EXECUTION VERSION

 

Purchase and Sale Agreement

 

XOG Operating LLC,

a Texas limited liability company

 

and

 

Geronimo Holding Corporation,

a Texas corporation,

 

as Sellers,

 

and

 

American Standard Energy Corp., 

a Delaware corporation,

 

as Buyer

 

Dated February 24, 2012

 

 

 

 

Table of Contents 

 

1. Property to be Sold and Purchased 1   (a) Wells, Real Property and Leases 1  
(b) Permits 2   (c) Contracts 2   (d) Equipment 2   (e) Data 2   (f) Assumed
Liabilities 2   (g) Excluded Properties and Liabilities. 2       2. Purchase
Price. 4   (a) Purchase Price to be Paid for the Properties 4   (b) Deposit 4  
(c) Purchase Price Allocation 5   (d) Effective Date 5   (e) Delivery of Certain
Assets 5       3. Representations of Seller. 5   (a) Representations 5       4.
Representations of Buyer. 12   (a) Representations 12         5. Certain
Covenants of Seller and Buyer 13   (a) Access by Buyer. 13   (b) Interim
Operations 14   (c) Preferential Rights and Consents 15   (d) Notification of
Certain Matters. 15   (e) Piggyback Registration of Parent Shares 15       6.
Post-Closing Reviews. 16   (a) Review By Buyer 16   (b) Nature of Defects 16    
  7. Certain Price Adjustments. 18   (a) Procedures 18   (b) Limitations on
Adjustments 19       8. Conditions Precedent to the Obligations of Buyer 19  
(a) Representations True and Correct 19   (b) Compliance with Covenants and
Agreements 20   (c) Litigation 20   (d) Releases 20   (e) Fairness Opinion and
Fairness Committee Approval 20   (f) Bank Approval 20       9. Conditions
Precedent to the Obligations of Seller 20   (a) Representations True and Correct
20   (b) Compliance With Covenants and Agreements 20

 

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  (c) Litigation 20   (d) Purchase Price 20       10. Closing. 20   (a) Actions
At Closing 20       11. Certain Accounting Adjustments. 21   (a) Adjustments for
Revenues and Expenses 21   (b) Initial Adjustment at Closing 23   (c) Adjustment
Post Closing 23       12. Post-Closing Actions. 23   (a) Transfer of Files 23  
(b) Title Review 23   (c) Delivery of Consents 23   (d) Notifications by Buyer
23       13. Indemnification. 23   (a) Seller Indemnification 23   (b) Buyer
Indemnification 24   (c) Defense of a Third Party Claim 24   (d) Indemnification
Procedures. 25   (e) Limits on Indemnification 25         14. No Commissions
Owed 26       15. Casualty Loss 26       16. Notices 26       17. Survival of
Provisions 27       18. [Intentionally Omitted] 27       19. Termination. 27  
(a) Termination Rights. 27   (b) Effect of Termination. 28       20.
Miscellaneous Matters. 28   (a) Further Assurances 29   (b) Regulatory Approvals
29   (c) Expenses; No Special Damages 29   (d) No Sales Taxes 29   (e) Entire
Agreement 29   (f) Amendments, Waivers 29   (g) Choice of Law and Venue 29   (h)
Dispute Resolution. 30   (i) Headings, Time of Essence, Etc 30   (j)
Confidentiality; Public Announcements 30   (k) Adequate Counsel 31   (l) No
Assignment 31   (m) Successors and Assigns 31   (n) Counterpart Execution 31  
(o) Severability 31   (p) Definitions. 31

 

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 EXECUTION VERSION

 

PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (“Agreement”) dated as of February 24, 2012, is
by and between XOG Operating LLC, a Texas limited liability company (“XOG”) and
Geronimo Holding Corporation, a Texas corporation (“GHC” and together with XOG,
each a “Seller” and collectively, the “Sellers”) and American Standard Energy
Corp., a Delaware corporation (“Buyer”).

 

RECITALS

 

WHEREAS, Sellers own the Properties (as defined herein), which include certain
properties located in the Permian Basin, the Eagle Ford shale formation and the
Eagle Bine in Texas, the Williston Basin in North Dakota, the Niobrara shale
formation in Wyoming and Nebraska and the Mississippian shale formation in
Oklahoma;

 

WHEREAS, Buyer desires to purchase, and Sellers desire to sell, all of Sellers’
right, title and interest in and to the Properties pursuant to the terms and
conditions of this Agreement; and

 

WHEREAS, as consideration in part for the sale of the Properties to Buyer, Buyer
hereby agrees to issue to Sellers Five Million (5,000,000) shares of common
stock, $0.001 par value, of Buyer (the “Common Stock”) pursuant to the terms and
conditions of this Agreement, together with $10 million in cash and a note in
the principal amount of $35 million made by Buyer.

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
benefits to be derived by each party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Sellers (each a “Party” and collectively the “Parties”) agree as
follows:

 

WITNESSETH:

 

1.          Property to be Sold and Purchased. Sellers hereby agree to sell and
Buyer hereby agrees to purchase, for the consideration hereinafter set forth,
and subject to the terms and provisions herein contained, the following
described properties, rights and interests set forth in items (a) through (e)
below by executing and delivering on the Closing Date one or more counterparts
of the Assignments and Bill of Sale, as attached hereto as Schedule I
(“Conveyance”), together with a description of the respective Properties, as
defined below, attached thereto. The Conveyance shall convey to Buyer a Net
Revenue Interest (“NRI”) and Working Interest (“WI”) in the Oil and Gas
Properties, as defined below, as set forth in the Conveyance.

 

(a)          Wells, Real Property and Leases. All of Sellers’ rights, title,
interests and estate, real or personal, recorded or unrecorded, movable or
immovable, tangible or intangible, in and to: (i) oil and gas leases and top
leases, oil, gas and mineral leases and top leases, subleases and other
leaseholds, and other properties and interests described on Exhibit A-1
(“Developed Leases”) and Exhibit A-3 (“Undeveloped Lease with Net Leasehold
Acres and NRI”) (Exhibit A-1 and Exhibit A-3, the “Leases”) and the lands
covered thereby (“Land(s)”) and any and all oil, gas, water or injection wells
thereon, as listed on Exhibit A-2 (the “Wells”) and (ii) any pools or units
which include all or a part of any Land or include any Well described on Exhibit
A-1, Exhibit A-2 and Exhibit A-3 (the “Units”) and including without limitation
all rights, title and interest in production from any such Unit, whether such
Unit production comes from wells located on or off of the Lands, and all
tenements, hereditaments and appurtenances belonging to, used or useful in
connection with the Leases, Lands, Wells and Units (all of the above being
hereinafter collectively called the “Oil and Gas Properties,” and the respective
“Net Revenue Interest” and “Working Interest” of Sellers in the Properties
described on Exhibit A-1, Exhibit A-2 and Exhibit A-3 shall be a part of the
definition of “Oil and Gas Properties”), and all other real property described
on Exhibit A-4; and

 

 

 

  

(b)          Permits. All of Sellers’ rights, title and interests in and to, or
otherwise derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders (including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other authority
having jurisdiction, and voluntary unitization agreements, designations and/or
declarations), franchises, licenses, permits, approvals, consents, certificates
and other authorizations and rights granted by governmental authorities that
relate to the Oil and Gas Properties and all easements, servitudes,
rights-of-way, surface leases and other surface rights appurtenant to, and used
or held for use to the extent applicable to the Oil and Gas Properties granted
by any third party or governmental authority;

 

(c)          Contracts. All of Sellers’ rights, title and interests in and to
all presently existing and valid contracts to or by which the Oil and Gas
Properties are bound or created, to the extent applicable to the Oil and Gas
Properties and transferable, including, but not limited to, operating
agreements, gathering agreements, marketing agreements (including commodity
swap, collar and/or similar derivative agreements), transportation agreements,
processing agreements, seismic, geological and geophysical agreements,
unitization, pooling and communitization agreements, declarations and orders,
joint venture agreements, and farmin and farmout agreements;

 

(d)          Equipment. All of Sellers’ rights, title and interests in and to
all materials, supplies, machinery, equipment, improvements and other personal
property and fixtures (including, but not by way of limitation, all wells
(including, but not limited to the wells and units set forth on Exhibit A-2),
wellhead equipment, pumping units, flowlines, tanks, platforms, buildings,
injection facilities, saltwater disposal facilities, compression facilities,
gathering systems, and other equipment) relating to the Oil and Gas Properties
and used (or contemplated to be used, as spare equipment or otherwise) in
connection with the exploration, development, operation or maintenance thereof,
and in and to all permits, licenses, rights of way, easements, and other rights
of surface use and water rights used in connection with the exploration,
development, operation or maintenance of the Oil and Gas Properties; and

 

(e)          Data. If requested, all of the following materials in Sellers’
possession: (i) abstracts, title opinions, title reports, title policies, lease
and land files, surveys, filings with regulatory agencies and other documents
and instruments that relate to the Properties; (ii) geophysical, seismic,
geological, engineering, exploration, production and other technical data that
relate to the Oil and Gas Properties; and (iii) all other books, records, files
and magnetic tapes containing financial, title or other information that relate
to the Properties.

 

The properties, rights and interests specified in the foregoing subsections (a),
(b), (c), (d), and (e), exclusive of the Excluded Properties and Excluded
Liabilities (each as defined below), are herein collectively called the
“Properties.”

 

(f)          Assumed Liabilities. Upon the Closing, Buyer shall assume and be
responsible for any obligations, duties and liabilities accruing or arising
solely out of the ownership or use of the Properties on and after the Closing
Date.

 

(g)          Excluded Properties and Liabilities.

 

(i)          Excluded Properties. The Properties do not include, and there is
hereby expressly excepted and excluded therefrom and reserved to Sellers, the
following (collectively, the “Excluded Properties”):

 

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1.          All corporate, financial, tax and legal records of Sellers, other
than those relating to or affecting the Properties;

 

2.          All contracts of insurance or indemnity;

 

3.          All hydrocarbon production from or attributable to the Properties
with respect to all periods prior to the Effective Date and all proceeds
attributable thereto, including all oil that is stored in tanks located on the
Oil and Gas Properties (or located elsewhere but used by Sellers to store oil
produced from, or attributable to, the Oil and Gas Properties prior to delivery
to oil purchasers) on the Effective Date;

 

4.          Any refund of, or loss carry forwards with respect to, costs, taxes
or expenses borne by Sellers attributable to the period prior to the Effective
Date;

 

5.          Any other right or interest in and to the Properties to the extent
attributable to the period prior to the Effective Date;

 

6.          Copies (but not the originals) of all files (described in Section
12(a));

 

7.          All deposits, cash, checks, funds and accounts receivable
attributable to Sellers’ interests in the Properties with respect to any period
of time prior to the Effective Date;

 

8.          Any intellectual property, logo, service mark, copyright, trade name
or trademark of or associated with Sellers or any Affiliate of Sellers or any
business of Sellers or of any Affiliate of Sellers; and

 

9.          All rights and causes of action, arising, occurring or existing
against or in favor of Sellers prior to the Closing Date or arising out of the
operation of or production from the Oil and Gas Properties prior to the Closing
Date (including, but not limited to, any and all contract rights, claims,
receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments or other claims of any nature in
favor of Sellers and relating and accruing to any time period prior to the
Closing Date) but only to the extent the foregoing do not adversely affect the
value, use, ownership or operation of the Properties after the Closing Date;

 

10.         Any and all proceeds from the settlement of contract disputes with
purchasers of oil, gas or other hydrocarbons from the Properties, including
settlement of take-or-pay disputes, insofar as said proceeds are attributable to
periods of time prior to the Effective Date, insofar as the same does not
involve any obligation or liability of Buyer after the Effective Date nor
involve any production of oil, gas or other hydrocarbons from the Properties on
or after the Effective Date;

 

11.         All claims (including insurance claims) and causes of action against
Sellers or of Sellers against one or more third parties arising from acts,
omissions or events occurring prior to the Closing Date and all claims under any
joint interest audit attributable to any period prior to the Closing Date,
insofar as the same does not involve any obligation or liability of Buyer after
the Closing Date nor involve any production of oil, gas or hydrocarbons from the
Properties on or after the Closing Date; and

 

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12.         Properties excluded from the purchase and sale contemplated by this
Agreement under Section 7(a)(iii); and

 

13.         Seller’s royalties, overriding royalties, net profit interests,
mineral fee interests, carried interests currently held in the name of Seller in
the Public Records.

 

(ii)         Excluded Liabilities. Except as provided in Section 13, Buyer shall
not assume and shall not be liable for any liabilities of the Sellers which are
not expressly assumed pursuant to Section 1(f), and Sellers shall retain and
remain joint and severally liable for all such liabilities, including the
following obligations, duties and liabilities of each of the Sellers
(collectively, the “Excluded Liabilities”):

 

1.          Any obligations, duties, taxes and liabilities accruing, arising out
of or relating to the ownership or use of the Properties prior to the Effective
Date, including, without limitation, all Accounts Payable of Sellers prior to
the Effective Date accruing, arising out of or relating to the Properties and
all liabilities accruing, arising out of or relating to environmental laws, but
excluding all obligations, duties and liabilities that arise from or relate to
matters that would constitute a Defect (as defined herein); and

 

2.          Any obligations, duties and liabilities of Sellers relating to or
arising from each of the Excluded Properties.

 

2.          Purchase Price.

 

(a)          Purchase Price to be Paid for the Properties. The purchase price
for the Properties shall consist of (i) Ten Million Dollars ($10,000,000) in
cash (the “Cash Consideration”) less the Deposit (as hereinafter defined), (ii)
delivery of a promissory note (the “Note”) made by the Buyer in the principal
amount of Thirty-Five Million Dollars ($35,000,000) (the “Principal Amount”) in
the form attached as Exhibit B and (ii) 5,000,000 shares of Common Stock,
subject to equitable adjustment in the event that, prior to the Closing Date,
there is any share split, subdivision, combination, share dividend,
extraordinary dividend or reorganization involving shares of Common Stock (the
“Buyer Shares”). The Cash Consideration, together with the Note and Buyer
Shares, unadjusted by any price adjustments provided for in this Agreement or
agreed to by the Parties, are herein collectively referred to as the “Initial
Purchase Price”. The Initial Purchase Price may be adjusted as expressly
provided in this Agreement (the Initial Purchase Price, as so adjusted, and as
the same may otherwise be adjusted by mutual agreement of the parties, being
herein called the “Purchase Price”). The Purchase Price shall be paid at the
Closing as hereinafter provided.

 

(b)          Deposit. Prior to the date of this Agreement, Buyer has delivered
to Sellers One Million, Five Hundred Thousand Dollars ($1,500,000) (the
“Deposit”) of the Cash Consideration. In the event the transactions contemplated
hereby otherwise fail to close on the Closing Date (as hereafter defined) for
any reason, the Deposit shall be returned to Buyer and Sellers agree to deliver
promptly, but in no event later than forty-eight (48) hours after such
termination, the Deposit to Buyer.

 

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(c)          Purchase Price Allocation. Sellers and Buyer agree that they shall
allocate the Purchase Price, as adjusted hereunder, among the Properties for tax
purposes in a manner consistent with Section 1060 of the Code and the Treasury
Regulations promulgated thereunder based upon the fair market value of the
Properties. The Purchase Price allocation shall be agreed upon within thirty
(30) days after the Closing Date. If no agreement is reached within 30 days,
Sellers and Buyer shall mutually select an independent accounting firm, whose
determination of the issue for which there is disagreement shall be final and
binding on Sellers and Buyer. The Purchase Price allocation shall be consistent
with the allocation set forth on Schedule II. Sellers and Buyer agree to file
all information reports and tax returns (including IRS Form 8594 and any amended
tax returns or claims for refund) in a manner consistent with the Purchase Price
allocation agreed upon under this Section 2(c) and neither Sellers nor Buyer
shall take, or shall permit any of their respective affiliates to take, any
position inconsistent with such allocation on any tax return or otherwise,
unless required to do so by applicable law or a “determination”, within the
meaning of Section 1313(a)(1) of the Code. The Purchase Price allocation may be
revised, from time to time, by a mutual written consent of Sellers and Buyer, so
as to reflect any matters that need updating (including Purchase Price
adjustments, if any). The Parties agree that the value of the Buyer Shares, for
federal tax purposes, shall be the average of the high and low trading prices of
the Common Stock on the Principal Market for the five (5) Trading Days prior to
the Closing Date.

 

(d)          Effective Date. The Properties shall be transferred, assigned and
conveyed from Sellers to Buyer on the Closing Date, but certain financial
benefits and burdens of the Properties shall be transferred effective as of
December 1, 2011 at 9:00 a.m. Central Time (the “Effective Date”) as set forth
herein; however, with respect to the transfer, assignment and conveyance of the
Properties located in Anderson and Edwards Counties, the Effective Date shall be
December 31, 2011. Notwithstanding anything set forth herein to the contrary,
the closing of the transactions contemplated by this Agreement shall, for all
Tax purposes, be the Effective Date.

 

(e)          Delivery of Certain Assets.  At the Closing, Sellers shall deliver
all of their right, title and interest in the Properties directly to Buyer or,
at the option of Buyer, to one or more direct or indirect wholly-owned
subsidiaries of Buyer (“Buyer Sub”). The parties hereto acknowledge and agree
that, notwithstanding the foregoing, all of the Properties are being acquired by
Buyer hereunder and the delivery by Sellers of any of the Properties to any
Buyer Sub shall be deemed to be a delivery of such Properties to Buyer followed
by a contribution of such Properties by Buyer to the capital of a Buyer Sub.

 

3.          Representations of Sellers.

 

(a)          Representations. The Sellers hereby jointly and severally represent
to Buyer that:

 

(i)          Organization and Qualification. Each Seller is duly organized or
formed, legally existing and in good standing under the laws of the State of its
incorporation or formation and is qualified to do business and is in good
standing in each of the states in which the Properties are located where the
laws of such state would require a company owning the Properties located in such
state to so qualify. Each Seller is also qualified to own and operate the
Properties with all applicable Governmental Authorities having jurisdiction over
the Properties and to conduct its business as it is presently being conducted,
to the extent such qualification is necessary or appropriate.

 

(ii)         Due Authorization. Each Seller has full power and authority to
enter into and perform its obligations under this Agreement and has taken all
proper action to authorize entering into this Agreement and the performance of
its obligations hereunder.

 

(iii)        Approvals. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which any Seller is a party or by which the Properties are bound,
or violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or the Properties.

 

(iv)        Valid, Binding and Enforceable. This Agreement constitutes, and the
other Transaction Documents provided for herein to be delivered by Sellers at
Closing will, when executed and delivered, constitute, the legal, valid and
binding obligation of Sellers, enforceable in accordance with their respective
terms, except as limited by bankruptcy or other laws applicable generally to
creditor’s rights and as limited by general equitable principles.

 

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(v)         Litigation. There are no pending suits, actions, or other
proceedings to which any Seller is a party (or investigations or actions which
have been threatened to be instituted against any Seller) which affect the
Properties in any material respect (including, without limitation, any actions
challenging or pertaining to Sellers’ title to any of the Properties), or which
affect the execution, delivery, validity or enforceability of this Agreement or
any other document, instrument or agreement to be executed and delivered by
Sellers in connection with this Agreement, or which affect the validity or
enforceability of the transactions contemplated hereby.

 

(vi)        No Conflicts. To Sellers’ Knowledge, the execution and delivery of
this Agreement by Sellers does not, and the consummation of the transactions
contemplated by this Agreement shall not (with or without notice or lapse of
time or both), (a) violate or be in conflict with, or require the consent of any
Person under, result in the acceleration of obligations under, require a waiver,
consent or notice under, or create in any Third Person or Governmental Authority
the right to terminate, accelerate, modify or cancel, any provision of any
Seller’s governing documents, (b) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice, or both
would constitute a default) under any agreement or instrument to which any
Seller is bound or by which any of the Properties or any Seller is bound, (c)
violate any provision of or require any consent, authorization or approval under
any judgment, decree, judicial or administrative order, award, writ, injunction,
statute, rule or regulation applicable to any Seller or (d) result in the
creation of any lien, charge or encumbrance on any of the Properties.

 

(vii)       Material Agreements. Sellers will use their commercially reasonable
efforts to make available to Buyer a true and correct copy of all Material
Agreements, including all amendments and modifications thereof, within 30 days
of a request from Buyer. Except as set forth on the Disclosure Schedule, no
party to any of such Material Agreements is in breach or default of its
obligations thereunder and no event has occurred and no condition exists which,
with the giving of notice or the passage of time or both, would constitute any
such breach or default that would reasonably be expected to result in a Material
Adverse Effect on the Property covered thereby. Each of such Material Agreements
is a valid and binding obligation of the parties thereto in accordance with its
terms and is in full force and effect. The term “Material Agreements” includes,
but is not limited to, the following:

 

1.          the Leases;

 

2.          any agreement with any Affiliate of any Seller;

 

3.          any agreement or contract of any Seller for the sale, exchange,
transportation or other disposition of substances produced from or attributed to
the Oil and Gas Properties that is not cancelable without penalty on not more
than sixty (60) days’ prior written notice and is not at market prices;

 

4.          any agreement of any Seller to sell, lease, farmout or otherwise
dispose of any of its respective interests in any of the Properties other than
conventional rights of reassignment activated by the intent to abandon or
release a Lease;

 

5.          any pooling, unit, operating or joint venture agreement affecting or
relating to the Properties;

 

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6.          any tax partnership agreement of any Seller affecting any of the
Properties;

 

7.          any agreement that creates an option to purchase, right of first
refusal or call on the substances produced from or attributed to the Oil and Gas
Properties;

 

8.          any lease or title retention agreement, or security interest
affecting any of the equipment; and

 

9.          any joint operating agreement affecting or relating to the Oil and
Gas Properties.

 

(viii)      Areas of Mutual Interest. To each Seller’s Knowledge, no Oil and Gas
Property is subject to (or has related to it) any area of mutual interest
agreements.

 

(ix)         Permits. To Sellers’ Knowledge, each Seller has obtained and holds
all permits, licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of business or the lawful ownership, use and operation of its respective
Properties (“Seller Permits”). Each Seller is in compliance with the terms of
its respective Seller Permits.

 

(x)          Plugging Obligations. To Sellers’ Knowledge, there are no dry
holes, or shut in or otherwise inactive Wells, located on the Oil and Gas
Properties or on lands pooled or unitized therewith, except for Wells that have
been properly plugged and abandoned.

 

(xi)         Payment of Expenses and Taxes. All expenses for which each Seller
has been timely billed and that have come due and payable (including all bills
for labor, materials and supplies used or furnished for use in connection with
the Properties, and all severance, production, ad valorem, windfall profit and
other similar taxes) relating to the ownership or operation of the Properties,
have been paid or are being paid (timely, and before the same become
delinquent), by the respective Seller in a commercially reasonable manner,
except such expenses and taxes as are disputed in good faith by such Seller and
for which adequate accounting reserves have been established by such Seller. All
taxes that have come due and payable by each Seller with respect to its
respective Properties (whether or not shown on any tax return) have been paid in
full.

 

(xii)        State of Repair. The Properties are in good operating condition and
repair (subject to ordinary wear and tear) and are free from material defects.

 

(xiii)       Compliance with Laws. To each Seller’s Knowledge, the Properties
are, and each Seller’s operation of the Properties has been and currently is, in
compliance with the provisions and requirements of any applicable law, rule,
regulation, order, writ, decree or judgment of any Governmental Authority. To
each Seller’s Knowledge, no investigation or review by any Governmental
Authority with respect to the Properties is pending or threatened, except as set
forth in said Schedule.

 

(xiv)      Taxes.

 

1. Tax Returns. All material tax returns required to be filed by or on behalf of
any Seller with respect to the Properties have been timely filed and all taxes
shown as due thereon have been paid. All such tax returns were true, correct and
complete with respect to the Properties in all material respects. No deficiency
for any taxes has been proposed, asserted or assessed against the Properties
that has not been resolved and paid in full. There are no outstanding liens or
other encumbrances (other than for current taxes not yet due and payable) with
respect to taxes upon any of the Properties. There is no material dispute or
claim concerning any tax liability of any Seller either claimed or raised by any
authority in writing or as to which any of the officers or managers of any
Seller has Knowledge based upon personal contact with any agent of such
authority.

 

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2.          FIRPTA. No Seller is a “foreign person” within the meaning of
Section 1445 of the Code.

 

3.          Elections, etc. None of the Properties is (i) property required to
be treated as owned by any other person pursuant to the “safe harbor lease”
provisions of former Section 168(f)(8) of the 1954 Code; (ii) “tax exempt bond
financed property” within the meaning of Section 168(g) of the Code; or (iii)
“tax exempt use property” within the meaning of Section 168(h) of the Code.

 

(xv)       Imbalances. Sellers’ aggregate obligations with respect to the
aggregate gas imbalances related to the Properties does not exceed twenty five
thousand dollars ($25,000).

 

(xvi)      Lease Provisions. All rentals, royalties, overriding royalty
interests and other payments due under the Leases described in Exhibit A-1 and
Exhibit A-3 have been promptly and fully paid to the proper Person or
Governmental Authority, except (A) amounts that are being held in suspense as a
result of title issues and that do not provide any Third Person a right to
cancel any such Lease as disclosed on Schedule 3(a)(xvi) hereto and (B) amounts
that would not have a material effect on Seller’s ownership or operation of any
such Lease.

 

(xvii)     Brokers. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder’s or other fee or compensation based on any
arrangement or agreement made by or on behalf of any Seller and for which Buyer
will have any obligation or liability.

 

(xviii)    Oil and Gas Operations. Except for matters as would not reasonably be
expected to result in a Material Adverse Effect on the Properties, with respect
to the Properties that are operated by XOG:

 

1.          all wells included in the Oil and Gas Properties have been drilled
and (if completed) completed, operated and produced in accordance with generally
accepted oil and gas field practices and in compliance with applicable oil and
gas leases, pooling and unit agreements, and applicable laws, rules,
regulations, judgments, orders and decrees issued by any court or Governmental
Authority; and

 

2.          no well included in the Oil and Gas Properties is subject to
penalties on allowables because of any overproduction or any other violation of
applicable laws that would prevent such well from being entitled to its full
legal and regular allowable from and after the Effective Date as prescribed by
any Governmental Authority.

 

(xix)       Additional Drilling Obligations. No Seller has an obligation to
drill proposed wells or conduct other material development operations in order
to earn or continue to hold during the primary term of any lease any portion of
such Seller’s Oil and Gas Properties, and (2) no Seller has been advised by a
lessor under any lease affecting such Seller’s Oil and Gas Properties of any
requirements or demands to drill additional wells or conduct additional
development operations.

 

8

 

 

(xx)        Environmental Matters. (1) To Sellers’ Knowledge, each Seller has
conducted its business and operated the Properties, and is conducting its
business and operating the business and Properties, and the condition of all
facilities and properties (including off-site storage, treatment or disposal of
any Hazardous Materials from such Properties) is in material compliance with all
Applicable Environmental Laws; (2) no Seller has been notified by any
Governmental Authority or other third party that any of such Seller’s operations
relating to the Properties or that the Properties are the subject of any
investigation or inquiry by any Governmental Authority or other third party
evaluating whether any response action is needed to respond to a release or
threatened release of any Hazardous Material or to the improper storage,
treatment or disposal (including storage, treatment or disposal at offsite
locations) of any Hazardous Material or that litigation or an enforcement action
may be filed; (3) no Seller has any material contingent liability in connection
with (i) the release or threatened release into the environment at, beneath or
on any of the Properties, or (ii) the storage, treatment or disposal of any
Hazardous Material; (4) each Seller is in compliance with all permits required
for operations and there are no outstanding notices of violations; and (5) each
Seller has provided Buyer with a copy of all environmental reports, permits and
material correspondence from government authorities within any Seller’s
possession or to which any Seller has Knowledge of.

 

(xxi)       Title.         To each Seller’s Knowledge, each Seller represents
and warrants to Buyer that such Sellers’ title to the Properties is Defensible
Title (as defined below). No representation or warranty is made against Title
Defects arising from conditions that existed prior to such Seller’s acquisition
of the Properties.

 

1.          Definition of Defensible Title. As used in this Agreement and
subject to the limitation set forth above, the term “Defensible Title” means
that title of the applicable Seller which, subject to Permitted Encumbrances:

 

(A)         will entitle Buyer to receive throughout the duration of the
productive life of the Properties (after satisfaction of all royalties,
overriding royalties, nonparticipating royalties, net profits interests or other
similar burdens on or measured by production of oil and gas), not less than the
existing NRI share of all hydrocarbons produced, saved and marketed from such
Properties;

 

(B)         will not obligate Buyer to bear a percentage of the costs and
expenses for the maintenance and development of, and operations relating to such
Properties greater than the existing WI without increase throughout the
productive life of such Properties, and the plugging, abandonment and salvage
thereof; and

 

(C)         is free and clear of all Encumbrances other than Permitted
Encumbrances.

 

As used in this Agreement, the term “Encumbrance” means any lien, security
interest, adverse claim, charge, restriction, hindrance, encumbrance, liability,
obligation or other defect (including without limitation a discrepancy in the
net revenue interests or working interests set forth in Schedule III), and the
term “Title Defect” means any Encumbrance, other than a Permitted Encumbrance,
or other condition that causes a breach of any Seller’s representation and
warranty in Section 3(a)(xxi). As used in this Agreement, the term “Title
Benefit” means any right, circumstance or condition that operates to increase
the NRI of any Seller in any Properties, without causing a greater than
proportionate increase in any Seller’s existing WI.

 

9

 

 

2.          Definition of Permitted Encumbrances. As used herein, the term
“Permitted Encumbrances” means any or all of the following:

 

(A)         Lessors' royalties and any overriding royalties, reversionary
interests and other similar burdens to the extent that they do not, individually
or in the aggregate, reduce any Seller’s existing NRI in any of the Properties
below that shown in Schedule III or increase Sellers’ existing WI in any of the
Properties above that shown in Schedule III without a corresponding increase in
the NRI;

 

(B)         All Contracts to the extent that they are usual and customary in the
industry and do not, individually or in the aggregate, reduce any Seller’s
existing NRI in any of the Properties below that shown in Schedule III or
increase any Seller’s existing WI in the any of the Properties above that shown
in Schedule III without a corresponding increase in the NRI;

 

(C)         Third Party consent requirements and similar restrictions with
respect to which waivers or consents are obtained from the appropriate parties
prior to the Closing Date, or the appropriate time period for asserting the
right has expired, or which need not be satisfied prior to a transfer;

 

(D)         Encumbrances for current Taxes or assessments for the period after
the Effective Date not yet delinquent;

 

(E)         Materialman's, mechanic's, repairman's, employee's, contractor's,
operator's and other similar liens or charges arising in the ordinary course of
business for amounts not yet delinquent (including any amounts being withheld as
provided by law);

 

(F)         All rights to consent, required notices to, filings with, or other
actions by any Governmental Authority in connection with the transactions
contemplated hereby if they are customarily obtained subsequent to such
transactions;

 

(G)         Rights of reassignment arising upon final intention to abandon or
release any of the Properties of any Seller;

 

(H)         Easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations that do not materially interfere
with or materially inhibit the normal conduct of such surface operations and
that do not materially interfere with operations of the Properties;

 

(I)         Calls on production after the Effective Date under existing
Contracts;

 

(J)         Production imbalances with respect to any Well or Unit subject to
the limitation set forth in Section 3(a)(xv); and

 

(K)         All rights reserved to or vested in any Governmental Authority to
control or regulate any of the assets of any Seller in any manner and all
obligations and duties under all applicable laws, rules and orders of any such
Governmental Authority or under any franchise, grant, license or permit issued
by any such Governmental Authority.

 

10

 

 

(xxii)      Books and Records. All books, records and files of each Seller
pertaining to the Properties and the production, gathering, transportation and
sale of oil or gas have been prepared, assembled and maintained in accordance
with usual and customary policies and procedures consistent with the usual
practices and procedures of such Seller.

 

(xxiii)     Insurance. Each Seller maintains insurance coverage of the
Properties on terms and in amounts consistent with industry standards.

 

(xxiv)    Access to Lease Premises. Each Seller has lawful right of access and
ingress and egress to and from the premises of each Seller’s Properties, which
right of access and ingress and egress shall pass to Buyer upon the Closing.

 

(xxv)     No Undischarged Obligations; No Defaults. There are no undischarged
obligations of any Seller affecting any of the Properties being sold pursuant to
this Agreement including, but not limited to, royalty, overriding royalty and
production payments due on account of the production of oil and gas from or
attributable to any Leases or the Properties or obligations due under any
operating agreements or other Contracts affecting the Properties, as to any time
prior to the Closing Date. All rentals, royalties and other payments due and
payable under each of the Leases and the Properties have been paid in full
through the Closing Date, and all said Leases and Properties are in good
standing. There are no defaults or asserted defaults of any lease covenants,
terms or provisions of any of the Leases or the Properties or any contracts
related to or affecting the Leases or the Properties.

 

(xxvi)    Prepayments; Sale of Production. None of the Properties are subject to
any outstanding obligations for the delivery of natural gas, natural gas liquids
and other hydrocarbons produced from crude oil or natural gas ("Hydrocarbons")
in the future on account of prepayment, advance payment, take-or-pay or similar
obligations without entitlement to receive full value for such Hydrocarbons.
Except as set forth on Schedule 3(a)(xxvi), no Hydrocarbons produced from the
Properties or existing as in-ground reserves in such Properties are subject to a
sales contract (other than a contract or division order terminable upon no more
than 30 days notice), and no Person other than a lessor under the Leases has any
call upon, option to purchase or similar rights with respect to production from
such Properties. Except as set forth on Schedule 3(a)(xxvi), Sellers are
receiving proceeds from the sale of production from the Wells from the
production purchasers or from operator(s) of the Properties in a timely manner,
and the proceeds payable to Sellers are not being held in suspense by any
production purchaser or operator.

 

(xxvii)   Preferential Purchase Rights. None of the Properties are subject to
any preferential rights to purchase which would become exercisable as a result
of the transactions contemplated by this Agreement or otherwise.

 

(xxviii)    Restricted Securities. Sellers acknowledge that the Buyer Shares
will be treated as “restricted securities” under federal securities laws and,
under such laws and applicable regulations, the Buyer Shares cannot be sold or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom.

 

11

 

 

(xxix)      Accredited Investor; Investment Intent. Each Seller is a
knowledgeable investor and acknowledges that it has received or had access to
all information concerning Buyer that it required to make such investment
decision and has had the ability to evaluate (and in fact has evaluated) such
information. In making the decision to enter into this Agreement and to
consummate the transactions contemplated hereby, each Seller has relied on its
own independent due diligence investigation of Buyer and has been advised by and
has relied solely on its own expertise and legal, land, tax, reservoir
engineering, and other professional counsel concerning this transaction, the
Buyer Shares to be acquired pursuant to this Agreement and the value thereof.
Each Seller is an “accredited investor” within the meaning of Rule 501 of
Regulation D under the Securities Act, is acquiring the Buyer Shares for its own
account and not with the intent to make a distribution within the meaning of the
Securities Act or a distribution thereof in violation of any other applicable
securities laws and is able to bear the economic risk and lack of liquidity
inherent in holding the Buyer Shares.

 

4.          Representations of Buyer.

 

(a)          Representations. Buyer represents to Sellers that:

 

(i)          Organization and Qualification. Buyer is a corporation duly
organized and legally existing and in good standing under the laws of the State
of Delaware. Buyer or its subsidiaries are also qualified to own and operate oil
and gas properties with all applicable Governmental Authorities having
jurisdiction over the Properties, to the extent such qualification is necessary
or appropriate or will be necessary or appropriate upon consummation of the
transactions contemplated hereby.

 

(ii)         Due Authorization. Buyer has full power to enter into and perform
its obligations under this Agreement and has taken all proper action to
authorize entering into this Agreement and the performance of its obligations
hereunder.

 

(iii)        No Violation. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Buyer is a party, or violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Buyer.

 

(iv)        Valid, Binding and Enforceable. This Agreement constitutes, and the
other Transaction Documents provided for herein to be delivered by Buyer at
Closing will, when executed and delivered, constitute, the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor’s rights
and as limited by general equitable principles.

 

(v)         No Litigation. There are no pending suits, actions, or other
proceedings to which Buyer is a party (or, to Buyer’s Knowledge, which have been
threatened to be instituted against Buyer) which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.

 

(vi)        Funds. At the Closing, Buyer will have such funds as are necessary
for the consummation by Buyer of the transactions contemplated hereby.

 

(vii)       Buyer Common Stock. As of the date hereof, Buyer has 100,000,000 of
authorized shares of Common Stock, of which, 39,512,293 shares of Common Stock
were issued and outstanding. The issuance of the Buyer Shares pursuant to this
Agreement has been duly authorized and upon consummation of the transactions
contemplated by this Agreement, the Buyer Shares will have been validly issued,
fully paid, non-assessable, and issued without application of preemptive rights,
will have the rights, preferences, and privileges specified in Buyer’s articles
of incorporation and other governing documents, and will be free and clear of
all liens and restrictions, other than the restrictions imposed by this
Agreement and the Securities Act and state securities laws.

 

12

 

 

(viii)      Buyer SEC Reports. Buyer has filed and made available to Sellers via
EDGAR all forms, reports and other documents publicly filed by Buyer with the
SEC under the Securities Exchange Act, since October 1, 2010. All such forms,
reports and other documents (including those that Buyer may file after the date
hereof and prior to the Closing Date) are referred to herein as the “Buyer SEC
Reports.” The Buyer SEC Reports (i) were or will be filed on a timely basis and
(ii) comply or will comply, in all material respects, with the applicable
requirements of the Securities Exchange Act and the rules and regulations of the
SEC thereunder. Since the last date on which a Buyer SEC Report was filed, there
has been no material adverse change in the assets, liabilities, condition
(financial or otherwise), operating results, business or prospects of Buyer or
in the ability of Buyer to perform its obligations under this Agreement or that
could materially impair or prohibit the consummation of the transactions
contemplated by this Agreement.

 

5.          Certain Covenants of Sellers and Buyer.

 

(a)          Access by Buyer.

 

(i)          Records.

 

1.          Sellers will give Buyer, or Buyer’s authorized representatives,
including Buyer’s Independent Accountant, at each Seller’s office or at the
location of the Properties, as applicable, and at all reasonable times during
normal business hours before the Closing Date, access to the Properties, the
personnel of each Seller (and, only to the extent necessary for Buyer and the
Independent Accountant to complete the Required Financial Statement Procedures
as reasonably determined by the Independent Accountant), and all of each
Seller’s (and, only to the extent necessary for Buyer and the Independent
Accountant to complete the Required Financial Statement Procedures as reasonably
determined by the Independent Accountant, Sellers’ Affiliates’), existing books,
records and data, including those necessary for Buyer and the Independent
Accountant to complete the Required Financial Statement Procedures, contracts
and audit work papers pertaining to the Properties, for the purpose of
conducting due diligence reviews contemplated by Section 6 below and completing
the Required Financial Statement Procedures; provided however, that Buyer shall
not have access to any general corporate records of Sellers that (x) does not in
any manner involve or pertain to the Properties, (y) cannot reasonably be
expected to affect Buyer’s future use or operation of the Properties and (z)
does not and will not affect the ability of Buyer or the Independent Accountant
to complete the Required Financial Statement Procedures.

 

2.          Each Seller will fully cooperate with Buyer and the Independent
Accountant so that Buyer and the Independent Accountant may complete the
Required Financial Statement Procedures, including: (x) the delivery of one or
more customary representation letters from each Seller to such Independent
Accountant acceptable to each Seller in its reasonable judgment and as may be
required by such Independent Accountant to perform its audit or review and to
render the Opinion, it being understood that such representation letters shall
include acknowledgements regarding (i) each Seller’s use of estimates and
allocations in the preparation of the Base Financial Statements, and (ii) each
Seller’s belief that the Base Financial Statements represent the financial
conditions and results of operations of the Properties, and that such estimates
and allocations were made on a reasonable basis and (y) each Seller causing its
various legal counsel to respond to the Independent Accountant’s requests for
information concerning loss contingencies in accordance with the American Bar
Association Statement of Policy Regarding Lawyers’ Responses to Auditors’
Requests for Information (December 1975).

 

13

 

 

3.          Buyer may make copies of such accessed materials, at its expense;
all costs of copying such items shall be borne by Buyer. No Seller shall be
obligated to provide Buyer with access to any records or data that are within
any Seller’s possession or control but subject to a valid and binding
confidentiality agreement with a Third Person that prohibits such disclosure
without first obtaining the consent of such Third Person, and each Seller, to
the extent reasonably requested by Buyer, will use reasonable efforts to obtain
any such consent.

 

(ii)         Physical Inspection. Each Seller shall make a good faith effort to
give Buyer, or Buyer’s authorized representatives, at all reasonable times
before the Closing Date and upon adequate notice to such Seller, physical access
to the Properties for the purpose of inspecting same. Buyer recognizes that some
or all of the Properties may be operated by parties other than such Seller and
that such Seller’s ability to obtain access to such properties, and the manner
and extent of such access, is subject to the consent of such third parties.
Buyer agrees to comply fully with any safety rules, regulations and instructions
issued by Sellers (and, where Properties are operated by other parties, such
other parties) regarding the actions of Buyer while upon, entering or leaving
the Properties.

 

(b)          Interim Operations. Each Seller agrees that, during the period from
the execution date of this Agreement through the earlier to occur of the Closing
or the termination of this Agreement in accordance with its terms, such Seller
and, where applicable, its Affiliates, will conduct operations in respect of the
Properties in the ordinary course of business (or, where such Seller or an
Affiliate of such Seller is not the operator of a Property, will continue their
actions as a non-operator in the ordinary course of business), and, without
Buyer’s consent, no Seller nor any Affiliate of any Seller will:

 

1.          sell or otherwise dispose of or mortgage any material portion of the
Properties, except for sales or other dispositions of (i) oil, gas and other
minerals in the ordinary course of business after production or (ii) equipment
or other personal property or fixtures in the ordinary course of business where
the same has become obsolete, is otherwise no longer necessary for the operation
of the Properties, or is replaced by an item or items of at least equal
suitability. Should any Seller receive (or desire to make) any proposals to
drill additional Wells on the Oil and Gas Properties, or to conduct other
operations which require consent of non-operators under the applicable operating
agreement, such Seller will notify Buyer of, and consult with Buyer concerning,
such proposals, but any decisions with respect to proposals shall be made by
such Seller in its sole discretion, so long as the decisions are made in the
ordinary course of business;

 

2.          in respect of the Properties, issue any note, bond, or other debt
instrument;

 

3.          (i) agree to the imposition of any security interest or lien on the
Properties or (ii) allow any encumbrance which would impose a security interest
or lien on account of unpaid amounts upon any of the Properties that will not be
released at or before Closing; provided that, in the event of any such
encumbrance or security interest upon the Buyer’s consent, Seller shall provide
to Buyer prompt written notice thereof in accordance with Section 16 and shall
promptly deliver to Buyer all documentation and materials relating to any such
encumbrance or security interest;

 

14

 

 

4.          waive, release, grant or transfer any material rights or modify or
change in any material respect any Material Agreement; or

 

5.          commit to any of the foregoing.

 

(c)          Preferential Rights and Consents. The Sellers and Buyer agree to
co-operate in obtaining any consents to assignments whether before or after
Closing and in the event that any preferential rights to purchase any of the Oil
and Gas Properties are exercised by a Third Party (i) prior to Closing, Sellers
shall be entitled to the proceeds from said sale and the affected Properties
shall be excluded from the sale and Buyer shall be entitled to the remedies set
forth in Section 13(e)(iv) or (ii) after Closing, Buyer shall be entitled to the
proceeds from said sale of the affected Properties.

 

(d)          Notification of Certain Matters.

 

(i)          Sellers and Buyer shall give prompt written notice to the other of
(1) any representation or warranty contained in this Agreement being untrue or
inaccurate when made; (2) the occurrence of any event or development that would
cause (or could reasonably be expected to cause) any representation or warranty
contained in this Agreement to be untrue or inaccurate at the time of Closing;
or (3) any failure to comply with or satisfy any covenant, condition, or
agreement to be complied with or satisfied by it hereunder. No disclosure of
which a Party has actual (but not imputed) Knowledge of such matter when such
representation, warranty or covenant was given or performed pursuant to this
Section 5(d), shall be deemed to amend or supplement the Disclosure Schedule or
to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant. Except as provided in this Section 5(d), for all purposes of this
Agreement the Disclosure Schedule shall be deemed to include all information
contained in any supplement or amendment to the Disclosure Schedule prior to
Closing.

 

(ii)         In the event that a Party makes a disclosure pursuant to subsection
(i) above and the effect of such disclosure would reasonably be expected to
constitute a matter which would excuse a Party from Closing pursuant to Section
8 or Section 9, such disclosure shall not diminish a Party’s right to terminate
this Agreement pursuant to Section 19(a).

 

(e)          Piggyback Registration of Registration Shares. If at any time
within one year of the Closing Date, Buyer proposes to prepare and file with the
SEC a registration statement covering equity or debt securities of the
Corporation in an underwritten public offering, other than in connection with a
merger, a resale registration statement, acquisition or pursuant to a
registration statement on Form S-4 or Form S-8 or any successor form (for
purposes of this Section 5(e), collectively, a "Piggyback Registration
Statement"), the Buyer will give written notice of its intention to do so by
registered or certified mail ("Registration Notice"), at least 15 days prior to
the filing of each such Piggyback Registration Statement, to the Sellers. Upon
the written request of Sellers, made within five (5) days after receipt of the
Registration Notice, that the Buyer include the up to five million (5,000,000)
shares of Common Stock held by Sellers (the “Registration Shares”) in the
Piggyback Registration Statement, the Buyer shall, include the Registration
Shares which it has been so requested to register in the Piggyback Registration
Statement ("Piggyback Registration"), at the Buyer's sole cost and expense and
at no cost or expense to Sellers (other than any underwriting or other
commissions, discounts or fees of any counsel or advisor to Sellers which shall
be payable by Sellers); provided, however, that if, in the written opinion of
the Buyer's underwriter or managing underwriter of the underwriting group, if
any, for such offering, the inclusion of all or a portion of the Registration
Shares requested to be registered, when added to the securities being registered
by the Buyer, will exceed the maximum amount of the Buyer's securities which can
be marketed (i) at a price reasonably related to their then current market
value, or (ii) without otherwise having a Material Adverse Effect on the entire
offering, then the Buyer may, subject to the allocation priority set forth in
the next paragraph, exclude from such offering all or a portion of the
Registration Shares which it has been requested to register. Without limiting
the generality of the foregoing, such underwriter or managing underwriter may
condition its consent to the inclusion of all or a portion of the Registration
Shares requested to be registered upon the participation by Sellers in the
underwritten public offering on the terms and conditions thereof.
Notwithstanding the preceding provisions, the Buyer shall have the right at any
time after it shall have given Registration Notice (irrespective of whether any
written request for inclusion of such securities shall have already been made)
to elect not to file any proposed Piggyback Registration Statement filed
pursuant to this Section 5(e), or to withdraw the same after the filing but
prior to the effective date thereof.

 

15

 

 

6.          Post-Closing Reviews.

 

(a)          Review By Buyer. Buyer may conduct, at its sole cost, such title
examination or investigation, and other examinations and investigations, as it
may, in its sole discretion, choose to conduct with respect to the Properties
and shall have access to all of Sellers’ records regarding same for a period of
one hundred twenty (120) days after the Closing (the “Review Period”).

 

(b)          Nature of Defects. Should, as a result of such examinations and
investigations, or otherwise, one or more matters come to Buyer’s attention
which would constitute a Defect (as below defined), Buyer shall notify Sellers
in writing of such Defects (such Defects of which Buyer so provides notice are
herein called “Asserted Defects”) as soon as the same are identified by Buyer,
but in no event later than 5:00 p.m. Eastern Standard Time on the fifth (5th)
business day following the Review Period (“Defect Date”). Such notification
shall include, for each Asserted Defect, (1) a description of the Asserted
Defect and the Wells and/or Units and/or Undeveloped Lease (as defined herein)
listed on Exhibit A-1 through Exhibit A-3 to which it relates and all supporting
documentation reasonably necessary to fully describe the basis for the Defect,
(2) for each applicable Well or Unit, the size of any variance from “Net Revenue
Interest” or “Working Interest” which does or could result from such Asserted
Defect, (3) for each Undeveloped Lease, the size of any variance from the Net
Leasehold Acres shown on Exhibit A-3 for such Undeveloped Lease, as defined
herein, which does or could result from such Asserted Defect and (4) based on
the applicable per acre price set forth in the Schedule II of the affected
Properties (i) the amount by which Buyer would propose to adjust the Principal
Amount of the Note or (ii) the value of Replacement Property (as defined
herein). All access to each Seller’s records and the Properties in connection
with such due diligence shall be subject to Section 5(a). The term “Defect” as
used in this Section shall mean the following:

 

(i)          NRI or WI Variances. Any Seller’s ownership of the Oil and Gas
Properties is such that, with respect to the Wells and Units locations listed on
Exhibit A-2 hereto, it clearly (1) entitles the respective Seller to receive a
decimal share of the oil, gas and other Hydrocarbons produced from such
Property, which is less than the decimal share set forth on Exhibit A-2 in
connection with such Property in the column headed “Net Revenue Interest” or (2)
causes the respective Seller to be obligated to bear a decimal share of the cost
of operation of such Wells and/or Units greater than the decimal share set forth
on Exhibit A-2 in connection with such Wells and/or Units in the column headed
“Working Interest” (without at least a proportionate increase in the share of
production to which Seller is entitled to receive from such Wells and/or Units).

 

(ii)         Liens. Any Seller’s ownership of an Oil and Gas Property is subject
to a lien other than (1) a lien for taxes which are not yet delinquent or (2) a
mechanic’s or materialmen’s lien (or other similar lien), or a lien under an
operating agreement or similar agreement, to the extent the same relates to
expenses incurred which are not yet delinquent or (3) liens which will be
released at or before Closing.

 

16

 

 

(iii)        Net Acre Shortfalls. Any Seller’s ownership of the Leases is such
that, with respect to an “Undeveloped Lease” identified as such on Exhibit A-3,
it clearly entitles such Seller to fewer Net Leasehold Acres (defined below) for
such Undeveloped Lease than that shown on Exhibit A-3. “Net Leasehold Acres”
shall be computed separately for each Lease which is described in Exhibit A-3
and shall mean, for each such Lease, (1) the number of acres covered by such
Lease, multiplied by (2) the interest in oil and gas covered by such Lease in
such lands, multiplied by (3) such Seller’s undivided interest in such lease
insofar as it covers such lands (provided that if items (2) and/or (3) vary as
to different areas covered by the Lease, a separate calculation shall be done
for each such area).

 

(iv)        Undeveloped Lease NRI Variance. Any Seller’s ownership of an
Undeveloped Lease is such that it clearly entitles such Seller to receive a
decimal share of the oil, gas and other Hydrocarbons produced from such
Undeveloped Lease, which is less than the decimal share set forth on Exhibit A-3
with respect to such Undeveloped Lease.

 

(v)         Operational Matters. Any surface access or use restriction that
materially interferes with operations of an Oil and Gas Property.

 

(vi)        Environmental Matters. An Oil and Gas Property, or operating
facility related thereto, is in violation of Applicable Environmental Laws
(below defined) in any material respect or there is present upon or under such
property a condition which requires remediation under Applicable Environmental
Laws. “Applicable Environmental Laws” means any law, common law, ordinance,
regulation or policy of any Governmental Authority, as well as any order,
decree, permit, judgment or injunction issued, promulgated, approved or entered
thereunder, relating to the environment, health and safety, Hazardous Materials
(including the use, handling, transportation, production, disposal, discharge or
storage thereof), the environmental conditions on, under, or about any real
property including soil, groundwater, and indoor and ambient air conditions or
the reporting or remediation of environmental contamination.

 

Notwithstanding any other provision in this Agreement to the contrary, the
following matters shall not constitute, and shall not be asserted as, a Defect:

 

1.          defects or irregularities that have been cured or remedied by the
passage of time, including, without limitation, applicable statutes of
limitation or statutes for prescription;

 

2.          conventional rights of reassignment normally actuated by an intent
to abandon or release a lease and requiring notice to the holders of such
rights;

 

3.          normal and customary liens of co-owners under operation agreements,
unitizations agreements, and pooling orders relating to the oil and gas
properties, which obligations are not yet due and pursuant to which such Seller
is not in default;

 

4.          all approvals required to be obtained from Governmental Authorities
that are lessors under the Leases (or who administer such Leases on behalf of
such lessors), which are customarily obtained post-Closing;

 

5.          easements, rights of way, servitudes, permits, surface leases and
other rights in respect of surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, and easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other easements
and rights of way, on, over or in respect of any of the Oil and Gas Properties
to the extent such matters do not materially interfere with operations on the
Oil and Gas Property;

 

17

 

 

6.          defects or irregularities in the chain of title consisting of the
failure to recite marital status in documents or omissions of heirship
proceedings;

 

7.          defects or irregularities resulting from or related to probate
proceedings or the lack thereof, which defects or irregularities have been
outstanding for a period equal to the statute of limitations applicable to the
defect or irregularity, unless Buyer provides evidence that a competing chain of
title exists as to the Properties subject to such defect; and

 

8.          any volume dedication of production from any well to an oil and gas
marketing, gathering or processing entity.

 

7.          Certain Price Adjustments.

 

(a)          Procedures. In the event that, on or prior to the Defect Date
pursuant to Section 6 above, Asserted Defects are presented to the Sellers and
Sellers are unable (or unwilling) to cure, then the Asserted Defect shall be
addressed as provided in this Section 7(a).

 

(i)          Certain Adjustments. In the event that Buyer raises as an Asserted
Defect one of the following types of Defects, Sellers shall, at the option of
the Buyer in its sole and absolute discretion, either (i) provide Replacement
Properties (as defined below) subject to Buyer’s applicable due diligence review
and acceptance or (ii) for as long as the Note is outstanding, adjust the
Principal Amount of the Note as set forth below in connection with such Defect:

 

1.          NRI Variance/Proportionate Price Reductions. If the Asserted Defect
is (I) a Defect described in clause (A) of Section 6(b)(i) or (II) a Defect
which otherwise reduces a portion of a Seller’s interest in a Well and/or Unit
listed on Exhibit A-2: a downward adjustment equal to the amount determined by
multiplying the Allocated Amount set forth for such Oil and Gas Property on
Schedule II by a fraction (A) the numerator of which is an amount equal to the
“Net Revenue Interest” shown on Exhibit A-2 for such Well and/or Unit less the
decimal share to which Seller would be entitled to as a result of its ownership
interest in such Well and/or Unit which is unaffected by such Defect and (B) the
denominator of which is the “Net Revenue Interest” shown for such Property on
Exhibit A-2.

 

2.          Net Leasehold Acre Variation/Proportionate Price Reduction. If the
Asserted Defect is a defect described in Section 6(b)(iii): a downward
adjustment equal to the amount determined by multiplying the Value Per Net Acre
by an amount equal to the difference between (A) Net Leasehold Acres as shown on
Exhibit A-3 and (B) the total number of net undeveloped acres actually
determined to exist for such Undeveloped Lease (such adjustment referred to as
the “Net Acre Defect Amount”).

 

3.          NRI Undeveloped Lease Variance/Proportionate Price Reduction. If the
Asserted Defect is a defect of the type described in Section 6(b)(iv): a
downward adjustment equal to the amount determined by multiplying the Allocated
Amount for such Undeveloped Lease (less the amount of any Net Acre Defect Amount
as to such Undeveloped Lease) by a fraction (A) the numerator of which is the
“Net Revenue Interest” shown on Exhibit A-3 for such Undeveloped Lease less the
decimal share to which Seller would be entitled to the result of its ownership
interest in such Undeveloped Lease which is unaffected by such Defect and (B)
the denominator of which is the Net Revenue Interest shown for such Undeveloped
Lease on Exhibit A-3.

 

18

 

 

4.          Liens/Payoff Amount. If the Asserted Defect is a Defect described in
Section 6(b)(ii): a downward adjustment equal to the amount of the debt secured
by such lien.

 

(ii)         Agree Upon Adjustment. Within five (5) days of the Sellers’ receipt
of notice of an Asserted Defect not otherwise covered under Section 7(a)(i),
Buyer and Sellers shall, with respect to each Oil and Gas Property affected by
such matters, agree in writing upon an appropriate downward adjustment of the
Principal Amount of the Note to account for such matters based on the applicable
per acre price set forth in Schedule II for the affected Properties. In the
event Buyer and Sellers are unable to agree in writing upon an appropriate
adjustment of the Principal Amount of the Note, such dispute shall be resolved
pursuant to Section 20(i), for a determination of the adjustment amount.

 

(iii)        Exclusion of Properties. Notwithstanding anything provided herein,
if (A) Buyer and Sellers are unable to agree in writing upon the existence or
appropriate adjustment with respect to an Asserted Defect affecting an Oil and
Gas Property under Section 7(a)(i) or 7(a)(ii) or (B) the Asserted Defect amount
for an Oil and Gas Property exceeds the Allocated Amount set forth on Schedule
II for such Oil and Gas Property Buyers shall have the option to exclude such
Oil and Gas Property from the transaction contemplated hereby, and the Principal
Amount of the Note will be reduced as follows: (i) for any Oil and Gas
Properties described on Exhibit A-2, the Principal Amount of the Note will be
reduced by the Allocated Amount attributed on Schedule II to the Wells located
on such Property plus the amount attributed on Schedule II to the Units in which
such Oil and Gas Property participates (but in the case of such Units, limited
to the portion of such amount which is proportionate to the portion of Sellers’
interest in such Units, respectively, which is attributable to such Oil and Gas
Property), and (ii) for any Undeveloped Leases described on Exhibit A-3, the
Principal Amount of the Note will be reduced by the Allocated Amount attributed
on Schedule II to such Undeveloped Lease.

 

(b)          Limitations on Adjustments. If the reduction in the Principal
Amount of the Note with respect to a particular Asserted Defect which would
result from the above provided for procedure does not exceed one-half of one
percent (0.5%) of the Allocated Amount for the Oil and Gas Properties to which
the Asserted Defect relates, no adjustment shall be made for such Asserted
Defect. If the reduction to the Principal Amount of the Note which would result
from such procedure, as applied to all Asserted Defects asserted under Section 7
for which an adjustment is to be made, does not exceed one-half of one percent
(0.5%) of the Principal Amount of the Note, then no adjustment of the Principal
Amount of the Note shall occur, and none of the Oil and Gas Properties which
would be excluded by such procedure shall be excluded. If the reduction to the
Principal Amount of the Note which would result from the above provided for
procedure, as applied to all Asserted Defects asserted under Section 7 for which
an adjustment is to be made exceeds one-half of one percent (0.5%) of the
Principal Amount of the Note, the Principal Amount of the Note shall be adjusted
by the full amount.

 

8.          Conditions Precedent to the Obligations of Buyer. The obligations of
Buyer to consummate the transaction contemplated by this Agreement are subject
to each of the following conditions being met:

 

(a)          Representations True and Correct. The representations and
warranties of Sellers set forth herein shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date except as to changes specifically contemplated by this Agreement or
consented to by Buyer.

 

19

 

 

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

 

(c)          Litigation. No suit, action or other proceedings by any
governmental entity or third party shall, on the date of Closing, be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit, or obtain material damages or other material relief in connection with
the consummation of the transactions contemplated by this Agreement.

 

(d)          Releases. Sellers shall have delivered releases, Consents or other
evidence of termination of the deeds of trust, mortgages and all other liens
with respect to the Properties.

 

(e)          Fairness Opinion and Fairness Committee Approval. The Buyer’s
Fairness Committee shall have obtained an appropriate fairness opinion from a
nationally recognized firm and shall have approved the Agreement and the
transactions contemplated herein.

 

(f)          Bank Approval.         If required, Macquarie Bank Limited
(“Macquarie”), as lender to Buyer, shall have approved the transactions
contemplated by this Agreement.

 

9.           Conditions Precedent to the Obligations of Sellers. The obligations
of Sellers to consummate the transaction contemplated by this Agreement are
subject to each of the following conditions being met:

 

(a)          Representations True and Correct. The representations and
warranties of Buyer set forth herein shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date except as to changes specifically
contemplated by this Agreement or consented to by Sellers.

 

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

 

(c)          Litigation. No suit, action or other proceedings shall, on the date
of Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain material damages or other material
relief in connection with the consummation of the transactions contemplated by
this Agreement.

 

(d)          Purchase Price. Buyer shall have delivered payment of the Purchase
Price concurrently with the delivery by Sellers of the releases and other
evidence of termination of the deeds of trust, mortgages and other liens as
contemplated by Section 9(d) hereof.

 

If Sellers proceed to Closing with any Seller’s Knowledge of any condition
precedent above not being met by Buyer, such condition precedent will be deemed
waived by Sellers as a condition to Close, and Sellers hereby waive all claims
for a breach of representation or warranty related thereto.

 

10.         Closing.

 

(a)          Actions At Closing. The closing (herein called the “Closing”) of
the transaction contemplated hereby shall take place in the offices of Blank
Rome LLP, 405 Lexington Avenue, New York, New York 10174, on or before February
29, 2012, at 12:00 p.m. Eastern Time, or at such other date and time as Buyer
and Sellers may mutually agree upon (such date and time being herein called the
“Closing Date”). At the Closing:

 

20

 

 

(i)          Delivery of Conveyance. Sellers shall deliver to Buyer the
fully-executed Conveyance, in the form attached hereto as Schedule I.

 

(ii)         Federal and State Conveyance Forms. Sellers shall deliver to Buyer
forms of conveyance or assignment as required by the applicable authorities for
transfers of interests in state or federal leases included in the Oil and Gas
Properties.

 

(iii)        Letters in Lieu. Sellers shall, if requested by Buyer, execute and
deliver to Buyer letters in lieu of transfer orders (or similar documentation),
in a form acceptable to both parties.

 

(iv)        Turn Over Possession. Sellers shall, to the extent Sellers can do
so, turn over possession of the Properties.

 

(v)         Payment of Purchase Price to Sellers. Buyer shall deliver to Sellers
(1) by wire transfer of immediately available funds to an account designated by
Sellers in a bank located in the United States, an amount equal to (A) the Cash
Consideration less (B) the Deposit and (2) the Note. Buyer shall deliver the
Buyer Shares to and in the name of Geronimo Holding Corporation, together with a
certificate representing the same within three (3) business days from the
Closing Date. Sellers shall provide to Buyer the details of the account so
designated by Sellers not later than three (3) business days prior to the
Closing Date.

 

(vi)        Succession by Buyer. Sellers and Buyer shall furnish such evidence
(including, without limitation, evidence of satisfaction of all applicable
bonding requirements) as may be necessary to file with the applicable
authorities for Buyer to succeed Sellers as the owner and, where applicable, to
succeed Sellers or an Affiliate of any Seller operator of the Properties.

 

(vii)       Non-Foreign Person Affidavit. On or prior to Closing, Sellers shall
execute and deliver to Buyer an affidavit or other certification (as permitted
by the Code) that no Seller is a “foreign person” within the meaning of Section
1445 (or similar provisions) of the Code.

 

(viii)      Releases. Sellers shall have delivered releases or other evidence of
termination of the deeds of trust, mortgages and all other liens with respect to
the Properties concurrently with the payment of the Purchase Price.

 

(ix)         Additional Documents. Seller shall execute, acknowledge and deliver
to Buyer any other instruments of transfer reasonably requested by Buyer to
complete the conveyance of the Properties as provided hereunder, including,
without limitation, counterpart forms of transfer and assignment required by any
Governmental Authority.

 

11.         Certain Accounting Adjustments.

 

(a)          Adjustments for Revenues and Expenses. Appropriate adjustments
shall be made between Buyer and Sellers so that:

 

21

 

 

(i)          Buyer will bear all drilling costs, reworking costs, and all other
capital expenditures which are incurred in connection with the development,
exploration or operation of the Properties after the earlier of the applicable
Effective Date for the Properties or the date of this Agreement, and all
expenses which are incurred in the operation of the Properties after the
applicable Effective Date, including, without limitation, all overhead charges
under applicable operating agreements (regardless of whether such operating
agreements are with Third Persons or related entities and regardless of whether
Sellers or an Affiliate of any Seller is the operator or a non-operator), and
all other overhead charges actually charged by Third Persons, and Buyer will
receive all proceeds (net of applicable production, severance, and similar
taxes) from sales of oil, gas and/or other minerals which are produced from (or
attributable to) the Properties and which are produced after the applicable
Effective Date;

 

(ii)         Except as provided in subsection (iii) below, subsections (b) and
(c) below, and Section 13 below, Sellers will bear all expenses which are
incurred in the operation of the Properties before the Effective Date and
Sellers will receive all proceeds (net of applicable production, severance, and
similar taxes) from the sale of oil, gas and/or other minerals which were
produced from (or attributable to) the Properties and which were produced before
the applicable Effective Date; and

 

(iii)        Buyer will bear all expenses set forth on the authorizations for
expenditures whether paid by Buyer or Sellers before or after the applicable
Effective Date. It is agreed that, in making such adjustments:

 

1.          oil which was produced from the Oil and Gas Properties and which
was, on the Effective Date, stored in tanks located on the Oil and Gas
Properties (or located elsewhere but used by Sellers to store oil produced from,
or attributable to, the Oil and Gas Properties prior to delivery to oil
purchasers) and above pipeline connections shall be deemed to have been produced
after the applicable Effective Date for the purposes of this subsection (a);

 

2.          ad valorem, personal property and similar taxes assessed for periods
prior to the Effective Date shall be borne by Sellers and Sellers shall submit
any returns and reports with respect thereto and ad valorem taxes assessed for
periods on or after the Effective Date shall be borne by Buyer and Buyer shall
submit any returns and reports with respect thereto (ad valorem, personal
property and similar taxes shall be considered assessed for the period for which
they are stated to be assessed, even if the same are based on production or
other activities occurring in prior periods);

 

3.          ad valorem, personal property and similar taxes assessed with
respect to a period which begins before and ends after the Effective Date shall
be prorated based on the number of days in such period which fall on each side
of the Effective Date (with the day on which the Effective Date falls being
counted in the period after the Effective Date) and Buyer shall submit any
returns and reports with respect thereto;

 

4.          casualty losses shall be handled in accordance with Section 15;

 

5.          delay rentals shall be attributable to the period for which they are
paid (e.g. annual delay rentals due on January 1, 2012 shall be attributable to
calendar year 2012) rather than to the time when paid, and shall be prorated
with respect to such period in the same manner as ad valorem taxes; and

 

6.          no consideration shall be given to the local, state or federal
income tax liabilities of any Party.

 

22

 

 

(b)          Initial Adjustment at Closing. Sellers shall provide to Buyer a
statement showing its computations of the amount of the adjustments provided for
in subsection (a) above based on amounts which prior to such time have actually
been paid or received by Sellers. Buyer and Sellers shall attempt to agree upon
such adjustments prior to Closing, provided that if agreement is not reached,
such dispute shall be resolved pursuant to Section 20(i), subject to further
adjustment under subsection (c) below. If the amount of adjustments so
determined which would result in a credit to Buyer exceed the amount of
adjustments so determined which would result in a credit to Sellers, Buyer shall
receive a credit at Closing for the amount of such excess, and if the converse
is true, then the amount to be paid by Buyer to Sellers at Closing shall be
increased by the amount of such excess.

 

(c)          Adjustment Post Closing. On or before one hundred twenty (120) days
after Closing, Buyer and Sellers shall review any additional information which
may then be available pertaining to the adjustments provided for in subsection
(a) above, shall determine if any additional adjustments should be made beyond
those made at Closing (whether the same be made to account for expenses or
revenues not considered in making the adjustments made at Closing, or to correct
errors made in the adjustments made at Closing), and shall make any such
adjustments by appropriate payments from Sellers to Buyer or from Buyer to
Sellers.

 

12.         Post-Closing Actions.

 

(a)          Transfer of Files. Sellers will use their best efforts to
permanently deliver to Buyer, at Buyer’s expense, and within forty-five (45)
days after Closing, all of Sellers’ lease files, contracts, abstracts and title
opinions, division order files, production records, well files, accounting
records and any other files and records which relate to the Properties. Sellers
will continue to deliver and provide access to Buyer post-Closing of Sellers’
general financial accounting or tax accounting records as set forth in Section
5(a), to the extent that (i) any such records are reasonably necessary to enable
Buyer to prepare in accordance with GAAP the financial statements it will be
required to file with the SEC in respect of the Properties or (ii) Buyer’s
auditor requests any such records in order for such auditor to deliver an
opinion in respect of such financial statements. Sellers may, at their election,
make and retain copies of any or all such files. Buyer shall preserve all files
so delivered by Sellers for a period of three (3) years following Closing and
will allow Sellers access (including, without limitation, the right to make
copies at Sellers’ expense) to such files at all reasonable times during normal
business hours.

 

(b)          Title Review. Buyer shall have the right to receive an independent
title review on the Properties from counsel acceptable to the Buyer and may rely
upon such review to submit any Asserted Defects to Sellers and to request
adjustments pursuant to Section 7.

 

(c)          Delivery of Consents. Seller shall cooperate with Buyer to deliver
all Consents required that relate to any Oil and Gas Properties and that would
be applicable to the transactions contemplated hereby including the assignment
of any Contracts and required Permits.

 

(d)          Notifications by Buyer. Immediately after the Closing, Buyer shall
notify all applicable operators, non-operators, oil and gas purchasers, and
Governmental Authorities that it has purchased the Properties.

 

13.         Indemnification.

 

(a)          Seller Indemnification. Subject to the limitations set forth in
Section 13(e) hereof, Sellers hereby agree to joint and severally indemnify and
hold Buyer and its Affiliates, and the officers, directors, employees and agents
thereof (each, a “Buyer Indemnified Person”; provided however, Buyer Indemnified
Person shall not include any Seller or the Affiliates of any Seller), harmless
from and against any and all claims, judgments, causes of action, liabilities,
obligations, guarantees, damages, losses, deficiencies, costs, penalties,
interest and expenses, including without limitation, cost of investigation and
defense, and reasonable attorneys’ fees and expenses, net of any collected
insurance proceeds (collectively, “Losses”), arising out of, based upon,
attributable to or resulting from (i) any breach of any representation,
warranty, agreement or covenant on the part of any Seller contained in or
pursuant to this Agreement (the calculation of Loss resulting from any such
breach or inaccuracy of any representation or warranty to be determined without
regard to any qualification as to “materially”, “in all material respects” or
similar qualification) or (ii) any assertion against any Buyer Indemnified
Person of any claim or liability constituting an Excluded Liability.

 

23

 

 

(b)          Buyer Indemnification. Buyer hereby agrees to indemnify and hold
Sellers and their Affiliates, and the officers, directors, employees and agents
thereof (each, a “Seller Indemnified Person”), harmless from and against any and
all Losses arising out of, based upon, attributable to or resulting from (i) any
breach of any representation, warranty, agreement or covenant on the part of
Buyer contained in or made pursuant to this Agreement or any of the transactions
contemplated herein or in any closing certificate delivered by or on behalf of
Buyer pursuant to this Agreement (the calculation of Loss resulting from any
such breach or inaccuracy of any representation or warranty to be determined
without regard to any qualification as to “materially”, “in all material
respects” or similar qualification) and (ii) Buyer’s operation of the Properties
after the Closing Date.

 

(c)          Defense of a Third Party Claim.

 

(i)          If any Third Party shall notify any Party with respect to any
matter (a “Third Party Claim”) that may give rise to a claim for indemnification
against any other Party under this Section 13(c), the Indemnifying Party will
have the right, but not the obligation, to assume the defense of the Third Party
Claim so long as (i) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (ii) uses counsel
reasonably satisfactory to the Indemnified Party, (iii) the Indemnifying Party
acknowledges its obligation to indemnify the Indemnified Party hereafter in
respect of such matters and (iv) the relief sought is monetary damages.

 

(ii)         After notice pursuant to Section 13(d) below from the Indemnifying
Party to the Indemnified Party of its election to assume the defense of the
Third Party Claim, the Indemnifying Party shall not, as long as the Indemnifying
Party diligently conducts such defense, be liable to the Indemnified Party for
any legal or other expense subsequently incurred by the Indemnified Party in
connection with the defense thereof, other than reasonable costs of
investigation; provided, however, that if counsel defending such Third Party
Claim shall advise the parties of a potential conflict of interest arising from
the existence of one or more legal defenses available to the Indemnified Party
which are different from or additional to those available to the Indemnifying
Party or its Affiliates, then the Indemnified Party may retain separate counsel
to defend it and in that event the reasonable fees and expenses of such separate
counsel shall be paid by the Indemnifying Party if applicable under this Section
13. Subject to the proviso to the foregoing sentence, if the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right to participate
in the defense thereof and to employ counsel, at its own expense, separate from
the counsel employed by the Indemnifying Party. The Indemnifying Parties shall
be liable for the reasonable fees and expenses of counsel employed by the
Indemnified Party for any period during which the Indemnifying Party has not
assumed the defense thereof. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof.

 

(iii)        If an Indemnifying Party assumes the defense of an action or
proceeding, then without the Indemnified Party’s written consent, the
Indemnifying Party shall not settle or compromise any Third Party Claim or
consent to the entry of any judgment which does not include as an unconditional
term thereof the delivery by the claimant or other plaintiff to the Indemnified
Party of a written release from all liability in respect of such Third Party
Claim or if such settlement shall include injunctive or other relief that
affects or relates to the right or obligations of such Indemnified Party, other
than the obligation to pay monetary damages where such damages have been
satisfied in full by the Indemnifying Party or their respective Affiliates.

 

24

 

 

(d)          Indemnification Procedures.

 

(i)          If a Party is entitled to indemnification under this Section 13
(the “Indemnified Party”), it shall give notice (“Indemnification Notice”) of
such claim to the Party from whom it intends to seek indemnification which
specifies the existence, scope and nature of such claim in reasonable detail
(the “Indemnifying Party”) and the Indemnifying Party shall have the right to
assume the defense and, subject to Section 13(d)(ii), settlement of such claim
at its expense by representatives of its own choosing acceptable to the
Indemnified Party (which acceptance shall not be unreasonably withheld). The
failure of the Indemnified Party to notify the Indemnifying Party of such claim
shall not relieve the Indemnifying Party of any liability that the Indemnifying
Party may have with respect to such claim, except to the extent that the defense
is materially prejudiced by such failure. The Indemnified Party shall have the
right to participate in the defense of such claim at its expense (which expense
shall not be deemed to be a Loss), in which case the Indemnifying Party shall
cooperate in providing information to and consulting with the Indemnified Party
about the claim. If the Indemnifying Party fails or does not assume the defense
of any such claim within fifteen (15) days after written notice of such claim
has been given by the Indemnified Party to the Indemnifying Party, the
Indemnified Party may defend against or, subject to Section 13(d)(ii), settle
such claim with counsel of its own choosing at the expense (to the extent
reasonable under the circumstances) of the Indemnifying Party.

 

(ii)         If the Indemnifying Party does not assume the defense of a claim
involving the asserted liability of the Indemnified Party under this Section 13,
no settlement of such claim shall be made by the Indemnified Party without the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party assumes the defense
of such a claim, (i) no settlement thereof may be effected by the Indemnifying
Party without the Indemnified Party’s consent unless (A) there is no finding or
admission of any violation of Law or any violation of the rights of any Person
and no effect on any other claim that may be made against the Indemnified Party,
(B) the sole relief provided is monetary damages that have been paid in full by
the Indemnifying Party, and (C) the settlement includes, as an unconditional
term thereof, the giving by the claimant or the plaintiff to the Indemnified
Party of a release in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such claim, and (ii) the
Indemnified Party shall have no liability with respect to any compromise or
settlement thereof effected without its consent.

 

(e)          Limits on Indemnification. Notwithstanding anything to the contrary
contained in this Agreement:

 

(i)          Neither Sellers nor Buyer shall have any obligation to provide
indemnification for Losses with respect to any specific occurrence, event or
circumstance giving rise to a right to be indemnified pursuant to Section 13(a)
or Section 13(b), as applicable, unless the amount of each such specific Loss
exceeds twenty-five thousand dollars ($25,000) (the “Deductible”), and in the
event such Losses exceed the Deductible, only the value of all Losses in excess
of the Deductible shall be considered in applying this Section 13(a).

 

25

 

 

(ii)         All representations and warranties contained in this Agreement
shall survive for a period of twelve (12) months following the Closing, after
which time neither Sellers, Buyer, or any officer, director, employee or
Affiliate of Sellers or Buyer shall have any liability whatsoever (whether
pursuant to this Agreement or otherwise) with respect to such representation or
warranty; provided, however, that the representations and warranties (x) in
Sections 3(a)(xi) (Payment of Expenses and Taxes) shall survive and remain in
full force and effect until 30 days after the expiration of the applicable
statute of limitations (including all periods of extension, whether automatic or
permissive). Notwithstanding the foregoing, any claim for indemnification
pursuant to Section 13 for which an Indemnification Notice is delivered prior to
the Liability Termination Date shall survive until such claim is fully and
finally resolved.

 

(iii)        Any payments made to Sellers or Buyer pursuant to this Section 13
shall constitute an adjustment of the Purchase Price for tax purposes and shall
be treated as such by Buyer and Sellers on their tax returns.

 

(iv)        In the event of any Loss pursuant to which any Buyer Indemnified
Person would be entitled to relief under this Section 13, such Buyer Indemnified
Person may accept, at Buyer’s option in its sole and absolute discretion and as
Buyer’s only available remedy in the event of a Loss:

 

1.          additional or alternative oil and gas properties from Sellers (the
“Replacement Property”) in lieu of the amount of any Loss to which such Buyer
Indemnified Person may be entitled under this Section 13, subject to applicable
due diligence on the Replacement Property by the Buyer; or

 

2.          for as long as the Note is outstanding, to the extent that the
Sellers shall owe the Buyer any amounts under this Section 13, the Buyer
Indemnified Person may elect to setoff the amount of any Loss owed by Sellers to
the Buyer Indemnified Person under this Section 13 against any such amounts owed
by Buyer pursuant to the Note.

 

14.         No Commissions Owed. Sellers agree to indemnify and hold Buyer (and
its partners and its and their Affiliates, and the respective officers,
directors, employees, attorneys, contractors and agents of such parties)
harmless from and against any and all Losses of any kind or character arising
out of or resulting from any agreement, arrangement or understanding alleged to
have been made by, or on behalf of, any Seller with any broker or finder in
connection with this Agreement or the transaction contemplated hereby. Buyer
agrees to indemnify and hold Sellers (and their partners and their Affiliates
and the respective officers, directors, employees, attorneys, contractors and
agents of such parties) harmless from and against any and all Losses of any kind
or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Buyer with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby.

 

15.         Casualty Loss. In the event of damage by fire or other casualty to
the Properties prior to the Closing, this Agreement shall remain in full force
and effect upon consent by Buyer, and in such event, as to each such Property so
damaged, Sellers shall, at Buyer’s election, either (i) repair such damage or
replace such Property, (ii) collect (and when collected pay over to Buyer) any
insurance claims related to such damage, or (iii) assign to Buyer any insurance
claims related to such damage, and Buyer shall take title to the Property
affected by such loss without reduction of the Purchase Price. Sellers shall, at
all times between the execution date of this Agreement and the Closing, maintain
appropriate insurance coverage of the Properties on terms and in amounts
consistent with industry standards.

 

16.         Notices. All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by telecopier or e-mail (in either case with
receipt acknowledged), or by registered or certified mail (postage prepaid), at
the following addresses:

 

26

 

 

If to Buyer: American Standard Energy Corp.   4800 North Scottsdale Road, Suite
1400   Scottsdale, Arizona 85251   Telephone: (480) 371-1929   Facsimile:
  (480) 990-2736   Attention:   Scott Feldhacker     With copies to: Blank Rome,
LLP   405 Lexington Avenue   New York, New York 10174   Telephone:  (212)
885-5339   Facsimile:    (917) 332-3840   Attention:    Kristina L. Trauger,
Esq.     If to Sellers: XOG Operating, LLC   Geronimo Holding Corporation   1801
W. Texas   Midland, Texas 79701   Telephone:  (432) 683-3171   Facsimile:
  (432) 683-6348   Attn: Randall Capps     With copies to: Bullock Scott, P.C.  
400 West Illinois Avenue, Suite 120   Midland, Texas 79701   Telephone:  (432)
683-5501   Facsimile:    (432) 683-2658   Attention:    Jim Leeton, Esq.

 

and shall be considered delivered on the date of receipt. Either Buyer or
Sellers may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section 16, at least ten (10) days prior to the
effective date of such change of address.

 

17.         Survival of Provisions. The obligations of the parties under Section
10 (to the extent the same are, by mutual agreement, not performed at Closing),
and Sections 2, 11, 12, 13, 14, 16, 17 and 19 shall survive the Closing and the
delivery of the Conveyance. Notwithstanding anything herein to the contrary, the
survival of the respective representations and warranties, including those in
the preceding sentence, of Sellers and Buyer contained in this Agreement shall
be governed by Section 13(f)(ii).

 

18.         [Intentionally omitted.]

 

19.         Termination.

 

(a)          Termination Rights.

 

(i)          By mutual written agreement of Buyer and Sellers;

 

27

 

 

(ii)         By either Sellers or Buyer if (1) the Closing has not occurred by
March 31, 2012 (provided, however, that the right to terminate this Agreement
pursuant to this clause (1) shall not be available to any Party whose breach of
any representation or warranty or failure to perform any covenant or agreement
under this Agreement has been the cause of or resulted in the failure of Closing
to occur on or before such date); or (2) any Governmental Authority shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting Closing and such order, decree,
ruling or other action shall have become final and nonappealable (provided,
however, that the right to terminate this Agreement pursuant to this clause (2)
shall not be available to any Party until such Party has used all reasonable
efforts to remove such injunction, order or decree and such efforts may continue
up to 30 days after the Closing Date);

 

(iii)        By Buyer if (1) Sellers have failed to comply in any material
respects with any of Sellers’ covenants or agreements contained in this
Agreement and such failure has not been, or cannot be, cured by the earlier of
(x) ten (10) business days after notice and demand for cure thereof or (y)
Closing; (2) Buyer has received notice from Sellers that the conditions to
Buyer’s obligations set forth in Section 8 have not been satisfied; (3) Buyer
has not received an appropriate Fairness Opinion; or (4) if required by the
Credit Agreement, Macquarie has not consented to the transactions contemplated
in this Agreement; or

 

(iv)        By Sellers if (i) Buyer has failed to comply in any material
respects with any of its respective covenants or agreements contained in this
Agreement, and such breach or failure has not been, or cannot be, cured by the
earlier of (x) ten (10) business days after notice and demand for cure thereof
or (y) Closing or (iii) Sellers have received notice from Buyer that the
conditions to Sellers’ obligations set forth in Section 9 have not been
satisfied.

 

(b)          Effect of Termination.

 

(i)          If this Agreement is terminated by either Sellers, on the one hand,
or Buyer, on the other hand, pursuant to the provisions of this Section 19, all
continuing obligations of the Parties under this Agreement will terminate,
except that Section 20 will survive indefinitely unless sooner terminated or
modified by the Parties in writing and any claims timely received until
resolved.

 

(ii)         In lieu of exercising its right to termination provided in Section
19(a) above, a Party entitled to terminate this Agreement under the terms herein
shall also have the option to elect specific performance of the terms of this
Agreement (plus the recovery of all costs and expenses, including reasonable
attorneys fees, incurred in enforcing such right of specific performance).

 

(iii)        In the event of termination:

 

(1)         by Sellers, due to a material breach of this Agreement by Buyer,
including for the avoidance of doubt, Buyer’s failure to obtain all funds
necessary to pay the Purchase Price at the Closing, Sellers’ only remedy shall
be the termination right provided for under Section 19(a); or

 

(2)         by Buyer, due to a material breach of this Agreement by any Seller,
except as expressly provided in Section 5(d)(ii)), Buyer’s only remedy, other
than the termination right provided for under Section 19(a), shall be to recover
from Sellers, and Sellers shall pay to Buyer within five (5) business days of
such termination, a cash amount equal to five percent (5%) of the Initial
Purchase Price (it being understood by the Parties that such limitation is in
addition to, and not in lieu of, the obligation of Sellers to return the
entirety of the Deposit to Buyer as required in Section 2(b)).

 

28

 

 

(iv)        In the event this Agreement is terminated, the rights of Buyer or
Sellers provided in Section 2(b) and this Section 19(b) may have under this
Agreement shall be the sole and exclusive remedies.

 

20.         Miscellaneous Matters.

 

(a)          Further Assurances. After the Closing, Sellers shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time to
time, such further instruments, notices, division orders, transfer orders and
other documents, and do such other and further acts and things, as may be
reasonably necessary to more fully and effectively grant, convey and assign the
Properties to Buyer.

 

(b)          Regulatory Approvals. Each Party hereto shall cooperate and use its
commercially reasonable efforts to promptly prepare and file all necessary
documentation to effect all necessary applications, notices, petitions, filings
and other documents, and use all commercially reasonable efforts to obtain (and
will cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, and any exemption or nonopposition by, any
Governmental Authority required to be obtained or made by Sellers or Buyer or
any of their respective Affiliates in connection with the transactions
contemplated hereby or the taking of any action contemplated thereby or by this
Agreement.

 

(c)          Expenses; No Special Damages. Each Party shall bear and pay all
other expenses incurred by it in connection with the transaction contemplated by
this Agreement, except as otherwise set forth herein.

 

(d)          No Sales Taxes. No sales, transfer or similar tax will be collected
at Closing from Buyer in connection with this transaction. If, however, this
transaction is later deemed to be subject to sales, transfer or similar tax, for
any reason, Buyer and Sellers agree to be equally responsible, and shall each
indemnify and hold the other and the other’s Affiliates (and all of their
directors, officers, employees, attorneys, contractors and agents) harmless, for
their respective share of any and all sales, transfer or other similar taxes
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Properties transferred pursuant hereto, and Buyer and Sellers
shall remit their respective share of such taxes at that time. Sellers and Buyer
agree to cooperate with each other in demonstrating that the requirements for
exemptions from such taxes have been met.

 

(e)          Entire Agreement. This Agreement, the Conveyance and the other
documents and instruments to be executed and delivered to Buyer and Sellers
pursuant to the terms hereof (collectively, the “Transaction Documents”)
constitute the entire understanding of the parties hereto with respect to
subject matter hereof and supersedes all prior agreements, understandings,
negotiations, and discussions, both oral and written, among the Parties with
respect to such subject matter.

 

(f)          Amendments, Waivers. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the Party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.

 

29

 

 

(g)          Choice of Law and Venue. Without regard to principles of conflicts
of law, this Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas shall apply as to the property
located in (or otherwise subject to the laws of) such state. The Parties agree
that venue shall be in any state court or the United States District Court
located in Midland, Texas. Each Party consents to the exclusive jurisdiction of
such courts (and the appellate courts thereof) and agrees not to commence any
such Proceeding except in such courts. Each Party agrees not to assert (by way
of motion, as a defense, or otherwise), and hereby irrevocably and
unconditionally waives in any such Proceeding commenced in such court, any
objection or claim that such Party is not subject personally to the jurisdiction
of such court or that such Proceeding has been brought in an inconvenient forum.
If such courts refuse to exercise jurisdiction hereunder, the Parties agree that
such jurisdiction shall be proper in any court in which jurisdiction may be
obtained.

 

(h)          Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.

 

(i)          Dispute Resolution.

 

(i)          Negotiation. The Parties will make reasonable efforts to settle any
and all controversies, claims and disputes arising out of or in connection with
this Agreement (a “Dispute”) within twenty (20) days (or any other period of
time that may be agreed upon between the Parties according to the circumstances)
from its notification to the other Party in accordance with Section 16 through
direct discussions between the Parties principals for the purpose of resolving
any such Dispute. For the purposes hereof, a “Principal” means any individual of
Buyer or Sellers, as applicable, who has the authority to negotiate the
settlement of the Dispute on behalf and in the name of Buyer or Sellers, as
applicable. Within ten (10) days after the date of the receipt by each Party of
any notice of Dispute (which notice will request negotiations among Principals),
the Principals will meet at a mutually acceptable time and place to exchange
relevant information in an attempt to resolve the Dispute. If a Principal
intends to be accompanied at the meeting by an attorney, each other Party’s
Principal will be given written notice of such intention at least three (3)
Business Days in advance and may also be accompanied at the meeting by an
attorney.

 

(ii)         Specific Performance. Irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the Parties
will be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the provisions of this Agreement, this
being in addition to any other remedy to which they are entitled at Law or in
equity.

 

(j)          Headings, Time of Essence, Etc. The descriptive headings contained
in this Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement. Within this
Agreement words of any gender shall be held and construed to cover any other
gender, and words in the singular shall be held and construed to cover the
plural, unless the context otherwise requires. Time is of the essence in this
Agreement.

 

30

 

 

(k)          Confidentiality; Public Announcements. Upon execution of this
Agreement and again upon Closing, Buyer and Sellers shall have the right to
issue individual press releases that are mutually acceptable, each Party acting
reasonably, with respect to this Agreement and the transactions contemplated
hereby, and Buyer shall have the right to make required filings with respect to
this Agreement and the transactions contemplated hereby with the SEC. Following
Closing, each Seller shall maintain the confidentiality of, and not disclose,
information relating to the Properties and the transactions contemplated by this
Agreement except for disclosures that would be permitted by the exceptions
applicable to Buyer. Notwithstanding the above, nothing in this Section 20(k)
will preclude any person from making any disclosures it reasonably believes are
required by applicable law or applicable stock exchange rules or necessary and
proper in conjunction with the filing of any tax return or other document
required to be filed with any Governmental Authority.

 

(l)          Adequate Counsel. Each Seller acknowledges that (i) it has had the
opportunity to review this Agreement and the transactions contemplated by this
Agreement with its own legal counsel and investment, tax and other advisors, and
(ii) it is not relying on any statements or representations of Buyer or any of
Buyer’s respective Affiliates, representatives, counsel or agents for legal,
tax, investment or other advice with respect to this Agreement or the
transactions contemplated hereby.

 

(m)          No Assignment. Prior to Closing, neither Party shall have the right
to assign its rights under this Agreement, without the prior written consent of
the other Party first having been obtained.

 

(n)          Successors and Assigns. Subject to the limitation on assignment
contained in subsection (k) above, the Agreement shall be binding on and inure
to the benefit of the Parties hereto and their respective successors and
assigns.

 

(o)          Counterpart Execution. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and the
same instrument. It shall not be necessary for Buyer and Sellers to sign the
same counterpart. An e-mail or facsimile signature will be considered an
original signature.

 

(p)          Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, ordinance, regulation, statute and treaty of any Governmental Authority,
but if any provision of this Agreement is held to be prohibited thereby or
invalid thereunder, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

(q)          Definitions.

 

(i)          Certain Defined Terms. When used in this Agreement, the following
terms shall have the respective meanings assigned to them in this Section 20(q):

 

“Accounts Payable” means all amounts owing by a Person for goods received by or
services rendered to such Person.

 

“Affiliate” means, as to any Person, any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with such
Person; provided, however, that when referencing Affiliates, of Buyer, the
Seller and Seller’s Affiliates shall not be deemed an “affiliate” of the Buyer.

 

31

 

 

“Allocated Amount” means the amount of the Purchase Price allocated to each
Property on Schedule II.

 

“Base Financial Statements” means the historical financial statements and pro
forma financial information required to be filed by Buyer in connection with the
transactions contemplated by this Agreement pursuant to Regulation S-X of the
Securities Act.

 

“Buyer’s Knowledge” “knowledge of Buyer” and similar expressions mean the
knowledge of Buyer’s executive officers.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Contract” means all of Sellers’ and any operator’s interests in and under all
contracts, agreements and instruments by which any Seller is bound, to the
extent applicable to the Properties, including, without limitation, operating
agreements; oil, gas, liquids, casinghead gas and condensate purchase, sale,
balancing, processing, gathering, treatment, compression and transportation
agreements; farmout or farm-in agreements; joint venture, limited or general
partnership, dry hole, bottom hole, acreage contribution, purchase and
acquisition agreements; participation agreements; area of mutual interest
agreements; salt water disposal agreements; servicing contracts; unitization,
communitization or pooling agreements; surface lease agreements; and all other
executory contracts and agreements to the extent applicable to the Properties,
including, without limitation, the contracts and agreements, and provided that
the term “Contracts” shall not include the instruments constituting Seller’s
chain of title to the Properties.

 

“Effective Date” means 9:00 a.m. Central Time, on December 1, 2011; however, the
transfer, assignment and conveyance of the Properties located in Andrews and
Edwards Counties shall be effective on December 31, 2011.

 

“GAAP” means generally accepted accounting principles in the United States of
America from time to time.

 

“Governmental Authority” means any federal, state, regional, local government or
other political subdivision thereof, any entity, authority or body exercising
executive, legislative, judicial, regulatory or other authority, or any court of
competent jurisdiction, administrative court or agency or commission, panel or
other governmental authority.

 

“Hazardous Material” means, with the exception of all water and constituents
thereof produced from the Oil and Gas Properties, (a) any “hazardous substance,”
as defined by Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, or any successor statutes and any regulations
promulgated thereunder; (b) any “hazardous waste” or “solid waste,” in either
case as defined by the Resource Conservation and Recovery Act of 1976, as
amended; (c) any solid, hazardous, dangerous or toxic chemical, material, waste
or substance, within the meaning of and regulated by any Applicable
Environmental Laws; (d) any asbestos-containing materials in any form or
condition; (e) any polychlorinated biphenyls in any form or condition; or (f)
any air pollutant which is so designated by the U.S. Environmental Protection
Agency as authorized by the Clean Air Act.

 

“Independent Accountant” shall mean BDO USA, LLP, Buyer’s independent public
accountants.

 

“Law” means any federal, state, local, municipal, foreign, tribal, or other law,
statute, legislation, constitution, principle of common law, resolution,
ordinance, code, proclamation, treaty, convention, rule, regulation, or decree,
whether legislative, municipal, administrative, or judicial in nature, enacted,
adopted, passed, promulgated, made, or put into effect by or under the authority
of any Governmental Authority

 

32

 

 

“Material Adverse Effect” means any change, circumstance, effect, event or fact
that has a material and adverse effect on the business, assets, financial
condition or results of operations of any Seller, taken as a whole; provided,
however, that no loss, liability, change, circumstance, effect, event or fact
shall be deemed (individually or in the aggregate) to constitute, nor shall any
of the foregoing be taken into account in determining whether there has been or
may be, a Material Adverse Effect, to the extent that such loss, liability,
change, circumstance, effect, event or fact results from, arises out of, or
relates to (a) a general deterioration in the economy or changes in hydrocarbon
prices or other changes affecting the oil and gas industry generally; (b) the
outbreak or escalation of hostilities involving the United States, the
declaration by the United States of a national emergency or war or the
occurrence of any other calamity or crisis, including acts of terrorism; (c) the
announcement or pendency of the transactions contemplated by this Agreement or
any other agreement, document and instrument required to be executed in
accordance herewith; (d) any change in applicable laws, or the interpretation
thereof, after the date of this Agreement; or (e) compliance with the terms of,
or the taking of any action required by this Agreement or any other agreement,
document and instrument required to be executed in accordance herewith.

 

“Opinion” means the unqualified opinion to be issued by the Independent
Accountant in respect of the Base Financial Statements acceptable to the
applicable Governmental Authorities.

 

“Permits” mean any Seller’s interest in all easements, permits, licenses,
servitudes, rights-of-way and all other rights and appurtenances situated on or
used primarily in connection with the Properties or any interests pooled or
unitized therewith, but excluding those permits and other appurtenances pursuant
to which transfer is restricted by third party agreement or applicable law.

 

“Person” means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other entity.

 

“Principal Market” means the Over the Counter Bulletin Board.

 

“Proceeding” means any action, proceeding, litigation, suit, or arbitration
(whether civil, criminal, administrative, or judicial in nature) commenced,
brought, conducted, or heard before any Governmental Authority, arbitrator or
arbitration panel.

 

“Required Financial Statement Procedures” means Buyer’s preparation of the Base
Financial Statements, the completion by the Independent Accountant of its audit
and/or review of the Base Financial Statements and the issuance of its Opinion.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” means the United States Securities Act of 1933, as amended, and
the rules and regulations pertaining thereto.

 

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

 

“Seller’s Knowledge”, “knowledge of Seller” and similar expressions mean the
actual knowledge of each of the Sellers and of Randall Capps after due inquiry.

 

“Tax” or “Taxes” means any federal, state, local, or non-U.S. income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, severance, natural resources, production, ad valorem,
transfer, registration, stamp, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, whether computed on a separate
or consolidated, unitary or combined basis or in any other manner, including any
interest, penalty, or addition thereto, whether disputed or not.

 

33

 

 

“Third Person” or “Third Party” means a Person other than Sellers, Buyer and any
of their Affiliates.

 

“Trading Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded, provided that “Trading Day” shall not
include any day on which the Common Stock is scheduled to trade on such exchange
or market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York time) unless such day is otherwise designated as a Trading Day in
writing by the Holder.

 

“Value Per Net Acre” means an amount equal to the Allocated Amount for an
Undeveloped Lease set forth on Exhibit A-3 divided by the total Net Leasehold
Acres shown on Exhibit A-3 for such Undeveloped Lease.

 

(ii)         Additional Definitions. Each of the following terms is defined in
the Section set forth opposite such term:

 

Term   Section Agreement   Introduction Applicable Environmental Laws   6(b)(vi)
Asserted Defects   6(b) Buyer   Introduction Buyer Common Stock   Recitals Buyer
Indemnified Person   13(a) Buyer SEC Reports   4(a)(viii) Buyer Shares   2(a)
Buyer Sub   2(e) Cash Consideration   2(a) Closing   10(a) Closing Date   10(a)
Consents   5(c) Conveyance   1 Deductible   13(e)(i) Defect   6(b) Defect Date  
6(b) Defensible Title   3(a)(xxi)(1) Deposit   2(b) Disclosure Schedule   1(b)
Dispute   20(h)(i) Encumbrance   3(a)(xxi)(1) Excluded Encumbrances  
3(a(xxi)(2) Excluded Liabilities   1(g)(ii) Excluded Properties   1(g)(i)
Hydrocarbon   3(a)(xxvi) Indemnified Party   13(d)(i) Indemnifying Party  
13(d)(i) Initial Purchase Price   2(a)

 

34

 

 

Land(s)   1(a) Leases   1(a) Losses   13(a) Macquarie   8(g) Material Agreements
  3(a)(vii) Net Acre Defect Amount   7(a)(i)(2) Net Leasehold Acres   6(b)(iii)
NRI   1 Note   2(a) Oil and Gas Properties   1(a) Party or Parties   Recitals
Permitted Encumbrances   3(a)(xxi)(2) Piggyback Registration   5(e) Piggyback
Registration Statement   5(e) Preferential Rights   5I Principal   20(h)(i)
Properties   1 Purchase Price   2(a) Registration Notice   5(e) Registration
Shares   5(e) Seller   Introduction Seller Indemnified Person   13(b) Seller
Permits   3(a)(ix) Third Party Claims   13(c)(i) Title Benefits   3(a)(xxi)(1)
Title Defects   3(a)(xxi)(1) Transaction Documents   20(e) Undeveloped Lease  
6(b)(iii) Units   1(a) Wells   1(a) WI   1

  

[Remainder of this Page Intentionally Left Blank]

 

[Signature Page Follows]

 

35

 

 

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

 

  SELLERS:       XOG OPERATING LLC         By: /s/ Randall Capps   Name: Randall
Capps   Title: Managing Member         GERONIMO HOLDING CORPORATION         By:
/s/ Randall Capps   Name: Randall Capps   Title: President

 

[Signature Page to Asset Purchase Agreement]

 

36

 

 

  BUYER:       AMERICAN STANDARD ENERGY CORP.,   a Delaware corporation        
By: /s/ Richard MacQueen   Name: Richard MacQueen   Title: President

  

[Signature Page to Asset Purchase Agreement]

 

37

 

 

LIST OF SCHEDULES AND EXHIBITS

 

Schedule I Conveyance     Schedule II Allocation Schedule     Exhibit A-1
Developed Leases     Exhibit A-2 Wells     Exhibit A-3 Undeveloped Lease with
Net Leasehold Acres and NRI     Exhibit B Promissory Note

 

38