Document:

exv10w1

 

Exhibit 10.1

AOGI 3-20-06

PURCHASE AND SALE AGREEMENT

(Richland County, Montana)

     This Purchase and Sale Agreement (this “Agreement”) is made and entered into this ..... day of
March, 2006, by and between American Oil & Gas, Inc. (“American”), a Nevada corporation whose
address is 1050 Seventeenth Street, Suite 1850, Denver, Colorado 80265, and Enerplus Resources
(USA) Corporation (“Enerplus”), a Delaware corporation whose address is 1700 Lincoln Street, Suite
1300, Denver, Colorado 80203. American and Enerplus may be referred to individually as a “Party”
or collectively as the “Parties.”

  RECITALS

     A. American wishes to sell certain of its Assets, as defined in Section 1.2 below.

     B. Enerplus (i) has conducted an independent investigation of the nature and extent of the
Assets, (ii) will conduct further due diligence on the Assets after execution of this Agreement,
and (iii) wishes to purchase the Assets.

     C. Enerplus and American wish to accomplish the foregoing under the terms of this Agreement.

  AGREEMENT

     In consideration of the mutual promises contained herein, Enerplus and American agree as
follows:

ARTICLE I

PURCHASE AND SALE OF THE ASSETS

     1.1 Purchase and Sale. American agrees to sell and Enerplus agrees to purchase the
Assets pursuant to the terms of this Agreement, with such purchase and sale effective as of 7:00
a.m., Mountain Time on February 1, 2006 (the “Effective Time”).

     1.2 The Assets. As used herein, the term “Assets” means the entire right, title and
interest of American in and to the following:

     (a) The leasehold estates created by the oil and gas leases described in Schedule
1.2(a) (collectively, the “Leases”), together with all contract rights and privileges;
surface, reversionary or remainder interests; and all other interests associated with the
Leases.

     (b) The oil and gas wells specifically described in Schedule 1.2(b) (collectively, the
“Wells”), together with all equipment, fixtures, improvements, permits, rights-of-way and
easements used or held for use in connection with the dewatering, production, gathering,
treatment, processing, compression, storing, sale or disposal of hydrocarbons or water
produced from the properties and interests described in Section 1.2(a).

 

 

     (c) The unitization, pooling and communitization agreements, declarations and orders,
and the units created thereby (including all units formed under orders, regulations, rules
or other acts of any federal, state or other governmental agency having jurisdiction) and
all other such agreements relating to the properties and interests described in Sections
1.2(a) and (b) and to the production of hydrocarbons, if any, attributable to said
properties and interests.

     (d) All sales, purchase, exchange, gathering, transportation and processing contracts,
joint operating agreements, balancing agreements, farmout agreements, service agreements,
participation agreements and other contracts, agreements and instruments (collectively, the
“Contracts”), insofar as they relate to the properties and interests described in Sections
1.2(a) through (c), including without limitation, the material agreements shown on Schedule
1.2(d).

     (e) The files, records and data relating to the items described in Sections 1.2(a)
through (d) maintained by American and relating to the interests described in Sections
1.2(a) through (d) (including without limitation all lease files, land files, well files,
drilling reports, contact files, division order files, abstracts and title opinions, seismic
data, geophysical data and other geologic information and data), although only to the extent
not subject to unaffiliated third party contractual restrictions on disclosure or transfer
and only to the extent related to the Assets, and in all events excluding all of American’s
tax and financial records and all economic evaluations (collectively, after giving effect to
the limitations and exclusions set forthparticipation above, the “Records”).

     1.3 Purchase Price. The purchase price for the Assets (the “Purchase Price”) shall be
$11,500,000. The Parties have allocated the Purchase Price among the Leases and Wells in the
manner shown in Schedule 1.3. The value so allocated to a particular Lease or Well is referred to
as the “Allocated Value” of such Lease or Well.

     1.4 Adjustments to Purchase Price. All adjustments to the Purchase Price shall be
made (i) according to the factors described in this Section 1.4, (ii) in accordance with generally
accepted accounting principles as consistently applied in the oil and gas industry, and (iii)
without duplication.

     (a) Settlement Statements. The Purchase Price shall be adjusted at Closing pursuant to a
“Preliminary Settlement Statement” prepared by American and submitted to Enerplus three days prior
to Closing for Enerplus’s comment and review. The Preliminary Settlement Statement shall set forth
the Closing Amount and all adjustments to the Purchase Price and associated calculations. The term
“Closing Amount” means the Purchase Price, adjusted as provided in this Section using reasonable
estimates if actual numbers are not available. After Closing, the Purchase Price shall be adjusted
pursuant to the Final Settlement Statement delivered pursuant to Section 12.1.

     (b) Property Expenses. The term “Property Expenses” shall mean all capital
expenses, joint interest billings, lease operating expenses, lease rental and maintenance
costs, royalties, Taxes (as defined Section 8.1(a)), drilling expenses, dewatering expenses,
completion expenses, geological, geophysical and any other exploration, development or
maintenance
expenditures chargeable under applicable operating agreements or other agreements consistent
with the standards established by the Council of Petroleum Accountant Societies of North America
that are attributable to the Assets.

     (c) Upward Adjustments. The Purchase Price shall be adjusted upward by:

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     (1) An amount equal to all proceeds (net of royalty and Taxes not otherwise
accounted for hereunder) that are received by Enerplus from the sale of Hydrocarbons
produced from or credited to the Assets prior to the Effective Time (excluding “tank
bottoms,” if any, as that term is used in the oil and gas industry), provided,
however, that this adjustment shall be made only on the Final Settlement Statement,
and shall not be included on the Preliminary Settlement Statement or considered in
determining the Closing Amount;

     (2) An amount equal to all direct and actual expenses attributable to the
Assets, including, without limitation, the Property Expenses, paid by or on behalf
of American that are attributable to the period after the Effective Time;

     (3) To the extent not covered in the preceding paragraph, an amount equal to
all prepaid expenses attributable to the Assets after the Effective Time that were
paid by or on behalf of American, including without limitation, prepaid drilling and
completion costs, prepaid compressor rental charges, and prepaid utility charges;

     (4) Any other amount as may be agreed to in writing by Enerplus and American.

     (d) Downward Adjustments. The Purchase Price shall be adjusted downward by:

     (1) The amount of all direct and actual expenses attributable to the Assets,
including, without limitation, the Property Expenses that Enerplus agrees to pay, or
that have been paid by Enerplus, that are attributable to the period prior to the
Effective Time;

     (2) An amount equal to any Title Defect Adjustments (as defined in Section
3.2);

     (3) An amount equal to any Environmental Defect Adjustments (as defined in
Section 4.4); and

     (4) Any other amount as may be agreed to in writing by Enerplus and American.

ARTICLE II

ENERPLUS’S INSPECTION

     2.1 Access to Records. Subject to Sections 7.3(a) and (b), American will continue to make
the Records available to Enerplus and its representatives for inspection and review at the offices
of American during normal business hours to permit Enerplus to perform, at its sole expense, its
due diligence review. Subject to the consent and cooperation of third parties, American will
assist Enerplus in
Enerplus’s efforts to obtain, at Enerplus’s expense, such additional information from third
parties as Enerplus may reasonably request, for the purposes of Enerplus’s due diligence review.
Enerplus may inspect the Records and such additional information only to the extent such inspection
does not violate any contractual commitment of American to an unaffiliated third party. American
shall make reasonable efforts to obtain consent from any such third party to disclose the
information and Records to Enerplus, provided that Enerplus agrees to keep same confidential and
not disclose it to anyone other than its advisors in this transaction, and provided further that
American shall have no obligation to make any payment to obtain such consent.

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     2.2 Access to the Assets. Immediately after execution of this Agreement, American
will grant Enerplus access to the Assets during reasonable business hours to permit Enerplus to
conduct, at its sole risk and expense, on-site inspections and environmental assessments of the
Assets. If Enerplus or its agent prepares an environmental assessment of any Asset, Enerplus
agrees to keep such assessment confidential and to furnish copies thereof to American. In
connection with any on-site inspections, Enerplus (i) agrees not to interfere with the normal
operation of the Assets, (ii) agrees to comply with all requirements of the operators of the Assets
and (iii) represents that it is adequately insured. Enerplus waives, releases and agrees to
indemnify American, and its respective directors, officers, shareholders, members, employees,
agents and representatives against all liabilities and obligations, including without limitation,
personal injury, death and/or property damage, arising from Enerplus’s activities on the Assets
except to the extent such liability or damages are caused by American’s willful misconduct. The
provisions of this Section shall survive termination of this Agreement.

ARTICLE III

TITLE MATTERS

     3.1 Definitions.

     (a) Defensible Title. “Defensible Title” means such record title to the Leases that (i)
would lead a reasonable prudent operator to distribute to American not less than the net revenue
interest set forth on Schedule 1.2(a) for each Lease (“NRI”); (ii) would lead a reasonable prudent
operator to bill American for costs and expenses relating to the maintenance, development, and
operation of wells located on the Leases in an amount not greater than the working interest set
forth in Schedule 1.2(a) (“WI”); and (iii) is free and clear of encumbrances, liens and defects,
other than Permitted Encumbrances.

     (b) Permitted Encumbrances. “Permitted Encumbrances” means:

     (1) lessors’ royalties, overriding royalties, net profits interests, production
payments, reversionary interests and similar burdens (payable or in suspense) if the
net cumulative effect of such burdens does not operate to reduce the NRI;

     (2) liens for Taxes [as defined in Section 8.1(a)], or assessments not yet due
and delinquent or, if delinquent, that are being contested in good faith in the
normal course of business and if so required by statute for which bond has been
posted;

     (3) all required notices, consents, actions, or filings with any governmental
agency related to conveyance of the applicable Lease, if the same are customarily
obtained after Closing;

     (4) rights of reassignment upon the surrender or expiration of any Lease;

     (5) easements, rights-of-way, servitudes, permits, surface leases and other
surface rights on or over the Leases or any restrictions on access thereto that do
not materially interfere with the operation of the affected Lease as they have been
conducted in the past;

     (6) materialmen’s, mechanics’, operators’ or other similar liens arising in the
ordinary course of business incidental to operation of the Leases (i) if such liens
and charges have not been filed pursuant to law and the time for filing such liens
and charges has expired, (ii) if filed, such liens and charges have not yet become
due and payable or

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payment is being withheld as provided by law, or (iii) if their
validity is being contested in good faith by appropriate action; and

     (7) depth limitations on American’s ownership of leasehold interests.

     (c) Title Defect. “Title Defect” means any lien, encumbrance, claim, defect in or
objection to real property title, other than Permitted Encumbrances, that alone or in combination
with other defects (i) renders American’s title to the Lease less than Defensible Title and that
(ii) reduces the Allocated Value of the affected Lease by more than $5,000.

     (d) Title Defect Value. “Title Defect Value” means the amount by which the
Allocated Value of a Lease is reduced by a Title Defect, although the Title Defect Value may
never exceed the Allocated Value of the Lease. The Title Defect Value shall be determined
by the Parties as follows:

     (1) If the Title Defect is an indebtedness secured by a lien or encumbrance on
a Lease that may be discharged in full by the satisfaction of such indebtedness, the
Title Defect Value shall be the total amount to discharge such indebtedness so that
such lien or encumbrance no longer burdens the Lease.

     (2) If the Title Defect is an actual reduction in NRI with no change in WI, the
Title Defect Value shall be the Allocated Value for the particular Lease,
proportionately reduced by the ratio of the actual NRI to the NRI as set forth on
Schedule 1.2(a).

     (3) If the Title Defect does not fall into Section (1) or (2), then the Title
Defect Value shall be determined by the Parties in good faith, taking into account
all relevant factors, including without limitation, the following:

     (i) The Allocated Value of the affected Lease;

     (ii) If the Title Defect represents only a possibility of title
failure, the probability that such failure will occur; and

     (iii) The legal effect of the Title Defect.

     (e) Title Disputes. Any dispute between American and Enerplus concerning the
existence, nature or extent of a Title Defect, the Title Defect Value, or the adequacy of
curative work performed in respect of such Title Defect shall be resolved as provided in
Section 14.8, below.

     3.2 Purchase Price Adjustments for Title Defects.

     (a) Notice of Title Defects. Enerplus may give American written “Title Defect Notice” as
soon as reasonably possible but no later than Tuesday, March 28, 2006 at 5:00 p.m. Mountain Time
(“Title Defect Notice Date”). The Title Defect Notice must be in writing, name the affected Lease,
describe each Title Defect and its basis in reasonable detail, state Enerplus’s good faith estimate
of the Title Defect Value, and, if applicable, contain the information required by Section 3.2(b).

     (b) Defect Adjustments. No adjustments to the Purchase Price shall be made
unless and until the aggregate Title Defect Value exceeds $150,000.00. In its Title Defect
Notice,

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Enerplus shall identify Leases of its choice (the “Included Leases”) that suffer
Title Defects in an amount equal to the lesser of (i) the aggregate Title Defect Value of
all uncured Title Defects or (ii) $150,000.00. American shall be under no obligation to
cure Title Defects in the Included Leases; instead, American’s entire interest in all of the
Included Leases shall be assigned to Enerplus at Closing, without any reduction in the
Purchase Price and without any continuing liabilitry or responsibility on the part of
American in respect of such Title Defects. If, however, the aggregate value of all uncured
Title Defects exceeds $150,000.00, then, only as to Leases suffering from Title Defects that
are not Included Leases, each such Lease will not be assigned to Enerplus at Closing and the
Purchase Price will be reduced at Closing by the Title Defect Value, unless (i) American
elects to cure the Title Defect prior to Closing, (ii) Enerplus agrees to waive the relevant
Title Defect, (iii) American elects on or before Closing to cure such Title Defect no later
than 90 days after Closing, or (iv) American, with Enerplus’s consent, elects on or before
Closing to indemnify Enerplus against any loss attributable to the relevant Title Defect.

     (c) Post-Closing Cure.

     (1) If American elects to cure the applicable Title Defect post-Closing, then
Enerplus shall, pending such post Closing period, withhold and retain from the
Purchase Price payable at Closing an amount equal to the Title Defect Value
attributable to the affected Lease and American shall not assign the affected Lease
to Enerplus at Closing.

     (2) If American elects to cure the applicable Title Defect post-Closing, but
does not cure the applicable Title Defect to Enerplus’s reasonable satisfaction
within the 90 day time period (or such longer period as may be agreed to by the
Parties), Enerplus may waive the applicable Title Defect, or if Enerplus does not
waive the Title Defect, then, the Purchase Price shall be adjusted for the Title
Defect Value of the affected Lease in accordance with the terms of this Agreement.
If American cures the applicable Title Defect to Enerplus’s reasonable satisfaction
within the 90-day time period (or such longer period as may be agreed to by the
Parties), Enerplus shall pay to American the Title
Defect Value attributable to the affected Lease and American shall assign such
Lease to Enerplus.

     3.3 Casualty Loss. Prior to Closing, if a portion of the Assets is destroyed by fire
or other casualty (“Casualty Loss”), Enerplus shall purchase the Asset at Closing for the Allocated
Value of the Asset reduced by the estimated cost to Enerplus for repair of such Asset (with
equipment of similar utility) up to the Allocated Value thereof net of any payments as may be
received from American’s insurers and paid to Enerplus attributable to any applicable insurance
claims made on such Casualty Loss (the net reduction being the “Net Casualty Loss”). American, at
its sole option, may elect to cure such Casualty Loss by replacing any personal property that is
the subject of a Casualty Loss with equipment of equal (or better if American elects in its sole
discretion) grade and utility and, if American elects to so cure the Casualty Loss, Enerplus shall
purchase the affected Asset at Closing for the Allocated Value thereof.

     3.4 Preferential Rights and Consents. Schedule 3.4 identifies preferential purchase
rights and Required Consents. “Required Consents” are consents that, if not obtained by Closing,
would invalidate the conveyance of an Asset; provided, however, that consents and approvals
customarily obtained after Closing (such as federal and state approvals of assignments), and
consents that do not specifically invalidate the conveyance if not obtained are not Required
Consents. American shall use reasonable efforts to obtain all Required Consents and to give
notices required in connection with preferential purchase rights prior to Closing. If, before
Closing, Enerplus discovers other Required Consents or preferential purchase rights, Enerplus shall
notify American immediately and American shall use

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reasonable efforts to obtain such consents and
to give the notices required in connection with the preferential rights prior to Closing.

     (a) Consents. If a Required Consent has not been obtained by Closing, then (i) the
portion of the Assets for which such consent has not been obtained shall not be conveyed at
the Closing, (ii) the Allocated Value for that Asset shall not be paid to American, and
(iii) American shall use reasonable efforts to obtain such consent as promptly as possible
after Closing. If such consent has been obtained as of the Final Settlement Date, American
shall convey the affected Asset to Enerplus effective as of the Effective Time and Enerplus
shall pay American the Allocated Value of the affected Asset, together with any proceeds
from the affected Asset attributable to the period of time after the Effective Time. If
such consent has not been obtained as of the Final Settlement Date, American shall retain
such Asset. Enerplus shall reasonably cooperate with American in obtaining any Required
Consent, including providing assurance of financial condition, but Enerplus shall not be
required to expend funds or make any other type of financial commitment as a condition of
obtaining such consent.

     (b) Preferential Purchase Rights.

     (1) If any preferential right to purchase any portion of the Assets is
exercised prior to the Closing Date, or if the time for exercise of such
preferential purchase rights has not expired and American has not received notice of
an intent not to exercise or otherwise to waive the preferential purchase right,
that portion of the Assets affected by the preferential purchase right shall be
excluded from the Assets and the Purchase Price shall be adjusted downward by an
amount equal to the Allocated Value of such affected Assets.

     (2) If a third party exercises its preferential right to purchase, but fails to
consummate the transaction prior to the Closing, American shall retain the affected
Asset and the Purchase Price shall be adjusted downward by an amount equal to the
Allocated Value of such affected Assets.

     (3) If a third party exercises its preferential right to purchase, but does not
consummate the transaction within the time specified in the preferential purchase
right, provided that the reason therefor is not American’s fault, American shall
convey the affected Asset to Enerplus as soon as possible after the expiration of
the time for consummation of the transaction, effective as of the Effective Time,
and Enerplus shall pay American the Allocated Value of the affected Asset.

     (4) If a preferential purchase right is not discovered before Closing and the
affected Asset is conveyed to Enerplus at Closing, and if the preferential purchase
right is later exercised, then Enerplus agrees to convey the affected Asset to the
party exercising such right on the same terms and conditions under which American
conveyed such Asset to Enerplus (with the purchase price being the Allocated Value
for the affected Asset) and retain all amounts paid by the party exercising such
preferential right to purchase. In the event of such exercise, Enerplus shall
prepare, execute and deliver an appropriate form of conveyance of such Asset to the
exercising party, and American agrees to hold harmless and indemnify Enerplus from
any and all Losses, liabilities and obligations associated with such conveyed Asset,
including, without limitation, any deficiency in the amount paid by such third party
below the Allocated Value, if any, of the Asset.

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     (c) Remedies. The remedies set forth in this Section 3.4 are the exclusive
remedies for the preferential purchase rights and Required Consents as listed on Schedule
3.4.

ARTICLE IV

ENVIRONMENTAL MATTERS

     4.1 Definitions. For the purposes of the Agreement, the following terms shall have
the following meanings:

     “Environmental Consultant” means a third party environmental consultant with experience
in the geologic basin where the Assets are located, selected by Enerplus, and approved by
American, which approval shall not be unreasonably withheld.

     “Environmental Defect” means a condition in, on or under the Asset (including, without
limitation, air, land, soil, surface and subsurface strata, surface water and ground water)
that (i) causes an Asset to be in material violation of an Environmental Law or (ii) would
give rise to a claim for damages by a third party.

     “Environmental Defect Notice” means a written notice of an Environmental Defect, as
more specifically described in Section 4.3, made by Enerplus to American, on or before the
Environmental Defect Notice Date.

     “Environmental Defect Notice Date” means Tuesday, March 28, 2006 at 5:00 p.m. Mountain
Time.

     “Environmental Law” means any statute, law, ordinance, rule, regulation, code, order,
judicial writ, injunction, or decree issued by any federal, state, or local governmental
authority including common law, in effect on or before the Effective Time relating to the
control of any pollutant or protection of the air, water, land, or environment or the
release or disposal of hazardous materials, hazardous substances or waste materials.

     “Remediation” means actions taken to correct an Environmental Defect as recommended by
an Environmental Consultant.

     “Remediation Costs” means the costs or estimates thereof, to remediate a particular
Environmental Defect, as estimated in writing by an Environmental Consultant.

     4.2 Environmental Liabilities and Obligations.

     (a) Retained Environmental Liabilities. If American receives a valid Environmental Defect
Notice for a particular Environmental Defect and such Environmental Defect Notice is not contested
under the provisions of Section 4.5, then, subject to the provisions of Section 4.4 and Article
XIII, American agrees to retain all claims, cost, expenses, liabilities and obligations accruing or
relating to the Environmental Defect that was the subject of the valid and complete Environmental
Defect Notice (“Retained Environmental Liabilities”). Timely receipt of a valid and complete
Environmental Defect Notice is a condition precedent to American’s obligations under this Section.

     (b) Assumed Environmental Liabilities. Except for Retained Environmental
Liabilities and subject to the provisions of Section 4.4 and Article XIII, upon Closing,
Enerplus agrees to assume and pay, perform, fulfill and discharge and release American from
all Losses

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relating to environmental conditions in, on or under the Assets attributable to
the period of time before and after the Effective Time, including without limitation any and
all liability for naturally occurring radioactive materials and man-made material fibers,
and the obligation to plug and abandon all of the Wells and reclamation of existing Well
sites (collectively, “Assumed Environmental Liabilities”). Assumed Environmental
Liabilities shall include any and all claims, costs, expenses, liabilities, and obligations
attributable to the environmental condition of the Assets that were not the subject of a
valid Environmental Defect Notice.

     4.3 Environmental Defect Notice. An Environmental Defect Notice must be in writing
and received on or before the Environmental Defect Notice Date, name the affected Asset and
identify the condition in, on or under the Asset that causes the Environmental Defect, and contain
a written statement of the estimated Remediation Costs by an Environmental Consultant.

     4.4 Remedies for Environmental Defects. If Enerplus delivers a valid and complete
Environmental Defect Notice to American, American may elect one of the following options: (i)
American remediates the Environmental Defect, such remediation to be consistent with Environmental
Laws; or (ii) American contests the existence of the Environmental Defect or the Remediation Costs
in accordance with Section 4.5; or (iii) American pays Enerplus’s estimate of the Remediation Cost
(“Environmental Defect Adjustment”). If American elects one of the foregoing three alternatives in
respect of a particular Environmental Defect, American shall have no Retained Environmental
Liability as to that Environmental Defect.

     4.5 Contested Environmental Defects. If American contests the existence of an
Environmental Defect or the Remediation Costs, American shall notify Enerplus in writing on or
before ten days after receipt of the Environmental Defect Notice (“Rejection Notice”). The
Rejection Notice shall state with reasonable specificity the basis of the rejection of the
Environmental Defect or the Remediation Costs. Within 5 days of receipt of the Rejection Notice,
representatives of Enerplus and American knowledgeable in environmental matters, shall meet and
either (i) mutually agree to reject the particular Environmental Defect or (ii) agree on the
validity of such Environmental Defect and the Remediation Costs. If the Parties cannot agree on
either option (i) or (ii) in the preceding sentence, the Environmental Defect and/or the
Remediation Costs subject to the Rejection Notice shall be resolved as provided in Section 14.8,
below. If American fails timely to deliver a Rejection Notice, American shall be deemed to have
accepted the validity of the Environmental Defect and Enerplus’s estimate of the Remediation Costs,
and shall be deemed to have waived its own option to contest the Environmental Defect pursuant to
this Section.

     4.6 Exclusive Remedies. The rights and remedies granted each Party in this Article,
together with the indemnifications set forth in Article XIII, are the exclusive rights and remedies
against the other Party related to any Environmental matter, including, without limitation,
Environmental Defects.

ARTICLE V

AMERICAN’S REPRESENTATIONS AND WARRANTIES

     5.1 Corporate/Limited Liability Company Representations. American makes the following
representations and warranties:

     (a) Incorporation/Qualification. American is a Nevada corporation, duly
organized, validly existing and in good standing under the laws of the State of Nevada and
is qualified to conduct business in Montana.

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     (b) Power and Authority. American has all requisite power and authority to own
its proportionate share of the Assets and to carry on its businesses as presently conducted
and to execute and deliver this Agreement and perform its respective obligations under this
Agreement.

     (c) No Lien, No Violation. The execution and delivery of this Agreement does
not, and the fulfillment of and compliance with the terms and conditions hereof will not, as
of Closing, (i) create a lien or encumbrance on the Assets or trigger an outstanding
security interest in the Assets that will remain in existence after Closing, (ii) violate,
or be in conflict with, any material provision of any statute, rule or regulation applicable
to American or any agreement or instrument to which American is a party or by which it is
bound, or, (iii) to its knowledge, violate, or be in conflict with any statute, rule,
regulation, judgment, decree or order applicable to American.

     (d) Authorization and Enforceability. This Agreement is duly and validly
authorized and constitutes the legal, valid and binding obligation of American, enforceable
in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws for the protection of creditors, as well as to
general principles of equity, regardless whether such enforceability is considered in a
proceeding in equity or at law.

     (e) Liability for Brokers’ Fees. American has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which Enerplus shall have any responsibility whatsoever.

     (f) No Bankruptcy. There are no bankruptcy proceedings pending, being
contemplated by or, to its knowledge, threatened against American.

     (g) Litigation. American has not received any written claim or written demand
notice that has not been resolved that would materially adversely affect the Assets. There
are no actions, suits, ongoing governmental investigations, written governmental inquiries
or proceedings pending or, to its knowledge, threatened in writing against them or any of
the Assets, in any court or by or before any federal, state, municipal or other governmental
agency that would affect American’s ability to consummate the transaction contemplated
hereby, or materially adversely affect the Assets or American’s ownership or operation of
the Assets.

     5.2 American’s Representations and Warranties with Respect to the Assets. American
makes the following representations and warranties regarding the Assets:

     (a) Liens. Except for the Permitted Encumbrances or as otherwise agreed to in
writing by Enerplus, the Assets will be conveyed to Enerplus free and clear of all liens
and encumbrances created by, through or under American.

     (b) Lease Effectiveness. American does not have actual knowledge that any
Lease is not in full force and effect.

     (c) To the actual knowledge of American, the Assets are not subject to any pre-emptive
right or preferential rights of purchase by any third party.

     (d) American does not warrant title to the Assets, but to its actual knowledge has done
no act or thing, nor is aware of any act or thing having been done whereby any of its
interest in and to the Assets may be reduced, cancelled or determined, nor has it encumbered
or alienated the Assets or any interest therein except for Permitted Encumbrances.

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     (e) To the aactual knowledge of American, it has not received: (i) any orders or
directives which relate to environmental matters with respect to the assets or (ii) any
demand or notice issued with respect to the breach of any environmental, health or safety
law applicable to the Assets, including without limitation, respecting use, storage,
treatment, transportation or disposition of environmental contaminants, which demand for
notice remains outstanding on the Effective Date hereof.

     (f) To the actual knowledge of American, except for Material Contracts in Schedule 1.2d
there are no active area of mutual interest provisions to which the Assets are subject.

     (g) To the actual knowledge of American, there are no authorizations for expenditure in
excess of $50,000.00 pursuant to which expenditures are or may be made, nor any other
financial commitments which are outstanding or due, or thereafter may become due, other than
rentals in respect to the Assets, or operations in respect thereto, other than those which
have been incurred by American in the ordinary course of business other than those which are
scheduled in Schedule 5.2(f).

     (h) To the actual knowledge of American, all operations by third parties, on or in
respect of the the Assets have been conducted in accordance with good oil and gas industry
practicces and in material compliance with all applicable laws, rules, regulations, orders
and directions of governmental and other competent authorities.

     (i) Other than disclosed in Schedule 1.2(d), to the actual knowledge of American it is
not obligated to sell or deliver petroleum substances produced from the Assets to any person
pursuant to agreements which cannot be terminated on 30 days notice or less.

ARTICLE VI

ENERPLUS’S REPRESENTATIONS AND WARRANTIES

     Enerplus makes the following representations and warranties:

     6.1 Organization and Standing. Enerplus is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware and is duly qualified
to carry on business in Montana.

     6.2 Power. Enerplus has all requisite power and authority to carry on its business as
presently conducted and to execute and deliver this Agreement and perform its obligations under
this Agreement. The execution and delivery of this Agreement and consummation of the transactions
contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof will
not violate, or be in conflict with, any material provision of its governing documents or any
material provision of any agreement or instrument to which it is a party or by which it is bound,
or, to its knowledge, any judgment, decree, order, statute, rule or regulation applicable to it.

     6.3 Authorization and Enforceability. The execution, delivery and performance of this
Agreement and the transaction contemplated hereby have been duly and validly authorized by all
requisite corporate action on behalf of Enerplus. This Agreement constitutes Enerplus’s legal,
valid and binding obligation, enforceable in accordance with its terms, subject, however, to the
effects of bankruptcy, insolvency, reorganization, moratorium and similar laws for the protection
of creditors, as well as to general principles of equity, regardless whether such enforceability is
considered in a proceeding in equity or at law.

11

 

     6.4 Liability for Brokers’ Fees. Enerplus has not incurred any liability, contingent
or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this
Agreement for which American shall have any responsibility whatsoever.

     6.5 Litigation. There is no action, suit, proceeding, claim or investigation by any
person, entity, administrative agency or governmental body pending or, to Enerplus’s knowledge,
threatened against it before any governmental authority that impedes or is likely to impede its
ability (i) to consummate the transactions contemplated by this Agreement or (ii) to assume the
liabilities to be assumed by it under this Agreement.

     6.6 Securities Laws; Access to Data and Information. Enerplus acknowledges that the
Assets are or may be deemed to be “securities” under the Securities Act of 1933, as amended, and
certain applicable state securities or Blue Sky laws and that resales thereof may therefore be
subject to the registration requirements of such acts. The Assets are being acquired solely for
Enerplus’s own account for the purpose of investment and not with a view to resale, distribution or
granting a participation therein in violation of any securities laws. Enerplus has fully
investigated the Assets and accepts the risks and absence of liquidity inherent in ownership of the
Assets.

     6.7 Enerplus’s Evaluation. In entering into this Agreement, Enerplus acknowledges and
affirms that it has relied and will rely solely on the terms of this Agreement and upon its
independent analysis, evaluation and investigation of, and judgment with respect to, the business,
economic, legal, tax or other consequences of this transaction, including without limitation, its
own estimate and appraisal of
the extent and value of the Assets, and the petroleum, natural gas and other reserves
associated with the Assets.

ARTICLE VII

COVENANTS AND AGREEMENTS

     7.1 Covenants and Agreements of American. American covenants and agrees with Enerplus
as follows:

     (a) Operations Prior to Closing. Except as otherwise consented to in writing by Enerplus
or provided in this Agreement, from the date of execution hereof to the Closing, American will use
its reasonable efforts to cause the operator to operate the Assets in a good and workmanlike manner
consistent with past practices. From the date of execution of this Agreement to the Closing Date,
American will pay or cause to be paid its proportionate share of all costs and expenses incurred in
connection with such operations and American will notify Enerplus of ongoing activities and major
capital expenditures in excess of $50,000 per activity conducted on the Assets and shall consult
with Enerplus regarding all such matters and operations involving such expenditures.

     (b) Restriction on Operations. Unless American obtains the prior written consent of
Enerplus to act otherwise, American will use good-faith efforts within the constraints of the
applicable operating agreements and other applicable agreements and affording Enerplus’s
representatives sufficient information and time to reasonably respond, not to (i) abandon any part
of the Assets (except in the ordinary course of business or the abandonment of leases upon the
expiration of their respective primary terms or if not capable of production in paying quantities),
(ii) approve any operations on the Assets anticipated in any instance to cost the owner of the
Assets more than $50,000 per activity (excepting emergency operations, operations required under
presently existing contractual obligations, ongoing commitments under existing AFEs and operations
undertaken to avoid a monetary penalty or forfeiture provision of any applicable

12

 

agreement or
order), (iii) convey or dispose of any part of the Assets (other than replacement of equipment or
sale of oil, gas, and other liquid products produced from the Assets in the regular course of
business) or enter into any new farmout, farmin or other similar contract affecting the Assets,
(iv) let lapse any insurance now in force with respect to the Assets, (v) modify or terminate any
contract relating to the operation of the Assets, or (vi) enter into any new contracts without
prior approval of Enerplus’s representatives.

     (c) Notices of Claims. American shall promptly notify Enerplus, if, between the
date of execution of this Agreement and the Closing Date, American receives written notice
of
any claim, suit, action or other proceeding or written notice of any material default
under any Material Agreement.

     7.2 Covenants and Agreements of Both Parties. Each Party covenants and agrees with
the other as follows:

     (a) Confidentiality. Until the closing (and thereafter, if Closing should not accur for
any reason) all data and information, whether written or oral, obtained from American in connection
with the transaction contemplated by this Agreement, whether before or after the execution of this
Agreement, and data and information generated by Enerplus in connection with this transaction
(collectively, the “Information”), is deemed by the Parties to be confidential and proprietary to
American. Until the Closing (and thereafter, if Closing should not occur for any reason), except
as required by law, Enerplus and its officers, agents and representatives will hold in strict
confidence the terms of this Agreement, and all Information, except any Information which: (1) at
the time of disclosure to Enerplus by American is in the public domain; (2) after disclosure to
Enerplus by American becomes part of the public domain by publication or otherwise, except by
breach of this commitment by Enerplus; (3) Enerplus can establish by competent proof was rightfully
in its possession at the time of its disclosure to Enerplus by American; (4) Enerplus rightfully
receives from third parties free of any obligation of confidence; or (5) is disclosed to Enerplus’s
consultants, investors and lenders and those engaged by Enerplus to operate the Assets who
similarly agree in writing to protect the confidentiality of such Information and agree to use such
Information only for their due diligence evaluation of the Assets.

     (b) Return of Information. If the transaction contemplated by this Agreement does not
close on or before April 14, 2006, for reasons other than American’s wrongful breach of this
Agreement under circumstances where, Enerplus is, but for such breach, ready to close, if American
so requests at any time, Enerplus shall (i) return to American all copies of the Information in
possession of Enerplus obtained pursuant to any provision of this Agreement, which Information is
at the time of termination required to be held in confidence pursuant to Section 7.3(a); (ii) not
utilize or permit utilization of the Information to compete with American; and (iii) destroy any
and all notes, reports, studies or analyses based on or generated when incorporating or analyzing
the Information. The terms of Sections 7.2(a) and (b) shall survive termination of this Agreement.

     (c) Communication Between The Parties. If one Party develops information during its due
diligence that leads it to believe that the other Party may have breached a representation or
warranty under this Agreement, the Party discovering the potential breach shall promptly inform the
other Party of such potential breach so that it may attempt to remedy or cure such breach prior to
Closing.

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     (d) Cure Period for Breach. If any Party believes any other Party has breached
the terms of this Agreement, the Party who believes the breach has occurred shall give
written notice to the breaching Party of the nature of the breach and give that Party 48
hours to cure. Notwithstanding the foregoing, this Section 7.2(d) shall not apply to breach
of the Parties’ obligations at Closing and shall not operate to delay Closing.

ARTICLE VIII

TAX MATTERS

     8.1 Apportionment of Tax Liability.

     (a) Liability for Oil and Gas Taxes. “Taxes” shall mean all ad valorem, property,
production, excise, net proceeds, severance and all other taxes and similar obligations (including
penalties) assessed against the Assets or based upon or measured by the ownership of the Assets or
the production of Hydrocarbons or the receipt of proceeds therefrom, other than income taxes or
other taxes levied or assessed against American. All Taxes based or calculated on production of
hydrocarbons shall be deemed attributable to the period during which such production occurred and
not during the period such Taxes are assessed. With respect to the Assets, all Taxes shall be
prorated between Enerplus and American as of the Effective Time for all taxable periods that
include the Effective Time; i.e., American shall be responsible for all Taxes for ownership of the
Assets prior to the Effective Time, and Enerplus shall be responsible for all Taxes for assessed
ownership of the Assets after the Effective Time. Accordingly, for the Assets, (i) Enerplus
expressly assumes all obligations and liabilities for all Taxes related to the Assets that are
attributable to the period of time after the Effective Time and (ii) American expressly retains all
obligations and liabilities for all Taxes related to the Assets that are attributable to the period
prior to the Effective Time.

     (b) Liability for Income and Other Taxes. Except Taxes allocated to Enerplus
pursuant to Section 8.1(a), American expressly retains and indemnifies Enerplus for all
taxes levied and assessed against American with respect to the Assets, or otherwise, such
taxes to include without limitation, federal, state, local or foreign income taxes, gross
receipts, license, withholding, payroll, employment or other taxes (with such Taxes being
“Other Taxes”).

     8.2 Calculation of Tax Liability. Consistent with Section 8.1, and based on the best
current information available as of Closing, the proration of Taxes shall be made between the
Parties as an adjustment to the Purchase Price pursuant to Section 1.4 and thereafter from time to
time as the Parties agree.

     8.3 Tax Reports and Returns. For the tax period in which the Effective Time occurs,
American agrees promptly to forward to Enerplus any such tax reports and returns received by
American after Closing and provide Enerplus with appropriate information which is necessary for
Enerplus to file any required tax reports and returns related to the Assets. Enerplus agrees to
file all tax returns and reports applicable to the Assets that are required to be filed after the
Closing, and pay all required Taxes payable with respect to the Assets subject to the provisions of
Section 8.1.

     8.4 Sales Taxes. Enerplus shall be liable for and shall indemnify American for any
sales and use taxes, conveyance, transfer and recording fees and real estate transfer stamps or
taxes that may be imposed on any transfer of the Assets pursuant to this Agreement. If required by
applicable law, American shall, in accordance with applicable law, calculate and remit any sales or
similar taxes that are required to be paid as a result of the transfer of the Assets to Enerplus
and Enerplus shall promptly

14

 

reimburse American therefor. If American receives notice that any
sales and/or use taxes are due, American shall promptly forward such notice to Enerplus for
handling.

ARTICLE IX

CONDITIONS PRECEDENT TO CLOSING

     9.1 American’s Conditions Precedent. The obligations of American at the Closing are
subject, at the option of American, to the satisfaction or waiver at or prior to the Closing of the
following conditions precedent:

     (a) All representations and warranties of Enerplus contained in this Agreement are true
in all material respects (considering the transaction as a whole) at and as of the Closing
in accordance with their terms as if such representations and warranties were remade at and
as of the Closing, and Enerplus has performed and satisfied all covenants and agreements
required by this Agreement to be performed and satisfied by Enerplus at or prior to the
Closing in all material respects;

     (b) No order has been entered by any court or governmental agency having jurisdiction
over the Parties or the subject matter of this Agreement that restrains or prohibits the
purchase and sale contemplated by this Agreement and that remains in effect at the time of
Closing; and

     (c) The aggregate of Title Defect Adjustments and Environmental Defect Adjustments does
not exceed $575,000.

     9.2 Enerplus’s Conditions Precedent. The obligations of Enerplus at the Closing are
subject, at the option of Enerplus, to the satisfaction or waiver at or prior to the Closing of the
following conditions precedent:

     (a) All representations and warranties of American contained in this Agreement are true
in all material respects (considering the transaction as a whole) at and as of the Closing
in accordance with their terms as if such representations were remade at and as of the
Closing, and American has performed and satisfied all covenants and agreements required by
this Agreement to be performed and satisfied by American at or prior to the Closing in all
material respects;

     (b) No order has been entered by any court or governmental agency having jurisdiction
over the Parties or the subject matter of this Agreement that restrains or prohibits the
purchase and sale contemplated by this Agreement and that remains in effect at the time of
Closing;

     (c) The aggregate of Title Defect Adjustments and Environmental Defect Adjustments does
not exceed $575,000; and

     (d) From the date of this Agreement until Closing, there shall not have been any
material change in the Assets, taken as a whole, except for the following: (i) changes to
production rates in individual wells consistent with historical production, (ii) depletion
due to
normal production, and (iii) general economic condition of the oil and gas industry,
including without limitation, changes in pricing and other market conditions.

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ARTICLE X

RIGHT OF TERMINATION AND ABANDONMENT

     10.1 Termination. This Agreement may be terminated in accordance with the following
provisions:

     (a) by American, if American’s conditions set forth in Section 9.1 are not satisfied
through no fault of American, or are not waived by American, as of the Closing Date (as
defined in Section 11.1, below);

     (b) by Enerplus, if Enerplus’s conditions set forth in Section 9.2 are not satisfied
through no fault of Enerplus, or are not waived by Enerplus, as of the Closing Date;

     (c) by American, if through no fault of American the Closing does not occur on or
before the Closing Date;

     (d) by Enerplus, if through no fault of Enerplus the Closing does not occur on or
before the Closing Date; or

     (e) by mutual agreement of the Parties.

     10.2 Liabilities Upon Termination. If Closing does not occur because any Party wrongfully
fails to tender performance at Closing and the other Party is ready to close, then the other Party
shall have all available legal and equitable remedies (including, without limitation, specific
performance), for the Party’s wrongful failure to close; provided, however, that if the other Party
elects not to seek specific performance but instead to seek monetary damages, the Party wrongfully
failing to close shall not have any liability for consequential, special, punitive or exemplary
damages.

ARTICLE XI

CLOSING

     11.1 Date of Closing. The closing of the transactions contemplated hereby (the “Closing”)
shall be held on or before Friday, March 31, 2006, or such date as Enerplus and American may agree
in writing (the “Closing Date”).

     11.2 Place of Closing. The Closing shall be held at American’s offices in Denver,
Colorado, or at such other time and place as Enerplus and American may agree in writing.

     11.3 Closing Obligations. At Closing, the following events shall occur, each being a
condition precedent to the others and each being deemed to have occurred simultaneously with the
others:

     (a) American shall execute, acknowledge and deliver to Enerplus an Assignment, Bill of
Sale and Conveyance in the form attached as Exhibit A, conveying the Assets to Enerplus as
of the Effective Time, disclaiming merchantability, fitness for a particular use, and
similar personal property warranties but containing a special warranty of title by, through
and under American.

     (b) American and Enerplus shall execute and deliver the Preliminary Settlement
Statement.

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     (c) Enerplus shall deliver the Closing Amount by wire transfer in immediately available
funds to an account designated by American.

               American and Enerplus shall take such other actions and deliver such other documents as
are contemplated by this Agreement.

ARTICLE XII

POST-CLOSING OBLIGATIONS

     12.1 Final Settlement Statement. As soon as practicable after the Closing, but in no event
later than Friday, May 26, 2006, American will prepare and deliver to Enerplus, in accordance with
customary industry accounting practices, the final settlement statement (the “Final Settlement
Statement”) setting forth each adjustment or payment that was not finally determined as of the
Closing and showing the calculation of such adjustment and the resulting final purchase price (the
“Final Purchase Price”). As soon as practicable after receipt of the Final Settlement Statement,
but in no event later than on or before Friday, June 9, 2006, Enerplus shall deliver to American a
written report containing any changes that Enerplus proposes to make to the Final Settlement
Statement. Enerplus’s failure to deliver to American a written report detailing proposed changes
to the Final Settlement Statement by that date shall be deemed an acceptance by Enerplus of the
Final Settlement Statement as submitted by American. The Parties shall agree with respect to the
changes proposed by Enerplus, if any, no later than Friday, June 16, 2006. The Final Settlement
Statement shall set forth the “Second Closing Amount” and all adjustments to the Purchase Price and
associated calculations. The date upon which such agreement is reached or upon which the Final
Purchase Price is established shall be herein called the “Final Settlement Date.” Enerplus agrees
to pay American the Second Closing Amount on Friday, July 14, 2006. For a period of six months
following the Closing, Enerplus agrees to provide American monthly with copies of joint interest
billings and revenue remittances received from the operator of the Assets.

     12.2 Records. American agrees to make the Records available for pick up by Enerplus as
soon as is reasonably practical, but in any event within seven days after Closing. American may
retain copies of the Records and American shall have the right to review and copy the Records
during standard business hours upon reasonable notice for so long as Enerplus retains the Records.
Enerplus agrees that
the Records will be maintained in compliance with all applicable laws governing document
retention. Enerplus will not destroy or otherwise dispose of Records after Closing, unless
Enerplus first gives American reasonable notice and an opportunity to copy the Records to be
destroyed. If and to the extent certain portions of the Records are subject to unaffiliated third
party contractual restrictions on disclosure
or transfer, American agrees to use reasonable efforts to obtain the waiver of such
contractual restrictions; provided, however, that American shall not be required to expend any
money in connection with obtaining such waivers.

     12.3 Proceeds and Invoices For Property Expenses Received After Closing. After the
Final Settlement Date, those proceeds attributable to the Assets received by a Party, or invoices
for Property Expenses, or invoices paid by one Party for or on behalf of the other Party which were
not already included as a Purchase Price adjustment at Closing, shall be settled as follows:

     (a) Proceeds. Proceeds received by Enerplus with respect to sales of Hydrocarbons
produced prior to the Effective Time shall be immediately remitted or forwarded to American.
Proceeds received by American with respect to sales of Hydrocarbons produced after the Effective
Time shall be immediately forwarded to Enerplus.

     (b) Property Expenses. Invoices for Property Expenses received by Enerplus
which relate to operations on the Assets prior to the Effective Time shall be forwarded to
American by

17

 

Enerplus, or if already paid by Enerplus, invoiced by Enerplus to American.
Invoices for Property Expenses received by American that relate to operations on the Assets
after the Effective Time shall be immediately forwarded to Enerplus by American, or if
already paid by American, invoiced by American to Enerplus.

     12.4 Further Assurances. From time to time after Closing, American and Enerplus
shall each execute, acknowledge and deliver to the other such further instruments and take such
other action as may be reasonably requested in order to accomplish more effectively the purposes of
the transactions contemplated by this Agreement.

ARTICLE XIII

ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION

     13.1 Enerplus’s Assumption of Liabilities and Obligations. Upon Closing and subject to the
provisions of Section 12.3, and except for Retained Liabilities, Enerplus shall assume and pay,
perform, fulfill and discharge of all claims, costs, expenses, liabilities and obligations
attributable to the (i) the Assumed Environmental Liabilities and (ii) the Assets and the period of
time after the Effective Time, including, without limitation the following as they relate to the
period of time after the Effective Date: (a) the Agreements, (b) all liability for royalty and
overriding royalty payments and Taxes made with
respect to the Assets, (c) the payment of Property Expenses, and (d) the obligation to plug
and abandon all wells located on the Lands and reclaim all Well sites located on the Lands
(collectively, the “Assumed Liabilities”).

     13.2 American’s Retention of Liabilities and Obligations. Upon Closing and subject to
the provisions of Section 12.3, American shall retain all claims, costs, expenses, liabilities and
obligations accruing or relating to (i) the Retained Environmental Liabilities, (ii) the Other
Taxes, and (iii) the Assets and period of time prior to the Effective Time, including without
limitation, the following as they relate to the period of time prior to the Effective Time: (a)
the liability for royalty and overriding royalty payments and Taxes made with respect to the Assets
and (b) any injury, death, casualty, or tortious action occurring on or attributable to the Assets
(the “Retained Liabilities”).

               By assuming or retaining liabilities or obligations in Sections 13.1 or 13.2, American and
Enerplus do not intend to, and shall not be deemed by any third parties to, have admitted any
liability for the period of time before American owned the Assets.

     13.3 Indemnification. “Losses” shall mean any actual losses, costs, expenses
(including court costs, reasonable fees and expenses of attorneys, technical experts and expert
witnesses and the cost of investigation), liabilities, damages, demands, suits, claims, and
sanctions of every kind and character (including civil fines) arising from, related to or
reasonably incident to matters indemnified against; excluding however any special, consequential,
punitive or exemplary damages, loss of profits incurred by a Party hereto or Loss incurred as a
result of the indemnified Party indemnifying a third party.

          After the Closing, the Parties shall indemnify each other as follows:

     (a) American’s Indemnification of Enerplus. American assumes all risk, liability,
obligation and Losses in connection with, and shall defend, indemnify, and save and hold harmless
Enerplus, its partners and all officers, directors, employees and agents of Enerplus and its
partners, from and against all Losses which arise from or in connection with (i) the Retained
Liabilities and (ii) any matter for which American has specifically agreed to indemnify Enerplus
under this Agreement.

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     (b) Enerplus’s Indemnification of American. Enerplus assumes all risk, liability,
obligation and Losses in connection with, and shall defend, indemnify, and save and hold harmless
American, its officers, directors, employees and agents, from and against all Losses which arise
from or in connection with (i) the Assumed Liabilities and (ii) any matter for which Enerplus has
specifically agreed to indemnify American under this Agreement.

     (c) Release. Enerplus shall be deemed to have released American at the Closing
from any Losses for which Enerplus has agreed to indemnify American hereunder, and American
shall be deemed to have released Enerplus at the Closing from any Losses for which American
has agreed to indemnify Enerplus hereunder.

     13.4 Procedure. The indemnifications contained in Section 13.3 shall be implemented
as follows:

     (a) Coverage. Such indemnity shall extend to all Losses suffered or incurred
by the indemnified Party.

     (b) Claim Notice. The Party seeking indemnification under the terms of this
Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to the other Party
(“Indemnifying Party”) which, to be effective, must state: (i) the amount of each payment
claimed by an Indemnified Party to be owing, (ii) the basis for such claim, with supporting
documentation, and (iii) a list identifying to the extent reasonably possible each separate
item of Loss for which payment is so claimed. The amount claimed shall be paid by the
Indemnifying Party to the extent required herein within 30 days after receipt of the Claim
Notice, or after the amount of such payment has been finally established, whichever last
occurs.

     (c) Information. Within 60 days after the Indemnified Party receives notice of
a claim or legal action that may result in a Loss for which indemnification may be sought
under this Article XIII (a “Claim”), the Indemnified Party shall give written notice of such
Claim to the Indemnifying Party. If the Indemnifying Party or its counsel so requests, the
Indemnified Party shall furnish the Indemnifying Party with copies of all pleadings and
other information with respect to such Claim. At the election of the Indemnifying Party
made within 60 days after receipt of such notice, the Indemnified Party shall permit the
Indemnifying Party to assume control of such Claim (to the extent only that such Claim,
legal action or other matter relates to a Loss for which the Indemnifying Party is liable),
including the determination of all appropriate actions, the negotiation of settlements on
behalf of the Indemnified Party, and the conduct of litigation through attorneys of the
Indemnifying Party’s choice; provided, however, that no such settlement can result in any
liability or cost to the Indemnified Party for which it is entitled to be indemnified
hereunder without its consent. If the Indemnifying Party elects to assume control, (i) any
expense incurred by the Indemnified Party thereafter for investigation or defense of the
matter shall be borne by the Indemnified Party, and (ii) the Indemnified Party shall give
all reasonable information and assistance, other than pecuniary, that the Indemnifying Party
shall deem necessary to the proper defense of such Claim, legal action, or other matter. In
the absence of such an election, the Indemnified Party will use its best efforts to defend,
at the Indemnifying Party’s expense, any claim, legal action or other matter to which such
other Party’s indemnification under this Article XIII applies until the Indemnifying Party
assumes such defense, and, if the Indemnifying Party fails to assume such defense within the
time period provided above, settle the same in the Indemnified Party’s reasonable discretion
at the Indemnifying Party’s expense. If such a Claim requires immediate action, both the
Indemnified Party and the Indemnifying Party will cooperate in good faith to take
appropriate action so as not to jeopardize defense of such Claim or either Party’s position
with respect to such Claim.

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     13.5 No Insurance; Subrogation. The indemnifications provided in this Article XIII shall
not be construed as a form of insurance. Enerplus and American hereby waive for themselves, their
successors or assigns, including, without limitation, any insurers, any rights to subrogation for
Losses for which each of them is respectively liable or against which each respectively indemnifies
the other, and, if
required by applicable policies, Enerplus and American shall obtain waiver of such subrogation
from their respective insurers.

     13.6 Reservation as to Non-Parties. Nothing herein is intended to limit or otherwise
waive any recourse Enerplus or American may have against any non-party for any obligations or
liabilities that may be incurred with respect to the Assets.

ARTICLE XIV

MISCELLANEOUS

     14.1 Schedules. The Schedules to this Agreement are hereby incorporated into this
Agreement by reference and constitute a part of this Agreement.

     14.2 Expenses. All legal and accounting fees incurred by Enerplus or American in
negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall
be paid by the Party incurring the same.

     14.3 Notices. All notices and communications required or permitted under this
Agreement shall be in writing and addressed as set forth below. Any communication or delivery
hereunder shall be deemed to have been duly made and the receiving Party charged with notice (i) if
personally delivered, when received, (ii) if sent by telecopy or facsimile transmission, when
received (iii) if mailed, five business days after mailing, certified mail, return receipt
requested, or (iv) if sent by overnight courier, one day after sending. All notices shall be
addressed as follows:

	 	 	 
	If to American:

	 	American Oil & Gas, Inc.
	 

	 	1050 Seventeenth Street, Suite 1850
	 

	 	Denver, Colorado 80265
	 

	 	Attention: Patrick D. O’Brien
	 

	 	Telephone: 303.595.0125
	 

	 	Fax: 303.595.0709
	 
	 	 
	If to Enerplus:

	 	Enerplus Resources (USA) Corporation
	 

	 	1700 Lincoln Street, Suite 1300
	 

	 	Denver, Colorado 80203
	 

	 	Attention: Land Manager
	 

	 	Telephone: 720.279.5500
	 

	 	Fax: 720.279.5550

          Any Party may, by written notice so delivered to the other Parties, change the address or
individual to which delivery shall thereafter be made.

     14.4 Amendments. Except for waivers specifically provided for in this Agreement, this
Agreement may not be amended nor any rights hereunder waived except by an instrument in writing
signed by the Party to be charged with such amendment or waiver and delivered by such Party to
the Party claiming the benefit of such amendment or waiver.

20

 

     14.5 Assignment. Enerplus and American shall not assign all or any portion of their
respective rights or delegate all or any portion of their respective duties hereunder unless they
continue to remain liable for the performance of their obligations hereunder. Enerplus may not
assign the benefits of any of American’s indemnity obligations contained in this Agreement, and
any permitted assignment shall not include such benefits. No such assignment or obligation shall
increase the burden on American or impose any duty on American to communicate with or report to any
transferee, and American may continue to look to Enerplus for all purposes under this Agreement.

     14.6 Counterparts; Fax Signatures. This Agreement may be executed by Enerplus and American
in any number of counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same instrument. Facsimile signatures shall be
considered binding.

     14.7 Governing Law. This Agreement and the transactions contemplated hereby shall be
construed in accordance with, and governed by, the laws of the State of Montana without reference
to the conflict of laws principles thereof.

     14.8 Dispute Resolution. The Parties agree to resolve disputes concerning (i) the
existence and scope of a Title Defect, (ii) the Title Defect Amount or that portion of the Lease
affected by a Title Defect, (iii) the adequacy of American’s Title Defect curative work, (iv) the
existence of an Environmental Defect, and (v) the Environmental Defect Amount of an Environmental
Defect (collectively, the “Disputed Matters”), exclusively and solely by arbitration in accordance
with this Section 14.8. Specifically, the Parties agree that the Disputed Matters will be finally
determined by an independent arbitrator knowledgeable about the oil and gas industry and mutually
acceptable to the Parties or, if no such arbitrator is picked within 14 days after one Party’s
notice to the other of the existence of an arbitrable dispute, by the law firm of Gough, Shanahan,
Johnson & Waterman, Helena, Montana, in either case employing such independent landmen, petroleum
engineers and environmental consultants as the arbitrator deems necessary. No later than 21 days
after the arbitrator’s written agreement to serve, Enerplus and American shall present their
respective positions in writing to the arbitrator, together with such evidence as each Party deems
appropriate. The arbitrator shall be instructed to resolve the dispute through a final binding
decision within 21 days after such submission deadline. The arbitrator may request oral
presentations and shall decide any other procedural matters presented by a Party, which decisions
shall be final and binding upon the Parties. Each Party shall bear its own costs and expenses of
the arbitration, provided, however that the costs incurred in employing the arbitrator shall be
borne 50% by American and 50% by Enerplus. The decision of the arbitrator may be filed in any
court of competent jurisdiction and may be enforced by any Party as a final judgment of such court.

     14.9 Entire Agreement. This Agreement constitutes the entire understanding among the
Parties, their respective partners, members, trustees, shareholders, officers, directors and
employees with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings relating to such subject matter.

     14.10 Binding Effect. This Agreement shall be binding upon, and shall inure to the benefit
of, the Parties hereto, and their respective successors and assigns.

     14.11 Limitation on Damages; Provision for Recovery of Costs and Attorney’s Fees. The
Parties expressly waive any and all rights to consequential, special, incidental, punitive or
exemplary damages, or loss of profits resulting from breach of this Agreement. The prevailing
Party in any litigation seeking a remedy for the breach of this Agreement shall, however, be
entitled to recover all attorneys’ fees and costs incurred in such litigation.

21

 

     14.12 No Third-Party Beneficiaries. This Agreement is intended to benefit only the
Parties hereto and their respective permitted successors and assigns.

     14.13 Severability. If at any time subsequent to the date hereof, any provision of
this Agreement shall be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such
provision shall be of no force and effect, but the illegality or unenforceability of such
provision shall have no effect upon and shall not impair the enforceability of any other provision
of this Agreement.

     14.14 Waiver. No consent or waiver, express of implied, to or of any breach or
default in the performance of any obligation or covenant hereunder shall constitute a consent or
waiver to or of any other breach or default in the performance of the same or any other obligations
hereunder.

     14.15 Survival of Representations and Warranties; Time Limit for Claims. All
representations and warranties made in Articles V and VI of this Agreement will survive for a
period of one year after the Closing. No claim for liability in respect of any such representation
or warranty may be made after the end of that one-year survival period.

     In witness whereof, the Parties have executed this Agreement.

	 	 	 	 	 
	SELLER:	 	 
	 
	 	 	 	 
	AMERICAN OIL & GAS, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Patrick D. O’Brien	 	 
	 

	 	 	 	 
	 

	 	Patrick D. O’Brien, Chief Executive Officer	 	 
	 
	 	 	 	 
	BUYER:	 	 
	 
	 	 	 	 
	ENERPLUS RESOURCES (USA) CORPORATION	 	 
	 
	 	 	 	 
	By:

	 	/s/ Ward Polzin	 	 
	 

	 	 	 	 
	 

	 	Ward Polzin	 	 
	 

	 	Country Manager	 	 
	 
	 	 	 	 
	By:

	 	/s/ Ian C. Dundas	 	 
	 

	 	 	 	 
	 

	 	Ian C. Dundas	 	 
	 

	 	Senior Vice President, Business Development	 	 

	 	 	 
	Schedule 1.2(a):

	 	The Leases
	Schedule 1.2(b):

	 	The Wells
	Schedule 1.2(d):

	 	Certain Material Contracts
	Schedule 1.3:

	 	Allocated Values
	Schedule 3.6:

	 	Preferential Rights and Required Consents
	Schedule 5.2(f)

	 	Authorization for Expenditures in excess of $50,000
	 
	 	 
	Exhibit A:

	 	Assignment, Bill of Sale and Conveyance

22exv4w1

 

Exhibit 4.1

CELL GENESYS, INC.

WARRANT TO PURCHASE COMMON STOCK

To Purchase [           ] Shares of Common Stock

Date of Issuance: __________, 2007

VOID AFTER [            ], 2012

     THIS CERTIFIES THAT, for value received, [            ], or permitted registered
assigns (the ‘‘Holder’’), is entitled to subscribe for and purchase at the Exercise Price (defined
below) from Cell Genesys, Inc., a Delaware corporation (the ‘‘Company’’), up to [            ]
shares of the common stock of the Company, par value $0.001 per share (the ‘‘Common Stock’’). This
warrant is one of a series of warrants issued by the Company as of the date hereof (individually a
‘‘Warrant’’; collectively, ‘‘Company Warrants’’) pursuant to that certain subscription agreement
between the Company and the Holder, dated as of _____, 2007 (the ‘‘Subscription Agreement’’).

     1. DEFINITIONS. Capitalized terms used herein but not otherwise defined herein
shall have their respective meanings as set forth in the Subscription Agreement. As used herein,
the following terms shall have the following respective meanings:

     (a) ‘‘Exercise Period’’ shall mean the period commencing with the date occurring six months
after the date hereof and ending five years from the date hereof, unless sooner terminated as
provided below.

     (b) ‘‘Exercise Price’’ shall mean $_____ per share, subject to adjustment pursuant to
Section 4 below.

     (c) ‘‘Exercise Shares’’ shall mean the shares of Common Stock issuable upon exercise of
this Warrant.

     (d) ‘‘Trading Day’’ shall mean (i) any day on which the Common Stock is listed or quoted
and traded on its primary Trading Market, (ii) if the Common Stock is not then listed or quoted and
traded on any eligible market (meaning any of the NYSE, AMEX or NASDAQ), then a day on which
trading occurs on the OTC Bulletin Board (or any successor thereto), or (iii) if trading does not
occur on the OTC Bulletin Board (or any successor thereto), any Business Day.

     2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised
in whole or in part at any time during the Exercise Period, by delivery of the following to the
Company at its address set forth on the signature page hereto (or at such other address as it may
designate by notice in writing to the Holder):

     (a) An executed Notice of Exercise in the form attached hereto; and

     (b) Payment of the Exercise Price either (i) in cash or by check (subject to the
limitations in Section 2.1 below), or (ii) pursuant to net exercise terms outlined under
Section 2.1 below.

     Execution and delivery of the Notice of Exercise shall have the same effect as cancellation of
the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining
number of Exercise Shares, if any. If requested by the Company, Holder agrees to provide this
Warrant, or an affidavit of lost security, to the Company within a reasonable period after the
delivery of the Notice of Exercise.

     Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the
Company to the Holder by crediting the account of the Holder’s prime broker with the Depository
Trust Company through its Deposits and Withdrawal at Custodian (DWAC) system if the Company is a
participant in such system, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within three business

 

 

days from the delivery to the Company of the Notice of Exercise, surrender of this Warrant and
payment of the aggregate Exercise Price as set forth above. This Warrant shall be deemed to have
been exercised on the date the Exercise Price is received by the Company. The Exercise Shares shall
be deemed to have been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all purposes, as of the date
this Warrant has been exercised by payment to the Company of the Exercise Price. If by the close
of the third Trading Day after delivery of an Notice of Exercise, the Company fails to deliver to
the Holder a certificate representing the required number of Exercise Shares in the manner required
pursuant to this Section 2, and such failure to deliver the Exercise Shares is caused by the
Company’s failure to use commercially reasonable efforts to comply with this Section 2 and/or the
covenants in Section 3.1herein, and if after such third Trading Day and prior to the receipt of
such Exercise Shares, the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Exercise Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall, within three
Trading Days after the Holder’s request and in the Holder’s sole discretion, either (1) pay in cash
to the Holder an amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such Exercise Shares)
shall terminate or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Exercise Shares and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of Exercise Shares, times
(B) the closing bid price on the date of the event giving rise to the Company’s obligation to
deliver such certificate.

     The person in whose name any certificate or certificates for Exercise Shares are to be issued
upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on
the date on which this Warrant was surrendered and payment of the Exercise Price was made,
irrespective of the date of delivery of such certificate or certificates, except that, if the date
of such surrender and payment is a date when the stock transfer books of the Company are closed,
such person shall be deemed to have become the holder of such shares at the close of business on
the next succeeding date on which the stock transfer books are open.

     To the extent permitted by law, the Company’s obligations to issue and deliver Exercise Shares
in accordance with the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any person or entity or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other person or entity of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other person or entity, and irrespective
of any other circumstance which might otherwise limit such obligation of the Company to the Holder
in connection with the issuance of Exercise Shares. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon exercise of this
Warrant as required pursuant to the terms hereof.

     2.1 NET EXERCISE. If during the Exercise Period, the Holder is not permitted to
sell Exercise Shares pursuant to the Registration Statement, as defined in the Subscription
Agreement, or any other effective registration statement or an exemption to the registration
requirements of the Securities Act of 1933, as amended, and the fair market value of one share of
the Common Stock is greater than the Exercise Price (at the date of calculation as set forth
below), the Holder will not be permitted to exercise this Warrant by payment of cash or by check
and may only exercise this warrant by electing to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled). Upon delivery of a properly
endorsed Notice of Exercise, the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:

	 	 	 	 	 	 	 
	 

	 	 	 	Y (A—B)	 	 
	 

	 	X =
	 	 
	 	 
	 

	 	 	 	A	 	 

	 	 	 	 	 
	Where X

	 	=
	 	the number of shares of Common Stock to be issued to the Holder

2

 

	 	 	 	 	 
	Y

	 	=
	 	the number of shares of Common Stock purchasable under this
Warrant or, if only a portion of this Warrant is being
exercised, the portion of this Warrant being canceled (at the
date of such calculation)
	 
	 	 	 	 
	A

	 	=
	 	the fair market value of one share of the Company’s Common Stock (at the date of such calculation)
	 
	 	 	 	 
	B

	 	=
	 	Exercise Price (as adjusted to the date of such calculation)

     For purposes of the above calculation, the ‘‘fair market value’’ of one share of Common Stock
shall mean (i) the average of the closing sales prices for the shares of Common Stock on the NASDAQ
Global Market or other trading market where such security is listed or traded as reported by
Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by
the Company and reasonably acceptable to the Holder if Bloomberg Financial Markets is not then
reporting sales prices of such security) (collectively, ‘‘Bloomberg’’) for the ten (10) consecutive
trading days immediately preceding such date, or (ii) if the NASDAQ Global Market is not the
principal trading market for the shares of Common Stock, the average of the reported sales prices
reported by Bloomberg on the principal trading market for the Common Stock during the same period,
or, if there is no sales price for such period, the last sales price reported by Bloomberg for such
period, or (iii) if neither of the foregoing applies, the last sales price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security as reported by
Bloomberg, or if no sales price is so reported for such security, the last bid price of such
security as reported by Bloomberg or (iv) if fair market value cannot be calculated as of such date
on any of the foregoing bases, the fair market value shall be as determined by the Board of
Directors of the Company in the exercise of its good faith judgment.

     In the event that (i) the Holder is not permitted to sell Exercise Shares pursuant to the
Registration Statement, as defined in the Subscription Agreement, or any other effective
registration statement or an exemption to the registration requirements of the Securities Act of
1933, as amended, (ii) the Holder is not permitted to exercise this Warrant by payment of cash or
by check and may only exercise this warrant by electing to receive shares equal to the value of
this Warrant as determined above, or (iii) is subject to a Black-Out Period as defined in Section
3.1 below, the Company shall notify the Holder upon receipt of the Notice of Exercise and the
Holder shall have a right to immediately rescind the Notice of Exercise and not receive the
Exercise Shares.

     2.2 ISSUANCE OF NEW WARRANTS. Upon any partial exercise of this Warrant, the
Company, at its expense, will forthwith and, in any event within five business days, issue and
deliver to the Holder a new warrant or warrants of like tenor, registered in the name of the
Holder, exercisable, in the aggregate, for the balance of the number of shares of Common Stock
remaining available for purchase under this Warrant.

     2.3 EXERCISE LIMITATIONS; HOLDER’S RESTRICTIONS. A Holder shall not have the
right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the
extent that after giving effect to such issuance after exercise, such Holder (together with such
Holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in
excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by such Holder or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without limitation, any
other shares of Common Stock or Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by such Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this Section
2.4, beneficial ownership shall be calculated in

3

 

accordance with Section 13(d) of the Exchange Act, it being acknowledged by a Holder that the
Company is not representing to such Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and such Holder is solely responsible for any schedules required to be
filed in accordance therewith. To the extent that the limitation contained in this Section
2.4 applies, the determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in
the sole discretion of a Holder, and the submission of a Notice of Exercise shall be deemed to be
each Holder’s determination of whether this Warrant is exercisable (in relation to other securities
owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to
such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm
the accuracy of such determination. For purposes of this Section 2.4, in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case
may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company
or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm
orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant, by such Holder or
its affiliates since the date as of which such number of outstanding shares of Common Stock was
reported. The provisions of this Section 2.4 may be waived by such Holder, at the election
of such Holder, upon not less than 61 days’ prior notice to the Company, and the provisions of this
Section 2.4 shall continue to apply until such 61st day (or such later date, as determined
by such Holder, as may be specified in such notice of waiver).

     3. COVENANTS OF THE COMPANY.

     3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and agrees that all
Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from
all taxes, liens and charges with respect to the issuance thereof. The Company further covenants
and agrees that the Company will at all times during the Exercise Period, have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant. If at any time during the Exercise Period
the number of authorized but unissued shares of Common Stock shall not be sufficient to permit
exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purposes. The Company shall use commercially reasonable
efforts to keep a registration statement (a “Registration Statement”) with respect to the issuance
and sale of the Exercise Shares to the Holder, or such Holder’s valid assignee, in effect during
the Exercise Period or such shorter period that will terminate when this Warrant has been
exercised, and during such time period shall use commercially reasonable efforts to obtain the
prompt withdrawal of any stop order suspending the effectiveness of any such Registration
Statement. At any time during which the Exercise Shares are included in a then-effective
Registration Statement, the Company may suspend the ability of the Holder to exercise this Warrant
in any manner contemplated by this Warrant, for a reasonable period or periods (a “Black-out
Period”), in the event that (i)(A) an event occurs and is continuing as a result of a which the
Registration Statement including the Exercise Shares, any related prospectus or any document
incorporated therein by reference as then amended or supplement would, in the Company’s good faith
judgment, contain an untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under which the were
made, not misleading, and (B) the Company determined in its good faith judgment that the disclosure
of such event at such time would be to the detriment of the business, operations or prospects of
the Company or the disclosure otherwise relates to a business transaction which has not yet been
publicly disclosed, or (ii) the Registration Statement is no longer effective and the holder is not
permitted to sell Exercise Shares pursuant to any other registration statement or an exemption to
the registration requirements of the Securities Act of 1933, as amended; provided, however, that in
the event that a Black-out Period occurs subsequent to the one year anniversary of the Date of
Issuance, this Warrant shall be exercised subject to the terms and conditions of Section 2.1.
Notwithstanding the foregoing provisions of this Section 3.1, (i) if a Holder is not able to
exercise this Warrant because the Company has implemented a Black-out Period, then the Exercise
Period shall be extended for the number of calendar days covered by such Black-out Period and (ii)
(A) the Company will use

4

 

commercially reasonable efforts to ensure that the aggregate number of days covered by
Black-out Periods shall not last for more than twenty (20) consecutive days or exceed sixty (60) in
a particular calendar year; (B) a Black-out Period may not be in effect for more than thirty (30)
consecutive days; provided, however, that the holder may not receive any penalties, cash payments
or any other liquidated damages for failure to deliver registered Exercise Shares so long as the
Company has used commercially reasonable efforts to deliver the Holder the Exercise Shares as
contemplated in Section 2 herein or otherwise complies with the covenants in this Section 3.1, and
(C) if the Black-out Period is required because the Registration Statement is no longer effective
and the Holder is not permitted to sell Exercise Shares pursuant to any other registration
statement or an exemption to the registration requirements of the Securities Act of 1933, as
amended, then the Exercise Period shall be extended until such Holder may sell such Exercise
Shares.

     3.2 NO IMPAIRMENT. Except and to the extent as waived or consented to by the
holders of Company Warrants representing at least two-thirds of the number of shares of Common
Stock then subject to outstanding Company Warrants, the Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of all the provisions
of this Warrant and in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.

     3.3 NOTICES OF RECORD DATE AND CERTAIN OTHER EVENTS. In the event of any taking
by the Company of a record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other distribution, the Company
shall mail to the Holder, at least ten (10) days prior to the date on which any such record is to
be taken for the purpose of such dividend or distribution, a notice specifying such date. In the
event of any voluntary dissolution, liquidation or winding up of the Company, the Company shall
mail to the Holder, at least ten (10) days prior to the date of the occurrence of any such event, a
notice specifying such date. In the event the Company authorizes or approves, enters into any
agreement contemplating, or solicits stockholder approval for any Fundamental Transaction, as
defined in Section 6 herein, the Company shall mail to the Holder, at least ten (10) days
prior to the date of the occurrence of such event, a notice specifying such date.

     4. ADJUSTMENT OF EXERCISE PRICE AND SHARES.

     (a) In the event of changes in the outstanding Common Stock of the Company by reason of
stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of
shares, separations, reorganizations, liquidations, consolidation, acquisition of the Company
(whether through merger or acquisition of substantially all the assets or stock of the Company), or
the like, the number, class and type of shares available under this Warrant in the aggregate and
the Exercise Price shall be correspondingly adjusted to give the Holder of this Warrant, on
exercise for the same aggregate Exercise Price, the total number, class, and type of shares or
other property as the Holder would have owned had this Warrant been exercised prior to the event
and had the Holder continued to hold such shares until the event requiring adjustment. The form of
this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject
to this Warrant.

     (b) If at any time or from time to time the holders of Common Stock of the Company (or any
shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall
have received or become entitled to receive, without payment therefor,

     (i) Common Stock or any shares of stock or other securities which are at any time
directly or indirectly convertible into or exchangeable for Common Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution (other than a dividend or distribution covered in Section
4(a) above);

     (ii) any cash paid or payable otherwise than as a cash dividend; or

5

 

     (iii) Common Stock or additional stock or other securities or property (including
cash) by way of spinoff, split-up, reclassification, combination of shares or similar
corporate rearrangement (other than shares of Common Stock pursuant to Section 4(a)
above),

then and in each such case, the Holder hereof will, upon the exercise of this Warrant, be entitled
to receive, in addition to the number of shares of Common Stock receivable thereupon, and without
payment of any additional consideration therefor, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (ii) and (iii) above) which such
Holder would hold on the date of such exercise had such Holder been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became entitled to receive
such shares or all other additional stock and other securities and property.

     (C) Upon the occurrence of each adjustment pursuant to this Section 4, the Company
at its expense will, at the written request of the Holder, promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment,
including a statement of the adjusted Exercise Price and adjusted number or type of Exercise Shares
or other securities issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s transfer agent.

     5. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including
fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining
whether the exercise would result in the issuance of any fractional share. If, after aggregation,
the exercise would result in the issuance of a fractional share, the Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash
equal to the product resulting from multiplying the then current fair market value of an Exercise
Share by such fraction.

     6. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into another entity, in
which the shareholders of the Company as of immediately prior to the transaction own less than a
majority of the outstanding stock of the surviving entity, (ii) the Company effects any sale of all
or substantially all of its assets in one or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or another person or entity) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 4 above) (each, a ‘‘Fundamental
Transaction’’), then the Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of the number of Exercise Shares then issuable upon
exercise in full of this Warrant (the ‘‘Alternate Consideration’’). To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing
provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the provisions of this
Section 6 and ensuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
Notwithstanding the foregoing, in the event of a Fundamental Transaction involving the acquisition
of the Company by a Public Acquirer (as defined below) for consideration consisting of all or part
cash, at the option of the Holder, in lieu of any cash in respect of shares of Common Stock
underlying this Warrant, this Warrant (or such proportion thereof as is equal to the proportion of
cash to stock to be paid for the Company) shall thereafter be exercisable for the common stock of
the Public Acquirer for the remainder of the Exercise Period (and otherwise in accordance with the
terms hereof), with the number of shares thereafter underlying this Warrant determined by
multiplying the number of shares for which this Warrant is exercisable immediately prior to such
transaction by a fraction, the numerator of which is the cash consideration per share paid

6

 

for the Company and the denominator of which is the Market Price of the Public Acquirer’s
common stock, where “Market Price” means the average closing price of the Public Acquirer’s common
stock over the five trading days immediately following the closing date of the transaction. In the
case of a transaction involving partial cash consideration, the proportion of this Warrant as is
equal to the proportion of stock to cash in such transaction shall thereafter be exercisable for
stock of the Public Acquirer in accordance with the preceding terms of this Section 6, with the
number of shares underlying this Warrant adjusted to reflect the number of shares of common stock
of the Public Acquirer to be issued for each share of Common Stock of the Company. Following any
adjustment hereunder, the Exercise Price shall be proportionately adjusted, by multiplying the
Exercise Price then in effect by a fraction, the numerator of which is the number of shares
issuable prior to the adjustment and the denominator of which is the number of shares issuable
after the adjustment. “Public Acquirer” means any entity that has publicly traded common stock
whether publicly traded in the United States or in any other jurisdiction, it being understood that
(1) “common stock” as used in this Section 6 includes common equity equivalents, trust shares,
limited partnership interests, ordinary shares, American Depositary Receipts, American Depositary
Shares, and any other similar securities or derivate thereof, and (2) the Company shall be deemed
to have been acquired by a Public Acquirer where any successor entity has publicly traded common
stock whether traded in the United States or any other jurisdiction, even if such successor entity
is not the direct acquirer or successor to the Company. Following any transaction contemplated by
this Section 6, the term Exercise Shares shall be deemed to refer to the shares for which this
Warrant is thereafter exercisable in accordance with the provisions hereof. In addition, if
holders of Common Stock are given a choice as to the securities, cash (which shall be treated in
accordance with the preceding paragraph) or property to be received in a Fundamental Transaction
(including a right to elect to receive any particular one or combination of more than one of the
foregoing), then the Holder shall be given the same choice of consideration upon any exercise of
this Warrant following such Fundamental Transaction, which choice of consideration can be made at
the time of exercise at any time prior to the expiration of the Exercise Period.

     7. NO STOCKHOLDER RIGHTS. Other than as provided in Section 3.3 or
otherwise herein, this Warrant in and of itself shall not entitle the Holder to any voting rights
or other rights as a stockholder of the Company.

     8. TRANSFER OF WARRANT. Subject to compliance with any applicable laws, this
Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached hereto to any
transferee designated by Holder. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company and its counsel.

     9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it
may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of
the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at
any time enforceable by anyone.

     10. NOTICES, ETC. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the party to be
notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, (c) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the Company at the address listed on
the signature page hereto and to Holder at the applicable address set forth on the applicable
signature page to the Subscription Agreement or at such other address as the Company or Holder may
designate by ten (10) days advance written notice to the other parties hereto.

     11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

     12. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York. The Holder hereby submits to the non-exclusive
jurisdiction of the Federal and state courts

7

 

in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of
or relating to this Agreement or the transactions contemplated thereby. The Holder irrevocably and
unconditionally waives any objection to the laying of venue of any suit or proceeding arising out
of or relating to this Warrant in Federal and state courts in the Borough of Manhattan in The City
of New York and irrevocably and unconditionally waives and agrees not to plead or claim in any such
court that any such suit or proceeding in any such court has been brought in an inconvenient forum.

     13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived
(either generally or in a particular instance and either retroactively or prospectively) with the
written consent of the Company and the holders of Company Warrants representing at least two-thirds
of the number of shares of Common Stock then subject to outstanding Company Warrants.
Notwithstanding the foregoing, (a) this Warrant may be amended and the observance of any term
hereunder may be waived without the written consent of the Holder only in a manner which applies to
all Company Warrants in the same fashion and (b) the number of Exercise Shares subject to this
Warrant and the Exercise Price of this Warrant may not be amended, and the right to exercise this
Warrant may not be waived, without the written consent of the Holder. The Company shall give prompt
written notice to the Holder of any amendment hereof or waiver hereunder that was effected without
the Holder’s written consent. No waivers of any term, condition or provision of this Warrant, in
any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver
of any such term, condition or provision.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

8

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized
officer as of ___, 2007.

	 	 	 	 	 
	 	CELL GENESYS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	500 Forbes Boulevard	 
	 	South San Francisco, CA	 
	 	94080	 

9

 

NOTICE OF EXERCISE

TO: CELL GENESYS, INC.

     (1) [   ] The undersigned hereby elects to purchase [            ] shares of the
common stock, par value $0.001 (the ‘‘Common Stock’’), of CELL GENESYS, INC. (the ‘‘Company’’)
pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any, subject to the limitations set forth
in Section 2.1 of the Warrant.

           [   ] The undersigned hereby elects to purchase [            ] shares of Common Stock
of the Company pursuant to the terms of the net exercise provisions set forth in Section
2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any.

     (2) Please issue the certificate for shares of Common Stock in the name of, and pay any
cash for any fractional share to:

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	Print or type name
	 	 
	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	Social Security or other Identifying Number	 	 
	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	Street Address	 	 
	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	City State Zip Code	 	 

     (3) If such number of shares shall not be all the shares purchasable upon the exercise of
the Warrants evidenced by this Warrant, a new warrant certificate for the balance of such Warrants
remaining unexercised shall be registered in the name of and delivered to:

     Please insert Social Security or other identifying number: ______________________________________________

 

(Please print name and address)

Dated: ___________________________

     (Date)

	 	 	 	 	 
	 

	 	 	 	 
	 

	 	(Signature)
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	(Print name)	 	 

10

 

ASSIGNMENT FORM

     (To assign the foregoing Warrant, execute this form and supply required information. Do not
use this form to purchase shares.)

     FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned
to

	 	 	 	 	 
	Name:

	 	 	 	 
	 

	 	(Please Print)	 	 
	 
	 	 	 	 
	Address:
	 	 	 	 
	 

	 	(Please Print)	 	 
	Dated:    
    , 200[        ]
	 	 	 	 

	 	 	 	 	 
	Holder’s Signature:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Holder’s Address:
	 	 	 	 
	 

	 	 	 	 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face
of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations
and those acting in a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant.

11

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