PLANSPONSORSHIP AGREEMENT

(a)

On the Effective Date or the Alternative Effective Date and except as provided in the Plan, all assets of each of the Teton Entities, including all avoidance actions under chapter 5 of the Bankruptcy Code, excluding, however, any and all such actions against any of (i) the DIP Lenders (as defined herein), (ii) JPMorgan Chase Bank, N.A., as the DIP Lenders and the Lenders (as hereinafter defined), and/or (iii) the Lenders, shall re-vest in each respective prepetition owner, as reorganized, free and clear of all preconfirmation liens, claims, encumbrances and interests; provided, further, that the Lenders will be released under the Plan of any and all liability, and any and all claims pending against the Lenders will not be re-vested in the Teton Entities, as reorganized.

At its election, Rise may direct that on the Effective Date or the Alternative Effective Date, some or all of TNA, TP, TDJ, TW, TBH, TORRI and Teton DJ, as reorganized, be merged into TEC, as reorganized, such that the assets of the merged Teton Entities, as reorganized, are owned by TEC, as reorganized, free and clear of all liens, claims, encumbrances or interests.

On the Effective Date or the Alternative Effective Date, (i) all existing equity interests in TEC shall be cancelled, and (ii) TEC will convert its corporate form from a Delaware corporation to a Delaware limited liability company.

On the Effective Date or the Alternative Effective Date, TEC shall pay the Prepetition Agent, for the benefit of the Lenders, the Auction Proceeds in no event less than the sum of $18,000,000, plus amounts, if any, necessary to repay the DIP Loan Agreement in full payment and satisfaction of all claims and indebtedness owing to them, plus obligations due under the DIP Loan Agreement, and the Lenders shall release their liens and claims against the Teton Entities, the Teton Entities, as reorganized, and their respective property; provided, however, that the aggregate amount of Auction Proceeds distributed to the Prepetition Agent, for benefit of the Lenders, shall be limited to the Lenders’ prepetition claims plus the DIP Loan; provided, further, that nothing to the contrary contained herein, the Lenders will be responsible under the Plan for their obligation to fund the Cash Contribution under paragraph 4(g) below if Rise is selected as the Successful Bidder.

TEC, as reorganized, shall issue 100% of its membership interests to Rise.  Rise will be the sole managing member of TEC, as reorganized.

Holders of allowed general unsecured claims (excluding Trade Claims as hereinafter defined) shall share on a pro rata basis the $950,000 cash contributed collectively by Rise and the Lenders for satisfaction of holders of allowed general unsecured claims and note holder claims (the “Cash Contribution”).  The Cash Contribution for satisfaction of allowed general unsecured claims and allowed note holder claims shall be funded with $700,000 of cash contributions from Rise and $250,000 of cash contributions from the Lenders; provided that, if no claimant has an allowed general unsecured claim, the total Cash Contribution shall be $900,000 and the Lenders’ share thereof shall be $200,000.  For the avoidance of doubt, Rise and the Lenders shall share responsibility for the funding of each cash payment made to holders of allowed general unsecured claims and allowed note holder claims up to an aggregate of $950,000 with Rise sharing 70/95’s of the responsibility and the Lenders sharing 25/95’s of the responsibility or in the case of a Cash Contribution in the aggregate of $900,000, Rise sharing 70/90’s of the responsibility and the Lenders sharing 20/90’s of the responsibility.  At the election of the Lenders, their funding obligations pursuant to this paragraph may be made from the Auction Proceeds to the extent such Lenders are entitled to such proceeds pursuant to the terms of the Plan.

Trade Claims (as hereinafter defined) of creditors who provided goods and services to the Teton Entities’ oil and gas operations (but not including amounts owed for corporate overhead, the office lease, and any amounts owed to professional advisers, including legal and financial or investment banking advisers) who have pre-petition claims that remain unpaid shall be paid by TEC, as reorganized, in cash in full within thirty (30) days of the Effective Date or the Alternative Effective Date.  Obligations to creditors who extend credit to the Teton Entities after the Petition Date will be assumed by TEC, as reorganized, and paid in the ordinary course of business.  “Trade Claims” means claims of and in the amounts listed on the attached Exhibit C.

TEC, as reorganized, will pay up to $286,500 under existing employee retention agreements from funds in the JPM Account (as hereinafter defined).  TEC, as reorganized, will assume and honor or pay all other unpaid employee wages and salaries and any accrued vacation, health insurance and similar benefits to and through the Effective Date or the Alternative Effective Date.  TEC, as reorganized, may, but is not required to, offer continued employment with it to the Teton Entities’ employees.

(a)

Prior to the Effective Date, JPMorgan Chase Bank, N.A., and JPMorgan Ventures Energy Corporation shall not have terminated the existing hedge agreements of TEC.

Total claims entitled to priority pursuant to section 507 of the Bankruptcy Code (other than post petition trade debt) shall not exceed $1 million.

Prior to the Petition Date, JPMorgan Chase Bank, N.A., Royal Bank of Canada, Guaranty Bank and Trust Company, and US Bank National Association (collectively, the “Lenders”) shall have executed a Plan Support Agreement in which they shall have agreed to vote to accept the Plan so long as the Plan’s treatment of the Lenders’ claims have not been modified and upon the other terms set forth therein.

Prior to the Petition Date, individual holders under that certain Secured Subordinated Convertible Debenture Indenture (collectively, the “Note Holders”), holding at least two thirds in dollar amount and 51 percent in number of such Note Holders, shall have executed a Plan Support Agreement in which they shall have agreed to vote to accept the Plan so long as the Plan’s treatment of the Note Holders’ claims have not been modified.

The Plan must be approved and consummated and the transaction must be effected on or before December 31, 2009 (the “Effective Date”) or, alternatively should circumstances beyond the control of the Teton Entities make it impractical or impossible to consummate the Plan on or before the Effective Date, before January 31, 2010 (the “Alternative Effective Date”).

Prior to the Effective Date or the Alternative Effective Date, the Teton Entities will conduct their business in the ordinary course with no out of the ordinary course undertakings or expenditures, unless expressly approved by Rise.

TEC and its subsidiaries will have in the aggregate not less than $250,000 in Net Working Capital (as defined in the Plan) at December 31, 2009 (or $500,000 in Net Working Capital at January 31, 2010 in the case of the Alternative Effective Date) resulting from the conduct of the business of the Teton Entities, determined in accordance with generally accepted accounting principles.  If the transaction is consummated between the Effective Date and the Alternative Effective Date, the incremental minimum Net Working Capital will be prorated on a per diem basis.  The Net Working Capital requirement shall be calculated as the difference between (i) Teton Current Assets (as hereinafter defined), and (ii) Teton Current Liabilities (as hereinafter defined), and a preliminary determination of the Net Working Capital will be calculated on the date the transaction is consummated.  The preliminary determination will be conclusive for determining whether the Net Working Capital condition in this section 5(g) has been satisfied.  TEC, as reorganized, will provide a post closing reconciliation of Net Working Capital within thirty (30) days of closing (the “Post Closing Reconciliation”).  If the Post Closing Reconciliation results in the Net Working Capital being in excess of the minimum thresholds provided for herein, any excess shall be paid by TEC, as reorganized, to the Lenders by wire transfer within 10 days of such Post Closing Reconciliation.  The Plan shall provide procedures for resolving any dispute regarding the Post Closing Reconciliation of Net Working Capital.  For the avoidance of doubt, if the Post Closing Reconciliation results in a deficiency in the Net Working Capital at the minimum thresholds provided for herein, the Lenders will not be required to fund the deficiency.

Commitments.  There are no contracts, commitments, or agreements binding on any interest of the Teton Entities in any hydrocarbon property, whether currently producing or not (a “Hydrocarbon Property” or the “Hydrocarbon Properties”), which require future expenditures by the owner thereof of more than the sum of $25,000 with respect to any particular Hydrocarbon Property, except as provided on Schedule 5(h) hereto.

Payment for Future Production.  None of the Teton Entities, as reorganized, will be obligated, by virtue of a prepayment arrangement, make-up right under a production sales contract containing a “take or pay” or similar provision, production payment or any other arrangement, to deliver hydrocarbons, or proceeds from the sale thereof, attributable to its Hydrocarbon Properties at some future time without then or thereafter receiving the full contract price therefor.

Gas Balancing.  Except as set forth on Schedule 5(j), none of the Teton Entities, as reorganized, will have any obligation to deliver gas (or cash in lieu thereof) from the Hydrocarbon Properties to other owners of interests as a result of past production by it or its predecessors in excess of the share to which they were entitled, nor any right to receive deliveries of gas (or cash in lieu thereof) with respect to the Hydrocarbon Properties from other owners of interests as a result of past production by it or its predecessors of less than the share to which they were entitled.

Calls on Production.  Except as set forth on Schedule 5(k), no person has any call upon, option to purchase, or similar right to obtain production from any of the Teton Entities’ Hydrocarbon Properties other than pursuant to renewal rights or automatic renewal provisions contained in existing production sales contracts.

Non-Competition Commitments. Except as set forth on Schedule 5(l), there are no agreements or arrangements that will be binding on the Teton Entities, as reorganized, or their Hydrocarbon Properties that limit the freedom of the owner of the Hydrocarbon Properties to compete in any line of business or with any person or in any geographical area, except customary area of mutual interest provisions contained in agreements described in Schedule 5(l) that cover properties in the immediate vicinity of the lands subject to such agreements.

Applicable Contracts. Except as set forth in Schedule 5(m), there are no agreements or arrangements relating to the Hydrocarbon Properties that will be binding on any of the Teton Entities, as reorganized, or their Hydrocarbon Properties.  The contracts and agreements which constitute a part of the Hydrocarbon Properties are in full force and effect, and, except as set forth in Schedule 5(m), none of the Teton Entities are in default thereunder.  No Teton Entity has given or received from any third party any notice of any action or intent to terminate or materially amend any such contract or agreement.

Production Sales Agreements.   There are no agreements or arrangements for the sale of oil, gas, or other minerals attributable to the Hydrocarbon Properties that may not be terminated at will without penalty by the restructured entity after Closing on notice of sixty (60) days or less.

Lease Provisions.  All rentals, royalties, overriding royalty interests, and other payments due under each of the oil, gas, and mineral leases described in Exhibit D have been promptly and fully paid, except amounts that are being held in suspense as a result of title issues and that do not provide any third party a right to cancel such lease.  There are no express obligations to drill additional wells in order to maintain in force and effect the rights of the Teton Entities, as reorganized, in any of their Hydrocarbon Properties, except as set forth in Schedule 5(o).

Compliance with Laws. During the periods of ownership by a Teton Entity, the Hydrocarbon Properties have been operated in material compliance with all applicable laws, regulations, rules, orders, judgments, and decrees of all governmental bodies and courts having jurisdiction, and all wells thereon have been drilled and completed within the boundaries of the applicable lease or unit and in compliance with all applicable spacing regulations.

Permits.  Each person who operates a Hydrocarbon Property has obtained all permits, licenses, franchises, authorities, consents, and approvals necessary for owning and operating the Hydrocarbon Property and has made all material filings with all governmental bodies having jurisdiction necessary for owning and operating the Hydrocarbon Property, and all such permits, licenses, franchises, authorities, consents, approvals and filings are in full force and effect.

Taxes.  All ad valorem taxes (including, without limitation, property, production, severance, occupation, and excise taxes) and other taxes and assessments based upon or measured by the ownership or operation of the Hydrocarbon Properties or the production of hydrocarbons or receipt of proceeds therefrom that are due and payable have been paid, except those being contested in good faith for which adequate provision has been made.

Preferential Rights of Purchase and Consents to Assignment.  No Hydrocarbon Property is subject to any preferential right of purchase, right of first refusal, or other agreement which gives a third party the right to purchase a Hydrocarbon Property as a result of a transaction herein provided to be effected or requires the consent of any third party to a transaction herein provided to be effected, except as set forth in Schedule 5(s).

Environmental Matters.  (i) There has not occurred an event in the use and operation of the Hydrocarbon Properties and there does not exist on the Hydrocarbon Properties a condition which constitutes a material violation of any federal, state, local, or tribal law (including common law), ordinance, rule, standard, prohibition, or regulation relating to health, safety, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §9601 et seq., as amended (“CERCLA”); the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §6901, et seq., as amended; the Clean Air Act, 42 U.S.C. §7401, et seq., as amended; the Federal Water Pollution Control Act, 33 U.S.C. §1251, et seq., as amended; and the Oil Pollution Act of 1990, 33 U.S.C. §2701, et seq., as amended (collectively, the “Environmental Laws”). There have been timely filed all required reports, there have been obtained all required approvals and permits, and there have been generated and maintained all required data, documentation, and records under all applicable Environmental Laws; (ii) the Hydrocarbon Properties have been operated in compliance with all applicable Environmental Laws and are not (and would not be, if all relevant facts were known to the applicable governmental authorities) subject to any remedial obligations under such laws; (iii) each person that operates the Hydrocarbon Properties has obtained all permits, licenses, franchises, authorities, consents, and approvals, made all material filings and maintained all material data, documentation, and records necessary for owning and operating the Hydrocarbon Properties under all applicable Environmental Laws, all such permits, licenses, franchises, authorities, consents, approvals, and filings remain in full force and effect and are in compliance therewith; (iv) no hazardous substances or solid wastes (as such terms are defined under any Environmental Law) generated from the Hydrocarbon Properties have been sent to a site which, pursuant to CERCLA or any similar state law, has been placed, or is proposed to be placed, on the “National Priority List” of hazardous waste sites or which is subject to a claim, an administrative order, or other request to take any cleanup, removal, or remedial action or to pay for any costs relating to such site. All hazardous substances and solid wastes generated from the Hydrocarbon Properties and requiring disposal have, to the extent required by any Environmental Law, been transported only by carriers maintaining valid authorizations and been treated, stored, and disposed of only at facilities maintaining valid authorizations; (v) there are no pending or threatened claims, demands, actions, administrative proceedings, lawsuits, or inquiries relating to the Hydrocarbon Properties under any Environmental Laws; and (vi) there are no environmental investigations, studies, or audits with respect to any of the Hydrocarbon Properties owned or commissioned by, or in the possession of, a Teton Entity which have not been disclosed to Rise.

 

 

(b)