemed to relieve Target of such obligation. In addition to the
foregoing, during the term of this Agreement, Target shall not submit to the vote of its
shareholders any Acquisition Proposal other than the Merger.

     Section 8.3 Access to Information; Confidentiality. To the extent permitted by applicable law and subject
to restrictions imposed upon the Target and any Target Subsidiary by any agreement of
confidentiality with any Person, Target will provide and will cause Target’s Subsidiaries and its
and their respective directors, officers, employees, accountants, consultants, legal counsel,
investment bankers, advisors, and agents and other representatives (collectively, the
“Representatives”) to provide Parent and its authorized Representatives, during normal business
hours and upon reasonable advance notice access to the offices, employees, customers, suppliers,
properties, books and records of Target (so long as such access does not unreasonably interfere
with the operations of Target) as Parent may reasonably request. With respect to any information
disclosed pursuant to this section, Parent shall comply with, and shall cause each of its
Representatives to comply with, all of its obligations under the confidentiality agreement, dated
September 1, 2009, previously executed by Parent and Target (the “Confidentiality Agreement”).
Target shall not be required to provide access to or disclose any information where such access or
disclosure would jeopardize any attorney-client privilege of such party or any Subsidiary of such
party or contravene any contract, law or order (it being agreed that the parties shall use their
respective reasonable best efforts to cause such information to be provided in a manner that would
not result in such jeopardy or contravention). Parent will use its reasonable efforts to minimize
any disruption to the businesses of the Target and the Target Subsidiaries which may result from
the requests for access, data and information hereunder.

     Section 8.4 No Solicitation

     (a) General Prohibitions. Subject to Section 8.4(b), Target shall not, nor
shall it authorize or permit any of its Subsidiaries or authorize any of its or their
respective Representatives to, directly or indirectly, (A) solicit, initiate, encourage or
knowingly facilitate, any inquiries or the making of any proposal or offer that constitutes,
or could reasonably be expected to lead to, an Acquisition Proposal for Target, (B) enter
into or engage in any discussions or negotiations regarding, or that could reasonably be
expected to lead to, any Acquisition Proposal for Target, furnish to any third party (or any
Representative of any third party) any information (whether orally or in writing) in
connection with, or in furtherance of, any Acquisition Proposal for Target, or afford access
to the business, properties, assets, books or records of Target or any of its Subsidiaries,
otherwise cooperate in any way with, or knowingly assist, participate in, facilitate or
encourage any effort by, any third party (or any Representative of any third party) that has
made, is seeking to make or has informed Target of any intention to make, or has publicly
announced an intention to make, an Acquisition Proposal for Target, (C) fail to make,
withdraw, qualify, amend or modify or publicly propose to withdraw, qualify, amend or modify
the Target Recommendation (it being understood that, subject to and without limitation of
Section 8.4(f), taking a neutral position or no position with respect to any
Acquisition Proposal for Target shall be considered an amendment or modification), or
recommend, adopt or approve, or publicly propose to recommend, adopt or approve, an
Acquisition Proposal for Target, or take any action or make any

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statement inconsistent with the Target Recommendation (any of the foregoing in this
clause (C), a “Change in the Target Recommendation”), (D) take any action to make the
provisions of any “fair price,” “moratorium,” “control share acquisition,” “business
combination” or other similar anti-takeover statute or regulation (including approving any
transaction under, or a third party becoming an “affiliated shareholder” under, Section
21.606 of the TBOC), or any restrictive provision of any applicable anti-takeover provision
in Target’s articles of incorporation or bylaws, inapplicable to any transactions
contemplated by an Acquisition Proposal, (E) enter into any agreement in principle, letter
of intent, term sheet, merger agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement or other contract or instrument constituting or
relating to an Acquisition Proposal for Target (other than a confidentiality agreement of
the type referred to in Section 8.4(b)), or any contract or agreement in principle
compelling Target to abandon, terminate or breach any of its obligations hereunder, or fail
to consummate the Transactions (any of the foregoing agreements in this clause (E), a
“Target Acquisition Contract”), (F) enter into any confidentiality or similar agreement with
any third party which prohibits Target from providing or making available to Parent pursuant
to Section 8.4(b) any of the information to be provided to such third party in the
time periods provided in Section 8.4(b), (G) grant or permit any third party any
waiver or release under, or fail to enforce any provision of, any confidentiality,
“standstill” or similar agreement with respect to any class of securities of Target or any
of its Subsidiaries or (H) resolve, propose or agree to do any of the foregoing. Without
limiting the foregoing, it is agreed that any violation of the restrictions on Target set
forth in the preceding sentence by any Representative of Target or any of its Subsidiaries
shall be a breach of this section by Target.

     (b) Exceptions after Receipt of Certain Proposals. Notwithstanding anything to the
contrary in this Agreement, at any time prior to obtaining the Target Shareholders’ Approval
(and in no event after obtaining the Target Shareholders’ Approval), the Target Board,
directly or indirectly through its Representatives, may, subject to compliance with
Section 8.4(c), (A) (i) contact a third party or its Representatives for the purpose
of clarifying any inquiry or Acquisition Proposal and the material terms and conditions
thereof so as to determine whether such inquiry or Acquisition Proposal is a Superior
Proposal or is reasonably likely to lead to a Superior Proposal or (ii) engage in
negotiations or discussions with any third party that the Target Board determines in good
faith is credible and reasonably capable of consummating a Superior Proposal for Target, and
that has made after the date of this Agreement a Superior Proposal for Target or a bona fide
written Acquisition Proposal for Target that the Target Board determines in good faith
(after consultation with its financial advisor and outside legal counsel) is reasonably
likely to lead to a Superior Proposal, (B) thereafter, furnish to such third party nonpublic
information relating to Target or any of its Subsidiaries pursuant to a confidentiality
agreement with terms in the aggregate at least as restrictive to such third party as those
contained in the Confidentiality Agreement and which contains a “standstill” or similar
provision on terms no more materially favorable to such third party than the terms of any
“standstill” or similar agreement, or provision in any agreement, applicable to Parent with
respect to Target; provided, that the terms of such “standstill” or similar provision may
allow such third party to make Acquisition Proposals to Target in connection with the
negotiations or discussions permitted by this section (a copy of such

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confidentiality agreement shall, subject to Section 8.4(c), be provided
promptly after its execution, and which copy and the terms and existence thereof shall be
subject to the confidentiality obligations imposed on the Parent Parties pursuant to the
Confidentiality Agreement), provided, that, subject to Section 8.4(c), all such
nonpublic information (to the extent that such nonpublic information has not been previously
provided or made available to Parent) is provided or made available to Parent, as the case
may be, prior to or substantially concurrently with the time it is provided or made
available to such third party), and provided, further, that, if such Superior Proposal for
Target or Acquisition Proposal for Target is made by a third party who or which, on the date
hereof, is party to a confidentiality agreement with Target which would prohibit Target from
complying with any of the terms of this section or Section 8.4(c) requiring the
provision by Target of information, agreements or the documents to Parent, then Target may
take the actions described in clauses (A) and (B) of this section only if such
confidentiality agreement with such third party has been amended to (x) allow Target to
fully comply with such terms of this section and Section 8.4(c) without violating
such confidentiality agreement and (y) include, if not already included, a “standstill” or
similar provision on terms no more materially favorable to such third party than the terms
of any “standstill” or similar agreement, or provision in any agreement applicable to Parent
with respect to Target; provided, that the terms of such “standstill” or similar provision
may allow such third party to make Acquisition Proposals to Target in connection with the
negotiations or discussions permitted by this section and (C) subject to compliance with
Section 8.4(d), make a Change in the Target Recommendation; but in each case
referred to in the foregoing clauses (A), (B) and (C) only if the Target Board determines in
good faith, after consultation with outside legal counsel to Target, that its failure to
take such action would likely be inconsistent with the Target Board’s fiduciary duties to
the Target Shareholders.

     (c) Required Notices. Target shall not take any of the actions referred to in
Section 8.4(b) unless Target shall have delivered to Parent one (1) Business Day’s
prior written notice advising Parent that it intends to take such action, and Target shall
continue to advise Parent after taking such action, on a current basis, of the status and
terms of any discussions and negotiations with the third party. In addition, Target shall
notify Parent promptly (but in no event later than one (1) Business Day) after receipt by
Target (or any of its Representatives) of any Acquisition Proposal, or any amendment or
modification to any Acquisition Proposal, for Target or of any request for information
relating to Target or any of its Subsidiaries or for access to the business, properties,
assets, books or records of Target or any of its Subsidiaries by any third party that, to
the knowledge of Target, is considering making, or has made, an Acquisition Proposal for
Target, which notice shall be provided orally and in writing and shall identify the third
party making, and the material terms and conditions of, any such Acquisition Proposal for
Target, indication or request (including, in each case, any changes thereto). Target shall
keep Parent informed, on a current basis, of the status and details of any such Acquisition
Proposal for Target, indication or request (including, in each case, any changes thereto)
and shall promptly (but in no event later than one (1) Business Day after receipt) provide
to Parent copies of (i) all drafts of the definitive documents relating to any Acquisition
Proposal sent or provided to Target or any of its Subsidiaries and (ii)

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from to time thereafter, all documents containing material changes to such definitive
documents.

     (d) Limitations on Ability to Change Recommendation or Terminate the Agreement.
Notwithstanding Section 8.4(b), the Target Board shall not make any Change in the
Target Recommendation or terminate this Agreement pursuant to Section 11.1(h) unless
and until (A) Target promptly notifies Parent, in writing, at least three (3) Business Days
before taking that action, of its intention to do so, (B) if requested by Parent, during the
three-Business-Day period, Target shall negotiate in good faith with Parent with respect to
any revised proposal from Parent in respect of the terms of the Transactions and (C) if in
response to an Acquisition Proposal for Target that constitutes a Superior Proposal for
Target, Parent does not make, within such three-Business-Day period, an offer that is at
least as favorable to the shareholders of Target, as determined by the Target Board in good
faith (after considering the advice of Target’s financial advisor), as such Superior
Proposal (it being understood that, with respect to the termination of this Agreement
pursuant to Section 11.1(h), Target shall not terminate this Agreement pursuant to
Section 11.1(h) during such three-Business-Day period, and that any amendment to the
financial terms or other material terms of such Superior Proposal shall require a new
written notification from Target and an additional three-Business-Day period that satisfies
this section).

     (e) Obligation to Terminate Existing Discussions. Target shall, and shall cause its
Subsidiaries and its and their respective Representatives to, cease immediately and cause to
be terminated any and all existing soliciting activities, discussions or negotiations and
access to nonpublic information, if any, with, to or by any third party conducted prior to
the date hereof with respect to any Acquisition Proposal for Target. Target shall promptly
request that each third party, if any, in possession of Confidential Information (as such
term is defined in the Confidentiality Agreement) about Target or any of its Subsidiaries
that was furnished by or on behalf of Target or any of its Subsidiaries in connection with
its consideration of any potential Acquisition Proposal to return or destroy all
Confidential Information heretofore furnished to such third party in compliance with the
applicable confidentiality agreement entered into with such third party.

     (f) Certain Exceptions. Nothing in this section shall prohibit the Target Board from
(A) taking and disclosing to the Target Shareholders a position contemplated by Rule
14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act,
or other applicable law, or (B) making any disclosure to the Target Shareholders if the
Target Board determines, after consultation with outside counsel, that failure to so
disclose such position would be reasonably likely to give rise to a violation of applicable
laws; provided, however, that any such disclosure of a position contemplated by Rule
14e-2(a) or Rule 14d-9 promulgated under the Exchange Act, other than (x) a “stop, look and
listen” or similar communication of the type contemplated by Rule 14d-9(f) promulgated under
the Exchange Act, (y) an express rejection of an applicable Acquisition Proposal or (z) an
express reaffirmation of its Target Recommendation, shall be deemed a Change in the Target
Recommendation. In addition, it is understood and agreed that, for purposes of this
Agreement (including this

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Article VI), a factually and materially accurate public statement by Target that
describes Target’s receipt of an Acquisition Proposal for Target and the operation of this
Agreement with respect thereto shall not be deemed a Change in the Target Recommendation if
Target affirmatively reaffirms in such disclosure the Target Recommendation.

     Section 8.5 Directors’ and Officers’ Indemnification and Insurance

     (a) The organizational documents of the Merger Sub and of the Surviving Company shall,
with respect to indemnification of directors, officers, employees and agents, not be
amended, repealed or otherwise modified after the date of this Agreement in any manner that
would adversely affect the rights thereunder of the Persons who at any time prior to the
Effective Time were identified as prospective indemnitees under Target’s articles of
incorporation or the bylaws in respect of actions or omissions occurring at or prior to the
Effective Time (including the Transactions).

     (b) From and after the Effective Time, the Surviving Company shall indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the date hereof
or who becomes prior to the Effective Time, an officer or director of Target or any of its
Subsidiaries (each an “Indemnified Party”), who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether civil, criminal,
or investigative (a “proceeding”) against all losses, claims, damages, costs, liabilities,
fees and expenses (including reasonable fees and disbursements of counsel and experts and
judgments, fines, losses, claims, liabilities and amounts paid in settlement (provided that
any such settlement is effected with the prior written consent of Parent, which will not be
unreasonably withheld, conditioned or delayed) actually and reasonably incurred by the
Indemnified Party based in whole or in part out of the fact the Indemnified Party is or was
an officer or director of Target or any Subsidiary of Target or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in which such
Indemnified Party was serving at the request of the Target, and pertaining to any matter
existing or occurring, or any acts or omissions occurring, at or prior to the Effective Time
including any act or omission relating to this Agreement or the Transactions (the
“Indemnified Liabilities”), to the full extent permitted under Texas law. If an Indemnified
Party makes or asserts any claim for Indemnified Liabilities, any determination required to
be made with respect to whether an Indemnified Party’s conduct complies with the standards
set forth under the TBCA or TBOC, as applicable, shall be made by independent counsel
mutually acceptable to the Surviving Company and the Indemnified Party; provided, further,
that nothing herein shall impair any rights or obligations of any Indemnified Party. If any
claim or claims are brought against any Indemnified Party (whether arising before or after
the Effective Time), counsel selected for the defense of such claim shall be reasonably
acceptable to Target (if selected before the Effective Time) and the Surviving Company (if
selected after the Effective Time).

     (c) The Surviving Company shall promptly advance all reasonable out-of-pocket expenses
of each Indemnified Party in connection with any such action or proceeding described above,
as such expenses are incurred, to the fullest extent permitted

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by the TBOC, subject to the
receipt by the Surviving Company of an undertaking by or
on behalf of such Indemnified Party to repay such amount if it shall ultimately be
determined that such Indemnified Party is not entitled to be indemnified by the Surviving
Company.

     (d) The Surviving Company shall maintain Target’s existing officers’ and directors’
liability insurance policy (“D&O Insurance”) for a period of at least six (6) years after
the Effective Time, but only to the extent related to actions or omissions prior to the
Effective Time; provided, that the Surviving Company may substitute therefor policies of
substantially similar coverage and amounts containing terms no less advantageous to such
former directors or officers; provided further, that the aggregate amount of annual premiums
to be paid with respect to the maintenance of such D&O Insurance for such six-year period
shall not exceed one hundred seventy-five percent (175%) of the aggregate amount of annual
premiums currently paid by Target for such D&O Insurance.

     (e) In the event Parent or any of its successors or assigns or the Surviving Company or
any of its successors or assigns (i) consolidates with or merges into any of its Affiliates
and shall not be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties and assets to
any of its Affiliates, then, and in each such case, proper provision shall be made so that
the successors and assigns of Parent or the Surviving Company, as applicable, assume the
obligations set forth in this section.

     (f) The provisions of this Section 8.5 shall survive the Effective Time and are
intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.

     Section 8.6 Further Assurances. Each party shall use commercially reasonable efforts to obtain all
consents and approvals and to do all other things necessary for the consummation of the
Transactions. The parties shall take such further action to deliver or cause to be delivered to
each other at the Closing and at such other times thereafter as shall be reasonably agreed by such
parties such additional agreements or instruments as any of them may reasonably request for the
purpose of carrying out this Agreement and the Transactions. The parties shall afford each other
access to all information, documents, records and personnel who may be necessary for any party to
comply with laws or regulations (including the filing and payment of Taxes and handling Audits), to
fulfill its obligations with respect to indemnification hereunder or to defend itself against suits
or claims of others. Parent and Target shall duly preserve all files, records or any similar items
of Parent or Target received or obtained as a result of the Transactions with the same care and for
the same period of time as it would preserve its own similar assets.

     Section 8.7 Expenses. Except as provided in Section 11.3, each party shall bear solely and
entirely, all Expenses that they incur.

     Section 8.8 Cooperation. Subject to compliance with applicable law, from the date hereof until the
Effective Time, Target shall confer on a regular and frequent basis with one

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or more
Representatives of Parent to report and consult on operational matters of materiality and
the general status of ongoing operations, including, without limitation, matters relating to
drilling of wells, whether or not within the ordinary course of business, and shall promptly
provide Parent or its counsel with copies of all filings made by Target with any Governmental
Authority in connection with this Agreement and the Transactions.

     Section 8.9 Publicity. Neither Target, Parent, Merger Sub nor any of their respective Affiliates shall
issue or cause the publication of any press release or other announcement with respect to the
Transactions without the prior consultation with and consent of the other party (such consent not
to be unreasonably withheld, conditioned or delayed), except as may be reasonably determined to be
required by applicable law or by obligations pursuant to any listing agreement with any national
securities exchange, and each party shall use reasonable efforts to provide copies of such release
or other announcement to the other party hereto, and give due consideration to such comments as
each such other party may have, prior to such release or other announcement.

     Section 8.10 Additional Actions. Subject to the terms and conditions of this Agreement, each party agrees
to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable laws and regulations,
or to remove any injunctions or other impediments or delays, to consummate and make effective the
Transactions, subject, however, to the Target Shareholders’ Approval.

     Section 8.11 Filings. Each party shall make all filings such party is required to make in connection
herewith or desirable to achieve the purposes contemplated hereby, and shall cooperate as needed
with respect to any such filing by any other party.

     Section 8.12 Consents. Each of Parent, Merger Sub and Target shall use commercially reasonable efforts to
obtain all consents necessary or advisable in connection with its obligations hereunder.

     Section 8.13 Employee Matters

     (a) Subsequent to the Effective Time, the Surviving Company shall perform or cause
Target to perform the obligations of Target under the Well Bonus Plans and the severance
agreements and severance plans to which Target is a party or subject and which are set forth
in Sections 5.11(e) and 5.30 of the Target Disclosure Schedule. From the date of this
Agreement until the Effective Time, Target agrees not to add any additional wells or make
any additional grants to new or current participants under any of the Well Bonus Plans.

     (b) To the extent service is relevant for purposes of eligibility, participation or
vesting (but not the accrual of benefits) under any employee benefit plan, program or
arrangement established or maintained by the Surviving Company or its Affiliates in which
Business Employees may participate, such Business Employees shall be credited for service
accrued as of the Effective Time with Target and its Subsidiaries to the extent such service
was credited under a similar plan, program or arrangement of Target.

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     (c) To the extent Business Employees and their dependents enroll in any health plan
sponsored by the Surviving Company or its Affiliates, the Surviving Company shall waive any
preexisting condition limitation applicable to such Business Employees to the extent that
the employee’s or dependent’s condition would not have operated as a preexisting condition
under the group health plan maintained by Target. In addition, the Surviving Company shall
cause such health plans (i) to waive all preexisting condition exclusions and waiting
periods otherwise applicable to Business Employees and their dependents, other than
exclusions or waiting periods that are in effect with respect to such individuals as of the
Effective Time to the extent not satisfied, under the corresponding benefit plans of Target,
and (ii) to provide each Business Employee and his or her dependents with corresponding
credit for any co-payments and deductibles paid by them under the corresponding benefit
plans of Target during the portion of the respective plan year prior to the Effective Time.

     (d) With respect to the 401(k) accounts of those Business Employees who become eligible
to participate in the Surviving Company’s 401(k) Plan after the Effective Time, Merger Sub
agrees to take one or more of the following actions: (i) to establish an arrangement under
which such Business Employees are provided with payroll withholding for purposes of repaying
any loan that is outstanding under Target’s 401(k) Plan as of the Effective Time; (ii) to
permit such Business Employees to voluntarily transfer or rollover their accounts (including
loans) from Target’s 401(k) Plan to the Surviving Company’s 401(k) Plan; or (iii) to cause
the Surviving Company’s 401(k) Plan to accept a direct trustee-to-trustee transfer of assets
from Target’s 401(k) Plan into the Surviving Company’s 401(k) Plan, including any
outstanding loans, on behalf of such Business Employees. Merger Sub and Target agree that
they shall take all actions necessary, including the amendment of their respective plans, to
effect the actions selected by Merger Sub under the preceding sentence.

     (e) With respect to any Business Employees who become employed by Merger Sub or its
Affiliates after the Effective Time, Merger Sub or such Affiliate shall give service credit
for purposes of determining post Effective Time vacation, sick leave and any other paid time
off entitlements that Merger Sub or such Affiliate provides to its employees generally.

     (f) Target and Merger Sub shall cooperate with each other in all reasonable respects
relating to any actions to be taken pursuant to this section.

     Section 8.14 Notice of Certain Events. Each party to this Agreement shall promptly as reasonably
practicable notify the other parties of:

     (a) any notice or other communication from any Person alleging that the consent of such
Person (or other Person) is or may be required in connection with the Transactions;

     (b) any notice or other communication from any Governmental Authority in connection
with the Transactions;

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     (c) any actions, suits, claims, investigations or proceedings commenced or, to the best
of its knowledge, threatened against, relating to or involving or otherwise affecting it or
any of its Subsidiaries which, if pending on the date hereof, would have been required to
have been disclosed pursuant to Section 5.10 or Section 5.12, or which
relate to the consummation of the Transactions;

     (d) any notice of, or other communication relating to, a breach, default or event under
this Agreement or otherwise that, with notice or lapse of time or both, would become a
breach or default, received by it or any of its Subsidiaries subsequent to the date hereof,
under any material agreement and could reasonably be expected to cause the conditions set
forth in Article IX not to be satisfied; and

     (e) any Target Material Adverse Effect or the occurrence of any event which is
reasonably likely to result in a Target Material Adverse Effect.

     Section 8.15 Site Inspections. Subject to compliance with applicable law, from the date hereof until the
Effective Time, the Parent Parties may undertake (at the Parent Parties’ sole cost and expense) a
reasonable environmental and operational assessment or assessments (an “Assessment”) of the
Target’s operations, business and/or properties that are the subject of this Agreement. An
Assessment may include a review of permits, files and records including, but not limited to,
environmental investigations, audits, assessments, studies, testing and management plans and
systems, as well as visual and physical inspections and testing. An Assessment will include any
soil borings, groundwater or any other “Phase II” testing if required in the reasonable discretion
of the Parent Parties without the consent of the Target, the Parent Parties shall confer with the
Target regarding the nature, scope and scheduling of such Assessment, and shall comply with such
conditions as the Target may reasonably impose to (a) avoid interference with the Target’s
operations or business; (b) require the Parent Parties’ representatives responsible for performing
the Assessment to maintain insurance coverage as required by the Target; and (c) keep the Target’s
property free and clear of any Liens arising out of any entry onto or inspection of the subject
property. The Target shall cooperate in good faith with the Parent Parties’ effort to conduct an
Assessment. The Parent Parties shall jointly and severally indemnify Target and its Subsidiaries
from any claims made against Target or any of its Subsidiaries in respect of personal or bodily
injury to, sickness, disease, death or loss of services or wages of or respecting, any employee,
agent or contractor of any Parent Party, arising from any investigations, audits, assessments,
studies, testing and inspections conducted by a Parent Party pursuant to this Section 8.15.

     Section 8.16 Shareholder Litigation. Target shall give the Parent Parties the reasonable opportunity to
participate in the defense of any litigation against Target and its directors relating to the
Transactions.

     Section 8.17 Financing

     (a) Prior to the Effective Time, Target shall cooperate with the Parent Parties, the
Parent Parties’ financing sources, and the Parent Parties’ auditors and attorneys in
connection with the Parent Parties’ financing efforts with respect to the Transactions,
including without limitation any refinancing of existing credit facilities of the Parent

46

 

Parties or Target. Without limiting the generality of the foregoing, Target shall
provide, and Target shall instruct its auditors to provide, to the Parent Parties such
financial and other information that Parent or its Representatives reasonably requests for
inclusion in any materials to be used by the Parent Parties or provided to any financing
sources in connection with such financing.

     (b) Target shall not take any actions that would terminate or otherwise invalidate the
agreement to extend the Fortis Forbearance Agreement until the Effective Time.

     Section 8.18 [Reserved]

     Section 8.19 Shell Settlement. Target agrees that, prior to the Effective Time, it shall use reasonable
best efforts to enter into a settlement agreement with Shell, to be effective as of the Effective
Time, relating to the pending arbitration proceeding on terms that are materially similar to the
terms of the proposed Compromise and Settlement Agreement previously disclosed to Parent. Target
shall keep Parent informed, on a current basis, of the status and details of such agreement and
shall provide to Parent copies of all correspondence and a description of all material oral
discussions between Target and Shell (or between Target’s Representatives and Shell’s
Representatives) with respect to the terms of the proposed settlement.

ARTICLE IX.

CONDITIONS TO CONSUMMATION OF THE MERGER

     Section 9.1 Conditions to the Obligation of Each Party. The respective obligations of each party to
effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions:

     (a) The Target Shareholders’ Approval shall have been obtained.

     (b) No action, suit or proceeding instituted by any Governmental Authority may be
pending and no statute, rule, order, decree or regulation and no injunction, order, decree
or judgment of any court or Governmental Authority of competent jurisdiction may be in
effect, in each case which would prohibit, restrain, enjoin or restrict the consummation of
the Transactions; provided, however, that if Target seeks to terminate this Agreement
pursuant to this subsection (b), Target must have used all reasonable best efforts to
prevent the entry of such injunction or other order.

     (c) Each of Target, Parent and Merger Sub shall have obtained all material Permits
required to consummate the Transactions.

     Section 9.2 Conditions to the Obligations of the Parent Parties. The obligation of the Parent Parties to
effect the Merger is subject to the satisfaction at or prior to the Closing Date of the following
conditions, any or all which may be waived by them, in whole or in part, to the extent permitted by
applicable law:

     (a) The representations and warranties of Target set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as

47

 

though made on such date (except to the extent such representations and warranties are
expressly made only as of a specific date, in which case as of such specific date), except
where the failures to be so true and correct (for this purpose disregarding any
qualification or limitation as to materiality or a Target Material Adverse Effect) do not
have, and would not reasonably be expected to have, individually or in the aggregate, a
Target Material Adverse Effect. Parent shall have received a certificate signed on behalf
of Target by an executive officer of Target to such effect.

     (b) Target shall have performed in all material respects its obligations required to be
performed by it under this Agreement. Parent shall have received a certificate signed on
behalf of Target by an executive officer of Target to such effect.

     (c) Since the date of this Agreement, there shall not have occurred a Target Material
Adverse Effect.

     (d) Each consent, waiver and approval set forth in Section 5.4(b) and
Section 5.4(c) of the Target Disclosure Schedule must have been obtained, and Target
must have provided Merger Sub with copies thereof.

     (e) Target shall have provided to Parent the executed Compromise and Settlement
Agreement with Shell relating to the arbitration proceeding between the parties, and the
terms of such agreement shall be materially similar to the terms previously disclosed to
Parent.

     (f) No more than five percent (5%) of the holders of Target Common Shares shall have
notified Target or the Parent Parties of their intent to exercise dissenter’s rights.

     (g) The Fairness Opinion, as described in Section 5.24, shall not have been
withdrawn.

     (h) Except for the Well Bonus Plans and any other employee incentive plans being
assumed by the Surviving Company, all employee incentive plans shall terminate on or prior
to the Effective Time.

     (i) All of Target’s payment and other obligations under the Engagement Letters shall
have terminated, except for the indemnity and confidentiality provisions thereunder.

     (j) Each holder of an Excepted Option shall have delivered to Parent an executed Option
Waiver, Cancellation and Release Agreement cancelling such Excepted Options.

     Section 9.3 Conditions to the Obligations of the Target. The obligations of the Target to
effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived by the Target, in whole or in part, to the
extent permitted by applicable law:

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     (a) The representations and warranties of Parent and Merger Sub set forth in this
Agreement shall be true and correct, in each case as of the date of this Agreement and as of
the Closing Date as though made on such date (except to the extent such representations and
warranties are expressly made only as of a specific date, in which case as of such specific
date), except where the failures to be so true and correct (for this purpose disregarding
any qualification or limitation as to materiality or a Parent Material Adverse Effect) do
not have, and would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect. The Target shall have received a certificate signed on
behalf of Parent and Merger Sub by an executive officer of Parent and Merger Sub to such
effect.

     (b) Parent and Merger Sub shall have performed in all material respects the respective
obligations required to be performed by them under this Agreement, and the Target shall have
received a certificate signed on behalf of Parent and Merger Sub by an executive officer of
Parent and Merger Sub to such effect.

ARTICLE X.

SURVIVAL

     Section 10.1 Survival of Representations and Warranties. The representations and warranties of the parties
contained in this Agreement shall not survive the Effective Time.

     Section 10.2 Survival of Covenants and Agreements. The covenants and agreements of the parties to be
performed after the Effective Time contained in this Agreement shall survive the Effective Time.

ARTICLE XI.

TERMINATION, AMENDMENT AND WAIVER

     Section 11.1 Termination. This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the shareholders of Target:

     (a) by the mutual written consent of Parent and Target by action of their respective
boards of directors or governing bodies, at any time prior to the Effective Time;

     (b) by either Parent or Target if the Effective Time has not occurred on or before
11:59 p.m. Central time on May 31, 2010 (the “Termination Date”), provided that the party
seeking to terminate this Agreement pursuant to this section shall not have breached in any
material respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or before the Termination
Date;

     (c) by either Target or Parent, if any Governmental Authority issues an order, decree
or ruling or takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and, such order, decree, ruling or other action shall have become
final and non-appealable;

49

 

     (d) by Target if there has been a breach by Parent or Merger Sub of any representation,
warranty, covenant or agreement set forth in this Agreement which breach would cause the
conditions set forth in Section 9.3(a) and Section 9.3(b) not to be
satisfied and such breach (if susceptible to cure) has not been cured in all material
respects within twenty (20) Business Days following receipt by Parent of notice of such
breach (a “Parent Breach”);

     (e) by Parent, if (i) there has been a breach by Target of any representation,
warranty, covenant or agreement set forth in this Agreement (other than as described in
clause (ii) of this Section 11.1(e)) which breach would cause the conditions set
forth in Section 9.2(a) and Section 9.2(b) not to be satisfied and such
breach (if susceptible to cure) has not been cured in all respects within twenty (20)
Business Days following receipt by Target of notice of such breach, or (ii) the Target
Lenders terminate the Forbearance Period (as defined in the Fortis Forbearance Agreement)
pursuant to Section 11(e) of the Fortis Forbearance Agreement, or Target breaches the
covenant set forth in Section 8.17(b) (in the case of (i) and (ii), a “Target
Breach”);

     (f) by Parent or Target if the Target Shareholder Meeting (or any postponement or
adjournment thereof) shall have concluded and the Target Shareholders’ Approval shall not
have been obtained;

     (g) by Parent if (i) a Change in the Target Recommendation shall have occurred, whether
or not permitted by Section 8.4, (ii) following the date of any bona fide
Acquisition Proposal by a third party for Target or any material modification thereto is
first publicly announced, disclosed or otherwise made known prior to the time at which
Target receives the Target Shareholders’ Approval, Target fails to issue a press release
that expressly reaffirms the Target Recommendation within ten (10) Business Days following
Parent’s written request to do so (which request may be made by Parent one time following
any such Acquisition Proposal or any material modifications thereto), (iii) any tender offer
or exchange offer constituting an Acquisition Proposal for Target is commenced or materially
modified by any third party with respect to the outstanding Target Common Shares prior to
the time at which Target receives the Target Shareholders’ Approval, and the Target Board
shall not have recommended that the Target Shareholders reject such tender offer or exchange
offer and not tender their Target Common Shares into such tender offer or exchange offer
within ten (10) Business Days after commencement or material modification of such tender
offer or exchange offer, unless Target has issued a press release that expressly reaffirms
the Target Recommendation within such ten (10) Business Day period, (iv) Target or the
Target Board approves, endorses, recommends, adopts or enters into any Acquisition Proposal
by a third party for Target or any Target Acquisition Contract, whether or not permitted by
Section 8.4, (v) Target shall have materially breached its obligations under
Section 8.4, or (vi) Target or the Target Board announces, resolves or proposes to
do any of the foregoing, whether or not permitted by Section 8.4; provided, however,
that Parent’s right to terminate this Agreement pursuant to this Section 11.1(g)
shall only be available for a ten (10) Business Day period following the applicable
triggering event set forth in clauses (i), (ii), (iii), (iv) and (vi) of this Section
11.1(g);

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     (h) by Target, at any time prior to the time at which Target receives the Target
Shareholders’ Approval, if the Target Board determines to enter into a definitive agreement
with respect to a Superior Proposal in accordance with Section 8.4(b), provided that
it pays to Parent the Termination Fee concurrently with such termination; and

     (i) by Parent, at any time, provided that it pays to Target the Termination Fee
concurrently with such termination.

     Section 11.2 Notice of Termination; Effect of Termination.

     (a) Other than pursuant to Section 11.1(a), a terminating party shall provide
written notice of termination to the other party specifying with particularity the reason
for such termination, and any such termination in accordance with Section 11.1 shall
be effective immediately upon delivery of such written notice to the other party or, if such
termination is due to a Target Breach or a Parent Breach, immediately upon the expiration of
the applicable cure period.

     (b) In the event of termination of this Agreement by any party as provided in
Section 11.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party except with respect to this Article
XI, Section 8.3, Section 8.9 and Section 12.14.

     (c) Upon termination of this Agreement, each of the Voting Agreements and the Option
Waiver, Cancellation and Release Agreements will terminate according to its terms.

     Section 11.3 Expenses and Other Payments.

     (a) If this Agreement is terminated pursuant to Section 11.1(b), Section
11.1(f), Section 11.1(g) or Section 11.1(h), then Target shall reimburse
Parent, in cash, for Parent’s Expenses by wire transfer of immediately available funds to an
account designated by Parent, no later than two (2) Business Days after receipt by Target of
an invoice from Parent for Parent’s Expenses; provided, however, that in no event shall the
amount reimbursed to Parent for its Expenses exceed $1,000,000. In all other cases, each
party shall pay its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the Transactions, whether or not the Merger shall be
consummated.

     (b) If Parent terminates this Agreement pursuant to Section 11.1(g), then
Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately
available funds to an account designated by Parent, no later than two (2) Business Days
after such termination.

     (c) If Target terminates this Agreement pursuant to Section 11.1(h), then
Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately
available funds to an account designated by Parent, concurrently with such termination.

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     (d) If (i) Parent or Target terminate this Agreement pursuant to Section
11.1(b), (ii) prior to the Termination Date, any Person (other than Parent or its
Affiliates) makes an Acquisition Proposal for Target, whether or not publicly announced, and
(iii) within nine (9) months of the date of such termination Target enters into a definitive
agreement or consummates a transaction contemplated by an Acquisition Proposal, then Target
shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available
funds to an account designated by Parent, no later than two (2) Business Days after Target
consummates a transaction contemplated by an Acquisition Proposal irrespective of the date
upon which such transaction is consummated.

     (e) If (i) Target terminates this Agreement pursuant to Section 11.1(f), (ii)
prior to the date of the Target Shareholders Meeting any Person (other than Parent or its
Affiliates) makes an Acquisition Proposal for Target, whether or not publicly announced, and
(iii) within nine (9) months of the date of such termination Target enters into a definitive
agreement or consummates a transaction contemplated by an Acquisition Proposal, then Target
shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available
funds to an account designated by Parent, no later than two (2) Business Days after Target
consummates a transaction contemplated by an Acquisition Proposal irrespective of the date
upon which such transaction is consummated.

     (f) If Target terminates this Agreement pursuant to Section 11.1(d), then
Parent shall pay Target the Termination Fee, in cash, by wire transfer of immediately
available funds to an account designated by Target, no later than two (2) Business Days
after such termination.

     (g) If Parent terminates this Agreement pursuant to Section 11.1(e), then
Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately
available funds to an account designated by Parent, no later than two (2) Business Days
after such termination.

     (h) If Parent terminates this Agreement pursuant to Section 11.1(i) only and
for none of the other reasons specified in Section 11.1, then Parent shall pay
Target the Termination Fee, in cash, by wire transfer of immediately available funds to an
account designated by Target, concurrently with such termination. Target agrees (for itself
and on behalf of its Subsidiaries, Affiliates, stockholders or Representatives) that if
Parent pays the Termination Fee pursuant to this Section 11.3(h), the payment of
such Termination Fee shall be the sole and exclusive remedy of Target, its Subsidiaries,
Affiliates, stockholders or Representatives against Parent, Merger Sub or any of their
respective Subsidiaries, Affiliates, partners or Representatives for Parent’s termination of
this Agreement pursuant to Section 11.1(i), and in no event will Target seek to
recover any other money damages or seek any other remedy based on a claim in law or equity
(including specific performance). Upon payment to Target of the Termination Fee, neither
Parent, Merger Sub nor any of their Subsidiaries, Affiliates, stockholders or
Representatives shall have any further liability or obligation to Target or its
Subsidiaries, Affiliates, stockholders or Representatives relating to or arising out of this
Agreement or the Transactions.

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     (i) The parties acknowledge and agree that the agreements contained in this section are
an integral part of the Transactions, and that, without these agreements, the parties would
not enter into this Agreement. If a party fails to promptly pay the amount due by it
pursuant to this section, interest shall accrue on such amount from the date such payment
was required to be paid pursuant to the terms of this Agreement until the date of payment at
the rate of six percent (6%) per annum. If, in order to obtain such payment, the other party
commences a suit that results in judgment for such party for such amount, the defaulting
party shall pay the other party its reasonable costs and expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with such suit. Each of the parties
further acknowledges that the payment of the amounts by Parent and Target specified in this
section is not a penalty, but in each case (except in the case of a Parent Breach or a
Target Breach) are liquidated damages in a reasonable amount that will compensate Target or
Parent, as the case may be, in the circumstances in which such fees are payable for the
efforts and resources expended and the opportunities foregone while negotiating this
Agreement and in reliance on this Agreement and on the expectation of the consummation of
the Transactions, which amount would otherwise be impossible to calculate with precision. In
no event shall Parent or Target, as applicable, be required to pay the Termination Fee more
than once.

ARTICLE XII.

MISCELLANEOUS

     Section 12.1 Notices. All notices or communications hereunder shall be in writing (including facsimile or
similar writing) addressed as follows:

     To Parent:

ALTA MESA HOLDINGS, LP

15415 Katy Fwy, Suite 800

Houston, Texas 77094

Attention: Harlan H. Chappelle, President

Telephone: (281) 530-0991

Facsimile: (281) 530-5278

     To Merger Sub:

ALTA MESA ACQUISITION SUB, LLC

c/o Alta Mesa Holdings, LP

15415 Katy Fwy, Suite 800

Houston, Texas 77094

Attention: Harlan H. Chappelle, President

Telephone: (281) 530-0991

Facsimile: (281) 530-5278

     With copies (which shall not constitute notice) to:

Haynes and Boone, LLP

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1221 McKinney Street, Suite 2100

Houston, Texas 77010

Attention: Buddy Clark

Telephone: (713) 547-2077

Facsimile: (713) 236-5577

Haynes and Boone, LLP

1221 McKinney Street, Suite 2100

Houston, Texas 77010

Attention: Bill Nelson

Telephone: (713) 547-2084

Facsimile: (713) 236-5557

     To Target:

THE MERIDIAN RESOURCE CORPORATION

1401 Enclave Parkway, Suite 300

Houston, Texas 77077

Attention: Paul Ching, Chairman & CEO

Telephone: (281) 597-7000

Facsimile: (281) 597-8880

     With a copy (which shall not constitute notice) to:

Fulbright & Jaworski L.L.P.

1301 McKinney Street, Suite 5100

Houston, Texas 77010

Attention: Roger K. Harris

Telephone: (713) 651-5151

Facsimile: (713) 651-5246

     Any such notice or communication shall be deemed given (i) when made, if made by hand
delivery, and upon confirmation of receipt, if made by facsimile, (ii) one Business Day after being
deposited with a next-day courier, postage prepaid, or (iii) three (3) Business Days after being
sent certified or registered mail, return receipt requested, postage prepaid, in each case
addressed as above (or to such other address as such party may designate in writing from time to
time).

     Section 12.2 Severability. If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and effect.

     Section 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and assigns; provided,
however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise
subject to hypothecation and any assignment in violation hereof shall be null and void.

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     Section 12.4 Interpretation. The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.

     Section 12.5 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same Agreement, and shall become effective when one or more such
counterparts have been signed by each of the parties and delivered to each party.

     Section 12.6 Entire Agreement. This Agreement, all documents contemplated herein or required hereby, the
Confidentiality Agreement and the Voting Agreements represent the entire Agreement of the parties
with respect to the subject matter hereof and shall supersede any and all previous contracts,
arrangements or understandings between the parties with respect to the subject matter hereof.

     Section 12.7 Governing Law. This Agreement shall be construed, interpreted, and governed in accordance
with the laws of the state of Texas, without reference to rules relating to conflicts of law.

     Section 12.8 Submission to Jurisdiction. Each party to this Agreement submits to the exclusive
jurisdiction of the federal and state courts in Harris County, in the State of Texas, in any
dispute or action arising out of or relating to this Agreement and agrees that all claims in
respect of such dispute or action may be heard and determined in any such court. Each party also
agrees not to bring any dispute or action arising out of or relating to this Agreement in any other
court. Each party agrees that a final judgment in any dispute or action so brought will be
conclusive and may be enforced by dispute or action on the judgment or in any other manner provided
at law (common, statutory or other) or in equity. Each party waives any defense of inconvenient
forum to the maintenance of any dispute or action so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.

     Section 12.9 Attorneys’ Fees. If any action at law or equity, including an action for declaratory relief,
is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys’ fees and expenses from the other party, which fees and
expenses shall be in addition to any other relief which may be awarded.

     Section 12.10 No Third Party Beneficiaries. Except as provided in Section 8.5, no Person other than
a party to this Agreement is an intended beneficiary of this Agreement or any portion hereof.

     Section 12.11 Disclosure Schedules. The disclosures made on the Target Disclosure Schedule, with respect to
any representation or warranty shall be deemed to be made with respect to any other representation
or warranty requiring the same or similar disclosure to the extent that the relevance of such
disclosure to other representations and warranties is reasonably evident from the face of the
disclosure schedule. The inclusion of any matter on the Target Disclosure Schedule will not be
deemed an admission by Target that such listed matter is material or that such listed matter has or
would have a Target Material Adverse Effect.

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     Section 12.12 Amendments and Supplements. At any time before or after approval of the matters presented in
connection with the Merger by the shareholders of Target and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by the Parent Parties and Target with respect
to any of the terms contained in this Agreement, except as otherwise provided by law; provided,
however, that following approval of this Agreement by the shareholders of Target, there shall be no
amendment or change to the provisions hereof unless permitted by the TBCA and/or the TBOC, as
applicable, without further approval by the shareholders of Target.

     Section 12.13 Extensions, Waivers, etc. At any time prior to the Effective Time, either party may:

     (a) extend the time for the performance of any of the obligations or acts of the other
party;

     (b) waive any inaccuracies in the representations and warranties of the other party, or
breaches thereof, contained herein or in any document delivered pursuant hereto; or

     (c) subject to the proviso of Section 12.12 waive compliance with any of the
agreements or conditions of the other party contained herein.

     Notwithstanding the foregoing, no failure or delay by Merger Sub or Target in exercising any
right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other right hereunder. Any
agreement on the part of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.

     Section 12.14 Specific Performance; Additional Remedies. Parent, Merger Sub and Target agree
that money damages would not be a sufficient remedy for any Parent Breach or any Target Breach and
that, in addition to the remedies set forth in Section 11.3, the non-breaching party shall
be entitled to all remedies available to it at law or equity as a remedy for such breach, including
specific performance and injunctive relief. In connection with any request for specific
performance or other equitable relief by the non-breaching party under this Section 12.14,
the breaching party waives any requirement for the security or posting of any bond in connection
with such remedy. The parties further agree that (a) by seeking any particular remedy, the
non-breaching party shall not in any respect waive its right to seek any other form of relief that
may be available to it, and (b) nothing contained in this Section 12.14 shall require the
non-breaching party to institute any proceeding for (or limit the right of the non-breaching party
to institute any proceeding for) specific performance or injunctive relief under this Section
12.14 before exercising any termination right arising from a Parent Breach or a Target Breach,
as applicable (and pursuing damages after such termination), nor shall the commencement of any
action pursuant to this Section 12.14 or anything contained in this Section 12.14
restrict or limit the right of the non-breaching party to terminate this Agreement as a result of a
Parent Breach or a Target Breach, as applicable, or pursue any other remedies under this Agreement
that may be available then or thereafter.

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.

	 	 	 	 	 
	 	ALTA MESA HOLDINGS, LP

 	 
	 	By:  	Alta Mesa GP, LLC
 	 
	 	Its:  	 General Partner 	 
	 	 	 
	 	By:  	/s/ Harlan H. Chappelle
	 
	 	 	Name:  	Harlan H. Chappelle
 	 
	 	 	Title:  	President and Chief Executive Officer
 	 
	 
	 	ALTA MESA ACQUISITION SUB, LLC

 	 
	 	By:  	/s/ Harlan H. Chappelle
 	 
	 	 	Name:  	Harlan H. Chappelle
 	 
	 	 	Title:  	Manager
 	 
	 
	 	THE MERIDIAN RESOURCE CORPORATION

 	 
	 	By:  	/s/ Paul D. Ching
 	 
	 	 	Name:  	Paul D. Ching
 	 
	 	 	Title:  	Chairman, Chief Executive Officer and President
 	 
	 

[Signature Page — Agreement and Plan of Merger]exv10w9

Exhibit
10.9

FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER

     This First Amendment to Agreement and Plan of Merger, dated as of April 7, 2010 (this
“Amendment”), is entered into by and among ALTA MESA HOLDINGS, LP, a Texas limited partnership
(“Parent”), ALTA MESA ACQUISITION SUB, LLC, a Texas limited liability company (“Merger Sub,” and,
together with Parent, the “Parent Parties”), and THE MERIDIAN RESOURCE CORPORATION, a Texas
corporation (“Target”). All capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in the Merger Agreement.

RECITALS

     WHEREAS, the Parent Parties and Target have entered into that certain Agreement and Plan of
Merger, dated December 22, 2009 (the “Merger Agreement”); and

     WHEREAS, the Parent Parties and Target desire to amend the Merger Agreement to provide for a
revised Merger Consideration of $0.33 per Target Common Share in cash, without interest; and

     WHEREAS, accordingly, the Parent Parties and Target desire to amend the Merger Agreement in
the manner more particularly described below.

AGREEMENT

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

     1. Amendment to Section 4.1(a). Section 4.1(a) of the Merger Agreement is hereby
amended by deleting the phrase “$0.29 per Target Common Share (the “Merger Consideration”)” and
inserting the phrase “$0.33 per Target Common Share (the “Merger Consideration”)” in lieu thereof.

     2. Governing Law. This Agreement shall be construed, interpreted, and governed in
accordance with the laws of the state of Texas, without reference to rules relating to conflicts of
law.

     3. Counterparts. This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same Amendment, and shall become effective when one or more
such counterparts have been signed by each of the parties and delivered to each party.

     4. No Other Amendments. Except as set forth herein, the terms and provisions of the
Merger Agreement will remain in full force and effect in accordance with their terms. On or after
the date of this Amendment, each reference in the Merger Agreement to “this Agreement,”
“hereunder,” “hereof,” “herein” or words of like import referring to the Merger Agreement shall
mean and be a reference to the Merger Agreement as amended by this Amendment, and this Amendment
shall be deemed to be a part of the Merger Agreement.

 

 

     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and
year first above written.

	 	 	 	 	 
	 	ALTA MESA HOLDINGS, LP

 	 
	 	By:  	Alta Mesa GP, LLC
 	 
	 	 	Its:  	General Partner 	 
	 	 	 	 
	 
	 	By:  	/s/ Harlan H. Chappelle	 
	 	 	Name:  	Harlan H. Chappelle 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 
	 	ALTA MESA ACQUISITION SUB, LLC

 	 
	 	By:  	/s/ Harlan H. Chappelle
 	 
	 	 	Name:  	Harlan H. Chappelle 	 
	 	 	Title:  	Manager 	 
	 
	 
	 	THE MERIDIAN RESOURCE CORPORATION

 	 
	 	By:  	/s/ Paul D. Ching
 	 
	 	 	Name:  	Paul D. Ching	 
	 	 	Title:  	Chief Executive Officer and President

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