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Exhibit 10.28

AGREEMENT TO FORM LLC
TO ACQUIRE
OIL & GAS LEASES, WELLS,
WORKING INTERESTS AND EQUIPMENT
[logo.jpg]
 
Quita Wells
Brown County, Texas
 
This Agreement is effective as of January 4, 2011 (the “Effective Date”) by and
between Paxton Energy, Inc., a Nevada corporation (“Paxton”), whose principal
office is located at 295 Highway 50, Suite 2, Lake Village Professional
Building, Stateline, NV 89449 (Mailing Address: P.O. Box 1148 Zephyr Cove,
NV89448-1148) and Lighthouse Petroleum, Inc., a Delaware corporation
(“Lighthouse”), whose business address is 14683 Midway Road, Suite 204, Addison,
TX 75001.
 
RECITALS
 
A.      Lighthouse owns certain Oil, Gas, and Mineral Leases, Wells, Contracts
and Contract Rights, and Equipment related to three oil and gas wells commonly
known as the Quita Wells in Brown County, Texas, more particularly described
below “Assets”).
 
B.      Paxton is publicly-traded oil and gas exploration and development
company, which is in the process of undertaking a financing transaction intended
to generate cash funds for use by Paxton in acquiring interests in oil and gas
wells and assets.
 
C.      The parties wish to form a limited liability company under the laws of
the State of Nevada, which will be jointly owned by Paxton and Lighthouse (the
“LLC”), and the LLC will purchase from Lighthouse the Assets and develop, own,
and operate the Assets for the benefit of LLC and its members.
 
The parties agree as follows:
 
1.      Formation of the LLC.  Following the Effective Date and prior to the
closing of the transaction referred to in Paragraph 9 below (the “Closing”),
Paxton shall undertake the following:
 
 
A.
Prepare, execute, and file in the Office of the Secretary of State, State of
Nevada, Articles of Organization setting forth the matters required under
Chapter 86 of Nevada Revised Statues and consistent with the matters set forth
herein;
 

 
B.
Prepare, execute, and file in the Office of the Secretary of State, State of
Texas a Form 304 Application for Registration of a Foreign Limited Liability
Company;
 

 
C.
Prepare and submit to Lighthouse for its review and approval a proposed
Operating Agreement, which shall include and shall be consistent with the
matters set forth in Paragraph 2 below;
 

 
D.
Establish a bank account, file required documents with the Texas Railroad
Commission, and undertake other organizational steps to get the LLC ready to
commence business in the State of Texas following the Closing.
 

2.      Provisions of the LLC Operating Agreement.  The operating agreement of
the LLC (the “Operating Agreement”) shall include the following provisions:

 
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A. 
The Members shall be Paxton and Lighthouse.  No additional members shall be
admitted without the unanimous consent of both initial Members.
 

 
B.
The capital contributions, which shall be funded, assigned, and contributed at
the Closing shall be as follows:
 

 

 
(1) 
Paxton shall contribute to the LLC the sum of $350,000.00 cash;

 
 
(2)
Lighthouse shall transfer, assign, and contribute to the LLC all of the Assets
described in Paragraph 3 below on and subject to the terms, conditions, and
provisions set forth herein.
 

 
C.
The Percentage Interests of the Members shall be as follows:
 

 
(1)
Paxton shall have a seventy percent (70%) Percentage Interest in the Net Profit
and Net Loss of PaxTex LLC;
 

 
(2)
Lighthouse shall have a thirty percent (30%) Percentage Interest in the Net
Profit and New Loss of PaxTex LLC;
 

 
(3)
The foregoing Percentage Interests of the Members shall be adjusted once Paxton
is returned cash distributions equal to its initial capital contribution of
$350,000.00 plus a return of ten percent (10%) per annum on the outstanding
balance of its capital (“Adjustment Event”);
 

 
(4)
Effective from and after the Adjustment Event, the Percentage Interests shall be
adjusted to forty-five percent (45%) for Paxton and fifty-five percent (55%) for
Lighthouse.
 

 
D.
Initially, Paxton shall be the Manager of the LLC.  Following the Adjustment
Event, Lighthouse shall assume the role of Manager of the LLC.
 

 
E.
The Assets contributed by Lighthouse cannot be sold or otherwise disposed of at
any time before the Adjustment Event without shareholder approval (as required
in Section 271 of the Delaware Corporation Law). If at any time during the
existence of the LLC, the Assets do not constitute “all or substantially all” of
the assets of Lighthouse, shareholder approval will not be required for
Lighthouse or the LLC to sell or dispose of the Assets provided that the Board
of Directors of Lighthouse have approved any such sale or disposition.
 

 
F.
An annual budget and business plan of the LLC shall be approved by the Members
(“Budget and Plan”) prior to the Closing, and following the Closing, except for
specific obligations of a Member specified in the Budget and Plan, the Manager
shall carry oversee implementation of the actions described in the adopted
Budget and Plan.  The Operating Agreement shall provide for the adoption of a
Budget and Plan on an annual basis, subject to modification thereof from time to
time by vote of the Members.
 

 
G.
Except for specific matters, which require unanimous approval, all matters in
which a vote, approval, or consent is required shall be decided by the Member
holding a majority Percentage Interest in the LLC.  Matters requiring unanimous
consent shall be listed in the Operating Agreement, which shall be approved and
signed as a condition to the Closing.
 

 
H.
Management responsibilities of the Members and their compensation shall be set
forth in the Budget and Plan.
 

 
I.
The LLC Operating Agreement shall include standard provisions regarding how the
LLC shall conduct its business as such provisions are customary for limited
liability companies.  All provisions of the Operating Agreement shall be
approved by both Members prior to and as a condition of the Closing.

 
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3.
Assets to be Contributed by Lighthouse.  At the Closing, Lighthouse agrees to
transfer, assign, and convey to the LLC in exchange for its Percentage Interest
in the LLC, the following described property (collectively, “Assets”).
 

 
A.
Oil, Gas, and Mineral Leases.   Subject to the limitations set out thereon, the
oil, gas, and mineral leases particularly described or referred to on Exhibit
“A” the “Leases”) and the lands described on Exhibit “A covered thereby (the
“Lands”)
 

 
B.
Wells.   The three oil and gas wells described or referred to on Exhibit “A”
located on the Leases (the “Wells”).
 

 
C.
Contracts and Contract Rights.  All pooling or unitization agreements, pooling
designations, declaration or orders covering in whole or in part any of the
Leases, insofar as they cover the Lands, and all rights, options, title and
interests granting Lighthouse the right to obtain or otherwise earn oil, gas and
mineral leasehold estates within the Lands together with all of Lighthouse’s
right, title, and interest now owned or hereafter acquired in and to all
contracts, operating agreements, salt water disposal agreements, water rights
agreements, mineral purchase agreements, rights of way, easements, surface
leases, permits, licenses, and all other contracts or agreements pertaining to
or affecting the Leases or which were executed in connection with the drilling
for, producing, treating, handling storing, transporting or marketing oil, gas
or other minerals from the Leases, the Lands, or from any properties unitized or
pooled therewith (the “Contracts”).
 

 
D.
Extracted Hydrocarbons.   All of Lighthouse’s right, title, and interest now
owned or hereafter acquired in and to all extracted and as extracted oil, gas,
casing head gas, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined therefrom, and all other minerals
(collectively herein “Hydrocarbons”) in and under, and that may be produced,
extracted and saved from, or allocated to, the Leases and the Lands.
 

 
E.
Equipment.  All fixtures, equipment, gathering systems, pipe, pipelines, tubing,
rods, pumps, pump jacks, tanks, casing, separators, supplies and personal
property now located on the Leases, or appurtenant thereto or used in connection
with production, treatment or sale of any hydrocarbons produced from the Leases
(the “Equipment”).
 

 
F.
General Intangibles, Books and Records.  All of Lighthouse’s right, title, and
interest, now owned or hereafter acquired in and to any and all:
 

 
(1)
general intangibles and all contract rights arising from or in connection with
the Leases, Wells, Lands, Equipment, and/or the other assets described or
referred to herein or on exhibits.
 

 
(2)
books and records, files, computer software, documents and other information
pertaining to the Leases, Wells, Lands, Equipment, and/or the assets described
or referred to herein or on exhibits attached hereto (the “Other Personal
Property”).
 

Lighthouse agrees to furnish Paxton, or to Paxton’s representatives, within five
(5) days from the effective date of this Agreement all title materials in
Lighthouse’s possession, including copies of title opinions, title reports,
division orders, and lease files containing copies or originals of al all
Leases, assignments, curative instruments, and other data pertinent to the
status of title to the Leases, Wells, Lands, or Equipment.
 

 
G. 
Other Property.  All of Lighthouse’s right, title, and interest in and to any
other assets relating to the operations or maintenance of the Wells, the Leases,
Lands, or Equipment of any type or character including, without limiting, the
proceeds of any insurance covering the assets being acquired or any portion
thereof.

 
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H. 
Excluded Assets.  There shall be excluded from the Assets (“Excluded Assets”)
all assets of Lighthouse not included or described in the preceding
subparagraphs or exhibits referred to therein and any assets that are or can be
considered “infectious waste,” “restricted hazardous waste,” or “hazardous
waste” as those terms are defined under 42 U.S.C. Section 6903(5), as such
section may be from time to time be amended, or under any regulations
thereunder.  The Excluded Assets shall be retained by Lighthouse.

 
2. 
Title, liens and encumbrances:    Title and possession of all of the Assets
shall be transferred to the LLC at the Closing with Good and Defensible Title,
free and clear of all liens, encumbrances, claims of others, and charges
(“Liens”), except for current taxes and other governmental charges to the extent
approved by Paxton prior to the Closing.  Lighthouse shall provide the LLC with
a title opinion prepared by Stephen S. Autry, Attorney at Law, 100 Commercial
Avenue. Suite 201, Coleman, TX 76834 in a form approved by Paxton in advance of
the Closing.  As used herein, “Good and Defensible Title” shall mean such title
as: (i) will enable the LLC to receive from a particular oil, gas or mineral
property one hundred percent (100%) of the working interest with at least a
sixty-seven percent (67%) net revenue interest in the Leases, subject to the
Assignment and Bill of Sale in favor of Banfishafer, LP, granting fifteen
percent (15%) of the Net Revenue Interest as an Overriding Royalty Interest
until such time as a $25,000 loan is repaid, at which time the overriding
interest shall revert to five percent (5%) of the Net Revenue Interest as an
Overriding Royalty Interest ad infinitum; and (ii) is free and clear of all
encumbrances, liens, claims, easements, rights, agreements, instruments,
obligations, burdens, or defects except for the encumbrances submitted in
writing by Lighthouse to Paxton and approved in writing by Paxton prior to the
Closing.  At the Closing, Lighthouse shall deliver or cause to be delivered to
the LLC good and sufficient instruments of transfer transferring to the LLC
title to all of the Assets, together with all required consents.  Such
instruments of transfer: (a) shall contain appropriate warranties and covenants,
which are usual and customary for transferring the type of property involved
under the laws of the jurisdictions applicable to such transfers, (b) shall be
in form and substance reasonable satisfactory to Paxton and its counsel, (c)
shall effectively vest in the LLC good and marketable title to all of the Assets
free and clear of all Liens, and (d) where applicable, shall be accompanied by
evidence of the discharge of all Liens against the Assets.

 
3. 
Representations of Lighthouse.  Lighthouse represents and warrants to Paxton, as
of the date hereof and as of the Closing, and from and after the Closing to the
LLC, as follows:

 
 
A.
Organization.  Lighthouse is a corporation duly organized, validly existing and
in good standing under and by virtue of the laws of the State of Delaware, with
full corporate power and authority to own or lease its properties and to conduct
its business in the State of Texas and in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted.
 

 
B.
Required Actions.  The boards of directors of Lighthouse have duly authorized
the execution of this Agreement and the consummation of the transaction
contemplated herein and all other actions and proceeding necessary to be taken
by or on the part of Lighthouse in connection with the transactions contemplated
by this Agreement have been duly and validly taken.  This Agreement and each
other agreement, document, and instrument to be executed and delivered by or on
behalf of Lighthouse pursuant to, or as contemplated by, this Agreement
(collectively, the “Lighthouse Documents”) has been duly and validly authorized,
executed and delivered by Lighthouse and no other action on the part of
Lighthouse or its is required in connection therewith.  Neither the execution of
this Agreement nor the consummation of the transaction provided for herein will
constitute a default under any provisions of Lighthouse’s Articles of
Incorporation, its Bylaws, and the agreements referred to as Contracts or any
other agreement by which Lighthouse is bound.  This Agreement and each other
Lighthouse Document constitutes, or when executed and delivered will constitute,
the legal, valid and binding obligation of Lighthouse, enforceable in accordance
with its respective terms.

 
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C.
No Violation.  The execution, delivery and performance by Lighthouse of this
Agreement and each other Lighthouse Document does not and will not (i) violate
any provision of the Articles of Incorporation and by-laws of Lighthouse, in
each case as amended to date, (ii) constitute a violation of, or conflict with
or result in any breach of, acceleration of any obligation under, right of
termination under, or default under, any agreement or instrument to which
Lighthouse is a party or by which Lighthouse or the Assets is bound, (iii)
violate any judgment, decree, order, statute, rule or regulation applicable to
Lighthouse or the Assets, (iv) require Lighthouse to obtain any approval,
consent or waiver of, or to make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made or (v) result in
the creation or imposition of any Lien on any of the Assets.
 

 
D.
Taxes.
 

 
1.
Lighthouse has paid or caused to be paid all federal, state, local, foreign and
other taxes, including, without limitation, income taxes, estimated taxes,
alternative minimum taxes, excise taxes, sales taxes, use taxes, value-added
taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment
and payroll related taxes, withholding taxes, stamp taxes, transfer taxes,
windfall profit taxes, environmental taxes and property taxes, whether or not
measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties (collectively, "Taxes”),
required to be paid by it through the date hereof, whether disputed or not.
 

 
2.
Lighthouse has in accordance with applicable law filed all federal, state, local
and foreign tax returns required to be filed by it through the date hereof, and
all such returns correctly and accurately set forth the amount of any Taxes
relating to the applicable period.
 

 
3.
Neither the Internal Revenue Service (“IRS”) nor any other governmental
authority is now asserting or, to the knowledge of Lighthouse, threatening to
assert against Lighthouse any deficiency or claim for additional Taxes.
 

 
4.
There has not been any audit of any tax return filed by Lighthouse, no audit of
any tax return of Lighthouse is in progress, and Lighthouse has not been
notified by any tax authority that any such audit is contemplated or
pending.  No extension of time with respect to any date on which a tax return
was or is to be filed by Lighthouse is in force, and no waiver or agreement by
Lighthouse is in force for the extension of time for the assessment or payment
of any Taxes.
 

 
5.
Lighthouse has never been (and has never had any liability for unpaid Taxes
because it once was) a member of an “Affiliated group” (as defined in Section
1504(a) of the Code).  Lighthouse has never filed, and has never been required
to file, a consolidated, combined or unitary tax return with any other
entity.  Lighthouse does not own and has never owned a direct or indirect
interest in any trust, partnership, corporation or other entity and therefore
the LLC will not and is not acquiring from Lighthouse an interest in any
entity.  Lighthouse is not a party to any tax sharing agreement.
 

 
E.
Compliance with Laws.  Lighthouse’s operation of the Assets is in compliance in
all material respects with all applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority (including the Texas Railroad Commission), and Lighthouse
has not received notice of a violation or alleged violation of any such statute,
ordinance, order, rule or regulation.
 

 
F.
Title.  Lighthouse has good and marketable title to all of the Assets free and
clear of all mortgages, pledges, security interests, charges, liens,
restrictions and encumbrances of any kind (collectively, “Liens”)
whatsoever.  Upon the assignment, transfer and delivery of the Assets to the LLC
hereunder and under the Lighthouse Documents, there will be vested in the LLC
good, marketable and indefeasible title to the Assets, free and clear of all
Liens.  The Assets include all of the assets and properties (i) held for use by
Lighthouse to conduct its business as presently conducted and (ii) necessary for
the LLC to operate its business in the same manner as such business is currently
operated by Lighthouse.  All of the tangible Assets are in good repair, have
been well maintained and are in good operating condition, do not require any
material modifications or repairs, and comply in all material respects with
applicable laws, ordinances and regulations, ordinary wear and tear excepted.
 

 
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G.
No Litigation.  Lighthouse is not now involved in nor, to the knowledge of
Lighthouse, is Lighthouse threatened to be involved in any litigation or legal
or other proceedings related to or affecting any Asset or which would prevent or
hinder the consummation of the transactions contemplated by this
Agreement.  Lighthouse has not been operating its business under, and its
business is not subject to, any order, injunction or decree of any court of
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality.
 

 
H.
Employees; Labor Matters.  Upon termination of the employment of any of
Lighthouse’s employees,  the LLC will not by reason of the transactions
contemplated hereby or anything done prior to the date hereof be liable to any
of said employees for so-called "severance pay” or any other
payments.  Lighthouse does not have any policy, practice, plan or program of
paying severance pay or any form of severance compensation in connection with
the termination of employment.  Lighthouse is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, work place safety and health, terms and conditions of
employment, and wages and hours.  There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
existing, pending or, to the knowledge of Lighthouse, threatened against or
involving Lighthouse.  No question concerning representation exists respecting
any group of employees of Lighthouse.
 

 
I.
Licenses.  Lighthouse is the holder of all licenses, permits, and authorizations
with respect to its business, all of which are in full force and effect, and no
licenses, permits, or authorizations of any governmental department or agency
are required for the operation of its business, which have not been duly
obtained.
 

 
J.
Assigned Contracts; Consents.  Except as set forth on a written schedule
attached hereto, no approval, consent, authorization, or exemption from or
filing with any person or entity not a party to this Agreement is required to be
obtained or made by Lighthouse in connection with the execution and delivery of
this Agreement and the Lighthouse Documents and the consummation of the
transactions contemplated hereby and thereby.
 

 
K.
Purchasers and Suppliers.  Lighthouse’s relations with the purchase of its
products and Lighthouse’s suppliers are good and there are not pending or, to
Lighthouse’s knowledge, threatened claims or controversies with any customer or
suppliers that, independently or collectively, is material to the Assets.
 

 
L.
Brokers.  Lighthouse has not retained any broker or finder or other person who
would have any valid claim against any of the parties to this Agreement for a
commission or brokerage fee in connection with this Agreement or the
transactions contemplated hereby.
 

 
M.
Undisclosed Liabilities.  Lighthouse has no liabilities or obligations of any
nature related to its business (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for liabilities or obligations current
liabilities incurred in the ordinary course of business since the date thereof.
 

 
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N.
Indebtedness.  Except as set forth in a schedule attached hereto, Lighthouse has
no bank debt or indebtedness related to the business (other than pursuant to
operating or capitalized lease obligations for leased equipment and other
current liabilities).
 

 
O.
Disclosure.  The representations, warranties and statements contained in this
Agreement and in the certificates, exhibits and schedules delivered by
Lighthouse to Paxton pursuant to this Agreement do not contain any untrue
statement of a material fact, and, when taken together, do not omit to state a
material fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made.  There are no facts known to
Lighthouse which presently or may in the future have a material adverse affect
on Lighthouse’s business, properties, assets, prospects, operations or
(financial or other) condition related to the business of Lighthouse which has
not been specifically disclosed herein or in a Schedule furnished herewith,
other than general economic conditions affecting the Internet services industry
generally.
 

 
P.
Records.  Lighthouse agrees to deliver Paxton and the LLC information and
historical records regarding the production of the Wells in a form suitable to
support the required SEC audit.
 

4.      Assumption of Liabilities by the LLC.  If this Agreement closes as
provided in Paragraph 9 hereof, from and after the Closing the LLC shall assume,
pay, and discharge the following debts, liabilities, and obligations of
Lighthouse:
 
 
A.
All of the liabilities and obligations of Lighthouse under the Leases described
in Exhibit “A” that are not the result of past defaults of Lighthouse under such
Leases, and
 

 
B.
All of the liabilities and obligations of Lighthouse under the Contracts that
are not the result of past defaults of Lighthouse under such Contracts.
 

5.      Excluded Liabilities.  Except as otherwise specifically provided above
in Paragraph 6, the LLC will not and does not assume and shall not be obligated
to pay or discharge any debt, liability, or obligation of Lighthouse, whether
known, unknown, fixed, ,accrued, absolute, contingent, or otherwise not
specifically assumed herein by the LLC.  Without limiting the foregoing,
Lighthouse shall remain liable and responsible for:
 
 
A.
Any and all expenses, debts, liabilities, and obligations relating to, resulting
from or arising out of: (i) the Excluded Assets, (ii) the employees of the
business, (iii) any fact existing or event occurring prior to, or relating to
the operation of Lighthouse’s business prior to the date of closing of this
transaction;
 

 
B.
Any and all expenses, debts, liabilities, or obligations incurred by Lighthouse
for any finders’ fees, brokerage, investment banker fees, or other commission
relating to the subject matter of this Agreement or the transactions
contemplated herein, and
 

 
C.
Any liability for taxes, interest, or penalties due or to become due incurred or
in respect for an any period prior to the Closing or arising out of transactions
entered into or any state of facts existing prior to the Closing.
 

Lighthouse acknowledges and agrees that the LLC shall not acquire any rights or
interests of Lighthouse in, or assume or have any obligations or liabilities of
Lighthouse under, any benefit plans maintained by Lighthouse, or for the benefit
of any employees of Lighthouse, including, without limitation, obligations for
severance or vacation accrued but not taken.
   
6.      Survival of Warranties.  The parties agree that all of their respective
representations and warranties wherever in this Agreement contained shall
survive the Closing and the delivery of the consideration and may be enforced by
either party hereto as well as the LLC.

 
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7.      Lighthouse’s Conditions of Closing.  The obligations of Lighthouse under
this Agreement are subject to the fulfillment, satisfaction, or waiver, prior to
or at the Closing, of each of the following conditions:
 
 
A.
The organization and formation of the LLC shall be completed and all matters
related thereto, including the final provisions of the LLC Operating Agreement,
shall be reasonably satisfactory to Lighthouse;
 

 
B.
Paxton shall have performed and complied with all agreements and conditions
required by this Agreement,
 

 
C.
Receipt of all authorizations, consents, waivers, orders, or approvals required
to be obtained from all governmental authorities in order to consummate the
acquisition of the Assets to be transferred under this Agreement to the LLC, and
 

 
D.
All legal matters shall be reasonably satisfactory to counsel for Lighthouse.
 

8.      Paxton’s Conditions of Closing.  The obligations of Paxton under this
Agreement are subject to the fulfillment, prior to or at the Closing, of each of
the following conditions:
 
 
A.
Lighthouse’s representations and warranties contained in this Agreement shall be
true on and as of the time of the Closing with the same effect as though such
representations and warranties had been made at and as of such time,
 

 
B.
Lighthouse shall have performed and complied with all agreements and conditions
required by this Agreement,
 

 
C.
Satisfactory completion of Paxton’s ongoing, financial, commercial, accounting,
technical, and legal due diligence review of Assets and the operations of
Lighthouse,
 

 
D.
Receipt of all authorizations, consents, waivers, orders, or approvals required
to be obtained from all governmental authorities in order to form the LLC and
consummate the acquisition by the LLC of the Lighthouse Assets to be transferred
under this Agreement,
 

 
E.
Receipt and approval by Paxton of the title opinion described in Paragraph 2
above,
 

 
F.
Completion of the financing transaction currently being pursued by Paxton, which
will generate the cash funds to be contributed by Paxton to the LLC;
 

 
G.
All legal matters, including, without limitation, the title opinion referred to
above shall be reasonably satisfactory to counsel for Paxton,
 

 
H.
Receipt by Paxton of an independent third party Engineering Report with respect
to the Assets, and
 

 
I.
Receipt by Paxton of copies of the following financial statements of Lighthouse
(which include all notes and schedules attached thereto), all of which are true,
complete and correct, have been prepared from the books and records of the
Lighthouse in accordance with generally accepted accounting principles (“GAAP”)
consistently applied with past practice and fairly present the financial
condition, assets, liabilities and results of operations of the Lighthouse as of
the dates thereof and for the periods covered thereby:
 

 
the reviewed balance sheet of the Lighthouse at September 30, 2010 and 2009 and
the related statements of operations, and of cash flows of the Lighthouse for
the periods then ended and (ii) the audited balance sheet of the Lighthouse as
of December 31, 2009 and 2008 and the related compiled statement of operations
of the Lighthouse for the years then ended (such statements, including the
related notes and schedules thereto, are referred to herein as the “Financial
Statements.”)

 
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In such Financial Statements, the statements of operations do not contain any
material items of special or nonrecurring income or any other material income
not earned in the ordinary course of business, and the financial statements for
the interim periods indicated include all adjustments, which consist of only
normal recurring accruals, necessary for such fair presentation.  There are no
facts known to the Lighthouse that, under GAAP consistently applied, would alter
the information contained in the foregoing Financial Statements in any material
way.
 
9.      The Closing. The closing of the transaction provided herein (the
“Closing”) shall take place via telephonic and email communication, with
delivery of documents to follow, three (3) days following satisfaction of the
conditions of closing set forth in paragraphs 7 and 8 (the “Conditions of
Closing”), or as soon thereafter as practical or at such other place and/or
different time mutually agreed upon by the parties.  In the event each of the
Conditions of Closing are not fulfilled, satisfied, or waived in writing on or
before January 31, 2011, either party shall have the right thereafter to
terminate this Agreement by notice in writing given to the other party.
 
 
A.
At the Closing, Lighthouse shall deliver to Paxton and to the LLC:
 

 
1.
Assignments to the LLC, in recordable form, of each of the Leases and Wells
referred to in Paragraph 1  and in Exhibit “A” hereof;
 

 
2.
All of the Contracts, with such assignments thereof and consents to assignments
as are necessary to assure the LLC of the full benefit of the same.
 

 
3.
All of Lighthouse’s files and records regarding Assets;
 

 
4.
Bills and Sale with Warranty of Title and Assignments to the LLC of all of the
Equipment referred to above;
 

 
5.
Possession to the LLC of all of the Assets;
 

 
6.
Any policies of insurance of Lighthouse covering the assets, properties, and
interests being sold hereunder;
 

 
7.
Notification to the purchasers, supplies, and vendors of Lighthouse that the LLC
acquired the interests of Lighthouse and that all checks from the operations of
the Leases and Wells should be paid to the LLC at an address to be provided at
the Closing;
 

 
8.
Certified copies of the resolutions of Lighthouse authorizing and approving the
execution and consummation of this Agreement by and on behalf of Lighthouse;
 

 
9.
Such other documents as counsel for Paxton may reasonably request to consummate
this transaction in accordance with industry practices or as required under
applicable securities and other laws.
 

 
B.
At the Closing, Paxton shall deliver to Lighthouse:
 

 
1.
All documentation for  the LLC;
 

 
2.
Certified copies of the resolutions of the board of directors of Paxton
authorizing and approving the execution and consummation of this Agreement by
and on behalf of Paxton;
 

 
3.
Such other documents as counsel for Lighthouse may reasonably request to
consummate this transaction in accordance with industry practices or as required
under applicable securities and other laws.
 

 
C.
On or before the 15th day of the full calendar month after the Closing,
Lighthouse shall provide the LLC and Paxton with an accounting of revenue
received and expenses paid during the calendar month of the Closing with
appropriate prorations and a check for the net revenue applicable to the period
following Closing.

 
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10.      Post-Closing Covenants; Survival.
 
A.      The parties agree, from time to time after the consummation of the
transactions contemplated herein, at the request of either party and without
further consideration, to execute or re-execute and delivery such additional or
further instruments of transfer and assignment documents and to furnish such
additional documents or information as may be necessary or desirable to evidence
or consummate the transactions provided for herein and specifically to vest
title in the LLC (or to better evidence such title) or to assure the LLC of the
full benefit of the Leases, Wells, Contract Rights,  Equipment, Other Personal
Property, and all the Assets free and clear of all Liens
.
B.      For a period of ninety (90) days following the closing of the
transactions contemplated herein, Lighthouse shall provide, without additional
cost to the LLC or Paxton, such assistance as is reasonably requested by Paxton
in order to effect an orderly transition to the LLC of the ownership and
operation of the Assets.  Notwithstanding the foregoing, Lighthouse and Paxton
agree to work together in good faith to provide for reasonable transition
process to the LLC and transition period so that customer service is not
adversely impacted as a result of the transactions contemplated in this
Agreement.
 
C.      For a period of one year following the date hereof, Lighthouse and
Paxton shall give the representatives of the LLC, Paxton, and Lighthouse,
respectively, at reasonable times and with reasonable prior notice, free access
to the books and records of the Assets and will furnish to the LLC, Paxton, or
Lighthouse, respectively, and its representatives such information regarding the
Assets and the Assets as each, respectively, or its representatives may from
time to time reasonably request.
 
D.      All representations, warranties, covenants, agreements and indemnities
contained in this Agreement, or in any schedule, exhibit, certificate,
agreement, document or statement delivered pursuant hereto, are material, shall
be deemed to have been relied upon by the parties and, shall survive the
consummation of the transactions contemplated herein for a period of two (2)
years regardless of any investigation conducted by or knowledge of any party
hereto.
 
11.   Indemnification.  Lighthouse hereby agrees  to indemnify and hold harmless
the LLC and Paxton and their respective directors, officers, managers, members,
employees, and agents, against and in respect of all losses, liabilities,
obligations, damages, deficiencies, actions, suits, proceedings, demands,
assessments, orders, judgments, costs and expenses (including the reasonable
fees, disbursements and expenses of attorneys and consultants) of any kind or
nature whatsoever, but net of the proceeds from any insurance policies or other
third party reimbursement for such loss, to the extent sustained, suffered or
incurred by or made against the LLC or Paxton, to the extent based upon, arising
out of or in connection with:  (a)  any breach of any representation or warranty
made by Lighthouse in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement; (b) any
breach of any covenant or agreement made by Lighthouse in this Agreement or in
any schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered pursuant to this Agreement; (c) any claim made by any
person or entity which relates to the operation of the Assets which arises in
connection with or on the basis of events, acts, omissions, conditions or any
other state of facts occurring on or existing before the date hereof; and (d)
any claim which arises in connection with any liability or obligation of
Lighthouse.
 
12.   Disclosure.   Lighthouse acknowledges that Paxton may be required by law
to disclose the execution of this Agreement in a Form 8-K filing with the
Securities and Exchange Commission and may make a public announcement concerning
this Agreement, the transaction contemplated herein, or any other matters
relating to the proposed acquisition.   Lighthouse consents to Paxton’s making
such disclosures consistent with the terms of this Agreement.

 
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13.    Transaction Costs.  Paxton shall be responsible for and pay its costs and
expenses incurred by Paxton in connection with the transaction contemplated
under this Agreement.  Lighthouse shall be responsible for and pay all of the
costs and expenses incurred by Lighthouse in connection with the transaction
contemplated under this Agreement.
 
14.    Governing Law.   This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada applicable to contracts made in
such state without regard to conflicts of law doctrines, and to the extent
applicable, matters with respect to the Leases, Wells, and Contract Rights shall
be governed and construed in accordance with laws of the State of Texas.
 
15.    Notices.  All notices, payments, and other communications required or
permitted by this Agreement or by law to be served on or given to a party hereto
by the other party shall be deemed given: (i) when personally delivered; (ii)
one (1) business day after timely delivery to Federal Express, United Parcel
Service, or other nationally recognized courier for overnight delivery, charges
prepaid; or (iii) if a fax number or email address is set forth herein, upon
written confirmation by the fax machine or the computer of the party sending the
notice that the notice has been transmitted successfully to the receiving
party’s fax machine or email account, in each case addressed, faxed , or emailed
to the addressee at the address, fax number, or email address set forth
herein.  Either party may change its addressee, address, fax number, or email
address for notice purposes by a notice given in accordance with this Agreement.
 
16.    Assignment.  This Agreement shall be binding on and shall inure to the
benefit of the parties and their respective legal representatives, successors,
and assigns.
 
17.    Third Party Rights.   Except as regards the indemnification rights and
obligations herein, this Agreement is for the benefit of the parties hereto and
for the benefit of the LLC and is not entered into for the benefit of, and shall
not be construed to confer any benefit upon, any other party or entity.
 
18.   Amendments.  This Agreement may be amended or modified at any time, but
any such amendment or modification must be in writing and signed by both
parties.
 
19.   Entire Agreement.  The terms and conditions herein contained constitute
the entire agreement between the parties and supersede all previous agreements,
understandings, and communications, either oral or written, between the parties
hereto with respect to the subject matter hereof. 
 
20.    Severability.  If any term, provision, covenant, or condition of this
Agreement is held to be invalid, void, or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired, or invalidated thereby.
 
21.    Limitation of Liability.  The obligations of the parties are acknowledged
to be solely entity obligations, and no officer, director, employee, agent,
representative, manager, member, owner, or controlling person of any such entity
shall be subject to any personal liability to any person or other party, nor
will any such claim be asserted by or on behalf of either party or affiliates of
such party.
 
22.    Dispute Resolution.  Any controversy or claim arising out of or relating
to this Agreement, or breach hereof, including, without limitation, claims
against either party, affiliates, employees, officers or directors shall be
resolved and determined exclusively under the mandatory mediation and
arbitration procedures described in this paragraph.  The parties first shall be
obligated to pursue good faith efforts to resolve the matter by mediation.   As
a condition precedent to pursuing any remedy, a Notice of Claim shall be sent to
the other party.  The Notice of Claim shall specify the nature of the dispute,
controversy, and claim and shall include the name of a proposed independent
third party mediator or organization of mediators located in Northern
Nevada.  The party receiving the Notice of Claim shall within fifteen (15)
calendar days thereafter either suggest an alternative mediator or organization
of mediators similarly located or consent to mediate the matter in front of the
mediator or organization of mediators so proposed.  The parties shall undertake
good faith efforts for a period of thirty (30) calendar days thereafter to
appoint a mediator and submit the dispute, controversy and/or claims to
mediation. If the mediation attempt is not successful, the matter shall be
resolved by binding arbitration.  The parties by mutual consent may elect to
have the mediator act as the neutral arbitrator to render a mandatory and
binding decision.  If either party objects to having the mediator act as the
binding arbitrator, the dispute shall be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.  Pending the hearing, the parties shall be entitled to undertake
discovery proceedings, including the taking of depositions, submittal of
interrogatories, and requests for the production of documents.  In no event
shall either party be liable to the other under any legal or equitable theory
for special, consequential, exemplary, or punitive damages, including lost of
profit, even if the other party has been advised of the possibility of such
damages in advance.  In addition to any other right or remedy for a breach, the
arbitrator(s) may order an injunction or other equitable relief, and such order
may be enforced by an appropriate court.  The parties to the arbitration shall
each pay an equal share of the costs and expenses of the arbitration and
mediation, and each party shall pay for its respective counsel fees and
expenses; provided that the arbitrator(s) may award attorney’s fees and costs to
the prevailing party, except as prohibited by law.  The parties hereby agree to
waive their right to have any dispute between them resolved in a court of law by
a judge or jury.  Notwithstanding the foregoing, this paragraph will not prevent
either party from seeking injunctive relief (or any other provisional remedy)
from any court having jurisdiction relating to this Agreement and the agreements
incorporated herein by reference.  Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.

 
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23.    Incorporation of Exhibits.  The exhibits referred to herein are hereby
incorporated into this Agreement just as if these exhibits were set forth in
full where the reference thereto is made.
 
24.    Counterparts, Facsimile or PDF Signatures.   This Agreement may be
executed in counterpart originals, each of which together shall constitute one
binding agreement.  An executed signature page sent by fax or in PDF format
shall be deemed executed by such party and may be relied upon by the receiving
party and by third parties with the same effect as if a complete originally
executed document were delivered and received.

Paxton:
Lighthouse:
 
PAXTON ENERGY, INC.
LIGHTHOUSE PETROLEUM, INC.
 
a Nevada corporation
a Delaware corporation
             
By:___________________________
By:___________________________
       
Its:___________________________
Its:___________________________
                   
Address:
Office & Delivery:
Address:
14683 Midway Road, Suite 204
   
Paxton Energy, Inc.
 
Addison, TX 75001
   
295 Highway 50, Suite 2
       
Stateline, NV   89449
Fax:
469 675 6215
     
Email:
glenkennedy55@yahoo.com
   
Mailing Address:
       
P.O. Box 1148
       
Zephyr Cove, NV8 9448-1148
       
 
       
Fax: 775 588 6350    Email:  chasv@paxenergyinc.com
     

 
 
 
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