Document:

exv10w14

 

EXHIBIT 10.14+

Award
No. 00073461

INTUIT INC. 2005 EQUITY INCENTIVE PLAN GRANT AGREEMENT

Restricted Stock Unit for CEO

(Performance-Based Vesting)

Intuit Inc., a Delaware corporation (the “Company”), hereby grants you a restricted stock unit
award (“Award”) pursuant to the Company’s 2005 Equity Incentive Plan (the “Plan”), for the number
of shares of the Company’s Common Stock, $0.01 par value per share (“Common Stock”) set forth
below. Except where noted herein, all capitalized terms in this Grant Agreement (“Agreement”) that
are not defined in this Agreement have the meanings given to them in the Plan. This Award is
subject to all of the terms and conditions of the Plan, which is incorporated into this Agreement
by reference. This Agreement is not meant to interpret, extend, or change the Plan in any way, or
to represent the full terms of the Plan. If there is any discrepancy, conflict or omission between
this Agreement and the provisions of the Plan, the provisions of the Plan, as interpreted by the
Committee, shall apply.

	 	 	 	 	 
	Name of Participant:

	 	Stephen M. Bennett

	Employee ID:
	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	Number of Shares:

	 	100,000	 	 
	Date of Grant:

	 	August 25, 2006

	First Vesting Date:
	 	July 31, 2007
	Second Vesting Date:
	 	July 31, 2008

Performance Goals to Begin Time-Based Vesting: The first (1) net revenue growth and (2)
operating income growth targets attached hereto on Exhibit A (the “2007 Performance Goals”)
must be achieved between August 1, 2006 and July 31, 2007 and certified by the Compensation and
Organizational Development Committee (the “Committee”) in order for fifty percent (50%) of the
Number of Shares to vest on the First Vesting Date. The Committee will make such certification as
soon as reasonably possible after July 31, 2007 provided that no payment will be made prior to
certification. If the Committee determines that the fiscal year 2007 Performance Goals were not
met by July 31, 2007, fifty percent (50%) of the Number of Shares subject to the Award shall
terminate upon the date of such determination.

The second (1) net revenue growth and (2) operating income growth targets attached hereto on
Exhibit A (the “2008 Performance Goals”) must be achieved between August 1, 2007 and July
31, 2008 and certified by the Committee in order for the remaining fifty percent (50%) of the
Number of Shares to vest on the Second Vesting Date. The Committee will make such certification as
soon as reasonably possible after July 31, 2008 provided that no payment will be made prior to
certification. If the Committee determines that the fiscal year 2008 Performance Goals were not
met by July 31, 2008, the unvested portion of the Award shall terminate upon the date of such
determination.

	1.	 	In the event of your Termination prior to the First Vesting Date or Second Vesting Date
(each a “Vesting Date”), the following provisions will govern the vesting of this Award:

	 	(a)	 	Termination Generally: In the event of your Termination prior to a
Vesting Date for any reason other than as expressly set forth in the other subsections
of this Section 1 of the Agreement, regardless of any satisfaction of the 2007
Performance Goals and 2008 Performance Goals, this Award will terminate without having
vested as to any of the then unvested shares subject to this Award and you will have no
right or claim to anything under this Award.
	 
	 	(b)	 	Termination due to Death or Total Disability: In the event of your
Termination prior to a Vesting Date due to your death or Total Disability, this Award
will vest as to 100% of any unvested Shares on your Termination Date. For purposes of
this Award, Total Disability shall have the meaning given “total disability” in Section
5.6(a) of the Plan.

 

 

	 	(c)	 	Termination Following a Change in Control: In the event of your
Termination Following a Change in Control by the Company or its successor prior to a
Vesting Date, but on or within one year following the date of a Corporate Transaction,
you will automatically vest in 100% of the unvested Shares on your Termination Date
(subject to any reduction due to Section 4999 of the Code as provided in Section 8(c)
of your Amended and Restated Employment Agreement dated July 30, 2003). For purposes of
this Award, Termination Following a Change in Control is defined in your Amended and
Restated Employment Agreement dated July 30, 2003.
	 
	 	(d)	 	Termination due to Involuntary Termination or without Cause: In the
event of your Termination prior to the First Vesting Date due to your Involuntary
Termination or Termination without Cause, you will vest pro-rata in a percentage of the
Number of Shares equal to the number of full months of your service since the Date of
Grant divided by twenty-four months, rounded down to the nearest whole share of Intuit
Common Stock. In the event of your Termination following the First Vesting Date but
prior to the Second Vesting Date due to your Involuntary Termination or without Cause,
you will vest pro-rata in a percentage of the remaining 50% of the Number of Shares
outstanding equal to your number of full months of service since the First Vesting Date
divided by twelve months, rounded down to the nearest whole share of Intuit Common
Stock. For purposes of this Award, “Involuntary Termination” “Termination without
Cause” and “Cause” shall be defined as set forth in your Amended and Restated
Employment Agreement dated July 30, 2003.

	2.	 	Issuance of Shares under this Award: The Company will issue you the Shares subject
to this Award on the applicable Vesting Date, or as soon as reasonably possible after
certification as set forth above. In the event of vesting pursuant to
Section 1(b), (c) or (d) above, the Shares will be issued following  termination of your employment with Intuit provided that
such issuance will occur no earlier than six months and one day after the date of termination
of your employment with Intuit, except when earlier issuance would not trigger the additional
tax imposed by Section 409A of the Code. Until the date the shares are issued to you, you
will have no rights as a stockholder of the Company.
	 
	3.	 	Withholding Taxes: This Award is generally taxable for purposes of United States
federal income and employment taxes upon vesting based on the Fair Market Value on the
applicable Vesting Date. To the extent required by applicable federal, state or other law, you
shall make arrangements satisfactory to the Company for the payment and satisfaction of any
income tax, social security tax, payroll tax, payment on account or other tax related to
withholding obligations that arise under this Award and, if applicable, any sale of Shares of
the Common Stock. The Company shall not be required to issue shares of the Common Stock
pursuant to this Award or to recognize any purported transfer of shares of the Common Stock
until such obligations are satisfied. Unless otherwise agreed to by the Company and you, these
obligations will be satisfied by the Company withholding a number of shares of Common Stock
that would otherwise be issued under this Award that the Company determines has a Fair Market
Value sufficient to meet the tax withholding obligations.
	 
	 	 	You are ultimately liable and responsible for all taxes owed by you in connection with this
Award, regardless of any action the Company takes or any transaction pursuant to this section
with respect to any tax withholding obligations that arise in connection with this Award. The
Company makes no representation or undertaking regarding the treatment of any tax withholding in
connection with the grant, issuance, vesting or settlement of this Award or the subsequent sale
of any of the shares of Common Stock underlying the shares that vest. The Company does not
commit and is under no obligation to structure this Award to reduce or eliminate your tax
liability.
	 
	4.	 	Disputes: Any question concerning the interpretation of this Agreement, any
adjustments to be made thereunder, and any controversy that may arise under this Agreement,
shall be determined by the Committee in accordance with its authority under Section 4 of the
Plan. Such decision by the Committee shall be final and binding.
	 
	5.	 	Other Matters:

	 	(a)	 	The Award granted to an employee in any one year, or at any time, does not
obligate the Company or any subsidiary or other affiliate of the Company to grant an
award in any future year or in any given
amount and should not create an expectation that the Company (or any subsidiary or other
affiliate) might grant an award in any future year or in any given amount.

2

 

	 	(b)	 	Nothing contained in this Agreement creates or implies an employment contract
or term of employment or any promise of specific treatment upon which you may rely.
	 
	 	(c)	 	Notwithstanding anything to the contrary in this Agreement, the Company may
reduce your Award if you change classification from a full-time employee to a part-time
employee.
	 
	 	(d)	 	This Award is not part of your employment contract (if any) with the Company,
your salary, your normal or expected compensation, or other renumeration for any
purposes, including for purposes of computing benefits, severance pay or other
termination compensation or indemnity.
	 
	 	(e)	 	Because this Agreement relates to terms and conditions under which you may be
issued shares of Common Stock of Intuit Inc., a Delaware corporation, an essential term
of this Agreement is that it shall be governed by the laws of the State of Delaware,
without regard to choice of law principles of Delaware or other jurisdictions. Any
action, suit, or proceeding relating to this Agreement or the Award granted hereunder
shall be brought in the state or federal courts of competent jurisdiction in Santa
Clara County in the State of California.

This Agreement (including the Plan, which is incorporated by reference) constitutes the entire
agreement between you and the Company with respect to this Award, and supersedes all prior
agreements or promises with respect to the Award. Except as provided in the Plan, this Agreement
may be amended only by a written document signed by the Company and you. Subject to the terms of
the Plan, the Company may assign any of its rights and obligations under this Agreement, and this
Agreement shall be binding on, and inure to the benefit of, the successors and assigns of the
Company. Subject to the restrictions on transfer of an Award described in Section 14 of the Plan,
this Agreement shall be binding on your permitted successors and assigns (including heirs,
executors, administrators and legal representatives). All notices required under this Agreement or
the Plan must be mailed or hand-delivered, (1) in the case of the Company, to the Company at its
address set forth in this Agreement, or at such other address designated in writing by the Company
to you, and (2) in the case of you, at the address recorded in the books and records of the Company
as your then current home address.

The Company has signed this Award Agreement effective as the Date of Grant.

	 	 	 	 	 	 
	 	 	INTUIT INC.
	 	 	2632 Marine Way
	 	 	Mountain View, California 94043
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Kiran M. Patel
	 

	 	 	 	 
	 

	 	 	 	Kiran Patel, Chief Financial Officer

3exv10w1

 

EXHIBIT 10.1

AGREEMENT AND PLAN OF MERGER

by and among

TBX RESOURCES, INC.,

TBX ACQUISITION, INC.

and

EARTHWISE ENERGY, INC.

September 7, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	Article I. The Merger	 	 	1	 
	 
	 	 	 	 	 	 
	   Section 1.1
	 	The Merger	 	 	1	 
	 
	 	 	 	 	 	 
	   Section 1.2
	 	Effective Time	 	 	2	 
	 
	 	 	 	 	 	 
	   Section 1.3
	 	Effect of the Merger	 	 	2	 
	 
	 	 	 	 	 	 
	   Section 1.4
	 	Governing Documents	 	 	2	 
	 
	 	 	 	 	 	 
	   Section 1.5
	 	Directors and Officers	 	 	2	 
	 
	 	 	 	 	 	 
	   Section 1.6
	 	Tax Consequences	 	 	2	 
	 
	 	 	 	 	 	 
	Article II. Conversion of Securities; Exchange of Certificates	 	 	3	 
	 
	 	 	 	 	 	 
	   Section 2.1
	 	Conversion of Securities	 	 	3	 
	 
	 	 	 	 	 	 
	   Section 2.2
	 	Exchange of Certificates	 	 	4	 
	 
	 	 	 	 	 	 
	   Section 2.3
	 	Stock Transfer Books	 	 	6	 
	 
	 	 	 	 	 	 
	   Section 2.4
	 	Dissenters' Rights	 	 	6	 
	 
	 	 	 	 	 	 
	   Section 2.5
	 	Further Actions	 	 	7	 
	 
	 	 	 	 	 	 
	Article III. Representations and Warranties of Target	 	 	7	 
	 
	 	 	 	 	 	 
	   Section 3.1
	 	Organization and Qualification	 	 	7	 
	 
	 	 	 	 	 	 
	   Section 3.2
	 	Governing Documents; Corporate Records	 	 	7	 
	 
	 	 	 	 	 	 
	   Section 3.3
	 	Corporate Power and Authority; Vote Required	 	 	8	 
	 
	 	 	 	 	 	 
	   Section 3.4
	 	Capitalization	 	 	9	 
	 
	 	 	 	 	 	 
	   Section 3.5
	 	Subsidiaries	 	 	10	 
	 
	 	 	 	 	 	 
	   Section 3.6
	 	No Violation	 	 	10	 
	 
	 	 	 	 	 	 
	   Section 3.7
	 	Approvals	 	 	10	 
	 
	 	 	 	 	 	 
	   Section 3.8
	 	Reports; Financial Statements	 	 	11	 
	 
	 	 	 	 	 	 
	   Section 3.9
	 	Ordinary Course Operations	 	 	12	 
	 
	 	 	 	 	 	 
	   Section 3.10
	 	Absence of Litigation	 	 	12	 
	 
	 	 	 	 	 	 
	   Section 3.11
	 	Compliance with Laws	 	 	13	 
	 
	 	 	 	 	 	 
	   Section 3.12
	 	Permits	 	 	13	 
	 
	 	 	 	 	 	 
	   Section 3.13
	 	Environmental Matters	 	 	13	 
	 
	 	 	 	 	 	 
	   Section 3.14
	 	Real Property	 	 	13	 
	 
	 	 	 	 	 	 
	   Section 3.15
	 	Personal Property; Assets	 	 	14	 
	 
	 	 	 	 	 	 
	   Section 3.16
	 	Scheduled Contracts; No Default	 	 	15	 
	 
	 	 	 	 	 	 
	   Section 3.17
	 	Intellectual Property Matters	 	 	16	 
	 
	 	 	 	 	 	 
	   Section 3.18
	 	Taxes	 	 	16	 
	 
	 	 	 	 	 	 
	   Section 3.19
	 	Insurance	 	 	18	 
	 
	 	 	 	 	 	 
	   Section 3.20
	 	Employees	 	 	18	 

 i 

 

 

	 	 	 	 	 	 	 
	   Section 3.21
	 	Employee Benefit Plans	 	 	20	 
	 
	 	 	 	 	 	 
	   Section 3.22
	 	No Illegal Payments	 	 	21	 
	 
	 	 	 	 	 	 
	   Section 3.23
	 	Tax Treatment	 	 	21	 
	 
	 	 	 	 	 	 
	   Section 3.24
	 	Loans and Advances	 	 	21	 
	 
	 	 	 	 	 	 
	   Section 3.25
	 	Related-Party Transactions	 	 	21	 
	 
	 	 	 	 	 	 
	   Section 3.26
	 	Assumptions and Guaranties of Indebtedness	 	 	22	 
	 
	 	 	 	 	 	 
	   Section 3.27
	 	No Brokers	 	 	22	 
	 
	 	 	 	 	 	 
	   Section 3.28
	 	Offerings	 	 	22	 
	 
	 	 	 	 	 	 
	   Section 3.29
	 	Information Supplied	 	 	22	 
	 
	 	 	 	 	 	 
	   Section 3.30
	 	Disclosure	 	 	23	 
	 
	 	 	 	 	 	 
	Article IV. Representations and Warranties of Parent and Merger Sub	 	 	23	 
	 
	 	 	 	 	 	 
	   Section 4.1
	 	Organization and Qualification	 	 	23	 
	 
	 	 	 	 	 	 
	   Section 4.2
	 	Governing Documents; Corporate Records	 	 	23	 
	 
	 	 	 	 	 	 
	   Section 4.3
	 	Corporate Power and Authority; Vote Required	 	 	24	 
	 
	 	 	 	 	 	 
	   Section 4.4
	 	Capitalization	 	 	25	 
	 
	 	 	 	 	 	 
	   Section 4.5
	 	Subsidiaries; Merger Sub; No Prior Activities	 	 	26	 
	 
	 	 	 	 	 	 
	   Section 4.6
	 	No Violation	 	 	27	 
	 
	 	 	 	 	 	 
	   Section 4.7
	 	Approvals	 	 	28	 
	 
	 	 	 	 	 	 
	   Section 4.8
	 	SEC Filings; Financial Statements	 	 	28	 
	 
	 	 	 	 	 	 
	   Section 4.9
	 	Ordinary Course Operations	 	 	29	 
	 
	 	 	 	 	 	 
	   Section 4.10
	 	Absence of Litigation	 	 	30	 
	 
	 	 	 	 	 	 
	   Section 4.11
	 	Compliance with Laws	 	 	30	 
	 
	 	 	 	 	 	 
	   Section 4.12
	 	Permits	 	 	30	 
	 
	 	 	 	 	 	 
	   Section 4.13
	 	Environmental Matters	 	 	31	 
	 
	 	 	 	 	 	 
	   Section 4.14
	 	Oil and Gas Matters	 	 	31	 
	 
	 	 	 	 	 	 
	   Section 4.15
	 	Title to Oil & Gas Interests	 	 	32	 
	 
	 	 	 	 	 	 
	   Section 4.16
	 	Real Property	 	 	33	 
	 
	 	 	 	 	 	 
	   Section 4.17
	 	Personal Property; Assets	 	 	33	 
	 
	 	 	 	 	 	 
	   Section 4.18
	 	Scheduled Contracts; No Default	 	 	34	 
	 
	 	 	 	 	 	 
	   Section 4.19
	 	Intellectual Property Matters	 	 	35	 
	 
	 	 	 	 	 	 
	   Section 4.20
	 	Taxes	 	 	35	 
	 
	 	 	 	 	 	 
	   Section 4.21
	 	Insurance	 	 	37	 
	 
	 	 	 	 	 	 
	   Section 4.22
	 	Employees	 	 	38	 
	 
	 	 	 	 	 	 
	   Section 4.23
	 	Employee Benefit Plans	 	 	39	 
	 
	 	 	 	 	 	 
	   Section 4.24
	 	No Illegal Payments	 	 	40	 
	 
	 	 	 	 	 	 
	   Section 4.25
	 	Tax Treatment	 	 	40	 
	 
	 	 	 	 	 	 
	   Section 4.26
	 	Loans and Advances	 	 	40	 

 ii 

 

 

	 	 	 	 	 	 	 
	   Section 4.27
	 	Related-Party Transactions	 	 	41	 
	 
	 	 	 	 	 	 
	   Section 4.28
	 	Assumptions and Guaranties of Indebtedness	 	 	41	 
	 
	 	 	 	 	 	 
	   Section 4.29
	 	No Brokers	 	 	41	 
	 
	 	 	 	 	 	 
	   Section 4.30
	 	Disclosure Documents	 	 	41	 
	 
	 	 	 	 	 	 
	   Section 4.31
	 	Disclosure	 	 	42	 
	 
	 	 	 	 	 	 
	Article V. Covenants	 	 	42	 
	 
	 	 	 	 	 	 
	   Section 5.1
	 	Conduct of Business by Target Pending the Closing	 	 	42	 
	 
	 	 	 	 	 	 
	   Section 5.2
	 	Conduct of Business by Parent Pending the Closing	 	 	46	 
	 
	 	 	 	 	 	 
	   Section 5.3
	 	Cooperation	 	 	50	 
	 
	 	 	 	 	 	 
	   Section 5.4
	 	Registration Statement; Proxy Statement	 	 	50	 
	 
	 	 	 	 	 	 
	   Section 5.5
	 	Shareholders' Meetings	 	 	51	 
	 
	 	 	 	 	 	 
	   Section 5.6
	 	Access to Target Information; Confidentiality	 	 	52	 
	 
	 	 	 	 	 	 
	   Section 5.7
	 	Access to Parent Information; Confidentiality	 	 	52	 
	 
	 	 	 	 	 	 
	   Section 5.8
	 	No Solicitation of Transactions	 	 	53	 
	 
	 	 	 	 	 	 
	   Section 5.9
	 	Appropriate Action; Consents; Filings	 	 	55	 
	 
	 	 	 	 	 	 
	   Section 5.10
	 	Takeover Statutes	 	 	58	 
	 
	 	 	 	 	 	 
	   Section 5.11
	 	Public Announcements	 	 	58	 
	 
	 	 	 	 	 	 
	   Section 5.12
	 	Employee Benefit Matters	 	 	58	 
	 
	 	 	 	 	 	 
	   Section 5.13
	 	Indemnification of Directors and Officers	 	 	58	 
	 
	 	 	 	 	 	 
	   Section 5.14
	 	Tax Matters	 	 	59	 
	 
	 	 	 	 	 	 
	   Section 5.15
	 	Delivery of Interim Financial Statements	 	 	60	 
	 
	 	 	 	 	 	 
	   Section 5.16
	 	Transitional Matters	 	 	61	 
	 
	 	 	 	 	 	 
	   Section 5.17
	 	Amendment of Target Governing Documents	 	 	62	 
	 
	 	 	 	 	 	 
	   Section 5.18
	 	Exchange Listing	 	 	62	 
	 
	 	 	 	 	 	 
	   Section 5.19
	 	Affiliate Letters	 	 	62	 
	 
	 	 	 	 	 	 
	   Section 5.20
	 	Nullification of Specific Prior Agreement	 	 	62	 
	 
	 	 	 	 	 	 
	   Section 5.21
	 	Further Assurances	 	 	62	 
	 
	 	 	 	 	 	 
	Article VI. Closing Conditions	 	 	63	 
	 
	 	 	 	 	 	 
	   Section 6.1
	 	Conditions to Obligations of Each Party Under This Agreement        	 	63
	 
	 	 	 	 	 	 
	   Section 6.2
	 	Additional Conditions to
Obligations of Parent and Merger Sub       	 	64
	 
	 	 	 	 	 	 
	   Section 6.3
	 	Additional Conditions to Obligations of Target	 	 	66	 
	 
	 	 	 	 	 	 
	Article VII. Termination, Amendment and Waiver	 	 	68	 
	 
	 	 	 	 	 	 
	   Section 7.1
	 	Termination	 	 	68	 
	 
	 	 	 	 	 	 
	   Section 7.2
	 	Effect of Termination	 	 	70	 
	 
	 	 	 	 	 	 
	   Section 7.3
	 	Amendment	 	 	71	 
	 
	 	 	 	 	 	 
	   Section 7.4
	 	Waiver	 	 	71	 
	 
	 	 	 	 	 	 
	   Section 7.5
	 	Fees and Expenses	 	 	71	 

 iii 

 

 

	 	 	 	 	 	 	 
	Article VIII. General Provisions	 	 	71	 
	 
	 	 	 	 	 	 
	   Section 8.1
	 	General Survival	 	 	71	 
	 
	 	 	 	 	 	 
	   Section 8.2
	 	Notices	 	 	72	 
	 
	 	 	 	 	 	 
	   Section 8.3
	 	Definitions	 	 	73	 
	 
	 	 	 	 	 	 
	   Section 8.4
	 	Terms Defined Elsewhere	 	 	79	 
	 
	 	 	 	 	 	 
	   Section 8.5
	 	Accounting Terms	 	 	82	 
	 
	 	 	 	 	 	 
	   Section 8.6
	 	Construction and Interpretation	 	 	82	 
	 
	 	 	 	 	 	 
	   Section 8.7
	 	Descriptive Headings	 	 	83	 
	 
	 	 	 	 	 	 
	   Section 8.8
	 	Severability	 	 	83	 
	 
	 	 	 	 	 	 
	   Section 8.9
	 	Entire Agreement	 	 	83	 
	 
	 	 	 	 	 	 
	   Section 8.10
	 	Assignment; Binding Effect	 	 	83	 
	 
	 	 	 	 	 	 
	   Section 8.11
	 	Enforcement	 	 	84	 
	 
	 	 	 	 	 	 
	   Section 8.12
	 	GOVERNING LAW	 	 	84	 
	 
	 	 	 	 	 	 
	   Section 8.13
	 	Consent to Jurisdiction	 	 	84	 
	 
	 	 	 	 	 	 
	   Section 8.14
	 	Jury Trial Waiver	 	 	84	 
	 
	 	 	 	 	 	 
	   Section 8.15
	 	Disclosure	 	 	85	 
	 
	 	 	 	 	 	 
	   Section 8.16
	 	Counterparts	 	 	85	 
	 
	 	 	 	 	 	 
	EXHIBITS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Exhibit 1.2
	 	Form of Certificate of Merger	 	 	 	 
	Exhibit 6.2.3
	 	Form of Secretary's Certificate of Target	 	 	 	 
	Exhibit 6.2.4
	 	Form of Closing Certificate of Target	 	 	 	 
	Exhibit 6.2.5
	 	Form of Legal Opinion of Counsel to Target	 	 	 	 
	Exhibit 6.2.13
	 	Form of Target Shareholder Lock Up Agreement	 	 	 	 
	Exhibit 6.3.3
	 	Form of Secretary's Certificate of Parent	 	 	 	 
	Exhibit 6.3.4
	 	Form of Closing Certificate of Parent	 	 	 	 
	Exhibit 6.3.5
	 	Form of Legal Opinion of Counsel to Parent	 	 	 	 
	Exhibit 6.3.13
	 	Form of Parent Shareholder Lock Up Agreement	 	 	 	 
	 
	 	 	 	 	 	 
	SCHEDULES:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Target Diligence Letter	 	 	 	 
	Parent Diligence Letter	 	 	 	 

 iv 

 

 

AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER, dated as of September 7, 2006 (this “Agreement”),
is made and entered into by and among TBX Resources, Inc., a Texas corporation (“Parent”),
TBX Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of Parent (“Merger
Sub”), and Earthwise Energy, Inc., a Nevada corporation (“Target”). Certain
capitalized terms used herein have the meanings set forth in Section 8.3 or elsewhere in
this Agreement as described in Section 8.4.

     WHEREAS, the Board of Directors of Parent (the “Parent Board”) and the Board of
Directors of Target (the “Target Board”) have determined that it is in the best interests
of their respective shareholders for Parent to acquire Target upon the terms and subject to the
conditions set forth in this Agreement;

     WHEREAS, in furtherance of such acquisition, the Parent Board, the Target Board and the sole
director of Merger Sub have approved and declared advisable and in the best interests of their
respective shareholders this Agreement, the transactions contemplated hereby and the acquisition of
Target by Parent via a merger of Target with and into Merger Sub with Target being the surviving
corporation (the “Merger”), upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the Nevada Revised Statutes (the “NRS”), the Texas
Business Corporation Act (the “TBCA”) and, to the extent applicable, the Texas Business
Organizations Code (the “TBOC” and, together with the TBCA, to the extent either the TBOC
or the TBCA may apply, “Texas Law”);

     WHEREAS, the Parent Board and the Target Board have determined that the Merger is in
furtherance of and consistent with their respective business strategies and is in the best interest
of their respective shareholders; and

     WHEREAS, for United States federal income tax purposes, it is intended that (i) the Merger
qualify as a tax-free “reorganization” under the provisions of Section 368(a)(2)(E) of the United
States Internal Revenue Code of 1986, as amended (the “Code”); and (ii) this Agreement
constitute a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g);

     NOW, THEREFORE, in consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth in this Agreement, the parties agree as follows:

Article I.

The Merger

     Section 1.1 The Merger. At the Effective Time and upon the terms and subject to
satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with Texas
Law, Target shall be merged with and into Merger Sub. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and Target shall continue as the surviving

1

 

corporation of the Merger
(the “Surviving Corporation”). The name of the Surviving Corporation will be changed at
the Effective Time as set forth in the Certificate of Merger.

     Section 1.2 Effective Time. Unless this Agreement is terminated pursuant to
Section 7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article V, the consummation of the Merger and the closing of the transactions contemplated
by this Agreement (the “Closing”) will take place at the offices of Vial Hamilton Koch &
Knox, LLP, 1700 Pacific, Suite 2800, Dallas, Texas, 75201, as soon as practicable (but in any event
within two business days) after the satisfaction or waiver of all conditions set forth in
Article V, or at such other date and place as Parent and Target may agree, provided that
all conditions set forth in Article V have been satisfied or waived at or prior to such
date (such date on which the Closing actually occurs, the “Closing Date”). As promptly as
practicable on the Closing Date, the parties shall cause the Merger to be consummated by filing a
certificate of merger, substantially in the form of Exhibit 1.2 attached hereto (the
“Certificate of Merger”), with the Secretaries of State of the States of Texas and Nevada,
in such form as required by, and executed in accordance with, the relevant provisions of the NRS
and Texas Law (the date and time of such filing, or such later date or time as is specified in the
Certificate of Merger, is referred to herein as the “Effective Time”).

     Section 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Texas Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all
the properties, rights, privileges, powers and franchises of Target and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities, obligations and duties of Target and Merger
Sub shall become the debts, liabilities, obligations and duties of the Surviving Corporation.

     Section 1.4 Governing Documents. At the Effective Time, the articles of incorporation
and by-laws of Target, as in effect immediately prior to the Effective Time, shall automatically,
and without further action, become the articles of incorporation and by-laws of the Surviving
Corporation and thereafter will continue to be its articles of incorporation and by-laws until
further amended as provided therein and in accordance with Texas Law.

     Section 1.5 Directors and Officers. The initial directors of the Surviving
Corporation at the Effective Time shall be Timothy P. Burroughs, Sam Warren, Jeffrey C. Reynolds,
Omar E. Ortega, Miguel Nagel L., Hector Larios S., Jose Carral E., Loius H. Jones, Jr. and Steven
C. Howard, each to hold office in accordance with the articles of incorporation and by-laws of the
Surviving Corporation until his respective successor is duly elected or appointed and qualified.
The initial officers of the Surviving Corporation at the Effective Time shall be as determined by
mutual written agreement between Parent and Target prior to the Effective Date, each to hold office
in accordance with the
by-laws of the Surviving Corporation until his successor is duly elected or appointed and
qualified.

     Section 1.6 Tax Consequences. It is intended by the parties that, for United States
federal income tax purposes, the Merger qualify as a tax-free “reorganization” under the provisions
of Section 368(a)(2)(E) of the Code. The parties hereby adopt this Agreement as a “plan of
reorganization” within the meaning of Treasury Regulation Section 1.368-2(g).

2

 

Article II.

Conversion of Securities; Exchange of Certificates

     Section 2.1 Conversion of Securities.

     Section 2.1.1 Conversion of Common Stock. At the Effective Time, by virtue of
the Merger and, except as provided herein, without any action on the part of Parent, Target
or any of their respective shareholders, each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time (excluding any Dissenting Shares and any
shares of Target Common Stock held in the treasury of Target), shall be converted into the
right to receive one fully paid and non-assessable share of Parent Common Stock (the
aggregate number of shares of Parent Common Stock into which all Target Common Stock issued
and outstanding immediately prior to the Effective Time shall be converted in the Merger,
subject to and in accordance with the terms hereof and subject to adjustment as provided in
Section 2.1.6, collectively with respect to all Target Shareholders, the “Merger
Consideration”).

     Section 2.1.2 Exchange List. To assist in the accomplishment of the conversion
of Target Common Stock into Parent Common Stock pursuant to Section 2.1.1, Target
shall supply to Parent, prior to the filing of the Registration Statement, a listing of all
of Target Shareholders, including each such Target Shareholder’s address, social security
number or EIN and number of shares of Target Common Stock held of record, as well as the
number of whole shares of Parent Common Stock that such Target Shareholder will be entitled
to receive in connection with the Merger (the “Exchange List”). The Exchange List
shall contemplate no fractional shares, and in no event shall the number of shares of Parent
Common Stock comprising the Merger Consideration exceed the number of shares of Target
Common Stock set forth in the Exchange List.

     Section 2.1.3 Cancellation Generally. Immediately following the Effective
Time, all shares of Target Common Stock outstanding immediately prior to the Effective Time,
other than Dissenting Shares, shall no longer be outstanding, shall automatically be
canceled and retired and shall cease to exist, and each certificate previously representing
any such shares shall thereafter represent solely the right to receive a certificate
representing the whole number of shares of Parent Common Stock into which such shares of
Target Common Stock were converted in the Merger. Certificates previously representing
shares of Target Common Stock shall be exchanged for certificates
representing whole shares of Parent Common Stock issued in consideration therefor upon
the surrender of such certificates in accordance with the provisions of Section 2.2,
without interest. No fractional shares of Parent Common Stock shall be issued in connection
with the Merger, and in lieu thereof, any fractional interest shall be rounded up to the
nearest whole number of shares, such that the Exchange List shall contemplate only whole
shares of Parent Common Stock.

     Section 2.1.4 Cancellation of Certain Shares. Each share of Target Common Stock
held by Parent or Merger Sub, or held in the treasury of Target, immediately prior to the
Effective Time shall automatically be canceled and extinguished without any conversion
thereof, and no payment shall be made with respect thereto.

3

 

     Section 2.1.5 Merger Sub. Each share of common stock, par value $0.001 per
share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall
automatically be converted into and be exchanged for one newly and validly issued, fully
paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving
Corporation.

     Section 2.1.6 Change in Shares. Notwithstanding the foregoing, if, between the
date hereof and the Effective Time, the outstanding shares of Parent Common Stock or Target
Common Stock are changed into a different number of shares by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination, exchange of shares or
similar event, then the number of shares of Parent Common Stock comprising the Merger
Consideration shall automatically be correspondingly adjusted as appropriate to reflect such
stock dividend, subdivision, reclassification, recapitalization, split, combination,
exchange of shares or similar event.

     Section 2.2 Exchange of Certificates.

     Section 2.2.1 Exchange Agent. As of the Effective Time, Parent shall deposit,
or shall cause to be deposited, with the Exchange Agent, for the benefit of the holders of
Target Common Stock, for exchange in accordance with this Article II, through the
Exchange Agent, certificates representing the Merger Consideration (all such certificates
for shares of Parent Common Stock, in such amounts and registered in the names as set forth
in the Exchange List, together with any dividends or distributions with respect thereto, the
“Exchange Fund”). After the Effective Time, the Exchange Agent shall, pursuant to
irrevocable instructions from Parent, deliver the Merger Consideration out of the Exchange
Fund in accordance with the procedures described in this Section 2.2, and the
Exchange Fund shall not be used for any other purpose except as provided in Section
2.2.5.

     Section 2.2.2 Exchange Procedures. As promptly as reasonably practicable after
the Effective Time, Parent shall instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Target Common Stock (each a “Target Certificate”
and, collectively, the “Target Certificates”) (a) a letter of transmittal in
customary form, which shall specify that delivery shall be effected, and risk of loss and
title to any Target Certificates shall pass, only upon proper delivery of such Target
Certificates to the Exchange Agent; and (b) instructions for use in effecting the surrender
of any Target Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender to the Exchange Agent of any Target Certificates for cancellation
together with such letter of transmittal, properly completed and duly executed, and such
other documents as may be reasonably required pursuant to such instructions, the Target
Certificates so surrendered shall forthwith be canceled and the holder of such Target
Certificates shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of Parent Common Stock that such holder has the
right to receive as set forth in the Exchange List; and (ii) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2.3. No
interest will be paid or accrued on any unpaid dividends or other distributions payable to
holders of Target

4

 

Certificates. In the event of a transfer of ownership of shares of Target
Common Stock that is not registered in the transfer records of Target, a certificate
representing the proper number of shares of Parent Common Stock may be issued to a
transferee if the Target Certificate representing such shares of Target Common Stock is
presented to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered to the Exchange Agent as contemplated by this Section 2.2,
each Target Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender (A) a certificate representing that number of
whole shares of Parent Common Stock that such holder has the right to receive as set forth
in the Exchange List; and (B) any dividends or other distributions to which such holder is
entitled pursuant to Section 2.2.3.

     Section 2.2.3 Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective Time
with respect to Parent Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Target Certificate with respect to the shares of
Parent Common Stock represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2.5, unless and until the
holder of such Target Certificate shall surrender such Target Certificate to the Exchange
Agent as contemplated by this Section 2.2. Subject to the effect of escheat, tax or
other applicable Laws, following surrender of any such Target Certificate, there shall be
paid to the holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (a) promptly, the amount of any cash payable
with respect to a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.2.5 and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock; and (b) at the appropriate payment date, the amount of dividends or
other distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to such
whole shares of Parent Common Stock.

     Section 2.2.4 Further Rights in Target Common Stock. All shares of Parent
Common Stock issued upon conversion of shares of Target Common Stock in accordance with the
terms hereof (including any cash paid pursuant to Section 2.2.3 or Section
2.2.5) shall be deemed to have been issued in full satisfaction of all rights pertaining
to such shares of Target Common Stock.

     Section 2.2.5 Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of
Target Certificates, no dividend or distribution with respect to Parent Common Stock shall
be payable on or with respect to any fractional share and such fractional share interests
will not entitle the owner thereof to any rights of a shareholder of Parent.

     Section 2.2.6 Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to holders of Target Common Stock on the date that is

5

 

six months
after the Effective Time shall be delivered to Parent upon demand, and any holders of Target
Common Stock who have not theretofore complied with this Article II shall thereafter
look only to Parent for the shares of Parent Common Stock (and cash dividends or
distributions with respect thereto from the Exchange Fund) to which such holder is entitled
pursuant hereto, in each case, without any interest thereon.

     Section 2.2.7 No Liability. Neither Parent nor Target shall be liable to any
holder of Target Common Stock for any such shares of Parent Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange Fund to which such holder is
entitled pursuant hereto delivered to a public official pursuant to any abandoned property,
escheat or similar Law.

     Section 2.2.8 Lost Certificates. If any Target Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming that such Target Certificate has been lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond, in such reasonable amount as Parent may
direct, as indemnity against any claim that may be made against it with respect to such
Target Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Target Certificate the shares of Parent Common Stock (and dividends or
distributions with respect thereto) and cash from the Exchange Fund to which such holder is
entitled pursuant hereto, in each case, without any interest thereon.

     Section 2.2.9 Withholding. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of Target Common Stock such amounts as Parent or the Exchange Agent are required
to deduct and withhold under the Code, or any provision of state, local or foreign tax Law,
with respect to the making of such payment. To the extent that amounts are so withheld by
Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of
Target Common Stock in respect of whom such deduction and withholding was made by
Parent or the Exchange Agent.

     Section 2.3 Stock Transfer Books. At the Effective Time, the stock transfer books of
Target shall be closed, and thereafter there shall be no further registration of transfers of
shares of Target Common Stock theretofore outstanding on the records of Target. From and after the
Effective Time, the holders of Target Certificates shall cease to have any rights with respect to
such shares of Target Common Stock except as otherwise provided herein or by applicable Law.

     Section 2.4 Dissenters’ Rights. Shares of Target Common Stock that have not been
voted for approval of this Agreement, or whose holder has not consented thereto in writing, and
with respect to which a demand and appraisal have been properly made in accordance with the NRS
(“Dissenting Shares”) will not be converted into the right to receive the shares of Parent
Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund
otherwise owed with respect to such shares of Target Common Stock at or after the Effective Time,
but will be converted into the right to receive from the Surviving Corporation such consideration
as may be determined to be due with respect to such Dissenting Shares pursuant to the NRS. If a
holder of Dissenting Shares (each, a “Dissenting Shareholder”)

6

 

withdraws his or her demand
for such payment and appraisal or becomes ineligible for such payment and appraisal, then, as of
the Effective Time or the occurrence of such event of withdrawal or ineligibility, whichever occurs
last, such holder’s Dissenting Shares will cease to be Dissenting Shares and will be converted into
the right to receive, and will be exchangeable for, the shares of Parent Common Stock (and
dividends or distributions with respect thereto) and cash from the Exchange Fund, in each case,
without any interest thereon, to which such holder would have been entitled pursuant hereto had
such holder never been a Dissenting Shareholder. Target will give Parent prompt notice of any
demand received by Target from a Dissenting Shareholder for appraisal of shares of Target Common
Stock, and Parent shall have the right to participate in all negotiations and proceedings with
respect to such demand. Target agrees that, except with the prior written consent of Parent (which
consent shall not be unreasonably withheld or delayed), or as required under the NRS, it will not
voluntarily make any payment with respect to, or settle or offer or agree to settle, any such
demand for appraisal. Each Dissenting Shareholder who, pursuant to the provisions of the NRS,
becomes entitled to payment of the value of the Dissenting Shares, shall receive payment therefor
but only after the value therefor has been agreed upon or finally determined pursuant to such
provisions. Any portion of the shares of Parent Common Stock that would otherwise have been owed
with respect to Dissenting Shares if such shares were not Dissenting Shares will be retained by
Parent.

     Section 2.5 Further Actions. The officers and directors of Parent, Merger Sub and
Target are fully authorized in the name of their respective corporations to take, and will take,
all such further action as may
be necessary, advisable or appropriate at any time before or after the Effective Time to carry
out the purposes and intent of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, properties, rights, privileges, powers and franchises of
Merger Sub and Target.

Article III.

Representations and Warranties of Target

          Target represents and warrants to Parent and Merger Sub that, except as set forth in the
Diligence Letter furnished by Target to Parent simultaneously with the execution hereof (the
“Target Diligence Letter”), the statements contained in this Article III are true,
complete and correct as of the date hereof, and will be true and correct as of the Effective Time,
except to the extent such representations and warranties are specifically made as of a particular
date (in which case such representations and warranties are true, complete and correct as of such
date).

     Section 3.1 Organization and Qualification. Target is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Nevada, has all
requisite corporate power and authority to own, lease and operate its properties and to carry on
its business as it is now being conducted and is duly qualified or licensed to do business, and is
in good standing, in each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except for those jurisdictions in which the
failure to be so qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have, a Target Material Adverse Effect.

     Section 3.2 Governing Documents; Corporate Records. Copies of the articles of
incorporation and by-laws of Target (collectively, the “Target Governing Documents”)

7

 

heretofore delivered to Parent are true, complete and correct copies of such instruments as in
effect as of the date hereof, and there will be no amendments to the Target Governing Documents
between the date hereof and the Effective Time except as expressly set forth herein. The Target
Governing Documents are in full force and effect. Target is not in violation of any material
provision of the Target Governing Documents. Except as set forth in Section 3.2 of the Target
Diligence Letter, the books and records, minute books, stock record books and other similar records
of Target, all of which have been delivered to Parent, are true, complete and correct in all
material respects.

     Section 3.3 Corporate Power and Authority; Vote Required.

     Section 3.3.1 Target has all requisite corporate power and authority to execute and
deliver this Agreement and each other document contemplated hereby to which Target is a
party (each, a “Target Document” and collectively, the “Target Documents”).
Subject to obtaining the Target Shareholder Approval, the execution and delivery by Target
of this Agreement and each of the Target Documents, the performance by Target of its
obligations hereunder and thereunder and the consummation by Target of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary corporate actions on the part of Target, and no other proceedings on the part
of Target are necessary to authorize this Agreement or any of the Target Documents or to
consummate the transactions contemplated hereby or thereby. This Agreement has been duly
executed and delivered by Target and, assuming the due authorization, execution and delivery
hereof by Parent and Merger Sub, constitutes legal, valid and binding obligations of Target,
enforceable against Target in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar Laws
affecting the enforcement of creditors’ rights generally and subject to general principles
of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Each of the Target Documents, assuming the due authorization, execution and delivery
thereof by each party thereto at the Closing, will constitute legal, valid and binding
obligations of Target, enforceable against Target in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance or similar Laws affecting the enforcement of creditors’ rights
generally and subject to general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity).

     Section 3.3.2 The Target Board has unanimously (a) approved and declared advisable the
Merger, this Agreement and each of the Target Documents, and the transactions contemplated
hereby and thereby; and (b) directed that a proposal to enter into this Agreement and each
of the Target Documents and to consummate the transactions contemplated hereby and thereby
be submitted to the Target Shareholders for their approval, with the Target Board’s
recommendation that the Target Shareholders approve and adopt such proposal.

     Section 3.3.3 The only vote of the holders of any class or series of Target’s capital
stock necessary to approve and adopt the proposal referenced in Section 3.3.2(b) is
the affirmative vote, at a meeting duly called and held or by written consent in lieu of
such meeting, of the holders of a majority of the outstanding shares of Target Common

8

 

Stock
entitled to vote thereon represented, in person or by proxy, at such meeting (the
“Target Shareholder Approval”), in accordance with the provisions of the Target
Governing Documents and applicable Laws.

     Section 3.4 Capitalization.

     Section 3.4.1 The authorized capital stock of Target consists of 25,000,000 shares of
Target Common Stock, of which there are 4,062,018 shares issued and outstanding as of the
date hereof, together with warrants to acquire an additional 8,124,036 shares of Target
Common Stock attached thereto. As of the date hereof, the Target Common Stock and the
warrants attached thereto are held by the Persons and in the amounts set forth in Section
3.4.1 of the Target Diligence Letter, free and clear of all Liens. Except as set forth in
Section 3.4.1 of the Target Diligence Letter, no shares of Target Common Stock are, and at
the Effective Time no shares of Target Common Stock will be, reserved for any purpose. Upon
Target’s delivery to Parent of the Exchange List, each of the outstanding shares of Target
Common Stock (a) will have been offered and sold in compliance with all applicable
securities Laws; (b) will have been duly authorized and validly issued in compliance with
all applicable Laws, the provisions of the Target
Governing Documents and all requirements set forth in contracts; (c) will be fully paid
and nonassessable; and (d) will be free of preemptive rights. The Target Common Stock is
not, and at the Effective Time will not be, listed on any stock exchange. There are no
declared or accrued but unpaid dividends or distributions with respect to any shares of
Target Common Stock.

     Section 3.4.2 Except as set forth in Section 3.4.2 of the Target Diligence Letter, as
of the date hereof, (a) there are no outstanding options or warrants or other rights,
agreements, arrangements or commitments of any character (including stock appreciation
rights, phantom stock or similar rights, agreements, arrangements or commitments) to which
Target is a party or by which Target is bound (i) relating to the issued or unissued Target
Common Stock; (ii) obligating Target to issue, deliver, sell, repurchase, redeem or
otherwise acquire or dispose of, or cause to be issued, delivered, sold, repurchased,
redeemed or otherwise acquired or disposed of, any shares of Target Common Stock; (iii)
obligating Target to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, right, agreement, arrangement or
commitment; or (iv) obligating Target to grant, issue or sell any shares of Target Common
Stock by sale, lease, license or otherwise; (b) no shares of Target Common Stock are subject
to repurchase rights, vesting or similar restrictions as of the date hereof; (c) Target is
not a party to any, and as of the date hereof, to the Knowledge of Target, there are no
other, voting trusts, proxies or other agreements or understandings with respect to the
voting interests of Target; and (d) there are no agreements, arrangements or commitments of
any character (contingent or otherwise) pursuant to which (i) Target is or could be required
to register the offer or sale of shares of Target Common Stock or other securities under the
1933 Act; or (ii) any Person is or may be entitled to receive any payment based on the
revenues or earnings, or calculated in accordance therewith, of Target.

9

 

     Section 3.4.3 Except as set forth in Section 3.4.3 of the Target Diligence Letter,
there are no preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of shares of Target Common Stock to
which Target is a party or by which Target is bound.

     Section 3.5 Subsidiaries. Target has no Subsidiaries. Except as described in Section
3.5 of the Target Diligence Letter, Target does not hold or own, directly or indirectly, has not
agreed to purchase or otherwise acquire and does not hold any interest convertible into or
exchangeable or exercisable for any securities, equity interests or rights in any other
corporation, partnership, joint venture or other Person, and there are no outstanding contractual
obligations of Target to provide material funds to, or make any material investment (in the form of
a loan, capital contribution or otherwise) in, or provide any guarantee with respect to the
obligations of, any other Person. All outstanding equity interests owned by Target described in
Section 3.5 of the Target Diligence Letter are validly issued, fully paid and nonassessable and
owned by Target free and clear of all Liens.

     Section 3.6 No Violation. The execution and delivery of this Agreement and each of
the Target Documents by Target do not, and neither the performance by Target of its obligations
hereunder and thereunder nor the consummation by Target of the transactions contemplated hereby and
thereby will, (a) assuming receipt of the Target Shareholder Approval, conflict with or violate any
provisions of the Target Governing Documents as in effect at the Effective Time; (b) assuming
compliance with the matters referred to in Section 3.7, conflict with or violate any Law or
judgment applicable to Target or by or to which any of its assets or properties is bound or
subject; (c) result in the creation or imposition of any Lien (other than Permitted Liens) on any
of Target’s assets or properties; or (d) assuming compliance with the matters referred to in
Section 3.7, require any consent or other action by any Person under, or result in any
breach of or constitute a default (or an event that with notice or lapse of time or both would
become a default) under, or give rise to any right of termination, change in control, amendment,
modification, enhancement of rights of third parties, revocation of grant of rights or assets,
placement into or release from escrow of any of Target’s assets or properties, acceleration or
cancellation of, or require payment under, or result in a loss of any benefit to which Target is
entitled or the creation of any Lien (other than Permitted Liens) on any of Target’s assets or
properties pursuant to, any note, bond, mortgage, indenture, deed of trust, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which Target is a party or
by or to which Target or any of its assets or properties is bound or subject, except as would not,
individually or in the aggregate, be reasonably expected to have a Target Material Adverse Effect,
or any notice or other action the absence of which would not, individually or in the aggregate, be
reasonably expected to have a Target Material Adverse Effect.

     Section 3.7 Approvals. No Approval or declaration of, filing or registration with or
notification to any Governmental Authority or other Person is required to be made, obtained or
given by or with respect to Target in connection with the execution and delivery by Target of this
Agreement, the performance by Target of its obligations hereunder or the consummation by Target of
the transactions contemplated hereby, except for (a) such Approvals, declarations, filings,
registrations and notifications that if not made, obtained or given would not reasonably be
expected to have a Target Material Adverse Effect; (b) the filing of the Certificate of Merger with
the Secretaries of State of the States of Texas and Nevada; (c) the Target Shareholder

10

 

Approval; or
(d) as is required under the Exchange Act, the 1933 Act or any applicable state securities Laws.

     Section 3.8 Reports; Financial Statements. 

     Section 3.8.1 Except as set forth in Section 3.8.1 of the Target Diligence Letter: (a)
Target has furnished or made available to Parent true and complete copies of all Regulation
D reports, registration statements or other regulatory filings it has filed with the SEC or
relevant state securities authorities under applicable securities Laws since its inception
(collectively the “Target Filings”); (b) each Target Filing, at the time it was
filed, complied in all material respects with the requirements of applicable securities
Laws, and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not false or
misleading, except to the extent corrected by a subsequent Target Filing filed prior to
the Effective Time; and (c) Target has filed all material reports, Form D’s, U-2’s or
registration statements and other filings required by applicable securities Laws.

     Section 3.8.2 Target has no Liabilities, except (a) Liabilities provided for in its
financial statements dated as of July 31, 2006 set forth in Section 3.8.2(a) of the Target
Diligence Letter (collectively, the “Target Financial Statements”) (other than
Liabilities that, in accordance with GAAP, need not be disclosed); (b) Liabilities
(including accounts payable) incurred since July 31, 2006 in the ordinary course of business
consistent with past practice that are no greater than $2,500 in the aggregate; (c) such
other Liabilities that are no more than $500 individually or $2,500 in the aggregate; or (d)
as set forth in Section 3.8.2(d) of the Target Diligence Letter. To the Knowledge of
Target, there is no basis for the assertion against Target of any Liabilities not adequately
reflected or reserved against in the Target Financial Statements.

     Section 3.8.3 Each of the Target Financial Statements (including, in each case, any
notes thereto) has been or will be prepared in accordance with GAAP applied (except as may
be indicated in the notes thereto) on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto), and each presented fairly the
consolidated financial position of Target as of the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments, which were not material). The books and records
of Target have been, and are being, maintained in accordance with applicable legal and
accounting requirements, and fairly and accurately set out and disclose in all material
respects the financial condition and results of operations of Target at the date hereof.
All financial transactions relating to Target have been accurately recorded in such books
and records and the minute books of Target contain all records of the meetings and
proceedings of the Target Board and the Target Shareholders.

     Section 3.8.4 The Target Financial Statements present fairly the financial condition
and results of operations of Target at such dates and for the respective periods indicated
therein and have been prepared from, and in accordance with, the information contained in
the books and records of Target, which have been regularly kept and

11

 

maintained in accordance
with Target’s normal and customary practices and applicable accounting practices, and have
been prepared in accordance with GAAP, except as otherwise stated in the notes thereto. The
Target Financial Statements do not contain any items of a special or nonrecurring nature,
except as expressly stated therein.

     Section 3.8.5 Except as set forth in Section 3.8.5 of the Target Diligence Letter,
since July 31, 2006, Target has not incurred any material Liability of the type required to
be set forth on a balance sheet of Target, or the notes thereto prepared in accordance with
GAAP, except (a) Liabilities incurred in the ordinary course of business and consistent with
past practice; (b) as may be shown, accrued or reserved against in the Target Financial
Statements, or in the notes thereto; or (c) Liabilities incurred in connection with this
Agreement; provided, that all Liabilities of the type described in clauses (a), (b)
and (c) above would not, individually or in the aggregate, result in a Target Material
Adverse Effect and do not exceed in the aggregate $50,000, and none of
such Liabilities results from, arises out of, relates to, is in the nature of or was
caused by any breach of contract, tort, breach of warranty, infringement or violation of
Law.

     Section 3.8.6 There are no outstanding loans by Target to any of the Target
Shareholders or to any director or officer of Target.

     Section 3.9 Ordinary Course Operations. Except as set forth in Section 3.9 of the
Target Diligence Letter, since December 31, 2005, Target has conducted its business in the ordinary
course, consistent with past practice, and Target has not taken any of the actions set forth in
Section 5.1 except as permitted pursuant to Section 5.1.

     Section 3.10 Absence of Litigation. Except as set forth in Section 3.10 of the Target
Diligence Letter: (a) there is no Litigation pending or, to the Knowledge of Target, threatened by
any Person against or relating to Target or any of its officers, directors, employees (based on
events allegedly occurring during the course of employment) or agents (in their capacities as such)
or to which any of Target’s assets, properties or rights is subject or for which Target is
obligated to indemnify any third party; (b) there is no reason to believe that any such Litigation
may be brought or threatened against Target or any of its officers, directors, employees (based on
events allegedly occurring during the course of employment) or agents (in their capacities as
such); (c) there is no investigation or other proceeding pending or, to the Knowledge of Target,
threatened against Target or any of its officers, directors, employees (based on events allegedly
occurring during the course of employment) or agents (in their capacities as such) or their
properties (tangible or intangible) or for which Target is obligated to indemnify any third party;
(d) no Governmental Authority has at any time during the last three years provided Target with
written notice challenging or questioning in any material respect the legal right of Target to
conduct its operations as conducted at such time or as presently conducted; (e) Target is not
subject to or bound by (i) any currently existing or outstanding judgment, order, writ, injunction,
decree, ruling or charge, or any continuing order, finding or consent decree of, or settlement
agreement or other similar written agreement with, or continuing investigation by, any Governmental
Authority or arbitrator, including without limitation cease-and-desist or other orders; or (ii) any
settlement agreement or other similar written agreement with ongoing obligations for Target; and
(f) Target has not received any opinion or memorandum or legal advice from legal counsel to the
effect that

12

 

it is exposed, from a legal standpoint, to any Liability or disadvantage that may be
material to its business, prospects, financial condition, operations, property or affairs.

     Section 3.11 Compliance with Laws. Except as set forth in Section 3.11 of the Target
Diligence Letter: (a) Target is currently complying with and has at all times since January 1,
2003 complied in all respects with all applicable Laws (other than Environmental Laws, which are
addressed under Section 3.13) applicable thereto, including without limitation those
applicable by virtue of a contractual relationship with a third party; and (b) Target is not in
violation of or in default under, and to the Knowledge of Target, no event has occurred that, with
the lapse of time or the giving of notice or
both, would result in the material violation of or default under, the terms of any judgment,
order, settlement or decree of any Governmental Authority.

     Section 3.12 Permits. Section 3.12 of the Target Diligence Letter sets forth a
complete and accurate listing of all Permits (other than Permits required under Environmental Laws,
which are addressed under Section 3.13) necessary for Target to own, lease and operate its
properties or to carry on its business as it is now being conducted (collectively, the “Target
Permits”). Except as set forth in Section 3.12 of the Target Diligence Letter: (a) Target is
in possession of all such Target Permits, if any; (b) there is no Litigation pending or threatened
regarding suspension or cancellation of any of the Target Permits; and (c) to the Knowledge of
Target, all such Target Permits are valid and in full force and effect.

     Section 3.13 Environmental Matters. Except as set forth in Section 3.13 of the Target
Diligence Letter: (a) Target is, and at all times has been, in compliance with all applicable
Environmental Laws (which compliance includes without limitation the possession by Target of all
Target Permits and other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof); (b) Target has not received any written
communication alleging that Target is not so in compliance, and there is no past or present
Litigation, activity, circumstance, condition, event or incident that may prevent or interfere with
such compliance in the future; (c) there are no Target Permits or other governmental authorizations
currently held, or required to be held, by Target pursuant to applicable Environmental Laws; (d)
there is no material Environmental Claim pending or, to the Knowledge of Target, threatened against
Target or, to the Knowledge of Target, against any Person with respect to whom Target has or may
have retained or assumed any Liability for any Environmental Claim, either contractually or by
operation of Law; and (e) there is no past or present Litigation, activity, circumstance,
condition, event or incident, including without limitation, the Release, threatened Release or
presence of any Hazardous Material, that reasonably would be expected to form the basis of a
material Environmental Claim against Target, or to the Knowledge of Target, against any Person with
respect to whom Target has or may have retained or assumed any Liability for any Environmental
Claim, either contractually or by operation of Law.

     Section 3.14 Real Property. Except as set forth in Section 3.14 of the Target
Diligence Letter: (a) Target does not currently own or ground lease, and has never owned or ground
leased, any real property; (b) Target has no leases, subleases, licenses or other agreements (such
leases, subleases, licenses and other agreements listed in Section 3.14 of the Target Diligence
Letter, including all amendments, modifications or supplements with respect thereto, collectively,
the “Target Real Property Leases”), under which Target uses or occupies or has the

13

 

right to
use or occupy any real property that provides for payments in excess of $50,000 per annum (the
land, buildings and other improvements covered by the Target Real Property Leases and any other
rights of the tenant thereunder being herein called the “Target Leased Real Property”),
including the address of the premises demised under each Target Real Property Lease and the
landlord,
rent and use thereof; (c) each of the Target Real Property Leases is a legal, valid and
binding obligation of Target, enforceable against Target in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or
similar Laws affecting the enforcement of creditors’ rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), and there is no default under any Target Real Property Lease by Target, or to the
Knowledge of Target, by any other party thereto, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute such a default; (d) Target has not subleased
any of the Target Leased Real Property or given any third party any license or other right to
occupy any portion of the Target Leased Real Property; (e) neither the operations of Target on the
Target Leased Real Property nor, to the Knowledge of Target, such Target Leased Real Property,
including the improvements thereon, violate in any material respect any applicable building code,
zoning requirement or classification or statute relating to the particular property or such
operations; (f) Target has delivered or otherwise made available to Parent a true, complete and
correct copy of each of the Target Real Property Leases, and (i) Target has not has waived any term
or condition thereof, and all material covenants to be performed by Target thereunder prior to the
Closing Date, or, to the Knowledge of Target, any other party to any Target Real Property Lease,
have been performed in all material respects; (ii) Target is current (and not late) with respect to
all rental payments due thereunder; (iii) no security deposit or portion thereof deposited with
respect to any Target Real Property Lease has been applied in respect of a breach or default
thereunder that has not been redeposited in full; and (iv) Target has not collaterally assigned or
granted any security interest in any Target Real Property Lease or any interest therein; and (g)
the Target Leased Real Property is in good operating condition, normal wear and tear accepted, is
reasonably fit and useable for the purpose for which it is being used, is adequate and sufficient
for Target’s business, and conforms in all material respects to all applicable Laws.

     Section 3.15 Personal Property; Assets. Except as set forth in Section 3.15 of the
Target Diligence Letter: (a) Target does not own any equipment or fixtures having a book value in
excess of $10,000 that (i) were purchased by Target since May 31, 2006; or (ii) are owned by third
Persons, including any customers of Target, and used by Target in its business; (b) Target is not a
party to, and neither Target nor any of its properties or assets are bound by, any lease, sublease,
license or other similar agreement with respect to personal property and equipment that provides
for payments in excess of $5,000 per annum; (c) Target has good, legal and marketable title to all
of its personal property and assets (collectively, the “Target Assets”), free and clear of
all Liens (except for Permitted Liens); (d) the Target Assets include or will include as of the
Closing Date, without limitation, all personal property, both tangible and intangible, necessary to
conduct Target’s business as it is now being conducted; (e) all material items of personal property
and assets owned by Target are in good operating condition, normal wear and tear excepted; are
reasonably fit and usable for the purposes for which they are being used; are adequate and
sufficient for Target’s business; and conform in all material respects with all applicable Laws;
and (f) the carrying value of Target’s assets in the Target Financial Statements is not overstated
in any material respect.

14

 

     Section 3.16 Scheduled Contracts; No Default. Except as set forth in Section 3.16 of the Target Diligence Letter:

     Section 3.16.1 (a) Target is not a party to any material agreement other than those set
forth in the true, complete and correct list of all written agreements (including all
amendments thereto) to which Target is a party or a beneficiary or by which Target or any of
its assets or properties is bound as shown in Section 3.16.1 of the Target Diligence Letter,
including without limitation: (i) any contract involving an investment by Target in any
Person; (ii) any contract of Target that involves a financing arrangement in excess of
$50,000, other than purchase orders entered into in the ordinary course of business that
contain customary terms and conditions; (iii) any employment agreement with any key officer
or any employee of Target; (iv) any loan agreement, note, mortgage, indenture, security
agreement or other agreement or instrument relating to the borrowing of money in excess of
$50,000; (v) any agreement with any Affiliate of Target; (vi) any contract that contains any
material non-competition, exclusivity or similar restriction relating to the geographical
area of operations or scope or type of business of Target; (vii) any contract relating to
any acquisition or disposition of any capital stock or equity interest of Target; (viii) any
contract that requires stated payments in excess of $50,000 per annum; (ix) any contract
that as of the date hereof would constitute a “material contract” as such term is defined in
Item 601(b)(10) of Regulation S-K promulgated under the 1933 Act; and (x) any contract that
would prohibit or materially delay the consummation of the Merger or any of the transactions
contemplated by this Agreement or any Ancillary Agreement (such contracts described in
clauses (i) through (x) above, collectively, the “Target Scheduled Contracts”); and
(b) Target has delivered to Parent a true, complete and correct copy of each of the Target
Scheduled Contracts.

     Section 3.16.2 With respect to each Target Scheduled Contract: (a) such Target
Scheduled Contract is legal, valid, binding and in full force and effect and enforceable
against Target in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the
enforcement of creditors’ rights generally and subject to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in equity); (b)
Target has performed all of its obligations that have become due under such Target Scheduled
Contract, and there exists no breach or default (or event that with notice or lapse of time
would constitute a breach or default) on the part of Target or, to the Knowledge of Target,
any other Person under such Target Scheduled Contract; (c) there has been no termination or
notice of default or any threatened termination under such Target Scheduled Contract; and
(d) Target has no present expectation or intention of terminating or not fully performing
any of its obligations under such Target Scheduled Contract.

     Section 3.16.3 None of the Target Scheduled Contracts will require Approval from
Target’s counterparty with respect to the Merger, and the Merger will not result in a
breach, termination, termination right or change in any right or obligation under any Target
Scheduled Contract.

15

 

     Section 3.16.4 None of the Target Scheduled Contracts, and no other agreement,
understanding or proposed transaction to which Target is a party, is
reasonably likely to cause a Target Material Adverse Effect or affect Target’s ability
to consummate the Merger and the other transactions contemplated hereby.

     Section 3.17 Intellectual Property Matters. Except as set forth in Section 3.17 of
the Target Diligence Letter: (a) Target has no: (i) trademarks, trade names, brand names, service
marks or other trade designations owned or licensed by or to Target; (ii) patents or copyrights
owned or licensed to or by Target; (iii) license, royalty or assignment agreements; (iv)
registrations or applications relating to any of the foregoing; or (v) agreements relating to
technology, know-how or processes that Target is licensed or authorized to use, or that Target
licenses or authorizes others to use; (b) no Person has asserted any claim that any activity or
operation of Target infringes upon, misappropriates, dilutes, violates or otherwise involves, or
has resulted in the infringement, misappropriation, dilution or violation of, any material
proprietary right of such Person, and no proceedings have been instituted or are pending or, to the
Knowledge of Target, threatened that challenge the rights of Target with respect thereto; and (c)
to the Knowledge of Target, there is no reasonable basis for a claim regarding any of the
foregoing.

     Section 3.18 Taxes. Except as set forth in Section 3.18 of the Target Diligence
Letter:

     Section 3.18.1 Target has duly and timely filed (or there has been filed on its behalf)
with the appropriate Governmental Authorities all Tax Returns (including all relevant
elections associated with those Tax Returns) required to be filed by Target or with respect
to its income, properties or operations, and all such Tax Returns are true, complete and
correct in all material respects, and all Taxes of Target whether or not shown to be due on
such Tax Returns have been timely paid in full.

     Section 3.18.2 Target has, in accordance with all applicable Laws, withheld and timely
paid to the appropriate Governmental Authority all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other Person.

     Section 3.18.3 There are no Liens for Taxes upon any of the assets or properties of
Target.

     Section 3.18.4 Target has not requested any extension of time within which to file any
Tax Return in respect of any taxable year which has not since been filed, and no outstanding
waivers or comparable consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns has been given by or on behalf of Target that are still
in effect other than those that arise by filing a Tax Return by the extended due date.

     Section 3.18.5 There is no audit, action, suit, proceeding or investigation now
pending, or to the Knowledge of Target, threatened with regard to any Tax or Tax Returns of
Target; and Target has not received written notice to the effect that, and Target

16

 

has no Knowledge that, any Governmental Authority intends to conduct such an audit or
investigation.

     Section 3.18.6 All Tax deficiencies which have been claimed, proposed or asserted
against Target by any Governmental Authority have been fully paid or are being contested in
good faith by appropriate proceedings, are adequately reserved for in the Target Financials
and are described in Section 3.18 of the Target Diligence Letter.

     Section 3.18.7 Target has not agreed or proposed, and is not required, to make any
adjustments under Section 481(a) of the Code, by reason of any voluntary or involuntary
change in accounting method (nor has any Governmental Authority proposed any such adjustment
or change of accounting method).

     Section 3.18.8 Target is not a party to any closing agreement with any Governmental
Authority that would be binding on the Surviving Corporation after the Closing, and Target
is not subject to any private letter ruling of the Internal Revenue Service or comparable
rulings of other Governmental Authorities that would be binding on the Surviving Corporation
after the Closing, and there are no outstanding requests for such rulings from any
Governmental Authority.

     Section 3.18.9 Target is not a party to, is not bound by and has no obligation under
any Tax sharing, Tax indemnification or tax allocation or other similar contract or
arrangement.

     Section 3.18.10 Target has previously delivered or made available to Parent true,
complete and correct copies of (a) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by a Governmental Authority relating to the United
States federal, state, local or foreign income Taxes due from or with respect to Target; and
(b) all United States federal income Tax Returns, and state income Tax Returns filed by
Target (or on its behalf) for tax periods ending on or after December 31, 2003.

     Section 3.18.11 Target (a) has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code other than the group of which
the common parent is Target; and (b) has no Liability for the Taxes of any person as defined
in Section 7701(a)(1) of the Code (other than Target), under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or
successor, by contract or otherwise.

     Section 3.18.12 No written claim has been made within the past five years in a
jurisdiction where Target does not file Tax Returns to the effect that Target is subject to
taxation by such jurisdiction.

     Section 3.18.13 Target has not distributed the stock of any corporation in a
transaction intending to satisfy the requirements of Section 355 of the Code, and no stock
of Target has been distributed in a transaction intending to satisfy the requirements of
Section 355 of the Code.

17

 

     Section 3.18.14 Target shall not be required to include in a taxable period ending
after the Closing Date taxable income attributable to income of Target that accrued in a
prior taxable period but was not recognized in such prior taxable period as a result of (a)
the installment method of accounting; (b) the long-term contract method of accounting; (c) a
“closing agreement” as described in Section 7121 of the Code (or any provision of any
foreign, state or local Tax Law having similar effect); or (d) Section 481 of the Code (or
any provision of any foreign, state or local Tax Law having similar effect).

     Section 3.18.15 Target has not entered into any transaction that is a “reportable
transaction” (as defined in Treasury Regulations Section 1.6011-4, as modified by Rev. Proc.
2004-68, Rev. Proc. 2004-67, Rev. Proc. 2004-66, Rev. Proc. 2004-65 and Rev. Proc. 2004-45).

     Section 3.19 Insurance. Except as set forth in Section 3.19 of the Target Diligence
Letter: (a) Target maintains no insurance policies other than the true, complete and correct list
of each insurance policy maintained by Target relating to its properties, assets, business,
projects and directors, officers, employees or agents as set forth in Section 3.19 of the Target
Diligence Letter; (b) such insurance policies are in full force and effect, have been issued by
insurers of recognized responsibility and insure against such losses and risks, and in such
amounts, on both a per occurrence and an aggregate basis, as are customary in the case of
corporations engaged in the same or similar business and similarity situated; (c) Target has not
received any notice or communication, either oral or written (i) regarding the actual or possible
cancellation or invalidation of any of such policies or regarding any actual or possible adjustment
in the amount of premiums payable with respect to any of said policies; (ii) regarding any actual
or possible refusal of coverage under, or any actual or possible rejection of any claim under, any
of such policies; (iii) that Target will be unable to renew its existing insurance coverage as and
when the same shall expire; or (iv) that the issuer of any such policies may be unwilling or unable
to perform any of its obligations thereunder; (d) there is no pending claim under any of Target’s
insurance policies, and no event has occurred or condition or circumstance exists that might (with
or without notice or lapse of time), directly or indirectly, give rise to, or serve as a basis for,
any such claim; and (e) Target is not in default with respect to any provision contained in any of
its insurance policies, and Target has not failed to give any notice or present any presently
existing claims under any of its insurance policies in due and timely fashion.

     Section 3.20 Employees. Except as set forth in Section 3.20 of the Target Diligence
Letter:

     Section 3.20.1 (a) Target has no employees other than those set forth in the true,
complete and correct list set forth in Section 3.20 of the Target Diligence Letter of (i)
each employee of Target, together with such employee’s job title or classification, amount
of annual compensation as of the date hereof, total compensation paid during calendar year
2005 and amounts and forms of fringe and severance benefits; and (ii) each consultant,
contractor or subcontractor of Target during calendar year 2005 or 2006 and
for which a Form 1099 has been, or will be required to be, filed, together with such
consultant’s, contractor’s or subcontractor’s name and amount of annual compensation as of
the date hereof; and (b) none of such Persons has an employment agreement or

18

 

understanding
with Target, whether oral or written, that is not terminable upon notice by Target without
cost or other Liability to Target.

     Section 3.20.2 To the Knowledge of Target, no key employee or independent contractor
and no group of Target’s key employees or independent contractors has any plans to terminate
his, her or its employment or relationship as an employee or independent contractor with
Target, nor does Target have any present intention to terminate the employment of any key
employee or independent contractor, or group of employees or independent contractors.

     Section 3.20.3 To the Knowledge of Target, no employee of Target is a party to or is
otherwise bound by any agreement or arrangement (including without limitation
confidentiality agreements, noncompetition agreements, licenses, covenants or commitments of
any nature) or subject to any judgment, decree or order of any court or Governmental
Authority: (a) that would conflict with such employee’s ability to perform his or her
duties as an employee of Target; or (b) that would conflict with Target’s business as now
conducted or as proposed to be conducted.

     Section 3.20.4 (a) Target is not delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for any services
performed through the date hereof or amounts required to be reimbursed to them through the
date hereof; (b) Target is in compliance with all applicable Laws respecting employment,
fair employment practices, labor, payment and termination of labor, terms and conditions of
employment, workers’ compensation, nondiscrimination, immigration, benefits, collective
bargaining, occupational safety, plant closings, wages and hours and the payment of social
security and similar Taxes; and (c) to the Knowledge of Target, no present or former
director, officer, employee or consultant of Target is in violation in any material respect
of any term of any employment contract, non-disclosure agreement, non-competition agreement
or restrictive covenant to a former employer relating to the right of any such employee to
be employed by Target because of the nature of the business conducted or presently proposed
to be conducted by it or to the use of trade secrets or proprietary information of others.

     Section 3.20.5 (a) Target is neither bound by nor subject to (and none of its assets or
properties is bound by or subject to) any written or oral commitment or arrangement with any
labor union, and no labor union has, to the Knowledge of Target, sought to represent any of
Target’s employees, representatives or agents; and (b) during the last five years, there has
been no: (i) collective bargaining agreement or any other agreement, whether in writing or
otherwise, with any labor organization, union, group or association applicable to the
employees of Target; (ii) unfair labor practice complaint pending or, to the Knowledge of
Target, threatened against Target before the National Labor Relations Board or any other
federal, state local or foreign agency; (iii) pending or, to the Knowledge of Target,
threatened strike, slow-down, work stoppage, lockout or other collective labor Litigation by
or with respect to any employees of Target; or (iv)
pending or, to the Knowledge of Target, threatened representation question or union or
labor organizing activities with respect to employees of Target nor is Target subject to

19

 

any legal duty to bargain with any labor organization on behalf of any employee of Target.

     Section 3.20.6 (a) Target does not, formally or informally, have a custom or practice
of paying severance payments to employees; and (b) Target has no (i) agreements with
directors, officers or employees of or consultants to Target committing it to make severance
payments in the event of termination or additional bonus payments upon the completion of the
Merger; or (ii) written severance programs or policies with or relating to its employees.

     Section 3.21 Employee Benefit Plans. Except as set forth in Section 3.21 of the
Target Diligence Letter:

     Section 3.21.1 (a) Target has no (i) deferred compensation, bonus, incentive
compensation, stock purchase, stock option or other equity or equity-based compensation
plans, programs, agreements or arrangements; severance or termination pay, medical,
surgical, hospitalization, life insurance or other “welfare plans,” funds or programs
(within the meaning of Section 3(1) of Employee Retirement Income Security Act of 1974, as
amended (“ERISA”)); (ii) profit-sharing, stock bonus or other “pension plans,” funds
or programs (within the meaning of Section 3(2) of ERISA); (iii) employment, “change in
control,” termination or severance agreements; or (iv) other material employee benefit
plans, funds, programs, agreements or arrangements (collectively, “Employee Benefit
Plans”), in each case, that is, or was within the past six years, sponsored, maintained
or contributed to or required to be contributed to by Target or by any trade or business,
whether or not incorporated, that together with Target would be deemed a “single employer”
within the meaning of Section 414(b), (c), (m) or (o) of the Code (each, an “ERISA
Affiliate”), or to which Target or an ERISA Affiliate is party, whether written or oral,
for the benefit of any current or former employee, officer, director or consultant of
Target; and (b) neither Target nor any ERISA Affiliate has any commitment or formal plan,
whether legally binding or not, to create any material employee benefit plan that would
affect any current or former employee, officer, director or consultant of Target.

     Section 3.21.2 Neither Target nor any ERISA Affiliate sponsors, maintains, contributes
to or has an obligation to contribute to, or has at any time within the last six years
sponsored, maintained, contributed to or had an obligation to contribute to, any
“multiemployer plan,” as such term is defined in Section 3(37) or Section 4001(a)(3) of
ERISA or comparable provisions of any other applicable Law or any pension plan (as defined
in Section 3(2) of ERISA) subject to Part 3 of Title I of ERISA, or Title IV of ERISA, or
Section 412 of the Code.

     Section 3.21.3 The consummation of the transactions contemplated by this Agreement,
either alone or in combination with another event, will not: (a) entitle any current or
former employee, director, officer or consultant of Target to severance pay,
unemployment compensation, loan forgiveness or any other payment; or (b) accelerate the
time of payment or vesting, or increase the amount of, any compensation or benefits due any
such employee, director, officer or consultant.

20

 

     Section 3.21.4 Target does not sponsor, contribute to or have any Liability with
respect to any employee benefit plan, program or arrangement that provides or provided
benefits to employees who perform or performed services for Target outside of the United
States.

     Section 3.21.5 There is no agreement, contract, plan or arrangement to which Target is
a party that may result, separately or in the aggregate, in the payment of any amount by
Target that is not deductible under Section 404 of the Code or that may be an “excess
parachute payment” within the meaning of Section 280G of the Code and no action by Target,
whether pursuant to this Agreement or otherwise, shall result in the making of any such
payment.

     Section 3.22 No Illegal Payments. Except as set forth in Section 3.22 of the Target
Diligence Letter, neither Target nor any officer, director or agent of Target, nor any other Person
acting on behalf of Target, nor any Affiliate or immediate family member of any of the foregoing,
has (a) used any corporate or other funds of Target for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity to government
officials or others, or established or maintained any unlawful or unrecorded funds, in violation of
any applicable Law; (b) made any payment for the account or benefit, or using funds, of Target in
violation of applicable Law to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; (c) accepted or received any unlawful contributions, payments,
expenditures or gifts; or (d) made any false or fictitious entries in the books and records of
Target.

     Section 3.23 Tax Treatment. Except as set forth in Section 3.23 of the Target
Diligence Letter, Target has not taken, agreed to take or failed to take any action, and has no
Knowledge of any fact, agreement, plan or other circumstances, that is or would be reasonably
likely to prevent the Merger from qualifying as a tax-free reorganization within the meaning of
Section 368(a)(2)(E) of the Code.

     Section 3.24 Loans and Advances. Except as set forth in Section 3.24 of the Target
Diligence Letter: (a) no director, officer or employee of Target or member of his or her immediate
family is currently indebted to Target, other than as a result of advances to employees in the
ordinary course for travel and similar reimbursable expenses consistent with Target policy; (b) to
the Knowledge of Target, as of the date hereof none of such Persons has any direct or indirect
ownership interest in any firm or corporation with which Target is affiliated or with which Target
has a business relationship, or any firm or corporation that competes with Target; and (c) no
director, officer or
employee of Target and no member of the immediate family of any director, officer or employee
of Target is directly or indirectly interested in any Target Scheduled Contract with Target.

     Section 3.25 Related-Party Transactions. Except as set forth in Section 3.25 of the
Target Diligence Letter: (a) neither any Affiliate nor any director, officer or employee, or any
immediate family member thereof, or any corporation, limited liability company, partnership, trust
or other entity in which any such Person is a director, officer, trustee, partner or holder of more
than 5% of the outstanding equity interests thereof (collectively, “Related Parties”), with

21

 

respect to Target is a party to, or during the past two years has been a party to, any material
transaction with Target, including without limitation any issuance of Target Common Stock or any
contract, agreement or other arrangement providing for the employment of, furnishing of services
by, rental of real or personal property from or otherwise requiring payments to any such Person,
other than employment-at-will arrangements in the ordinary course of business, consistent with past
practice; (b) none of the foregoing Persons has any direct or indirect ownership interest in any
Affiliate of Target, any Person with which Target has a business relationship or any Person that
competes with Target; (c) the terms of each of the transactions described in Section 3.25 of the
Target Diligence Letter are no less favorable to Target than the terms that would be available for
similar transactions with unrelated third parties; and (d) each issuance, if any, of shares of
Target Common Stock to any Related Party with respect to Target has been in exchange for
consideration equal to or exceeding the fair market value of such shares.

     Section 3.26 Assumptions and Guaranties of Indebtedness. Except as set forth in
Section 3.26 of the Target Diligence Letter, Target has not assumed, guaranteed, endorsed or
otherwise become directly or contingently liable for any indebtedness of any other Person
(including without limitation by way of agreement, contingent or otherwise, to purchase, provide
funds for payment, supply funds to or otherwise invest in such Person, or otherwise to assure any
creditor of such Person against loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business, consistent with past
practice.

     Section 3.27 No Brokers. Except as set forth in Section 3.27 of the Target Diligence
Letter, no broker, finder, agent, intermediary, investment banker or other Person (other than
attorneys and accountants) is entitled to any brokerage, finder’s, agent’s or similar fee or
commission in connection with this Agreement or the transactions contemplated hereby based upon
arrangements made by or on behalf of Target.

     Section 3.28 Offerings. Except as set forth in Section 3.28 of the Target Diligence
Letter: (a) Target has complied with the 1933 Act and all applicable state securities Laws in
connection with the offer, issuance and sale of all previously issued Target Common Stock; (b) all
such offers, issuances and sales were conducted pursuant to valid exemptions from the registration
requirements of the
1933 Act and any applicable state securities Laws, and neither Target nor any authorized agent
acting on its behalf has taken any action that would reasonably be expected to result in the loss
of such exemptions or is currently taking any action to cure any failure of Target to comply with
such securities Laws; (c) Target will comply with the 1933 Act and all applicable state securities
Laws for any and all securities it issues to any Person during the Interim Period; and (d) neither
Target nor any authorized agent acting on its behalf has offered any Target Common Stock to any
Person by means of general or public solicitation or general or public advertising, such as by
newspaper or magazine advertisements, by broadcast media or at any seminar or meeting whose
attendees were solicited by such means.

     Section 3.29 Information Supplied.

     Section 3.29.1 None of the information supplied or to be supplied by Target for
inclusion or incorporation by reference in the Proxy Statement or the Registration

22

 

Statement, or any amendments or supplements thereto, will, at (a) the time the Registration
Statement is declared effective; (b) the time the Proxy Statement (or any amendment or
supplement thereto) is first mailed to the Parent Shareholders or the Target Shareholders;
(c) the time of the Parent Shareholders’ Meeting; or (d) the Effective Time, contain any
untrue statement of material fact or any statement that, at such time and in light of the
circumstances under which it was made, is false or misleading with respect to any material
fact, or omit to state any material fact regarding Target required to be stated therein or
necessary in order to make the statements made therein, in light of the circumstances under
which they were made, not false or misleading due to Target’s failure to disclose such
material fact to Parent.

     Section 3.29.2 Notwithstanding the foregoing, Target makes no representation or
warranty with respect to any information supplied or to be supplied by Target for inclusion
or incorporation by reference in the the Proxy Statement or the Registration Statement.

     Section 3.30 Disclosure. No representation or warranty by Target contained in this
Agreement, and no statement of Target contained in the Target Diligence Letter or any other Target
Document, contains or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein, not false or misleading.

Article IV.

Representations and Warranties of Parent and Merger Sub

          Parent and Merger Sub hereby jointly and severally represent and warrant to Target that,
except as set forth in the Diligence Letter furnished by Parent to Target simultaneously with the
execution hereof (the “Parent Diligence Letter”), the statements contained in this
Article IV are true, complete and correct as of the date hereof, and will be true and
correct as of the Effective Time, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations and warranties
are true, complete and correct as of such date).

     Section 4.1 Organization and Qualification. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the laws of the State of
Texas, has all requisite corporate power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted. Neither Parent nor Merger Sub is qualified
or licensed to do business, and neither Parent nor Merger Sub is required to be qualified or
licensed to do business, in any other jurisdiction.

     Section 4.2 Governing Documents; Corporate Records. Copies of the articles of
incorporation and by-laws of each of Parent and Merger Sub (collectively, the “Parent Governing
Documents”) heretofore delivered to Target are true, complete and correct copies of such
instruments as in effect as of the date hereof, and there will be no amendments to the Parent
Governing Documents between the date hereof and the Effective Time except as expressly set forth
herein. The Parent Governing Documents are in full force and effect. Neither Parent nor Merger Sub
is in violation of any material provision of the Parent Governing Documents.

23

 

Except as set forth
in Section 4.2 of the Parent Diligence Letter, the books and records, minute books, stock record
books and other similar records of Parent and Merger Sub, all of which have been delivered to
Target, are true, complete and correct in all material respects.

     Section 4.3 Corporate Power and Authority; Vote Required.

     Section 4.3.1 Each of Parent and Merger Sub has all requisite corporate power and
authority to execute and deliver this Agreement and each other document contemplated hereby
to which it is a party (each, a “Parent Document” and collectively, the “Parent
Documents”). Subject to obtaining the Parent Shareholder Approval, the execution and
delivery by Parent of this Agreement and each of the Parent Documents, the performance by
Parent and Merger Sub of their obligations hereunder and thereunder and the consummation by
Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate actions on the part of Parent and Merger Sub
(including without limitation approval by Parent as sole shareholder of Merger Sub), and no
other proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or any of the Parent Documents or to consummate the transactions contemplated
hereby or thereby. This Agreement has been duly executed and delivered by Parent and Merger
Sub and, assuming the due authorization, execution and delivery hereof by Target,
constitutes legal, valid and binding obligations of Parent and Merger Sub, enforceable
against Parent and Merger Sub in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar Laws
affecting the enforcement of creditors’ rights generally and subject to general principles
of equity
(regardless of whether enforcement is sought in a proceeding at law or in equity).
Each of the Parent Documents, assuming the due authorization, execution and delivery thereof
by each party thereto at the Closing, will constitute legal, valid and binding obligations
of Parent or Merger Sub, as applicable, enforceable against Parent or Merger Sub, as
applicable, in accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar Laws
affecting the enforcement of creditors’ rights generally and subject to general principles
of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

     Section 4.3.2 The Parent Board has unanimously (a) approved and declared advisable the
Merger, this Agreement and each of the Parent Documents, and the transactions contemplated
hereby and thereby; and (b) directed that a proposal to enter into this Agreement and each
of the Parent Documents and to consummate the transactions contemplated hereby and thereby
be submitted to the Parent Shareholders for their approval, with the Parent Board’s
recommendation that the Parent Shareholders approve and adopt such proposal.

     Section 4.3.3 The only vote of the holders of any class or series of Parent’s capital
stock necessary to approve and adopt the proposal referenced in Section 4.3.2(b) is
the affirmative vote, at a meeting duly called and held, of the
holders of a majority of the shares of Parent Common Stock entitled to vote thereon represented, in person or by

24

 

proxy, at such meeting (the “Parent Shareholder Approval”), in accordance with the
provisions of the Parent Governing Documents and applicable Laws.

     Section 4.3.4 The sole director of Merger Sub has (a) approved and declared advisable
the Merger, this Agreement and each of the Parent Documents, and the transactions
contemplated hereby and thereby; and (b) directed that a proposal to enter into this
Agreement and each of the Parent Documents and to consummate the transactions contemplated
hereby and thereby be submitted to Parent, as the sole shareholder of Merger Sub, for its
approval, with such sole director’s recommendation that Parent approve and adopt such
proposal.

     Section 4.3.5 The only vote of the holders of any class or series of Merger Sub’s
capital stock necessary to approve and adopt the proposal referenced in Section
4.3.4(b) is the affirmative vote by written consent in lieu of any meeting of Parent as
the sole shareholder of Merger Sub in accordance with the provisions of the Parent Governing
Documents and applicable Laws.

     Section 4.4 Capitalization.

     Section 4.4.1 The authorized capital stock of Parent consists of 100,000,000 shares of
Parent Common Stock, of which there were 3,807,417 shares issued and outstanding, held by
831 shareholders of record, as of July 1, 2006; and 10,000,000 shares of Parent Preferred
Stock, of which there are no shares issued and outstanding as of the date hereof. Each of
the outstanding shares of Parent Common Stock (a) has been offered and sold in compliance
with all applicable securities Laws; (b) has been duly
authorized and validly issued in compliance with all applicable Laws, the provisions of
the Parent Governing Documents and all requirements set forth in contracts; (c) is fully
paid and nonassessable; and (d) is free of preemptive rights.
Except as set forth below, no shares of Parent Common Stock or Parent
Preferred Stock are, and at the Effective Time no shares of Parent Common Stock or Parent Preferred Stock will be, reserved for any purpose.
As of the date hereof, 5,381,019 shares of Parent Common Stock are issuable (and such number
was reserved for issuance) upon exercise of (i) options to purchase Parent Common Stock; or
(ii) asset-for-stock purchase agreements for Parent Common Stock (collectively, “Parent
Options”) outstanding, a true, complete and correct list of which is set forth in
Section 4.4.1 of the Parent Diligence Letter. Except as set forth in Section 4.4.1 of the
Parent Diligence Letter, no shares of Parent Common Stock are, and at
the Effective Time no shares of Parent Common Stock will be, reserved for any purpose. Prior to the filing of the
Registration Statement, each outstanding share of Parent Common Stock (a) will have been
offered and sold in compliance with all applicable securities Laws; (b) will have been duly
authorized and validly issued in compliance with all applicable Laws, the provisions of the
Parent Governing Documents and all requirements set forth in contracts; (c) will be fully
paid and nonassessable; and (d) will be free of preemptive rights. The Parent Common Stock
is, and at the Effective Time will be, quoted on the OTC Bulletin Board under the ticker
symbol “TBXC.” There are no declared or accrued but unpaid dividends or distributions with
respect to any shares of Parent Common Stock.

25

 

     Section 4.4.2 The shares of Parent Common Stock to be issued in connection with the
Merger, when issued as contemplated hereby, will be duly authorized, validly issued, fully
paid and nonassessable and will not be issued in violation of any applicable Laws, provision
of the Parent Governing Documents or requirements set forth in applicable contracts.

     Section 4.4.3 Except as set forth in Section 4.4.3 of the Parent Diligence Letter, as
of the date hereof, except for outstanding and unexercised Parent Options to purchase not
more than 5,381,019 shares of Parent Common Stock pursuant to any equity incentive plan of
Parent, or any other plan, agreement, or arrangement of Parent in existence on the date
hereof (collectively, the “Parent Stock Option Plans”): (a) there are no
outstanding options or warrants or other rights, agreements, arrangements or commitments of
any character (including stock appreciation rights, phantom stock or similar rights,
agreements, arrangements or commitments) to which Parent or Merger Sub is a party or by
which Parent or Merger Sub is bound (i) relating to the issued or unissued Parent Common
Stock; (ii) obligating Parent or Merger Sub to issue, deliver, sell, repurchase, redeem or
otherwise acquire or dispose of, or cause to be issued, delivered, sold, repurchased,
redeemed or otherwise acquired or disposed of, any shares of Parent Common Stock; (iii)
obligating Parent or Merger Sub to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, right, agreement,
arrangement or commitment; or (iv) obligating Parent to grant, issue or sell any shares of
Parent Common Stock by sale, lease, license or otherwise; (b) no shares of Parent Common
Stock are subject to repurchase rights, vesting or similar restrictions as of the date
hereof; (c) Parent is not a party to any, and as of the date hereof, to the Knowledge of
Parent, there are no other, voting trusts, proxies or other agreements or
understandings with respect to the voting interests of Parent; and (d) there are no
agreements, arrangements or commitments of any character (contingent or otherwise) pursuant
to which (i) Parent is or could be required to register the offer or sale of shares of
Parent Common Stock or other securities under the 1933 Act; or (ii) any Person is or may be
entitled to receive any payment based on the revenues or earnings, or calculated in
accordance therewith, of Parent. Except as set forth in Section 4.4.3 of the Parent
Diligence Letter, there are no Parent Options other than those issued pursuant to Parent
Stock Option Plans, and Parent has provided to Target true, correct, and complete copies of
all Parent Stock Option Plans.

     Section 4.4.4 Except as set forth in Section 4.4.4 of the Parent Diligence Letter,
there are no preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of shares of Parent Common Stock to
which Parent is a party or by which Parent is bound.

     Section 4.5 Subsidiaries; Merger Sub; No Prior Activities.

     Section 4.5.1 Parent has no Subsidiaries other than Merger Sub. Except as set forth in
Section 4.5 of the Parent Diligence Letter, Parent does not hold or own, directly or
indirectly, has not agreed to purchase or otherwise acquire and does not hold any interest
convertible into or exchangeable or exercisable for any securities, equity interests or
rights in any other corporation, partnership, joint venture or other Person

26

 

(other than
Merger Sub), and there are no outstanding contractual obligations of Parent to provide
material funds to, or make any material investment (in the form of a loan, capital
contribution or otherwise) in, or provide any guarantee with respect to the obligations of,
any other Person.

     Section 4.5.2 Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.

     Section 4.5.3 All of the outstanding capital stock of Merger Sub is owned directly by
Parent, free and clear of all Liens. There are no outstanding options or warrants or other
rights, agreements, arrangements or commitments of any character (including stock
appreciation rights, phantom stock or similar rights, agreements, arrangements or
commitments) to which Parent or Merger Sub is a party or by which Parent or Merger Sub is
bound (a) relating to the issued or unissued capital stock of Merger Sub; (b) obligating
Merger Sub to issue, deliver, sell, repurchase, redeem or otherwise acquire or dispose of,
or cause to be issued, delivered, sold, repurchased, redeemed or otherwise acquired or
disposed of, any shares of capital stock of Merger Sub; (c) obligating Merger Sub to grant,
issue or sell any shares of capital stock of Merger Sub by sale, lease, license or
otherwise. There are no shares of capital stock of Merger Sub subject to repurchase rights,
vesting or similar restrictions. There are no agreements, arrangements or commitments of
any character (contingent or otherwise) pursuant to which (i) Merger Sub is or could be
required to register the offer or sale of shares of capital stock of Merger Sub or other
securities under the 1933 Act; or (ii) any Person is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in accordance therewith, of Merger
Sub.

     Section 4.5.4 Except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this Agreement or any
Ancillary Document, Merger Sub has not and will not have incurred, directly or indirectly,
any obligations or liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any Person.

     Section 4.6 No Violation. The execution and delivery of this Agreement and each of
the Parent Documents by Parent and Merger Sub do not, and neither the performance by Parent and
Merger Sub of their obligations hereunder and thereunder nor the consummation by Parent and Merger
Sub of the transactions contemplated hereby and thereby will, (a) assuming receipt of the Parent
Shareholder Approval, conflict with or violate any provisions of the Parent Governing Documents as
in effect at the Effective Time; (b) assuming compliance with the matters referred to in
Section 4.7, conflict with or violate any Law or judgment applicable to Parent or Merger
Sub or by or to which any of their respective assets or properties is bound or subject; (c) result
in the creation or imposition of any Lien (other than Permitted Liens) on any of Parent’s or Merger
Sub’s assets or properties; or (d) assuming compliance with the matters referred to in Section
4.7, require any consent or other action by any Person under, or result in any breach of or
constitute a default (or an event that with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, change in control, amendment, modification,
enhancement of rights of third parties, revocation of grant of rights or assets, placement into or
release from escrow of any of Parent’s or Merger Sub’s assets or properties,

27

 

acceleration or
cancellation of, or require payment under, or result in a loss of any benefit to which Parent or
Merger Sub is entitled or the creation of any Lien (other than Permitted Liens) on any of Parent’s
or Merger Sub’s assets or properties pursuant to, any note, bond, mortgage, indenture, deed of
trust, contract, agreement, lease, license, permit, franchise or other instrument or obligation to
which Parent or Merger Sub is a party or by or to which Parent or Merger Sub or any of their
respective assets or properties is bound or subject, except as would not, individually or in the
aggregate, be reasonably expected to have a Parent Material Adverse Effect, or any notice or other
action the absence of which would not, individually or in the aggregate, be reasonably expected to
have a Parent Material Adverse Effect.

     Section 4.7 Approvals. No Approval or declaration of, filing or registration with or
notification to any Governmental Authority or other Person is required to be made, obtained or
given by or with respect to Parent or Merger Sub in connection with the execution and delivery by
Parent and Merger Sub of this Agreement, the performance by Parent and Merger Sub of their
obligations hereunder or the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (a) such Approvals, declarations, filings, registrations and notifications that
if not made, obtained or given would not reasonably be expected to have a Parent Material Adverse
Effect; (b) the filing of the Certificate of Merger with the Secretaries of State of the States of
Texas and Nevada; (c) the Parent Shareholder Approval; or (d) as is required under the Exchange
Act, the 1933 Act, any applicable state securities Laws or the rules and regulations of the NASD.

     Section 4.8 SEC Filings; Financial Statements. 

     Section 4.8.1 Except as set forth in Section 4.8.1 of the Parent Diligence Letter: (a)
Parent has timely filed all registration statements, prospectuses, forms, reports and
documents required to be filed by it under applicable securities Laws during the past three
years (collectively, the “Parent SEC Filings”); and (b) each Parent SEC Filing, at
the time it was filed with the SEC, complied in all material respects with the requirements
of applicable securities Laws, and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which they were made,
not false or misleading, except to the extent corrected by a subsequent Parent SEC Filing
filed prior to the Effective Time.

     Section 4.8.2 Parent has no Liabilities, except (a) Liabilities provided for in the
Parent Financial Statements (other than Liabilities that, in accordance with GAAP, need not
be disclosed); (b) Liabilities (including accounts payable) incurred since May 31, 2006 in
the ordinary course of business consistent with past practice that are no greater than
$2,500 in the aggregate; (c) such other Liabilities that are no more than $500 individually
or $2,500 in the aggregate; or (d) as set forth in Section 4.8.2 of the Parent Diligence
Letter. To the Knowledge of Parent, there is no basis for the assertion against Parent or
Merger Sub of any Liabilities not adequately reflected or reserved against in the Parent
Financial Statements.

     Section 4.8.3 Each of the consolidated financial statements contained in the Parent SEC
Filings and each of the Parent Financial Statements (including, in each case,

28

 

any notes thereto) was prepared in accordance with GAAP applied (except as may be indicated in the
notes thereto and, in the case of unaudited quarterly financial statements, as permitted by
Form 10-Q under the Exchange Act) on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto), and each presented fairly the
consolidated financial position of Parent as of the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments, which were not material). The books and records
of Parent have been, and are being, maintained in accordance with applicable legal and
accounting requirements, and fairly and accurately set out and disclose in all material
respects the financial condition and results of operations of Parent at the date hereof.
All financial transactions relating to Parent have been accurately recorded in such books
and records and the minute books of Parent contain all records of the meetings and
proceedings of the Parent Board and the Parent Shareholders.

     Section 4.8.4 At the time of delivery pursuant to Section 5.15, the Parent
Financial Statements will present fairly the financial condition and results of operations
of Parent at such dates and for the respective periods indicated in such Parent Financial
Statements and will have been prepared from, and in accordance with, the information
contained in the books and records of Parent, which have been regularly kept and maintained
in accordance with Parent’s normal and customary practices and applicable accounting
practices, and will have been prepared in accordance with GAAP, except as
otherwise stated in the notes thereto. The Parent Financial Statements will not
contain any items of a special or nonrecurring nature, except as expressly stated therein.

     Section 4.8.5 Except as set forth in Section 4.8.5 of the Parent Diligence Letter,
since Parent’s quarterly report on Form 10-Q for the quarter ended August 31, 2006, neither
Parent nor Merger Sub has incurred any material Liability of the type required to be set
forth on a balance sheet of Parent or Merger Sub, or the notes thereto prepared in
accordance with GAAP, except (a) Liabilities incurred in the ordinary course of business and
consistent with past practice; (b) as may be shown, accrued or reserved against in the
Parent SEC Filings or reflected in the Parent Financial Statements, or in the notes thereto;
or (c) Liabilities incurred in connection with this Agreement; provided, that all
Liabilities of the type described in clauses (a), (b) and (c) above would not, individually
or in the aggregate, result in a Parent Material Adverse Effect and do not exceed in the
aggregate $50,000, and none of such Liabilities results from, arises out of, relates to, is
in the nature of or was caused by any breach of contract, tort, breach of warranty,
infringement or violation of Law.

     Section 4.8.6 There are no outstanding loans by Parent to any of the Parent
Shareholders or to any director or officer of Parent.

     Section 4.8.7 Except as set forth in Section 4.8.7 of the Parent Diligence Letter,
Parent is in compliance with Rule 13a-15 under the Exchange Act.

     Section 4.9 Ordinary Course Operations. Except as set forth in the Parent SEC Filings
filed through the date hereof, since November 30, 2005, Parent has conducted its business in the

29

 

ordinary course, consistent with past practice, and Parent has not taken any of the actions set
forth in Section 5.2 except as permitted pursuant to Section 5.2.

     Section 4.10 Absence of Litigation. Except as set forth in Section 4.10 of the Parent
Diligence Letter: (a) there is no Litigation pending or, to the Knowledge of Parent, threatened by
any Person against or relating to Parent, Merger Sub or any of their respective officers,
directors, employees (based on events allegedly occurring during the course of employment) or
agents (in their capacities as such) or to which any of Parent’s assets, properties or rights is
subject or for which Parent or Merger Sub is obligated to indemnify any third party; (b) there is
no reason to believe that any such Litigation may be brought or threatened against Parent, Merger
Sub or any of their respective officers, directors, employees (based on events allegedly occurring
during the course of employment) or agents (in their capacities as such); (c) there is no
investigation or other proceeding pending or, to the Knowledge of Parent, threatened against
Parent, Merger Sub or any of their respective officers, directors, employees (based on events
allegedly occurring during the course of employment) or agents (in their capacities as such) or
their properties (tangible or intangible) or for which Parent or Merger Sub is obligated to
indemnify any third party; (d) no Governmental Authority has at any time during the last three
years provided Parent with written notice challenging or questioning in any material respect the
legal right of Parent to conduct its
operations as conducted at such time or as presently conducted; (e) neither Parent nor Merger
Sub is subject to or bound by (i) any currently existing or outstanding judgment, order, writ,
injunction, decree, ruling or charge, or any continuing order, finding or consent decree of, or
settlement agreement or other similar written agreement with, or continuing investigation by, any
Governmental Authority or arbitrator, including without limitation cease-and-desist or other
orders; or (ii) any settlement agreement or other similar written agreement with ongoing
obligations for Parent or Merger Sub; and (f) neither Parent nor Merger Sub has received any
opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any Liability or disadvantage that may be material to its business, prospects,
financial condition, operations, property or affairs.

     Section 4.11 Compliance with Laws. Except as set forth in Section 4.11 of the Parent
Diligence Letter: (a) each of Parent and Merger Sub is currently complying with and has at all
times since January 1, 2003 complied in all respects with all applicable Laws (other than
Environmental Laws, which are addressed under Section 4.13) applicable thereto, including
without limitation those applicable by virtue of a contractual relationship with a third party; and
(b) neither Parent nor Merger Sub is in violation of or in default under, and to the Knowledge of
Parent, no event has occurred that, with the lapse of time or the giving of notice or both, would
result in the material violation of or default under, the terms of any judgment, order, settlement
or decree of any Governmental Authority.

     Section 4.12 Permits. Section 4.12 of the Parent Diligence Letter sets forth a
complete and accurate listing of all Permits (other than Permits required under Environmental Laws,
which are addressed under Section 4.13) necessary for Parent to own, lease and operate its
properties or to carry on its business as it is now being conducted (collectively, the “Parent
Permits”). Except as set forth in Section 4.12 of the Parent Diligence Letter: (a) Parent is
in possession of all such Parent Permits; (b) there is no Litigation pending or threatened
regarding suspension or cancellation of any of the Parent Permits; and (c) to the Knowledge of
Parent, all such Parent Permits are valid and in full force and effect.

30

 

     Section 4.13 Environmental Matters. Except as set forth in Section 4.13 of the Parent
Diligence Letter: (a) Parent and Merger Sub are, and at all times have been, in compliance with
all applicable Environmental Laws (which compliance includes without limitation the possession by
Parent or Merger Sub of all Parent Permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions thereof); (b) neither
Parent nor Merger Sub has received any written communication alleging that Parent or Merger Sub is
not so in compliance, and there is no past or present Litigation, activity, circumstance,
condition, event or incident that may prevent or interfere with such compliance in the future; (c)
there are no Parent Permits or other governmental authorizations currently held, or required to be
held, by Parent or Merger Sub pursuant to applicable Environmental Laws; (d) there is no material
Environmental Claim pending or, to the Knowledge of Parent, threatened against Parent or
Merger Sub or, to the Knowledge of Parent, against any Person with respect to whom Parent or
Merger Sub has or may have retained or assumed any Liability for any Environmental Claim, either
contractually or by operation of Law; and (e) there is no past or present Litigation, activity,
circumstance, condition, event or incident, including without limitation, the Release, threatened
Release or presence of any Hazardous Material, that reasonably would be expected to form the basis
of a material Environmental Claim against Parent or Merger Sub, or to the Knowledge of Parent,
against any Person with respect to whom Parent or Merger Sub has or may have retained or assumed
any Liability for any Environmental Claim, either contractually or by operation of Law.

     Section 4.14 Oil and Gas Matters.

     Section 4.14.1 Leases. Section 4.14.1 of the Parent Diligence Letter sets
forth a complete and accurate listing of Parent’s interest in each of the Leases. Except as
set forth in Section 4.14.1 of the Parent Diligence Letter: (a) each of the Leases (i) is
in full force and effect; (ii) is valid and subsisting; (iii) covers the entire estates it
purports to cover; and (iv) contains no express provisions that require the drilling of
additional wells or other material development operations in order to earn or to continue to
hold all or any portion of the Oil & Gas Interests; and (b) Parent has never been advised
directly or indirectly by any lessor under any Lease or by any other Person of any default
under any Lease, or of any requirements or demands to drill additional wells on any of the
Lands other than those described in Section 4.14.1 of the Parent Diligence Letter.

     Section 4.14.2 Wells. Section 4.14.2 of the Parent Diligence Letter sets forth
a complete and accurate listing of Parent’s interest in each of the Wells.

     Section 4.14.3 Reserve Report. Except as set forth in the Reserve Report, a
true, complete and correct copy of which is set forth in Section 4.14.3 of the Parent
Diligence Letter, Parent has no information or Knowledge with respect to any of the Leases
or the Wells that has not been fully disclosed to Target prior to the date hereof.

     Section 4.14.4 Oil & Gas Contracts. Section 4.14.4 of the Parent Diligence
Letter sets forth a complete and accurate listing of each operating agreement, royalty
agreement, production sales contract, assignment, division order and other agreement or
contract to which Parent is a party pertaining to any of the Oil & Gas Interests. Except as
set forth in Section 4.14.4 of the Parent Diligence Letter: (a) Parent is not in default

31

 

under any of the Oil & Gas Contracts; (b) there are no contracts or other agreements besides
the Oil & Gas Contracts pertaining to the Oil & Gas Interests that require any further
action on the part of Parent or require Parent to perform any obligations thereunder; and
(c) except as specifically indicated in the Oil & Gas Contracts, no Hydrocarbons produced
from any of the Oil & Gas Interests are subject to any sales contract or other agreement
relating to the production, gathering, transporting, processing, treating or marketing of
such Hydrocarbons, and no Person has any option to purchase, call upon or similar right with
respect to any of the Oil & Gas Interests or to any production therefrom.

     Section 4.14.5 Payment of Royalties. Except as set forth in Section 4.14.5 of
the Parent Diligence Letter, All royalties, rentals and other payments due under any of the
Leases have been properly and timely paid, and all conditions to be performed or complied
with by Parent in order to keep the Leases in full force and effect have been fully
performed or complied with by Parent as required therein.

     Section 4.14.6 Gas Imbalances and Prepayment. Except as set forth in Section
4.14.6 of the Parent Diligence Letter, Parent is not obligated, by virtue of any prepayment,
“take or pay,” production payment or other agreement or arrangement to deliver any
Hydrocarbons to any Person at any time after the date hereof without then or thereafter
receiving full payment therefor.

     Section 4.14.7 No Well Abandonments or AFE’s. Except as set forth in Section
4.14.7 of the Parent Diligence Letter, during the last year, (a) Parent has not abandoned or
agreed to abandon, and to the Knowledge of Parent, no other Person has abandoned or agreed
to abandon, any of the Wells; (b) no proposal made by Parent, or to the Knowledge of Parent
made by any other Person, other than where substantially all work was completed prior to the
date hereof, has been approved, or is outstanding pending approval, to deepen, plug back or
rework any of the Wells, or to drill any new well or wells on any of the Lands, or to
conduct any other operations with respect to the Lands or the Leases, for which consent is
required under the applicable Oil & Gas Contract; (c) no such operations, other than where
substantially all work was completed prior to the date hereof, have been conducted or are
being conducted; and (d) Parent has not received any request for authorization for
expenditures that would (i) require the drilling of wells or other development operations in
order to earn or to continue to hold all or any portion of the Leases or Wells; or (ii)
obligate Parent to make payments of any amounts in connection with the drilling of wells or
other capital expenditures affecting the Leases or Wells.

     Section 4.15 Title to Oil & Gas Interests. As of the Effective Time, Parent will have
good and marketable title to the Oil & Gas Interests, free and clear of all Liens (except for
Permitted Liens). The Oil & Gas Interests entitle Parent to receive not less than the undivided
Net Revenue Interest described in Section 4.14.1 or 4.14.2 of the Parent Diligence Letter of all
indicated Hydrocarbons produced, saved and marketed from or attributable to the Lands and all Wells
located thereon or attributable thereto through the plugging, abandonment and salvage of such
Wells. Except as set forth in Sections 4.14.1 and 4.14.2 of the Parent Diligence Letter: (a)
Parent’s obligation to bear costs and expenses relating to the development of and operations on

32

 

the Leases, Lands and Wells located thereon or attributable thereto is not, and, through the plugging,
abandonment and salvage of such Wells, shall not be, greater than the “Operating Interests” set
forth in Section 4.14.1 or 4.14.2 of the Parent Diligence Letter; and (b) Parent has not abandoned
or failed to maintain any of the Oil & Gas Interests.

     Section 4.16 Real Property. Except as set forth in Section 4.16 of the Parent Diligence Letter: (a) Parent does not
currently own or ground lease, and has never owned or ground leased, any real property; (b) Target
has no leases, subleases, licenses or other agreements (such leases, subleases, licenses and other
agreements listed in Section 3.14 of the Target Diligence Letter, including all amendments,
modifications or supplements with respect thereto, collectively, the “Parent Real Property
Leases”), under which Parent or Merger Sub uses or occupies or has the right to use or occupy
any real property that provides for payments in excess of $50,000 per annum (the land, buildings
and other improvements covered by the Parent Real Property Leases and any other rights of the
tenant thereunder being herein called the “Parent Leased Real Property”), including the
address of the premises demised under each Parent Real Property Lease and the landlord, rent and
use thereof; (c) each of the Parent Real Property Leases is a legal, valid and binding obligation
of Parent, enforceable against Parent in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar Laws
affecting the enforcement of creditors’ rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (d)
Parent has not subleased any of the Parent Leased Real Property or given any third party any
license or other right to occupy any portion of the Parent Leased Real Property; (e) neither the
operations of Parent on the Parent Leased Real Property nor, to the Knowledge of Parent, such
Parent Leased Real Property, including the improvements thereon, violate in any material respect
any applicable building code, zoning requirement or classification or statute relating to the
particular property or such operations; (f) Parent has delivered or otherwise made available to
Target a true, complete and correct copy of each of the Parent Real Property Leases, and (i) Parent
has not has waived any term or condition thereof, and all material covenants to be performed by
Parent thereunder prior to the Closing Date, or, to the Knowledge of Parent, any other party to any
Parent Real Property Lease, have been performed in all material respects; (ii) Parent is current
(and not late) with respect to all rental payments due thereunder; (iii) no security deposit or
portion thereof deposited with respect to any Parent Real Property Lease has been applied in
respect of a breach or default thereunder that has not been redeposited in full; and (iv) Parent
has not collaterally assigned or granted any security interest in any Parent Real Property Lease or
any interest therein; and (g) the Parent Leased Real Property is in good operating condition,
normal wear and tear accepted, is reasonably fit and useable for the purpose for which it is being
used, is adequate and sufficient for Parent’s business, and conforms in all material respects to
all applicable Laws.

     Section 4.17 Personal Property; Assets. Except as set forth in Section 4.17 of the
Parent Diligence Letter: (a) Parent does not own any equipment or fixtures having a book value in
excess of $10,000 that (i) were purchased by Parent or Merger Sub since May 31, 2006; or (ii) are
owned by third Persons, including any customers of Parent, and used by Parent in its business; (b)
neither Parent nor Merger Sub is a party to, and neither Parent nor Merger Sub, nor any of their
respective properties or assets, are bound by, any lease, sublease, license or other similar
agreement with respect to personal property and equipment that provides for payments in excess of
$5,000 per annum; (c) Parent has good, legal and marketable title to all of its personal

33

 

property and assets (collectively, the “Parent Assets”), free and clear of all Liens (except for
Permitted Liens); (d) the Parent Assets include or will include as of the Closing Date, without
limitation, all personal property, both tangible and intangible, necessary to conduct Parent’s
business as it is now being
conducted; (e) all material items of personal property and assets owned by Parent or Merger
Sub are in good operating condition, normal wear and tear excepted; are reasonably fit and usable
for the purposes for which they are being used; are adequate and sufficient for Parent’s or Merger
Sub’s business, as applicable; and conform in all material respects with all applicable Laws; and
(f) the carrying value of Parent’s and Merger Sub’s assets in the Parent Financial Statements is
not overstated in any material respect.

     Section 4.18 Scheduled Contracts; No Default. Except as set forth in Section 4.18 of
the Parent Diligence Letter:

     Section 4.18.1 (a) Parent is not a party to any material agreement other than those set
forth in the true, complete and correct list of all written agreements (including all
amendments thereto) to which Parent is a party or a beneficiary or by which Parent or any of
its assets or properties is bound as shown in Section 4.18.1 of the Parent Diligence Letter,
including without limitation: (i) any contract involving an investment by Parent in any
Person other than Merger Sub; (ii) any contract of Parent that involves a financing
arrangement in excess of $50,000, other than purchase orders entered into in the ordinary
course of business that contain customary terms and conditions; (iii) any employment
agreement with any key officer or any employee of Parent or Merger Sub; (iv) any loan
agreement, note, mortgage, indenture, security agreement or other agreement or instrument
relating to the borrowing of money in excess of $50,000; (v) any agreement with any
Affiliate of Parent; (vi) any contract that contains any material non-competition,
exclusivity or similar restriction relating to the geographical area of operations or scope
or type of business of Parent or Merger Sub; (vii) any contract relating to any acquisition
or disposition of any capital stock or equity interest of Parent; (viii) any contract that
requires stated payments in excess of $50,000 per annum; (ix) any contract that as of the
date hereof would constitute a “material contract” as such term is defined in Item
601(b)(10) of Regulation S-K promulgated under the 1933 Act; and (x) any contract that would
prohibit or materially delay the consummation of the Merger or any of the transactions
contemplated by this Agreement or any Ancillary Agreement (such contracts described in
clauses (i) through (x) above, collectively, the “Parent Scheduled Contracts”); and
(b) Parent has delivered to Target a true, complete and correct copy of each of the Parent
Scheduled Contracts.

     Section 4.18.2 With respect to each Parent Scheduled Contract: (a) such Parent
Scheduled Contract is legal, valid, binding and in full force and effect and enforceable
against Parent or Merger Sub, as applicable, in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting the enforcement of creditors’ rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in a proceeding at law or
in equity); (b) Parent has performed all of its obligations that have become due under such
Parent Scheduled Contract, and there exists no breach or default (or event that with notice
or lapse of time would constitute a breach or default) on the part of Parent, Merger Sub or,
to the Knowledge of Parent, any other

34

 

Person under such Parent Scheduled Contract; (c) there
has been no termination or notice of default or any threatened termination under such Parent
Scheduled Contract; and (d)
neither Parent nor Merger Sub has any present expectation or intention of terminating
or not fully performing any of their respective obligations under such Parent Scheduled
Contract.

     Section 4.18.3 None of the Parent Scheduled Contracts will require Approval from
Parent’s counterparty with respect to the Merger, and the Merger will not result in a
breach, termination, termination right or change in any right or obligation under any Parent
Scheduled Contract.

     Section 4.18.4 None of the Parent Scheduled Contracts, and no other agreement,
understanding or proposed transaction to which Parent is a party, is reasonably likely to
cause a Parent Material Adverse Effect or affect Parent’s or Merger Sub’s ability to
consummate the Merger and the other transactions contemplated hereby.

     Section 4.19 Intellectual Property Matters. Except as set forth in Section 4.19 of
the Parent Diligence Letter: (a) neither Parent nor Merger Sub has any: (i) trademarks, trade
names, brand names, service marks or other trade designations owned or licensed by or to Parent or
Merger Sub; (ii) patents or copyrights owned or licensed to or by Parent or Merger Sub; (iii)
license, royalty or assignment agreements; (iv) registrations or applications relating to any of
the foregoing; or (v) agreements relating to technology, know-how or processes that Parent or
Merger Sub is licensed or authorized to use, or that Parent or Merger Sub licenses or authorizes
others to use; (b) no Person has asserted any claim that any activity or operation of Parent or
Merger Sub infringes upon, misappropriates, dilutes, violates or otherwise involves, or has
resulted in the infringement, misappropriation, dilution or violation of, any material proprietary
right of such Person, and no proceedings have been instituted or are pending or, to the Knowledge
of Parent, threatened that challenge the rights of Parent or Merger Sub with respect thereto; and
(c) to the Knowledge of Parent, there is no reasonable basis for a claim regarding any of the
foregoing.

     Section 4.20 Taxes. Except as set forth in Section 4.20 of the Parent Diligence
Letter:

     Section 4.20.1 Each of Parent and Merger Sub has duly and timely filed (or there has
been filed on its behalf) with the appropriate Governmental Authorities all Tax Returns
(including all relevant elections associated with those Tax Returns) required to be filed by
them or with respect to their income, properties or operations, and all such Tax Returns are
true, complete and correct in all material respects; and all Taxes of Parent and Merger Sub
whether or not shown to be due on such Tax Returns have been timely paid in full.

     Section 4.20.2 Parent and Merger Sub have each, in accordance with all applicable Laws,
withheld and timely paid to the appropriate Governmental Authority all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other Person.

35

 

     Section 4.20.3 There are no Liens for Taxes upon any of the assets or properties of
Parent.

     Section 4.20.4 Neither Parent nor Merger Sub has requested any extension of time within
which to file any Tax Return in respect of any taxable year which has not since been filed,
and no outstanding waivers or comparable consents regarding the application of the statute
of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of
Parent or Merger Sub that are still in effect other than those that arise by filing a Tax
Return by the extended due date.

     Section 4.20.5 There is no audit, action, suit, proceeding or investigation now
pending, or, to the Knowledge of Parent, threatened with regard to any Tax or Tax Returns of
Parent or Merger Sub; nor has Parent received written notice to the effect that, and Parent
has no Knowledge that, any Governmental Authority intends to conduct such an audit or
investigation.

     Section 4.20.6 All Tax deficiencies which have been claimed, proposed or asserted
against Parent or Merger Sub by any Governmental Authority have been fully paid or are being
contested in good faith by appropriate proceedings, are adequately reserved for in the
Parent Financial Statements and are described in Section 4.20 of the Parent Diligence
Letter.

     Section 4.20.7 Neither Parent nor Merger Sub has agreed, has proposed or is required to
make any adjustments under Section 481(a) of the Code by reason of any voluntary or
involuntary change in accounting method (nor has any Governmental Authority proposed any
such adjustment or change of accounting method).

     Section 4.20.8 Neither Parent nor Merger Sub is a party to any closing agreement with
any Governmental Authority that would be binding on Parent or the Surviving Corporation
after the Closing, and neither Parent nor Merger Sub is subject to any private letter ruling
of the Internal Revenue Service or comparable rulings of other Governmental Authorities that
would be binding on Parent or the Surviving Corporation after the Closing, and there are no
outstanding requests for such rulings from any Governmental Authority.

     Section 4.20.9 Neither Parent nor Merger Sub is a party to, is bound by or has any
obligation under any Tax sharing, Tax indemnification or tax allocation or other similar
contract or arrangement.

     Section 4.20.10 Parent has previously delivered or made available to Target true,
complete and correct copies of (a) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by a Governmental Authority relating to the United
States federal, state, local or foreign income Taxes due from or with respect to Parent or
Merger Sub; and (b) all United States federal income Tax Returns, and state income Tax
Returns filed by Parent or Merger Sub (or, in each case, on its behalf) for tax periods
ending on or after December 31, 2003.

36

 

     Section 4.20.11 Neither Parent nor Merger Sub (a) has ever been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code other than
the group of which the common parent is Parent; or (b) has any Liability for the Taxes of
any person as defined in Section 7701(a)(1) of the Code (other than Parent or Merger Sub),
under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or
foreign Law), as a transferee or successor, by contract or otherwise.

     Section 4.20.12 No written claim has been made within the past five years in a
jurisdiction where Parent or Merger Sub does not file Tax Returns to the effect that Parent
or Merger Sub is subject to taxation by such jurisdiction.

     Section 4.20.13 Neither Parent nor Merger Sub has distributed the stock of any
corporation in a transaction intending to satisfy the requirements of Section 355 of the
Code, and no stock of Parent or Merger Sub has been distributed in a transaction intending
to satisfy the requirements of Section 355 of the Code.

     Section 4.20.14 Neither Parent nor Merger Sub shall be required to include in a taxable
period ending after the Closing Date taxable income attributable to income of Parent or
Merger Sub that accrued in a prior taxable period but was not recognized in such prior
taxable period as a result of (a) the installment method of accounting; (b) the long-term
contract method of accounting; (c) a “closing agreement” as described in Section 7121 of the
Code (or any provision of any foreign, state or local Tax Law having similar effect); or (d)
Section 481 of the Code (or any provision of any foreign, state or local Tax Law having
similar effect).

     Section 4.20.15 Neither Parent nor Merger Sub has entered into any transaction that is
a “reportable transaction” (as defined in Treasury Regulations Section 1.6011-4, as modified
by Rev. Proc. 2004-68, Rev. Proc. 2004-67, Rev. Proc. 2004-66, Rev. Proc. 2004-65 and Rev.
Proc. 2004-45).

     Section 4.21 Insurance. Except as set forth in Section 4.21 of the Parent Diligence
Letter: (a) Parent maintains no insurance policies other than the true, complete and correct list
of each insurance policy maintained by Parent or Merger Sub relating to their respective
properties, assets, business, projects and directors, officers, employees or agents as set forth in
Section 4.21 of the Parent Diligence Letter; (b) such insurance policies are in full force and
effect, have been issued by insurers of recognized responsibility and insure against such losses
and risks, and in such amounts, on both a per occurrence and an aggregate basis, as are customary
in the case of corporations engaged in the same or similar business and similarity situated; (c)
neither Parent nor Merger Sub has received any notice or communication, either oral or written (i)
regarding the actual or possible cancellation or invalidation of any of such policies or regarding
any actual or possible adjustment in the amount of premiums payable with respect to any of said
policies; (ii) regarding any actual or possible refusal of coverage under, or any actual or
possible rejection of any claim under, any of such policies; (iii) that Parent or Merger Sub will
be unable to renew its existing insurance coverage as and when the same shall expire; or (iv) that
the issuer of any such policies may be unwilling or unable to perform any of its obligations
thereunder; (d) there is no
pending claim under any of Parent’s or Merger Sub’s insurance policies, and no event has
occurred or condition or circumstance exists that might (with or without notice or lapse of time),

37

 

directly or indirectly, give rise to, or serve as a basis for, any such claim; and (e) neither
Parent nor Merger Sub is in default with respect to any provision contained in any of their
respective insurance policies, and neither Parent nor Merger Sub has failed to give any notice or
present any presently existing claims under any of their respective insurance policies in due and
timely fashion.

     Section 4.22 Employees. Except as set forth in Section 4.22 of the Parent Diligence
Letter:

     Section 4.22.1 (a) Parent has no employees other than those set forth in the true,
complete and correct list set forth in Section 4.22 of the Parent Diligence Letter of (i)
each employee of Parent, together with such employee’s job title or classification, amount
of annual compensation as of the date hereof, total compensation paid during calendar year
2005 and amounts and forms of fringe and severance benefits; and (ii) each consultant,
contractor or subcontractor of Parent during calendar year 2005 or 2006 and for which a Form
1099 has been, or will be required to be, filed, together with such consultant’s,
contractor’s or subcontractor’s name and amount of annual compensation as of the date
hereof; and (b) none of such Persons has an employment agreement or understanding with
Parent, whether oral or written, that is not terminable upon notice by Parent without cost
or other Liability to Parent.

     Section 4.22.2 To the Knowledge of Parent, no key employee or independent contractor
and no group of Parent’s key employees or independent contractors has any plans to terminate
his, her or its employment or relationship as an employee or independent contractor with
Parent, nor does Parent have any present intention to terminate the employment of any key
employee or independent contractor, or group of employees or independent contractors.

     Section 4.22.3 To the Knowledge of Parent, no employee of Parent is a party to or is
otherwise bound by any agreement or arrangement (including without limitation
confidentiality agreements, noncompetition agreements, licenses, covenants or commitments of
any nature) or subject to any judgment, decree or order of any court or Governmental
Authority: (a) that would conflict with such employee’s ability to perform his or her
duties as an employee of Parent; or (b) that would conflict with Parent’s business as now
conducted or as proposed to be conducted.

     Section 4.22.4 (a) Parent is not delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for any services
performed through the date hereof or amounts required to be reimbursed to them through the
date hereof; (b) Parent is in compliance with all applicable Laws respecting employment,
fair employment practices, labor, payment and termination of labor, terms and conditions of
employment, workers’ compensation, nondiscrimination, immigration, benefits, collective
bargaining, occupational safety, plant closings, wages and hours and the payment of social
security and similar Taxes; and (c) to the Knowledge of Parent, no
present or former director, officer, employee or consultant of Target is in violation
in any material respect of any term of any employment contract, non-disclosure agreement,
non-competition agreement or restrictive covenant to a former employer relating to the right

38

 

of any such employee to be employed by Target because of the nature of the business
conducted or presently proposed to be conducted by it or to the use of trade secrets or
proprietary information of others.

     Section 4.22.5 (a) Parent is neither bound by nor subject to (and none of its assets or
properties is bound by or subject to) any written or oral commitment or arrangement with any
labor union, and no labor union has, to the Knowledge of Parent, sought to represent any of
Parent’s employees, representatives or agents; and (b) during the last five years, there has
been no: (i) collective bargaining agreement or any other agreement, whether in writing or
otherwise, with any labor organization, union, group or association applicable to the
employees of Parent; (ii) unfair labor practice complaint pending or, to the Knowledge of
Parent, threatened against Parent before the National Labor Relations Board or any other
federal, state local or foreign agency; (iii) pending or, to the Knowledge of Parent,
threatened strike, slow-down, work stoppage, lockout or other collective labor Litigation by
or with respect to any employees of Parent; or (iv) pending or, to the Knowledge of Parent,
threatened representation question or union or labor organizing activities with respect to
employees of Parent nor is Parent subject to any legal duty to bargain with any labor
organization on behalf of any employee of Parent.

     Section 4.22.6 (a) Parent does not, formally or informally, have a custom or practice
of paying severance payments to employees; and (b) Parent has identified in Section 4.22 of
the Parent Diligence Letter and has made available to Target true and complete copies of (i)
all agreements (including amendments thereto) with directors, officers or employees of or
consultants to Parent or Merger Sub committing either of them to make severance payments in
the event of termination or additional bonus payments upon the completion of the Merger; and
(ii) all written severance programs and policies of Parent with or relating to its
employees.

     Section 4.23 Employee Benefit Plans. Except as set forth in Section 4.23 of the
Parent Diligence Letter:

     Section 4.23.1 (a) Parent has no Employee Benefit Plan that is, or was within the past
six years, sponsored, maintained or contributed to or required to be contributed to by
Parent or any ERISA Affiliate, or to which Parent or an ERISA Affiliate is party, whether
written or oral, for the benefit of any current or former employee, officer, director or
consultant of Parent or any Subsidiary of Parent; and (b) neither Parent nor Merger Sub, nor
any ERISA Affiliate, has any commitment or formal plan, whether legally binding or not, to
create any material employee benefit plan that would affect any current or former employee,
officer, director or consultant of Parent or Merger Sub.

     Section 4.23.2 Neither Parent nor any ERISA Affiliate sponsors, maintains, contributes
to or has an obligation to contribute to, or has at any time within the last six
years sponsored, maintained, contributed to or had an obligation to contribute to, any
“multiemployer plan,” as such term is defined in Section 3(37) or Section 4001(a)(3) of
ERISA or comparable provisions of any other applicable Law or any pension plan (as

39

 

defined in Section 3(2) of ERISA) subject to Part 3 of Title I of ERISA, or Title IV of ERISA, or
Section 412 of the Code.

     Section 4.23.3 The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event: (a) entitle any current or former
employee, director, officer or consultant of Parent or any Subsidiary of Parent to severance
pay, unemployment compensation, loan forgiveness or any other payment; (b) accelerate the
time of payment or vesting, or increase the amount of, any compensation or benefits due any
such employee, director, officer or consultant.

     Section 4.23.4 Neither Parent nor any of its Subsidiaries sponsors, contributes to or
has any liability with respect to any employee benefit plan, program or arrangement that
provides or provided benefits to employees who perform or performed services for Parent
outside of the United States.

     Section 4.23.5 There is no agreement, contract, plan or arrangement to which Parent is
a party that may result, separately or in the aggregate, in the payment of any amount by
Parent or Merger Sub that is not deductible under Section 404 of the Code or that may be an
“excess parachute payment” within the meaning of Section 280G of the Code and no action by
Parent or any Subsidiary, whether pursuant to this Agreement or otherwise shall result in
the making of any such payment.

     Section 4.24 No Illegal Payments. Except as set forth in Section 4.24 of the Parent
Diligence Letter, neither Parent nor Merger Sub, nor any officer, director or agent of Parent or
Merger Sub, nor any other Person acting on behalf of Parent or Merger Sub, nor any Affiliate or
immediate family member of any of the foregoing, has (a) used any corporate or other funds of
Parent or Merger Sub for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or others, or
established or maintained any unlawful or unrecorded funds, in violation of any applicable Law; (b)
made any payment for the account or benefit, or using funds, of Parent or Merger Sub in violation
of applicable Law to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; (c) accepted or received any unlawful contributions, payments,
expenditures or gifts; or (d) made any false or fictitious entries in the books and records of
Parent or Merger Sub.

     Section 4.25 Tax Treatment. Except as set forth in Section 4.25 of the Parent
Diligence Letter, neither Parent nor Merger Sub has taken, agreed to take or failed to take any
action, or has Knowledge of any fact, agreement, plan or other circumstances, that is or would be
reasonably likely to prevent the Merger from qualifying as a tax-free reorganization within the
meaning of Section 368(a)(2)(E) of the Code.

     Section 4.26 Loans and Advances. Except as set forth in Section 4.26 of the Parent
Diligence Letter, (a) no director, officer or employee of Parent or Merger Sub and no member of his
or her immediate family is currently indebted to Parent or Merger Sub, other than as a result of
advances to employees in the ordinary course for travel and similar reimbursable expenses
consistent with Parent policy; (b) to the Knowledge of Parent, as of the date hereof none of such

40

 

Persons has any direct or indirect ownership interest in any firm or corporation with which Parent
or Merger Sub is affiliated or with which Parent or Merger Sub has a business relationship, or any
firm or corporation that competes with Parent; and (c) no director, officer or employee of Parent
or Merger Sub and no member of the immediate family of any director, officer or employee of Parent
or Merger Sub is directly or indirectly interested in any Parent Scheduled Contract with Parent.

     Section 4.27 Related-Party Transactions. Except as set forth in Section 4.27 of the
Parent Diligence Letter: (a) no Related Party with respect to Parent or Merger Sub is a party to,
or during the past two years has been a party to, any material transaction with Parent or Merger
Sub, including without limitation any issuance of any Parent Capital Securities or any contract,
agreement or other arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments to any such Person, other than
employment-at-will arrangements in the ordinary course of business, consistent with past practice;
(b) none of the foregoing Persons has any direct or indirect ownership interest in any Affiliate of
Parent, any Person with which Parent or Merger Sub has a business relationship or any Person that
competes with Parent or Merger Sub; (c) the terms of each of the transactions described in Section
4.27 of the Parent Diligence Letter are no less favorable to Parent or Merger Sub, as applicable,
than the terms that would be available for similar transactions with unrelated third parties; and
(d) each issuance, if any, of Parent Capital Securities to any Related Party with respect to Parent
or Merger Sub has been in exchange for consideration equal to or exceeding the fair market value of
such Parent Capital Securities.

     Section 4.28 Assumptions and Guaranties of Indebtedness. Except as set forth in
Section 4.28 of the Parent Diligence Letter, neither Parent nor Merger Sub has assumed, guaranteed,
endorsed or otherwise become directly or contingently liable for any indebtedness of any other
Person (including without limitation by way of agreement, contingent or otherwise, to purchase,
provide funds for payment, supply funds to or otherwise invest in such Person, or otherwise to
assure any creditor of such Person against loss), except for guaranties by endorsement of
negotiable instruments for deposit or collection in the ordinary course of business, consistent
with past practice.

     Section 4.29 No Brokers. Except as set forth in Section 4.29 of the Parent Diligence
Letter, no broker, finder, agent, intermediary, investment banker or other Person (other than
attorneys and accountants) is entitled to any brokerage, finder’s, agent’s or similar fee or
commission in
connection with this Agreement or the transactions contemplated hereby based upon arrangements
made by or on behalf of Parent.

     Section 4.30 Disclosure Documents. The Proxy Statement, the Registration Statement,
and any Other Filings, and any amendments or supplements thereto, do not, and will not, at (a) the
time the Registration Statement is declared effective, (b) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the shareholders of Parent, (c) the
time of the Parent Shareholders’ Meeting and (d) the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under which they were
made, not misleading. The representations and warranties contained in this Section 4.30
will not apply to statements or omissions included in the Proxy Statement or the

41

 

Registration Statement, or any Other Filings based upon information furnished in writing to the Parent or Merger
Sub by Target specifically for use therein.

     Section 4.31 Disclosure. No representation or warranty by Parent or Merger Sub
contained in this Agreement, and no statement of Parent or Merger Sub contained in the Parent
Diligence Letter or any other Parent Document, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the statements herein or
therein, not false or misleading.

Article V.

Covenants

     Section 5.1 Conduct of Business by Target Pending the Closing. Target agrees that,
between the date hereof and the earlier of the termination of this Agreement or the Effective Time
(the “Interim Period”), except as set forth in Section 5.1 of the Target Diligence Letter
or as specifically permitted or required by any other provision of this Agreement, unless Parent
shall otherwise agree in writing, Target will conduct its operations only in the ordinary and usual
course of business consistent with past practice, which shall include the raising of investment
capital prior to the filing of the Registration Statement, and will use commercially reasonable
efforts to keep available the services of its current key officers and employees and preserve its
current relationships with such of those customers, suppliers and other Persons with whom Target
has significant business relationships as is reasonably necessary to preserve substantially intact
its business organization and goodwill. Without limiting the foregoing, and as an extension
thereof, except as set forth in Section 5.1 of the Target Diligence Letter or as specifically
permitted or required by any other provision of this Agreement, Target shall not (unless required
by applicable Law), during the Interim Period, directly or indirectly, do, or agree to do, any of
the following without the prior written consent of Parent (which consent shall not be unreasonably
withheld or delayed):

     (a) amend or otherwise change the Target Governing Documents;

     (b) adopt or implement any shareholder rights plan;

     (c) change the composition or membership of the Target Board, or remove from office
(whether voluntary or involuntary) any officer of Target;

     (d) (i) increase the compensation or benefits payable or to become payable to any
director, officer, employee or consultant of Target, except for annual merit increases in
the ordinary course of business consistent with past practice and increases resulting from
the operation of compensation arrangements in effect prior to the date hereof; (ii) pay or
accrue any bonus to any director, officer, employee or consultant of Target, except in
accordance with past established practices therefor; (iii) grant any rights to severance or
termination pay to, or enter into or amend any employment or severance agreement with, any
director, officer or other employee or consultant of Target except to the extent such
severance or termination pay is due before the Effective Time; or (iv) establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing, thrift,

42

 

compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer, employee or consultant of Target, except as required by
applicable Law;

     (e) issue, sell, pledge, dispose of, grant, transfer or encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer or encumbrance of, any shares of Target
Common Stock or any other securities of Target (whether by merger, consolidation or
otherwise), or any securities convertible or exchangeable or exercisable for any shares of
Target Common Stock or any other securities of Target, or any options, warrants or other
rights of any kind to acquire any shares of Target Common Stock or any other securities of
Target or such convertible or exchangeable securities, or any other ownership interest
(including without limitation any such interest represented by contract right) of Target,
except in accordance with past practice or in accordance with the contemplated transactions
described in Section 5.1(e) of the Target Diligence Letter;

     (f) sell, lease, license, exchange, grant, mortgage, pledge, guarantee, transfer,
encumber or otherwise dispose of, or agree to or authorize the sale, lease, license,
exchange, grant, mortgage, pledge, guarantee, transfer, encumbrance or disposition of, any
of its assets or properties with a value in excess of $5,000 (whether by merger,
consolidation or otherwise), except for (i) dispositions of assets, goods, services or
inventories in the ordinary course of business and consistent with past practice; (i) the
sale of unused or obsolete equipment; or (iii) pursuant to existing contracts or
commitments;

     (g) declare, set aside, make or pay any dividend or other distribution (whether payable
in cash, stock, property or a combination thereof) with respect to the Target Common Stock
or enter into any agreement with respect to the voting of the Target Common Stock;

     (h) (i) redeem, purchase or otherwise acquire, or agree to redeem, purchase or
otherwise acquire, any shares of Target Common Stock or any securities or obligations
convertible into or exchangeable for any shares of Target Common Stock, or any options,
warrants or conversion or other rights (including any stock appreciation rights, phantom
stock or similar rights) to acquire any shares of Target Common Stock or any such securities
or obligations; (ii) adopt a plan with respect to or effect any liquidation, dissolution,
restructuring, reorganization or recapitalization; or (iii) split, subdivide, combine or
reclassify any shares of Target Common Stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for shares of Target
Common Stock;

     (i) acquire or agree to acquire, by merging or consolidating with, by purchasing an
equity interest in or a portion of the assets or properties of, or by any other manner, any
business or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets or properties of any
other Person, including without limitation any rigs, compressors, pump jacks or other
capital equipment regularly used in connection with any drilling operations

43

 

(other than the
purchase of assets or properties that are not individually in excess of $5,000, or in the
aggregate in excess of $20,000 per month, from suppliers or vendors in the ordinary course
of business and consistent with past practice);

     (j) (i) incur any indebtedness for borrowed money or purchase money indebtedness
(including as a guarantor or surety), issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the obligations of any
Person for borrowed money, except to the extent that the aggregate indebtedness for borrowed
money of Target at any time outstanding does not exceed $5,000; (ii) refinance or otherwise
replace any of its existing indebtedness, except with the consent of Parent, which consent
shall not be unreasonably withheld; (iii) make or incur any capital expenditure in excess of
$5,000 individually, or in the aggregate in excess of $20,000 per month, except in the
ordinary course of business consistent with past practice; or (iv) make any loan or advance
to any Target Shareholder or any director, officer, employee or consultant of Target;

     (k) (i) pre-pay any long-term debt in an amount exceeding $5,000 in the aggregate, or
pay, discharge or satisfy any Liabilities, except for borrowings under revolving credit
lines existing as of the date hereof in the ordinary course of business consistent with past
practice and in accordance with their terms; (ii) fail to collect notes or accounts
receivable in the ordinary course of business consistent with past practice or enter into a
factoring or discounting arrangement with a third party with respect to accounts receivable;
or (iii) fail to pay any account payable in the ordinary course of business consistent with
past practice;

     (l) terminate, cancel or request any material change in, or agree to any material
change in, any contract that is reasonably necessary for the conduct of Target’s business as
it is currently conducted other than in the ordinary course of business consistent with past
practice;

     (m) commit to participate in the drilling of any new well in a new prospect or elect to
become a non-consenting party with respect to any operation or capital expenditure proposed
by a third Person;

     (n) enter into any Hydrocarbon sales, exchange, processing or transportation contract
with respect to any of Target’s assets or properties having a term in excess of one year
that is not terminable without penalty upon notice of 30 days or less;

     (o) file any amended Tax Return, make any Tax election or enter into any agreement in
respect of Taxes, including without limitation the settlement of any Tax controversy, claim
or assessment, or adopt or change any accounting method in respect of Taxes, or surrender
any right to claim a refund of Taxes, if such action would have the effect of increasing by
a material amount the present or future Tax Liability of Target or the Surviving
Corporation, or would give rise to a Tax lien (other than statutory Liens for current Taxes
not yet due) on any of Target’s or the Surviving Corporation’s assets or properties except
in accordance with Section 5.1(o) of the Target Diligence Letter;

44

 

     (p) write up, write down or write off the book value of any of its assets, individually
or in the aggregate, except for depreciation and amortization and any write-down of goodwill
in accordance with GAAP and any write-offs of inventory or accounts receivable that do not
exceed $5,000 individually or $20,000 in the aggregate.

     (q) take any action to exempt Target from the provisions of any state takeover law or
state law that purports to limit or restrict business combinations or the ability to acquire
or vote shares of any Person (other than Merger Sub) or any action taken thereby, which
Person or action would have otherwise been subject to the restrictive provisions thereof and
not exempt therefrom;

     (r) open or close, or enter into an agreement to open or close, any facility or office;

     (s) fail to be in material compliance with the terms of any instrument evidencing
indebtedness incurred by Target, other than any such failure that is waived in writing by
the party to whom such indebtedness is owed within a reasonable time after the commencement
of such material non-compliance, and provided Parent receives a copy of such waiver within a
reasonable time thereafter;

     (t) enter into any agreement or arrangement outside the ordinary course of business
consistent with past practice that contains any non-compete or exclusivity provisions with
respect to any customer, line of business or geographic area with respect to Target or any
of its or the Surviving Corporation’s current or future Affiliates, or that limits or
otherwise restricts Target prior to the Effective Time, or that would, at or after the
Effective Time, limit or restrict the Surviving Corporation, from engaging in any business
in the United States, or that restricts the conduct with respect to any customer of any line
of business by Target or any of its or the Surviving Corporation’s current or future
Affiliates, or any geographic area in which Target or any of its or the Surviving
Corporation’s current or future Affiliates may conduct business, or that otherwise
restricts the operation of Target’s business, in each case other than non-compete
agreements signed by employees incident to their employment by Target;

     (u) take any formal action or grant any consent or approval concerning any joint
venture outside the ordinary course of business consistent with past practice;

     (v) take, or agree to take, any action that would prevent the Merger from qualifying as
a tax-free reorganization within the meaning of Section 368(a)(2)(E) of the Code;

     (w) modify, amend or terminate, or waive, release or assign any material rights or
claims with respect to, or grant any consent under, any existing standstill provision
relating to a Target Acquisition Proposal, or under any similar confidentiality or other
agreement, or fail to fully enforce any such agreement;

     (x) change any of its methods, principles or practices of accounting or internal
controls in effect as of the date hereof, other than in the ordinary course of business

45

 

consistent with past practice or as required by applicable Law, GAAP or any Governmental
Authority;

     (y) waive, release, assign, settle or compromise any material claims, or any material
Litigation or arbitration, if such waiver, release, assignment, settlement or compromise
would require any material payment by the Surviving Corporation at or after the Effective
Time;

     (z) take any action or fail to take any action that is intended or would reasonably be
expected to result in a Target Material Adverse Effect, the breach of a representation or
warranty, a breach of a covenant or agreement, or a failure of a condition to Closing in
this Agreement; or

     (aa) authorize or enter into any agreement or otherwise make any commitment to do any
of the foregoing.

     Section 5.2 Conduct of Business by Parent Pending the Closing. Parent agrees that,
during the Interim Period, except as set forth in Section 5.2 of the Parent Diligence Letter or as
specifically permitted or required by any other provision of this Agreement, unless Target shall
otherwise agree in writing, Parent will, and will cause Merger Sub to, conduct its operations only
in the ordinary and usual course of business consistent with past practice, which shall include the
raising of investment capital prior to the filing of the Registration Statement, and use
commercially reasonable efforts to keep available the services of Parent’s and Merger Sub’s current
key officers and employees and preserve their current relationships with such of those customers,
suppliers and other Persons with whom Parent has significant business relationships as is
reasonably necessary to preserve substantially intact the business organization and goodwill of
Parent and Merger Sub. Without limiting the foregoing, and as an extension thereof, except as set
forth in Section 5.2 of the Parent Diligence Letter or as specifically permitted or required by any
other provision of this Agreement, Parent shall not (unless required by applicable Law or any
regulations of the NASD applicable to the
Parent), during the Interim Period, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Target:

     (a) amend or otherwise change the Parent Governing Documents;

     (b) adopt or implement any shareholder rights plan with respect to Parent or Merger
Sub;

     (c) change the composition or membership of the Parent Board, or remove from office
(whether voluntary or involuntary) any officer of Parent or Merger Sub;

     (d) (i) increase the compensation or benefits payable or to become payable to any
director, officer, employee or consultant of Parent or Merger Sub, except for annual merit
increases in the ordinary course of business consistent with past practice and increases
resulting from the operation of compensation arrangements in effect prior to the date
hereof; (ii) pay or accrue any bonus to any director, officer, employee or consultant of
Parent or Merger Sub, except in accordance with past established practices therefor; (iii)
grant any rights to severance or termination pay to, or enter into or amend any employment
or severance agreement with, any director, officer or other employee or

46

 

consultant of Parent
or Merger Sub except to the extent such severance or termination pay is due before the
Effective Time; or (iv) establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director, officer,
employee or consultant of Parent or Merger Sub, except as required by applicable Law.

     (e) issue, sell, pledge, dispose of, grant, transfer or encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer or encumbrance of, any Parent Capital
Securities (whether by merger, consolidation or otherwise), or any securities convertible or
exchangeable or exercisable for any Parent Capital Securities, or any options, warrants or
other rights of any kind to acquire any Parent Capital Securities or such convertible or
exchangeable securities, or any other ownership interest (including, without limitation, any
such interest represented by contract right), of Parent, except in accordance with the
contemplated transactions described in Section 5.2(e) of the Parent Diligence Letter;

     (f) sell, lease, license, exchange, grant, mortgage, pledge, guarantee, transfer,
encumber or otherwise dispose of, or agree to or authorize the sale, lease, license,
exchange, grant, mortgage, pledge, guarantee, transfer, encumbrance or disposition of, any
of its assets or properties with a value in excess of $5,000 (whether by merger,
consolidation or otherwise), except for (i) dispositions of assets, goods, services or
inventories in the ordinary course of business and consistent with past practice; (ii) the
sale of unused or obsolete equipment; or (iii) pursuant to existing contracts or
commitments;

     (g) declare, set aside, make or pay any dividend or other distribution (whether payable
in cash, stock, property or a combination thereof) with respect to any Parent
Capital Securities or enter into any agreement with respect to the voting of any Parent
Capital Securities;

     (h) (i) redeem, purchase or otherwise acquire, or agree to redeem, purchase or
otherwise acquire, any Parent Capital Securities or any securities or obligations
convertible into or exchangeable for any Parent Capital Securities, or any options, warrants
or conversion or other rights (including any stock appreciation rights, phantom stock or
similar rights) to acquire any Parent Capital Securities or any such securities or
obligations; (ii) adopt a plan with respect to or effect any liquidation, dissolution,
restructuring, reorganization or recapitalization; or (iii) split, subdivide, combine or
reclassify any shares of Parent Capital Securities or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution for shares of
Parent Capital Securities;

     (i) acquire or agree to acquire, by merging or consolidating with, by purchasing an
equity interest in or a portion of the assets or properties of, or by any other manner, any
business or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets or properties of any
other Person, including without limitation any rigs, compressors, pump

47

 

jacks or other
capital equipment regularly used in connection with any drilling operations (other than the
purchase of assets or properties that are not individually in excess of $5,000, or in the
aggregate in excess of $20,000 per month, for the Parent and Merger Sub taken as a whole,
from suppliers or vendors in the ordinary course of business and consistent with past
practice);

     (j) (i) incur any indebtedness for borrowed money or purchase money indebtedness
(including as a guarantor or surety), issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the obligations of any
Person (other than Merger Sub) for borrowed money, except to the extent that the aggregate
indebtedness for borrowed money of Parent and Merger Sub at any time outstanding does not
exceed $5,000; (ii) refinance or otherwise replace any of its existing indebtedness, except
with the consent of Target, which consent shall not be unreasonably withheld; (iii) make or
incur any capital expenditure in excess of $5,000 individually, or in the aggregate in
excess of $20,000 per month, for the Parent and Merger Sub taken as a whole, except in the
ordinary course of business consistent with past practice; or (iv) make any loan or advance
to any Parent Shareholder or any director, officer, employee or consultant of Parent or
Merger Sub;

     (k) (i) pre-pay any long-term debt in an amount exceeding $5,000 in the aggregate for
Parent and Merger Sub taken as a whole, or pay, discharge or satisfy any Liabilities, except
for borrowings under revolving credit lines existing as of the date hereof in the ordinary
course of business consistent with past practice and in accordance with their terms; (ii)
fail to collect notes or accounts receivable in the ordinary course of business consistent
with past practice or enter into a factoring or discounting arrangement with a third party
with respect to accounts receivable; or (iii) fail to pay any account payable in the
ordinary course of business consistent with past practice;

     (l) terminate, cancel or request any material change in, or agree to any material
change in, any contract that is reasonably necessary for the conduct of Parent’s business as
it is currently conducted other than in the ordinary course of business consistent with past
practice;

     (m) commit to participate in the drilling of any new well in a new prospect or elect to
become a non-consenting party with respect to any operation or capital expenditure proposed
by a third Person;

     (n) enter into any Hydrocarbon sales, exchange, processing or transportation contract
with respect to any of Parent’s assets or properties having a term in excess of one year
that is not terminable without penalty upon notice of 30 days or less;

     (o) file any amended Tax Return, make any Tax election or enter into any agreement in
respect of Taxes, including without limitation the settlement of any Tax controversy, claim
or assessment, or adopt or change any accounting method in respect of Taxes, or surrender
any right to claim a refund of Taxes, if such action would have the effect of increasing by
a material amount the present or future Tax Liability of Parent, Merger Sub or the Surviving
Corporation, or would give rise to a Tax lien (other than

48

 

statutory Liens for current Taxes
not yet due) on any of Parent’s, Merger Sub’s or the Surviving Corporation’s assets or
properties;

     (p) write up, write down or write off the book value of any assets, individually or in
the aggregate, of Parent and Merger Sub taken as a whole, except for depreciation and
amortization and any write-down of goodwill in accordance with GAAP and any write-offs of
inventory or accounts receivable that do not exceed $5,000 individually or $20,000 in the
aggregate.

     (q) take any action to exempt Parent or Merger Sub from the provisions of any state
takeover law or state law that purports to limit or restrict business combinations or the
ability to acquire or vote shares of any Person (other than Target) or any action taken
thereby, which Person or action would have otherwise been subject to the restrictive
provisions thereof and not exempt therefrom;

     (r) open or close, or enter into an agreement to open or close, any facility or office;

     (s) fail to be in material compliance with the terms of any instrument evidencing
indebtedness incurred by Parent, other than any such failure that is waived in writing by
the party to whom such indebtedness is owed within a reasonable time after the commencement
of such material non-compliance, and provided Target receives a copy of such waiver within a
reasonable time thereafter;

     (t) enter into any agreement or arrangement outside the ordinary course of business
consistent with past practice that contains any non-compete or exclusivity provisions with
respect to any customer, line of business or geographic area with respect to Parent, Merger
Sub or any of Parent’s or the Surviving Corporation’s current or future
Affiliates, or that limits or otherwise restricts Parent or Merger Sub prior to the
Effective Time, or that would, at or after the Effective Time, limit or restrict Parent or
the Surviving Corporation, from engaging in any business in the United States, or that
restricts the conduct with respect to any customer of any line of business by Parent, Merger
Sub or any of Parent’s or the Surviving Corporation’s current or future Affiliates, or any
geographic area in which Parent, Merger Sub or any of Parent’s or the Surviving
Corporation’s current or future Affiliates may conduct business, or that otherwise restricts
the operation of Parent’s business, in each case other than non-compete agreements signed by
employees incident to their employment by Parent or Merger Sub;

     (u) take any formal action or grant any consent or approval concerning any joint
venture outside the ordinary course of business consistent with past practice;

     (v) take, or agree to take, any action that would prevent the Merger from qualifying as
a tax-free reorganization within the meaning of Section 368(a)(2)(E) of the Code;

     (w) modify, amend or terminate, or waive, release or assign any material rights or
claims with respect to, or grant any consent under, any existing standstill provision

49

 

relating to a Parent Acquisition Proposal, or under any similar confidentiality or other
agreement, or fail to fully enforce any such agreement;

     (x) change any of its methods, principles or practices of accounting or internal
controls in effect as of the date hereof, other than in the ordinary course of business
consistent with past practice or as required by applicable Law, GAAP or any Governmental
Authority;

     (y) waive, release, assign, settle or compromise any material claims, or any material
Litigation or arbitration, if such waiver, release, assignment, settlement or compromise
would require any material payment by the Surviving Corporation at or after the Effective
Time;

     (z) take any action or fail to take any action that is intended or would reasonably be
expected to result in a Parent Material Adverse Effect, the breach of a representation or
warranty, a breach of a covenant or agreement, or a failure of a condition to Closing in
this Agreement;

     (aa) accelerate, amend or change the period of exercisability of options or other
equity incentive awards granted under any Parent Stock Option Plan or authorize cash
payments in exchange for any options or other equity incentive award granted under any
Parent Stock Option Plan; or

     (bb) authorize or enter into any agreement or otherwise make any commitment to do any
of the foregoing.

     Section 5.3 Cooperation. Target and Parent shall coordinate and cooperate in
connection with (a) the preparation of the Registration Statement, the Proxy Statement and any
Other Filings; (b) determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any actions, consents, approvals or waivers are required to
be obtained from parties to any of Target’s material contracts, in connection with the consummation
of the Merger; (c) seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the Registration
Statement, the Proxy Statement or any Other Filings and timely seeking to obtain any such actions,
consents, approvals or waivers; and (d) seeking all necessary consents, waivers or approvals and
taking such action as may be reasonably required for continued quotation of the Parent Common Stock
on the OTC Bulletin Board for at least 180 days after the Effective Time.

     Section 5.4 Registration Statement; Proxy Statement. 

     Section 5.4.1 As promptly as reasonably practicable after the execution of this
Agreement, Parent, with the cooperation of Target, shall prepare and file with the SEC (a) a
proxy statement relating to the Parent Shareholders’ Meeting (together with any amendments
thereof or supplements thereof, the “Proxy Statement”); and (b) a registration
statement on Form S-4 (together with all amendments thereto, the “Registration
Statement”) in connection with the registration under the 1933 Act of the offer and sale
of shares of Parent Common Stock to be issued to the Target Shareholders pursuant to the
Merger. Each of Parent and Target shall prepare and file with the SEC

50

 

any Other Filings as
and when required or requested by the SEC. Each of Parent and Target will use commercially
reasonable efforts to respond to any comments made by the SEC with respect to the Proxy
Statement, the Registration Statement or any Other Filings, and to cause the Registration
Statement to become effective as promptly as reasonably practicable. Prior to the effective
date of the Registration Statement, Parent shall take any and all actions required under any
applicable federal or state securities Laws in connection with the issuance of shares of
Parent Common Stock pursuant to the Merger. Target shall furnish to Parent all information
concerning Target and the Target Shareholders as Parent may reasonably request in connection
with such actions and the preparation of the Proxy Statement, the Registration Statement or
any Other Filings, and shall, as promptly as practicable after the date hereof, or after the
date requested by Parent, as the case may be, deliver to Parent all financial statements and
other financial data of Target, and cause to be delivered to Parent the consents of Target’s
independent public accountants, required to be included in the Proxy Statement, the
Registration Statement or any Other Filings, in each case in a form reasonably satisfactory
to Parent, and in any event in a form that is in all respects compliant with GAAP, and the
1933 Act, the Exchange Act and the rules and regulations of the SEC promulgated thereunder,
including without limitation Regulations S-B, S-K and S-X, as applicable. As promptly as
reasonably practicable after the Registration Statement becomes effective, Parent shall mail
the Proxy Statement (and a copy of the prospectus contained within the Registration
Statement if the Proxy Statement is not included in the Registration Statement) to the
Parent Shareholders.

     Section 5.4.2 If at any time prior to the Effective Time, any event or other
information relating to Target, Parent or Merger Sub, or any of their respective directors
or officers, should be discovered by Target or Parent, which event or other information
should be set forth in an amendment or a supplement to the Registration Statement, the Proxy
Statement or any Other Filing, such party shall promptly inform the other party of such
event or information.

     Section 5.5 Shareholders’ Meetings.

     Section 5.5.1 Parent shall take all actions in accordance with applicable Laws, the
Parent Governing Documents and the rules of the NASD to duly call and hold a meeting of its
shareholders (the “Parent Shareholders’ Meeting”) as promptly as reasonably
practicable after the date hereof for the purpose of obtaining the Parent Shareholder
Approval.

     Section 5.5.2 Unless the Target Shareholder Approval is obtained by majority written
consent of the Target Shareholders in compliance with applicable Laws, Target shall take all
actions in accordance with applicable law and the Target Governing Documents to duly call
and hold a meeting of its shareholders (the “Target Shareholders’ Meeting”) as
promptly as practicable after the date hereof (but not before 21 days after the
effectiveness of the Registration Statement) for the purpose of obtaining the Target
Shareholder Approval.

51

 

     Section 5.6 Access to Target Information; Confidentiality.

     Section 5.6.1 During the Interim Period, Target shall, and shall cause each of its
officers, directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the “Target Representatives”) to: (a) provide to
Parent and Merger Sub and their respective officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the “Parent
Representatives”) reasonable access, at reasonable times upon reasonable prior notice,
to the officers, directors, agents, properties, offices and other facilities of Target and
to Target’s books and records; and (b) furnish promptly to Parent or the appropriate Parent
Representatives such information concerning the business, properties, contracts, records,
personnel and other aspects of Target (including without limitation financial, operating and
other data and information) as the Parent Representatives may reasonably request from time
to time; provided, however, that all access and investigation made pursuant to this
Section 5.6.1 shall be conducted in such a way as to minimize interference with the
operations and business of Target; further provided, that in no case shall Target be
required to provide or otherwise disclose or make available to Parent any confidential
customer information. No investigation conducted pursuant to this Section 5.6.1
shall affect or be deemed to modify or limit any representation or warranty made in this
Agreement.

     Section 5.6.2 Parent and Merger Sub shall, and shall use reasonable efforts to cause
the Parent Representatives to, treat all information disclosed pursuant to Section
5.6.1, together with any other confidential information furnished to them by Target or
any of the Target Representatives, as confidential and not make use of such confidential
information for their own purposes or for the benefit of any other Person (other than Target
prior to, or the Surviving Corporation after, the Effective Time).

     Section 5.7
Access to Parent Information; Confidentiality.

     Section 5.7.1 During the Interim Period, Parent shall, and shall cause each of the
Parent Representatives to: (a) provide to Target and the Target Representatives reasonable
access, at reasonable times upon reasonable prior notice, to the officers, directors,
agents, properties, offices and other facilities of Parent and Merger Sub and to the books
and records of Parent and Merger Sub; and (b) furnish promptly to Target or the appropriate
Target Representatives such information concerning the business, properties, contracts,
records, personnel and other aspects of Parent and Merger Sub (including without limitation
financial, operating and other data and information) as the Target Representatives may
reasonably request from time to time; provided, however, that all access and
investigation made pursuant to this Section 5.7.1 shall be conducted in such a way
as to minimize interference with the operations and business of Parent and Merger Sub;
further provided, that in no case shall Parent or Merger Sub be required to provide
or otherwise disclose or make available to Target any confidential customer information. No
investigation conducted pursuant to this Section 5.7.1 shall affect or be deemed to
modify or limit any representation or warranty made in this Agreement.

52

 

     Section 5.7.2 Target shall, and shall use reasonable efforts to cause the Target
Representatives to, treat all information disclosed pursuant to Section 5.7.1,
together with any other confidential information furnished to Target by Parent, Merger Sub
or any of the Parent Representatives, as confidential and not make use of such confidential
information for its own purposes or for the benefit of any other Person (other than Parent
or Merger Sub prior to, or the Surviving Corporation after, the Effective Time).

     Section 5.8 No Solicitation of Transactions.

     Section 5.8.1 Without limitation on its other obligations under this Agreement, Target
shall not, nor shall it authorize or permit any Target Representative or any investment
banker, financial advisor or other representative retained by it, directly or indirectly
through any other Person (which for purposes of this Section 5.8 shall include any
“group” as such term is defined in Section 13(d) of the Exchange Act) to: (a) solicit,
initiate, facilitate or encourage (including by way of furnishing or disclosing information
with respect to Target to any Person) the making of or any effort or attempt to make any
Target Acquisition Proposal; (b) participate in, continue or resume any discussions or
negotiations relating to any Target Acquisition Proposal; (c) enter into any letter of
intent, agreement in principle, merger agreement, acquisition agreement, option agreement or
other similar agreement related to any Target Acquisition Proposal or approve or recommend,
or publicly propose to approve or recommend, any Target Acquisition Proposal; or (d) or
enter into any agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger or any other transaction contemplated by this Agreement or the
Ancillary Documents; provided, however, that if, at any time prior to the obtaining
of the Target Shareholder Approval, the Target Board determines in good faith, after consultation with outside legal counsel and its
financial advisors, that it would otherwise be reasonably likely to constitute a breach of
its fiduciary duties to the Target Shareholders, Target may, in response to a Target
Superior Proposal and subject to compliance with Section 5.8.2: (i) furnish
information with respect to Target to the Person making such Target Superior Proposal
pursuant to a customary confidentiality agreement the benefits of the terms of which are no
more favorable to such Person than those in place with Parent; and (ii) participate in
discussions or negotiations with respect to such Target Superior Proposal. Upon execution
of this Agreement, Target shall cease immediately and cause to be terminated any and all
existing discussions or negotiations with any Persons other than Parent and Merger Sub
conducted heretofore with respect to any Target Acquisition Proposal and promptly request
that all confidential information with respect thereto furnished on behalf of Target be
returned or destroyed.

     Section 5.8.2 Target shall, as promptly as practicable (and in no event later than 24
hours after receipt thereof), advise Parent of any inquiry received by it relating to any
potential Target Acquisition Proposal and of the material terms of any proposal or inquiry,
including the identity of the Person making the same, that it may receive in respect of any
such potential Target Acquisition Proposal, or of any information requested from it or of
any negotiations or discussions being sought to be initiated with it, and shall furnish to
Parent a copy of any such proposal or inquiry if it is in writing, and

53

 

shall keep Parent fully informed on a prompt basis with respect to any developments with respect to the
foregoing.

     Section 5.8.3 Neither the Target Board nor any committee thereof shall (a) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by the Target Board or such committee of the Target Shareholder
Approval and the matters related thereto to be considered at the Target Shareholders’
Meeting; (b) approve or recommend, or propose publicly or to the Target Shareholders the
approval or recommendation of, any Target Acquisition Proposal; or (c) cause Target to enter
into any letter of intent, agreement in principle, acquisition agreement or other similar
agreement related to any Target Acquisition Proposal. If the Target Board determines in
good faith, after consultation with outside legal counsel and its financial advisors, that
it would otherwise be reasonably likely to constitute a breach of its fiduciary duties to
the Target Shareholders, then nothing contained in this Section 5.8 shall prohibit
the Target Board from taking the actions described in subsections (a), (b) and (c) of this
Section 5.8.3, in each case no earlier than the second business day following the
date of delivery of written notice to Parent of its intention to do so, so long as Target
continues to comply with all other provisions of this Agreement.

     Section 5.8.4 Without limitation on their other obligations under this Agreement,
neither Parent nor Merger Sub shall, and shall not authorize or permit any Parent
Representative or any investment banker, financial advisor or other representative retained
by Parent or Merger Sub, directly or indirectly through any other Person (which for purposes
of this Section 5.8 shall include any “group” as such term is defined in Section
13(d) of the Exchange Act) to: (a) solicit, initiate, facilitate or encourage
(including by way of furnishing or disclosing information with respect to Parent or
Merger Sub to any Person) the making of or any effort or attempt to make any Parent
Acquisition Proposal; (b) participate in, continue or resume any discussions or negotiations
relating to any Parent Acquisition Proposal; (c) enter into any letter of intent, agreement
in principle, merger agreement, acquisition agreement, option agreement or other similar
agreement related to any Parent Acquisition Proposal or approve or recommend, or publicly
propose to approve or recommend, any Parent Acquisition Proposal; or (d) or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this Agreement or the
Ancillary Documents; provided, however, that if, at any time prior to the obtaining
of the Parent Shareholder Approval, the Parent Board determines in good faith, after
consultation with outside legal counsel and its financial advisors, that it would otherwise
be reasonably likely to constitute a breach of its fiduciary duties to the Parent
Shareholders, Parent may, in response to a Parent Superior Proposal and subject to
compliance with Section 5.8.5: (y) furnish information with respect to Parent or
Merger Sub to the Person making such Parent Superior Proposal pursuant to a customary
confidentiality agreement the benefits of the terms of which are no more favorable to such
Person than those in place with Target; and (z) participate in discussions or negotiations
with respect to such Parent Superior Proposal. Upon execution of this Agreement, Parent
shall cease immediately and cause to be terminated any and all existing discussions or
negotiations with any Persons other than Target

54

 

conducted heretofore with respect to any
Parent Acquisition Proposal and promptly request that all confidential information with
respect thereto furnished on behalf of Parent or Merger Sub be returned or destroyed.

     Section 5.8.5 Parent shall, as promptly as practicable (and in no event later than 24
hours after receipt thereof), advise Target of any inquiry received by Parent or Merger Sub
relating to any potential Parent Acquisition Proposal and of the material terms of any
proposal or inquiry, including the identity of the Person making the same, that it may
receive in respect of any such potential Parent Acquisition Proposal, or of any information
requested from it or of any negotiations or discussions being sought to be initiated with
it, and shall furnish to Target a copy of any such proposal or inquiry if it is in writing,
and shall keep Target fully informed on a prompt basis with respect to any developments with
respect to the foregoing.

     Section 5.8.6 Neither the Parent Board nor any committee thereof shall (a) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to Target, the
approval or recommendation by the Parent Board or such committee of the Parent Shareholder
Approval and the matters related thereto to be considered at the Parent Shareholders’
Meeting; (b) approve or recommend, or propose publicly or to the Parent Shareholders the
approval or recommendation of, any Parent Acquisition Proposal; or (c) cause Parent or
Merger Sub to enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Parent Acquisition Proposal. If the Parent Board
determines in good faith, after consultation with outside legal counsel and its financial
advisors, that it would otherwise be reasonably likely to constitute a breach of its
fiduciary duties to the Parent Shareholders, then nothing contained in this Section
5.8 shall prohibit the Parent Board from taking the
actions described in subsections (a), (b) and (c) of this Section 5.8.6, in
each case no earlier than the second business day following the date of delivery of written
notice to Target of its intention to do so, so long as Parent and Merger Sub continue to
comply with all other provisions of this Agreement.

     Section 5.9 Appropriate Action; Consents; Filings.

     Section 5.9.1 Subject to the terms and conditions of this Agreement, Target and Parent
shall: (a) use their commercially reasonable efforts to cooperate with one another in (i)
determining which filings and notifications are required to be made prior to the Effective
Time under applicable Laws with, and which consents, licenses, approvals, permits, waivers,
orders or authorizations are required to be obtained or made prior to the Effective Time
under applicable Laws from, any Governmental Authority in connection with the authorization,
execution and delivery of this Agreement and each of the Ancillary Documents and the
consummation of the Merger and the other transactions contemplated hereby and thereby; (ii)
timely making all such filings and notifications and timely seeking all such consents,
licenses, approvals, permits, waivers, orders or authorizations; and (iii) as promptly as
practicable respond to any request for information including without limitation any request
for additional information and documentary materials from any Governmental Authority; (b)
subject to any restrictions under applicable antitrust Laws, to the extent practicable,
promptly notify each other of any

55

 

communication from any Governmental Authority with respect
to this Agreement or the transactions contemplated hereby, and permit the other party to
review in advance any proposed written communication to any Governmental Authority; (c) not
agree to participate in any meeting with any Governmental Authority in respect of any
filings, investigation or other inquiry with respect to this Agreement or the transactions
contemplated hereby unless it consults with the other party in advance and, to the extent
permitted by such Governmental Authority, gives the other party the opportunity to attend
and participate, in each case to the extent practicable; (d) subject to any restrictions
under applicable antitrust Laws, furnish the other party with copies of all correspondence,
filings and communications (and memoranda setting forth the substance thereof) between
Target and the Target Representatives or Parent and the Parent Representatives, as the case
may be, on the one hand, and any Governmental Authority or members of their respective
staffs on the other hand, with respect to this Agreement or the transactions contemplated
hereby (excluding documents and communications which are subject to preexisting
confidentiality agreements or to attorney client privilege); and (e) furnish the other party
with such necessary information (including all information required to be included in the
Proxy Statement and the Registration Statement) and reasonable assistance as such other
party and its Representatives may reasonably request in connection with their preparation of
necessary filings, registrations or submissions of information (including the Proxy
Statement and the Registration Statement) to any Governmental Authority in connection with
this Agreement or the transactions contemplated hereby.

     Section 5.9.2 Each of Target and Parent shall give any notices to third parties, and
shall use each use commercially reasonable efforts to obtain any third party Approvals (a)
required to consummate the transactions contemplated by this Agreement
and the Ancillary Documents; (b) required to be disclosed in the Target Diligence
Letter or the Parent Diligence Letter; (c) reasonably requested by Parent or Target; or (d)
otherwise referenced in Section 6.2.6 or Section 6.3.6, in each case other
than customer contracts that do not contain minimum purchase obligations. In the event that
either party shall fail to obtain any third party consent described in the preceding
sentence, such party shall use reasonable efforts, and shall take reasonable actions to
minimize any adverse effect upon Target, Parent or their respective businesses resulting, or
that could reasonably be expected to result after the Effective Time, from the failure to
obtain such consent.

     Section 5.9.3 During the Interim Period, each of Target and Parent shall promptly
notify the other in writing (a) of any pending or, to the Knowledge of the notifying party,
threatened action, suit, arbitration or other proceeding or investigation by any
Governmental Authority or any other Person that (i) challenges or seeks material damages in
connection with the Merger or the conversion of Target Common Stock into Parent Common Stock
pursuant to the Merger; or (ii) seeks to restrain or prohibit the consummation of the Merger
or otherwise limit the right of Parent to own or operate all or any portion of the
businesses or assets of Target, which in either case would reasonably be expected to result
in a Target Material Adverse Effect or a Parent Material Adverse Effect; or (b) at least 72
hours prior to the filing by the notifying party for

56

 

protection under federal bankruptcy
Laws or similar state Laws relating to bankruptcy, insolvency, reorganization, moratorium or
conveyance.

     Section 5.9.4 During the Interim Period, Parent shall promptly notify Target of (a) any
material change in the current or future business, condition (financial or otherwise) or
results of operations of Parent; (b) any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Governmental Authority
with respect to Parent, Merger Sub or the transactions contemplated hereby that, if
adversely determined, would be reasonably expected to have a Parent Material Adverse Effect;
(c) the institution or the threat of Litigation involving Parent or Merger Sub; or (d) the
occurrence or non-occurrence of any event or condition that might reasonably be expected to
cause (i) any of the representations, warranties, covenants or agreements of Parent or
Merger Sub set forth herein not to be true and correct at the Effective Time; (ii) any
condition to the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents not to be satisfied; or (iii) the
failure of any party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it pursuant to this Agreement or any Ancillary Document that
would reasonably be expected to result in any condition to the obligations of any party to
effect the Merger and the other transactions contemplated by this Agreement or any Ancillary
Document not to be satisfied; provided, however, that the delivery of any notice
pursuant to this Section 5.9.4 shall not cure any breach of any representation or
warranty requiring disclosure of such matter prior to the date hereof or otherwise limit or
affect the remedies available hereunder to the party receiving such notice.

     Section 5.9.5 During the Interim Period, Target shall promptly notify Parent of (a) any
material change in the current or future business, condition (financial or
otherwise) or results of operations of Target; (b) any complaints, investigations or
hearings (or communications indicating that the same may be contemplated) of any
Governmental Authority with respect to Target or the transactions contemplated hereby that,
if adversely determined, would be reasonably expected to have a Target Material Adverse
Effect; (c) the institution or the threat of Litigation involving Target; or (d) the
occurrence or non-occurrence of any event or condition that might reasonably be expected to
cause (i) any of the representations, warranties, covenants or agreements of Target set
forth herein not to be true and correct at the Effective Time; (ii) any condition to the
obligations of any party to effect the Merger and the other transactions contemplated by
this Agreement and the Ancillary Documents not to be satisfied; or (iii) the failure of any
party to comply with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it pursuant to this Agreement or any Ancillary Document that would reasonably
be expected to cause any condition to the obligations of any party to effect the Merger and
the other transactions contemplated by this Agreement or any Ancillary Document not to be
satisfied; provided, however, that the delivery of any notice pursuant to this
Section 5.9.5 shall not cure any breach of any representation or warranty requiring
disclosure of such matter prior to the date hereof or otherwise limit or affect the remedies
available hereunder to the party receiving such notice.

57

 

     Section 5.9.6 Subject to the terms and conditions of this Agreement, Target and Parent
shall use their commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, advisable or
appropriate under applicable Laws or otherwise to cause all of the conditions, as specified
in Article VI, to the obligations of the other to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Documents as soon as
practicable after the date hereof.

     Section 5.10 Takeover Statutes. In connection with and without limiting the
foregoing, Target, Parent, the Target Board and the Parent Board each shall (a) take all action
necessary to ensure that no takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, the Merger, the Closing or the performance of any duties or
transactions required hereby; and (b) if any takeover statute or similar statute becomes so
applicable, take all action necessary to ensure that the Merger and the Closing are completed as
soon as practicable.

     Section 5.11 Public Announcements. Parent and Target shall consult with each other
before issuing any press release or otherwise making any public statements with respect to the
Merger and shall not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable Law or any listing agreement with the NASD.

     Section 5.12 Employee Benefit Matters. For all purposes, Parent shall, or shall cause
the Surviving Corporation to, with respect to any director, officer or employee of Target
immediately prior to the Effective Time (the “Target Employees”), recognize the length of service of such Target Employee with
Target for purposes of vesting, eligibility and accrual of benefits as well as for purposes of
seniority with respect to eligibility for vacation pay, sick pay, paid time off and other similar
benefits, to the extent permitted under applicable Laws; provided, however, that no service
shall be recognized to the extent that such recognition would result in a duplication of benefits.

     Section 5.13 Indemnification of Directors and Officers.

     Section 5.13.1 For not less than six years from and after the Closing Date, Parent
agrees to indemnify and hold harmless all past and present directors, officers and employees
of Parent, Merger Sub or Target to the same or greater extent as directors, officers and
employees of Parent are indemnified by Parent as of the date hereof pursuant to the Parent
Governing Documents and indemnification agreements, if any, in existence on the date hereof,
for acts or omissions occurring at or prior to the Effective Time; provided,
however, that Parent agrees to indemnify and hold harmless such Persons to the fullest
extent permitted by Law for acts or omissions occurring in connection with the approval of
this Agreement and the Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby.

     Section 5.13.2 For not less than six years from and after the Closing Date, subject to
the prior approval of the Parent Board, which approval shall not be unreasonably withheld,
Parent shall provide to Parent’s and the Surviving Corporation’s current directors and
officers an insurance and indemnification policy that provides

58

 

coverage for claims arising from facts or events that occurred on or before the Effective Time, including without
limitation in respect of the transactions contemplated by this Agreement (the “D&O
Insurance Policy”), that is no less favorable than Parent’s existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available coverage.
The provisions of the immediately preceding sentence shall be deemed to have been satisfied
if a prepaid D&O Insurance Policy has been obtained prior to the Effective Time for purposes
of this Section 5.13, which D&O Insurance Policy provides such directors and
officers with coverage for an aggregate period of six years with respect to claims arising
from facts or events that occurred on or before the Effective Time, including without
limitation in respect of the transactions contemplated by this Agreement. If such prepaid
D&O Insurance Policy has been obtained prior to the Effective Time, Parent shall maintain
such D&O Insurance Policy in full force and effect, and continue to honor the obligations
thereunder, at all times until the stated expiration thereof.

     Section 5.13.3 In the event, at any time after the Effective Time, Parent (a)
consolidates with or merges into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger; or (b) transfers all or
substantially all of its properties and assets to any Person, then, and in each such case,
proper provisions shall be made so that such continuing or surviving corporation or entity
or transferee of such assets, as the case may be, shall assume the obligations set forth in
this Section 5.13.

     Section 5.13.4 The obligations under this Section 5.13 shall not be terminated
or modified in such a manner as to adversely affect any Person to whom this Section
5.13 applies without the consent of such affected Person (it being expressly agreed that
the Persons to whom this Section 5.13 applies shall be third party beneficiaries of
this Section 5.13).

     Section 5.14 Tax Matters.

     Section 5.14.1 Each party hereto will use its commercially reasonable efforts to cause
the Merger to qualify, and will not take or cause to be taken, and will use its commercially
reasonable efforts to prevent any other Person from taking, any action that could reasonably
be expected to prevent the Merger from qualifying as a tax-free reorganization within the
meaning of Section 368(a)(2)(E) of the Code. Parent and Target shall each cause all Tax
Returns relating to the Merger to be filed on the basis of treating the Merger as a tax-free
reorganization under Section 368(a)(2)(E) of the Code. In connection with the filing of the
Registration Statement and the Proxy Statement and immediately prior to the Effective Time,
Parent, Merger Sub and Target shall execute and deliver to Vial Hamilton Koch & Knox, LLP,
legal counsel to Parent, and to Hughes & Luce, LLP, legal counsel to Target, tax
representation letters in customary form and upon which such firms will rely to determine
and describe, including expertising, the tax consequences of the Merger in the Registration
Statement and the Proxy Statement.

     Section 5.14.2 The transactions contemplated by this Agreement will cause Merger Sub to
terminate effective as of the Effective Time. The Surviving Corporation

59

 

shall prepare and file, or cause to be prepared and filed, any and all Tax Returns required to be filed by
Target (after giving effect to any valid extensions of the due date for filing any such Tax
Returns) on or prior to the Closing Date that have not been prepared or filed on or before
the Closing Date. All such Tax Returns shall be prepared in a manner consistent with the
prior Tax Returns of Target, unless otherwise required under applicable Laws. The Surviving
Corporation shall timely pay (or cause to be timely paid) all Taxes shown as due and owing
by Target on all such Tax Returns. The Surviving Corporation and the Target Representatives
shall cooperate in preparing and filing all such Tax Returns, including maintaining and
making available to each other all records necessary in connection with Taxes and in
resolving all disputes and audits with respect to all taxable periods relating to Taxes.
The Surviving Corporation recognizes that the Target Representatives will need access, from
time to time, after the Closing Date, to certain accounting and Tax records and information
of Target to the extent such records and information pertain to events occurring prior to
the Closing Date; therefore, the Surviving Corporation agrees (a) to use its commercially
reasonable efforts to properly retain and maintain such records until such time as the
Target Representatives agree that such retention and maintenance is no longer necessary (but
in no event longer than six years after the Closing Date); and (b) to allow the Target
Representatives, at times and dates mutually acceptable to the parties, to inspect, review
and make copies of such records as the Target Representatives may deem necessary or
appropriate from time to time, such activities to be conducted during normal business hours
and at the sole cost and expense of the Target Representatives.

     Section 5.14.3 The Surviving Corporation will be liable for and will pay all applicable
sales, transfer, recording, deed, stamp and other similar Taxes resulting from the
consummation of the transactions contemplated by this Agreement.

     Section 5.14.4 From and after the date hereof, Target will use commercially reasonable
efforts to ensure that no Target Shareholder will, without the prior written consent of the
Target and Parent (which consent will not be unreasonably withheld or delayed), make or
revoke, or cause or permit to be made or revoked, any Tax election, or adopt or change any
method of accounting, that would adversely affect Target or the Surviving Corporation.

     Section 5.14.5 At the Effective Time, all Tax sharing, indemnity or allocation
agreements or arrangements (whether or not written), if any, to which Target is a party will
terminate, and, after the date hereof, no Taxes or other amounts will be paid or reimbursed
by Target under any such agreement or arrangement, regardless of the taxable year or period
for which such Taxes are imposed, and the provisions of this Section 5.14 will
govern thereafter.

     Section 5.15 Delivery of Interim Financial Statements. Parent shall cause to be
delivered to Target the unaudited consolidated balance sheets and the related unaudited
consolidated statements of income and cash flows for Parent and Merger Sub, taken as a whole, for
(a) each monthly period completed subsequent to the fiscal quarter ended August 31, 2006 (the
“Monthly Unaudited Financial Information”); and (b) each fiscal quarter completed
subsequent to the date hereof (the “Quarterly Unaudited Financial Information” and,
together

60

 

with the Monthly Unaudited Financial Information, the “Parent Financial
Statements”). The Parent Financial Statements shall be so delivered on or before the date that
is 30 days following the end of the relevant month in the case of the Monthly Unaudited Financial
Information and 40 days following the end of the relevant fiscal quarter in the case of the
Quarterly Unaudited Financial Information, and shall be delivered together with (i) in the case of
the Quarterly Unaudited Financial Information, an associated review report under SAS 100 without
exception or qualification of such party’s independent accountants with respect thereto; and (ii) a
certificate, duly executed by the Chief Financial Officer and Chief Accounting Officer of Parent in
each such Person’s capacity as such officer, restating with respect to such Parent Financial
Statements the representations and warranties set forth in Section 4.8.3.

     Section 5.16 Transitional Matters. Each of Parent and Target shall use their
reasonable best efforts to effectuate the following transitional matters:

     Section 5.16.1 Parent Board. Effective as of the Effective Time, the Parent
Board shall be comprised of, at a minimum, Timothy P. Burroughs, Sam Warren, Jeffrey C.
Reynolds and Steven C. Howard, as shall be described in the Proxy Statement, each to hold
office in accordance with the Parent Governing Document until his respective successor is
duly elected or appointed and qualified.

     Section 5.16.2 Burroughs Employment Agreement. The employment of Timothy P.
Burroughs with Parent after the Effective Time shall be governed by a new employment
agreement (the “Burroughs Employment Agreement”), in form and substance reasonably
acceptable to Mr. Burroughs and the Parent Board, which will be entered into by and between
Mr. Burroughs and Parent prior to the filing of the Registration Statement.

     Section 5.16.3 Howard Employment Agreement. The employment of Steven C. Howard
with Parent after the Effective Time shall be governed by an employment agreement (the
“Howard Employment Agreement”), in form and substance reasonably acceptable to Mr.
Howard and the Parent Board, the form, terms and provisions of which Mr. Howard and the
Parent Board will use their respective best efforts to agree upon during the Interim Period.

     Section 5.16.4 York Employment Agreement. The employment of C. David York with
Parent after the Effective Time shall be governed by an employment agreement (the “York
Employment Agreement”), in form and substance reasonably acceptable to Mr. York and the
Parent Board, the form, terms and provisions of which Mr. York and the Parent Board will use
their respective best efforts to agree upon during the Interim Period.

     Section 5.16.5 Other Employment Agreements. As soon as reasonably practicable
after the Effective Time, Parent shall enter into new employment agreements with Sherri
Cecotti and Richard O’Donnell, which employment agreements shall be in form and substance
reasonably acceptable to such individuals and the Parent Board.

61

 

     Section 5.17 Amendment of Target Governing Documents. At or prior to the Effective
Time, the Target Board and the Target Shareholders shall have taken such action as is necessary to
amend the Target Governing Documents to the extent necessary to provide for the conversion of the
Target Common Stock into shares of Parent Common Stock pursuant to the provisions of Article
II.

     Section 5.18 Exchange Listing. Parent shall promptly prepare and submit to the NASD
and any applicable stock exchange a listing application covering the shares of Parent Common Stock
to be issued in the Merger and shall use its reasonable best efforts to cause such shares to be
approved for listing on the OTC Bulletin Board, subject to official notice of issuance, prior to
the Effective Time.

     Section 5.19 Affiliate Letters. Target shall, within ten business days after the date
hereof, deliver to Parent a list of names and addresses of those Persons that, to the Knowledge of
Target, are or may be deemed to be as of the time of the Target Shareholders’ Meeting “affiliates”
of Target within the meaning of Rule 145 under the 1933 Act and who own Target Common Stock. There
shall be added to such list the names and addresses of any other Person subsequently identified by
either Parent or Target, as the case may be (unless, in the case of Parent, an opinion of outside
counsel to Target reasonably acceptable to Parent is provided to Parent that such Person is not such
an “affiliate”), as a Person who may be deemed to be such an “affiliate”; provided,
however, that no such Person identified by Parent or Target, as the case may be, shall remain
on such list if Parent or Target, as the case may be, shall receive from the other party, on or
before the date of the Target Shareholders’ Meeting, an opinion of outside counsel reasonably
satisfactory to Parent to the effect that such Person is not such an “affiliate.” Target shall use
commercially reasonable efforts to deliver or cause to be delivered to Parent, prior to the date of
the Target Shareholders’ Meeting, from each such “affiliate” identified in such list a letter dated
as of the date of the Target Shareholders’ Meeting in a form reasonably acceptable to Parent
(collectively, the “Affiliate Letters”). Parent shall not be required to maintain the
effectiveness of the Registration Statement or any other registration statement under the 1933 Act
for the purposes of resale of Parent Common Stock received in the Merger by such “affiliates”
except to the extent provided in Section 5.4.

     Section 5.20 Nullification of Specific Prior Agreement. The parties agree that, as of
the date hereof, that certain letter agreement dated as of August 31, 2005, by and among Parent,
Target, Gulftex Operating, Inc. and Energy Partners International, pursuant to which the parties to
such letter agreement agreed to form and fund a new joint venture partnership with respect to the
drilling and operation of six oil and gas wells, and each of the terms, conditions and obligations
created thereunder, if any, whether express or implied, is void ab initio in its entirety for all
purposes, and at no time after the date hereof shall any party to such letter agreement be liable
for any resurrection, recovery or reconstitution of such letter agreement; any of the terms,
conditions or obligations created thereunder, if any, whether express or implied; or the joint
venture partnership contemplated thereby.

     Section 5.21 Further Assurances. If at any time after the Effective Time, any
reasonable further action is necessary or desirable to carry out the purposes and intent of this
Agreement and the Ancillary Documents, including without limitation the execution of

62

 

additional instruments, the proper officers and directors of each party will take all such reasonable further
action.

Article VI.

Closing Conditions

     Section 6.1 Conditions to Obligations of Each Party Under This Agreement. The
respective obligations of each party to effect the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the extent permitted by
applicable Law:

     Section 6.1.1 Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the 1933 Act. No stop order
suspending the effectiveness of the Registration Statement shall have been issued
by the SEC and no proceedings for that purpose shall have been initiated or, to the
Knowledge of Parent or Target, threatened by the SEC.

     Section 6.1.2 Fairness Opinion. Parent shall have received the opinion of a
qualified investment bank of good reputation, dated as of the most recent practicable date
prior to the Parent Shareholders Meeting, to the effect that, as of such date, the Merger
Consideration is fair from a financial point of view to the Parent Shareholders.

     Section 6.1.3 Board Approvals. The Parent Board, the Target Board and the sole
director of Merger Sub shall have unanimously approved and declared advisable and in the
best interests of their respective shareholders this Agreement and the transactions
contemplated hereby, including without limitation the Merger, and shall have adopted this
Agreement as a “plan of reorganization” within the meaning of the Code.

     Section 6.1.4 Shareholder Approvals. The Target Shareholder Approval and the
Parent Shareholder Approval shall have been obtained.

     Section 6.1.5 Dissenting Shareholders. The Dissenting Shares shall not
represent shares of Target Common Stock that would be entitled to receive in excess of 20%
of the aggregate Merger Consideration if such shares were not Dissenting Shares.

     Section 6.1.6 Merger Consideration. The number of shares of Parent Common
Stock into which the Target Common Stock will be converted pursuant to the Merger shall not
exceed the number of shares of Target Common Stock set forth in the Exchange List (subject
to Section 2.1.6).

     Section 6.1.7 Court Proceedings. No Litigation shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would (a) prevent consummation of any of the transactions
contemplated by this Agreement or any Ancillary Document; (b) cause any of the transactions
contemplated by this Agreement or any Ancillary Document to be rescinded following
consummation thereof; or (c) affect adversely the right or

63

 

powers of Parent to own, operate or control Target or the Surviving Corporation, and no such injunction, judgment, order,
decree, ruling or charge shall be in effect.

     Section 6.1.8 No Order. No Governmental Authority, nor any federal or state
court of competent jurisdiction or arbitrator shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree, judgment,
injunction or arbitration award or finding or other order (whether temporary, preliminary or
permanent), in any case that is in effect and prevents or prohibits consummation of the
Merger or any other transactions contemplated by this Agreement or any Ancillary Document.

     Section 6.1.9 Certificate of Merger. The Certificate of Merger will have been
filed with and accepted by the Secretaries of State of the States of Texas and Nevada.

     Section 6.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger and the other transactions contemplated
herein are also subject to the following conditions, any or all of which may be waived by Target,
in whole or in part, to the extent permitted by applicable Law:

     Section 6.2.1 Representations and Warranties. Each of the representations and
warranties of Target contained in this Agreement or any of the Target Documents shall be
true and correct in all material respects (if not subject to a materiality qualifier) or in
all respects (if subject to a materiality qualifier) as of the date hereof and as of the
Closing Date as though made on and as of the Closing Date (except to the extent such
representations and warranties specifically relate to an earlier date, in which case such
representations and warranties need only speak as of such date), unless the failure so to be
true and correct would not constitute a Target Material Adverse Effect.

     Section 6.2.2 Agreements and Covenants. Target shall have performed or
complied in all material respects with all agreements and covenants required by this
Agreement and each Target Document to be performed or complied with by Target on or prior to
the Closing Date.

     Section 6.2.3 Secretary’s Certificate. Target shall have delivered to Parent
and Merger Sub a certificate of the corporate secretary of Target, substantially in the form
of Exhibit 6.2.3 attached hereto.

     Section 6.2.4 Closing Certificate. Target shall have delivered to Parent and
Merger Sub a closing certificate, substantially in the form of Exhibit 6.2.4
attached hereto.

     Section 6.2.5 Legal Opinions. Target shall have delivered to Parent a legal
opinion of counsel to Target, substantially in the form of Exhibit 6.2.5 attached
hereto. Counsel to Target also shall have delivered to Target and the Target Shareholders a
legal opinion to the effect that the Merger is a transaction described in Section
368(a)(2)(E) of the Code and with respect to material United States federal income Tax
consequences of the Merger.

64

 

     Section 6.2.6 Consents and Approvals. All consents, approvals and
authorizations listed in Section 6.2.6 of the Target Diligence Letter shall have been
obtained, except where the failure to so obtain such consents, approvals or authorizations
would not reasonably be expected to have a Target Material Adverse Effect.

     Section 6.2.7 Due Diligence. Parent shall have completed its due diligence
investigation of Target and obtained results satisfactory to Parent in its reasonable
discretion after consultation with the Parent Representatives.

     Section 6.2.8 No Target Material Adverse Effect. There shall not have occurred
a Target Material Adverse Effect since September 1, 2006.

     Section 6.2.9 Court Proceedings. No Litigation shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would (a) prevent consummation of any of the transactions
contemplated by this Agreement or any Ancillary Document; (b) cause any of the transactions
contemplated by this Agreement or any Ancillary Document to be rescinded following
consummation thereof; or (c) affect adversely the right or powers of Parent to own, operate
or control Target or the Surviving Corporation, and no such injunction, judgment, order,
decree, ruling or charge shall be in effect.

     Section 6.2.10 Burroughs Employment Agreement. Parent and Timothy P. Burroughs
shall have executed and delivered to each other the Burroughs Employment Agreement prior to
the filing of the Registration Statement.

     Section 6.2.11 York Employment Agreement. Subject to the prior approval of the
Parent Board, which approval shall not be unreasonably withheld, Parent and C. David York
shall have executed and delivered to each other the York Employment Agreement.

     Section 6.2.12 Audited Financials. Prior to the filing of the Registration
Statement, Target, at its sole expense, will provide Parent with audited financial
statements for Target’s last two fiscal years and unaudited but reviewed financial
statements for any interim period.

     Section 6.2.13 Target Shareholder Lock Up Agreements. Each Target Shareholder
who will receive Parent Common Stock in the Merger representing at least 1.5% of the total
number of shares of Parent Common Stock that will be issued and outstanding immediately
after the Effective Time shall have executed and delivered to Parent a lock-up agreement,
substantially in the form of Exhibit 6.2.13 attached hereto.

     Section 6.2.14 Target Shareholder Voting Agreement. Certain Target
Shareholders, including without limitation Steven C. Howard, Jeffrey C. Reynolds, Miguel
Nagel L. and Omar E. Ortega, who together control a majority of the
issued and outstanding shares of Target Common Stock entitled to vote on such matters, shall have executed and
delivered to Parent a voting agreement (the “Target Shareholder Voting Agreement”),
in form and substance reasonably acceptable to Parent, pursuant to which

65

 

such Target Shareholders agree to vote all shares of Parent Common Stock issued to such Target
Shareholders in the Merger in favor of the election of certain director nominees including,
at a minimum, Timothy P. Burroughs, Sam Warren, Jeffrey C. Reynolds and Steven C. Howard for
a period of three years after the Effective Time.

     Section 6.3 Additional Conditions to Obligations of Target. The obligations of Target
to effect the Merger and the other transactions contemplated hereby are also subject to the
following conditions, any or all of which may be waived by Parent, in whole or in part, to the
extent permitted by applicable Law:

     Section 6.3.1 Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub contained in this Agreement or any of the Parent
Documents shall be true and correct in all material respects (if not subject to a
materiality qualifier) or in all respects (if subject to a materiality qualifier) as of the
date hereof and as of the Closing Date as though made on and as of the Closing Date (except
to the extent such representations and warranties specifically relate to an earlier date, in
which case such representations and warranties need only speak as of such date), unless the
failure so to be true and correct would not constitute a Parent Material Adverse Effect.

     Section 6.3.2 Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants required by
this Agreement and each Parent Document to be performed or complied with by Parent or Merger
Sub on or prior to the Closing Date.

     Section 6.3.3 Secretary’s Certificate. Parent shall have delivered to Target a
certificate of the corporate secretaries of Parent and Merger Sub, substantially in the form
of Exhibit 6.3.3 attached hereto.

     Section 6.3.4 Closing Certificate. Parent shall have delivered to Target a
closing certificate on behalf of Parent and Merger Sub, substantially in the form of
Exhibit 6.3.4 attached hereto.

     Section 6.3.5 Legal Opinion. Parent shall have delivered to Target a legal
opinion of counsel to Parent and Merger Sub, substantially in the form of Exhibit
6.3.5 attached hereto. Counsel to Parent and Merger Sub also shall have delivered to
Parent, Merger Sub and the Parent Shareholders a legal opinion to the effect that the Merger
is a transaction described in Section 368(a)(2)(E) of the Code and with respect to material
United States federal income Tax consequences of the Merger.

     Section 6.3.6 Consents and Approvals. All consents, approvals and
authorizations listed in Section 6.3.6 of the Parent Diligence Letter shall have been
obtained, except where the failure to so obtain such consents, approvals or authorizations
would not reasonably be expected to have a Parent Material Adverse Effect.

     Section 6.3.7 Due Diligence. Target shall have completed its due diligence
investigation of Parent and obtained results satisfactory to Target in its reasonable
discretion after consultation with the Target Representatives.

66

 

     Section 6.3.8 No Parent Material Adverse Effect. There shall not have occurred
a Parent Material Adverse Effect since September 1, 2006.

     Section 6.3.9 Court Proceedings. No Litigation shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would (a) prevent consummation of any of the transactions
contemplated by this Agreement or any Ancillary Document; (b)
cause any of the transactions contemplated by this Agreement or any Ancillary Document
to be rescinded following consummation thereof; or (c) affect adversely the right or powers
of Parent to own, operate or control Target or the Surviving Corporation, and no such
injunction, judgment, order, decree, ruling or charge shall be in effect.

     Section 6.3.10 Howard Employment Agreement. Subject to the prior approval of
the Parent Board, which approval shall not be unreasonably withheld, Parent and Steven C.
Howard shall have executed and delivered to each other the Howard Employment Agreement.

     Section 6.3.11 Certain Assets. In addition to the Oil & Gas Interests and the
Parent Assets, Parent shall have acquired and shall hold all right, title and interest in
and to those assets set forth in Section 6.3.11 of the Parent Diligence Letter, free and
clear of all Liens (except for Permitted Liens).

     Section 6.3.12 Parent Financial Statements. Parent shall have delivered the
Parent Financial Statements to Target, and the Parent Financial Statements shall have been
acceptable to Target in its reasonable discretion after consultation with the Target
Representatives.

     Section 6.3.13 Parent Shareholder Lock Up Agreements. Each Parent Shareholder
who will immediately after the Effective Time own Parent Common Stock representing at least
1.5% of the total number of shares of Parent Common Stock that will be issued and
outstanding immediately after the Effective Time shall have executed and delivered to Parent
a lock-up agreement, substantially in the form of Exhibit 6.3.13 attached hereto.

     Section 6.3.14 Parent Shareholder Voting Agreement. Certain Parent
Shareholders, including without limitation Timothy P. Burroughs, C. David York, Sam Warren
and Brad Warren, who together control a majority of the issued and outstanding shares of
Parent Common Stock entitled to vote on such matters, shall have executed and delivered to
Target a voting agreement (the “Parent Shareholder Voting Agreement”), in form and
substance reasonably acceptable to Target, pursuant to which such Parent Shareholders agree
to vote all shares of Parent Common Stock held by such Parent Shareholders in favor of the
election of certain director nominees including, at a minimum, Timothy P. Burroughs, Sam
Warren, Jeffrey C. Reynolds and Steven C. Howard for a period of three years after the
Effective Time.

67

 

Article VII.

Termination, Amendment and Waiver

     Section 7.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time, by action taken or
authorized by the board of directors of the terminating party:

     Section 7.1.1 By mutual written consent of Target and Parent;

     Section 7.1.2 By either Target or Parent if the Merger shall not have been consummated
prior to December 31, 2007; provided, however, that the right to terminate this
Agreement under this Section 7.1.2 shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger to be consummated on or before such date;

     Section 7.1.3 By either Target or Parent if either party receives notice from the other
pursuant to Section 5.9.3(b) that such other party intends to file for protection
under federal bankruptcy laws or similar state laws relating to bankruptcy, insolvency,
reorganization, moratorium or similar laws or if any Governmental Authority shall have
issued an order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this Agreement or any
Ancillary Document, and such order, decree, ruling or other action shall have become final
and nonappealable (which order, decree, ruling or other action the parties shall have used
their commercially reasonable efforts to resist, resolve or lift, as applicable, subject to
the provisions of Section 5.8);

     Section 7.1.4 By either Parent or Target if the Target Shareholder Approval shall not
have been obtained by reason of the failure to obtain the required vote at the Target
Shareholders’ Meeting or at any adjournment thereof; provided, however, that if this
Agreement is then terminable pursuant to Section 7.1.6 by Parent, Target shall not
have a right to terminate under this Section 7.1.4;

     Section 7.1.5 By Target if the Parent Shareholder Approval shall not have been obtained
by reason of the failure to obtain the required vote at the Parent Shareholders’ Meeting or
at any adjournment thereof; provided, however, that if this Agreement is then
terminable pursuant to Section 7.1.8 by Parent, Target shall not have a right to
terminate under this Section 7.1.5;

     Section 7.1.6 By Parent if (a) the Target Board shall have withdrawn, or adversely
modified, its recommendation in favor of the Target Shareholder Approval (or determined to
do so); (b) the Target Board shall have failed upon Parent’s request, in response to
notification by Target pursuant to Section 5.8.2 that it has received a Target
Acquisition Proposal containing a proposed acquisition price, to reconfirm its
recommendation in favor of the Target Shareholder Approval (or determined to do so) within
ten business days after such request (or such shorter period of time as may exist between
such request and the second business day preceding the Target Shareholders’ Meeting); (c)
the Target Board shall have determined to recommend to the Target

68

 

Shareholders that they approve a Target Acquisition Proposal or shall have determined to accept a Target Superior
Proposal; (d) the Target Board shall have caused Target to enter into any letter of intent,
agreement in principle, acquisition agreement or similar agreement related to any Target
Acquisition Proposal; or (e) for any reason within its control Target fails to call or hold
the Target Shareholders’ Meeting on or before the date of the Parent Shareholder Meeting;

     Section 7.1.7 By Parent, if a Target Material Adverse Effect has occurred and has not
been cured within a reasonable period of time or (a)(i) Target breaches any of
its covenants or agreements set forth in this Agreement or any Target Document and such
breach is not the result of Parent’s failure to fulfill any of its covenants or agreements
under this Agreement; (ii) any representation or warranty of Target set forth in this
Agreement or any Target Document that is qualified as to materiality shall have become
untrue; or (iii) any representation or warranty of Target set forth in this Agreement or any
Target Document that is not qualified as to materiality shall have become untrue in any
material respect; (b) such breach or misrepresentation is not cured within 10 days after
written notice thereof; and (c) such breach or misrepresentation would cause the conditions
set forth in Section 6.2.1 or Section 6.2.2 not to be satisfied;

     Section 7.1.8 By Target if (a) the Parent Board shall have withdrawn, or adversely
modified, its recommendation in favor of the Parent Shareholder Approval (or determined to
do so); (b) the Parent Board shall have failed upon Target’s request, in response to
notification by Parent pursuant to Section 5.8.5 that it has received a Parent
Acquisition Proposal containing a proposed acquisition price, to reconfirm its
recommendation in favor of the Parent Shareholder Approval (or determined to do so) within
ten business days after such request (or such shorter period of time as may exist between
such request and the second business day preceding the Parent Shareholders’ Meeting); (c)
the Parent Board shall have determined to recommend to the Parent Shareholders that they
approve a Parent Acquisition Proposal or shall have determined to accept a Parent Superior
Proposal; (d) the Parent Board shall have caused Parent to enter into any letter of intent,
agreement in principle, acquisition agreement or similar agreement related to any Parent
Acquisition Proposal; (e) any Person or group becomes after the date hereof the beneficial
owner of 20% or more of the outstanding shares of Parent Common Stock; or (f) for any reason
within its control Parent fails to call or hold the Parent Shareholders’ Meeting as
contemplated hereby; or

     Section 7.1.9 By Target, if a Parent Material Adverse Effect has occurred and has not
been cured within a reasonable period of time or if (a)(i) Parent or Merger Sub breaches any
of their covenants or agreements set forth in this Agreement or any Parent Document and such
breach is not the result of Target’s failure to fulfill any of its covenants or agreements
under this Agreement; (ii) any representation or warranty of Parent or Merger Sub set forth
in this Agreement or any Parent Document that is qualified as to materiality shall have
become untrue; or (iii) any representation or warranty of Parent or Merger Sub set forth in
this Agreement or any Parent Document that is not qualified as to materiality shall have
become untrue in any material respect; (b) such breach or misrepresentation is not cured
within 10 days after written notice thereof;

69

 

and (c) such breach or misrepresentation would
cause the conditions set forth in Section 6.3.1 or Section 6.3.2 or not to
be satisfied.

     Section 7.2 Effect of Termination.

     Section 7.2.1 Limitation on Liability. In the event of termination of this
Agreement by either Target or Parent as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the part of
Target, Parent or Merger Sub or their respective officers or directors except with respect
to Section 5.6, Section 5.7, Section 5.11, this Section 7.2
and Article VIII.

     Section 7.2.2 Parent Expenses. Parent and Target agree that if this Agreement
is terminated by Parent pursuant to Section 7.1.7, then Target shall pay Parent an
amount equal to the sum of Parent’s Expenses, up to a maximum amount of $100,000.

     Section 7.2.3 Target Expenses. Parent and Target agree that if this Agreement
is terminated by Target pursuant to Section 7.1.9, then Parent shall pay to Target
an amount equal to the sum of Target’s Expenses, up to a maximum amount of $100,000.

     Section 7.2.4 Payment of Expenses. Payment of Expenses pursuant to Section
7.2.2 or Section 7.2.3 shall be made not later than two business days after
delivery to the other party of notice of demand for payment and a documented itemization
setting forth in reasonable detail all Expenses of the party entitled to receive payment
(which itemization may be supplemented and updated from time to time by such party until the
60th day after such party delivers such notice of demand for payment, but only for amounts
incurred prior to the date of termination). In any proceedings concerning payment of
amounts due under this Section 7.2, the party prevailing in such proceeding shall be
entitled to recover its Expenses from the other party incurred in connection therewith.

     Section 7.2.5 Termination Fee. Parent and Target agree that, in addition to
any payment required by the foregoing provisions of this Section 7.2: (a) if this
Agreement is terminated by Parent pursuant to Section 7.1.6, then Target shall pay
to Parent within two business days after such termination a termination fee of $250,000; (b)
if this Agreement is terminated by Parent pursuant to Section 7.1.7, then Target
shall pay to Parent within two business days after such termination a termination fee of
$100,000; (c) if this Agreement is terminated by Target pursuant to Section 7.1.8,
then Parent shall pay to Target within two business days after such termination a
termination fee of $250,000; and (d) if this Agreement is terminated by Target pursuant to
Section 7.1.9, then Parent shall pay to Target within two business days after such
termination a termination fee of $100,000.

     Section 7.2.6 All Payments. All payments under this Section 7.2 shall
be made by wire transfer of immediately available funds to an account designated by the
party entitled to receive payment. Each of Target and Parent acknowledges that the payment
covenants provided for in this Section 7.2 are an integral part of this Agreement

70

 

and constitute liquidated damages and not a penalty, and that, without these covenants,
neither party would have entered into this Agreement. In the event that either party is
required to pay amounts pursuant to this Section 7.2, such payments (made in
compliance with the terms hereof) shall be the recipient’s exclusive remedy for termination
or breach of this Agreement.

     Section 7.3 Amendment. This Agreement may be amended, supplemented or modified, and
any provision hereof may be waived, only by written instrument making specific reference to this
Agreement signed by the party against whom enforcement is sought. Any such amendment, supplement,
modification or waiver may be made by action taken by or on behalf of the respective boards of
directors of the parties at any time prior to the Effective Time; provided, however, that,
after the Parent Shareholder Approval or the approval of the Merger by the Target Shareholders has
been obtained, no amendment may be made without further shareholder approval, which, by Law or in
accordance with the rules of any relevant stock exchange, requires further approval by such
shareholders.

     Section 7.4 Waiver. At any time prior to the Effective Time, any party hereto may (a)
extend the time for the performance of any of the obligations or other acts of any other party
hereto; (b) waive any inaccuracies in the representations and warranties of any other party
contained herein or in any document delivered pursuant hereto; and (c) waive compliance by any
other party with any of the agreements or conditions contained herein; provided, however,
that, after the Parent Shareholder Approval or any approval of the transactions contemplated by
this Agreement by the Target Shareholders has been obtained, there may not be, without further
approval of such shareholders, any extension or waiver of this Agreement or any portion thereof
which, by Law or in accordance with the rules of any relevant stock exchange, requires further
approval by the Target Shareholders or the Parent Shareholders. Any such extension or waiver will
be valid only if set forth in an instrument in writing signed by the party or parties to be bound
thereby. No failure or delay on the part of any party hereto in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach
of any representation, warranty or agreement herein, nor will any single or partial exercise of any
such right preclude other or further exercise thereof or of any other right. No waiver of any
right, power or duty by any party hereunder will operate or be construed as a waiver as to any
subsequent occurrence or circumstance. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive to, and not exclusive of, any rights or remedies otherwise
available.

     Section 7.5 Fees and Expenses. Subject to Section 7.2.1, Section
7.2.2 and Section 7.2.3, each party hereto shall bear its own costs and expenses
(including without limitation reasonable fees and expenses of legal counsel, accountants,
investment bankers, experts and consultants) incurred in connection with the negotiating,
execution, delivery and performance of the transaction contemplated by this Agreement.

Article VIII.

General Provisions

     Section 8.1 General Survival. The parties agree that, regardless of any investigation
made by the parties, the representations and warranties of the parties contained in this Agreement

71

 

shall terminate at the Effective Time. All of the covenants, agreements and obligations of the
parties contained in this Agreement or any other document, certificate, schedule or instrument
delivered or executed in connection herewith shall survive (a) until fully performed or fulfilled,
unless non-compliance with such covenants, agreements or obligations is waived in writing by the party or parties
entitled to such performance; or (b) if not fully performed or fulfilled, in accordance with their
terms, but subject to all applicable statutes of limitation, statutes of repose and other similar
defenses provided at law or in equity.

     Section 8.2 Notices. All notices and other communications given or made pursuant to
this Agreement must be in writing and will be deemed to have been duly given upon (a) personal
delivery by hand; (b) a transmitter’s confirmation of receipt of a facsimile transmission; (c) the
next business day following deposit with a nationally recognized overnight courier; or (d) the
expiration of five business days after the date mailed by registered or certified mail (postage
prepaid, return receipt requested), to the parties at the following addresses (or at such other
address as such party may have specified by written notice given pursuant to this provision):

If to Parent or Merger Sub, to:

TBX Resources, Inc.

3030 LBJ Freeway, Suite 1320, LB 47

Dallas, TX 75234

Attn: Timothy P. Burroughs, President

Facsimile: (972) 243-2066

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

Vial, Hamilton, Koch & Knox, LLP

1700 Pacific Avenue, Suite 2800

Dallas, TX 75201

Attn: Craig G. Ongley, Esq.

Facsimile: (214) 712-4402

If to Target, to:

Earthwise Energy, Inc.

3182 Royal Lane

Dallas, TX 75201

Attn: Steven C. Howard

Facsimile: (214) 353-0607

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

Hughes & Luce, L.L.P.

1717 Main Street, Suite 2800

Dallas, Texas 75201

Attention: I. Bobby Majumder

Facsimile: (214) 939-5849

72

 

     Section 8.3 Definitions. The following terms, as used herein, shall have the
following meanings:

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

          “Affiliate” means, with respect to any Person, (i) if such Person is a natural Person,
a spouse of such Person, or any child or parent of such Person, (ii) if such Person is not a
natural Person, any director or officer of such Person and any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such Person.

          “Ancillary Documents” means the Parent Documents, the Target Documents, the Parent
Shareholder Voting Agreement, the Burroughs Employment Agreement and the Howard Employment
Agreement.

          “Approval” means any approval, authorization, consent, license, franchise, order,
waiver, registration or other confirmation of or by, or filing with, any Person.

          “Environmental Claim” means any Litigation or notice (written or oral) by any Person
alleging potential Liability (including potential Liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from (a) the presence, Release or threatened
Release of any Hazardous Materials at any location, whether or not owned or operated by Target, or
(b) circumstances forming the basis of any violation, or alleged violation, of any Environmental
Law.

          “Environmental Laws” means all federal, state, local and foreign Laws and regulations
relating to pollution or protection of human health or the environment, including Laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, transport or handling of Hazardous Materials and
all Laws with regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials, and all Laws relating to endangered or threatened species of fish,
wildlife and plants and the management or use of natural resources.

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

          “Exchange Agent” means the transfer agent for the Parent Common Stock or another bank
or trust company mutually satisfactory to Parent and Target in their reasonable discretion.

          “Existing Parent Indebtedness” means the indebtedness of Parent under those agreements
identified under the caption “Financing Arrangements” in Section 4.18 of the Parent Diligence
Letter.

          “Expenses” includes all reasonable out of pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its behalf in
connection

73

 

with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby, including the preparation,
printing, filing and mailing of the Registration Statement and the solicitation of shareholder
approvals and all other matters related to the transaction contemplated hereto.

          “GAAP” means United States generally accepted accounting principles, consistently
applied.

          “Governmental Authority” means any United States or non-U.S. federal, state, local or
other governmental, administrative or regulatory authority, body, agency, court, tribunal or
similar entity.

          “Hazardous Materials” means all substances defined as “Hazardous Substances”, “Oils”,
“Pollutants” or “Contaminants” in the National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. §300.5, all substances defined as such by, or regulated as such under, any
Environmental Law and toxic mold.

          “Hydrocarbons” means crude oil, natural gas, casinghead gas, coalbed methane,
condensate, helium, sulphur, SO2, CO2, natural gas liquids and other gaseous and liquid
hydrocarbons or any combination thereof.

          “Knowledge” with respect to a Person means the facts or other information that are
actually known, after reasonable due investigation of the relevant facts and circumstances in
question, by the key officers or the employees of such Person; provided, that “Knowledge”
of or with respect to Parent shall be deemed to include any “Knowledge” of or with respect to
Merger Sub or Timothy P. Burroughs; further provided, that “Knowledge” of or with respect
to Target shall be deemed to include any “Knowledge” of or with respect to Steven C. Howard.

          “Lands” means the lands covered by or subject to the Leases.

          “Laws” means any federal, state, local or foreign constitution, law, statute, code,
ordinance, standard, requirement, administrative ruling, judgment, injunction, decree, order,
process, rule or regulation of any Governmental Authority (including any zoning or land use law or
ordinance; building code; Environmental Law; securities, stock exchange, blue sky, civil rights,
employment, labor or occupational health and safety law or regulation or any law, order, rule or
regulation applicable to federal contractors) or administrative interpretation thereof, and all
orders and decrees of courts, tribunals and arbitrators.

          “Leases” means the leases, assignments or other agreements described in Section 4.14.1
of the Parent Diligence Letter pursuant to which Parent holds any fee, leasehold, royalty or
overriding royalty interest described in Section 4.14.1 of the Parent Diligence Letter, together
with and specifically including any similar leases, assignments or other agreements pursuant to
which Parent acquires any fee, leasehold, royalty or overriding royalty interests during the
Interim Period, including without limitation those assets set forth in Section 6.3.11 of the Parent
Diligence Letter, and each of such leases, assignments and other agreements is hereby incorporated
by reference into and made a part of this Agreement for all purposes.

74

 

          “Liability” means any debt, liability, commitment or obligation of any kind, character
or nature whatsoever, including without limitation Tax liabilities, whether known or unknown,
direct or indirect, secured or unsecured, fixed, absolute, accrued, contingent or otherwise, and
whether due or to become due.

          “Lien” means any lien, statutory lien, pledge, mortgage, security interest, charge,
encumbrance, easement, right of way, covenant, claim, restriction, right, option, conditional sale
or other title retention agreement of any kind or nature whatsoever.

          “Litigation” means, collectively, all actions, charges, claims, disputes, proceedings,
suits, hearings, Litigation, arbitrations, audits, reviews or formal or informal complaints or
investigations of any kind (whether civil, criminal, administrative, judicial or investigative), at
law or in equity (including actions or proceedings seeking injunctive relief), or any appeal
therefrom.

          “NASD” means the National Association of Securities Dealers.

          “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 any Lease or Well.

          “Oil & Gas Interests” means all right, title and interest of Parent in and to, or
otherwise derived from (a) any of the Leases (including without limitation any ratifications or
amendments thereto, whether or not described in Section 4.14.1 of the Parent Diligence Letter); (b)
any of the Wells, to the extent such right, title and interest is attributable to the Leases; (c)
all Units relating to the Leases or the Lands, to the extent such right, title and interest is
attributable to the Leases; and (d) any and all Leases and Wells acquired by Parent during the
Interim Period, including without limitation those assets set forth in Section 6.3.11 of the Parent
Diligence Letter, and each of such Leases and Wells is hereby incorporated by reference into and
made a part of this Agreement for all purposes.

          “OTC Bulletin Board” means the over-the-counter Bulletin Board maintained by the NASD.

          “Other Filings” means any filings, other than the Registration Statement or the Proxy
Statement, with any Governmental Authority, necessary to effectuate the Merger or otherwise
necessary to comply with securities Laws.

          “Parent Acquisition Proposal” means any inquiry, proposal or offer from any Person
relating to any (a) merger, reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution, extraordinary dividend or similar transaction or series
of transactions involving Parent or Merger Sub; (b) sale, lease or other transfer, directly or
indirectly by merger, share exchange, consolidation, business combination, liquidation,
dissolution, extraordinary dividend, joint venture or similar transaction or series of
transactions, of 20% or more of Parent’s assets or properties; (c) issuance, sale or other
disposition (including by way of merger, consolidation, business combination, share exchange, joint
venture or any similar transaction) of securities (or options, rights or warrants to purchase,
or securities convertible into or exchangeable for such securities) representing 20% or more
of

75

 

the Parent Common Stock; (d) tender offer, exchange offer or similar transaction that if
consummated would result in any Person acquiring beneficial ownership, or the right to acquire
beneficial ownership, or formation of any group that beneficially owns or has the right to acquire
beneficial ownership, of 20% or more of the outstanding Parent Common Stock; or (e) any combination
of the foregoing, other than as provided under this Agreement; provided, however, that
neither the Merger nor any proposal or transaction involving the refinancing of the Existing Parent
Indebtedness otherwise permitted by this Agreement shall constitute a Parent Acquisition Proposal.

          “Parent Capital Securities” means the Parent Common Stock, the Parent Preferred Stock
and any other securities of Parent.

          “Parent Common Stock” means the common stock, par value $0.01 per share, of Parent.

          “Parent Material Adverse Effect” means: (a) any event, circumstance or occurrence that
has resulted in, or would reasonably be expected to result in, a material adverse effect on the
business, operations, properties, tangible assets, condition (financial or otherwise) or results of
operations of Parent and Merger Sub, taken as a whole; or (b) any event, circumstance or occurrence
that prevents or materially delays, or would reasonably be expected to prevent or materially delay,
the ability of Parent or Merger Sub to consummate the Merger; provided, however, that in no
event shall any of the following be a Parent Material Adverse Effect, or be taken into account in
the determination of whether a Parent Material Adverse Effect has occurred: (i) any change or
conditions generally affecting any of the industries in which Parent operates; (ii) any changes in
general economic, business, market, regulatory or political conditions; (iii) any change resulting
from the announcement or pendency of the transactions contemplated by this Agreement; (iv) any
change resulting from the compliance by Parent or Merger Sub with the terms of, or the taking of
any action by Parent or Merger Sub contemplated or permitted by, this Agreement; or (v) the receipt
by Parent of notice of cancellation or non-renewal of any Lease.

          “Parent Preferred Stock” means the preferred stock, par value $0.01 per share, of
Parent.

          “Parent Shareholder” means a holder of Parent Common Stock.

          “Parent Superior Proposal” means a bona fide Parent Acquisition Proposal for at least
20% of the outstanding Parent Common Stock or 20% of Parent’s assets or properties, made by a third
party that was not solicited by Parent or any Parent Representative, that contains no financing
contingency and for which financing is reasonably determined to be available by the Parent Board,
after consultation with Parent’s financial advisors, taking into account, to the extent deemed
appropriate by the Parent Board, the various legal, financial and regulatory aspects of the
proposal and the Person making such proposal, that (a) if accepted, is reasonably likely to be
consummated; and (b) if consummated, would result in a transaction that is more favorable to the
Parent Shareholders, from a financial point of view, than the transactions contemplated by this
Agreement.

76

 

          “Permitted Liens” means with respect to any Person (a) such imperfections of title,
easements, encumbrances or restrictions as do not materially impair the current use of such
Person’s or any of its Subsidiary’s assets; (b) materialmen’s, mechanics’, carriers’, workmen’s,
warehousemen’s, repairmen’s and other like Liens arising in the ordinary course of business, or
deposits to obtain the release of such Liens; (c) Liens for current Taxes not yet due and payable,
or being contested in good faith; and (d) purchase money Liens incurred in the ordinary course of
business.

          “Permit” means any permit, grant, easement, variance, exemption, certificate, Approval
or clearance of any Governmental Authority.

          “Person” means any individual, partnership, corporation, limited liability company,
association, business trust, joint venture, governmental entity, business entity or other entity of
any kind or nature, including any business unit of such Person.

          “Release” means any release, spill, emission, discharge, leaking, pumping, injection,
deposit, disposal, dispersal, leaching or migration into the environment (including ambient air,
surface water, groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.

          “Reserve Report” means that certain study conducted by outside engineering or economic
advisors of Parent, which has, prior to the date hereof, been provided to Target and which is set
forth in Section 4.14.3 of the Parent Diligence Letter.

          “SEC” means the Securities and Exchange Commission.

          “Subsidiary” when used with respect to any Person means any other Person, whether
incorporated or unincorporated, of which (a) more than 51% of the securities or other ownership
interests are owned by the first Person; (b) securities or other interests having by their terms
ordinary voting power to elect more than 51% of the board of directors or others performing similar
functions with respect to the second Person are directly owned or controlled by the first Person or
by any one or more of its Subsidiaries; or (c) the first Person or any of its Subsidiaries is the
general or managing partner (excluding partnerships of which the general or managing partnership
interests held by such first Person or any of its Subsidiaries do not have at least 51% of the
voting interest).

          “Target Acquisition Proposal” means any inquiry, proposal or offer from any Person
relating to any (a) merger, reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution, extraordinary dividend or similar transaction or series
of transactions involving Target; (b) sale, lease or other transfer, directly or indirectly by
merger, share exchange, consolidation, business combination, liquidation, dissolution,
extraordinary dividend, joint venture or similar transaction or series of transactions, of 51% or
more of Target’s assets or properties; (c) issuance, sale or other disposition (including by way of
merger, consolidation, business combination, share exchange, joint venture or any similar
transaction) of securities (or options, rights or warrants to purchase, or securities convertible
into or exchangeable for such securities) representing 51% or more of the Target

77

 

Common Stock; (d) tender offer, exchange offer or similar transaction that if consummated
would result in any Person acquiring beneficial ownership, or the right to acquire beneficial
ownership, or formation of any group that beneficially owns or has the right to acquire beneficial
ownership, of 51% or more of the outstanding Target Common Stock; or (e) any combination of the
foregoing, other than as provided under this Agreement; provided, however, that none of the
following shall constitute a Target Acquisition Proposal: (i) the Merger; (ii) any transaction
contemplated by the Target Diligence Letter; or (iii) any proposal or transaction involving the
refinancing of the existing debt of Target otherwise permitted by this Agreement.

          “Target Common Stock” means the common stock, par value $0.001 per share, of Target.

          “Target Material Adverse Effect” means: (a) any event, circumstance or occurrence that
has resulted in, or would reasonably be expected to result in, a material adverse effect on the
business, operations, properties, tangible assets, condition (financial or otherwise) or results of
operations of Target, taken as a whole; or (b) any event, circumstance or occurrence that prevents
or materially delays, or would reasonably be expected to prevent or materially delay, the ability
of Target to consummate the Merger; provided, however, that in no event shall any of the
following be a Target Material Adverse Effect, or be taken into account in the determination of
whether a Target Material Adverse Effect has occurred: (i) any change or conditions generally
affecting any of the industries in which Target operates; (ii) any changes in general economic,
business, market, regulatory or political conditions; (iii) any change resulting from the
announcement or pendency of the transactions contemplated by this Agreement; or (iv) any change
resulting from the compliance by Target with the terms of, or the taking of any action by Target
contemplated or permitted by, this Agreement.

          “Target Shareholder” means a holder of Target Common Stock.

          “Target Superior Proposal” means a bona fide Target Acquisition Proposal for at least
50% of the outstanding Target Common Stock or 50% of Target’s assets or properties, made by a third
party that was not solicited by Target or any Target Representative, that contains no financing
contingency and for which financing is reasonably determined to be available by the Target Board,
after consultation with Target’s financial advisors, taking into account, to the extent deemed
appropriate by the Target Board, the various legal, financial and regulatory aspects of the
proposal and the Person making such proposal, that (a) if accepted, is reasonably likely to be
consummated; and (b) if consummated, would result in a transaction that is more favorable to the
Target Shareholders, from a financial point of view, than the transactions contemplated by this
Agreement.

          “Tax” or “Taxes” means any federal, state, local or foreign net or gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, personal property, real property,
capital stock, profits, social security (or similar), unemployment, disability, registration, value
added, estimated, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority, whether as a primary
obligor or as a result of being a “transferee” (within the meaning of Section 5901 of the

78

 

Code or any other applicable law) of another person or a member of an affiliated,
consolidated, unitary or combined group.

          “Tax Law” means the Law (including any applicable regulations or any administrative
pronouncement) of any Governmental Authority relating to any Tax.

          “Tax Period” means with respect to any Tax, the period for which the Tax is reported
as provided under the applicable Tax Law.

          “Tax Return” means any U.S. federal, state, local or foreign return, declaration,
report, claim for refund, amended return, declaration of estimated Tax or information return or
statement relating to Taxes, and any schedule, exhibit, attachment or other materials submitted
with any of the foregoing, and any amendment thereto.

          “Units” means all unitization, communitization or pooling agreements, Working Interest
units created by operating agreements and orders covering the Lands or Leases or any portion
thereof, and the units and pooled or communitized areas created thereby.

          “Wells” means all oil and gas wells, well completions, multiple well completions and
other subdivisions of property located on the Lands or otherwise related to any of the Leases,
including without limitation the wells set forth in Section 4.14.2 of the Parent Diligence Letter,
together with and specifically including any similar oil and gas wells, well completions, multiple
well completions and other subdivisions of property located on the Lands or otherwise related to
any of the Leases acquired by Parent during the Interim Period, including without limitation those
assets set forth in Section 6.3.11 of the Parent Diligence Letter, and each of such oil and gas
wells, well completions, multiple well completions and other subdivisions of property located on
the Lands or otherwise related to any of the Leases is hereby incorporated by reference into and
made a part of this Agreement for all purposes.

          “Working Interest” means the percentage of costs and expenses attributable to the
maintenance, development and operation of any Lease, Well or Unit.

     Section 8.4 Terms Defined Elsewhere. The following terms are defined elsewhere in
this Agreement, as indicated below:

	 	 	 
	Defined Term	 	Section
	 
	 	 
	“1933 Act”
	 	8.3
	“Affiliate”
	 	8.3
	“Affiliate Letters”
	 	5.19
	“Agreement”
	 	Preamble
	“Ancillary Documents”
	 	8.3
	“Approval”
	 	8.3
	“Burroughs Employment Agreement”
	 	5.16.2
	“Certificate of Merger”
	 	1.2
	“Closing”
	 	1.2
	“Closing Date”
	 	1.2

79

 

	 	 	 
	Defined Term	 	Section
	 
	 	 
	“Code”
	 	Recitals
	“Dissenting Shares”
	 	2.4
	“Dissenting Shareholders”
	 	2.4
	“D&O Insurance Policy”
	 	5.13.2
	“Effective Time”
	 	1.2
	“Employee Benefit Plans”
	 	3.21.1
	“Environmental Claim”
	 	8.3
	“Environmental Laws”
	 	8.3
	“ERISA”
	 	3.21.1
	“ERISA Affiliate”
	 	3.21.1
	“Exchange Act”
	 	8.3
	“Exchange Agent”
	 	8.3
	“Exchange Fund”
	 	2.2.1
	“Exchange List”
	 	2.1.2
	“Existing Parent Indebtedness”
	 	8.3
	“Expenses”
	 	8.3
	“GAAP”
	 	8.3
	“Governmental Authority”
	 	8.3
	“Hazardous Materials”
	 	8.3
	“Howard Employment Agreement”
	 	5.16.3
	“Hydrocarbons”
	 	8.3
	“Interim Period”
	 	5.1
	“Knowledge”
	 	8.3
	“Lands”
	 	8.3
	“Laws”
	 	8.3
	“Leases”
	 	8.3
	“Liability”
	 	8.3
	“Lien”
	 	8.3
	“Litigation”
	 	8.3
	“Merger”
	 	Recitals
	“Merger Consideration”
	 	2.1.1
	“Merger Sub”
	 	Preamble
	“Monthly Unaudited Financial Information”
	 	5.15
	“NASD”
	 	8.3
	“Net Revenue Interest”
	 	8.3
	“NRS”
	 	Recitals
	“Oil & Gas Interests”
	 	8.3
	“OTC Bulletin Board”
	 	8.3
	“Other Filings”
	 	8.3
	“Parent”
	 	Preamble
	“Parent Acquisition Proposal”
	 	8.3
	“Parent Assets”
	 	4.17(c)
	“Parent Board”
	 	Recitals
	“Parent Capital Securities”
	 	8.3

80

 

	 	 	 
	Defined Term	 	Section
	 
	 	 
	“Parent Common Stock”
	 	8.3
	“Parent Diligence Letter”
	 	Preamble to Article IV
	“Parent Document(s)”
	 	4.3.1
	“Parent Financial Statements”
	 	5.15
	“Parent Governing Documents”
	 	4.2
	“Parent Leased Real Property”
	 	4.16(b)
	“Parent Material Adverse Effect”
	 	8.3
	“Parent Options”
	 	4.4.1
	“Parent Permits”
	 	4.12
	“Parent Preferred Stock”
	 	8.3
	“Parent Real Property Leases”
	 	4.16(b)
	“Parent Representatives”
	 	5.6.1
	“Parent Scheduled Contracts”
	 	4.18.1(a)
	“Parent SEC Filings”
	 	4.8.1
	“Parent Shareholder”
	 	8.3
	“Parent Shareholder Approval”
	 	4.3.3
	“Parent Shareholder Voting Agreement”
	 	6.3.14
	“Parent Shareholders’ Meeting”
	 	5.5.1
	“Parent Stock Option Plans”
	 	4.4.3
	“Parent Superior Proposal”
	 	8.3
	“Permitted Liens”
	 	8.3
	“Permit”
	 	8.3
	“Person”
	 	8.3
	“Proxy Statement”
	 	5.4.1(a)
	“Quarterly Unaudited Financial Information”
	 	5.15
	“Related Parties”
	 	3.25(a)
	“Release”
	 	8.3
	“Registration Statement”
	 	5.4.1(b)
	“Reserve Report”
	 	8.3
	“SEC”
	 	8.3
	“Subsidiary”
	 	8.3
	“Surviving Corporation”
	 	1.1
	“Target”
	 	Preamble
	“Target Acquisition Proposal”
	 	8.3
	“Target Assets”
	 	3.15(c)
	“Target Board”
	 	Recitals
	“Target Certificate(s)”
	 	2.2.2
	“Target Common Stock”
	 	8.3
	“Target Diligence Letter”
	 	Preamble to Article III
	“Target Document(s)”
	 	3.3.1
	“Target Employees”
	 	5.12
	“Target Filings”
	 	3.8.1(a)
	“Target Financial Statements”
	 	3.8.2(a)
	“Target Governing Documents”
	 	3.2

81

 

	 	 	 
	Defined Term	 	Section
	 
	 	 
	“Target Leased Real Property”
	 	3.14(b)
	“Target Material Adverse Effect”
	 	8.3
	“Target Permits”
	 	3.12
	“Target Real Property Leases”
	 	3.14(b)
	“Target Representatives”
	 	5.6.1
	“Target Scheduled Contracts”
	 	3.16.1(a)
	“Target Shareholder”
	 	8.3
	“Target Shareholder Approval”
	 	3.3.3
	“Target Shareholders’ Meeting”
	 	5.5.2
	“Target Shareholder Voting Agreement”
	 	6.2.14
	“Target Superior Proposal”
	 	8.3
	“Tax(es)”
	 	8.3
	“Tax Law”
	 	8.3
	“Tax Period”
	 	8.3
	“Tax Return”
	 	8.3
	“TBCA”
	 	Recitals
	“TBOC”
	 	Recitals
	“Texas Law”
	 	Recitals
	“Units”
	 	8.3
	“Wells”
	 	8.3
	“Working Interest”
	 	8.3
	“York Employment Agreement”
	 	5.16.4

     Section 8.5 Accounting Terms. All accounting terms not specifically defined in this
Agreement shall be construed in accordance with GAAP consistently applied.

     Section 8.6 Construction and Interpretation. When a reference is made in this
Agreement to a section, article, paragraph, exhibit or schedule, such reference is to the indicated
section, article, paragraph, exhibit or schedule of or to this Agreement, unless otherwise
specified or unless the context clearly requires otherwise. Whenever the word “include,”
“includes” or “including” is used in this Agreement it shall be deemed to be followed by the words
“without limitation” and shall not be deemed to constitute a limitation of any term or provision
contained herein. The words “hereof,” “herein,” “herewith” and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement. The term “or” shall not be interpreted as excluding any of
the items described. The singular or plural of any defined term shall have a meaning correlative
to such defined term, and words denoting any gender shall include all genders and the neuter.
Where a word or phrase is defined herein, each of its other grammatical forms shall have a
corresponding meaning. A reference to any party to this Agreement or any other agreement or document shall include such party’s
successors and permitted assigns. A reference to any legislation or to any provision of any
legislation shall include any modification, amendment or re-enactment thereof, any legislative
provision substituted therefor and all rules, regulations and statutory instruments promulgated
thereunder or pursuant thereto. The language in all parts of this Agreement shall be interpreted
and construed, in all cases, according to its fair

82

 

meaning and not for or against any party hereto.
Each party acknowledges that it and its legal counsel have reviewed and revised this Agreement and
that the normal rule of construction to the effect that any ambiguities are to be resolved against
the drafting party will not be employed in the interpretation of this Agreement. Each provision of
this Agreement will be given full separate and independent effect. Although the same or similar
subject matters may be addressed in different provisions of this Agreement, the parties intend
that, except as expressly provided in this Agreement, each such provision be read separately, be
given independent significance and not be construed as limiting any other provision in this
Agreement (whether or not more general or more specific in scope, substance or context). No prior
draft of this Agreement or any course of performance or course of dealing will be used in the
interpretation or construction of this Agreement.

     Section 8.7 Descriptive Headings. The article and section headings and the table of
contents contained in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or interpretation of this
Agreement.

     Section 8.8 Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
each of which shall remain in full force and effect, so long as the economic or legal substance of
the transactions contemplated by this Agreement is not affected in a manner materially adverse to
any party. If the final judgment of a court of competent jurisdiction or other authority declares
that any term or provision hereof is invalid, void or unenforceable, the parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible. If the parties cannot agree upon such a modification within a reasonable
time, the parties agree that the court or authority making such determination shall have the power
to and shall, subject to the discretion of such court, reduce the scope, duration, area or
applicability of such term or provision to delete specific words or phrases, or to replace any
invalid, void or unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid, void or
unenforceable term or provision.

     Section 8.9 Entire Agreement. This Agreement (together with the Exhibits hereto, the
Parent Diligence Letter, the Target Diligence Letter and the other documents delivered pursuant
hereto) contains the entire understanding of the parties relating to the subject matter hereof and
upon execution hereof supersedes and voids ab initio all prior written or oral agreements and
understandings and all contemporaneous oral agreements and understandings in any way relating
directly or indirectly to the subject matter hereof in their entirety for all purposes, and at no time
after the execution hereof shall any party to such actual or claimed prior written or oral or
contemporaneous oral agreements be liable for any resurrection, recovery, reconstitution or revival
of such actual or claimed agreements. The Exhibits and recitals to this Agreement, as well as the
Parent Diligence Letter and the Target Diligence Letter, are hereby incorporated by reference into
and made a part of this Agreement for all purposes.

     Section 8.10 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned or delegated by any of the parties
hereto

83

 

(whether by operation of Law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon and will inure to
the benefit of the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the parties or their
respective successors and permitted assigns any rights, benefits, remedies, obligations or
liabilities under or by reason of this Agreement.

     Section 8.11 Enforcement. The parties hereby acknowledge and agree that the failure
of any party to perform its agreements and covenants hereunder in accordance with their specific
terms, including its failure to take all required actions on its part necessary to consummate the
Merger and the other transactions contemplated hereby, will cause irreparable injury to the other
parties for which damages, even if available, will not be an adequate remedy. Accordingly, each
party hereby consents (a) to the issuance of injunctive relief by any court of competent
jurisdiction to compel performance of such party’s obligations and to prevent breaches of this
Agreement; and (b) to the granting by any court of competent jurisdiction of the remedy of specific
performance of its obligations hereunder, this being in addition to any other remedy to which such
party is entitled at law or in equity. Unless otherwise expressly stated in this Agreement, no
right or remedy described or provided in this Agreement or otherwise conferred upon or reserved to
any party is intended to be exclusive or to preclude a party from pursuing other rights and
remedies to the extent available under this Agreement, at law or in equity, and the same will be
distinct, separate and cumulative and may be exercised from time to time as often as occasion may
arise or as such party may deem expedient. If any party to this Agreement seeks to enforce its
rights under this Agreement and attorneys’ fees or other costs are incurred to secure performance
of any obligations hereunder, or to establish damages for the breach thereof or to obtain any other
appropriate relief, or to defend against any of the foregoing actions, the prevailing party will be
entitled to recover all costs and expenses incurred in connection therewith, including without
limitation all reasonable attorneys’ fees.

     Section 8.12 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

     Section 8.13 Consent to Jurisdiction. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal, state or local court located in Dallas
County, Texas in the event any dispute arises out of this Agreement or any of the transactions
contemplated hereby; (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court; and (c) agrees that it will
not bring any action relating to the Merger, the Closing, this Agreement or the performance of any
duties or transactions contemplated hereby in any court other than a federal, state or local court
sitting in Dallas County, Texas.

     Section 8.14 Jury Trial Waiver. The parties hereby agree to waive any right to trial
by jury with respect to any action or proceeding brought by any party relating to (a) this
Agreement or any understandings or prior dealings between the parties hereto; or (b) the Property
or any part

84

 

thereof. The parties hereby acknowledge and agree that this Agreement constitutes a
written consent to waiver of trial by jury pursuant to Texas Law or any other applicable state
statutes.

     Section 8.15 Disclosure. The Diligence Letter of each party shall be arranged in
sections and subsections corresponding to the sections and subsections with respect to which they
provide disclosure. Any matter disclosed in any section of a party’s Diligence Letter shall be
considered disclosed for other sections of such Diligence Letter, but only to the extent it is
reasonably apparent from a reading of the disclosure that such disclosure is applicable to such
other sections and subsections. The provision of monetary or other quantitative thresholds for
disclosure does not and shall not be deemed to create or imply a standard of materiality hereunder.

     Section 8.16 Counterparts. This Agreement may be executed in one or more counterparts
(including by facsimile or portable document format (.pdf)) for the convenience of the parties
hereto, each of which will be deemed an original, but all of which together will constitute one and
the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

85

 

     IN WITNESS WHEREOF, Parent, Merger Sub and Target have caused this Agreement to be
executed as of the date first written above by their respective officers thereunto duly authorized.

	 	 	 	 	 
	 	PARENT:

TBX RESOURCES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Timothy P. Burroughs 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 	MERGER SUB:

TBX ACQUISITION, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Timothy P. Burroughs 	 
	 	 	Title:  	President 	 
	 
	 	TARGET:

EARTHWISE ENERGY, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Steven C. Howard 	 
	 	 	Title:  	President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]