ARRANGEMENTAGREEMENT BETWEEN GRANTIERRA ENERGY INC. -and - PETROLIFERAPETROLEUM LIMITED January17, 2011

 

(a)

"ABCA" means the Business Corporations Act (Alberta), as amended, including the regulations promulgated thereunder;

 

(b)

"Acceptable Confidentiality Agreement" means a confidentiality agreement that contains confidentiality and standstill provisions that are substantially similar and no less favourable, in the aggregate, to TargetCo, than those contained in the TargetCo Confidentiality Agreement;

 

(c)

"AcquireCo" means Gran Tierra Energy Inc., a corporation formed under the Laws of Nevada;

 

(d)

"AcquireCo Board of Directors" means the board of directors of AcquireCo as it may be comprised from time to time;

 

(e)

"AcquireCo Confidentiality Agreement" means the confidentiality agreement dated December 10, 2010 between AcquireCo and TargetCo;

 

(f)

"AcquireCo Financial Statements" means, collectively, the audited consolidated financial statements of AcquireCo as at and for the years ended December 31, 2009 and 2008, together with the notes thereto and the auditors' report thereon, and the unaudited consolidated financial statements of AcquireCo as at and for the nine month periods ended September 30, 2010 and 2009, together with the notes thereto;

 

(g)

"AcquireCo Information" means the information furnished by or on behalf of AcquireCo to TargetCo for inclusion in the Information Circular describing AcquireCo and its business, operations and affairs;

 

(h)

"AcquireCo Option Plan" means the stock option plan established by AcquireCo, as amended from time to time, providing for the issuance of AcquireCo Options;

 

(i)

"AcquireCo Options" means options to acquire AcquireCo Shares pursuant to the AcquireCo Option Plan;

 

(j)

"AcquireCo Reserve Report" means the report prepared by GLJ dated February 1, 2010, and effective December 31, 2009, evaluating the crude oil, natural gas liquids and natural gas reserves of all of AcquireCo's (and its subsidiaries') properties and the present value of the estimated future net revenues associated with such reserves;

 

(k)

"AcquireCo Shareholders" means the holders from time to time of AcquireCo Shares;

 

(l)

"AcquireCo Shares" means the common stock of AcquireCo, US$0.001 par value;

 

(m)

"AcquireCo Termination Fee" has the meaning set forth in Section 6.2;

 

(n)

"AcquireCo Warrant Indenture" means the warrant indenture to be entered into as of the Effective Date between AcquireCo and a warrant trustee selected by AcquireCo, providing for the issuance of the Replacement Warrants;

 

(o)

"AcquireCo Warrants" means warrants to acquire AcquireCo Shares;

 

(p)

"Acquisition Proposal" means any inquiry or the making of any proposal to TargetCo or TargetCo Securityholders from any Person, or group of Persons "acting jointly or in concert" (within the meaning of MI 62-104), which contemplates, relates to or could reasonably be expected to lead to (in either case whether in one transaction or a series of transactions): (i) the issuance, sale or other disposition (including by way of merger, amalgamation, arrangement, consolidation, share exchange or similar transaction) of 20% or more of the voting or equity securities of TargetCo or any of its subsidiaries; (ii) any acquisition of a substantial amount of assets of TargetCo or any of its subsidiaries; (iii) an amalgamation, arrangement, merger, consolidation or other business combination involving TargetCo or any of its subsidiaries; (iv) any take-over bid, issuer bid, exchange offer, recapitalization, liquidation, dissolution, reorganization or similar transaction involving TargetCo or any of its subsidiaries; (v) any other transaction, the consummation of which would or could reasonably be expected to impede, interfere with, prevent, impair or delay the transactions contemplated by this Agreement or the Arrangement or which would or could reasonably be expected to materially reduce the benefits to AcquireCo under this Agreement or the Arrangement; or (vi) any public announcement of an intention to do any of the foregoing;

 

(q)

"Administration Services Agreement" means the administration services agreement dated effective January 1, 2008 between TargetCo and Connacher Oil and Gas Limited, as the same may be amended;

 

(r)

"affiliate" has the meaning set forth in MI 62-104;

 

(s)

"AMEX" means the NYSE Amex LLC;

 

(t)

"Applicable Canadian Securities Laws", in the context that refers to one or more Persons, means, collectively, and as the context may require, the securities legislation of each of the provinces and territories of Canada, the rules of the TSX, and the rules, regulations and policies published and/or promulgated thereunder, as such may be amended from time to time prior to the Effective Time, as the foregoing apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

 

(u)

"Applicable Corporate Laws" in the context that refers to one or more Persons, means all corporate laws, including the ABCA and the CBCA, as the foregoing apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

 

(v)

"Applicable Laws", in the context that refers to one or more Persons, means the Laws that apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

 

(w)

"Applicable Securities Laws" means, collectively, Applicable Canadian Securities Laws and Applicable U.S. Securities Laws;

 

(x)

"Applicable U.S. Securities Laws" in the context that refers to one or more Persons, means, collectively, and as the context may require, the federal and state securities legislation of the United States and all rules, regulations and orders promulgated thereunder, as amended from time to time, including the U.S. Exchange Act, the U.S. Securities Act and SOX and the rules of the AMEX, as the foregoing may apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

 

(y)

"Arrangement" means the arrangement pursuant to section 192 of the CBCA set forth in the Plan of Arrangement;

 

(z)

"Arrangement Resolution" means the special resolution in respect of the Arrangement to be considered at the TargetCo Meeting;

 

(aaa)

"Material Adverse Change" or "Material Adverse Effect" means, with respect to any Person, any change, effect, fact, circumstance, occurrence or event that, individually or in the aggregate: (a) is, or could reasonably be expected to be, material and adverse to the business, operations, assets, cash flow, liabilities, capitalization, financial condition or results of operations of such Person and its subsidiaries, taken as a whole; or (b) could reasonably be expected to prevent, materially delay or materially impair the ability of TargetCo or AcquireCo to consummate the transactions contemplated by this Agreement; provided, however, that neither a Material Adverse Change nor a Material Adverse Effect shall include any change, effect, fact, circumstance, occurrence or event relating to or resulting from: (i) general economic, financial, credit, currency exchange, securities or commodity prices in Canada or elsewhere; (ii) conditions affecting the oil and gas exploration, development and production industry as a whole, and not specifically relating to any Person and/or its subsidiaries; (iii) any decline in crude oil or natural gas prices on a current or forward basis; (iv) changes in Laws, including changes in Laws relating to Tax, or in interpretations thereof; (v) any matter which has been disclosed by AcquireCo to TargetCo in writing (including via e-mail) as of the date hereof or any matter contained in the TargetCo Disclosure Letter; (vi) the announcement of the transactions contemplated by this Agreement or other communication by AcquireCo or its affiliates of its plans or intentions (including in respect of employees) with respect the business of TargetCo or its subsidiaries, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with TargetCo or any of its subsidiaries; (vii) the failure to meet analyst projections, in and of itself; (viii) a decline in such Person’s stock price, in and of itself; (ix) any required changes in accounting principles; (x) any natural disaster or any acts of war (whether or not declared), terrorism or sabotage, or any escalation or worsening thereof; (xi) any changes arising from matters permitted or contemplated by this Agreement; (xii) any changes consented to or approved in each case in writing by the Other Party following the date of this Agreement; or (xiii) any unfavourable results in respect of wells currently being drilled by a Party or in respect of which drilling commences prior to the Effective Date, provided that, with respect to items (i), (ii), (iii) and (x) above, such matter does not have a materially disproportionate effect on the Person relative to comparable entities operating in the oil and gas exploration, exploitation, development and production business for the purposes of determining whether a Material Adverse Change or Material Adverse Effect has occurred, and provided further, that with respect to items (vii) and (viii) above, the facts and circumstances underlying such failure or decline may be taken into account for the purposes of determining whether a Material Adverse Change or Material Adverse Effect has occurred;

 

(bbb)

"material change" means, with respect to references to TargetCo matters, the meaning ascribed thereto under Applicable Canadian Securities Laws, and with respect to references to AcquireCo matters, the meaning ascribed thereto under Applicable US Securities Laws;

 

(ccc)

"MI 61-101" means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions of the Canadian Securities Administrators, as amended or replaced from time to time;

 

(ddd)

"MI 62-104" means Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids of the Canadian Securities Administrators, as amended or replaced from time to time;

 

(eee)

"misrepresentation" means, with respect to references to TargetCo matters, the meaning ascribed thereto under Applicable Canadian Securities Laws, and with respect to references to AcquireCo matters, the meaning ascribed thereto under Applicable US Securities Laws;

 

(fff)

"Other Party" means: (i) with respect to TargetCo, AcquireCo; and (ii) with respect to AcquireCo, TargetCo;

 

(ggg)

"Outside Date" means April 30, 2011 or such other date as may be agreed to in writing by the Parties;

 

(hhh)

"Parties" means, collectively, the parties to this Agreement, and "Party" means any one of them, or where implied by the context, means: (i) TargetCo; or (ii) AcquireCo, as the case may be;

 

(iii)

"Permitted Encumbrances" means: (i) any statutory exceptions to title; (ii) inchoate or statutory liens of contractors, subcontractors, mechanics, workers, suppliers, materialmen, carriers and others in respect of the construction, maintenance, repair or operation of real or personal property for which payment is not due; (iii) easements, rights of way, servitudes, licenses, permits and other similar rights in real property (including easements, rights of way and agreements for sewers, drains, gas and water mains or electric light and power or telephone, telecommunications or cable conduits, poles, wires and cables) which do not materially impair the use of the applicable real property subject thereto as such property is being used at the date hereof; or (iv) liens for Taxes in respect of real property not yet due and payable;

 

(jjj)

"Person" includes any individual, sole proprietorship, partnership, firm, joint venture, limited partnership, limited liability company, unlimited liability company, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body, corporation, or Governmental Entity, and, where the context requires, any of the foregoing when they are acting as trustee, executor, administrator or other legal representatives of any other entity, whether or not having legal status;

 

(iv)

use reasonable commercial efforts to obtain the consent of its bankers (if required) and any other third party consents required for the transactions contemplated hereby and provide the same to TargetCo on or prior to the Effective Time;

 

(v)

make all necessary filings and applications under Applicable Laws, including Applicable Securities Laws required to be made on the part of AcquireCo in connection with the transactions contemplated herein and shall take all reasonable action necessary to be in compliance with such Applicable Laws;

 

(vi)

use reasonable commercial efforts to obtain all necessary consents, assignments, waivers and amendments to or terminations of any agreements, leases, contracts and other instruments, to obtain all necessary approvals and take such measures as may be appropriate to fulfill its obligations hereunder and to carry out the transactions contemplated hereby; and

 

(vii)

take all reasonable commercial actions to give effect to the transactions contemplated by this Agreement and the Arrangement;

 

(b)

AcquireCo shall indemnify and save harmless TargetCo and the directors, officers and agents of TargetCo, as applicable, from and against any and all liabilities, claims, demands, losses, costs, damages and expenses (excluding any loss of profits or consequential damages) to which TargetCo, or any director, officer or agent thereof, may be subject or which TargetCo, or any director, officer or agent thereof may suffer, whether under the provisions of any statute or otherwise, in any way caused by, or arising, directly or indirectly, from or in consequence of:

 

(i)

any misrepresentation or alleged misrepresentation contained in the AcquireCo Information in the Information Circular;

 

(ii)

any order made or any inquiry, investigation or proceeding by any Securities Regulatory Authority or other Governmental Entity based upon any misrepresentation or any alleged misrepresentation in the AcquireCo Information in the Information Circular; and

 

(iii)

AcquireCo not complying with any requirement of Applicable Laws in connection with the transactions contemplated in this Agreement;

 

(c)

prior to the mailing of the Information Circular as contemplated by Section 2.5(a)(ii), AcquireCo will make an application to the TSX for conditional approval of the listing on the TSX of the AcquireCo Shares and the Replacement Warrants to be issued to TargetCo Securityholders pursuant to the Arrangement, as well as the AcquireCo Shares underlying the Replacement Warrants. AcquireCo will similarly apply to the AMEX for conditional approval of the listing on the AMEX of the AcquireCo Shares, including those underlying the Replacement Warrants.

 

(a)

to obtain all necessary consents, assignments, waivers and amendments to or terminations of any loan agreements, leases and other contracts and instruments and take such measures as may be appropriate to fulfill its obligations hereunder and to carry out the transactions contemplated hereby;

 

(b)

to effect all necessary registrations and filings and submissions of information requested by Governmental Entities required to be effected by it in connection with the Arrangement, and each of TargetCo and AcquireCo will use its reasonable commercial efforts to cooperate with the Other Party in connection with the performance by the Other Party of its obligations under this Section 3.3 including continuing to provide reasonable access to information and to maintain ongoing communications as between Representatives of AcquireCo and TargetCo, subject in all cases to the TargetCo Confidentiality Agreement; and

 

(c)

AcquireCo and TargetCo shall take all such steps and actions as may reasonably be requested by the Other Party and its tax advisors to effect the Arrangement (including the steps of the Arrangement) in a tax effective manner, and, in connection therewith, each Party agrees to assist the Other Party and its tax advisors in making such investigations, inquiries and taking such actions with respect to TargetCo and AcquireCo as the Other Party and its tax advisors shall consider necessary, acting reasonably, provided that TargetCo shall not be obligated to consent or agree to any structuring that has a Material Adverse Effect on TargetCo or which has the effect of reducing the pre-tax consideration, or changing the form of the consideration, to be received under the Arrangement by the TargetCo Securityholders or that requires the approval of the TargetCo Securityholders other than as can be obtained at the TargetCo Meeting, and provided further that the Party proposing the tax related steps and tax related actions (the "Proposing Party") shall be solely responsible for all reasonable costs and expenses related to any such tax related steps and tax related actions taken by the Other Party at the specific request of the Proposing Party and, in the event this Agreement is terminated in any circumstance not requiring payment by TargetCo of the TargetCo Termination Fee contemplated by Section 6.1, the Proposing Party shall indemnify the Other Party for all costs, expenses, liabilities and claims arising solely from or relating solely to any such tax related actions or steps, except to the extent that the liability or claim arises solely due to the Other Party's failure to undertake the steps and actions requested by the Proposing Party in accordance with this Agreement.

 

(a)

TargetCo shall not, directly or indirectly, do or authorize or permit any of its affiliates, officers, directors or employees or any financial advisor, expert or other representative retained by it or otherwise acting at its direction and on its behalf (any of the foregoing a "Representative")  to do, any of the following:

 

(i)

solicit, initiate, encourage or knowingly facilitate any Acquisition Proposal;

 

(ii)

enter into or participate in any discussions or negotiations regarding an Acquisition Proposal, or furnish or otherwise afford access to any other Person any information with respect to its business, properties, operations, prospects or conditions (financial or otherwise) in connection with an Acquisition Proposal or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt of any other Person to do or seek to do any of the foregoing;

 

(iii)

withhold, withdraw, modify or qualify in any manner which is adverse to AcquireCo, or which in the opinion of AcquireCo, acting reasonably, is adverse to AcquireCo, the determination, approval or recommendation of the TargetCo Board of Directors as referred to in Section 4.1(ww) with respect to this Agreement or the Arrangement, or publicly propose to do any of the foregoing;

 

(iv)

accept, recommend, approve or enter into an agreement to implement an Acquisition Proposal;

 

(v)

waive, or otherwise forbear in the enforcement of, or enter into or participate in any discussions, negotiations or agreements to waive or otherwise forbear in respect of, any rights or other benefits under confidential information agreements (including, for greater certainty, any Acceptable Confidentiality Agreements entered into as required by the terms of this Agreement), including any "standstill provisions" thereunder; or

 

(vi)

resolve or determine to do or take any action which would be reasonably likely to result in any of the foregoing,

 

(vii)

enter into or participate in any discussions or negotiations with a third party who (without any solicitation, initiation, encouragement or facilitation, or any other breach of this Section 3.4, directly or indirectly, on or after the date of this Agreement, by TargetCo or any of its Representatives) seeks to initiate such discussions or negotiations and, subject to execution of an Acceptable Confidentiality Agreement (provided that such Acceptable Confidentiality Agreement shall provide for disclosure thereof (along with all information provided thereunder) to AcquireCo as set out below), may furnish to such third party information concerning TargetCo and its business, properties, assets, operations, prospects or conditions, in each case if, and only to the extent that:

 

(A)

the third party has first made a written bona fide Acquisition Proposal (or has publicly announced a bona fide Acquisition Proposal) to acquire 50% or more of the equity securities of TargetCo in respect of which the TargetCo Board of Directors determines in good faith: (i) that funds or other consideration necessary for the consummation of such Acquisition Proposal are available or that adequate financing arrangements (as such term is interpreted in MI 62-104) will be in place in accordance with the terms of section 2.27 of MI 62-104 to ensure that the third party will have the required funds necessary for the consummation of the Acquisition Proposal at the time and on the basis set out therein; (ii) (after consultation with its financial advisors) such Acquisition Proposal would, or would be reasonably likely to, if consummated in accordance with its terms, result in a transaction financially superior for the TargetCo Shareholders than the transactions contemplated by this Agreement; (iii) is not subject to a due diligence condition; (iv) is reasonably capable of completion in accordance with its terms taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal; and (v) after receiving the advice of outside counsel, as reflected in minutes of the TargetCo Board of Directors, that the taking of such action is necessary for the TargetCo Board of Directors in discharge of its fiduciary duties under Applicable Laws and the constating documents of TargetCo (an Acquisition Proposal that satisfies all of the foregoing requirements, a "Superior Proposal"); and

 

(B)

prior to furnishing or affording access to such information to or entering into or participating in any such discussions or negotiations with such third party, TargetCo provides prompt written notice to AcquireCo to the effect that it is furnishing or affording access to such information to or entering into or participating in discussions or negotiations with such third party, together with a copy of the Acceptable Confidentiality Agreement referenced above and, if not previously provided to AcquireCo, copies of all information provided to such third party (and if previously provided to AcquireCo, a list of all such information provided to such Person) concurrently with the provision of such information to such third party; and provided further that TargetCo shall notify AcquireCo orally and in writing of any inquiries, offers or proposals with respect to a Superior Proposal (which written notice shall include a copy of any such proposal (and any amendments or supplements thereto), the identity of the Person making it, copies of all information provided to such Person (if not previously provided to AcquireCo, and if previously provided to AcquireCo, a list of all such information provided to such Person) and all other information reasonably requested by AcquireCo), within 24 hours of the receipt thereof, shall keep AcquireCo informed of the status and details of any such inquiry, offer or proposal and answer AcquireCo's questions with respect thereto;

 

(viii)

comply with Applicable Securities Laws relating to the provision of directors' circulars and make appropriate disclosure with respect thereto to its securityholders; and

 

(ix)

if the TargetCo Board of Directors receives, at any time, an Acquisition Proposal that did not result from a breach of the provisions of this Section 3.4, and which the TargetCo Board of Directors has determined constitutes a Superior Proposal, the TargetCo Board of Directors may: (A) withhold, withdraw, modify or qualify in any manner the determination, approval or recommendation of the TargetCo Board of Directors with respect to this Agreement or the Arrangement as set forth in Section 4.1(ww); or (B) accept, recommend, approve or enter into an agreement to implement such Superior Proposal, but only if prior to taking any of the foregoing actions contemplated in (A) or (B) above: (i) the TargetCo Board of Directors shall have concluded in good faith, after considering all proposals from AcquireCo to adjust the terms and conditions of this Agreement and the Arrangement as contemplated by Section 3.4(c) and after receiving: (x) the advice of outside counsel, as reflected in minutes of the TargetCo Board of Directors that the taking of such action is necessary for the TargetCo Board of Directors in discharge of its fiduciary duties under Applicable Laws; and (y) the advice of its financial advisor that such proposals to amend or adjust this Agreement and the Arrangement do not result in this Agreement and the Arrangement, as so amended or adjusted, providing the TargetCo Shareholders with a value per TargetCo Share equal to or greater, from a financial point of view, than the value per TargetCo Share provided in the Acquisition Proposal previously determined to be a Superior Proposal, having regard to all relevant circumstances; (ii) TargetCo complies with its obligations set forth in Section 3.4(c); (iii) in the event that the TargetCo Board of Directors proposes to take any of the actions contemplated in (A) above, TargetCo pays AcquireCo the TargetCo Termination Fee if required by Section 6.1; and (iv) in the event that the TargetCo Board of Directors proposes to take any of the actions contemplated by (B) above, TargetCo first terminates this Agreement in accordance with Section 8.1(b), and concurrently with such termination, TargetCo pays AcquireCo the TargetCo Termination Fee required by Section 6.1.

 

(b)

TargetCo shall, and shall cause its Representatives, to: (i) immediately cease and cause to be terminated all existing solicitations, initiations, encouragements, facilitations, cooperation, discussions and negotiations (including through any advisors or other parties on its behalf), if any, with any third parties (other than AcquireCo and its representatives) with respect to any Acquisition Proposal; (ii) immediately cease to provide any third party (other than AcquireCo and its representatives) with any information concerning TargetCo (including by discontinuing all access by any third party to any data room (virtual or otherwise) containing any such information); and (iii) immediately request the return or destruction of all information provided to any third party who has entered into a confidentiality agreement with TargetCo relating to an Acquisition Proposal and shall use all reasonable commercial efforts to ensure, including exercising all rights to require, that such requests are honoured and shall promptly advise AcquireCo orally and in writing of any response or action (actual, anticipated, contemplated or threatened) by any recipient of such request which could hinder, prevent, delay or otherwise adversely affect or impair the consummation of the Arrangement or other transactions contemplated hereby.

 

(c)

TargetCo shall give AcquireCo, orally and in writing, at least 72 hours advance notice of any decision by the TargetCo Board of Directors to take any of the actions contemplated in Section 3.4(a)(ix)(A) or (B) or any meeting of the TargetCo Board of Directors at which it may take any of such actions (a "Notice"), which Notice shall confirm that TargetCo has received an Acquisition Proposal which constitutes a Superior Proposal, shall identify the third party making the Superior Proposal and shall provide a true and complete copy thereof and any amendments or adjustments thereto and, if such Superior Proposal includes any non-cash consideration, shall include the value or range of values that the TargetCo Board of Directors has, in good faith and in consultation with its financial advisors, determined shall be ascribed to such non-cash consideration.  During such 72 hour period, TargetCo agrees not to accept, recommend, approve or enter into any agreement to implement such Superior Proposal and not to release the party making the Superior Proposal from any standstill provisions and shall not withhold, withdraw, modify or qualify in any manner the determination, approval or recommendation of the TargetCo Board of Directors as referred to in Section 4.1(ww) with respect to this Agreement or the Arrangement, or publicly propose to do any of the foregoing.  In addition, during such 72 hour period TargetCo shall, and shall cause its financial and legal advisors to, negotiate in good faith with AcquireCo and its financial and legal advisors to make such amendments and adjustments in the terms and conditions of this Agreement and the Arrangement as would enable TargetCo to proceed with the Arrangement as amended rather than the Superior Proposal; provided that, for greater certainty, AcquireCo will have the right, but not the obligation, to offer to amend and adjust such terms and conditions.  If AcquireCo proposes to amend or adjust this Agreement and the Arrangement to provide that the holders of the TargetCo Shares shall receive a value per TargetCo Share equal to or having a value greater than the value per TargetCo Share provided in the Superior Proposal and so advises the TargetCo Board of Directors prior to the expiry of such 72 hour period, the TargetCo Board of Directors shall not accept, recommend, approve or enter into any agreement to implement such Superior Proposal and shall not release the party making the Superior Proposal from any standstill provisions and shall not withdraw, redefine, modify or change its recommendation in respect of the Arrangement, and TargetCo shall enter into an amended version of this Agreement with AcquireCo reflecting such proposed amendments.  Each successive amendment or adjustment to any Superior Proposal that results in an increase in, or other modification of, the consideration (or value of such consideration) to be received by the TargetCo Shareholders, or that makes any other material change to such Superior Proposal, shall constitute a new Superior Proposal for the purposes of this Section 3.4(c) and Section 3.4(a)(ix) and AcquireCo shall be offered a new 72 hour notice period in respect of each such Superior Proposal.

 

(d)

AcquireCo agrees that all information that may be provided to it by TargetCo with respect to any Superior Proposal pursuant to this Section 3.4 shall be treated as if it were "Confidential Information" as that term is defined in the TargetCo Confidentiality Agreement and shall not be disclosed or used except in accordance with the provisions of the TargetCo Confidentiality Agreement or to enforce its rights under this Agreement in legal proceedings.

 

(e)

TargetCo shall ensure that its Representatives are aware of the provisions of this Section 3.4.  TargetCo shall be responsible for any breach of this Section 3.4 by its Representatives.

 

(f)

For the purposes of this Section 3.4, references to a "third party" shall include two or more Persons "acting jointly or in concert" within the meaning of MI 62-104.

 

(a)

AcquireCo covenants that it has reserved for issuance and will, at all times while any Replacement Warrants (other than Replacement Warrants held by AcquireCo or its affiliates) are outstanding, keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of AcquireCo Shares (or other shares or securities into which AcquireCo Shares may be reclassified or changed): (a) as are required to be issued upon the exercise of all rights to acquire Replacement Warrants outstanding from time to time; and (b) as are now and may hereafter be required to enable and permit AcquireCo to meet its obligations under any security or commitment pursuant to the Arrangement with respect to which AcquireCo may now or hereafter be required to issue AcquireCo Shares.

 

(b)

AcquireCo will use reasonable commercial efforts to maintain its status as a "reporting issuer" (or similar designated entity) not in default in at least one of the provinces of Canada where it is currently a reporting issuer in material compliance with all Applicable Canadian Securities Laws and use reasonable commercial efforts to maintain the listing of the outstanding AcquireCo Shares on the TSX in each case for a period of at least two years following the date hereof, provided that, notwithstanding the foregoing, nothing contained herein shall require AcquireCo to maintain its status as a "reporting issuer" in any province of Canada or maintain the listing of outstanding AcquireCo Shares upon the occurrence of any of:

 

(i)

the purchase or acquisition of AcquireCo Shares and/or securities convertible into AcquireCo Shares or carrying the right to acquire AcquireCo Shares as a result of which a Person, group of Persons or Persons acting jointly or in concert, or any affiliates or associates of any such Person, group of Persons or any of such Persons acting jointly or in concert beneficially own or exercise control or direction over AcquireCo Shares and/or securities convertible into AcquireCo Shares such that, assuming after the conversion of such convertible securities beneficially owned by the holders thereof, would have the right to cast more than 50% of the votes attached to all AcquireCo Shares;

 

(ii)

the approval by the shareholders of: (A) an amalgamation, arrangement, merger or other consolidation or combination of AcquireCo with another entity pursuant to which the shareholders of AcquireCo immediately thereafter do not own securities of the successor or continuing entity which would entitle them to cast more than 50% of the votes attaching to all of the AcquireCo Shares; (B) a liquidation, dissolution or winding-up of AcquireCo; or (C) the sale, lease or other disposition of all or substantially all of the assets of AcquireCo;

 

(iii)

the listing of the outstanding AcquireCo Shares on a recognized stock exchange in the United States or elsewhere;

 

(iv)

the reorganization of AcquireCo into another entity; or

 

(v)

a determination by the AcquireCo Board of Directors, made in good faith, that ceasing to be a "reporting issuer" and/or the delisting of the AcquireCo Shares is in the best interests of AcquireCo; provided that, the AcquireCo Shares remain listed on a recognized stock exchange in Canada, the United States or elsewhere.

 

(c)

If Purchaser is an entity to be formed, AcquireCo shall incorporate Purchaser prior to the Effective Date for the purposes of Purchaser participating in the Plan of Arrangement, and if Purchaser is Solana Resources Limited, AcquireCo shall cause such entity to participate in the Plan of Arrangement.

 

(a)

Organization and Qualification. TargetCo is a corporation duly incorporated and validly existing under the Federal Laws of Canada and has the requisite corporate power and authority to own its assets as now owned and to carry on its business as now conducted.  TargetCo and each of its subsidiaries is duly registered to conduct its affairs or do business, as applicable, in each jurisdiction in which the character of its assets, owned or leased, or the nature of its activities makes such registration necessary, except where the failure to be so registered would not have a Material Adverse Effect on TargetCo.  Copies of the constating documents of TargetCo and each of its subsidiaries provided to AcquireCo, together with all amendments to date, are accurate and complete as of the date hereof and have not been amended or superseded.

 

(b)

Authority Relative to this Agreement. TargetCo has the requisite corporate power and authority to execute this Agreement, and TargetCo has the requisite corporate power and authority to carry out its obligations hereunder.  The execution and delivery of this Agreement and the consummation by TargetCo of the transactions contemplated hereby have been duly authorized by the TargetCo Board of Directors and, subject to the requisite approval of the TargetCo Securityholders and the obtaining of the Final Order, no other proceedings on the part of TargetCo are necessary to authorize this Agreement or the transactions contemplated hereby.  This Agreement has been duly executed and delivered by TargetCo and constitutes a legal, valid and binding obligation of TargetCo enforceable against it in accordance with its terms, subject to the qualification that such enforceability may be limited by bankruptcy, insolvency, reorganization or other Laws of general application relating to or affecting rights of creditors and that equitable remedies, including specific performance, are discretionary and may not be ordered.

 

(c)

No Violations. Except as disclosed in section 4.1(c) of the TargetCo Disclosure Letter, or as contemplated by this Agreement:

 

(i)

neither the execution and delivery of this Agreement by TargetCo nor the consummation of the transactions contemplated hereby nor compliance by TargetCo with any of the provisions hereof nor the consummation of the Arrangement will: (a) violate, conflict with, or result in a breach of any provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination or acceleration under, or result in the creation of any encumbrance upon any of the properties or assets of TargetCo or any of its subsidiaries or cause any indebtedness to come due before its stated maturity or cause any credit to cease to be available, under any of the terms, conditions or provisions of: (i) the articles, by-laws or other constating document of TargetCo and each of its subsidiaries; or (ii) any material note, bond, mortgage, indenture, loan agreement, deed of trust, agreement, lien, contract or other instrument or obligation to which TargetCo or any of its subsidiaries is a party or to which it, or any of its properties or assets, may be subject or by which TargetCo or any of its subsidiaries is bound; or (b) subject to compliance with applicable statutes and regulations, violate any judgment, ruling, order, writ, injunction, determination, award, decree, statute, ordinance, rule or regulation applicable to TargetCo or any of its subsidiaries or any of its or their properties or assets (except, in the case of each of clauses (a) and (b) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of encumbrances which, or any consents, approvals or notices which if not given or received, would not have any Material Adverse Effect on TargetCo or impede the ability of TargetCo to consummate the transactions contemplated hereby); or (c) cause the suspension or revocation of any authorization, consent, approval or license currently in effect which would have a Material Adverse Effect on TargetCo;

 

(ii)

other than in connection with or in compliance with the provisions of Applicable Laws (including the Competition Act and the rules and policies of the TSX) or which are required to be filed post-Arrangement or pursuant to this Agreement, and except for the requisite approval of the TargetCo Shareholders and obtaining the Final Order: (a) there is no legal impediment to TargetCo's consummation of the transactions contemplated hereby; and (b) no filing or registration with, or authorization, consent or approval of, any domestic or foreign public body or authority is required of TargetCo or any of its subsidiaries in connection with the consummation of the Arrangement and the transactions contemplated by this Agreement, except for such filings or registrations which, if not made, or for such authorizations, consents or approvals which, if not received, would not have a Material Adverse Effect on TargetCo, or significantly impede the ability of TargetCo to consummate the Arrangement and the transactions contemplated hereby;

 

(iii)

there is no non-competition, exclusivity or other similar agreement, commitment or understanding in place, whether written or oral, to which TargetCo or any of its subsidiaries, or any director, officer, employee or consultant or any affiliate of TargetCo or any of its subsidiaries is a party or is otherwise bound that would or could reasonably be expected to, now or hereafter, in any way (a) limit the business or operations of TargetCo or any of its subsidiaries in any material respect effect either in respect of the type of business in which TargetCo or any of its subsidiaries (or, after the Effective Time, AcquireCo or its subsidiaries) may engage or the manner or locations in which it may so engage in any business; (b) require the disposition of any material assets or line of business of TargetCo or any of its subsidiaries or, after the Effective Time, AcquireCo or its subsidiaries; or (c) prohibits or limits the right of TargetCo or any of its subsidiaries to make, sell or distribute any products or services or use, transfer, license, distribute or enforce any of its intellectual property rights; and

 

(iv)

the execution, delivery and performance of this Agreement does not and will not result in any restriction on TargetCo or any of its subsidiaries from engaging in its and their businesses or from competing with any Person or in any geographical area and do not and will not result in a Material Adverse Effect in respect of TargetCo or trigger or cause to arise any rights of any Person under any contract or arrangement to restrict any of the foregoing from engaging in the business currently carried on by TargetCo or any of its subsidiaries.

 

(d)

Litigation. Except as disclosed in section 4.1(d) of the TargetCo Disclosure Letter, there are no Claims in existence or pending or, to the knowledge of TargetCo, threatened or for which there is a reasonable basis, affecting or that would affect TargetCo or any of its subsidiaries or affecting or that would affect its or their properties or assets at law or equity or before or initiated by any Governmental Entity.

 

(e)

Taxes, etc. Except as disclosed in section 4.1(e) of the TargetCo Disclosure Letter:

 

(i)

all Tax Returns required to be filed by or on behalf of TargetCo or any subsidiary have been duly filed and all such Tax Returns were true and complete in all material respects. All Taxes shown to be payable on such Tax Returns or on subsequent assessments with respect thereto have been paid in full, and no other Taxes are payable by TargetCo or any subsidiary with respect to items or periods covered by such Tax Returns;

 

(ii)

TargetCo and each subsidiary has paid or provided adequate accruals in its consolidated financial statements for the fiscal year ended December 31, 2009 for TargetCo’s and its subsidiaries’ respective Taxes, including income taxes and related future taxes, if applicable, for such periods, in conformity with GAAP;

 

(iii)

for all periods ended on or after December 31, 2009 AcquireCo has been furnished by TargetCo true and complete copies of: (a) material portions of income tax audit reports, statement of deficiencies, closing or other agreements or correspondence concerning assessments or audits pursuant to which a Governmental Entity has proposed amendments to previously filed returns received by TargetCo or any subsidiary relating to the Taxes; and (b) any material federal, provincial, state, local or foreign income or franchise tax returns for TargetCo and each subsidiary;

 

(iv)

none of TargetCo nor any of its subsidiaries is or was a party to any action or proceeding for assessment or collection of Taxes, nor, to the knowledge of TargetCo, has such an event been asserted or threatened against TargetCo or its subsidiaries or any of their respective assets.  No waiver or extension of any statute of limitations is in effect with respect to Taxes or Tax Returns of TargetCo or its subsidiaries.  No audit, adjustment or assessment by a Governmental Entity of TargetCo or its subsidiaries is in process or, to the knowledge of TargetCo’s knowledge, pending;

 

(v)

TargetCo has withheld from each payment made to any of its present or former employees, officers and directors, and to all persons who are non-residents of Canada for the purposes of the Tax Act, all amounts required by Applicable Laws and will continue to do so until the Effective Time and has remitted such withheld amounts within the prescribed periods to the appropriate Governmental Entity;

 

(vi)

TargetCo has remitted all Canada Pension Plan contributions, employment insurance premiums, and other Taxes payable by it in respect of its employees and has or will have remitted such amounts to the proper Governmental Entity within the time required by Applicable Laws;

 

(vii)

none of TargetCo nor any of its subsidiaries has liability for the Taxes of any other Person (other than any of TargetCo's subsidiaries) by reason of Laws, contract, or otherwise, nor is TargetCo or any of its subsidiaries a party to any agreement providing for the allocation, indemnification or sharing of Taxes;

 

(viii)

to the knowledge of TargetCo, none of TargetCo and its subsidiaries are "controlled foreign corporations" within the meaning of Section 957 of the Code as of the date of this Agreement;

 

(ix)

none of TargetCo nor any of its subsidiaries has participated, directly or through a partnership, in a transaction or series of transactions contemplated in subsection 247(2) of the Tax Act or any comparable law of any province or territory in Canada, or in any other jurisdiction;

 

(x)

there are no circumstances existing which could result in the application of sections 78, 80, 80.01, 80.02, 80.03, 80.04 or 160 of the Tax Act, or any analogous provision of any comparable law of any province or territory of Canada, to TargetCo or any of its subsidiaries;

 

(xi)

there are no Tax liens on any of the assets of TargetCo or any of its subsidiaries except liens for Taxes not yet currently due and payable; and

 

(xii)

TargetCo and its subsidiaries have charged, collected and remitted on a timely basis all Taxes as required by Applicable Laws on any sale, supply or delivery whatsoever made by them.

 

(f)

Reporting Issuer Status. TargetCo is a reporting issuer (where such concept exists) in all provinces of Canada, other than Quebec, and is in material compliance with all Applicable Canadian Securities Laws therein, and the TargetCo Shares are listed and posted for trading on the TSX and TargetCo is in material compliance with the rules of the TSX.

 

(g)

Capitalization. As of the date hereof, the authorized capital of TargetCo consists of an unlimited number of TargetCo Shares and an unlimited number of preferred shares.  As of the date hereof, there were issued and outstanding 145,477,660 TargetCo Shares and no issued and outstanding preferred shares.  Other than 9,026,454 TargetCo Shares issuable pursuant to the TargetCo Options under the TargetCo Option Plan and 33,239,600 TargetCo Shares issuable pursuant to the TargetCo Warrants, there are no options, warrants or other rights, agreements or commitments of any character whatsoever requiring the issuance, sale or transfer by TargetCo of any securities of TargetCo (including TargetCo Shares) or any securities convertible into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any securities of TargetCo (including TargetCo Shares).  All outstanding TargetCo Shares have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to, nor were they issued in violation of, any pre-emptive rights and all TargetCo Shares issuable pursuant to the TargetCo Options and TargetCo Warrants in accordance with their terms will be duly authorized and validly issued as fully paid and non-assessable and will not be subject to any pre-emptive rights.

 

(h)

Subsidiaries.  TargetCo has no material subsidiaries other than as set forth in section 4.1(h) of the TargetCo Disclosure Letter, and other than such subsidiaries, TargetCo does not have any equity interest in any Person that owns property or owns or holds licenses or carries on business.

 

(i)

Ownership of Subsidiaries.  As of the date hereof, TargetCo is the beneficial direct or indirect owner of all of the outstanding shares, partnership units and other securities, as applicable, of the subsidiaries of TargetCo.

 

(j)

No Orders.  No order, ruling or determination having the effect of suspending the sale of, or ceasing the trading of, the TargetCo Shares or any other securities of TargetCo has been issued by any Securities Regulatory Authority and is continuing in effect and no proceedings for that purpose have been instituted, are pending or, to the knowledge of TargetCo, are contemplated or threatened under any Applicable Laws or by any other Governmental Entity.

 

(k)

Material Agreements.  There are no agreements material to the conduct of any of TargetCo's or its subsidiaries' affairs or businesses, except for those agreements disclosed in section 4.1(k) of the TargetCo Disclosure Letter, and all such material agreements are valid and subsisting and neither TargetCo or any of its subsidiaries is in material default under any such agreements.  TargetCo has provided or made available to AcquireCo copies of all such material agreements.  Other than as disclosed in section 4.1(k) of the Disclosure Letter, completion of the transactions contemplated by this Agreement will not give rise to a right of termination (or result in any additional or more onerous obligation of TargetCo or its subsidiaries) under any such material contract.

 

(l)

Filings.  All documents required to be filed by TargetCo and each of its subsidiaries with applicable Governmental Entities (including in compliance with Applicable Canadian Securities Laws) were, as of their respective dates, in compliance in all material respects with all Applicable Laws and at the time filed 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 therein, in light of the circumstances under which they were made, not misleading.  Neither TargetCo nor any of its subsidiaries have failed to make any required filing with any applicable Governmental Entity, which failure would result in a Material Adverse Effect on TargetCo. TargetCo will deliver to AcquireCo, as soon as they become available, true and complete copies of any material reports or statements required to be filed by TargetCo or any of its subsidiaries with any Governmental Entity subsequent to the date hereof.  As of their respective dates, such reports and statements (excluding any information therein provided by AcquireCo, as to which TargetCo makes no representation) will 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 therein, in light of the circumstances in which they are made, not misleading and will comply in all material respects with all Applicable Laws.  TargetCo has not filed any confidential material change reports which remain confidential.

 

(m)

No Material Adverse Change.  Since December 31, 2009: (i) TargetCo and each of its subsidiaries has conducted its businesses only in the ordinary and normal course; (ii) no liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) material to TargetCo and its subsidiaries, taken as a whole, has been incurred other than in the ordinary course of business; and (iii) there has not been any Material Adverse Change in respect of TargetCo.

 

(n)

Books and Records.  The records and minute books of TargetCo and each of its subsidiaries have been maintained substantially in accordance with all Applicable Laws and are complete and accurate in all material respects.

 

(o)

Reports.  As of their respective dates: (i) the TargetCo Financial Statements; (ii) TargetCo's Annual Information Form dated March 17, 2010 for the year ended December 31, 2009; (iii) TargetCo's information circular for the annual and special meeting of TargetCo Shareholders dated March 11, 2010; (iv) all TargetCo press releases, material change reports, business acquisition reports or similar documents filed with the Securities Regulatory Authorities since January 1, 2009; and (v) all prospectuses or other offering documents used by TargetCo in the offering of its securities or filed with any Securities Regulatory Authorities since January 1, 2009, 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 therein, in light of the circumstances in which they were made, not misleading and complied in all material respects with all Applicable Laws.  The TargetCo Financial Statements and other financial statements of TargetCo included or incorporated by reference in such forms, statements, prospectuses and other offering documents were prepared in accordance with GAAP (except: (A) as otherwise indicated in such financial statements and the notes thereto or, in the case of audited statements, in the related report of TargetCo's independent auditors; or (B) in the case of unaudited interim statements, to the extent they may not include footnotes, are subject to normal year end adjustments or may be condensed or summary statements), and present fairly in accordance with GAAP the consolidated financial position, results of operations and changes in financial position of TargetCo on a consolidated basis as of the dates thereof and for the periods indicated therein (subject, in the case of any unaudited interim financial statements, to normal year-end audit adjustments) and reflect appropriate and adequate reserves in respect of contingent liabilities, if any, of TargetCo on a consolidated basis.  There has been no material change in TargetCo accounting policies, except as described in the notes to the TargetCo Financial Statements, since January 1, 2009.

 

(p)

Absence of Undisclosed Liabilities.  Neither TargetCo nor its subsidiaries has material liabilities of any nature (matured or unmatured, fixed or contingent), other than:

 

(i)

those set forth or adequately provided for in the balance sheets and associated notes thereto included in the TargetCo Financial Statements (the "TargetCo Balance Sheets");

 

(ii)

those incurred in the ordinary course of business since the dates of the TargetCo Balance Sheets and consistent with past practice; and

 

(iii)

those incurred in connection with the execution of this Agreement.

 

(q)

Information to Independent Engineer.  The TargetCo Reserve Report and, if applicable, any updates to such report or any other reserve evaluation reports which is or is deemed to be, included or incorporated by reference in the Information Circular, whether in addition to or as a replacement to the TargetCo Reserve Report, were an accurate and a reasonable estimate in all material respects as at the effective dates of such reports and, except for any impact of changes in commodity prices and as disclosed in section 4.1(q) of the Disclosure Letter, which may or may not be material, there has been no material adverse change in the production, costs, price, reserves, estimates of future net production revenues or other relevant information from that disclosed in those reports. TargetCo has provided to GLJ all material information in its or its subsidiaries' possession concerning land descriptions, well data, facilities and infrastructure, ownership and operations, future development plans and historical technical and operating data respecting the principal oil and gas assets of TargetCo and its subsidiaries, in each case as at the effective dates of such reports and, in particular, all material information respecting the interests of TargetCo and its subsidiaries in its principal oil and gas assets and royalty burdens and net profits interest burdens thereon, and such information was accurate and correct in all material respects as at the respective dates thereof and did not omit any information necessary to make any such information provided not misleading as at the respective dates thereof and there has been no material adverse change in any of the material information so provided since the date thereof.  TargetCo has provided to AcquireCo all material information in its or its subsidiaries' possession respecting the interests of TargetCo and its subsidiaries in its principal oil and gas assets and royalty burdens and net profits interest burdens thereon, and such information was accurate and correct in all material respects as at the respective dates thereof and did not omit any information necessary to make any such information provided not misleading as at the respective dates thereof.

 

(r)

Environmental.  Except as disclosed in section 4.1(r) of the Disclosure Letter, there has not occurred any material spills, emissions or pollution on any property of TargetCo or its subsidiaries, nor has TargetCo or its subsidiaries been subject to any stop orders, control orders, clean-up orders or reclamation orders under applicable Environmental Laws, any of which might reasonably be expected to have a Material Adverse Effect on TargetCo.  All operations of TargetCo and its subsidiaries have been and are now being conducted in compliance with all applicable Environmental Laws except where the failure to be in compliance would not have a Material Adverse Effect on TargetCo.  TargetCo is not subject to or aware of, and neither TargetCo nor any of its subsidiaries has received:

 

(i)

any orders or directives under Applicable Laws that relate to environmental, health or safety matters and that require, or may require, any work, repairs, construction or capital expenditures with respect to TargetCo's or its subsidiaries' oil and gas assets, where such orders or directives have not been complied with in all material respects; or

 

(ii)

any demand or notice under Applicable Laws with respect to the breach of any Environmental Laws applicable to TargetCo's or its subsidiaries' oil and gas assets, including respecting the use, storage, treatment, transportation or disposition of any Hazardous Substances; and

 

(iii)

any material matter, condition or event that has arisen with respect to its assets which could give rise to any such order, directive, demand or notice.

 

(s)

Title.  Although it does not warrant title to its or its subsidiaries' assets, there are no defects, failures or impairments in the title of TargetCo or its subsidiaries to their respective assets, whether or not an action, suit, proceeding or inquiry is pending or threatened in writing or whether or not discovered by any third party, which in the aggregate, could have a material adverse effect on: (i) the quantity and pre-tax present worth values of such assets; (ii) the current production volumes of TargetCo and its subsidiaries; or (iii) the current consolidated cash flow of TargetCo and its subsidiaries.

 

(t)

No Reduction of Interests.  Except as is reflected in the TargetCo Reserve Report or as disclosed in section 4.1(t) of the Disclosure Letter, none of TargetCo's or its subsidiaries' oil and gas assets are subject to reduction by reference to payout of or production penalty on any well or otherwise or to change to an interest of any other size or nature by virtue of or through any right or interest granted by, through or under TargetCo or its subsidiaries, which would in the aggregate have a Material Adverse Effect on TargetCo.

 

(u)

Royalties, Rentals and Taxes Paid.  All royalties, and all ad valorem, property, production, severance and similar Taxes, assessment and rentals payable on or before the date hereof and based on, or measured by, TargetCo's and its subsidiaries' ownership of its oil and gas assets, the production of petroleum substances from their oil and gas assets or the receipt of proceeds therefrom under the leases and other title and operating documents pertaining to TargetCo's and its subsidiaries' oil and gas assets and all ad valorem, property, production, severance and similar Taxes and assessments based upon or measured by the ownership of such assets or the production of petroleum substances derived therefrom or allocated thereto or the proceeds of sales thereof payable on or before the date hereof have been properly paid in full and in a timely manner except to the extent that such non-payment would not in the aggregate have a Material Adverse Effect on TargetCo.

 

(v)

 

(i)

None of the wells in which TargetCo and its subsidiaries' holds an interest has produced in excess of applicable production allowables imposed by any Applicable Laws or any Governmental Entity and TargetCo has no knowledge of any impending change in production allowables imposed by any Applicable Laws or any Governmental Entity that may be applicable to any of the wells in which it or its subsidiaries holds an interest, other than changes of general application in the jurisdiction in which such wells are situate; and

 

(ii)

neither TargetCo nor any of its subsidiaries has received notice of any production penalty or similar production restriction of any nature imposed or to be imposed by any Governmental Entity, including gas-oil ratio, off-target and overproduction penalties imposed by any Governmental Entity that may be applicable, and, to its knowledge, none of the wells in which it or its subsidiaries holds an interest is subject to any such penalty or restriction; except, in either case, to the extent that such events would not in the aggregate have a Material Adverse Effect on TargetCo.

 

(w)

Operation and Condition of Wells.  All wells in which TargetCo and/or any of  its subsidiaries holds an interest:

 

(i)

for which TargetCo or one of its subsidiaries was or is operator, were or have been drilled and, if and as applicable, completed, operated and abandoned (and if abandoned, plugged and abandoned and the wellsite therefor properly restored) in accordance with good and prudent oil and gas industry practices and all Applicable Laws; and

 

(ii)

for which neither TargetCo nor one of its subsidiaries was or is an operator, to TargetCo’s knowledge, were or have been drilled and, if and as applicable, completed, operated and abandoned (and if abandoned, plugged and abandoned and the wellsite therefor properly restored) in accordance with good and prudent oil and gas industry practices and all Applicable Laws; except, in either case, to the extent that such non compliance with prudent oil and gas industry practices or Applicable Law would not in the aggregate have a Material Adverse Effect on TargetCo.

 

(x)

Operation and Condition of Tangibles.  TargetCo's and its subsidiaries' tangible depreciable property used or intended for use in connection with its and their oil and gas assets:

 

(i)

for which TargetCo or one of its subsidiaries was or is operator, was or has been constructed, operated and maintained in accordance with good and prudent oil and gas industry practices and all Applicable Laws during all periods in which TargetCo or its subsidiaries was operator thereof and is in good condition and repair, ordinary wear and tear excepted, and is useable in the ordinary course of business; and

 

(ii)

for which neither TargetCo nor one of its subsidiaries was or is an operator, to TargetCo’s knowledge, was or has been constructed, operated and maintained in accordance with good and prudent oil and gas industry practices and all Applicable Laws during all periods in which TargetCo or one of its subsidiaries was not operator thereof and is in good condition and repair, ordinary wear and tear excepted, and is useable in the ordinary course of business; except to the extent that such non compliance with prudent oil and gas industry practices or Applicable Law or failure to be in good condition and repair would not in the aggregate have a Material Adverse Effect on TargetCo.

 

(y)

Outstanding AFEs.  Other than as set forth in section 4.1(y) of the TargetCo Disclosure Letter, there are no outstanding authorizations for expenditure pertaining to any of TargetCo's or its subsidiaries' oil and gas assets or any other commitments, approvals or authorizations pursuant to which an expenditure may be required to be made in respect of such assets.

 

(z)

Area of Mutual Interest.  Other than as set forth in section 4.1(z) of the TargetCo Disclosure Letter, none of TargetCo's or its subsidiaries' oil and gas assets is subject to an agreement that provides for an area of mutual interest or an area of exclusion.

 

(aa)

Interest in Assets.  TargetCo's and each of its subsidiaries' title to their material assets and undertakings (for the purpose of this clause, the foregoing is referred to as the "TargetCo Interest") is free and clear of adverse claims, except as disclosed in section 4.1(aa) of the TargetCo Disclosure Letter or those arising in the ordinary course of business, which are not material in the aggregate.

 

(bb)

Licences.  Except as disclosed in section 4.1(bb) of the TargetCo Disclosure Letter, TargetCo and each of its subsidiaries has obtained, holds and is in material compliance with, and has made all required registrations of, all licences, permits, certificates, consents, orders, grants, waivers, approvals, qualifications and other authorizations (collectively, "Licenses") of or from any Governmental Entity necessary or desirable in connection with the ownership of its assets to conduct its and their businesses as it is now being or is proposed to be conducted other than such Licenses, the absence of which would not have a Material Adverse Effect on TargetCo.  Neither TargetCo nor any of its subsidiaries has received any notice from any Governmental Entity alleging material default under any such Licenses, nor is TargetCo aware of any fact or circumstance that may reasonably be expected to give rise to such notice.  Except as disclosed in section 4.1(bb) of the TargetCo Disclosure Letter, neither TargetCo nor any of its subsidiaries has taken any action to suspend, revoke, nor has it received any notice of, or has any Governmental Entity or other party threatened any suspension, revocation or non-renewal of any License or asserted any right in respect thereof.  TargetCo has provided or made available to AcquireCo copies of all Licenses.

 

(cc)

Compliance with Laws.  TargetCo and each of its subsidiaries has complied with and is in compliance with all Laws applicable to the operation of its or their businesses, except where such non compliance would not have a Material Adverse Effect on TargetCo or on the ability of TargetCo to consummate the transactions contemplated hereby.

 

(dd)

TargetCo Fairness Opinion.  The TargetCo Board of Directors has received a verbal opinion from its financial advisor and has been advised by its financial advisors that it will receive, prior to the mailing of the Information Circular, a written opinion of its financial advisor that the consideration to be offered by AcquireCo to the TargetCo Shareholders pursuant to the proposed Arrangement is fair, from a financial point of view, to the TargetCo Shareholders (the "TargetCo Fairness Opinion").

 

(ee)

Long Term and Derivative Transactions.  Except as disclosed in section 4.1(ee) of the TargetCo Disclosure Letter, neither TargetCo nor any of its subsidiaries has any obligations or liabilities, direct or indirect, vested or contingent in respect of any rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, equity or equity index swaps, equity or equity index options, bond options, interest rate options, foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, production sales transactions having terms greater than 90 days or any other similar transactions (including any option with respect to any of such transactions) or any combination of such transactions.

 

(ff)

Employee Benefit Plans.  TargetCo provided to AcquireCo true, complete and correct copies of each employee benefits plan (the "TargetCo Plans") covering active, former or retired employees of TargetCo and its subsidiaries, any related trust agreement, annuity or insurance contract or other funding vehicle, and: (i) each TargetCo Plan has been maintained and administered in material compliance with its terms and is, to the extent required by Applicable Laws or contract, fully funded without having any deficit or unfunded actuarial liability or adequate provision has been made therefore; (ii) all required employer contributions under any such TargetCo Plans have been made and the applicable funds have been funded in accordance with the terms thereof; (iii) each TargetCo Plan that is required or intended to be qualified under Applicable Laws or registered or approved by a Governmental Entity has been so qualified, registered or approved by the appropriate Governmental Entity, and nothing has occurred since the date of the last qualification, registration or approval to adversely affect, or cause, the appropriate Governmental Entity to revoke such qualification, registration or approval; (iv) there are no pending or, to the knowledge of TargetCo, anticipated material Claims against or otherwise involving any of the TargetCo Plans and no suit, action or other litigation (excluding Claims for benefits incurred in the ordinary course of TargetCo Plan activities) has been brought against or with respect to any TargetCo Plan; (v) all material contributions, reserves or premium payments required to be made to the TargetCo Plans have been made or provided for; and (vi) TargetCo does not have any material obligations for retiree health and life benefits under any TargetCo Plan.

 

(gg)

Collective Bargaining and Workers Compensation.  Neither TargetCo nor any of its subsidiaries is a party to or bound by any collective agreement or any other contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (a "Labour Representative").  No negotiations with respect to any such future contracts or commitments have been entered into by TargetCo or any of its subsidiaries and no Labour Representative holds bargaining rights with respect to any employees.  Neither it nor any of its subsidiaries is subject to any application for certification or threatened or apparent union organizing campaigns for employees not covered under a collective agreement nor are there any current or, to the knowledge of TargetCo, threatened strikes or lockouts or work stoppages affecting TargetCo or any of its subsidiaries or any complaints of unfair labour practices or any grievances (other than routine individual grievances).  There are no material outstanding decisions, orders, settlements or current, pending or, to the knowledge of TargetCo, threatened proceedings before any board or tribunal with respect to any employment or labour matters.  To the knowledge of TargetCo, all material workplace or work related injuries and illnesses affecting TargetCo's or its subsidiaries' employees have been reported to the workers' compensation insurance carrier of TargetCo and its subsidiaries, as applicable.

 

(hh)

Insurance.  Policies of insurance are in force as of the date hereof naming TargetCo or its subsidiaries as an insured that adequately cover all risks as are customarily covered in the industry in which TargetCo and its subsidiaries operate and having regard to the nature of the risk insured and the relative cost of obtaining insurance to protect such interests.  All such policies will remain in force and effect and will not be cancelled or otherwise terminated as a result of the transactions contemplated by this Agreement.  Except as set forth in the in the Public Record or disclosed in writing to AcquireCo, there have been no claims under any such policies of insurance since December 31, 2009, nor are there any claims pending, or to the knowledge of TargetCo, any facts or circumstances currently in existence which may reasonably be expected to result in a claim. Neither TargetCo nor any of its subsidiaries has failed to give any material notice or present any material claim under any such insurance in a due and timely manner or received written notice or otherwise has knowledge of any intent of an insurer to either claim any default on the part of TargetCo or any of its subsidiaries or not to renew any policy of insurance on its expiry or to increase any deductible or cost.

 

(ii)

Indebtedness To and By Officers, Directors and Others.  Other than as disclosed in section 4.1(ii) in the TargetCo Disclosure Letter, neither TargetCo nor any of its subsidiaries is indebted to any of the directors, officers, employees or consultants or any of their respective associates or affiliates or other parties not at arm's length to TargetCo or any of its subsidiaries, except for amounts due as normal compensation or reimbursement of ordinary business expenses, nor is there any indebtedness owing by any such parties to TargetCo or any of its subsidiaries.

 

(jj)

Guarantees and Indemnification.  Neither TargetCo nor any of its subsidiaries is a party to or bound by any agreement of guarantee, indemnification (other than an indemnification of directors and officers in accordance with the by-laws of the respective corporation or Applicable Laws and other than standard indemnity agreements in underwriting and agency agreements, the warrant indenture governing the TargetCo Warrants and in the ordinary course provided to service providers or pursuant to the joint operating agreements, farm-out agreements, carried working interest agreements, overriding royalty agreements and similar agreements as set forth in section 4.1(jj) of the TargetCo Disclosure Letter) or any like commitment in respect of the obligations, liabilities (contingent or otherwise) of indebtedness of any other Person.

 

(kk)

No Insider Rights.  Other than as disclosed in section 4.1(kk) of the TargetCo Disclosure Letter, no director, officer, insider or other party not at arm's length to TargetCo has any right, title or interest in (or the right to acquire any right, title or interest in) any royalty interest, participation interest or any other interest whatsoever, in any properties or assets of TargetCo or any of its subsidiaries.

 

(ll)

Disclosure.  The material data and information in respect of TargetCo and its subsidiaries and its and their assets, liabilities, businesses, affairs and operations (excluding data and information which is forward looking or relates to projections or forecasts or geological interpretations) provided by or on behalf of TargetCo to AcquireCo was and is accurate and correct in all material respects as at the respective dates thereof and does not omit any material data or information necessary to make any data or information provided not misleading as at the respective dates thereof.

(mm)

Debt.  As at December 31, 2010, TargetCo's consolidated long-term debt and bank debt did not, in the aggregate, exceed $58.1 million, and as at September 30, 2010, TargetCo's working capital including cash was not less than $10.4 million, exclusive of any hedging obligations.  Other than as set forth in section 4.1(mm) of the TargetCo Disclosure Letter, TargetCo does not have outstanding any promissory notes or other debt securities.

 

(nn)

No Defaults under Agreements.  Except as disclosed in section 4.1(nn) of the TargetCo Disclosure Letter:

 

(i)

Neither TargetCo nor any of its subsidiaries has received notice of any default under any of the leases and other title documents or any other agreement or instrument pertaining to TargetCo's or any of its subsidiaries' assets to which TargetCo or any of its subsidiaries is a party or by or to which TargetCo or any such assets are bound or subject except to the extent that such defaults would not in the aggregate have a Material Adverse Effect on TargetCo.; and

 

(ii)

(A) TargetCo and each of its subsidiaries is in good standing under all, and is not in default under any; and (B) to TargetCo’s knowledge there is no existing condition, circumstance or matter which constitutes or which, with the passage of time or the giving of notice, would constitute a default under any, leases and other title documents or any other agreements and instruments pertaining to its or their assets to which it or any of its subsidiaries is a party or by or to which it or any of its subsidiaries or such assets are bound or subject and all such leases, title and operating documents and other agreements and instruments are in good standing and in full force and effect and, to the knowledge of TargetCo, none of the counterparties to such leases, title and operating documents and other agreements and instruments is in default thereunder except to the extent that such defaults would not in the aggregate have a Material Adverse Effect on TargetCo.

 

(oo)

No Encumbrances.  Neither TargetCo nor any of its subsidiaries has encumbered or alienated its interest in TargetCo's or such subsidiaries' assets or agreed to do so and such assets are free and clear of all encumbrances except for or pursuant to encumbrances securing the TargetCo Credit Facilities and derivative transactions with the lenders (and other affiliates) thereunder or encumbrances disclosed in the Public Record or the personal property registry in Alberta or Permitted Encumbrances or as have been disclosed in section 4.1(oo) of the TargetCo Disclosure Letter.

 

(pp)

Brokers and Finders.  TargetCo has not retained nor will it retain any financial advisor, broker, agent or finder or pay, or agree to pay any financial advisor, broker, agent or finder on account of this Agreement, any transaction contemplated hereby or any transaction presently ongoing or contemplated, except for RBC Capital Markets which have been retained by TargetCo as financial advisor in connection with certain matters including the transactions contemplated hereby and the payment of those fees described in the agreement with RBC Capital Markets.  After the payment of such financial obligations to such financial advisor, TargetCo will not have any continuing obligations to such advisor other than those related to indemnification and confidentiality.  TargetCo has provided or made available to AcquireCo copies of all agreements and arrangements with its financial advisor.

 

(qq)

Employment and Officer Obligations.  Other than the TargetCo Employment Agreements, the TargetCo Plans or as disclosed in section 4.1(qq) of the TargetCo Disclosure Letter, there are no other employment or consulting services agreements, termination, severance and retention plans or policies of TargetCo or any of its subsidiaries.  The obligations of TargetCo and its subsidiaries under the TargetCo Employment Agreements and all such employment or consulting services agreements, termination, severance plans or policies for severance, termination or bonus payments or any other payments related to any incentive or similar plan of TargetCo or its subsidiaries, arising out of or in connection with the Arrangement and the transactions contemplated by this Agreement, shall not exceed $3 million.

 

(rr)

Confidentiality Agreements.  TargetCo hereby represents and warrants to AcquireCo that, during the twelve month period prior to the date of this Agreement, TargetCo has not entered into any confidentiality agreement in connection with a potential "change of control" transaction that does not include the restrictions substantially as set forth in paragraph 9 of the TargetCo Confidentiality Agreement.

 

(ss)

No Rights Plan.  TargetCo has not adopted and it and its securities are not otherwise subject to any shareholder rights plan or similar plan.

 

(tt)

Outstanding Acquisitions.  Other than as disclosed in section 4.1(tt) of the TargetCo Disclosure Letter, neither TargetCo nor any of its subsidiaries has rights to purchase assets, properties or undertakings of third parties under any agreements to purchase.

 

(uu)

Tax Residency.  TargetCo is not a "non-resident" within the meaning of the Tax Act.

 

(vv)

Competition Act.  The aggregate value of TargetCo's assets in Canada, including its subsidiaries, determined as of the time and in the manner that is prescribed by the Competition Act, does not exceed the amount set out in sections 110(7) or (8) of the Competition Act, as the case may be.  The gross revenues from sales in or from Canada generated by TargetCo's assets in Canada, determined for the annual period and in the manner that is prescribed by the Competition Act, do not exceed the amount set out in sections 110(7) or (8) of the Competition Act, as the case may be.

(ww)

Board Approval.  The TargetCo Board of Directors has unanimously approved the Arrangement and approved this Agreement, has unanimously determined that the Arrangement and this Agreement are in the best interests of TargetCo and the TargetCo Securityholders.

 

(xx)

Conduct of Business.  Since December 31, 2009 and except as contemplated herein, TargetCo and each of its subsidiaries has conducted and is conducting its business substantially in accordance with industry and other business and environmental practices and is in compliance in all material respects with all material Applicable Laws (including Applicable Securities Laws).

 

(yy)

Credit Facilities.  Neither TargetCo nor its subsidiaries has incurred any indebtedness and do not have any material financial liabilities or obligations other than the TargetCo Credit Facilities.  As of December 31, 2010, the aggregate amount of indebtedness outstanding under the TargetCo Credit Facilities is $58.1 million.  Other than as disclosed in section 4.1(yy) of the TargetCo Disclosure Letter, no letters of credit, letters of guarantee, performance, bonds or other similar instruments have been issued for the benefit of TargetCo or its subsidiaries.

 

(zz)

 

(i)

TargetCo is familiar with the FCPA and its purposes, including its prohibition against taking corrupt actions in furtherance of an offer, payment, promise to pay or authorization of the payment of anything of value, including but not limited to cash, checks, wire transfers, tangible and intangible gifts, favours, services, and those entertainment and travel expenses that go beyond what is reasonable and customary and of modest value, to: (A) an executive, official, employee or agent of a governmental department, agency or instrumentality; (B) a director, officer, employee or agent of a wholly or partially government-owned or controlled company or business; (C) a political party or official thereof, or candidate for political office; or (D) an executive, official, employee or agent of a public international organization (e.g., the International Monetary Fund or the World Bank) ("Government Official"), in each case to obtain, retain or direct business, while knowing or having a reasonable belief that all or some portion will be used for the purpose of: (1) influencing any act, decision or failure to act by a Government Official in his or her official capacity, (2) inducing a Government Official to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity, or (3) securing an improper advantage.

 

(ii)

TargetCo and each of its subsidiaries is now in compliance with all anti-bribery and anticorruption Laws, and will remain in compliance with such Laws; TargetCo and each of its subsidiaries is now in compliance with the FCPA if it is subject to the FCPA; prior to the completion of this transaction neither TargetCo nor any of its subsidiaries will authorize, offer or make payments directly or indirectly to any Government Official that would result in a violation of the FCPA; and that no part of the payments received by them from AcquireCo will be used for any purpose that could constitute a violation of the Laws of Canada or the FCPA.

 

(iii)

TargetCo, its subsidiaries and their representatives have each complied with all applicable anti-money-laundering Laws and TargetCo and each of its subsidiaries has established and maintained an anti-money-laundering program in accordance with all applicable Laws.

 

(aaa)

Place of Principal Offices.  The principal offices of TargetCo are not located within the United States.

(bbb)

Location of Assets and U.S. Sales.  The assets and property of TargetCo are located outside the United States and did not generate sales in or into the United States exceeding U.S.$63.4 million during TargetCo's most recent completed fiscal year.

 

(ccc)

Investment Company.  TargetCo is not an "investment company" within the meaning of the United States Investment Company Act of 1940, as amended.

 

(a)

Organization and Qualification.  AcquireCo is a corporation duly formed and validly existing under the Laws of Nevada and has the requisite corporate power and authority to own its assets as now owned and to carry on its business as now conducted.  AcquireCo and each of its subsidiaries is duly registered to conduct its affairs or do business, as applicable, in each jurisdiction in which the character of its assets, owned or leased, or the nature of its activities makes such registration necessary, except where the failure to be so registered would not have a Material Adverse Effect on AcquireCo.  Copies of the constating documents of AcquireCo provided to TargetCo, together with all amendments to date, are accurate and complete as of the date hereof and have not been amended or superseded.

 

(b)

Authority Relative to this Agreement.  AcquireCo has the requisite corporate power and authority to execute this Agreement, and AcquireCo has the requisite corporate power and authority to carry out its obligations hereunder.  The execution and delivery of this Agreement and the consummation by AcquireCo of the transactions contemplated hereby have been duly authorized by the AcquireCo Board of Directors and, subject to the exercise by each of the TSX and the AMEX of its discretion to require approval of the Arrangement by AcquireCo Shareholders, no other proceedings on the part of AcquireCo are necessary to authorize this Agreement or the transactions contemplated hereby.  This Agreement has been duly executed and delivered by AcquireCo and constitutes a legal, valid and binding obligation of AcquireCo enforceable against it in accordance with its terms, subject to the qualification that such enforceability may be limited by bankruptcy, insolvency, reorganization or other Laws of general application relating to or affecting rights of creditors and that equitable remedies, including specific performance, are discretionary and may not be ordered.

 

(c)

No Violations.  Except as disclosed in writing to TargetCo, or as contemplated by this Agreement:

 

(i)

neither the execution and delivery of this Agreement by AcquireCo nor the consummation of the transactions contemplated hereby nor compliance by AcquireCo with any of the provisions hereof nor the consummation of the Arrangement will: (a) violate, conflict with, or result in a breach of any provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination or acceleration under, or result in the creation of any encumbrance upon any of the properties or assets of AcquireCo or cause any indebtedness to come due before its stated maturity or cause any credit to cease to be available, under any of the terms, conditions or provisions of: (i) the articles, by-laws or other constating document of AcquireCo; or (ii) any material note, bond, mortgage, indenture, loan agreement, deed of trust, agreement, lien, contract or other instrument or obligation to which AcquireCo or any of its subsidiaries is a party or to which it, or any of its properties or assets, may be subject or by which AcquireCo or any of its subsidiaries is bound; or (b) subject to compliance with applicable statutes and regulations, violate any judgment, ruling, order, writ, injunction, determination, award, decree, statute, ordinance, rule or regulation applicable to AcquireCo or any of its subsidiaries or any of its properties or assets (except, in the case of each of clauses (a) and (b) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of encumbrances which, or any consents, approvals or notices which if not given or received, would not have any Material Adverse Effect on AcquireCo or impede the ability of AcquireCo to consummate the transactions contemplated hereby); or (c) cause the suspension or revocation of any authorization, consent, approval or license currently in effect which would have a Material Adverse Effect on AcquireCo;

 

(ii)

other than in connection with or in compliance with the provisions of Applicable Laws (including the Competition Act, the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and policies of the TSX and the AMEX) or which are required to be filed post-Arrangement or pursuant to this Agreement, and subject to the exercise by each of the TSX and the AMEX of its discretion to require approval of the Arrangement by AcquireCo Shareholders and the required approval of the TSX and the AMEX, as applicable, for the listing of the AcquireCo Shares, the Replacement Warrants and the AcquireCo Shares underlying the Replacement Warrants as contemplated by Section 3.2(c): (a) there is no legal impediment to AcquireCo's consummation of the transactions contemplated hereby; and (b) no filing or registration with, or authorization, consent or approval of, any domestic or foreign public body or authority is required of AcquireCo or any of its subsidiaries in connection with the consummation of the Arrangement and the transactions contemplated by this Agreement, except for such filings or registrations which, if not made, or for such authorizations, consents or approvals which, if not received, would not have a Material Adverse Effect on AcquireCo, or significantly impede the ability of AcquireCo to consummate the Arrangement and the transactions contemplated hereby; and

 

(iii)

the execution, delivery and performance of this Agreement does not and will not result in any restriction on AcquireCo or any of its subsidiaries from engaging in its business or from competing with any Person or in any geographical area and do not and will not result in a Material Adverse Effect in respect of AcquireCo or trigger or cause to arise any rights of any Person under any contract or arrangement to restrict any of the foregoing from engaging in the business currently carried on by AcquireCo or any of its subsidiaries.

 

(d)

Litigation.  There are no Claims in existence or pending or, to the knowledge of AcquireCo threatened or for which there is a reasonable basis, affecting or that would affect AcquireCo or affecting or that would affect its property or assets at law or equity or before or initiated by any Governmental Entity which Claim involves a possibility of any judgment against or liability of AcquireCo which, if successful, would have a Material Adverse Effect on AcquireCo, or would significantly impede or delay the ability of AcquireCo to consummate the Arrangement and the transactions contemplated by this Agreement.

 

(e)

Reporting Issuer Status.  AcquireCo is a reporting issuer in British Columbia, Alberta and Ontario and is in material compliance with all Applicable Canadian Securities Laws therein, and the AcquireCo Shares are listed and posted for trading on the TSX and the AMEX and AcquireCo is in material compliance with the rules of the TSX and the AMEX.

 

(f)

Capitalization.  As of December 31, 2010, the authorized capital of AcquireCo consists of 595,000,002 authorized shares of capital stock, of which 570,000,000 are designated as AcquireCo Shares, 25,000,000 are designated as preferred stock, par value US$0.001 per share and two shares are designated as special voting stock, par value US$0.001 per share.  As of the date hereof, there were issued and outstanding 240,440,830 AcquireCo Shares, nil issued and outstanding preferred shares, and two issued and outstanding shares of special voting stock.  Other than 10,943,058 AcquireCo Shares issuable pursuant to the AcquireCo Options under the AcquireCo Option Plan, 3,884,929 AcquireCo Shares issuable pursuant to outstanding AcquireCo Warrants, 9,870,011 AcquireCo Shares issuable upon the exchange of exchangeable shares of Gran Tierra Exchangeco Inc. and 7,811,112 AcquireCo Shares issuable upon the exchange of exchangeable shares of Goldstrike Exchange Co., there are no options, warrants or other rights, agreements or commitments of any character whatsoever requiring the issuance, sale or transfer by AcquireCo of any securities of AcquireCo (including AcquireCo Shares) or any securities convertible into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any securities of AcquireCo (including AcquireCo Shares).  All outstanding AcquireCo Shares have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to, nor were they issued in violation of, any pre-emptive rights and all AcquireCo Shares issuable pursuant to the AcquireCo Options and AcquireCo Warrants in accordance with their terms will be duly authorized and validly issued as fully paid and non-assessable and will not be subject to any pre-emptive rights.

 

(g)

Subsidiaries.  AcquireCo has no material subsidiaries other than as disclosed in the Public Record, and AcquireCo does not have any equity interest in any Person that owns property or owns or holds licenses or carries on business.

 

(h)

Ownership of Subsidiaries.  As of the date hereof, AcquireCo is the beneficial direct or indirect owner of all of the outstanding shares, partnership units and other securities, as applicable, of the subsidiaries of AcquireCo.

 

(i)

No Orders.  No order, ruling or determination having the effect of suspending the sale of, or ceasing the trading of, the AcquireCo Shares or any other securities of AcquireCo has been issued by any Securities Regulatory Authority and is continuing in effect and no proceedings for that purpose have been instituted, are pending or, to the knowledge of AcquireCo, are contemplated or threatened under any Applicable Laws or by any other Governmental Entity.

 

(j)

No Material Adverse Change.  Since December 31, 2009, other than as disclosed in the Public Record: (i) AcquireCo and its subsidiaries has conducted its businesses only in the ordinary and normal course; (ii) no liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) material to AcquireCo and its subsidiaries, taken as a whole, has been incurred other than in the ordinary course of business; and (iii) there has not been any Material Adverse Change in respect of AcquireCo.

 

(k)

Books and Records.  The records and minute books of AcquireCo and each of its subsidiaries have been maintained substantially in accordance with all Applicable Laws and are complete and accurate in all material respects.

 

(l)

Reports.  As of their respective dates: (i) the AcquireCo Financial Statements; (ii) AcquireCo's Form 10-K dated February 26, 2010 for the year ended December 31, 2009; (iii) AcquireCo's proxy statement for the annual meeting of AcquireCo Shareholders dated April 30, 2010; (iv) all AcquireCo press releases, material change reports, business acquisition reports or similar documents filed with the Securities Regulatory Authorities since January 1, 2009; and (v) all prospectuses or other offering documents used by AcquireCo in the offering of its securities or filed with any Securities Regulatory Authorities since January 1, 2009, 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 therein, in light of the circumstances in which they were made, not misleading and complied in all material respects with all Applicable Laws.  The AcquireCo Financial Statements and other financial statements of AcquireCo included or incorporated by reference in such forms, statements, prospectuses and other offering documents were prepared in accordance with GAAP (except: (i) as otherwise indicated in such financial statements and the notes thereto or, in the case of audited statements, in the related report of AcquireCo's independent auditors; or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes, are subject to normal year end adjustments or may be condensed or summary statements), and present fairly in accordance with GAAP the consolidated financial position, results of operations and changes in financial position of AcquireCo on a consolidated basis as of the dates thereof and for the periods indicated therein (subject, in the case of any unaudited interim financial statements, to normal year-end audit adjustments) and reflect appropriate and adequate reserves in respect of contingent liabilities, if any, of AcquireCo on a consolidated basis.  There has been no material change in AcquireCo accounting policies, except as described in the notes to the AcquireCo Financial Statements, since January 1, 2009.

 

(m)

Absence of Undisclosed Liabilities.  Neither AcquireCo nor its subsidiaries have any material liabilities of any nature (matured or unmatured, fixed or contingent), other than:

 

(i)

those set forth or adequately provided for in the balance sheets and associated notes thereto included in the AcquireCo Financial Statements (the "AcquireCo Balance Sheets");

 

(ii)

those incurred in the ordinary course of business since the dates of the AcquireCo Balance Sheets and consistent with past practice; and

 

(iii)

those incurred in connection with the execution of this Agreement.

 

(n)

Information to Independent Engineer.  The AcquireCo Reserve Report was an accurate and a reasonable estimate in all material respects as at the effective date of such report and, except for any impact of changes in commodity prices, which may or may not be material, there has been no material adverse change in the production, costs, price, reserves, estimates of future net production revenues or other relevant information from that disclosed in those reports.  AcquireCo has provided to GLJ all material information in its or its subsidiaries' possession concerning land descriptions, well data, facilities and infrastructure, ownership and operations, future development plans and historical technical and operating data respecting the principal oil and gas assets of AcquireCo and its subsidiaries, in each case as at the effective dates of such report and, in particular, all material information respecting the interests of AcquireCo and its subsidiaries in its principal oil and gas assets and royalty burdens and net profits interest burdens thereon, and such information was accurate and correct in all material respects as at the respective dates thereof and did not omit any information necessary to make any such information provided not misleading as at the respective dates thereof and there has been no material adverse change in any of the material information so provided since the date thereof.

 

(o)

Environmental.  Except as disclosed in writing to TargetCo or in the Public Record, there has not occurred any material spills, emissions or pollution on any property of AcquireCo or its subsidiaries, nor has AcquireCo or its subsidiaries been subject to any stop orders, control orders, clean-up orders or reclamation orders under applicable Environmental Laws, any of which might reasonably be expected to have a Material Adverse Effect on AcquireCo.  All operations of AcquireCo and its subsidiaries have been and are now being conducted in compliance with all applicable Environmental Laws except where the failure to be in compliance would not have a Material Adverse Effect on AcquireCo.  AcquireCo is not subject to or aware of, and neither AcquireCo nor any of its subsidiaries has received:

 

(i)

any orders or directives under Applicable Laws that relate to environmental, health or safety matters and that require, or may require, any work, repairs, construction or capital expenditures with respect to AcquireCo's or its subsidiaries' oil and gas assets, where such orders or directives have not been complied with in all material respects; or

 

(ii)

any demand or notice under Applicable Laws with respect to the breach of any Environmental Laws applicable to AcquireCo's or its subsidiaries' oil and gas assets, including respecting the use, storage, treatment, transportation or disposition of any Hazardous Substances; and

 

(iii)

any material matter, condition or event that has arisen with respect to its assets which could give rise to any such order, directive, demand or notice.

 

(p)

Title.  Although it does not warrant title to its or its subsidiaries' assets, there are no defects, failures or impairments in the title of AcquireCo or its subsidiaries to their respective assets, whether or not an action, suit, proceeding or inquiry is pending or threatened in writing or whether or not discovered by any third party, which in the aggregate, could have a material adverse effect on: (i) the quantity and pre-tax present worth values of such assets; (ii) the current production volumes of AcquireCo and its subsidiaries; or (iii) the current consolidated cash flow of AcquireCo and its subsidiaries.

 

(q)

Conduct of Business.  Since December 31, 2009 and except as contemplated herein, AcquireCo and each of its subsidiaries has conducted and is conducting its business substantially in accordance with industry and other business and environmental practices and is in compliance in all material respects with all material Applicable Laws (including Applicable Securities Laws).

 

(r)

Taxes, etc.:

 

(i)

all Tax Returns required to be filed by or on behalf of AcquireCo or any subsidiary have been duly filed and all such Tax Returns were true and complete in all material respects. All Taxes shown to be payable on such Tax Returns or on subsequent assessments with respect thereto have been paid in full, and no other Taxes are payable by AcquireCo or any subsidiary with respect to items or periods covered by such Tax Returns;

 

(ii)

AcquireCo and each subsidiary has paid or provided adequate accruals in its consolidated financial statements for the fiscal year ended December 31, 2009 for AcquireCo’s and its subsidiaries’ respective Taxes, including income taxes and related future taxes, if applicable, for such periods, in conformity with GAAP;

 

(iii)

for all periods ended on or after December 31, 2009 TargetCo has been furnished by AcquireCo true and complete copies of: (a) material portions of income tax audit reports, statement of deficiencies, closing or other agreements or correspondence concerning assessments or audits pursuant to which a Governmental Entity has proposed amendments to previously filed returns received by AcquireCo or any subsidiary relating to the Taxes; and (b) any material federal, provincial, state, local or foreign income or franchise tax returns for AcquireCo and each subsidiary;

 

(iv)

none of AcquireCo nor any of its subsidiaries is or was a party to any action or proceeding for assessment or collection of Taxes, nor, to the knowledge of AcquireCo, has such an event been asserted or threatened against AcquireCo or its subsidiaries or any of their respective assets.  No waiver or extension of any statute of limitations is in effect with respect to Taxes or Tax Returns of AcquireCo or its subsidiaries.  No audit, adjustment or assessment by a Governmental Entity of AcquireCo or its subsidiaries is in process or, to the knowledge of AcquireCo’s knowledge, pending;

 

(v)

AcquireCo and/or a subsidiary has withheld from each payment made to any of its present or former employees, officers and directors, and to all persons who are non-residents of Canada for the purposes of the Tax Act, all amounts required by Applicable Laws and will continue to do so until the Effective Time and has remitted such withheld amounts within the prescribed periods to the appropriate Governmental Entity;

 

(vi)

AcquireCo and/or a subsidiary has remitted all Canada Pension Plan contributions, employment insurance premiums, and other Taxes payable by it in respect of its employees and has or will have remitted such amounts to the proper Governmental Entity within the time required by Applicable Laws;

 

(vii)

none of AcquireCo nor any of its subsidiaries has liability for the Taxes of any other Person (other than any of AcquireCo's subsidiaries) by reason of Laws, contract, or otherwise, nor is AcquireCo or any of its subsidiaries a party to any agreement providing for the allocation, indemnification or sharing of Taxes;

 

(viii)

none of AcquireCo nor any of its Canadian subsidiaries has participated, directly or through a partnership, in a transaction or series of transactions contemplated in subsection 247(2) of the Tax Act or any comparable law of any province or territory in Canada, or in any other jurisdiction;

 

(ix)

there are no circumstances existing which could result in the application of sections 78, 80, 80.01, 80.02, 80.03, 80.04 or 160 of the Tax Act, or any analogous provision of any comparable law of any province or territory of Canada, to AcquireCo or any of its subsidiaries;

 

(x)

there are no Tax liens on any of the assets of AcquireCo or any of its subsidiaries except liens for Taxes not yet currently due and payable; and

 

(xi)

AcquireCo and its subsidiaries have charged, collected and remitted on a timely basis all Taxes as required by Applicable Laws on any sale, supply or delivery whatsoever made by them.

 

(s)

Compliance with Laws.  AcquireCo and each of its subsidiaries has complied with and is in compliance with all Laws applicable to the operation of its or their businesses, except where such non compliance would not have a Material Adverse Effect on AcquireCo or on the ability of AcquireCo to consummate the transactions contemplated hereby.

 

(t)

Disclosure.  The material data and information in respect of AcquireCo and its subsidiaries and its and their assets, liabilities, businesses, affairs and operations (excluding data and information which is forward looking or relates to projections or forecasts or geological interpretations) provided by or on behalf of AcquireCo to TargetCo was and is accurate and correct in all material respects as at the respective dates thereof.

 

(a)

For the purposes of this Section 4.3, the following definitions shall apply:

 

(i)

"applicable privacy laws" means any and all Applicable Laws relating to privacy and the collection, use and disclosure of Personal Information in all applicable jurisdictions, including but not limited to the Personal Information Protection and Electronic Documents Act (Canada) and/or any comparable provincial law including the Personal Information Protection Act (Alberta);

 

(ii)

"authorized authority" means, in relation to any Person, transaction or event, any (a) federal, provincial, municipal or local governmental body (whether administrative, legislative, executive or otherwise), both domestic and foreign; (b) agency, authority, commission, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government; (c) court, arbitrator, commission or body exercising judicial, quasi-judicial, administrative or similar functions; and (d) other body or entity created under the authority of or otherwise subject to the jurisdiction of any of the foregoing, including any stock or other securities exchange, in each case having jurisdiction over such Person, transaction or event; and

 

(iii)

"Personal Information" means information (other than business contact information when used or disclosed for the purpose of contacting such individual in that individual's capacity as an employee or an official of an organization and for no other purpose) about an identifiable individual transferred by a Party to the Other Party in accordance with this Agreement and/or as a condition of the Arrangement.

 

(b)

The Parties acknowledge that they are responsible for compliance at all times with applicable privacy laws which govern the collection, use and disclosure of Personal Information acquired by or disclosed to any Party pursuant to or in connection with this Agreement (the "Disclosed Personal Information").

 

(c)

None of the Parties shall use the Disclosed Personal Information for any purposes other than those related to the performance of this Agreement and the completion of the Arrangement.

 

(d)

Each Party acknowledges and confirms that the disclosure of Personal Information is necessary for the purposes of determining if the Parties shall proceed with the Arrangement, and that the disclosure of Personal Information relates solely to the carrying on of their respective businesses and the completion of the Arrangement.

 

(e)

Each Party acknowledges and confirms that it has and shall continue to employ appropriate technology and procedures in accordance with Applicable Laws to prevent accidental loss or corruption of the Disclosed Personal Information, unauthorized input or access to the Disclosed Personal Information, or unauthorized or unlawful collection, storage, disclosure, recording, copying, alteration, removal, deletion, use or other processing of such Disclosed Personal Information.

 

(f)

Each Party shall at all times keep strictly confidential all Disclosed Personal Information provided to it, and shall instruct those employees or advisors responsible for processing such Disclosed Personal Information to protect the confidentiality of such information in a manner consistent with the Party's obligations under the TargetCo Confidentiality Agreement and the AcquireCo Confidentiality Agreement, as applicable, and hereunder.  Each Party shall ensure that access to the Disclosed Personal Information shall be restricted to those of its employees or advisors of the respective Party who have a bona fide need to access such information to complete the Arrangement.

 

(g)

Where authorized by Applicable Law, each Party shall promptly notify the Other Party of all inquiries, complaints, requests for access, and claims of which the Party is made aware in connection with the Disclosed Personal Information.  To the extent permitted by Applicable Law, the Parties shall fully co-operate with one another, with the persons to whom the Personal Information relates, and any authorized authority charged with enforcement of applicable privacy laws, in responding to such inquiries, complaints, requests for access, and claims.

 

(h)

Upon the expiry or termination of this Agreement, or otherwise upon the reasonable request of any Party, the Other Party shall forthwith cease all use of the Personal Information acquired by the Other Party in connection with this Agreement and will return to the Party or, at the Party's request, destroy in a secure manner, the Disclosed Personal Information (and any copies) in its possession.

 

(a)

the Articles of Arrangement to be filed with the Director in accordance with the Arrangement shall be in accordance with the terms of the Plan of Arrangement and in form and substance satisfactory to each of TargetCo and AcquireCo, acting reasonably;

 

(b)

the Articles of Arrangement shall have been filed with the Director on or prior to April 29, 2011 and the Effective Date shall occur on or prior to the Outside Date, subject to any extension available to a Party as provided in this Agreement;

 

(c)

this Agreement shall not have been terminated pursuant to Article 8;

 

(d)

all required domestic and foreign regulatory, governmental and third party approvals and consents in respect of the completion of the Arrangement and the transactions contemplated by this Agreement shall have been obtained on terms and conditions satisfactory to TargetCo and AcquireCo, each acting reasonably, including, without limitation, conditional approval of the TSX and the AMEX of the Arrangement and the listing on the TSX and the AMEX, as applicable, of the AcquireCo Shares, the Replacement Warrants and the AcquireCo Shares underlying the Replacement Warrants as contemplated by Section 3.2(c), and all applicable domestic and foreign statutory and regulatory waiting periods shall have expired or have been terminated and no unresolved material objection or opposition shall have been filed, initiated or made during any applicable statutory or regulatory period; and

 

(e)

no act, action, suit, proceeding, objection or opposition shall have been threatened or taken before or by any Governmental Entity or by any elected or appointed public official or private Person in Canada or elsewhere, whether or not having the force of Law, and no Law, regulation, policy, judgment, decision, order, ruling or directive (whether or not having the force of Law) shall have been proposed, enacted, promulgated, amended or applied, which in the sole judgment of TargetCo or AcquireCo (as applicable), acting reasonably, in any such case makes illegal or otherwise directly or indirectly restrains, enjoins or prohibits the Arrangement or has had or, if the Arrangement and the transactions contemplated by this Agreement was consummated, would result in a Material Adverse Change in the affairs, operations or business of AcquireCo or TargetCo, respectively, or would have a Material Adverse Effect on the ability of the Parties to complete the Arrangement.

 

(a)

the Interim Order shall have been granted in form and substance satisfactory to TargetCo, acting reasonably, and such order shall not have been set aside or modified in a manner unacceptable to TargetCo, acting reasonably, on appeal or otherwise;

 

(b)

the Arrangement Resolution shall have been passed by the TargetCo Shareholders in accordance with the Interim Order and in form and substance satisfactory to TargetCo, acting reasonably;

 

(c)

the Final Order shall have been granted in form and substance satisfactory to TargetCo, acting reasonably;

 

(d)

AcquireCo shall not have breached and shall have performed each covenant to be performed by it under this Agreement in all material respects; provided that, other than a breach or a non-performance which is not curable, AcquireCo shall have been provided with prompt written notice of such breach or non-performance and shall have had ten Business Days (provided that such period shall not extend beyond the Outside Date) from receipt of such notice to cure, and shall have cured within such time period, such breach or non-performance to the satisfaction of TargetCo, acting reasonably;

 

(e)

the representations and warranties of AcquireCo contained in Section 4.2 of this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except: (i) for such representations and warranties which address matters only as of a particular time, which shall have been true and correct in all respects as of such particular time; and (ii) as such representations and warranties may be affected by transactions expressly required pursuant to this Agreement or pursuant to the written consent of TargetCo), except that any inaccuracies in such representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on AcquireCo; provided, however, that, for purposes of determining the truth and completeness of such representations and warranties, all "Material Adverse Effect" qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded; provided that, other than a breach or untruth which is not curable, AcquireCo shall have been provided with prompt written notice of such breach or untruth and shall have had ten Business Days (provided that such period shall not extend beyond the Outside Date) from receipt of such notice to cure, and shall have cured within such time period, such breach or untruth to the satisfaction of TargetCo, acting reasonably;

 

(f)

no Material Adverse Change with respect to AcquireCo shall have occurred from and after the date hereof and prior to the Effective Date; and

 

(g)

AcquireCo shall have furnished TargetCo with certified copies of the resolutions duly passed by the AcquireCo Board of Directors approving this Agreement and the consummation of the transactions contemplated hereby.

 

(a)

on or prior to March 29, 2011, the Interim Order shall have been granted in form and substance satisfactory to AcquireCo, acting reasonably, and such order shall not have been set aside or modified in a manner unacceptable to AcquireCo, acting reasonably, on appeal or otherwise;

 

(b)

the Arrangement Resolution shall have been passed by the TargetCo Shareholders on or prior to April 28, 2011, in accordance with the Interim Order and in form and substance satisfactory to AcquireCo, acting reasonably;

 

(c)

on or prior to April 28, 2011, the Final Order shall have been granted in form and substance satisfactory to AcquireCo, acting reasonably;

 

(d)

TargetCo shall have mailed the Information Circular and other documentation required in connection with the TargetCo Meeting to TargetCo Securityholders on or before March 29, 2011;

 

(e)

TargetCo shall have furnished AcquireCo with:

 

(i)

certified copies of the resolutions duly passed by the TargetCo Board of Directors approving this Agreement and the consummation of the transactions contemplated hereby; and

 

(ii)

certified copies of the resolutions of TargetCo Shareholders duly passed at the TargetCo Meeting, approving the Arrangement Resolution;

 

(f)

TargetCo shall not have breached and shall have performed each covenant to be performed by it under this Agreement in all material respects; provided that, other than a breach or a non-performance which is not curable, TargetCo shall have been provided with prompt written notice of such breach or non-performance and shall have had ten Business Days (provided that such period shall not extend beyond the Outside Date) from receipt of such notice to cure, and shall have cured within such time period, such breach or non-performance to the satisfaction of AcquireCo, acting reasonably;

 

(g)

the representations and warranties of TargetCo contained in Section 4.1 of this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except: (i) for such representations and warranties which address matters only as of a particular time, which shall have been true and correct in all respects as of such particular time; and (ii) as such representations and warranties may be affected by transactions expressly required or contemplated pursuant to this Agreement or pursuant to the written consent of AcquireCo), except that any inaccuracies in such representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on TargetCo; provided, however, that, for purposes of determining the truth and completeness of such representations and warranties, all "Material Adverse Effect" qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded; provided that, other than a breach or untruth which is not curable, TargetCo shall have been provided with prompt written notice of such breach or untruth and shall have had ten Business Days (provided that such period shall not extend beyond the Outside Date) from receipt of such notice to cure, and shall have cured within such time period, such breach or untruth to the satisfaction of AcquireCo, acting reasonably;

 

(h)

no Material Adverse Change with respect to TargetCo shall have occurred or have been ascertained by AcquireCo from and after the date hereof and prior to the Effective Date;

 

(i)

AcquireCo shall have received (i) resignations from the directors and officers of TargetCo and its subsidiaries in form and substance satisfactory to AcquireCo, acting reasonably, which resignations shall be effective on or immediately following the Effective Time, and (ii) mutual releases executed by the Parties and the directors and officers of TargetCo and each of its subsidiaries, which mutual releases shall be delivered and effective immediately following the Effective Time in form and substance satisfactory to AcquireCo and such directors and officers acting reasonably;

 

(j)

AcquireCo shall be satisfied, acting reasonably, that there will be no options, warrants or other rights (including any TargetCo Options and TargetCo Warrants) requiring the issuance of any securities of TargetCo or any of its subsidiaries or any securities convertible into, or exchangeable for, or otherwise evidencing a right to acquire any securities or TargetCo or any of its subsidiaries after giving effect to the Arrangement;

 

(k)

the Administrative Services Agreement shall have been terminated without additional obligation or liability of TargetCo or AcquireCo on terms acceptable to AcquireCo, and TargetCo, acting reasonably, and AcquireCo shall have received an unconditional release from Connacher Oil and Gas Limited in respect of the same, on terms acceptable to AcquireCo, acting reasonably;

 

(l)

AcquireCo shall have been provided with a copy (stored on working electronic media and complete and accurate as of immediately prior to the Effective Time) of all electronic and computer data that pertains to the business and operations of TargetCo (both current and historical) which is contained on all computer systems and servers used by TargetCo in the operation of its business (including those which may be owned or under the control of Connacher Oil and Gas Limited), including, in particular, all electronic email and payroll data;

 

(m)

AcquireCo shall have received written confirmation from Connacher Oil and Gas Limited, in form satisfactory to AcquireCo, acting reasonably, that from and after the Effective Time, there will be no outstanding actions, causes of action, suits, claims, demands, covenants, obligations, contracts, liabilities, debts, duties, costs and damages in favour of Connacher Oil and Gas Limited from TargetCo relating to the Puesto Morales Agreement;

 

(n)

holders of not greater than 5% of the outstanding TargetCo Shares shall have validly exercised rights of dissent in respect of the Arrangement that have not been withdrawn as of the Effective Date; and

 

(o)

there shall not have been more than 187,743,714 TargetCo Shares outstanding on the Effective Date, including any TargetCo Shares issuable pursuant to any TargetCo Securities.

 

(a)

Each of TargetCo and AcquireCo shall give prompt notice to the other of the occurrence, or failure to occur, at any time from the date hereof to the Effective Date of any event or state of facts which occurrence or failure would, or would be reasonably likely to:  (i) cause any of the representations or warranties of such Party contained herein to be untrue or inaccurate in any material respect (provided that such materiality qualifier shall not apply to any representations and warranties containing qualifiers as to materiality), or (ii) result in the failure to comply with or satisfy any covenant, or agreement to be complied with by such Party hereunder; provided, however, that no such notification will affect the representations or warranties of the Parties, the covenants or agreements of the Parties or the conditions to the obligations of the Parties hereunder.

 

(b)

If any of the conditions precedent set forth in Sections 5.1, 5.2 or 5.3 hereof shall not be complied with or waived by the Party or Parties for whose benefit such conditions are provided on or before the date required for the performance thereof, then a Party for whose benefit the condition precedent is provided may terminate this Agreement as provided in Section 8.1; provided that, prior to the filing of the Articles of Arrangement for the purpose of giving effect to the Arrangement, the Party intending to rely thereon has delivered a written notice to the Other Party, specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which the Party delivering such notice is asserting as the basis for the non-fulfillment of the applicable conditions precedent, and shall provide in such notice that the Other Party shall be entitled to cure any breach of a covenant or representation and warranty or other matters within ten Business Days after receipt of such notice (except that no cure period shall be provided for a breach which by its nature cannot be cured and, in no event, shall any cure period extend beyond the Outside Date), and the Other Party shall not have cured such breach of a covenant or representation and warranty or other matters within such time period.  More than one such notice may be delivered by a Party.  If such notice has been delivered prior to the TargetCo Meeting, TargetCo or AcquireCo may elect to postpone the TargetCo Meeting until the expiry of such cure period.

 

(a)

the TargetCo Board of Directors:

 

(i)

withdraws, modifies, qualifies or changes in any manner which in the opinion of AcquireCo, acting reasonably, is adverse to AcquireCo, its determination, approval or recommendation with respect to the Arrangement referred to in Section 3.1(d) and Section 4.1(ww), resolves to do so or makes a public announcement to that effect (unless AcquireCo is then in material breach of its obligations hereunder and such withdrawal, modification, change or qualification relates to such breach);

 

(ii)

recommends that TargetCo Shareholders deposit or tender their TargetCo Shares to, vote in favour of or otherwise accept, an Acquisition Proposal; or

 

(iii)

fails to publicly reaffirm and maintain its determination, approval or recommendation with respect to the Arrangement to the TargetCo Securityholders, consistent with Section 3.1(d) and Section 4.1(ww) as soon as practicable (and in any event within three Business Days) of any written request to do so by AcquireCo or after the public announcement or commencement of, or the public announcement of a bona fide intention to make or propose, any bona fide Acquisition Proposal or any variation of an existing bona fide Acquisition Proposal (or if the TargetCo Meeting is scheduled to occur prior to the end of that three Business Days, prior to the TargetCo Meeting) (unless AcquireCo is then in material breach of its obligations hereunder and such failure relates to such breach);

 

(b)

this Agreement is terminated by TargetCo pursuant to Section 8.1(b) to permit TargetCo to enter into a binding written agreement with any Person in respect of a Superior Proposal (other than an Acceptable Confidentiality Agreement permitted by Section 3.4);

 

(c)

TargetCo shall have breached or shall not have performed any covenant to be performed by it under this Agreement, or if any representation or warranty of TargetCo shall have been or become untrue, which breach, non-performance or untruth (individually or in the aggregate) causes or could reasonably be expected to cause a Material Adverse Change in respect of TargetCo or materially impedes or could reasonably be expected to impede the completion of the Arrangement and provided that, other than a breach, non-performance or untruth which is not curable (which for greater certainty shall include any breach of Section 3.4 or this Section 6.1), TargetCo shall have been provided with prompt written notice of such breach, non-performance or untruth and shall have had ten Business Days from receipt of such notice (or, if the Outside Date is less than ten Business Days from the date of such notice, such lesser period of time) to cure, and shall not have cured within such time period, such breach, non-performance or untruth to the satisfaction of AcquireCo, acting reasonably; or

 

(d)

a bona fide Acquisition Proposal (or amendment thereto) is publicly announced, offered or made to the TargetCo Shareholders or to TargetCo prior to the TargetCo Meeting and has not expired or been withdrawn at the time of the TargetCo Meeting, and the TargetCo Shareholders do not approve the Arrangement or the Arrangement is not submitted for their approval and such Acquisition Proposal (or any other Acquisition Proposal) is consummated within 12 months of the date of the termination of this Agreement.

 

(a)

change the time for performance of any of the obligations or acts of the Parties;

 

(b)

waive any inaccuracies or modify any representation or warranty contained herein or in any document delivered pursuant hereto;

 

(c)

waive compliance with or modify any of the covenants herein contained and waive or modify performance of any of the obligations of the Parties; or

 

(d)

waive compliance with or modify any other conditions precedent contained herein,

 

(a)

The Parties may agree to amend the Plan of Arrangement at any time and from time to time prior to the Effective Time, provided that each such amendment must be:  (i) set out in writing; (ii) filed with the Court and, if made following the TargetCo Meeting, approved by the Court; and (iii) communicated to TargetCo Securityholders if and as required by the Court.

 

(b)

Any amendment to the Plan of Arrangement agreed to by the Parties at any time prior to or at the TargetCo Meeting, which is proposed and accepted by the TargetCo Shareholders voting at the TargetCo Meeting, shall become part of the Plan of Arrangement for all purposes.

 

(c)

Any amendment to the Plan of Arrangement that is approved by the Court following the TargetCo Meeting shall be effective only if it is consented to by each of the Parties.

 

(a)

by either AcquireCo or TargetCo at any time following the Outside Date provided that, if the Effective Time has not occurred prior to the Outside Date as a result of the breach by the Party seeking to terminate this Agreement pursuant to this Section 8.1(a) of any covenant, obligation, representation or warranty of such Party under this Agreement, such Party shall not be permitted to so terminate this Agreement pursuant to this Section 8.1(a);

 

(b)

by TargetCo to permit TargetCo to enter into a binding definitive acquisition agreement with any Person in respect of a Superior Proposal (other than an Acceptable Confidentiality Agreement permitted by Section 3.4); provided that, TargetCo has complied with the provisions of Section 3.4 and TargetCo pays the TargetCo Termination Fee to AcquireCo prior to or concurrently with such termination;

 

(c)

by AcquireCo if the TargetCo Termination Fee becomes payable by TargetCo to AcquireCo in any of the circumstances contemplated by Section 6.1(a) or Section 6.1(c);

 

(d)

by AcquireCo if the AcquireCo Termination Fee becomes payable by AcquireCo to TargetCo and such AcquireCo Termination Fee is actually paid;

 

(e)

by TargetCo if the AcquireCo Termination Fee becomes payable;

 

(f)

by either AcquireCo or TargetCo if any Laws make the making or completion of the Arrangement or the transactions contemplated by this Agreement illegal or otherwise prohibited; provided that, if prohibited by way of order, decree, ruling or similar action by any Securities Regulatory Authority or other Governmental Entity, such order decree, ruling or other action shall have become final and non-appealable and the Party seeking to terminate this Agreement pursuant to this Section 8.1(f) shall have used all commercially reasonable efforts to remove such order, decree, ruling or other action;

 

(g)

by mutual written consent of AcquireCo and TargetCo; or

 

(h)

as provided in Section 5.4(b).

 

(a)

in the case of TargetCo, to:

 

Attention:

Richard A. Gusella, Executive Chairman or Gary D. Wine, President and Chief Operating Officer

Facsimile:

(403) 538-6225

 

Attention:

Jennifer K. Kennedy

 

Facsimile:

(403) 264-5973

 

(b)

in the case of AcquireCo to:

Attention:

Dana Coffield, President and Chief Executive Officer

 

Facsimile:

(403) 265-3242

 

Attention:

Scott R. Cochlan and Scott W.N. Clarke

 

Facsimile:

(403) 260-9700

 

(a)

the validity, legality or enforceability of such remaining provisions or parts thereof shall not in any way be affected or impaired by the severance of the provisions or parts thereof severed; and

 

(b)

the invalidity, illegality or unenforceability of any provision or part thereof contained in this Agreement in any jurisdiction shall not affect or impair such provision or part thereof or any other provisions of this Agreement in any other jurisdiction.