Document:

Exhibit 10.5

 

LOAN AGREEMENT

 

This LOAN AGREEMENT (“Loan Agreement”)
is entered into as of the 8th day of September, 2008 by AVP, Inc., a
Delaware corporation (the “Borrower”),
and RJSM Partners, LLC, a Delaware limited liability company (the “Lender”).

 

INTRODUCTION

 

WHEREAS, the
Borrower has requested that the Lender extend the Borrower credit and whereas
the Lender is willing to extend such credit on the terms and conditions
contained in this Loan Agreement;

 

NOW,
THEREFORE, in consideration of the mutual promises contained herein and other
good and valuable consideration, receipt of which is hereby acknowledged, and
in order to induce the Lender to extend such credit, the Borrower and the
Lender hereby agree as follows:

 

ARTICLE
1

DEFINITIONS

 

Section 1.1      Definitions and Exhibits.  Terms defined above or in the text of this
Loan Agreement shall have the meanings there set forth herein.  Other capitalized terms shall have the
meaning set forth in the Definitions Addendum, which is attached and
incorporated herein.  All exhibits to
this Loan Agreement are also incorporated herein.

 

ARTICLE
2

THE COMMITMENT

 

Section 2.1      Term Commitment.  Subject to the terms and conditions of this
Loan Agreement, the Lender agrees to make a loan on September 8, 2008 (the
“Initial Effective Date”) to the
Borrower in the principal amount of $1,803,250 (the “Initial
Loan”) and to make another loan on or before September 15,
2008 (the “Second Effective Date”) to the
Borrower in the principal amount of $1,000,000 (the “Second
Loan” and, together with the Initial Loan, the “Loans”).  An additional principal amount of up to
$1.5 million (the “Additional Loan”)
may be loaned in accordance with Section 5.1 hereof within sixty (60) days
after the Initial Effective Date.  The
Loans shall bear interest as provided in this Loan Agreement.  The Initial Loan shall be evidenced by this
Loan Agreement and the Note.  The Second
Loan shall be evidenced by this Loan Agreement and a note (the “Second Note” and, together with the
Note, the “Notes”) that will contain
substantially similar terms and conditions as the Note, except for the
following terms:  (i) the principal
amount of the Second Note, (ii) the issue date of the Second Note, and (iii) the
initial date on which interest will begin accruing on the Second Note.

 

Subject to the
conditions set forth in this Loan Agreement, the Lender shall disburse by wire
transfer of immediately available funds to the account of the Borrower listed
on Exhibit B (i) the Initial Loan amount on the Initial
Effective Date and (ii) the Second Loan amount on the Second Effective
Date.

 

1

 

Section 2.2      Evidence of Indebtedness.  The Borrower shall maintain records
evidencing amounts of principal and interest paid by or on behalf of the
Borrower to the Lender hereunder.  The
books and records of the Borrower shall be prima facie evidence, absent
manifest error, of all amounts of principal, interest, outstanding or repaid
pursuant to this Loan Agreement or any other Related Document.

 

ARTICLE
3

REPAYMENT AND INTEREST

 

Section 3.1      Payment Of Principal and Interest.  The outstanding principal balance of the
Notes (the “Maturity Date Payment”) shall
be due and payable in kind on September 1, 2013 (the “Maturity
Date”), as set forth below. 
On the Maturity Date, the Maturity Date Payment shall be paid by
delivery by the Borrower to the Lender of the Aggregate Number of Restricted
Shares (as defined in the Securities Purchase Agreement); provided,
that, the foregoing obligation shall not be applicable if a Change of Control
occurs before the Maturity Date and the Borrower has performed its obligations
under Section 5.3; and provided  further, that prior to the
Maturity Date, the Lender may cause the Borrower to prepay any portion of the
outstanding principal amount of the Loans (such amount of principal being the “Prepayment Amount”) whereupon (i) the
Borrower shall release an amount of Restricted Shares equal to the quotient of
the Prepayment Amount and the Restricted Share Price, and (ii) all
interest accrued under this Loan Agreement on the Prepayment Amount prior to
such payment of the Prepayment Amount shall be deemed to be forgiven by the
Lender.  The outstanding principal
balance due on the Loans shall be determined as specified in Section 3.2.

 

Section 3.2      Interest Rate, Interest Compounding,
Outstanding Principal Balance.  For the purpose of calculating the payment to
be made in Section 5.3(a) or Section 6.2(a) only, interest
on the outstanding principal balance of the Loans: (a) shall accrue at
eighteen percent (18%) per annum, based on a year of 360 days and actual days
elapsed, (b) shall be compounded annually and shall accrue from the
Effective Date until the Loans are paid in cash, if such cash payment is
elected by the Lender pursuant to Section 5.3(a) or Section 6.2(a),
and (c) if applicable, will be paid by the Borrower on the entire
outstanding principal amount of the Loans in cash by adding such interest to
such outstanding principal amount on the applicable payment date.  If it is ever determined that the rate of
interest was in excess of any maximum rate (if any) prescribed by law, then
that portion of interest payments in cash or in Restricted Shares representing
any amounts in excess of said maximum shall be deemed a payment of principal
and applied by the Lender at any time against principal.

 

Section 3.3      Manner, Method, Place, Time and
Application of Payment, Reinstatement, Waivers.  If a payment is to be made in cash,
Obligations shall be paid in lawful currency of the United States to the Lender
by wire transfer in immediately available funds to such bank account as the
Lender may designate in writing.  The
liability of the Borrower hereunder and under any other Related Document shall
be reinstated and revived and the rights of the Lender shall continue to the
extent of any amount at any time paid by or on behalf of the Borrower if such
amount shall thereafter be required to be restored, returned or forfeited by
the Lender pursuant to any 

 

2

 

Requirement of
Law, and the Borrower’s liability therefor shall continue as if such amount had
not been paid.

 

If the
Borrower makes any payments under this Loan Agreement or the Notes, the
Borrower shall be permitted to make any such payment after applying
counterclaim, set-off, and after deduction for any Taxes.

 

ARTICLE
4

REPRESENTATIONS AND WARRANTIES

 

Section 4.1      Validity of the Notes.  The Borrower represents and
warrants to the Lender that it has all requisite corporate power and corporate
authority to issue, execute and deliver the Notes.  All action required to be taken for the due
and proper authorization, execution, and delivery of the Notes has been duly
and validly taken, and, when paid for as provided in this Loan Agreement, the
Notes will be duly and validly issued and outstanding and will constitute a
valid and legally binding obligation of the Borrower.

 

ARTICLE
5

COVENANTS

 

Until principal and interest on the loan is
paid in full in the manner described herein, the Borrower hereby covenants and
agrees that unless the Lender otherwise consents in writing, the Borrower
shall:

 

Section 5.1      Additional Loans.  The Borrower agrees that the Lender may
designate other investors reasonably acceptable to the Borrower (each, an “Additional Lender” and,
collectively, the “Additional Lenders”),
to lend the Borrower the Additional Loan at any time or times on or before the
sixtieth (60th) day following the Initial Effective Date or such later date as
shall be mutually agreed to by the Borrower and the Additional Lenders.  With respect to any Additional Loan, such
loan shall be made on the same terms and conditions set forth in this Loan
Agreement.

 

Section 5.2      Incurrence of Indebtedness.  The Borrower shall not create, incur, assume or
suffer to exist any Indebtedness that either (a) ranks senior in right of payment to the Loans
or (b) is secured.

 

Section 5.3      Change of Control.  Within sixty (60) days upon the occurrence of
a Change of Control, the Borrower shall be required to make an offer to
repurchase the Notes, at which time the Lender shall provide written notice to
the Borrower within five (5) days upon receiving the offer by the Borrower
that such Lender, or Additional Lenders, as the case may be, at a price equal
to (a) a cash payment 100% of the outstanding principal amount of the
Notes, plus all accrued and unpaid interest on such outstanding principal
amount to the date of payment and (b) an in kind payment of a number of
Restricted Shares equal to the Aggregate Number of Restricted Shares less the
aggregate number of any Restricted Shares delivered to the Lender as payment of
a Prepayment Amount pursuant to Section 3.1 hereof, if any.

 

3

 

Section 5.4      Matters Requiring Vote.  So
long as at least 50% of the aggregate principal amount of the Loans are
outstanding and after the Second Note is issued after the Second Loan is made,
the Borrower shall not, without first obtaining the approval of the Lender, if
the Lender holds Notes that represents at least a majority of the aggregate
outstanding principal amount of the Loans, given in writing:

 

(i)  whether in a single or in a series of related transactions,
effect any sale, transfer, lease, merger or reorganization involving all or any
material portion of the Borrower’s assets or business ;

 

(ii)  effect any single or a series of related acquisitions with a
valuation in excess of $500,000;

 

(iii)  alter or change the rights or preferences of the Lender;

 

(iv)  create any series or class or any other security convertible
or exchangeable into or for equity securities having a preference senior to or pari passu with the Series B
Preferred Stock as defined in the Securities Purchase Agreement;

 

(v)  incur or suffer to exist any Indebtedness in excess of
$500,000 other than such Indebtedness existing on the Initial Effective Date
and except for any Indebtedness otherwise permitted by the terms of this Loan
Agreement, including the Second Loan and any Additional Loans, and determined
in accordance with GAAP;

 

(vi)  redeem or repurchase any equity securities of the Borrower;

 

(vii)  take any action, or fail to take any action, that could
result in taxation of the Lender under Section 305 of the Internal Revenue
Code;

 

(viii)  amend, alter or repeal the Certificate of Incorporation or
Bylaws of the Corporation in a manner that materially affects the Lender;

 

(ix)  issue any warrants not outstanding as of the date hereof;
provided, that the Lender’s consent shall not be required in connection with
the issuance of warrants or other convertible securities that represent the
right to acquire not more than 2.5% of the then outstanding shares of common
stock on a fully diluted basis; or

 

(x)  create or issue any other Series B Preferred Stock.

 

ARTICLE
6

EVENTS
OF DEFAULT

 

Section 6.1      Events of Default.  Without regard to previous knowledge or any
forbearance by the Lender, the following shall be defaults under this Loan
Agreement and the terms “Event of Default”,
“default” or “Default”
shall mean anyone or more of the following events:

 

4

 

(a)           Payment Default.  The Borrower shall fail to pay or cause to be
paid when due any portion of any Obligation; or

 

(b)           Breach of Covenants of Failure of
any Condition.  The Borrower shall
fail to perform, keep or observe any material provision not involving a payment
obligation in this Loan Agreement or any other Basic Documents, and any such
failure shall remain unremedied for thirty (30) days after written notification
thereof shall have been given to the Borrower by the Lender; or

 

(c)           Breach of Representation or
Warranty.  Any representation or
warranty made by the Borrower in this Loan Agreement or any other Basic
Documents shall prove to have been untrue or misleading when made or becomes
untrue in any material respect; or

 

(d)           Bankruptcy etc.  The Borrower or any of its subsidiaries shall
dissolve or liquidate or take an equivalent action or an involuntary petition
shall have been filed under any federal or state bankruptcy, reorganization,
insolvency, moratorium or similar statute against the Borrower or any of its
subsidiaries, or a custodian, receiver, trustee, assignee for the benefit of
creditors or other similar official shall be appointed to take possession, custody,
or control of the property of the Borrower or any of its subsidiaries, unless
such petition or appointment is set aside or withdrawn or ceases to be in
effect within sixty (60) days from the date of said filing or appointment; or
the Borrower or its subsidiaries shall admit in writing its inability to pay
any of its debts as they mature, or shall file any petition or action for
relief relating to any bankruptcy, reorganization, insolvency or moratorium
law, or any other similar law or laws for the relief of, or relating to,
debtors; or the Borrower or any of its subsidiaries shall make a general
assignment for the benefit of creditors or enter into an agreement of
composition with its creditors.

 

Section 6.2  Acceleration and Remedies Following Event of
Default.  With respect
to any Event of Default, the Lender, or Additional Lenders, as the
case may be, may, upon notice (of any nature allowed by law) to the
Borrower, declare all Obligations (or any part thereof), to be forthwith due
and payable and shall have the right to elect that payment be made
 without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower, in an amount equal to (a) a
cash payment equal to 100% of the outstanding principal amount of the Notes,
plus all accrued and unpaid interest on such outstanding principal amount to
the date of payment and (b) an in kind payment equal to a number of
Restricted Shares equal to the quotient of (1) the outstanding principal
amount of the Notes, plus all accrued and unpaid interest on such outstanding
principal amount to the date of payment, and (2) the Restricted Share
Price; provided, however, that in no event shall the number of
Restricted Shares delivered to the Lender pursuant to this paragraph exceed the
Aggregate Number of Restricted Shares less the aggregate number of any
Restricted Shares delivered to the Lender as payment of a Prepayment Amount
pursuant to Section 3.1 hereof, if any.

 

In addition,
upon any Event of Default, the Lender may without prior notice or demand,
exercise any and all rights available to it under this Loan Agreement or any
other Basic

 

5

 

Documents in equity or by applicable law.  No action taken by the Lender shall be deemed
to be an election of remedies by the Lender, it being the intent of the parties
that the Lender shall be entitled repeatedly to exercise all remedies
separately or concurrently and in any manner allowed by law.

 

Failure of the
Lender or any Additional Lender to elect to make the Additional Loan shall not
constitute a breach of this Loan Agreement.

 

ARTICLE 7

MISCELLANEOUS

 

Section 7.1   Certain Terms. As used
herein, “Sections” refers to sections of this
Loan Agreement. As used herein, the expression “this Agreement” means the body of this Loan Agreement; and
the expressions “herein,” “hereof,”
and “hereunder” and other words of similar
import refer to this Loan Agreement and not to any particular part or
subdivision thereof. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.

 

Section 7.2   Captions.  The captions, headings and
arrangements used in this Loan Agreement are for convenience only and do not in
any way affect, limit, amplify or modify the terms and provisions hereof.

 

Section 7.3   Notices.  Whenever this Loan
Agreement requires or permits any consent, approval, notice, request or demand
from one party to another, such consent, approval, notice, request or demand
must be in writing to be effective and shall be deemed to be delivered and
received (i) if personally delivered or if delivered by facsimile with
telephonic confirmation, when actually received by the party to whom notice is
sent, (ii) if delivered by mail within the United States (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the federal mail, postage prepaid, certified
or registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith) or (iii) if
delivered by mail to any party located outside the United States, when received
by the party to whom notice is sent:

 

If to the Lender, to:

 

RJSM Partners, LLC

660 Madison Avenue

17th Floor

New York, New York 10065

Attention: Nicholas Lewin

Fax: 212-898-1161

 

and, with a copy to (which shall not
constitute notice):

 

Winston & Strawn LLP

 

6

 

200 Park Avenue

New York, New York 10166-4193

Attention: George Soterakis, Esq.

Fax: 212-294-4700

 

If to the Borrower, to:

 

AVP, Inc.

6100 Center Drive, 9th Floor

Los Angeles, CA 90045

Attention: General Counsel

Fax: 310-426-8010

 

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

 

Manatt, Phelps & Phillips, LLP

11355 W. Olympic Boulevard

Los Angeles, CA 90064

Attention: Paul Irving, Esq.

                David Grinberg, Esq.

                James J. Vieceli, Esq.

Fax: (310) 312-4224

 

Section 7.4   Governing Law.
 THE
VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT
SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

 

Section 7.5   Successors and
Assigns.  This Loan
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, representatives, successors, and permitted assigns,
and any receiver, trustee in bankruptcy, or representative of the creditors of
each such Person; provided, that the Borrower may not assign this Loan
Agreement without the prior written consent of the Lender, such consent not to
be unreasonably withheld; provided, further that the Lender may not assign this
Loan Agreement without the prior written consent of the Lender, such consent
not to be unreasonably withheld.

 

Section 7.6   Invalid
Provisions.  If any
provision of this Loan Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Loan Agreement, such provision shall be fully severable; this Loan Agreement
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of this Loan Agreement; and the remaining
provisions of this Loan Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this 

 

7

 

Loan Agreement.
Furthermore, in lieu of each such illegal, invalid, or unenforceable provision
there shall be added automatically as a part of this Loan Agreement a provision
as similar in terms to such illegal, invalid, or unenforceable provision as may
be possible and be legal, valid, and enforceable.

 

Section 7.7   Amendments.  This Loan Agreement may be
amended, at any time and from time to time in whole or in part, or terminated,
only by an instrument in writing, duly executed by all of the parties hereto.

 

Section 7.8   Counterparts.  This Loan Agreement may be executed in any
number of identical counterparts, each of which shall be deemed an original,
and all of which shall constitute one and the same agreement.

 

Section 7.9   Continuation of
Rights.  The failure or
refusal of a party hereto to exercise any right granted in this Loan Agreement
shall not be deemed a waiver of the right to exercise future rights which may
arise hereunder.

 

Section 7.10   Entire
Agreement.  This Loan
Agreement contains the entire understanding of the parties hereto respecting
the subject matter hereof and supersedes all prior agreements, discussions and
understandings.

 

Section 7.11   Consent to
Jurisdiction and Service of Process.  Any legal action, suit or proceeding arising
out of or relating to this Loan Agreement or the transactions contemplated
hereby may be instituted in any federal court in the State of Delaware, and
each party waives any objection which such party may now or hereafter have to
the laying of the venue of any such action, suit or proceeding, and irrevocably
submits to the jurisdiction of any such court in any such action, suit or
proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding shall be effective against any party if given by
registered or certified mail, return receipt requested, or by any other means
of mail which requires a signed receipt, postage prepaid, mailed to such party
as herein provided. Nothing contained herein shall be deemed to affect the
right of any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in any
jurisdiction other than the federal courts in Delaware.

 

[Remainder
of page intentionally left blank]

 

8

 

	
  AVP,
  INC.

  	
   

  	
  RJSM
  PARTNERS, LLC,

  
	
  a Delaware corporation

  	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Leonard Armato

  	
   

  	
  By

  	
  /s/ Nicholas Lewin

  
	
      Name: Leonard Armato

  	
   

  	
       Name:

  
	
      Title:  CEO, Chairman, and Commissioner

  	
   

  	
       Title:

  
					

 

 

Signature Page to Loan Agreement

 

2

 

DEFINITIONS ADDENDUM

 

This Definitions Addendum is an attachment to and part of that certain
LOAN AGREEMENT (“Loan Agreement”) dated as of September 8,
2008 between AVP, Inc. and RJSM Partners, LLC Except as otherwise stated
in the Loan Agreement, the following terms shall have the following meanings:

 

“Arising Out Of” means directly or indirectly arising out of,
relating in any manner to, arising in connection with, growing out of or
stemming from, or in any manner caused by or resulting from, whether by action
or inaction and whether such action or inaction be culpable and whether such
action be in contract, tort or otherwise.

 

“Basic Documents” means this Loan Agreement, the Securities
Purchase Agreement, the Subscription Agreement, the Notes, and the Registration
Rights Agreement.

 

“Borrower” means AVP, Inc., a Delaware corporation.

 

“Business Day” means any day other than (i) a Saturday,
Sunday or legal holiday, or (ii) a day on which commercial banks in New
York City are authorized or required by law or executive order to close.

 

“Change of Control” means (a) any consolidation, merger,
reorganization, recapitalization or sale in one or more related transactions of
the Borrower with or into any other corporation or other entity or person, or
any other corporate reorganization or sale of securities of the Borrower, in
which the stockholders of the Borrower immediately prior to such consolidation,
merger, reorganization or sale, own less than fifty percent (50%) of the
Borrower’s voting power immediately after such consolidation, merger,
reorganization or sale, or any transaction or series of related transactions in
which in excess of fifty percent (50%) of the Borrower’s voting power is
transferred; or (b) a sale, lease or other disposition of all or
substantially all of the assets of the Borrower.

 

“Default” or “Event of Default”
has the meaning given the term in Section 6.1 of the Loan Agreement.

 

“Effective Date” means the Initial Effective Date or the
Second Effective Date, as applicable.

 

“Governmental Body” means any foreign or domestic government;
court; federal, state, county, municipal or other department, commission,
board, bureau, agency, administrator, public authority or instrumentality;
arbitrator; mediator; or other governmental regulator or authority.

 

“Indebtedness” means, with respect to any Person, at a
particular date, means all indebtedness of such Person for borrowed money;
provided, that, in no event shall Indebtedness include any trade and other accounts
payable which are not overdue for a period of more than 60 days or, if overdue
for more than 60 days, as to which a dispute exists and adequate reserves in
conformity with generally accepted accounting principles in the United States
in effect from time to time have been established on the books of such Person.

 

1

 

“Initial Effective Date” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

“Initial Loan” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

“Loan Agreement” means this Loan Agreement, as the same may
be amended, extended or renewed from time to time.

 

“Maturity Date” has the meaning given that term in Section 3.1
of the Loan Agreement.

 

“Maturity Date Payment” has the meaning given that term in Section 3.1
of the Loan Agreement.

 

“Note” means the promissory note in substantially the form
attached as Exhibit A, as extended, renewed or amended from time to
time.

 

“Notes” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

“Obligations” means all obligations for principal or interest
on the Note and all other amounts of every nature whatsoever due or to become
due the Lender under this Loan Agreement.

 

“Person” means any individual, corporation, partnership,
limited liability partnership, limited liability company, joint venture,
association, joint stock company, sole proprietorship, business trust,
unincorporated organization or government or other agency or political
subdivision thereof.

 

“Registration Rights Agreement” means the Registration Rights
Agreement, dated as of September 8, 2008, between the Borrower and the
Lender.

 

“Requirement of Law” means, with respect to any Person, the
now or hereafter existing articles or certificate of incorporation and bylaws,
the partnership or limited liability company agreement or other organizational
or governing documents of such Person, and any law, treaty, rule, order,
judgment, decree, injunction, writ, or regulation, or a final and binding determination
of an arbitrator, mediator, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

 

“Restricted Shares” has the meaning given that term in the
Securities Purchase Agreement.

 

“Restricted Share Price” means $0.50 per share.

 

“Second Effective Date” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

“Second Loan” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

“Second Note” has the meaning given that term in Section 2.1
of the Loan Agreement.

 

2

 

“Securities Purchase Agreement” means that certain Securities
Purchase Agreement, dated as of September 8, 2008, between the Borrower
and the Lender.

 

“Subscription Agreement” means that certain Subscription
Agreement, dated as of September 8, 2008, between the Borrower and the
Lender.

 

“Taxes” means for any Person any federal or state tax,
assessment, duty, levy, withholding liability, impost and other charges of
every nature whatsoever imposed by any Governmental Body on such Person or on
any of its property or because of any, revenue, income, sales, use, product,
employee or franchise, and any interest or penalty with respect to any of the
foregoing.

 

3

 

Exhibit A

 

[Form of Promissory Note]

 

4

 

Exhibit B

 

Wire Transfer Instructions

 

	
  Bank Name

  	
   

  	
  City National Bank

  
	
  Bank Address

  	
   

  	
  400 N. Roxbury Dr., Beverly Hills, CA 90210

  
	
  Telephone

  	
   

  	
  (213) 427-5050

  
	
   

  	
   

  	
   

  
	
  Account Name

  	
   

  	
  AVP Pro Beach Volleyball Tour

  
	
  Account Number

  	
   

  	
  101817423

  
	
  ABA #

  	
   

  	
  122016066

  

 

5Exhibit
10.1

 

ASSET
PURCHASE AND SALE AGREEMENT

between

Cordillera Texas, L.P.

as “Seller”

and

Forest Oil Corporation

as “Buyer”

Dated as of August 15, 2008

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I
  PURCHASE AND SALE

  	
   

  	
  1

  
	
  Section 1.1.

  	
  Purchase and
  Sale

  	
   

  	
  1

  
	
  Section 1.2.

  	
  Oil and Gas
  Assets

  	
   

  	
  1

  
	
  Section 1.3.

  	
  Other Assets

  	
   

  	
  3

  
	
  Section 1.4.

  	
  Assets
  Excluded

  	
   

  	
  3

  
	
  Section 1.5.

  	
  Effective
  Time

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II
  PURCHASE PRICE

  	
   

  	
  5

  
	
  Section 2.1.

  	
  Purchase
  Price

  	
   

  	
  5

  
	
  Section 2.2.

  	
  Adjustments
  to Cash Consideration

  	
   

  	
  5

  
	
  Section 2.3.

  	
  Adjustments
  to Buyer Common Stock

  	
   

  	
  7

  
	
  Section 2.4.

  	
  Property
  Development Adjustments

  	
   

  	
  8

  
	
  Section 2.5.

  	
  Closing and
  Post-Closing Accounting Settlements

  	
   

  	
  8

  
	
  Section 2.6.

  	
  Payment of
  Adjusted Purchase Price

  	
   

  	
  9

  
	
  Section 2.7.

  	
  Transfer
  Taxes

  	
   

  	
  10

  
	
  Section 2.8.

  	
  Recordation
  and Conveyance Costs

  	
   

  	
  10

  
	
  Section 2.9.

  	
  Allocation
  of Purchase Price

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III
  THE CLOSING

  	
   

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  	
  11

  
	
  Section 4.1.

  	
  Organization
  and Existence

  	
   

  	
  11

  
	
  Section 4.2.

  	
  Power and
  Authority

  	
   

  	
  11

  
	
  Section 4.3.

  	
  Valid and
  Binding Agreement

  	
   

  	
  11

  
	
  Section 4.4.

  	
  Non-Contravention

  	
   

  	
  11

  
	
  Section 4.5.

  	
  Approvals

  	
   

  	
  12

  
	
  Section 4.6.

  	
  Pending
  Litigation

  	
   

  	
  12

  
	
  Section 4.7.

  	
  Production
  Marketing; Hedges

  	
   

  	
  12

  
	
  Section 4.8.

  	
  Permits

  	
   

  	
  12

  
	
  Section 4.9.

  	
  Payment of
  Expenses

  	
   

  	
  13

  
	
  Section 4.10.

  	
  Oil and Gas
  Operations; Compliance with Laws

  	
   

  	
  13

  
	
  Section 4.11.

  	
  Imbalances;
  Prepayments

  	
   

  	
  13

  
	
  Section 4.12.

  	
  Intellectual
  Property

  	
   

  	
  13

  
	
  Section 4.13.

  	
  Taxes

  	
   

  	
  14

  
	
  Section 4.14.

  	
  Payout
  Balances

  	
   

  	
  14

  
	
  Section 4.15.

  	
  Contracts

  	
   

  	
  14

  
	
  Section 4.16.

  	
  Equipment
  and Personal Property

  	
   

  	
  14

  
	
  Section 4.17.

  	
  Non-Consent
  Operations

  	
   

  	
  15

  
	
  Section 4.18.

  	
  Wells

  	
   

  	
  15

  
	
  Section 4.19.

  	
  Outstanding
  Capital Commitments

  	
   

  	
  15

  
	
  Section 4.20.

  	
  Restricted
  Securities

  	
   

  	
  15

  
	
  Section 4.21.

  	
  Accredited
  Investor; Investment Intent

  	
   

  	
  15

  
	
  Section 4.22.

  	
  Fees and
  Commissions

  	
   

  	
  16

  
	
  Section 4.23.

  	
  Disclaimer
  of Warranties

  	
   

  	
  16

  

 

i

 

	
  ARTICLE V
  REPRESENTATIONS AND WARRANTIES OF BUYER

  	
   

  	
  17

  
	
  Section 5.1.

  	
  Organization
  and Existence

  	
   

  	
  17

  
	
  Section 5.2.

  	
  Power and
  Authority

  	
   

  	
  17

  
	
  Section 5.3.

  	
  Valid and
  Binding Agreement

  	
   

  	
  17

  
	
  Section 5.4.

  	
  Non-Contravention

  	
   

  	
  17

  
	
  Section 5.5.

  	
  Approvals

  	
   

  	
  18

  
	
  Section 5.6.

  	
  Pending
  Litigation

  	
   

  	
  18

  
	
  Section 5.7.

  	
  Knowledgeable
  Purchaser

  	
   

  	
  18

  
	
  Section 5.8.

  	
  Funds

  	
   

  	
  18

  
	
  Section 5.9.

  	
  SEC Reports;
  Financial Statements

  	
   

  	
  18

  
	
  Section 5.10.

  	
  Absence of
  Certain Changes

  	
   

  	
  19

  
	
  Section 5.11.

  	
  Buyer Common
  Stock

  	
   

  	
  19

  
	
  Section 5.12.

  	
  Qualified
  Leaseholder

  	
   

  	
  20

  
	
  Section 5.13.

  	
  Fees and
  Commissions

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI
  CERTAIN COVENANTS OF SELLER PENDING CLOSING

  	
   

  	
  20

  
	
  Section 6.1.

  	
  Access to
  Files

  	
   

  	
  20

  
	
  Section 6.2.

  	
  Access to
  Oil and Gas Assets

  	
   

  	
  20

  
	
  Section 6.3.

  	
  Conduct of
  Operations

  	
   

  	
  21

  
	
  Section 6.4.

  	
  Restrictions
  on Certain Actions

  	
   

  	
  21

  
	
  Section 6.5.

  	
  Payment of
  Expenses

  	
   

  	
  22

  
	
  Section 6.6.

  	
  Drilling
  Rigs

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII
  ADDITIONAL PRE-CLOSING AND POST-CLOSING AGREEMENTS OF BOTH PARTIES

  	
   

  	
  23

  
	
  Section 7.1.

  	
  Reasonable
  Best Efforts

  	
   

  	
  23

  
	
  Section 7.2.

  	
  Notice of
  Litigation

  	
   

  	
  23

  
	
  Section 7.3.

  	
  Notification
  of Certain Matters

  	
   

  	
  23

  
	
  Section 7.4.

  	
  Fees and
  Expenses

  	
   

  	
  24

  
	
  Section 7.5.

  	
  Confidentiality;
  Public Announcements

  	
   

  	
  24

  
	
  Section 7.6.

  	
  Casualty
  Loss Prior to Closing

  	
   

  	
  24

  
	
  Section 7.7.

  	
  Governmental
  Bonds

  	
   

  	
  25

  
	
  Section 7.8.

  	
  Assumed
  Obligations

  	
   

  	
  25

  
	
  Section 7.9.

  	
  Books and
  Records

  	
   

  	
  25

  
	
  Section 7.10.

  	
  Suspended
  Funds

  	
   

  	
  25

  
	
  Section 7.11.

  	
  Letters-in-Lieu

  	
   

  	
  25

  
	
  Section 7.12.

  	
  Logos and
  Names

  	
   

  	
  25

  
	
  Section 7.13.

  	
  Non-Solicitation
  of Employees

  	
   

  	
  25

  
	
  Section 7.14.

  	
  Transition
  of Operations

  	
   

  	
  26

  
	
  Section 7.15.

  	
  HSR Filing

  	
   

  	
  26

  
	
  Section 7.16.

  	
  Seller’s
  Maintenance of Liquid Assets

  	
   

  	
  26

  
	
  Section 7.17.

  	
  Financial
  Statements

  	
   

  	
  27

  
	
  Section 7.18.

  	
  Further
  Assurances

  	
   

  	
  28

  
	
  Section 7.19.

  	
  Buyer’s
  Assumption of Rig Contract

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  TITLE MATTERS

  	
   

  	
  28

  
	
  Section 8.1.

  	
  Defensible
  Title

  	
   

  	
  28

  
	
  Section 8.2.

  	
  Purchase
  Price Adjustments for Title Defects

  	
   

  	
  30

  
	
  Section 8.3.

  	
  Cure of
  Post-Closing Title Defects

  	
   

  	
  31

  

 

ii

 

	
  Section 8.4.

  	
  Arbitration
  for Title Defects

  	
   

  	
  31

  
	
  Section 8.5.

  	
  Waiver of
  Title Defects

  	
   

  	
  32

  
	
  Section 8.6.

  	
  Preferential
  Rights and Consents

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX
  ENVIRONMENTAL MATTERS.

  	
   

  	
  33

  
	
  Section 9.1.

  	
  Environmental
  Obligations

  	
   

  	
  33

  
	
  Section 9.2.

  	
  Definitions
  of Environmental Defect

  	
   

  	
  33

  
	
  Section 9.3.

  	
  Waiver

  	
   

  	
  34

  
	
  Section 9.4.

  	
  Purchase
  Price Adjustments for Environmental Defects

  	
   

  	
  34

  
	
  Section 9.5.

  	
  Cure of
  Post-Closing Environmental Defects

  	
   

  	
  35

  
	
  Section 9.6.

  	
  Arbitration
  for Environmental Defects

  	
   

  	
  35

  
	
  Section 9.7.

  	
  Limitations

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X
  CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES

  	
   

  	
  36

  
	
  Section 10.1.

  	
  Conditions
  Precedent to the Obligations of Buyer

  	
   

  	
  36

  
	
  Section 10.2.

  	
  Conditions
  Precedent to the Obligations of Seller

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI
  TERMINATION, AMENDMENT AND WAIVER

  	
   

  	
  38

  
	
  Section 11.1.

  	
  Termination

  	
   

  	
  38

  
	
  Section 11.2.

  	
  Effect of
  Termination

  	
   

  	
  39

  
	
  Section 11.3.

  	
  Amendment

  	
   

  	
  40

  
	
  Section 11.4.

  	
  Waiver

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
  INDEMNIFICATION

  	
   

  	
  40

  
	
  Section 12.1.

  	
  Survival

  	
   

  	
  40

  
	
  Section 12.2.

  	
  Seller’s
  Indemnification Obligations

  	
   

  	
  40

  
	
  Section 12.3.

  	
  Buyer’s
  Indemnification Obligations

  	
   

  	
  41

  
	
  Section 12.4.

  	
  Net Amounts

  	
   

  	
  42

  
	
  Section 12.5.

  	
  Indemnification
  Proceedings

  	
   

  	
  42

  
	
  Section 12.6.

  	
  Indemnification
  Exclusive Remedy

  	
   

  	
  43

  
	
  Section 12.7.

  	
  Limited to
  Actual Damages

  	
   

  	
  43

  
	
  Section 12.8.

  	
  Indemnification
  Despite Negligence

  	
   

  	
  43

  
	
  Section 12.9.

  	
  Limits on
  Liability

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII
  REGISTRATION REQUIREMENTS

  	
   

  	
  43

  
	
  Section 13.1.

  	
  Definitions

  	
   

  	
  43

  
	
  Section 13.2.

  	
  Registration
  of Buyer Common Stock

  	
   

  	
  44

  
	
  Section 13.3.

  	
  Obligations
  of the Buyer

  	
   

  	
  44

  
	
  Section 13.4.

  	
  Expense of
  Registration

  	
   

  	
  45

  
	
  Section 13.5.

  	
  Indemnification

  	
   

  	
  45

  
	
  Section 13.6.

  	
  Rule 144

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIV
  MISCELLANEOUS MATTERS

  	
   

  	
  47

  
	
  Section 14.1.

  	
  Notices

  	
   

  	
  47

  
	
  Section 14.2.

  	
  Entire
  Agreement

  	
   

  	
  48

  
	
  Section 14.3.

  	
  Injunctive
  Relief

  	
   

  	
  48

  
	
  Section 14.4.

  	
  Binding
  Effect; Assignment; No Third Party Benefit

  	
   

  	
  48

  
	
  Section 14.5.

  	
  Severability

  	
   

  	
  48

  
	
  Section 14.6.

  	
  GOVERNING
  LAW

  	
   

  	
  48

  

 

iii

 

	
  Section 14.7.

  	
  Counterparts

  	
   

  	
  49

  
	
  Section 14.8.

  	
  WAIVER OF
  CONSUMER RIGHTS

  	
   

  	
  49

  
	
  Section 14.9.

  	
  Like-Kind
  Exchange

  	
   

  	
  49

  
	
  Section 14.10.

  	
  Joinder

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XV
  DEFINITIONS AND REFERENCES

  	
   

  	
  50

  
	
  Section 15.1.

  	
  Certain
  Defined Terms

  	
   

  	
  50

  
	
  Section 15.2.

  	
  Certain
  Additional Defined Terms

  	
   

  	
  54

  
	
  Section 15.3.

  	
  References,
  Titles and Construction

  	
   

  	
  55

  

 

	
  Exhibits:

  
	
   

  	
   

  
	
  Exhibit A

  	
  Wells

  
	
  Exhibit B

  	
  Leases

  
	
  Exhibit C

  	
  Excluded Assets

  
	
  Exhibit D

  	
  Form of Transition
  Agreement

  
	
  Exhibit E

  	
  Form of Assignment

  
	
  Exhibit F

  	
  Form of Deed

  
	
  Exhibit G

  	
  Form of
  Non-Foreign Affidavit

  
	
   

  
	
  Schedules:

  
	
   

  
	
  Schedule 1.3(a)

  	
  Vehicles

  
	
  Schedule 2.2(a)(vi)

  	
  Lease Extensions

  
	
  Schedule 2.4(a)

  	
  Active Wells

  
	
  Schedule 2.4(b)

  	
  Wells being Drilled

  
	
  Schedule I

  	
  Allocated Values

  
	
  Seller Disclosure
  Schedule

  
			

 

iv

 

ASSET
PURCHASE AND SALE AGREEMENT

 

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

 

RECITALS:

 

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

 

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

 

AGREEMENT:

 

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

 

ARTICLE I

Purchase and Sale

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

Section 1.3.           Other Assets.

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

ARTICLE II

Purchase Price

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 2.3.           Adjustments to Buyer Common Stock.

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

Section 2.5.           Closing and Post-Closing Accounting Settlements.

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

10

 

ARTICLE III

THE CLOSING

 

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

 

ARTICLE IV

Representations and Warranties of Seller

 

Seller hereby represents and warrants to Buyer as
follows:

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

13

 

Section 4.13.        Taxes.

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 4.16.        Equipment and Personal Property.

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

16

 

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

 

ARTICLE V

Representations and Warranties of Buyer

 

Buyer hereby represents and warrants to Seller as
follows:

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

Section 5.9.           SEC Reports; Financial Statements.

 

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

 

18

 

regulations of the SEC
thereunder, and (iii) did not, at the time they were filed (except to the
extent corrected by a subsequently filed Buyer SEC Report), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Buyer is
unaware of any fact or circumstance that could materially impair or prohibit
the filing of the Registration Statement with the SEC as contemplated by this
Agreement.

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

ARTICLE VI

Certain Covenants of Seller Pending Closing

 

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

 

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

 

20

 

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

 

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

 

Section 6.4.                                Restrictions on Certain
Actions.  From the date hereof until Closing, except (x) as
set forth in Seller’s development plan attached as Section 6.3 of the
Seller Disclosure Schedule, (y) for the completion of the Wells listed on Schedule 2.4(a),
and (z) for the drilling and completion of the Wells listed on Schedule 2.4(b),
Seller will not, without Buyer’s prior written consent, in connection with any
Oil and Gas Asset:

 

21

 

(a)                                  expend any funds in
excess of $150,000, or make any commitments to expend funds in excess of
$150,000 (including entering into new agreements which would obligate Seller to
expend funds), or otherwise incur any other obligations or liabilities in
excess of $150,000, other than to pay expenses or to incur liabilities in
connection with routine operation of such Oil and Gas Asset and except in the
event of an emergency requiring immediate action to protect life or preserve
such Oil and Gas Asset;

 

(b)                                 except where necessary
to prevent the termination of a Lease or other material agreement governing
Seller’s interest in an Oil and Gas Asset, propose the drilling of any
additional wells, or propose the deepening, plugging back or reworking of any
existing Wells, or propose the conducting of any other operations which require
consent under the applicable operating agreement, or propose the conducting of
any other operations other than the normal operation of the existing Well on
any Oil and Gas Asset, or propose the abandonment of any Well on any Oil and
Gas Asset (and Seller agrees that it will advise Buyer of any such proposals
made by third parties and will respond to each such proposal made by a third
party in the manner requested by Buyer);

 

(c)                                  sell, mortgage,
pledge, transfer or abandon, or permit any Lien to be placed, on any portion of
any Oil and Gas Asset other than items of materials, supplies, machinery,
equipment, improvements or other personal property or fixtures forming a part
of an Oil and Gas Asset (and then only if the same is replaced with an item of
substantially equal suitability, free of Liens, which replacement item will
then, for the purposes of this Agreement, become part of the Oil and Gas
Assets);

 

(d)                                 release (or permit to
terminate), or modify or reduce its rights under, any Lease forming a part of
the Oil and Gas Assets, or any other material contracts binding on Seller, or
enter into any material agreements, or modify any existing production sales
contracts or enter into any new production sales contracts, except contracts
terminable by Seller with notice of 30 days or less;

 

(e)                                  voluntarily release
any drilling rig working on an Oil and Gas Asset operated by Seller;

 

(f)                                    fail to maintain
insurance coverage on the Assets in the amounts and of the types currently in
force;

 

(g)                                 fail to use Reasonable
Best Efforts to maintain in full force and effect the Leases that are capable
of producing in paying quantities;

 

(h)                                 fail to maintain all
Permits in the name of Seller affecting the Assets; or

 

(i)                                     make or change any
election or enter into any agreement with respect to Taxes that would be
binding on Buyer or the Assets after the Closing.

 

Section 6.5.                                Payment of Expenses. 
Seller
will cause all expenses (including all bills for labor, materials and supplies
used or furnished for use in connection with the Oil and Gas Assets and all
severance, production, and similar Taxes) relating to the ownership or
operation of

 

22

 

the Oil and Gas Assets
prior to the date of Closing to be promptly paid and discharged, except for
expenses disputed in good faith.

 

Section 6.6.                                Drilling Rigs. 
Seller shall not voluntarily release any of the five drilling rigs
currently contracted by Seller to drill the Oil and Gas Assets, which are the
Unit Drilling Rig Nos. 338, 341, and 361 and the Boom Drilling Rig Nos. 16 and
19, without the prior written consent of Buyer. 
Seller will promptly notify Buyer of any relevant information it
receives regarding the use of such drilling rigs.

 

ARTICLE VII

ADDITIONAL PRE-CLOSING AND POST-CLOSING
AGREEMENTS OF BOTH PARTIES

 

Section 7.1.                                Reasonable Best Efforts. 
Each party
hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
Reasonable Best Efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
Applicable Laws to consummate the transactions contemplated by this Agreement,
including (a) cooperation in determining whether any consents, approvals,
orders, authorizations, waivers, declarations, filings, or registrations of or
with any Governmental Entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (b) Reasonable Best
Efforts to obtain any such consents, approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and registrations; (c) Reasonable
Best Efforts to cause to be lifted or rescinded any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; (d) Reasonable Best
Efforts to defend, and cooperation in defending, all Proceedings challenging
this Agreement or the consummation of the transactions contemplated hereby; (e) Reasonable
Best Efforts to have Buyer selected successor operator with respect to the Oil
and Gas Assets; and (f) the execution of any additional instruments
necessary to consummate the transactions contemplated hereby.  Seller shall cause the Liens under the Senior
Credit Facility with respect to the Oil and Gas Assets to be released at
Closing.

 

Section 7.2.                                Notice of Litigation. 
Until the
Closing, (a) Buyer, upon learning of the same, shall promptly notify
Seller of any Proceeding which is commenced or threatened against Buyer and
which affects this Agreement or the transactions contemplated hereby and (b) 
Seller, upon learning of the same, shall promptly notify Buyer of any
Proceeding which is commenced or threatened against Seller which affects this
Agreement or the transactions contemplated hereby.

 

Section 7.3.                                Notification of Certain
Matters.  Until the Closing, Seller shall give prompt notice to
Buyer of:  (a) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which, to Seller’s
Knowledge, would be likely to cause any representation or warranty made by
Seller in Article IV to be untrue or inaccurate at or prior to the
Closing and (b) any failure of Seller to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by Seller
hereunder prior to the Closing.  Until
the Closing, Buyer shall give prompt notice to Seller of:  (i) the occurrence or nonoccurrence of
any event the occurrence or nonoccurrence of which, to Buyer’s Knowledge, would
be likely to cause any representation or warranty contained in Article V
to be untrue or inaccurate at or prior to the

 

23

 

Closing, and (ii) any
failure of Buyer to comply with or satisfy any covenant, condition, or
agreement to be complied with or satisfied by Buyer hereunder prior to the
Closing.  The delivery of any notice
pursuant to this Section 7.3 shall not be deemed to (x) modify
the representations or warranties hereunder of the party delivering such
notice, (y) modify the conditions set forth in Article X, or (z) limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.

 

Section 7.4.                                Fees and Expenses. 
Except as
otherwise provided herein, (a) all fees and expenses incurred in
connection with this Agreement by Seller will be borne by and paid by Seller
and (b) all fees and expenses incurred in connection with this Agreement
by Buyer will be borne by and paid by Buyer.

 

Section 7.5.                                Confidentiality; Public
Announcements.  The Confidentiality Agreement, except to the extent
provided therein or modified herein, will remain in full force and effect until
Closing.  Upon execution of this
Agreement and again upon Closing, Buyer and Seller shall have the
right to issue individual press releases that are mutually acceptable, each
party acting reasonably, with respect to this Agreement and the transactions
contemplated hereby, and Buyer shall have the right to make required filings
with respect to this Agreement and the transactions contemplated hereby with
the SEC.  Except as provided in the immediately
preceding sentence, neither Buyer nor Seller shall issue any press release or
otherwise make any statement to the public generally with respect to this
Agreement or the transactions contemplated hereby without the prior consent of
the other parties.  Upon Closing, the
Confidentiality Agreement shall be terminated, except for Buyer’s obligations
with respect to information provided thereunder relating to Seller’s Affiliates’
properties and other assets.  Following
Closing, Seller shall maintain the confidentiality of, and not disclose,
information relating to the Assets and the transactions contemplated by this
Agreement except for disclosures that would be permitted by the exceptions
applicable to Buyer in the Confidentiality Agreement. Notwithstanding the
above, nothing in this Section 7.5 will preclude any person from
making any disclosures it reasonably believes are required by Applicable Law or
stock exchange rules or necessary and proper in conjunction with the
filing of any Tax Return or other document required to be filed with any
Governmental Entity; provided that the respective party shall endeavor to allow
the other parties reasonable time to review and comment thereon in advance of
such disclosure.  After the Closing Date,
subject to any obligations Seller or Buyer may have under Applicable Law: (i) Seller
shall not disparage Buyer with respect to the Assets; and (ii) Buyer shall
not disparage Seller with respect to the Assets.

 

Section 7.6.                                Casualty Loss Prior to
Closing.  In the event of damage by fire or other casualty to
the Oil and Gas Assets after the Effective Time and prior to the Closing, and
subject to the satisfaction of the conditions precedent set forth in Section 10.1,
this Agreement shall remain in full force and effect, and (unless Buyer and
Seller shall otherwise agree) in such event, the Purchase Price will not be
adjusted, and if Seller should be entitled to make any claims under any
insurance policy with respect to such damage, Seller shall, at Seller’s
election, either collect (and when collected pay over to Buyer), or, if
assignable to Buyer,  assign to Buyer,
such claims.  For the avoidance of doubt,
it is expressly agreed by the parties that if Closing occurs, the risk of loss
to the Oil and Gas Assets as a result of a casualty loss after the Effective
Time is borne by Buyer.

 

24

 

Section 7.7.                                Governmental Bonds. 
At or
prior to the Closing, Buyer shall deliver to Seller evidence that Buyer has
completed all action necessary to permit Buyer to post bonds or other security
immediately following the Closing with all applicable Governmental Entities
meeting the requirements of such Governmental Entities to own, and where
appropriate, operate, the Oil and Gas Assets.

 

Section 7.8.                                Assumed Obligations. 
At the
Closing, Buyer shall assume and agree to pay, perform and discharge the Assumed
Obligations.

 

Section 7.9.                                Books and Records. 
At or
promptly after the termination of the Transition Agreement, Seller will deliver
to Buyer all relating Records that are a part of the Oil and Gas Assets to a
location designated by Buyer.  Buyer will
promptly reimburse Seller for all reasonable costs of shipping or transporting
such Records.  Seller (or its Affiliates)
shall have the right to have reasonable access during Buyer’s reasonable and
customary business hours to inspect and copy (at Seller’s or such Affiliate’s
expense) the Records so delivered under this Section 7.9 for the
six-year period commencing on the Closing Date.

 

Section 7.10.                         Suspended Funds. 
At
Closing, Seller shall provide to Buyer a listing showing all proceeds from
production attributable to the Wells which are then currently held in suspense
by Seller along with all available documentation related to such proceeds and
their potential owners, and shall transfer to Buyer all those suspended
proceeds (the “Suspended Proceeds”). 
Thereafter, Buyer shall be responsible for proper distribution of the
Suspended Proceeds to the parties lawfully entitled to them to the extent and
only to the extent of Suspended Proceeds.

 

Section 7.11.                         Letters-in-Lieu. 
Either at
or after the Closing (provided Buyer has given five Business Days advance
request for same) Seller shall execute and deliver letters in lieu of transfer
orders (or similar documentation) in form reasonably acceptable to Buyer and
Seller.

 

Section 7.12.                         Logos and Names. 
As soon as
practicable after the Closing, Buyer will remove or cause to be removed the
names and marks used by Seller and all variations and derivatives thereof and
logos relating thereto from the Oil and Gas Assets.

 

Section 7.13.                         Non-Solicitation of
Employees.

 

(a)                                  Neither Seller nor CEP
II shall, directly or indirectly, through any Person, firm, association or
corporation with which either is now or may hereafter become associated,
solicit for employment (or assist with such solicitation), or hire (including
employment as a full-time or part-time employee or as a consultant) any
employee of Buyer or any Person who was an employee of Buyer within the
twelve-month period preceding the date hereof. 
Buyer shall not, directly or indirectly, through any Person, firm,
association or corporation with which either is now or may hereafter become
associated, solicit for employment (or assist with such solicitation), or hire
(including employment as a full-time or part-time employee or as a consultant)
any employee of Seller or CEP II or any Person who was an employee of Seller or
CEP II within the twelve-month period preceding the date hereof, other than
Field Employees of Seller or CEP II.

 

25

 

(b)                                 Buyer shall have the
right, but not the obligation, before Closing to interview CEP II’s employees
working out of the Longview Field Office (the “Field Employees”) and to make offers to one or more of the
Field Employees to continue employment with Buyer following Closing (the “Continuing Employees”).

 

(c)                                  Seller or CEP II shall
provide COBRA continuation coverage (within the meaning of Section 4980B
of the Code and the Treasury regulations thereunder) to all individuals who are
M&A qualified beneficiaries (within the meaning assigned to such term under
Q&A-4 of Treasury regulation Section 54.4980B-9) with respect to the
transactions contemplated by this Agreement for the duration of the period to
which such individuals are entitled to such coverage.  Seller shall take any and all necessary
actions to ensure that Buyer and its affiliates are not required to provide
such continuation coverage to any such individual at any time.

 

Section 7.14.                         Transition of Operations. 
The
parties recognize that matters involving the transition of the business of
Seller to Buyer have not been fully addressed in the provisions of this
Agreement.  Therefore, the parties agree
that as a general principle, they will cooperate with each other to accomplish
an orderly transfer of the business. 
This obligation shall continue for the period of time necessary to
accomplish the orderly transition, but shall not continue after December 31,
2008.  At Closing, the parties shall
execute and deliver the Transition Agreement attached as Exhibit D
(the “Transition Agreement”).  As to
transition matters, any conflict between this Agreement and the Transition
Agreement, the terms of the Transition Agreement shall control.

 

Section 7.15.                         HSR Filing. 
The
parties agree that no reports or other documents are required to be filed under
the HSR Act concerning the transactions contemplated herein.  If the parties’ conclusion in that respect
changes, each of the parties hereto shall (a) file or cause to be filed,
as promptly as practicable, with the Federal Trade Commission and the United
States Department of Justice, all reports and other documents required to be
filed by such party under the HSR Act concerning the transactions contemplated
hereby and (b) promptly comply with or cause to be complied with any
requests by the Federal Trade Commission and the United States Department of
Justice for additional information concerning such transactions, in each case
so that the waiting period applicable to this Agreement and the transactions
contemplated hereby under the HSR Act shall expire as soon as practicable after
the execution and delivery of this Agreement. 
Each party hereto agrees to request, and to cooperate with the other
party or parties in requesting early termination of any applicable waiting
period under the HSR Act.  Buyer shall be
responsible for, and shall pay, all filing fees payable in connection with the
filings by the parties required by the HSR Act.

 

Section 7.16.                         Seller’s Maintenance of
Liquid Assets.  Between the Closing Date and March 31, 2009 and,
in the event Buyer asserts a claim or claims for indemnity against Seller on or
prior to March 31, 2009 under this Agreement, for so long thereafter as
such claim or claims for indemnity remain unresolved, CEP II and Seller shall
ensure that Seller (a) maintains its existence; (b) maintains cash
and cash equivalents of at least $20 million in the aggregate; (c) has no
material liabilities or obligations owed to any third party other than Buyer;
and (d) does not mortgage, pledge, hypothecate, or otherwise burden any of
its material assets; provided, however, that after March 31, 2009, Seller
shall be permitted to reduce its cash and cash equivalents below $20 million so
long as Seller retains sufficient cash and cash equivalents to cover
financially any unresolved claim or claims for indemnity by Buyer. CEP II
covenants and

 

26

 

agrees that it will not,
directly or indirectly, mortgage, pledge, hypothecate, or otherwise burden its
partnership interests in Seller.

 

Section 7.17.                         Financial Statements.

 

(a)                                  Seller shall use its
commercially reasonable efforts to prepare, at the sole cost and expense of
Buyer, the financial statements required by the Securities and Exchange
Commission (“SEC”) (the “Special Financial Statements”), that will
be required of Buyer by the SEC in connection with reports, registration
statements (other than the Registration Statement) and other filings to be made
by Buyer with respect to the assets to be acquired pursuant to this Agreement
with the SEC pursuant to the Securities Act, or the Exchange Act, in such form
that such statements and the notes thereto can be audited by Hein &
Associates LLP (“Seller’s Auditor”)
or Buyer’s outside auditor (“Buyer’s Auditor”).  Seller (i) shall cooperate with and
permit Buyer to reasonably participate in the preparation of the Special
Financial Statements and (ii) shall provide Buyer and its representatives
with reasonable access to the personnel of Seller who engage in the preparation
of the Special Financial Statements.

 

(b)                                 Upon the request of
Buyer, Seller shall execute and deliver or cause to be executed and delivered
to Seller’s Auditor and/or to Buyer’s Auditor such representation letters, in
form and substance customary for representation letters provided to external
audit firms by management of Seller (if the financial statements are the
subject of an audit or are the subject of a review pursuant to Statement of
Accounting Standards 100 (Interim Financial Information)), as may be reasonably
requested by Seller’s Auditor or Buyer’s Auditor, with respect to the Special
Financial Statements.  Buyer agrees that
to the extent any such representation letter is delivered by Seller’s
management, or on its behalf, Buyer shall indemnify and hold harmless Seller’s
management and provide a defense for Seller’s management with regard to the
execution, delivery or any other action related to the provision of such
representation letters to the same extent as any executive officer or director
of Buyer would be indemnified had they performed such action.

 

(c)                                  Upon the request of
Buyer, Seller shall engage Seller’s Auditor to perform an audit of the Special
Financial Statements and shall use commercially reasonable efforts to cause
Seller’s Auditor to issue unqualified opinions with respect to the Special
Financial Statements (the Special Financial Statements and related audit
opinions being hereinafter referred to as the “Audited Special Financial Statements”) and provide its written
consent for the use of its audit reports with respect to the Special Financial
Statements in reports, registration statements or other documents filed by
Buyer or any of its Affiliates under the Exchange Act or the Securities Act, as
needed.  Buyer shall reimburse Seller for
all fees charged by Seller’s Auditor with respect to the preparation and
delivery by Seller’s Auditor to Buyer of the Audited Special Financial
Statements and any other fees charged by Seller’s Auditor to facilitate Buyer’s
ongoing compliance with SEC rules and regulations.

 

(d)                                 Seller shall use its
commercially reasonable efforts to facilitate the completion of an audit by
Seller’s Auditor or Buyer’s Auditor and delivery of the Audited Special
Financial Statements to Buyer as soon as reasonably practicable, but no later
than five Business Days prior to the Closing Date.  Buyer shall reimburse Seller for all
reasonable costs and expenses incurred by Seller in complying with this Section 7.17.

 

27

 

Section 7.18.                         Further Assurances. 
From time
to time following the Closing, at the request of any party hereto and without
further consideration, the other party or parties hereto shall execute and
deliver to such requesting party such instruments and documents and take such
other action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more fully and
effectively the transactions contemplated hereby.

 

Section 7.19.                         Buyer’s Assumption of Rig
Contract.  If the Closing does not occur, Seller may assign to,
and Buyer agrees to fully assume, the August 15, 2008 contract between
Seller and Boom Drilling, LLC for the Boom Drilling Rig No. 16.

 

ARTICLE VIII

Title Matters

 

Section 8.1.                                Defensible Title.

 

(a)                                  The term “Defensible Title” means, as to the Oil and
Gas Assets, such title held by Seller that:

 

(i)                                     entitles Seller
to receive as to each Well or location set forth in Schedule I, not
less than the “Net Revenue Interest” set forth in Schedule I in the
oil, gas and associated liquid and gaseous Hydrocarbons produced, saved and
marketed from that Well or location as to the formations described on Schedule I,
except for changes or adjustments that result from the establishment of units,
changes in existing units (or the participating areas therein), or the entry
into pooling or unitization agreements after the date hereof unless made in
breach of the provisions of Section 6.3;

 

(ii)                                  obligates
Seller to bear costs and expenses relating to the maintenance, development and
operation of each Well or location set forth on Schedule I in an
amount not greater than the “Working Interest” set forth in Schedule I
as to the formations described on Schedule I, without a
proportionate increase in the Net Revenue Interest, except for changes or
adjustments that result from the establishment of units, changes in existing
units (or the participating areas therein), or the entry into pooling or unitization
agreements after the date hereof unless made in breach of the provisions of Section 6.3;
and

 

(iii)                               is free and
clear of Liens (except for Permitted Encumbrances).

 

(b)                                 The term “Permitted Encumbrances” means:

 

(i)                                     lessors’
royalties, overriding royalties, pugh clauses, unitization and pooling
designations and agreements, reversionary interests, and similar burdens to the
extent accounted for in the determination of the Net Revenue Interests set
forth in Schedule I;

 

(ii)                                  required third
party consent to assignment and preferential purchase rights with respect to
which written waivers or consents are obtained from the appropriate

 

28

 

parties prior to Closing or the appropriate
time period for asserting such rights has expired without an exercise of such
right;

 

(iii)                               all rights to
consent by, required notices to, filings with, or other actions by governmental
entities in connection with the sale or conveyance of oil and gas leases or
interest therein or the transfer of operatorship thereof if the same are
customarily obtained subsequent to such sale or conveyance;

 

(iv)                              easements,
rights-of-way, servitudes, Permits, surface leases and other rights with
respect to surface operations, and pipelines, grazing, logging, canals,
ditches, reservoirs or the like as to surface interests only; and easements for
streets, alleys, highways, pipelines, telephone lines, power lines, railways
and other easements and rights-of-way, on, over or in respect of the surface of
any of the Oil and Gas Assets;

 

(v)                                 materialmen’s,
mechanics’, tax and other similar Liens or charges arising in the ordinary
course of business incidental to construction, maintenance or operation of any
of the Oil and Gas Assets (i) if they have not been filed pursuant to law,
(ii) if filed, they have not yet become due and payable or payment is
being withheld as provided by law, or (iii) if their validity is being
contested in good faith in the ordinary course of business by appropriate
action;

 

(vi)                              Liens to be
released at Closing; and

 

(vii)                           any other Liens
or irregularities of any kind whatsoever affecting the Oil and Gas Assets of
the type usual in the area and customarily waived by a reasonably prudent
operator or accepted by a reasonably prudent purchaser, and that individually
or in the aggregate would not reasonably be expected to materially adversely
affect the title to or value of the Oil and Gas Assets, and will not prevent
Buyer, as Seller’s successor-in-interest, from receiving the proceeds of
production and that do not operate to (A) reduce the Net Revenue Interest
of Seller below that set forth on Schedule I, (B) increase the
Working Interest of Seller above that set forth on Schedule I
without a proportionate increase in the Net Revenue Interest of Seller; or (C) materially
interfere with the operation of the Oil and Gas Assets.

 

(c)                                  The term “Title Defect” means any defect in Seller’s
title to a Well or location (i) that renders its title to the Well or
location less than Defensible Title, (ii) that has attributable thereto a
Title Defect Amount in excess of $50,000 (provided, that this de minimus amount
shall not apply to Liens), and (iii) for which a notice of such Title
Defect has been timely and otherwise validly delivered.  Notwithstanding any other provision in this
Agreement to the contrary, the following matters shall not constitute, and
shall not be asserted as, a Title Defect: 
(A) defects or irregularities arising out of lack of corporate
authorization; (B) defects or irregularities that have been cured or
remedied by the applicable statutes of limitation or statutes for prescription;
(C) defects or irregularities in the chain of title consisting of the
failure to recite marital status in documents or omissions of heirship
Proceedings; (D) minor defects or irregularities in title which for a
period of five years or more have not delayed or prevented Seller (or Seller’s
predecessor) from receiving its Net Revenue Interest share of the proceeds of
production and have not caused Seller to bear a share of expenses and costs
greater than its Working Interest share from each Well or location; (E) defects
or irregularities resulting from or

 

29

 

related to probate
Proceedings or the lack thereof which defects or irregularities have been
outstanding for five years or more, and (F) defects resulting from a gap
in the chain of title of documents filed in any of the records of the BIA, BLM,
or any Indian tribe, or any other governmental depository if an appropriate
assignment has been filed in the county records.

 

(d)                                 The term “Allocated Value” means the value allocated
to each Oil and Gas Asset acceptable to each Seller and Buyer as set forth in Schedule I.

 

Section 8.2.                                Purchase Price Adjustments
for Title Defects.

 

(a)                                  No adjustment to the
Purchase Price for Title Defects (other than Liens) shall be made unless and
until the aggregate of all Title Defect Amounts exceeds one percent of the
Purchase Price, and then only to the extent and in the amount that the
aggregate of such Title Defect Amounts exceeds one percent of the Purchase
Price (it being expressly agreed that such one percent is a deductible).

 

(b)                                 Buyer shall give
Seller written notice of any Title Defect promptly after the discovery of such
Title Defect but in no event later than September 19, 2008. Such notice
shall be in writing and shall include: (x) a description of the Title
Defect, (y) the Allocated Value of the Well or location affected by the
Title Defect, and (z) the Title Defect Amount determined in good faith by
the Buyer.  With respect to a Well or
location subject to a Title Defect, the amount by which such Well or location
is impaired as a result of the existence of one or more Title Defects shall be
the “Title Defect Amount”, which
amount shall be determined as follows:

 

(i)                                     The Title
Defect Amount with respect to a Well or location shall be determined by taking
into consideration the Allocated Value of the Well or location subject to such
Title Defect, the portion of the Well or location subject to such Title Defect,
and the legal effect of such Title Defect on the Well or location affected
thereby; provided, however, that:  (A) if
such Title Defect is in the nature of Seller’s Net Revenue Interest in a Well
or location being less than the Net Revenue Interest set forth in Schedule I
and the Working Interest remains the same, then the Title Defect Amount shall
equal the Allocated Value for the relevant Well or location multiplied by the
percentage reduction in such Net Revenue Interest as a result of such Title
Defect or (B) if such Title Defect is in the nature of a Lien, then the
Title Defect Amount shall equal the amount required to fully discharge such
Lien; and

 

(ii)                                  If the Title
Defect results from any matter not described in Section 8.2(b)(i),
the Title Defect Amount shall be an amount equal to the difference between the
value of the Well or location affected by such Title Defect with such Title
Defect and the value of such Well or location without such Title Defect (taking
into account the portion of the Allocated Value of the relevant Well or
location).

 

(c)                                  Notwithstanding
anything herein to the contrary, if Seller does not cure a Title Defect on or
prior to the Closing, Seller shall have the option, by notice in writing to
Buyer on or before the Closing, to (i) keep the Well or location affected
by the Title Defect, in which event such Well or location shall become an
Excluded Asset and the Cash Consideration shall be reduced by the Allocated
Value of the affected Well or location, (ii) take no remedial or
corrective action with respect to the Title Defect, in which event Seller
agrees to indemnify

 

30

 

Buyer against all
costs and expenses that Buyer may incur in connection with same, (iii) convey
the Well or location affected by the Title Defect to Buyer and, subject to Section 8.2(a),
reduce the Cash Consideration by the relevant Title Defect Amount, or (iv) attempt
to cure such defect (a “Post-Closing Title
Defect”) prior to December 31, 2008 (the “Cure Period”).

 

(d)                                 If Seller determines
(or should Buyer, in the course of Buyer’s Title Review, determine) that Seller’s
Net Revenue Interest in a Well or location is greater than the Net Revenue
Interest set forth in Schedule I, then the parties agree that the
Cash Consideration shall be increased in an amount equal to the Allocated Value
for the relevant Well multiplied by the percentage increase in such Net Revenue
Interest, except to the extent the Working Interest increases.  Buyer shall give Seller written notice of any
such title discrepancy it discovers promptly after the discovery of such title
discrepancy.

 

Section 8.3.                                Cure of Post-Closing Title
Defects.

 

(a)                                  If Seller elects to
attempt to cure a Post-Closing Title Defect during the Cure Period, the
transactions contemplated hereby will close as provided herein, but an amount
equal to the applicable Title Defect Amount to which the Post-Closing Title
Defect pertains shall be deducted from the Adjusted Purchase Price otherwise
payable at Closing and paid into an escrow account with an escrow agent
mutually agreeable to the parties.  The
amount deposited into such escrow account with respect to a Post-Closing Title
Defect will remain therein until released as provided in Section 8.3(b).

 

(b)                                 Buyer will act in good
faith and reasonably cooperate with Seller after the Closing to cure a
Post-Closing Title Defect.  If Seller and
Buyer mutually agree that a Post-Closing Title Defect has been cured, then
within two Business Days after such determination, the amount withheld in the
escrow account with respect thereto (together with any interest earned thereon)
shall be released to Seller.  If Seller
and Buyer mutually agree that a Post-Closing Title Defect has been partially
cured, then Seller and Buyer shall mutually determine the portion of the amount
retained in the escrow account with respect thereto (together with any interest
earned thereon) that should be paid to Buyer to compensate it for the uncured
portion thereof (together with interest earned thereon), and the remaining
portion of such amount shall be released to Seller (together with any interest
earned thereon).  If Seller and Buyer
mutually agree that a Post-Closing Title Defect has not been cured, then within
two Business Days after such determination, the amount withheld in the escrow
account with respect thereto (together with any interest earned thereon) shall
be released to Buyer.  If, at the end of
the Cure Period, Seller has been unable to cure a Post-Closing Title Defect
(and there is no dispute as to whether or not it has been cured), the amount
withheld in the escrow account with respect thereto (together with any interest
earned thereon) shall be released to Buyer. If, at the end of the Cure Period,
Seller and Buyer are unable to agree whether there has been a satisfactory
resolution of a Post-Closing Title Defect, then such disagreement shall be
resolved as provided in Section 8.4.

 

Section 8.4.                                Arbitration for Title
Defects.  Any alleged Title Defects for which the parties cannot
agree on a resolution within 30 days after the Closing Date shall be promptly
submitted to binding arbitration before an oil and gas lawyer chosen by the
parties.  The arbitrator shall determine
the amount by which the Allocated Value of the affected Well or location is
reduced, if any, and that amount shall be paid by Seller to Buyer, or the
difference in such amount and the amount the Cash Consideration is adjusted
under Section 8.2(c) for

 

31

 

disputed Title Defects
which are submitted to arbitration shall be paid by Buyer to Seller, as
appropriate, within five days of the decision of the arbitrator.  The arbitrator shall be bound by the
provisions of this Agreement and shall be instructed by the parties to
determine the Title Defect Amount in accordance with the provisions of this
Agreement.

 

Section 8.5.                                Waiver of Title Defects. 
Buyer
shall be deemed to have waived (a) all Title Defects of which Seller has
not been given notice by Buyer on or prior to September 19, 2008, (b) any
defect in title that does not qualify as a Title Defect, and (c) all Title
Defects that the parties agree do not meet the thresholds for an adjustment to
the Purchase Price set forth in Section 8.2(a).  Except for the special warranty of title in
the Assignment and Deed, this Article VIII shall exclusively govern
all adjustments under this Agreement for title matters relating to the Oil and
Gas Assets.

 

Section 8.6.                                Preferential Rights and
Consents.

 

(a)                                  Some of the Leases are
subject to preferential rights to purchase in favor of third parties or third
party consents to assignment as specified in Section 8.6 of the Seller
Disclosure Schedule. The form and content of all solicitations for the waivers
and consents affecting the Oil and Gas Assets shall be determined jointly by
Seller and Buyer but shall not be inconsistent with any of the terms of this
Agreement.  Seller shall deliver such
solicitations in writing to the affected third parties as soon as practicable
after the date hereof.

 

(b)                                 In the event a third
party exercises an applicable preferential right to purchase all or any portion
of an Oil and Gas Asset prior to the Closing Date, the affected Oil and Gas
Asset or portion thereof shall be removed from this Agreement and the Purchase
Price shall be reduced by the Allocated Value of such Oil and Gas Asset or
portion thereof. In the event such third party fails or refuses to close on
such preferential right within the required time of such third party’s exercise
of its preferential right, Buyer shall purchase such affected Oil and Gas
Assets covered by the preferential right for the Allocated Value as of the
Effective Time and the closing for such transaction shall take place on a
mutually acceptable date not more than 30 days following such failure or
refusal. If any preferential right to purchase any portion of the Oil and Gas
Assets is exercised after the Closing Date, such affected portion of the Oil
and Gas Assets shall not be treated as a Title Defect, and no adjustment shall
be made on account of such exercise. All Oil and Gas Assets that are subject to
preferential rights to purchase that have not been exercised as of such date
and time shall be conveyed to Buyer at the Closing. If any such preferential
right is exercised after such date and time, Buyer agrees to convey such
affected Oil and Gas Assets to the party exercising such right on the same
terms and conditions under which Seller conveyed such Oil and Gas Assets to
Buyer. In such event, Buyer shall retain all amounts paid by the party
exercising such preferential right to purchase. In the event of such exercise,
Buyer shall prepare a form of conveyance of such interest from Buyer to such
exercising party, such conveyance to be in form and substance as provided in
this Agreement, except that such conveyance shall be made free and clear of all
Liens, royalty interests, production payments and other charges or defects
created by, through or under Buyer.

 

32

 

 

ARTICLE
IX

Environmental Matters.

 

Section 9.1      Environmental Obligations.  UPON CLOSING BUYER (A) SHALL ASSUME ALL
LIABILITY AND COSTS ARISING UNDER ENVIRONMENTAL LAWS WITH REGARD TO THE OIL AND
GAS ASSETS ASSIGNED TO BUYER HEREUNDER, INCLUDING BUT NOT LIMITED TO
(I) THE LEASES, EQUIPMENT AND ANY PRODUCTION CONTAINING HAZARDOUS
MATERIALS, INCLUDING BUT NOT LIMITED TO LIABILITY AND COSTS FOR NORM,
(II) VIOLATIONS OF ENVIRONMENTAL LAWS OR PERMITS AND (III) THE
EXISTENCE OR PRESENCE OF ADVERSE PHYSICAL CONDITIONS, INCLUDING BUT NOT LIMITED
TO UNKNOWN OR ABANDONED OIL AND GAS WELLS, WATER WELLS, SUMPS AND PIPELINES
THAT MAY NOT HAVE BEEN REVEALED BY BUYER’S INVESTIGATION; AND (B) HEREBY
EXPRESSLY AGREES TO PROTECT, RELEASE, DEFEND, INDEMNIFY AND HOLD SELLER, ITS
OFFICERS, MANAGERS, MEMBERS, PARTNERS, REPRESENTATIVES, AGENTS AND ITS
EMPLOYEES FREE AND HARMLESS FROM AND AGAINST ANY AND ALL COSTS, EXPENSES,
CLAIMS, DEMANDS, LITIGATION COSTS AND ATTORNEYS FEES (TO THE EXTENT REASONABLE
IF SUCH ATTORNEYS ARE ENGAGED BY SELLER), AND CAUSES OF ACTION OF EVERY KIND
AND CHARACTER, INCLUDING BUT NOT LIMITED TO INJURIES OR DEATH TO PERSONS,
DAMAGES TO OR LOSS OF PROPERTY, ENVIRONMENTAL CLAIMS OR VIOLATIONS OF
ENVIRONMENTAL LAWS, ARISING OUT OF THE USE, OPERATION, OCCUPANCY, OCCUPATION,
RESALE OR ABANDONMENT OF THE OIL AND GAS ASSETS ASSIGNED TO BUYER HEREUNDER
REGARDLESS OF WHETHER THE CLAIM IS A RESULT OF AN ACT OR OMISSION OCCURRING OR
CONDITION EXISTING PRIOR TO OR AFTER THE CLOSING DATE. THE PARTIES ACKNOWLEDGE
AND AGREE THAT THE INDEMNITY PROVIDED FOR IN THIS SECTION 9.1
COMPLIES WITH THE EXPRESS NEGLIGENCE RULE. 
IF ANY TERM OR OTHER PROVISION OF THIS INDEMNIFICATION IS INVALID,
ILLEGAL, OR INCAPABLE OF BEING ENFORCED BY ANY RULE OF LAW OR PUBLIC
POLICY, ALL OTHER CONDITIONS AND PROVISIONS OF THIS INDEMNIFICATION SHALL
NEVERTHELESS REMAIN IN FULL FORCE AND EFFECT SO LONG AS THE ECONOMIC OR LEGAL
SUBSTANCE OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT REMAIN IN EFFECT.
BUYER REPRESENTS THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW THE
INDEMNITY PROVISION CONTAINED IN THIS SECTION 9.1, INCLUDING THE
OPPORTUNITY TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT, AND
UNDERSTANDS THE INDEMNITY OBLIGATIONS CONTAINED HEREIN.

 

Section 9.2.     Definitions of Environmental Defect.  “Environmental Defect” means, with
respect to any given Oil and Gas Asset, a violation of Environmental Laws in
effect as of the Effective Time in the jurisdiction in which such Oil and Gas
Asset is located, an obligation under Environmental Laws to complete any
corrective action at the Oil and Gas Asset (other than a corrective action that
is not required to be commenced or completed under such Environmental Laws
until after an extended period of time), or any Environmental Liability 

 

33

 

arising from or attributable to any condition, event, circumstance,
activity, practice, incident, action, or omission existing or occurring prior
to or after the Effective Time, or the use, release, storage, treatment,
transportation, or disposal of Hazardous Materials prior to or after the
Effective Time, (a) regarding which a notice has been timely and otherwise
validly delivered pursuant to the terms of this Agreement, and (b) that
has Environmental Resolution Costs attributable thereto in excess of $50,000.

 

Section 9.3.     Waiver.  BUYER HEREBY RELEASES AND WAIVES ALL CLAIMS
THAT BUYER MAY HAVE AGAINST SELLER WITH RESPECT TO THE FOLLOWING AND SHALL
INDEMNIFY SELLER AGAINST ANY CLAIMS MADE BY THIRD PARTIES WITH RESPECT THERETO
IN ACCORDANCE WITH ARTICLE XII (A) ENVIRONMENTAL DEFECTS AND
ENVIRONMENTAL CONDITIONS NOT INCLUDED IN A NOTICE TIMELY DELIVERED BY BUYER TO
SELLER PURSUANT TO SECTION 9.4; (B) ENVIRONMENTAL CONDITIONS
THAT DO NOT QUALIFY AS ENVIRONMENTAL DEFECTS, AND (C) ALL ENVIRONMENTAL
DEFECTS THAT THE PARTIES AGREE DO NOT MEET THE THRESHOLDS FOR ADJUSTMENT TO THE
PURCHASE PRICE SET FORTH IN SECTION 9.4(C) OR ARE NOT
CONSIDERED ENVIRONMENTAL DEFECTS BECAUSE THEY DO NOT MEET THE THRESHOLD SET
FORTH IN SECTION 9.2, AND (IV) ENVIRONMENTAL DEFECTS AND
ENVIRONMENTAL CONDITIONS FOR WHICH THE PARTIES HAVE OTHERWISE REACHED AGREEMENT
PRIOR TO CLOSING.  BUYER ACKNOWLEDGES
THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW THE WAIVER PROVISION
CONTAINED IN THIS SECTION 9.3, INCLUDING OPPORTUNITY TO SUBMIT THE
SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT, AND UNDERSTANDS THE RIGHTS BEING
WAIVED HEREIN.

 

Section 9.4.           Purchase Price Adjustments for Environmental
Defects.

 

(a)         On or prior to September 19, 2008,
Buyer may notify Seller in writing of any Environmental Defects and Buyer’s
estimate of the present value of the expected cost to fully and finally resolve
each Environmental Defect to Buyer’s reasonable satisfaction, employing such
commercially reasonable and cost effective means as are required to comply with
applicable requirements or otherwise avoid liability under any Environmental
Laws, and taking into account any uncertainty as to whether such costs will
actually be incurred (“Environmental
Resolution Costs”).

 

(b)        Notwithstanding anything herein to the
contrary, if Seller does not cure an Environmental Defect on or prior to the
Closing, Seller shall have the option, by notice in writing to Buyer on or
before the Closing, to (i) keep the Oil and Gas Asset affected by the
Environmental Defect, in which event such Oil and Gas Asset shall become an
Excluded Asset and the Cash Consideration shall be reduced by the Allocated
Value of the affected Oil and Gas Asset, (ii) take no remedial or
corrective action with respect to the Environmental Defect, in which event
Seller agrees to indemnify Buyer against all costs that Buyer may incur in
connection with same, (iii) convey the Oil and Gas Asset affected by the
Environmental Defect to Buyer and, subject to subsection (c) below,
reduce the Cash Consideration by the relevant Environmental Resolution Cost, or
(iv) attempt to cure such defect (a “Post-Closing
Environmental Defect”) prior to the end of the Cure Period.

 

34

 

(c)         Notwithstanding the foregoing, no
adjustment to the Purchase Price for any Environmental Defect shall be made
unless and until the aggregate Environmental Resolution Costs for all
Environmental Defects exceed one percent of the Purchase Price and then only to
the extent and in the amount that the aggregate value of such Environmental
Resolution Costs for Environmental Defects exceed one percent of the Purchase
Price (it being expressly agreed that such one percent is a deductible).

 

Section 9.5.        Cure of Post-Closing Environmental Defects.

 

(a)         If Seller elects to attempt to cure a
Post-Closing Environmental Defect during the Cure Period, the transactions
contemplated hereby will close as provided herein, but an amount equal to the
applicable Environmental Resolution Costs to which the Post-Closing
Environmental Defect pertains shall be deducted from the Adjusted Purchase
Price otherwise payable at Closing and paid into an escrow account with an
escrow agent mutually agreeable to the parties. 
The amount deposited into such escrow account with respect to a
Post-Closing Environmental Defect will remain therein until released as
provided in Section 9.5(b).

 

(b)        Buyer will act in good faith and
reasonably cooperate with Seller after the Closing to cure a Post-Closing
Environmental Defect.  If Seller and
Buyer mutually agree that a Post-Closing Environmental Defect has been cured,
then within two Business Days after such determination, the amount withheld in
the escrow account with respect thereto (together with any interest earned
thereon) shall be released to Seller.  If
Seller and Buyer mutually agree that a Post-Closing Environmental Defect has
been partially cured, then Seller and Buyer shall mutually determine the portion
of the amount retained in the escrow account with respect thereto (together
with any interest earned thereon) that should be paid to Buyer to compensate it
for the uncured portion thereof (together with interest earned thereon), and
the remaining portion of such amount shall be released to Seller (together with
any interest earned thereon).  If Seller
and Buyer mutually agree that a Post-Closing Environmental Defect has not been
cured, then within two Business Days after such determination, the amount
withheld in the escrow account with respect thereto (together with any interest
earned thereon) shall be released to Buyer. 
If, at the end of the Cure Period, Seller has been unable to cure a
Post-Closing Environmental Defect (and there is no dispute as to whether or not
it has been cured), the amount withheld in the escrow account with respect
thereto (together with any interest earned thereon) shall be released to Buyer.
If, at the end of the Cure Period, Seller and Buyer are unable to agree whether
there has been a satisfactory resolution of a Post-Closing Environmental
Defect, then such disagreement shall be resolved as provided in Section 9.6.

 

Section 9.6.     Arbitration for
Environmental Defects.  In
the event Buyer and Seller are unable to agree on the validity of the claim of
the Environmental Defect or on an estimate of Environmental Resolution Costs or
before 30 days after the Closing Date, either of the parties shall submit the
matter for arbitration to an independent qualified and recognized environmental
professional chosen by the parties (the “Environmental Arbitrator”)
within 60 days of the Closing Date.  The
Environmental Arbitrator shall determine the amount by which the Cash
Consideration shall be adjusted for the affected Oil and Gas Asset, if any, and
that amount shall be paid by Seller to Buyer within five days of the decision
of the Environmental Arbitrator.  The
arbitration shall be conducted in Denver, Colorado, and, if requested by the
Environmental Arbitrator or by either Seller or Buyer, shall be conducted
pursuant to the Commercial Arbitration Rules (“CAR”)
of the AAA then in effect.  The
Environmental Arbitrator shall 

 

35

 

resolve the dispute by means of written findings of fact and
conclusions of law within 30 days after the hearing is closed.  In addition, and notwithstanding the CAR or
choice-of-law principles of any jurisdiction, the arbitrators shall be bound by
and shall resolve any dispute in accordance with the substantive law of the
State of Texas, federal law as enunciated by the federal courts situated in the
Fifth Circuit, and all Texas rules relating to the admissibility of
evidence, including, without limitation, all relevant privileges and the
attorney work product doctrine but referring to the law of the jurisdictions
where the disputed Environmental Defects arise as necessary to determine the
nature and extent of such Environmental Defects.  The arbitrators’ award
shall be final, nonappealable and binding upon the parties, subject only to the
provisions of  9 U.S.C. § 10, and may be entered as a judgment in any
court of competent jurisdiction.

 

Section 9.7.     Limitations.  NOTWITHSTANDING ANYTHING TO THE CONTRARY,
THIS ARTICLE IX IS INTENDED TO BE THE SOLE AND EXCLUSIVE REMEDY
THAT BUYER SHALL HAVE AGAINST SELLER WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE
RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT
OR PROTECTION OF THE ENVIRONMENT OR HEALTH AND SAFETY. EXCEPT AS SET FORTH IN ARTICLE IX,
BUYER HEREBY RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR IN EQUITY,
INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL CLAIMS, KNOWN OR UNKNOWN, WHETHER
NOW EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR OTHERWISE, AGAINST SELLER
WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE
RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR
HEALTH AND SAFETY. BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE AND WILL MAKE NO
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS OR ENVIRONMENTAL CLAIMS, THE RELEASE OF MATERIALS INTO THE
ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR HEALTH AND SAFETY. EXCEPT AS
SET FORTH IN ARTICLE IX, BUYER HEREBY AGREES TO ASSUME THE RISK
THAT THE OIL AND GAS ASSETS MAY CONTAIN WASTE MATERIALS, INCLUDING NORM OR
HAZARDOUS SUBSTANCES, AND THAT ADVERSE PHYSICAL CONDITIONS, INCLUDING THE
PRESENCE OF UNKNOWN ABANDONED OIL AND GAS WELLS, WATER WELLS, SUMPS AND
PIPELINES, MAY NOT HAVE BEEN REVEALED BY BUYER’S INVESTIGATION.

 

ARTICLE
X

Conditions Precedent to the Obligations
of the Parties

 

Section 10.1.       Conditions Precedent to the Obligations of Buyer.  The obligations of Buyer under this Agreement
are subject to each of the following conditions being met:

 

(a)         Each of the representations and warranties
of Seller contained in Article IV shall be true and correct as of
the date made and (having been deemed to have been made again on and as of the
Closing Date in the same language) on and as of the Closing Date as if made on
and as of such date, except (i) as affected by transactions contemplated
or permitted by this Agreement, (ii) to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such 

 

36

 

specified date, and (iii) any
such inaccuracies or breaches which, in the aggregate, have not had or could
not reasonably be expected to have, a Material Adverse Effect, without giving
effect to any materiality qualifier in such representations and warranties.

 

(b)                         Seller shall have
performed and complied in all material respects with (or compliance therewith
shall have been waived by Buyer) each and every covenant, agreement and
condition required by this Agreement to be performed or complied with by Seller
prior to or at the Closing.

 

(c)                          Seller shall have
delivered a certificate executed by the president of Seller dated the Closing
Date, representing and certifying in such detail as Buyer may reasonably
request that the conditions set forth in subsections (a) and (b) above
have been fulfilled.

 

(d)                         No Proceeding
(excluding any Proceeding initiated by Buyer or any of its Affiliates) shall,
on the Closing Date, be pending or threatened before any Governmental Entity
seeking to restrain, prohibit, or obtain damages or other relief in connection
with the consummation of the transactions contemplated by this Agreement.

 

(e)                          Provided a filing is
made pursuant to Section 7.15, all applicable waiting periods
specified under the HSR Act with respect to the transactions contemplated by
this Agreement shall have terminated.

 

(f)                            Buyer shall have
received a release of Liens with respect to the Oil and Gas Assets, executed in
recordable form by the Senior Lender, and in form and substance agreeable to
Buyer.

 

(g)                         Buyer shall have
received an assignment of the Oil and Gas Assets executed and delivered by
Seller, which assignment shall be substantially in the form of the instrument
attached as Exhibit E in all material respects (the “Assignment”).

 

(h)                         Buyer shall have
received a deed conveying certain of the Oil and Gas Assets executed and
delivered by Seller, which deed shall be substantially in the form of the
instrument attached as Exhibit F in all material respects (the “Deed”).

 

(i)                             Buyer shall have
received a certificate of non-foreign status in the form attached as Exhibit G,
executed and delivered by Seller pursuant to Section 1445 of the Code and
the regulations promulgated thereunder.

 

(j)                             Each Person on behalf
of whom a certificate representing Buyer Common Stock is to be delivered to
Seller at Closing pursuant to Section 2.6(c) or Selling Member
shall have provided to Buyer a representation in a form reasonably satisfactory
to Buyer (i) with respect to the matters set forth in Section 4.21
and (ii) such additional information as Buyer may reasonably require to
include the shares of Buyer Common Stock to be received by such Person in the
Registration Statement.

 

(k)                          Buyer shall have
received all other agreements, instruments and documents which are required by
other terms of this Agreement to be executed or delivered by Seller or any
other party to Buyer prior to or in connection with the Closing.

 

37

 

Section 10.2.       Conditions Precedent to the Obligations of Seller.  The obligations of Seller under this
Agreement are subject to each of the following conditions being met:

 

(a)         Each of the representations and
warranties of Buyer contained in this Agreement shall be true and correct as of
the date made and (having been deemed to have been made again on and as of the
Closing Date in the same language) on and as of the Closing Date, except (i) as
affected by transactions permitted by this Agreement, (ii) to the extent
that any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct as
of such specified date, and (iii) any such inaccuracies or breaches which,
in the aggregate, have not had or could not reasonably be expected to have, a
Material Adverse Effect, without giving effect to any materiality qualifier in
such representations and warranties.

 

(b)        Buyer shall have performed and complied
in all material respects with (or compliance therewith shall have been waived
by Seller) each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by Buyer prior to or at the Closing.

 

(c)         No Proceeding (excluding any Proceeding
initiated by Seller or any of its Affiliates) shall, on the Closing Date, be
pending or threatened before any Governmental Entity seeking to restrain,
prohibit, or obtain damages or other relief in connection with the consummation
of the transactions contemplated by this Agreement.

 

(d)        Provided a filing is made pursuant to Section 7.15,
all applicable waiting periods specified under the HSR Act with respect to the
transactions contemplated by this Agreement shall have terminated.

 

(e)         Seller shall have received a draft copy
of the Registration Statement, in form and substance reasonably acceptable to
Seller.

 

(f)         Seller shall have received all other
agreements, instruments and documents which are required by other terms of this
Agreement to be executed or delivered by Buyer or any other party to Seller
prior to or in connection with the Closing.

 

(g)        Seller shall have received an instrument
evidencing the assumption by Buyer of the Assumed Obligations, in form and
substance reasonably acceptable to Seller.

 

ARTICLE
XI

Termination, Amendment and Waiver

 

Section 11.1.        Termination.  This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:

 

(a)         by mutual written consent of Seller and
Buyer; or

 

(b)        by either Seller or Buyer, if:

 

(i)         the Closing shall not
have occurred on or before 5:00 p.m., local Denver, Colorado time, on October 15,
2008, unless such failure to close shall be due to a breach 

 

38

 

of
this Agreement by the party seeking to terminate this Agreement pursuant to
this clause (i) or due to the continued pendency of an
applicable waiting period under the HSR Act; or

 

(ii)           there shall be any
statute, rule, or regulation that makes consummation of the transactions
contemplated hereby illegal or otherwise prohibited or a Governmental Entity
shall have issued an order, decree, or ruling or taken any other action
permanently restraining, enjoining, or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling, or other
action shall have become final and nonappealable; or

 

(c)         by Buyer or Seller, if, on September 30,
2008, the sum of (i) the aggregate uncured Title Defect Amounts and (ii) the
aggregate uncured Environmental Resolution Costs exceeds ten percent of the
Purchase Price; or

 

(d)        by Seller, if (i) there shall be a
breach of any representation and warranty of Buyer contained in Article V,
other than any such breaches which, in the aggregate, have not had or could not
reasonably be expected to have a Material Adverse Effect, without giving effect
to any materiality qualifier in such representations and warranties, or (ii) there
shall be a material breach by Buyer of any of its covenants and agreements
contained in this Agreement, which breach, in the case of clause (i) or
clause (ii), is not capable of being cured or, if it is capable of
being cured, has not been cured by the 10th Business Day following
written notice to Buyer from Seller of such breach; or

 

(e)         by Buyer, if (i) there shall be a
breach of any representation and warranty of Seller contained in Article IV,
other than any such breaches which, in the aggregate, have not had or could not
reasonably be expected to have a Material Adverse Effect, without giving effect
to any materiality qualifier in such representations and warranties, or (ii) there
shall be a material breach by Seller of any of its covenants and agreements
contained in this Agreement, which breach, in the case of clause (i) or
clause (ii), is not capable of being cured or, if it is capable of
being cured, has not been cured by the 10th Business Day following
written notice to Seller from Buyer of such breach.

 

Section 11.2.        Effect of Termination.  In the event of the termination of this
Agreement pursuant to Section 11.1 by Seller or Buyer, written
notice thereof shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Article XI, in Sections 7.4, 7.5,
7.13, 7.19, and 11.2 and in Article XIV, and
the indemnification provided in Sections 6.2 and 6.3 shall
survive the termination hereof.  If this
Agreement is terminated by Seller pursuant to (i) Section 11.1(b)(i) (and
Buyer is in material breach of this Agreement) or (ii) Section 11.1(d),
Seller shall be entitled to retain the Deposit as liquidated damages.  Such remedy shall be Seller’s sole and
exclusive remedy for any breach or failure hereunder by Buyer, and all other
remedies are hereby expressly waived by Seller. 
Seller and Buyer agree upon the Deposit as liquidated damages due to the
difficulty and inconvenience of measuring actual damages and the uncertainty
thereof, and Seller and Buyer agree that such amount is a reasonable estimate
of Seller’s loss in the event of any such failure by Buyer.  If this Agreement is terminated under Section 11.1
for any other reason, the Deposit shall be returned to Buyer.  If this Agreement is terminated by Buyer
pursuant to (A) Section 11.1(b)(i) (and Seller is 

 

39

 

in material breach of this Agreement), or (B) Section 11.1(e),
Buyer shall be entitled to pursue all remedies available at law or in equity.

 

Section 11.3.    Amendment.  This Agreement may not be amended except by
an instrument in writing signed by or on behalf of all the parties hereto.

 

Section 11.4.    Waiver.  Seller, on the one hand, or Buyer, on the
other, may:  (i) waive any
inaccuracies in the representations and warranties of the other contained
herein or in any document, certificate, or writing delivered pursuant hereto,
or (ii) waive compliance by the other with any of the other’s agreements
or fulfillment of any conditions to its own obligations contained herein.  Any agreement on the part of a party hereto
to any such waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party.  No
failure or delay by a party hereto in exercising any right, power, or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power, or privilege.

 

ARTICLE XII

Survival of Representations, Warranties
and Covenants; Indemnification

 

Section 12.1.        Survival.

 

(a)         The representations and warranties of
the parties hereto contained in this Agreement shall terminate at Closing
except that the representations made by Seller pursuant to Article IV,
and the representations and warranties made by Buyer pursuant to Article V
shall survive the Closing and shall remain in effect thereafter for the period
that an Indemnified Party is entitled to indemnification based on a breach of
such representation or warranty contained in this Article XII.  The covenants of the parties hereto contained
in this Agreement shall survive the Closing and shall remain in effect
thereafter for the period that an Indemnified Party is entitled to
indemnification based on a violation of such covenant contained in this Article XII.

 

(b)        No party hereto shall have any
indemnification obligation pursuant to this Article XII or
otherwise unless (i) it shall have received from the party seeking
indemnification written notice of the existence of the claim for or in respect
of which indemnification is being sought and (ii) if applicable, such
notice is received on or before the Survival Date.  Such notice shall set forth with reasonable
specificity (i) the basis under this Agreement, and the facts that
otherwise form the basis of such claim, (ii) the estimate of the amount of
such claim (which estimate shall not be conclusive of the final amount of such
claim) and an explanation of the calculation of such estimate, including a
statement of any significant assumptions employed therein, and (iii) the
date on and manner in which the party delivering such notice became aware of
the existence of such claim.

 

Section 12.2.    Seller’s Indemnification Obligations.  Seller shall, on the date of Closing, agree
(and, upon delivery to Buyer of the Assignment and the Deed, shall be deemed to
have agreed), subject to the limitations and procedures contained in this Article XII,
following the Closing, to indemnify and hold Buyer, its Affiliates and its and
their respective successors and permitted assigns and all of their respective
stockholders, partners, members, managers, directors, officer, employees,
agents and representatives harmless from and against any and all claims,
obligations, actions, liabilities, damages or expenses (collectively, “Buyer’s Losses”):

 

40

 

(a)         resulting from a breach of any of the
representations made by Seller in Article IV;

 

(b)        relating to the Excluded Assets;

 

(c)         resulting from a breach by Seller of
any post-Closing covenant of Seller;

 

(d)        relating to the payment of all operating
expenses and capital expenditures related to the Oil and Gas Assets and
attributable to Seller’s ownership and operation of the Oil and Gas Assets
prior to the Effective Time, including without limitation claims under any
joint interest audit, except as provided otherwise under Section 2.4;

 

(e)         relating to the payment of all drilling
costs to drill and sidetrack the wells listed on Schedule 2.4(a),
regardless of when such drilling costs are incurred by Seller;

 

(f)         arising out of third party claims for
personal injury prior to the Effective Time; or

 

(g)        arising out of third party claims for
royalties and Taxes attributable to Seller’s ownership of the Oil and Gas
Assets prior to the Effective Time;

 

provided, however, that Seller’s indemnification
obligations for Buyer’s Losses under Section 12.2(a), Section 12.2(c),
Section 12.2(d),  Section 12.2(e) ,
Section 12.2(f) and Section 12.2(g) shall
expire on March 31, 2009 (the “Survival Date”),
except for Buyer’s Losses for which a notice is received by Seller as provided
in this Agreement prior to such date.  It
is expressly agreed and understood by the parties that after the Survival Date,
the only indemnification obligations of Seller pursuant to this Agreement shall
be pursuant to Section 12.2(b).

 

Section 12.3.    Buyer’s Indemnification Obligations.  Buyer shall, on the date of Closing, agree
(and, upon delivery to Buyer of the Assignment and the Deed, shall be deemed to
have agreed), subject to the limitations and procedures contained in this Article XII, following the Closing, to indemnify and
hold Seller, its Affiliates and its and their respective successors and
permitted assigns and all of their respective stockholders, partners, members,
managers, directors, officers, employees, agents and representatives harmless
from and against any and all claims, obligations, actions, liabilities,
damages, costs or expenses, (collectively, “Seller’s
Losses”):

 

(a)         resulting from any misrepresentation or
breach of any warranty, covenant or agreement of Buyer contained in this
Agreement or any certificate delivered by Buyer at the Closing;

 

(b)        resulting from a breach by Buyer of any
post-Closing covenant of Buyer; or

 

(c)         relating to the Assumed Obligations;

 

provided, however, that Buyer’s indemnification
obligations for Seller’s Losses under Section 12.3(a) shall
expire on the Survival Date, except for Seller’s Losses for which a notice is
received by Buyer as provided in this Agreement prior to such date; and further
provided, however, that (i) Buyer’s indemnification obligations for Seller’s
Losses under Section 12.3(b) shall not expire but shall remain
in effect until such covenants have been fully performed, and 

 

41

 

(ii) Buyer’s indemnification obligations for
Seller’s Losses under Section 12.3(c) shall not expire but
shall remain in effect until all Assumed Obligations are fully satisfied.

 

Section 12.4.    Net
Amounts.  Any amounts recoverable by any
party pursuant to this Article XII with respect to any Buyer’s
Losses or Seller’s Losses, as the case may be, shall be increased by any net
tax costs to the Indemnified Party (Taxes incurred with respect to any
indemnity payment less tax benefits resulting from the circumstances serving as
the basis for such Buyer’s Loss or Seller’s Loss, as the case may be) and shall
be decreased by (i) any net tax benefit to the Indemnified Party (tax
benefits less Taxes incurred, including Taxes incurred as a result of the loss
of Tax basis resulting from the receipt of an indemnity payment), and
(ii) any insurance proceeds or other amounts relating to such Buyer’s Loss
or Seller’s Loss, as the case may be, paid to such Indemnified Party by any
Person (other than any Affiliate of such Indemnified Party) not a party to this
Agreement.  Any indemnification payment
made hereunder shall be treated for tax purposes as an adjustment to the Purchase
Price unless a different treatment is required by Applicable Law.

 

Section 12.5.    Indemnification
Proceedings.  In the event that any claim or
demand for which a party (an “Indemnifying Party”), would be liable to
another party under Section 12.2 or Section 12.3 (an “Indemnified Party”) is asserted against or sought to be collected from an Indemnified
Party by a third party, the Indemnified Party shall with reasonable promptness
notify the Indemnifying Party of such claim or demand, but the failure to so notify
the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations under this Article XII, except to the extent the
Indemnifying Party demonstrates that the defense of such claim or demand is
materially prejudiced thereby.  The Indemnifying
Party shall have 30 days from receipt of the above notice from the Indemnified
Party (in this Section 12.5, the “Notice
Period”)
to notify the Indemnified Party whether or not the Indemnifying Party desires,
at the Indemnifying Party’s sole cost and expense, to defend the Indemnified
Party against such claim or demand; provided, that the Indemnified Party is
hereby authorized prior to and during the Notice Period to file any motion,
answer or other pleading that it shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party.  If the Indemnifying
Party elects to assume the defense of any such claim or demand, the Indemnified
Party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof.  If
the Indemnifying Party elects not to assume the defense of such claim or demand
(or fails to give notice to the Indemnified Party during the Notice Period),
the Indemnified Party shall be entitled to assume the defense of such claim or
demand with counsel of its own choice, at the expense of the Indemnifying
Party.  If the claim or demand is
asserted against both the Indemnifying Party and the Indemnified Party and
based on the advice of counsel reasonably satisfactory to the Indemnifying
Party it is determined that there is a conflict of interest which renders it
inappropriate for the same counsel to represent both the Indemnifying Party and
the Indemnified Party, the Indemnifying Party shall be responsible for paying
separate counsel for the Indemnified Party; provided, however, that the
Indemnifying Party shall not be responsible for paying for more than one
separate firm of attorneys to represent all of the Indemnified Parties, regardless
of the number of Indemnified Parties.  If
the Indemnifying Party elects to assume the defense of such claim or demand,
(i) no compromise or settlement thereof may be effected by the
Indemnifying Party without the Indemnified Party’s written consent (which shall
not be unreasonably withheld) unless the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party and (ii) the
Indemnifying Party 

 

42

 

shall
have no liability with respect to any compromise or settlement thereof effected
without its written consent (which shall not be unreasonably withheld).

 

Section 12.6.    Indemnification
Exclusive Remedy.  Except as provided in Section 11.2,
indemnification pursuant to the provisions of this Article XII
shall be the exclusive remedy of the parties hereto for any misrepresentation
or breach of any warranty, covenant or agreement contained in this Agreement or
in any closing document executed and delivered pursuant to the provisions hereof
or thereof, or any other claim arising out of the transactions contemplated by
this Agreement.

 

Section 12.7.    Limited
to Actual Damages.  The indemnification obligations
of the parties pursuant to Section 2.7, Section 6.2, Section 6.3,
Section 9.1, Section 9.3, Section 9.4, Section 13.5
and this Article XII shall be limited to actual Buyer’s Losses or
Seller’s Losses, as the case may be, and shall not include incidental,
consequential, indirect, punitive, or exemplary damages, provided that any
incidental, consequential, indirect, punitive, or exemplary damages recovered
by a third party (including a Governmental Entity, but excluding any Affiliate
of any party) against a party entitled to indemnity shall be included in the
damages recoverable under such indemnity.

 

Section 12.8.    Indemnification
Despite Negligence.  It is the
express intention of the parties hereto that each party to be indemnified
pursuant to this Article XII shall be indemnified and held harmless from
and against all Buyer’s Losses or Seller’s Losses, as the case may be, as to
which indemnity is provided for under this Article XII, notwithstanding
that any such damages arise out of or result from the ordinary, strict, sole,
or contributory negligence of such party and regardless of whether any other
party (including the other parties to this Agreement) is or is not also
negligent.  The parties hereto
acknowledge that the foregoing complies with the express negligence
rule and is conspicuous.

 

Section 12.9.    Limits on Liability.

 

(a)         Notwithstanding anything
herein to the contrary, Seller shall have no obligation or liability to
indemnify Buyer under Sections 12.2(a), (f) or (g) unless
and until the aggregate amount of Buyer’s Losses exceed $2,000,000; provided,
however, that once the amount of Buyer’s Losses exceeds $2,000,000, Seller
shall have an obligation or liability to indemnify Buyer under Sections 12.2(a),
(f) or (g) only to the extent the amount of such
Buyer’s Losses exceed $2,000,000 (it being expressly agreed that such $2,000,000
is a deductible).

 

(b)        Notwithstanding anything herein to the
contrary, Seller’s obligation to indemnify Buyer under Sections 12.2(a),
(c), (d), (e), (f) or (g) shall
terminate and be of no further force and effect at such time as Buyer’s Losses
under Sections 12.2(a), (c), (d), (e), (f)or
(g) equal $20,000,000 in the aggregate, and Seller has fully
reimbursed Buyer or otherwise fully satisfied such Buyer’s Losses.

 

ARTICLE XIII

Registration Requirements

 

Section 13.1.    Definitions.
 For the purposes of this Article XIII:

 

43

 

(a)       “Damages”
means any loss, damage, or liability (joint or several) to which a party hereto
may become subject under the Securities Act, the Exchange Act, or other federal
or state law, insofar as such loss, damage, or liability (or any action in
respect thereof) arises out of or is based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; or (ii) an omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading.

 

(b)       “Form S-3”
means such form under the Securities Act as in effect on the date hereof or any
registration form under the Securities Act subsequently adopted by the SEC that
permits incorporation of substantial information by reference to other
documents filed by Buyer with the SEC.

 

(c)       “Registration
Statement”
means an automatically effective Form S-3 shelf
registration statement under the Securities Act, which shall cover resales of
Buyer Common Stock from time to time on the NYSE at prices current at the time
of sale.

 

(d)       “SEC Rule 144”
means Rule 144 promulgated by the SEC under the Securities Act.

 

Section 13.2.      Registration
of Buyer Common Stock.  Buyer understands and
acknowledges that Seller intends to distribute shares of Buyer Common Stock
constituting a portion of the Purchase Price at Closing to certain members and
beneficial owners of CEP II, which is the parent company of Seller, as
contemplated by Section 2.6(c) (the “Selling Members”).  Buyer covenants and agrees
to register the resales of the Buyer Common Stock by Seller and the Selling
Members by filing the Registration Statement, as promptly as practicable (and
in any event within three Business Days) after the Closing Date. Buyer shall
provide Seller with a reasonable opportunity to review and comment on the
Registration Statement prior to filing. 
Buyer shall have no obligation to include in the Registration Statement
shares of Buyer Common Stock of Seller or any Selling Member who has failed to
provide the information required by Section 10.1(j) or such other
information that, in the opinion of counsel to Buyer, is reasonably required in
order for the Registration Statement to comply with the Securities Act.

 

Section 13.3.      Obligations
of the Buyer.  The Buyer shall, as
expeditiously as possible:

 

(a)       use its commercially reasonable efforts
to keep the Registration Statement effective for a period expiring on the
earlier of (i) the date on which all the shares of Buyer Common Stock
registered pursuant to the Registration Statement have been sold or disposed of
pursuant to the Registration Statement, SEC Rule 144 or in a private
transaction, or (ii) one year after the Closing (the “Registration
Period”);

 

(b)       during the Registration Period, prepare
and file with the SEC such amendments and supplements to the Registration
Statement, and the prospectus used in connection with the Registration
Statement, as may be necessary to comply with the Securities Act in order to
enable the disposition of all securities covered by the Registration Statement;

 

44

 

(c)        during
the Registration Period, furnish to Seller such numbers of copies of a
prospectus, as required by the Securities Act, and such other documents as
Seller may reasonably request in order to facilitate the disposition of the
Buyer Common Stock;

 

(d)        during
the Registration Period, use its commercially reasonable efforts to register
and qualify the securities covered by the Registration Statement under such
other securities or blue-sky laws of such U.S. states as shall be reasonably
requested by Seller;

 

(e)        use
its commercially reasonable efforts to cause the Buyer Common Stock to be
approved for listing on the NYSE prior to the Closing Date, subject to official
notice of issuance;

 

(f)         during
the Registration Period, notify Seller when the Registration Statement or a
supplement to any prospectus forming a part of the Registration Statement has
been filed; and

 

(g)        after
the Registration Statement has been filed, notify Seller of any request by the
SEC that the Buyer amend or supplement the Registration Statement or
prospectus.

 

Notwithstanding anything
to the contrary contained herein, Buyer may, upon written notice to Seller and
any Selling Member whose shares of Buyer Common Stock are included in the
Registration Statement, suspend Seller and such Selling Member’s use of any
prospectus which is a part of the Registration Statement (in which event the
Seller and such Selling Member shall discontinue sales of shares of Buyer
Common Stock pursuant to the Registration Statement, but Seller and such Selling
Member may settle any such sales of shares of Buyer Common Stock) if (i) Buyer
is pursuing an acquisition, merger, reorganization, disposition or other
similar transaction and Buyer determines in good faith that Buyer’s ability to
pursue or consummate such a transaction would be materially adversely affected
by any required disclosure of such transaction in the Registration Statement or
(ii) Buyer has experienced some other material non-public event the
disclosure of which at such time, in the good faith judgment of Buyer, would
materially adversely affect Buyer; provided,
however, in no event shall Seller
and such Selling Member’s use be suspended for a period that exceeds an
aggregate of 60 days in any 180-day period or 90 days in any 365-day period. Upon
disclosure of such information or the termination of the condition described
above, Buyer shall provide prompt notice to the Seller and any Selling Members
whose shares of Buyer Common Stock are included in the Registration Statement,
shall promptly terminate any suspension of sales it has put into effect and
shall take such other actions to permit registered sales of shares of Buyer
Common Stock pursuant to the Registration Statement.

 

Section 13.4.      Expense
of Registration.  All expenses incurred by Buyer
in connection with registrations, filings, or qualifications pursuant to this Article XIII,
including all registration, filing, and qualification fees; printers’ and
accounting fees; fees and disbursements of counsel for Buyer, shall be borne
and paid by Buyer.

 

Section 13.5.      Indemnification.  With respect to the Buyer Common
Stock included in any registration statement under this Article XIII:

 

(a)        To
the extent permitted by Applicable Law, Buyer will indemnify and hold harmless
each of the Selling Members, and the Seller, its Affiliates and its and their
respective successors and permitted assigns and all of their respective
stockholders, partners, members, 

 

45

 

managers, directors, officers, employees, agents and representatives,
against any Damages, and Buyer will pay to Seller or such other aforementioned
Person any legal or other expenses reasonably incurred thereby in connection
with defending any claim or proceeding from which Damages may result, as such
expenses are incurred; provided, however, that the indemnity agreement
contained in this Section 13.5(a) shall not apply to amounts
paid in settlement of any such claim or proceeding if such settlement is
effected without the consent of Buyer, which consent shall not be unreasonably
withheld or delayed, nor shall Buyer be liable for any Damages to the extent
that they arise out of or are based upon actions or omissions made in reliance
upon and in conformity with written information furnished by or on behalf of
Seller or other aforementioned Person expressly for use in the Registration
Statement.

 

(b)        To
the extent permitted by Applicable Law, Seller will indemnify and hold harmless
Buyer, its Affiliates and its and their respective successors and permitted
assigns and all of their respective stockholders, partners, members, managers,
directors, officers, employees, agents and representatives, against any
Damages, in each case only to the extent that such Damages arise out of or are
based upon actions or omissions made in reliance upon and in conformity with
written information furnished by or on behalf of Seller or any Selling Member
expressly for use in the Registration Statement; and Seller will pay to Buyer
and each other aforementioned Person any legal or other expenses reasonably
incurred thereby in connection with defending any claim or proceeding from
which Damages may result, as such expenses are incurred; provided, however,
that the indemnity agreement contained in this Section 13.5(b) shall
not apply to amounts paid in settlement of any such claim or proceeding if such
settlement is effected without the consent of Seller, which consent shall not
be unreasonably withheld or delayed; and provided further that in no event
shall the aggregate amounts payable by Seller by way of indemnity or
contribution under this Section 13.5(b) exceed the proceeds
from the sale of shares of Buyer Common Stock received by Seller.

 

(c)        Promptly
after receipt by an indemnified party under this Section 13.5 of
notice of the commencement of any action (including any governmental action)
for which a party may be entitled to indemnification under this Article XIII,
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 13.5, give the
indemnifying party notice of the commencement thereof. The indemnifying party
shall have the right to participate in such action and, to the extent the
indemnifying party so desires, participate jointly with any other indemnifying
party to which notice has been given, and to assume the defense thereof with
counsel mutually satisfactory to the parties.

 

Section 13.6.      Rule 144.

 

(a)        With
a view to making available to Seller the benefits of SEC Rule 144 and any
other rule or regulation of the SEC that may at any time permit Seller to
sell securities of Buyer to the public without registration or pursuant to the
Registration Statement, during the Registration Period, Buyer shall make and
keep available adequate current public information, as those terms are
understood and defined in SEC Rule 144, at all times.

 

(b)        No
later than the seventh Business Day after the one year anniversary of the
Closing Date, if the shares of Buyer Common Stock have not been sold or
disposed of pursuant to the Registration Statement, SEC Rule 144 or in a
private transaction, Buyer shall use its commercially reasonable efforts to
cause its transfer agent to provide to the holders of the Buyer 

 

46

 

Common Stock who are not
affiliates of Buyer, in exchange for certificates they surrender evidencing
such shares that bear a restrictive legend, certificates evidencing like
numbers of shares that do not bear such legend.

 

ARTICLE XIV

Miscellaneous Matters

 

Section 14.1.      Notices.  All notices, requests, demands, and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing and shall be deemed to have been duly given or made
if (i) delivered personally, (ii) transmitted by first class
registered or certified mail, postage prepaid, return receipt requested,
(iii) sent by a recognized prepaid overnight courier service (which
provides a receipt), (iv) sent by facsimile or e-mail transmission, with
receipt acknowledged, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):

 

If
to Seller:

 

c/o Cordillera Energy
Partners II, LLC

8450 East Crescent Parkway, Suite 400

Greenwood Village, Colorado  80111

Attention:  George H. Solich

Fax No.:  303-290-9997

e-mail:  gsolich@cordilleraep.com

 

With
, prior to Closing, a copy to (which shall not constitute notice to Seller):

Thompson &
Knight LLP

333 Clay Street, Suite 3300

Houston, Texas  77002

Attention:  Michael K. Pierce and Sarah
E. McLean

Fax No.:  Pierce—832-397-8049 and
McLean—832-397-8062

e-mail:  michael.pierce@tklaw.com and
sarah.mclean@tklaw.com

 

If to Buyer:

Forest Oil Corporation

707 17th Street, Suite 3600

Denver, Colorado  80202

Attention:  General Counsel

Fax No.:  303-812-1445

 

47

 

With,
prior to Closing, a copy to (which shall not constitute notice to Buyer):

Vinson & Elkins
L.L.P.

666 Fifth Avenue, 26th Floor

New York, New York  10103-0040

Attention:  Shelley A. Barber and Alan P.
Baden

Fax No.:  Barber—917-849-5353 and
Baden—917-849-5337

e-mail:  sbarber@velaw.com and
abaden@velaw.com

 

Such notices, requests,
demands, and other communications shall be effective upon receipt.

 

Section 14.2.      Entire
Agreement.  This Agreement, the Seller
Disclosure Schedule, together with the Exhibits, Schedules, and other writings
referred to herein or delivered pursuant hereto, constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.

 

Section 14.3.      Injunctive
Relief.  The parties hereto acknowledge
and agree that irreparable damage would occur in the event any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.

 

Section 14.4.      Binding
Effect; Assignment; No Third Party Benefit.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and permitted assigns.  Except as otherwise expressly provided in
this Agreement, neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties. 
Except as provided in the indemnification provisions of this Agreement,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any Person other than the parties hereto, and their respective heirs,
legal representatives, successors, and permitted assigns, any rights, benefits,
or remedies of any nature whatsoever under or by reason of this Agreement.

 

Section 14.5.      Severability.  If any provision of this Agreement is held to
be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.

 

Section 14.6.      GOVERNING
LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.  ANY LITIGATION ARISING OUT OF
THIS AGREEMENT SHALL BE BROUGHT BEFORE THE COURTS 

 

48

 

SITTING
IN HARRIS COUNTY, TEXAS, AND THE PARTIES IRREVOCABLY WAIVE ANY RIGHT TO CHOOSE
OR REQUEST ANY OTHER VENUE.

 

Section 14.7.      Counterparts.  This instrument may be executed in any number
of identical counterparts, each of which for all purposes shall be deemed an
original, and all of which shall constitute collectively, one instrument.  It is not necessary that each party hereto
execute the same counterpart so long as identical counterparts are executed by
each such party hereto.  This instrument
may be validly executed and delivered by facsimile or other electronic
transmission.

 

Section 14.8.      WAIVER
OF CONSUMER RIGHTS.  BUYER AND SELLER
EACH HEREBY WAIVES ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS AND
COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS, AND
ANY SIMILAR LAW IN ANY OTHER STATE TO THE EXTENT SUCH ACT OR SIMILAR LAW WOULD
OTHERWISE APPLY.  AFTER CONSULTATION WITH
AN ATTORNEY OF THEIR OWN SELECTION, BUYER AND SELLER EACH VOLUNTARILY CONSENTS
TO THIS WAIVER.

 

Section 14.9.      Like-Kind
Exchange.  Seller and Buyer hereby agree
that this transaction may be completed as a like-kind exchange and that each
party will assist in completing the sale as a like-kind exchange.  As a like-kind exchange, Seller and Buyer
agree that Buyer, in lieu of the purchase of the Oil and Gas Assets from Seller
for the consideration provided herein, shall have the right at any time prior
to Closing to assign all or a portion of its rights under this Agreement to a
Qualified Intermediary (as that term is defined in
Section 1.1031(k)-1(g)(4)(v) of the U.S Treasury Regulations) or an
Exchange Accommodation Titleholder (as that term is defined in Rev. Proc.
2000-37, 2000-2 C.B. 308) in order to accomplish the transaction in a manner
that will comply, either in whole or in part, with the requirements of a
like-kind exchange pursuant to Section 1031 of the Code. Likewise, Seller
shall have the right at any time prior to Closing to assign all or a portion of
its rights under this Agreement to a Qualified Intermediary for the same
purpose. In the event either party assigns its rights under this Agreement
pursuant to this Section 14.9, such party agrees to notify the
other party in writing of such assignment at or before Closing. If Seller
assigns its rights under this Agreement for this purpose, Buyer agrees to
(i) consent to Seller’s assignment of its rights in this Agreement in the
form reasonably requested by the Qualified Intermediary, and (ii) pay the
portion of the Purchase Price (as may be adjusted under the terms of this
Agreement) attributable to the Oil and Gas Assets into a qualified escrow or
qualified trust account at Closing as directed in writing. If Buyer assigns its
rights under this Agreement for this purpose, Seller agrees to (i) consent
to Buyer’s assignment of its rights in this Agreement in the form reasonably
requested by Buyer’s Qualified Intermediary or Exchange Accommodation
Titleholder, (ii) refund to Buyer the Deposit previously deposited by
Buyer pursuant to this Agreement upon the Qualified Intermediary’s or Exchange
Accommodation Titleholder’s payment to Seller of a replacement Deposit in the
same amount, (iii) accept the Purchase Price (as may be adjusted under the
terms of this Agreement) for the Oil and Gas Assets from the account designated
by Buyer’s Qualified Intermediary or Exchange Accommodation Titleholder at
Closing, and (iv) at Closing, convey and assign directly to Buyer or
Buyer’s Exchange Accommodation Titleholder (as directed in writing) the Oil and
Gas Assets which are the subject of this Agreement upon satisfaction of the

 

49

 

other conditions to Closing
and other terms and conditions hereof. Seller and Buyer acknowledge and agree
that any assignment of this Agreement, shall not increase the costs, expenses
or liabilities of a party as a result of the other party’s assignment of this
Agreement to a Qualified Intermediary or Exchange Accommodation Titleholder,
shall not release either party from any of their respective liabilities and
obligations to each other under this Agreement, and that neither party
represents to the other that any particular tax treatment will be given to
either party as a result thereof.

 

Section 14.10.    Joinder.  CEP II joins in the execution and delivery of
this Agreement for the sole purpose of evidencing its agreement to Sections
7.13 and 7.16.  CEP II hereby
represents and warrants to Buyer as follows: 
(a) CEP II is a limited liability company duly formed, validly
existing, and in good standing under the laws of the State of Colorado;
(b) CEP II is duly qualified to transact business and is in good standing
in the States of Texas and Oklahoma; (c) CEP II has all requisite limited
liability company power and authority to execute, deliver, and perform this
Agreement and each other agreement, instrument, or document executed or to be
executed by CEP II in connection with the transactions contemplated hereby to
which it is a party and to consummate the transactions contemplated hereby and
thereby; and (d) the execution, delivery, and performance by CEP II of
this Agreement and each other agreement, instrument, or document executed or to
be executed by CEP II in connection with the transactions contemplated hereby
to which it is a party, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
action of CEP II.

 

ARTICLE XV

Definitions and References

 

Section 15.1.      Certain Defined Terms.  When used in this Agreement, the following
terms shall have the respective meanings assigned to them in this Section 15.1:

 

“AAA” means the American Arbitration
Association.

 

“Affiliate” means any Person directly or
indirectly controlling, controlled by or under common control with a Person.

 

“Agreed Rate” means five percent per annum
compounded quarterly.

 

“Agreement” means this Asset Purchase and
Sale Agreement, as hereafter amended or modified in accordance with the terms
hereof.

 

“Applicable Law” means any statute, law,
principle of common law, rule, regulation, judgment, order, ordinance,
requirement, code, writ, injunction, or decree of any Governmental Entity,
exclusive of Environmental Laws.

 

“Assumed Obligations” means (i) to the
extent required by Applicable Law, the obligation to (x) plug and
abandon or remove and dispose of all wells, structures, flow lines, pipelines
and other equipment, pits and holding ponds now or hereafter located on or
associated with the Oil and Gas Assets, (y) cap and bury all flow lines
and other pipelines now or hereafter located on or associated with the Oil and
Gas Assets, and (z) remedy all Environmental 

 

50

 

Liabilities with respect to the Oil and Gas Assets, including any
actual or potential NORM contamination or chloride or other contamination of
groundwater; (ii) all obligations and liabilities arising from or in
connection with any Imbalances, whether before, at, or after the Effective
Time; and (iii) without limiting the foregoing, and subject to Seller’s
indemnity obligations under Section 12.2, all costs, obligations,
and liabilities that arise under or otherwise relate to the Oil and Gas Assets,
whether before, at, or after the Effective Time (including, after the Survival
Date, obligations for which Seller provided indemnity to Buyer pursuant to this
Agreement, including Section 12.2); provided, that Assumed
Obligations does not mean or include Seller’s obligations and liabilities (x) under
the Senior Credit Facility or any amounts that may be due and owing Seller’s
officers, employees or owners or (y) with respect to the Excluded Assets.

 

“Average Price” means the average price of
West Texas Intermediate crude oil for the calendar months of July and August 2008,
as reported in Platts, less adjustments for basis differential, grade and
transportation consistent with Seller’s historical adjustments for the oil in
question.

 

“Business Day” means a day other than a
Saturday, Sunday or day on which commercial banks in the State of Colorado are
authorized or required to be closed for business.

 

“Code” means the Internal Revenue Code of
1986, or any comparable successor statute thereto, as amended.

 

“Confidentiality Agreement” means that
certain Confidentiality Agreement by and between Seller and Buyer dated June 24,
2008.

 

“Dollars”
or “$” means U.S.
Dollars.

 

“Environmental Laws” means all national,
state, municipal or local laws, rules, regulations, statutes, ordinances or
orders of any Governmental Entity pertaining to the protection of human health
or the environment, including the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. § 9601 et seq. (“CERCLA”), the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Federal
Water Pollution Control Act, as amended by the Clean Water Act, 33 U.S.C. §
1251 et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Toxic
Substances Control Act, 15 U.S.C. § 2601 et seq., the Occupational Health and
Safety Act, 29 U.S.C. §651 et seq., and any similar state or local statutes.

 

“Environmental Liabilities” means any and
all damages (including any remedial, removal, response, abatement, clean-up,
investigation and/or monitoring costs and associated legal costs) incurred or
imposed (a) pursuant to any agreement order, notice of responsibility,
directive (including directives embodied in Environmental Laws), injunctions,
judgment or similar documents (including settlements) arising out of, in
connection with, or under Environmental Laws, or (b) pursuant to any claim
by a Governmental Entity or any other Person for personal injury, property
damage, damage to natural resources, remediation, or payment or reimbursement
of response costs incurred or expended by such Governmental Entity or other

 

51

 

Person pursuant to common law or statute and related to the use or
release of Hazardous Materials.

 

“Existing Hedges” mean any Hedges affecting
the Oil and Gas Assets on the date hereof or the Closing Date.

 

“Governing Documents” means, when used with
respect to an entity, the documents governing the formation and operation of such
entity, including (i) in the instance of a corporation, the articles or
incorporation and bylaws of such corporation, (ii) in the instance of a
partnership, the partnership agreement, and (iii) in the instance of a
limited liability company, the certificate of formation and limited liability
company agreement.

 

“Governmental Entity” means any court or
tribunal in any jurisdiction (domestic or foreign) or any federal, state,
county, municipal or other governmental or quasi-governmental body, agency, authority,
department, board, commission, bureau or instrumentality.

 

“Hazardous Materials” means (i) any
substance or material that is listed, defined or otherwise designated as a
“hazardous substance” under Section 101(14) of CERCLA, (ii) any
petroleum or petroleum products, (iii) radioactive materials, urea
formaldehyde, asbestos and PCBs and (iv) any other chemical substance or
waste that is regulated by any Governmental Entity under any Environmental Law.

 

“Hedge” means any future derivative, swap,
collar, put, call, cap, option or other contract that is intended to benefit
from, relate to, or reduce or eliminate the risk of fluctuations in interest
rates, basis risk or the price of commodities, including Hydrocarbons.

 

“Hydrocarbons” means oil, gas, other liquid
or gaseous hydrocarbons, or any of them or any combination thereof, and all
products and substances extracted, separated, processed and produced therefrom.

 

“Imbalances” means gas production imbalance
attributable to substances produced and sold from the Oil and Gas Assets.

 

“Knowledge” means, with respect to Seller,
the actual knowledge of any of the executive officers of Seller and, with
respect to Buyer, the actual knowledge of any of the executive officers of
Buyer.

 

“Lease” means an oil, gas or mineral lease,
a leasehold estates, operating rights and other rights authorizing the owner
thereof to explore or drill for and produce Hydrocarbons and other minerals,
contractual rights to acquire any such of the foregoing interest, and fee
mineral, royalty and overriding royalty interest, net profits interest,
production payments and other interest payable out of Hydrocarbon production,
in each case, in which Seller has an interest.

 

“Lien” means any claim, lien, mortgage,
security interest, pledge, charge, option, right-of-way, easement,
encroachment, or encumbrance of any kind.

 

“Material Adverse Effect” means any change,
development, or effect (individually or in the aggregate) which is, or is
reasonably likely to be, materially adverse (i) to the business, assets,
results of operations or condition (financial or otherwise) of the Oil and Gas
Assets with

 

52

 

respect to Seller or Buyer with respect to Buyer, or (ii) to the
ability of a party to perform on a timely basis any material obligation under
this Agreement or any agreement, instrument, or document entered into or
delivered in connection herewith; provided, however, that the following
changes, developments or effects shall not be considered in determining whether
a Material Adverse Effect has occurred (w) the economy in general
(including any effects on the economy arising as a result of acts of
terrorism), (x) changes in Hydrocarbon commodity prices or other changes
affecting the U.S. oil and gas industry generally, (y) the announcement of
the transactions contemplated hereby, or (z) the results of Seller’s
drilling activities between the date of this Agreement and the Closing Date
with respect to reserves or production.

 

“Net Revenue Interest” means an interest
(expressed as a percentage or decimal fraction) in and to all Hydrocarbons
produced and saved from or attributable to an Oil and Gas Asset.

 

“Payout Balance” means the status, as of the
dates of Seller’s calculations, of the recovery by Seller of a cost amount
specified in the contract relating to a Well out of the revenue from such Well
where the Net Revenue Interest of Seller therein will be either increased or
reduced when such amount has been recovered.

 

“Permits” means licenses, permits, franchises,
consents, approvals, variances, exemptions, and other authorizations of or from
Governmental Entities.

 

“Person” means any individual, corporation,
partnership, limited liability company (or similar entity), joint venture,
association, joint-stock company, trust, enterprise, unincorporated
organization, or Governmental Entity.

 

“Proceedings” means all proceedings,
actions, claims, suits, investigations, and inquiries by or before any
arbitrator or Governmental Entity.

 

“Reasonable Best Efforts” means a party’s
reasonable best efforts in accordance with reasonable commercial practice.

 

“Securities Act” shall mean the Securities
Act of 1933, as amended, and all rules and regulations under such Act.

 

“Seller Disclosure Schedule” shall mean a
schedule delivered by Seller to Buyer on the date hereof which sets forth
additional information regarding the representations and warranties of Seller
contained herein and information called for hereby.

 

“Senior Credit Facility” means that certain
Credit Facility by and among Seller and its senior lenders dated June 30,
2004, as amended from time to time.

 

“Senior Lender” means the lenders party to
the Senior Credit Facility.

 

“Tax Returns” mean any return, report,
statement, form or similar statement filed with respect to any Taxes (including
any attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Taxes.

 

53

 

“Taxes” means any income taxes or similar
assessments or any sales, excise, occupation, use, ad valorem, property,
production, severance, transportation, employment, payroll, franchise, or other
tax imposed by any United States federal, state, or local (or any foreign or
provincial) taxing authority, including any interest, penalties, or additions
attributable thereto, and including any liability for any of the foregoing
items that arises as a transferee, successor, by contract or otherwise.

 

“Trading Day” means a day on which trading
in securities generally occurs on the NYSE or, if Buyer Common Stock is not
then listed on the NYSE, on the principal other United States, national or
regional securities exchange on which Buyer Common Stock is then listed or, if
Buyer Common Stock is not then listed on a United States, national or regional
securities exchange, in the principal other market on which Buyer Common Stock
is then traded.

 

“Transfer Taxes” means any state and local
transfer, sales, use, stamp, registration, or other similar Taxes.

 

“Working Interest” means the percentage of
costs and expenses attributable to the maintenance, development and operation
of an Oil and Gas Asset.

 

Section 15.2.      Certain Additional Defined Terms.  In addition to such terms as are defined in
the preamble to this Agreement and in Section 14.1, the following
terms are used in this Agreement as defined in the Articles or Sections set
forth opposite such terms:

 

	
  Defined Term

  	
   

  	
  Reference

  
	
  Accounting Dispute

  	
   

  	
  Section 2.5(c)

  
	
  Accounting Referee

  	
   

  	
  Section 2.5(c)

  
	
  Adjusted Purchase Price

  	
   

  	
  Section 2.1

  
	
  Allocated Value

  	
   

  	
  Section 8.1(d)

  
	
  Assets

  	
   

  	
  Section 1.4

  
	
  Assignment

  	
   

  	
  Section 10.1(g)

  
	
  Buyer Common Stock

  	
   

  	
  Section 2.1

  
	
  Buyer SEC Reports

  	
   

  	
  Section 5.9

  
	
  Buyer’s Losses

  	
   

  	
  Section 12.2

  
	
  CAR

  	
   

  	
  Section 9.6

  
	
  Cash Consideration

  	
   

  	
  Section 2.1

  
	
  CEP II

  	
   

  	
  Section 2.6(c)

  
	
  Closing

  	
   

  	
  Article III

  
	
  Closing Date

  	
   

  	
  Article III

  
	
  COBRA

  	
   

  	
  Section 7.13(c)

  
	
  Common Stock

  	
   

  	
  Section 5.11

  
	
  Continuing Employees

  	
   

  	
  Section 7.13(b)

  
	
  Conversion Point

  	
   

  	
  Section 1.3(b)

  
	
  Cure Period

  	
   

  	
  Section 8.2(c)

  
	
  Damages

  	
   

  	
  Section 13.1(a)

  
	
  Deed

  	
   

  	
  Section 10.1(h)

  
	
  Defensible Title

  	
   

  	
  Section 8.1(a)

  
	
  Deposit

  	
   

  	
  Section 2.6(a)

  
	
  Designated
  Pre-Effective Time Benefits

  	
   

  	
  Section 1.3(b)

  

 

54

 

	
  Defined Term

  	
   

  	
  Reference

  
	
  Effective Time

  	
   

  	
  Section 1.5

  
	
  Environmental
  Arbitrator

  	
   

  	
  Section 9.6

  
	
  Environmental Defect

  	
   

  	
  Section 9.2

  
	
  Environmental
  Resolution Cost

  	
   

  	
  Section 9.4(a)

  
	
  Exchange Act

  	
   

  	
  Section 5.9(a)

  
	
  Excluded Assets

  	
   

  	
  Section 1.4

  
	
  Field Employees

  	
   

  	
  Section 7.13(b)

  
	
  Final Settlement
  Statement

  	
   

  	
  Section 2.5(b)

  
	
  Form S-3

  	
   

  	
  Section 13.1(b)

  
	
  HSR Act

  	
   

  	
  Section 4.5

  
	
  Indemnified Party

  	
   

  	
  Section 12.5

  
	
  Indemnifying Party

  	
   

  	
  Section 12.5

  
	
  Lands

  	
   

  	
  Section 1.2(d)

  
	
  Leases

  	
   

  	
  Section 1.2(d)

  
	
  Longview Field Office

  	
   

  	
  Section 1.3(a)

  
	
  NORM

  	
   

  	
  Section 4.23

  
	
  Notice Period

  	
   

  	
  Section 12.5

  
	
  NYSE

  	
   

  	
  Section 2.1

  
	
  Oil and Gas Assets

  	
   

  	
  Section 1.2

  
	
  Other Assets

  	
   

  	
  Section 1.3(a)

  
	
  Permitted Encumbrances

  	
   

  	
  Section 8.1(b)

  
	
  Post-Closing
  Environmental Defect

  	
   

  	
  Section 9.4(b)

  
	
  Post-Closing Title
  Defect

  	
   

  	
  Section 8.2(c)

  
	
  Preliminary Settlement
  Statement

  	
   

  	
  Section 2.5(a)

  
	
  Purchase Price

  	
   

  	
  Section 2.1

  
	
  Records

  	
   

  	
  Section 1.2(g)

  
	
  Request Date

  	
   

  	
  Section 2.5(c)

  
	
  SEC

  	
   

  	
  Section 5.9

  
	
  SEC Rule 144

  	
   

  	
  Section 13.1(c)

  
	
  Seller’s Losses

  	
   

  	
  Section 12.3

  
	
  Selling Members

  	
   

  	
  Section 13.2

  
	
  Survival Date

  	
   

  	
  Section 12.2

  
	
  Suspended Proceeds

  	
   

  	
  Section 7.10

  
	
  Title Defect

  	
   

  	
  Section 8.1(c)

  
	
  Title Defect Amount

  	
   

  	
  Section 8.2(b)

  
	
  Transition Agreement

  	
   

  	
  Section 7.14

  
	
  Wells

  	
   

  	
  Section 1.2(c)

  

 

Section 15.3.      References, Titles and Construction.

 

(a)           All references in this Agreement to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Agreement unless
expressly provided otherwise.

 

55

 

(b)         Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained in such subdivisions.

 

(c)         The words “this
Agreement”, “this instrument”, “herein”, “hereof”, “hereby”, “hereunder” and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited.

 

(d)         Words in the singular
form shall be construed to include the plural and vice  versa,
unless the context otherwise requires. 
Pronouns in masculine, feminine and neuter genders shall be construed to
include any other gender.

 

(e)         Unless the context
otherwise requires or unless otherwise provided herein, the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
or restatements of such agreement, instrument or document, provided that
nothing contained in this subsection shall be construed to authorize such
renewal, extension, modification, amendment or restatement.

 

(f)          Examples shall not be construed to
limit, expressly or by implication, the matter they illustrate.

 

(g)         The word “or” is not intended to be
exclusive and the word “includes” and its derivatives means “includes, but is
not limited to” and corresponding derivative expressions.

 

(h)         No consideration shall be given to the
fact or presumption that one party had a greater or lesser hand in drafting
this Agreement.

 

(i)          Exhibits A,
B, C, D, E, F, and G, Schedules I,
1.3(a), 2.2(a)(vi), 2.4(a), 2.4(b), and the Seller
Disclosure Schedule are attached to this Agreement.  Each such Exhibit and Schedule is
incorporated herein by reference for all purposes and references to this
Agreement shall also include such Exhibit and Schedule unless the context
in which used shall otherwise require.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

 

56

 

IN
WITNESS WHEREOF, this Agreement is executed by the parties
hereto on the date set forth above.

 

	
   

  	
  SELLER:

  
	
   

  	
   

  	
   

  
	
   

  	
  CORDILLERA TEXAS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ George H. Solich

  
	
   

  	
  Name:

  	
  George H. Solich

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BUYER:

  
	
   

  	
   

  	
   

  
	
   

  	
  FOREST OIL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ H. Craig Clark

  
	
   

  	
  Name:

  	
  H. Craig Clark

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

SIGNATURE PAGE TO ASSET PURCHASE
AND SALE AGREEMENT

 

 

JOINED,
for the purposes set forth in Section 14.10, by:

	
   

  	
   

  	
   

  
	
   

  	
  CORDILLERA ENERGY PARTNERS II, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ George H. Solich

  
	
   

  	
  Name:

  	
  George H. Solich

  
	
   

  	
  Title:

  	
  President

  

 

SIGNATURE PAGE TO ASSET PURCHASE
AND SALE AGREEMENT

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