Document:

GEEKNET,
INC.

     

    EMPLOYMENT
AGREEMENT

     

    This
Employment Agreement (the “Agreement”) is made and entered into by and between
Kathryn McCarthy (“Executive”) and Geeknet, Inc. (the “Company”), effective as
of December 16, 2010 (the “Effective Date”).  The start date of
employment shall be January 4, 2011 (“Start Date”).

     

    1.     
       Duties and Scope of
Employment.

     

    (a)           Position and
Duties.  Executive will serve as Executive Vice President and
Chief Financial Officer of the Company.  Executive will render such
business and professional services in the performance of Executive’s duties,
consistent with Executive’s position within the Company, as will reasonably be
assigned by the Company’s Chief Executive Officer (“CEO”).  The CEO
may modify Executive’s job title and duties as it deems necessary and
appropriate in light of the Company’s needs and interests from time to
time.  The period of Executive’s employment under this Agreement is
referred to herein as the “Employment Term.”

     

    (b)           Obligations.  Executive
will perform Executive’s duties faithfully and to the best of Executive’s
ability and will devote Executive’s full business efforts and time to the
Company.  For the duration of the Employment Term, Executive agrees
not to actively engage in any other employment, occupation or consulting
activity for any direct or indirect remuneration without the prior approval of
the CEO.

     

    2.     
       At-Will
Employment.  The Company and Executive acknowledge that
Executive’s employment is and will continue to be at-will, as defined under
applicable law.  If Executive’s employment terminates for any reason,
including (without limitation) any termination prior to or following a Change of
Control, Executive will not be entitled to any acceleration of Award vesting or
severance pay based on termination of employment other than as provided by this
Agreement.

     

    3.       
     Compensation.

     

    (a)           Base
Salary.  As of the Effective Date, the Company will pay
Executive an annual salary of Four Hundred Thousand Dollars and Zero Cents
($400,000.00) as compensation for Executive’s services (the “Base
Salary”).  The Base Salary will be paid periodically in accordance
with the Company’s normal payroll practices and be subject to the usual,
required withholdings.  Executive’s salary will be subject to review
and adjustments will be made based upon the Company’s normal performance review
practices.

     

    (b)           Bonus.  For
calendar year 2011, Executive will receive a guaranteed annual bonus of Two
Hundred Thousand Dollars and Zero Cents ($200,000.00), less applicable
withholdings. For calendar years beginning in 2012, any bonus shall be subject
to approval of Board in their sole discretion.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)           Equity. As of the
Start Date, you are granted Seventy-Eight Thousand One Hundred Twenty-Five
(78,125) Restricted
Stock Units (as defined in the Company’s 2007 Stock Option Plan) subject to the
following vesting schedule:  The Restricted Stock Units will vest 1/3
on each 12 month anniversary of the Start Date (each a “Stock Unit
Tier”). Executive will be responsible for any taxes associated with
exercising the Restricted Stock Units.  The granting of the Restricted
Stock Units is wholly discretionary in nature, in recognition of performance or
anticipated performance, and does not create any obligation on the part of the
Company to maintain Executive’s employment through any part of the vesting
schedule or to grant additional options in the future.  In addition,
Executive will be eligible to receive additional awards of stock options,
restricted stock, restricted stock units, stock appreciation rights, performance
units and performance shares or other equity awards (“Awards”) pursuant to any
plans or arrangements the Company may have in effect from time to
time.  The Board or its committee will determine in its discretion
whether Executive will be granted any such Awards and the terms of any such
Award in accordance with the terms of any applicable plan or arrangement that
may be in effect from time to time.

     

    4.        
   Employee
Benefits.  Executive will be entitled to participate in the
employee benefit plans currently and hereafter maintained by the Company of
general applicability to other senior executives of the Company.  The
Company reserves the right to cancel or change the benefit plans and programs it
offers to its employees at any time.

     

    5.      
     Vacation.  Executive
will be entitled to paid vacation in accordance with the Company’s vacation
policy, with the timing and duration of specific vacations mutually and
reasonably agreed to by the parties hereto.  Upon Executive’s
termination of employment, Executive will be entitled to receive Executive’s
accrued but unpaid vacation through the date of Executive’s
termination.

     

    6.     
      Expenses.  The
Company will reimburse Executive for reasonable travel, entertainment or other
expenses incurred by Executive in the furtherance of or in connection with the
performance of Executive’s duties hereunder, in accordance with the Company’s
expense reimbursement policy as in effect from time to time.

     

    7.      
     Severance
Benefits.

     

    (a)           Termination for other than
Cause, Death or Disability Prior to a Change of Control or after Twelve Months
Following a Change of Control.  If prior to a Change of Control
or after twelve (12) months following a Change of Control, the Company (or any
parent or subsidiary of the Company) terminates Executive’s employment other
than for Cause, death or Disability, then, subject to Section 7(c) below,
Executive will receive the following severance from the Company:

     

    (i)            Severance
Payment.  Executive will receive: (A) continuing payments of
severance pay (less applicable withholding taxes) for a period of six (6) months
from the date of such termination equal to the pro-rata portion of Executive’s
Base Salary (as in effect immediately prior to Executive’s termination) and (B)
Executive’s quarterly bonus under the Company’s Named Executive Officer Bonus
Policy and Plan for the entire quarter in which such termination occurred based
on the achievement of the performance goals under such plan and the quarterly
bonus that would have otherwise been earned.

    
      
         

      

      
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    (ii)           Post-Termination Exercise
Period.  Executive’s outstanding Awards will remain exercisable
for at least ninety (90) days following the date of such termination or such
longer period as prescribed in the respective stock plan and agreement for each
Award; provided such time shall be extended on a day for day basis in the event
such period occurs during a Trading Window as defined in the then current
Company’s Insider Trading and Compliance Policy.  Notwithstanding the
foregoing, in no event may the Award be exercised after its expiration date as
provided in the respective agreement for each Award.

     

    (iii)          Continued Employee
Benefits.  Executive will receive Company-paid coverage for a
period of six (6) months for the cost of continuation coverage for Executive and
Executive’s eligible dependents under the Company’s Benefit Plans.

     

    (b)         
    Termination for other than
Cause, Death or Disability or Constructive Termination Within Twelve Months
Following a Change of Control.  If within twelve (12) months
following a Change of Control, (i) the Company (or any parent or subsidiary of
the Company) terminates Executive’s employment other than for Cause, death or
Disability, or (ii) upon Executive’s Constructive Termination with the Company
(or any parent or subsidiary of the Company), then, subject to Section 7(c)
below, Executive will receive the following severance from the
Company:

     

    (i)             Severance
Payment.  Executive will receive: (A) continuing payments of
severance pay (less applicable withholding taxes) for a period of six (6) months
from the date of such termination equal to the pro-rata portion of Executive’s
Base Salary (as in effect immediately prior to Executive’s termination) and (B)
Executive’s quarterly bonus under the Company’s Named Executive Officer Bonus
Policy and Plan for the entire quarter in which such termination occurred based
on the achievement of performance goals under such plan and the quarterly bonus
that would have otherwise been earned.

     

    (ii)           Accelerated
Vesting.  If Executive holds unvested Awards, then the entire
unvested portion of each Award will immediately vest and become
exercisable.  The Awards will remain exercisable, to the extent
applicable, following the termination for the period prescribed in the
respective stock plan and agreement for each Award.

     

    (iii)          Post-Termination Exercise
Period.  Executive’s outstanding Awards will remain exercisable
for at least ninety (90) days following the date of such termination or such
longer period as prescribed in the respective stock plan and agreement for each
Award; provided such time shall be extended on a day for day basis in the event
such period occurs during a Trading Window as defined in the then current
Company’s Insider Trading and Compliance Policy.  Notwithstanding the
foregoing, in no event may the Award be exercised after its expiration date as
provided in the respective agreement for each Award.

     

    (iv)          Continued Employee
Benefits.  Executive will receive Company-paid coverage for a
period of six (6) months for the cost of continuation coverage for Executive and
Executive’s eligible dependents under the Company’s Benefit
Plans.

    
      
         

      

      
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    (c)           Separation and Release of
Claims Agreement.  The receipt of any severance payments or
benefits pursuant to this Agreement is subject to the Executive signing and not
revoking a separation and release of claims agreement in a form reasonably
acceptable to the Company (the “Release”), which must become effective no later
than the 60th day
following the Executive’s termination of employment (the “Release Deadline”),
and if not, the Executive will forfeit any right to severance payments or
benefits under this Agreement.  To become effective, the Release must
be executed by the Executive and any revocation periods (as required by statute,
regulation, or otherwise) must have expired without the Executive having revoked
the Release.  In addition, no severance payments or benefits will be
paid or provided until the Release actually becomes effective.  In the
event the Executive’s termination of employment occurs at a time during the
calendar year where the Release Deadline could occur in the calendar year
following the calendar year in which Executive’s termination occurs, then any
severance payments or benefits under this Agreement that would be considered
Deferred Compensation Separation Benefits (as defined in Section 7(h)) will be
paid on the first payroll date to occur during the calendar year following the
calendar year in which such termination occurs, or such later time as required
by (i) the payment schedule applicable to each payment or benefit as set forth
in Section 7(a) and 7(b), (ii) the date the Release becomes effective,
or (iii) Section 7(h).

     

    (d)           Timing of Severance
Payments.  The Company will pay the severance payments to which
Executive is entitled as salary continuation with the same timing as in effect
immediately prior to Executive’s termination of employment.  If
Executive should die before all amounts have been paid, such unpaid amounts will
be paid in a lump sum payment (less any withholding taxes) to Executive’s
designated beneficiary, if living, or otherwise to the personal representative
of Executive’s estate.

     

    (e)           Voluntary Resignation;
Termination due to Death or Disability.  If Executive’s
employment with the Company (or any parent or subsidiary of the Company)
terminates voluntarily by Executive (except upon Constructive Termination
following a Change of Control), or due to Executive’s death or Disability, then
(i) all vesting will terminate immediately with respect to Executive’s
outstanding Awards, (ii) all payments of compensation by the Company to
Executive hereunder will terminate immediately (except as to amounts already
earned through the date of termination), and (iii) Executive will not be
entitled to receive severance or other benefits except for those benefits (if
any) which do not concern acceleration of Award vesting or severance pay based
on termination of employment as may then be established under other Company
policies or programs, if any.

     

    (f)           Termination for
Cause.  If Executive’s employment with the Company terminates
for Cause by the Company (or any parent or subsidiary of the Company), then (i)
all vesting will terminate immediately with respect to Executive’s outstanding
Awards, (ii) all payments of compensation by the Company to Executive hereunder
will terminate immediately (except as to amounts already earned as of the date
Executive receives written notification of Executive’s termination for Cause),
and (iii) Executive will not be entitled to receive severance or other benefits
except for those benefits (if any) which do not concern acceleration of Award
vesting or severance pay based on termination of employment as may then be
established under other Company policies or programs, if any.

    
      
         

      

      
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    (g)           Exclusive
Remedy.  In the event of a termination of Executive’s
employment with the Company (or any parent or subsidiary of the Company), the
provisions of this Section 7 are intended to be and are exclusive and in lieu of
any other rights or remedies to which Executive or the Company may otherwise be
entitled, whether at law, tort or contract, in equity, or under this
Agreement.  Executive will be entitled to no severance or other
benefits upon termination of employment with respect to acceleration of Award
vesting or severance pay other than those benefits expressly set forth in this
Section 7.

     

    (h)           Section
409A.  

     

    (i)          Notwithstanding
anything to the contrary in this Agreement, if Executive is a “specified
employee” within the meaning of Section 409A at the time of Executive’s
termination, then, if required, the severance and benefits payable to Executive
pursuant to this Agreement (other than due to death), if any, and any other
severance payments or separation benefits which may be considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation
Benefits”), which are otherwise due to Executive on or within the six (6) month
period following Executive’s termination will accrue during such six (6) month
period and will become payable in a lump sum payment on the date six (6) months
and one (1) day following the date of Executive’s termination of employment or
the date of Executive’s death, if earlier.  All subsequent Deferred
Compensation Separation Benefits, if any, will be payable in accordance with the
payment schedule applicable to each payment or benefit.

     

    (ii)         Any
amount paid under this Agreement that qualifies as a payment made as a result of
an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii)
of the Treasury Regulations that does not exceed the Section 409A Limit (as
defined below) will not constitute Deferred Compensation Separation Benefits for
purposes of clause (i) above.

     

    (iii)        The
foregoing provisions are intended to comply with the requirements of Section
409A so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply.  Executive
and the Company agree to work together in good faith to consider amendments to
this Agreement and to take such reasonable actions which are necessary,
appropriate or desirable to avoid imposition of any additional tax or income
recognition prior to actual payment to Executive under Section
409A.

     

    8.           Limitation on
Payments.  In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to Executive (i) constitute
“parachute payments” within the meaning of Section 280G of the Internal Revenue
Code of 1986 (“Code”) and (ii) but for this Section 8, would be subject to the
excise tax imposed by Section 4999 of the Code, then Executive’s severance
benefits will be either:

     

    
      	
            	
              (a)

            	
              delivered
      in full, or

            

    

     

    
      	
               
      

            	
              (b)

            	
              delivered
      as to such lesser extent which would result in no portion of such
      severance benefits being subject to the excise tax under Section 4999 of
      the Code,

            

    

    
      
         

      

      
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    whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits, notwithstanding that all or some portion of such severance benefits
may be taxable under Section 4999 of the Code.  If a reduction in the
severance and other benefits constituting “parachute payments” is necessary so
that no portion of such severance benefits is subject to the excise tax under
Section 4999 of the Code, the reduction shall occur in the following order
unless the Company determines in writing a different order: (1) reduction
of the severance payments under Sections 7(a)(i) or 7(b)(i); (2) cancellation of
accelerated vesting of Awards; and (3) reduction of continued employee
benefits.  In the event that acceleration of vesting of Award
compensation is to be reduced, such acceleration of vesting shall be cancelled
in the reverse order of the date of grant of Executive’s Awards.

     

    Unless
the Company and Executive otherwise agree in writing, any determination required
under this Section 8 will be made in writing by an independent firm immediately
prior to Change of Control (the “Firm”), whose determination will be conclusive
and binding upon Executive and the Company for all purposes.  For
purposes of making the calculations required by this Section 8, the Firm
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code.  The Company and
Executive will furnish to the Firm such information and documents as the Firm
may reasonably request in order to make a determination under this
Section.  The Company will bear all costs the Firm may reasonably
incur in connection with any calculations contemplated by this Section
8.

     

    9.           Definition of
Terms.  The following terms referred to in this Agreement will
have the following meanings:

     

    (a)           Benefit
Plans.  For purposes of this Agreement, “Benefit Plans” means
plans, policies or arrangements that the Company sponsors (or participates in)
and that immediately prior to Executive’s termination of employment provide
Executive and/or Executive’s eligible dependents with medical, dental and vision
benefits.  Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or
retirement benefits). A requirement that the Company provide Executive and
Executive’s eligible dependents with coverage under the Benefit Plans will not
be satisfied unless the coverage is no less favorable than that provided to
senior executives of the Company at any applicable time during the period
Executive is entitled to receive severance pursuant to Section 7.  The
Company may, at its option, satisfy any requirement that the Company provide
coverage under any Benefit Plan by (i) reimbursing Executive’s premiums
under Title X of the Consolidated Budget Reconciliation Act of 1985, as
amended (“COBRA”) after Executive has properly elected continuation coverage
under COBRA (in which case Executive will be solely responsible for electing
such coverage for Executive’s eligible dependents), or (ii) providing
coverage under a separate plan or plans providing coverage that is sufficient to
provide Executive and Executive’s eligible dependents with equivalent coverage
that is reasonably available to Executive and/or Executive’s eligible
dependents.

    
      
         

      

      
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    (b)           Cause.  “Cause”
is defined as a determination by the Company of any of the following: (i) any
act of personal dishonesty involving Executive in connection with Executive’s
responsibilities as an employee of the Company; (ii) Executive’s conviction of,
or plea of guilty or nolo contendere to, a felony;
(iii) a willful act by Executive which constitutes gross misconduct and which is
injurious to the Company; (iv) continued violations by Executive of Executive’s
obligations as an employee of the Company which are demonstrably willful and
deliberate on Executive’s part after there has been delivered to Executive a
written demand for performance from the Company which describes the basis for
the Company's belief that Executive has not substantially performed Executive’s
duties (unless such violation by its nature cannot be cured, in which case
notice and an opportunity to cure shall not be required); or (v) Executive’s
arrest for any crime involving fraud, embezzlement or any other act of moral
turpitude.

     

    (c)           Change of
Control.  “Change of Control” means the occurrence of any of
the following events:

     

    (i)           the
acquisition by any one person, or more than one person acting as a group (for
these purposes, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar business transaction with the Company),
(“Person”) that or is or becomes the owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
total voting power represented by the Company’s then outstanding securities (the
“Voting Securities”); provided, however, that for purposes of this subsection
(i), the acquisition of additional securities by any one Person, who is
considered to own more than fifty percent (50%) of the total voting power of the
securities of the Company shall not be considered a Change of Control;
or

     

    (ii)         a
change in the ownership of a substantial portion of the Company’s assets which
occurs on the date that any Person acquires (or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total gross fair market
value equal to or more than fifty percent (50%) of the total fair market value
of all of the assets of the Company immediately prior to such acquisition or
acquisitions; provided, however, that for purposes of this Section 9(c)(ii) the
following shall not constitute a change in the ownership of a substantial
portion of the Company’s assets: (1) a transfer to an entity that is controlled
by the Company’s shareholders immediately after the transfer; or (2) a transfer
of assets by the Company to: (A) a shareholder of the Company (immediately
before the asset transfer) in exchange for or with respect to the Company’s
securities; (B) an entity, fifty percent (50%) or more of the total value or
voting power of which is owned, directly or indirectly, by the Company; (C) a
Person, that owns, directly or indirectly, fifty percent (50%) or more of the
total value or voting power of all the outstanding stock of the Company; or (D)
an entity, at least fifty percent (50%) of the total value or voting power of
which is owned, directly or indirectly, by a Person described in subsection
(C).  For purposes of this Section 9(c)(ii), gross fair market value
means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such
assets.

     

    Notwithstanding the foregoing, a transaction shall not
constitute a Change of Control if: (i) its sole purpose is to change the
state of the Company’s incorporation; (ii) its sole purpose is to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company’s securities immediately before such transaction;
or (iii) it does not constitute a change in control event under Treasury
Regulation 1.409A-3(i)(5)(v) or (vii).

    
      
         

      

      
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    (d)           Constructive
Termination.  “Constructive Termination” means Executive’s
resignation within thirty (30) days following the expiration of any Company cure
period (discussed below) following the occurrence of one or more of the
following events without Executive’s consent: (i) the assignment to Executive of
any duties or the reduction of Executive’s duties, either of which results in a
material diminution in Executive’s authority, duties or responsibilities with
the Company in effect immediately prior to such assignment, or the removal of
Executive from such position and responsibilities, unless Executive is provided
with comparable authority, duties or responsibilities; provided, however, it being understood that a
new position within a larger combined company does not constitute
“Constructive Termination” if it is in the same
area of operations and involves similar scope of management responsibility
notwithstanding that Executive may not retain as senior a position overall
within the larger combined company as Executive’s prior position; (ii) a
material reduction of Executive’s Base Salary; (iii) a material change in the
geographic location at which Executive must perform services (for purposes of
this Agreement, the relocation of Executive to a facility or a location less
than fifty (50) miles from Executive’s then-present location shall not be
considered a material change in geographic location); or (iv) any material
breach by the Company of any material provision of this
Agreement.  Executive will not resign for Constructive Termination
without first providing the Company with written notice of the acts or omissions
constituting the grounds for “Constructive Termination” within ninety (90) days
of the initial existence of the grounds for “Constructive Termination” and a
reasonable cure period of not less than thirty (30) days following the date of
such notice.

     

    (e)           Disability.  “Disability”
will mean that Executive has been unable to perform Executive’s Company duties
as the result of Executive’s incapacity due to physical or mental illness, and
such inability, at least twenty-six (26) weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to Executive or Executive’s legal representative
(such Agreement as to acceptability not to be unreasonably
withheld).  Termination resulting from Disability may only be effected
after at least thirty (30) days’ written notice by the Company of its intention
to terminate Executive’s employment.  In the event that Executive
resumes the performance of substantially all of Executive’s duties hereunder
before the termination of Executive’s employment becomes effective, the notice
of intent to terminate will automatically be deemed to have been
revoked.

     

    (f)           Section 409A
Limit.  For purposes of this Agreement, “Section 409A Limit”
means the lesser of two (2) times: (i) Executive’s annualized compensation based
upon the annual rate of pay paid to Executive during the Company’s taxable year
preceding the Company’s taxable year of Executive’s termination of employment as
determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal
Revenue Service guidance issued with respect thereto; or (ii) the maximum
amount that may be taken into account under a qualified plan pursuant to
Section 401(a)(17) of the Code for the year in which Executive’s employment
is terminated.

    
      
         

      

      
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    10.          Successors.

     

    (a)           The Company’s
Successors.  Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business and/or assets
will assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession.  For all purposes under this Agreement, the term “Company”
will include any successor to the Company’s business and/or assets which
executes and delivers the assumption agreement described in this Section 10(a)
or which becomes bound by the terms of this Agreement by operation of
law.  The failure of the Company to obtain the assumption of this
Agreement by any successor will constitute a material breach of a material part
of this Agreement.

     

    (b)           Executive’s
Successors.  The terms of this Agreement and all rights of
Executive hereunder will inure to the benefit of, and be enforceable by,
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     

    11.          Notice.

     

    (a)           General.  Notices
and all other communications contemplated by this Agreement will be in writing
and will be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and
postage prepaid.  In the case of Executive, mailed notices will be
addressed to Executive at the home address which Executive most recently
communicated to the Company in writing.  In the case of the Company,
mailed notices will be addressed to its corporate headquarters, and all notices
will be directed to the attention of the CEO.

     

    (b)           Notice of
Termination.  Any termination by the Company for Cause or by
Executive for Constructive Termination or as a result of a voluntary resignation
by Executive will be communicated by a notice of termination to the other party
hereto given in accordance with Section 11(a) of this Agreement.  Such
notice will indicate the specific termination provision in this Agreement relied
upon, will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and will
specify the termination date (which will be not more than thirty (30) days after
the giving of such notice).  The failure by Executive to include in
the notice any fact or circumstance which contributes to a showing of
Constructive Termination will not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing
Executive’s rights hereunder.

     

    12.          Arbitration.

     

    (a)           Arbitration.  In
consideration of Executive’s employment with the Company, its promise to
arbitrate all employment-related disputes, and
Executive’s receipt of the compensation, pay raises and other benefits paid to
Executive by the Company, at present and in the future, Executive agrees that
any and all controversies, claims, or disputes with anyone (including the
Company and any employee, officer, director, shareholder or benefit plan of the
Company in their capacity as such or otherwise) arising out of, relating to, or
resulting from Executive’s employment with the Company or termination thereof,
including any breach of this Agreement, will be subject to binding
arbitration.  The Federal Arbitration Act shall also continue to apply
with full force and effect, notwithstanding the application of procedural rules
set forth under the Act.

    
      
         

      

      
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    (b)           Dispute
Resolution.  Disputes that Executive agrees to
arbitrate, and thereby agrees to waive any right to a trial by jury, include any
statutory claims under local, state, or federal law, including, but not
limited to, claims under Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act of 1990, the Age Discrimination in Employment
Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act,
the Worker Adjustment and Retraining Notification Act, the Family and Medical
Leave Act, Claims of harassment, discrimination, and wrongful termination, and
any statutory or common law claims.  Executive further understands
that this Agreement to arbitrate also applies to any disputes that the Company
may have with Executive.

     

    (c)           Procedure.  Executive
agrees that any arbitration will be administered by the Judicial Arbitration
& Mediation Services, Inc. (“JAMS”), pursuant to its Employment Arbitration
Rules & Procedures (the “JAMS Rules”).  The arbitrator shall have
the power to decide any motions brought by any party to the arbitration,
including motions for summary judgment and/or adjudication, motions to dismiss
and demurrers, and motions for class certification, prior to any arbitration
hearing.  The arbitrator shall have the power to award any remedies
available under applicable law, and the arbitrator shall award attorneys’ fees
and costs to the prevailing party, except as prohibited by law.  The
Company will pay for any administrative or hearing fees charged by the
administrator or JAMS, except that Executive shall pay any filing fees
associated with any arbitration that Executive initiates, but only so much of
the filing fee as Executive would have instead paid had Executive filed a
complaint in a court of law.  Executive agrees that the arbitrator
shall administer and conduct any arbitration in accordance with Virginia law,
including the Code of Virginia, and that the arbitrator shall apply substantive
and procedural Virginia law to any dispute or claim, without reference to the
rules of conflict of law.  To the extent that the JAMS Rules conflict
with Virginia law, Virginia law shall take precedence.  The decision
of the arbitrator shall be in writing.  Any arbitration under this
Agreement shall be conducted in Fairfax County, Virginia.

     

    (d)           Remedy.  Except
as provided by the Act, arbitration shall be the sole, exclusive, and final
remedy for any dispute between Executive and the Company.  Accordingly, except as provided by
the Act and this Agreement, neither Executive nor the Company will be permitted
to pursue court action regarding claims that are subject to
arbitration.  Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator will not order or require the Company to adopt a policy not otherwise
required by law which the Company has not adopted.

     

    (e)           Administrative
Relief.  Executive is not prohibited from pursuing an
administrative claim with a local, state, or federal administrative body or
government agency that is authorized to enforce or administer laws related to
employment, including, but not limited to, the Department of Fair Employment and
Housing, the Equal Employment Opportunity Commission, the National Labor
Relations Board, or the Workers’ Compensation Board.  However,
Executive may not pursue court action regarding any such claim, except as
permitted by law.

     

    (f)           Voluntary Nature of
Agreement.  Executive acknowledges and agrees that Executive is
executing this Agreement voluntarily and without any duress or undue influence
by the Company or anyone else.  Executive further acknowledges and
agrees that Executive has carefully read this Agreement and that Executive has
asked any questions needed for Executive to understand the terms, consequences
and binding effect of this Agreement and fully understands it, including that
EXECUTIVE
IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL.  Finally,
Executive agrees that Executive has been provided an opportunity to seek the
advice of an attorney of Executive’s choice before signing this
Agreement.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    13.          Miscellaneous
Provisions.

     

    (a)           No Duty to
Mitigate.  Executive will not be required to mitigate the
amount of any payment contemplated by this Agreement, nor will any such payment
be reduced by any earnings that Executive may receive from any other
source.

     

    (b)           Amendment.  No
provision of this Agreement will be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by
Executive and by an authorized officer of the Company (other than Executive)
that is expressly designated as an amendment to this Agreement.

     

    (c)           Waiver.  No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party will be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.

     

    (d)           Headings.  All
captions and section headings used in this Agreement are for convenient
reference only and do not form a part of this Agreement.

     

    (e)           Entire
Agreement.  The Offer Letter of evendate herewith and this
Agreement constitute the entire agreement of the parties hereto as to the
subject matter herein and supersedes and replaces all prior or contemporaneous
agreements whether written or oral including.  Executive acknowledges
and agrees that this Agreement encompasses all the rights of Executive to any
acceleration of Award vesting or severance pay based on termination of
employment and Executive hereby agrees that he or she has no such rights except
as stated herein, and Executive agrees that any such rights, whether in an
employment agreement, offer letter, stock option agreement, stock option plan or
other agreement, are hereby waived.

     

    (f)           Choice of
Law.  The validity, interpretation, construction and
performance of this Agreement will be governed by the laws of the Commonwealth
of Virginia (with the exception of its conflict of laws
provisions).

     

    (g)           Severability.  The
invalidity or unenforceability of any provision or provisions of this Agreement
will not affect the validity or enforceability of any other provision hereof,
which will remain in full force and effect.

     

    (h)           Withholding.  All
payments made pursuant to this Agreement will be subject to all applicable
withholdings, including all applicable income and employment taxes, as
determined in the Company’s reasonable judgment.

     

    (i)           Counterparts.  This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of
the Company by its duly authorized officer, as of the day and year set forth
below.

    

    
      
        
          
            
              
                	
                        COMPANY

                      	
                        GEEKNET,
      INC.

                      
	 
      	 
      	 
      
	 
      	
                        By:

                      	
                        /s/ Kenneth G. Langone

                      
	 
      	 
      	 
      
	 
      	
                        Title:

                      	 
      
	 
      	 
      	 
      
	
                        EXECUTIVE

                      	
                        By:

                      	
                        /s/  Kathryn
    McCarthy

                      
	 	 	 
	 
      	
                        Title:

                      	
                        Executive Vice President and Chief
      Financial
Officer

                      

              

            

          

        

      

    

    
      
         

      

      
        -12-PURCHASE
AND SALE AGREEMENT

    

    DATED
NOVEMBER 5, 2010

    

    AMONG

    

    MEGAENERGY,
INC.

    

    AND

    

    SAGA
PETROLEUM CORP.

    

    AS
SELLER

    

    AND

    

    GASTAR
EXPLORATION USA, INC.

    

    AS
BUYER

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    TABLE OF
CONTENTS

    

    
      
        
          	 
      	 
      	 
      	
                  PAGE

                
	
                  1.

                	
                  Purchase
      and Sale

                	
                  1

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Properties

                	
                  1

                
	 
      	
                  (b)

                	
                  Excluded
      Properties

                	
                  4

                
	 
      	 
      	 
      
	
                  2.

                	
                  Purchase
      Price; Deposit

                	
                  5

                
	 
      	 
      	 
      
	
                  3.

                	
                  Effective
      Time and Purchase Price Adjustments

                	
                  6

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Purchase
      Price Increases

                	
                  6

                
	 
      	
                  (b)

                	
                  Purchase
      Price Decreases

                	
                  7

                
	 
      	
                  (c)

                	
                  Collection
      of Receivables

                	
                  7

                
	 
      	
                  (d)

                	
                  Allocation

                	
                  8

                
	 
      	
                  (e)

                	
                  Tax
      Allocation

                	
                  8

                
	 
      	
                  (f)

                	
                  Allocation
      and Payment of Taxes

                	
                  8

                
	 
      	
                  (g)

                	
                  Audit
      Adjustments

                	
                  9

                
	 
      	
                  (h)

                	
                  Tax
      Refunds

                	
                  9

                
	 
      	 
      	 
      
	
                  4.

                	
                  Representations
      of Seller

                	
                  9

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Organization

                	
                  9

                
	 
      	
                  (b)

                	
                  Authority

                	
                  9

                
	 
      	
                  (c)

                	
                  Enforceability

                	
                  9

                
	 
      	
                  (d)

                	
                  No
      Conflicts

                	
                  10

                
	 
      	
                  (e)

                	
                  Foreign
      Person

                	
                  10

                
	 
      	
                  (f)

                	
                  Bankruptcy

                	
                  10

                
	 
      	
                  (g)

                	
                  Brokers

                	
                  10

                
	 
      	
                  (h)

                	
                  Rentals
      and Royalties

                	
                  10

                
	 
      	
                  (i)

                	
                  Taxes

                	
                  10

                
	 
      	
                  (j)

                	
                  Claims
      and Litigation

                	
                  11

                
	 
      	
                  (k)

                	
                  Consents
      and Preferential Rights

                	
                  11

                
	 
      	
                  (l)

                	
                  Outstanding
      Capital Commitments

                	
                  11

                
	 
      	
                  (m)

                	
                  Contracts

                	
                  11

                
	 
      	
                  (n)

                	
                  The
      Records

                	
                  11

                
	 
      	
                  (n)

                	
                  No
      Violation

                	
                  12

                
	 
      	
                  (o)

                	
                  Parties
      to Unitization Agreements

                	
                  12

                
	 
      	 
      	 
      
	
                  5.

                	
                  Representations
      of Buyer

                	
                  12

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Organization

                	
                  12

                
	 
      	
                  (b)

                	
                  Authority

                	
                  12

                
	 
      	
                  (c)

                	
                  Enforceability

                	
                  12

                
	 
      	
                  (d)

                	
                  No
      Conflicts

                	
                  12

                
	 
      	
                  (e)

                	
                  SEC
      Disclosure

                	
                  13

                
	 
      	
                  (f)

                	
                  Financial
      Ability

                	
                  13

                

        

      

    

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    

    
      
        
          	 
      	
                  (g)

                	
                  Investment
      Experience

                	
                  13

                
	 
      	
                  (h)

                	
                  Physical
      and Environmental Defects

                	
                  13

                
	 
      	
                  (i)

                	
                  Brokers

                	
                  13

                
	 
      	 
      	 
      
	
                  6.

                	
                  Pre-Closing
      Covenants

                	
                  14

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Access

                	
                  14

                
	 
      	
                  (b)

                	
                  Seller’s
      Pre-Closing Covenants

                	
                  14

                
	 
      	
                  (c)

                	
                  Buyer’s
      Covenants

                	
                  15

                
	 
      	 
      	 
      
	
                  7.

                	
                  Title
      Matters

                	
                  15

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Title
      Definitions

                	
                  15

                
	 
      	
                  (b)

                	
                  Permitted
      Encumbrances

                	
                  16

                
	 
      	
                  (c)

                	
                  Title
      Defect Notice

                	
                  18

                
	 
      	
                  (d)

                	
                  Title
      Defect Remedies

                	
                  18

                
	 
      	
                  (e)

                	
                  Post-Closing
      Curative

                	
                  19

                
	 
      	
                  (f)

                	
                  Termination

                	
                  20

                
	 
      	
                  (g)

                	
                  Exclusive
      Remedy

                	
                  20

                
	 
      	 
      	 
      
	
                  8.

                	
                  Environmental
      Matters

                	
                  20

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Environmental
      Definitions

                	
                  20

                
	 
      	
                  (b)

                	
                  Acknowledgements

                	
                  22

                
	 
      	
                  (c)

                	
                  Environmental
      Assessment

                	
                  22

                
	 
      	
                  (d)

                	
                  Environmental
      Defect Notice

                	
                  23

                
	 
      	
                  (e)

                	
                  Environmental
      Remedies

                	
                  23

                
	 
      	
                  (f)

                	
                  Post-Closing
      Remediation

                	
                  24

                
	 
      	
                  (g)

                	
                  Termination

                	
                  24

                
	 
      	
                  (h)

                	
                  Exclusive
      Remedy

                	
                  24

                
	 
      	 
      	 
      
	
                  9.

                	
                  Casualty
      Loss

                	
                  24

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Risk
      of Loss

                	
                  24

                
	 
      	
                  (b)

                	
                  Casualty
      Loss

                	
                  25

                
	 
      	
                  (c)

                	
                  Casualty
      Remedies

                	
                  25

                
	 
      	
                  (d)

                	
                  Post-Closing
      Remedies

                	
                  25

                
	 
      	
                  (e)

                	
                  Casualty
      Termination

                	
                  26

                
	 
      	
                  (f)

                	
                  Casualty
      Disputes

                	
                  26

                
	 
      	 
      	 
      
	
                  10.

                	
                  Preferential
      Rights and Consents

                	
                  26

                
	 
      	 
      	 
      
	
                  11.

                	
                  Conditions
      Precedent to the Obligations of Seller to Close

                	
                  26

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Representations
      and Warranties

                	
                  27

                
	 
      	
                  (b)

                	
                  No
      Litigation

                	
                  27

                
	 
      	
                  (c)

                	
                  Closing
      Obligations

                	
                  27

                
	 
      	 
      	 
      
	
                  12.

                	
                  Conditions
      Precedent to the Obligations of Buyer to Close

                	
                  27

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Representations
      and Warranties

                	
                  27

                
	 
      	
                  (b)

                	
                  No
      Litigation

                	
                  27

                

        

      

    

    
      
         

      

      
        -ii-

        
          

        

      

      
         

      

    

    

    
      
        
          	 
      	
                  (c)

                	
                  Closing
      Obligations

                	
                  27

                
	 
      	 
      	 
      
	
                  13.

                	
                  Closing

                	
                  27

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Preliminary
      Settlement Statement

                	
                  28

                
	 
      	
                  (b)

                	
                  Closing
      Deliverables

                	
                  28

                
	 
      	 
      	 
      
	
                  14.

                	
                  Post-Closing
      Adjustments

                	
                  29

                
	 
      	 
      	 
      	 
      
	
                  15.

                	
                  Post-Closing
      Covenants

                	
                  30

                
	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Recording
      and Sales Tax

                	
                  30

                
	 
      	
                  (b)

                	
                  Records

                	
                  30

                
	 
      	
                  (c)

                	
                  Suspense
      Funds

                	
                  30

                
	 
      	
                  (d)

                	
                  Assumption

                	
                  30

                
	 
      	 
      	 
      
	
                  16.

                	
                  Operations

                	
                  30

                
	 
      	 
      	 
      
	
                  17.

                	
                  Indemnities

                	
                  31

                
	 
      	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Seller’s
      Indemnification

                	
                  31

                
	 
      	
                  (b)

                	
                  Buyer’s
      Indemnification

                	
                  31

                
	 
      	
                  (c)

                	
                  Buyer’s
      Environmental Indemnification

                	
                  31

                
	 
      	
                  (d)

                	
                  Monetary
      Damages

                	
                  31

                
	 
      	
                  (e)

                	
                  Monetary
      Limitation

                	
                  32

                
	 
      	
                  (f)

                	
                  Time
      Limitation

                	
                  32

                
	 
      	
                  (g)

                	
                  Compromise
      or Settlement

                	
                  33

                
	 
      	
                  (h)

                	
                  Mitigation

                	
                  33

                
	 
      	
                  (i)

                	
                  Knowledge

                	
                  33

                
	 
      	
                  (j)

                	
                  Exclusive
      Remedy

                	
                  33

                
	 
      	 
      	 
      
	
                  18.

                	
                  Disclaimers

                	
                  34

                
	 
      	 
      	 
      
	
                  19.

                	
                  Termination
      and Remedies

                	
                  35

                
	 
      	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Termination

                	
                  35

                
	 
      	
                  (b)

                	
                  Buyer’s
      Remedy

                	
                  35

                
	 
      	
                  (c)

                	
                  Seller’s
      Remedy

                	
                  36

                
	 
      	 
      	 
      
	
                  20.

                	
                  Notices

                	
                  36

                
	 
      	 
      	 
      
	
                  21.

                	
                  Miscellaneous

                	
                  37

                
	 
      	 
      	 
      	 
      
	 
      	
                  (a)

                	
                  Exhibits

                	
                  37

                
	 
      	
                  (b)

                	
                  Integration

                	
                  37

                
	 
      	
                  (c)

                	
                  Amendments

                	
                  37

                
	 
      	
                  (d)

                	
                  No
      Assignment

                	
                  37

                
	 
      	
                  (e)

                	
                  Binding
      Effect

                	
                  38

                
	 
      	
                  (f)

                	
                  Relationship

                	
                  38

                
	 
      	
                  (g)

                	
                  Third
      Parties

                	
                  38

                
	 
      	
                  (h)

                	
                  No
      Merger; Survival

                	
                  38

                
	 
      	
                  (i)

                	
                  Expenses
      and Fees

                	
                  38

                

        

      

    

    
      
         

      

      
        -iii-

        
          

        

      

      
         

      

    

    

    
      
        
          	 
      	
                  (j)

                	
                  Arbitration

                	
                  38

                
	 
      	
                  (k)

                	
                  Governing
      Law

                	
                  39

                
	 
      	
                  (l)

                	
                  Press
      Releases

                	
                  39

                
	 
      	
                  (m)

                	
                  Interpretation

                	
                  39

                
	 
      	
                  (n)

                	
                  Headings

                	
                  39

                
	 
      	
                  (o)

                	
                  Like-Kind
      Exchanges

                	
                  39

                
	 
      	
                  (q)

                	
                  Further
      Assurances

                	
                  40

                
	 
      	
                  (r)

                	
                  Counterparts

                	
                  40

                
	 
      	
                  (s)

                	
                  Facsimile
      and Electronic Signatures

                	
                  40

                
	 
      	
                  (t)

                	
                  Construction

                	
                  40

                
	 
      	
                  (u)

                	
                  Additional
      Agreements

                	
                  41

                

        

      

    

    

    List of Exhibits and
Schedules

    

    Exhibit
A-1 – The Leases

    

    Exhibit
A-2 – Fee Interests

    

    Exhibit B
– The Wells

    

    Exhibit C
– The Equipment

    

    Exhibit D
– The Surface Rights

    

    Exhibit E
– The Material Contracts

    

    Exhibit F
– The Pipeline

    

    Exhibit G
– The Area of Mutual Interest

    

    Exhibit H
– The Assignment

    

    Exhibit I
– The Non-Foreign Affidavit

    

    Schedule
3(d) – Allocation of Purchase Price

    

    Schedule
4(d) – Disclosure Schedule

    
      
         

      

      
        -iv-

        
          

        

      

      
         

      

    

    Definitions

    

    “Additional
Interests” has the meaning set forth in Section 6(c)(ii).

    

    “Adjusted
Purchase Price” has the meaning set forth in Section 3.

    

    “Allocated
Value” has the meaning set forth in Section 3(d) and Section
7(a)(i).

    

    “AMI” has
the meaning set forth in Section 6(c)(ii).

    

    “Assignments”
has the meaning set forth in Section 13(b)(i).

    

    “Bank”
has the meaning set forth in Section 7(d)(iii).

    

    “Bank
Liens” has the meaning set forth in Section 7(d)(iii).

    

    “Bank
Payoff” has the meaning set forth in Section 13(b)(iii).

    

    “Business
Day” means any day other than a Saturday or Sunday or a day on which the banking
institutions in the State of Texas  are authorized by Law to
close.

    

    “Buyer’s
Notice Date” has the meaning set forth in Section 7(c).

    

    “Casualty
Event” has the meaning set forth in Section 9(b).

    

    “Casualty
Loss” has the meaning set forth in Section 9(b).

    

    “Casualty
Threshold” has the meaning set forth in Section 9(b).

    

    “Claim
Deductible” has the meaning set forth in Section 17(e).

    

    “Claims”
has the meaning set forth in Section 17.

    

    “Closing”
has the meaning set forth in Section 13.

    

    “Closing
Date” has the meaning set forth in Section 13.

    

    “Code”
has the meaning set forth in Section 3(e).

    

    “Deposit”
has the meaning set forth in Section 2.

    

    “Disclosure
Schedule” has the meaning set forth in Section 4(d).

    

    “Effective
Time” has the meaning set forth in Section 3.

    
      
         

      

      
        -v-

        
          

        

      

      
         

      

    

    

    “Environmental
Basket” has the meaning set forth in Section 8(a)(i).

    

    “Environmental
Defect” has the meaning set forth in Section 8(a)(iii).

    

    “Environmental
Defect Notice” has the meaning set forth in Section 8(d).

    

    “Environmental
Threshold” has the meaning set forth in Section 8(a)(v).

    

    “Environmental
Threshold Overall Limit” has the meaning set forth in Section
8(a)(v).

    

    “Environmental
Laws” has the meaning set forth in Section 8(a)(iv).

    

    “Environmental
Response” has the meaning set forth in Section 8(e).

    

    “Equipment”
has the meaning set forth in Section 1(a)(iii).

    

    “Escrow
Account” has the meaning set forth in Section 2.

    

    “Escrow
Agent” has the meaning set forth in Section 2.

    

    “Escrow
Agreement” has the meaning set forth in Section 2.

    

    “Excluded
Properties” has the meaning set forth in Section 1(b).

    

    “Fee
Interests” has the meaning set forth in Section 1(b)(xiii).

    

    “Final
Settlement Statement” has the meaning set forth in Section 14.

    

    “Governmental
Authority” means any national, regional, state, county or municipal government,
domestic or foreign, any agency, board, bureau, commission, court, department or
other instrumentality of any such government that has jurisdiction over any
Party or any of its respective business or assets.

    

    “Horseshoe
Run” means Horseshoe Run Services, LLC, a Colorado limited liability
company.

    

    “Indemnity
Deadline” has the meaning set forth in Section 17(f).

    

    “Land”
has the meaning set forth in Section 1(a)(i).

    

    
      “Law”
shall mean any and all law, rule, regulation, statute, ordinance, order,
judgment, writ, injunction or decree of any Governmental Authority including
federal, state, local and tribal authorities.

    

    

    “Leases”
has the meaning set forth in Section 1(a)(i).

    
      
         

      

      
        -vi-

        
          

        

      

      
         

      

    

    

    “Material
Contracts” has the meaning set forth in Section 1(a)(vi).

    

    “Mechanic’s
Liens” has the meaning set forth in Section 7(d)(iii).

    

    “Monetary
Limitation” has the meaning set forth in Section 17(e).

    

    “Net
Revenue Interest” has the meaning set forth in Section 7(a)(i).

    

    “NORM”
has the meaning set forth in Section 8(a)(vi).

    

    “Notice”
has the meaning set forth in Section 20.

    

    “Operator”
has the meaning set forth in Section 16(a).

    

    “Outside
Termination Date” has the meaning set forth in Section 19(a).

    

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

    

    “Permitted
Encumbrances” has the meaning set forth in Section 7(b).

    

    “Pipeline”
has the meaning set forth in Section 1(a)(vii).

    

     “Post-Closing
Date” has the meaning set forth in Section 7(e).

    

    “Preliminary
Amount” has the meaning set forth in Section 13(a).

    

    “Preliminary
Settlement Statement” has the meaning set forth in Section 13(a).

    

    “Production”
has the meaning set forth in Section 1(a)(iv).

    

    “Production
Taxes” has the meaning set forth in Section 1(a)(viii).

    

    “Properties”
has the meaning set forth in Section 1(a).

    

    “Property
Taxes” has the meaning set forth in Section 1(a)(viii).

    

    “Purchase
Price” has the meaning set forth in Section 2. 

    

    “Recording
Costs” has the meaning set forth in Section 15(a).

    

    “Records”
have the meaning set forth in Section 1(a)(viii).

     

    “Remediation
Value” has the meaning set forth in Section 8(a)(vii).

    
      
         

      

      
        -vii-

        
          

        

      

      
         

      

    

    

    “Sales
Tax” has the meaning set forth in Section 15(a).

    

    “Securities
Laws” has the meaning set forth in Section 5(e).

    

    “Seismic
Data” means M/S’s proprietary 3-D seismic data covering a portion of the
Land.

    

    “Seller
Group” has the meaning set forth in Section 17(b).

    

    “Seller’s
Response Date” has the meaning set forth in Section 7(d).

    

    “Settlement
Date” has the meaning set forth in Section 14.

    

    “Surface
Rights” has the meaning set forth in Section 1(a)(v).

    

    “Title
Basket” has the meaning set forth in Section 7(a)(ii).

    

    “Title
Defect” has the meaning set forth in Section 7(a)(iv).

    

    “Title
Defect Notice” has the meaning set forth in Section 7(c).

    

    “Title
Defect Value” has the meaning set forth in Section 7(a)(v).

    

    “Title
Threshold” has the meaning set forth in Section 7(a)(vi).

    

    “Title
Threshold Overall Limit” has the meaning set forth in Section
7(a)(vi).

    

    “Qualified
Exchange Accommodation Titleholder” has the meaning set forth in Section
20(p).

    

    “Qualified
Intermediary” has the meaning set forth in Section 20(p).

    

    “Wells”
has the meaning set forth in Section 1(a)(ii).

    

    “Withdrawn
Properties” means the Properties withdrawn pursuant to Section 7(d)(v), Section
8 (e)(iii) and Section 9(c).

    

    “Working
Interest” has the meaning set forth in Section 7(a)(vii).

    
      
         

      

      
        -viii-

        
          

        

      

      
         

      

    

    

    PURCHASE AND SALE
AGREEMENT

    

    THIS
PURCHASE AND SALE AGREEMENT (this “Agreement”), executed on November 5, 2010,
and effective as of the Effective Time, is among MEGAENERGY, INC., a Colorado
corporation (“Mega”), and SAGA PETROLEUM CORP., a Colorado corporation (“Saga”),
and GASTAR EXPLORATION USA, INC., a Michigan corporation (“Buyer”). Mega and
Saga shall be referred to herein, collectively, as “Seller.” Seller and Buyer
may be referred to herein, individually, as a “Party,” and, collectively, as the
“Parties.”

    

    Recitals

    

    A.          Seller
owns certain rights and interests in and to the certain oil and gas properties
(the “Properties”) located in the State of West Virginia, as more particularly
described in Section 1(a) below.

    

    B.          Pursuant
to that certain Farmout Agreement (the “Farmout Agreement”), dated May 25, 2010,
among Mega and Saga, and Buyer, Buyer has the right to conduct the Work Program
upon the Properties, as more particularly described in the Farmout Agreement,
and acquire an option to to purchase and acquire from Seller 66.67% or 100% of
Seller’s right, title and interest in and to the Properties (the “Farmout
Percentage”), in accordance with the terms and conditions of this
Agreement.

    

    Agreement

    

    FOR ONE
HUNDRED DOLLARS ($100.00), the mutual premises and covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereby agree as follows:

    

    1.           Purchase and
Sale.

     

    (a)           Properties.  Subject
to the terms and conditions of this Agreement, Seller agrees to sell, assign,
convey and transfer to Buyer, and Buyer agrees to purchase, acquire and assume
from Seller, at the Closing (as hereinafter defined below), but effective as of
the Effective Time, the Farmout Percentage of Seller’s right, title and interest
in and to the following, excluding the Excluded Properties (collectively, the
“Properties”):

     

    (i)           The
undivided interests in, to and under the leasehold estates created by the oil
and gas leases described in Exhibit A-1 hereto (the “Leases”). Except for the
Excluded Properties, the Leases and the Land are intended to include the Farmout
Percentage of Seller’s right, title and interest in and to the Leases including
the Farmout Percentage of Seller’s right, title and interest in and to the oil,
gas and other hydrocarbons in, on or under or that may be produced from the
Leases and the Land from and after the Effective Time, and the Farmout
Percentage of Seller’s right, title and interest in and to the royalty,
leasehold, working, operating, carried, net revenue, net profit, reversionary
and any other rights and interests of a similar nature, together with all other
rights and interests arising by operation of law or otherwise in connection with
the pooling, unitization or communitization of any of the Leases or any portion
of the Land.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    (ii)          The
oil and gas production, injection, pressure maintenance and salt water disposal
wells located upon the Land as of the Effective Date, whether producing or
non-producing, including those described in Exhibit B hereto (collectively, the
“ Existing Wells”), as well as the wells drilled by Buyer pursuant to the Work
Program in accordance with the Farmout Agreement (the “New Wells”)(the Existing
Wells and the New Wells shall be referred to herein, collectively as the
“Wells”).

     

    (iii)         The
equipment, personal property, facilities, improvements, structures and fixtures
located on the Land, or used in connection with the Leases or the Wells, for the
production, gathering, treatment, compression, transportation, processing, sale
or disposal of hydrocarbons or water produced from the Wells, including all
wells, well-bores, casing, tubing, wellheads, gauges, valves, rods, tanks,
pumps, pads, pits, cellars, sumps, separators, treaters, compressors, pipelines
and other improvements, including those described in Exhibit C hereto
(collectively, the “Equipment”).

     

    (iv)         The
oil, gas, condensate and other hydrocarbon production produced from the Land
covered by the Leases, or attributable thereto, or to lands pooled or unitized
therewith, together with all proceeds from and rights relating to such
Production from and after the Effective Time (the “Production”).

     

    (v)          The
easements, rights-of-way, permits, licenses, servitudes, access agreements,
surface use agreements or other similar interests affecting the Leases, the
Lands or the Wells including those described in Exhibit D hereto (collectively,
the “Surface Rights”).

     

    (vi)         The
agreements, contracts, licenses, permits, options, leases, franchises and other
documents related to the ownership or operation of the Leases, the Wells, the
Production, the Surface Rights or the Equipment including all operating, unit,
pooling, communitization, exploration, farm-out, participation, area of mutual
interest, gathering, water disposal, processing, transportation and product
purchase agreements, options, and orders and decisions of state and federal
regulatory authorities including those described in Exhibit E hereto
(collectively, the “Material Contracts”).

     

    (vii)        The
natural gas gathering and transportation system, and related facilities and, to
the extent set forth below, agreements, used in connection with the Leases, the
Land, the Wells and the Production, owned by Horseshoe Run Services, LLC
(“Horseshoe Run”), a Colorado limited liability company (in which Saga is the
manager, and Mega and Saga own all of the membership interests) described in
Exhibit F hereto (collectively, the “Existing Pipeline”), as well as the
pipeline constructed by Buyer pursuant to the Work Program in accordance with
the Farmout Agreement (the “New Pipeline”)(the Existing Pipeline and the New
Pipeline shall be referred to herein, collectively as the “Pipeline”),
including:

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    (A)           natural
gas gathering lines, pipelines, meters, valves, gauges, pumps, traps,
compressors, pigs, manifolds, engines, motors, tanks, vessels, towers, pads,
structures, fixtures, power lines, roads and improvements;

     

    (B)           rights-of-way,
easements, leases, licenses, permits, surface access agreements, servitudes,
franchises, consents, approvals, waivers, authorizations, registrations,
certificates and other rights (including those granted by any governmental
authority) and other similar rights that are held by Horseshoe Run and necessary
for the ownership or operation of the Pipeline;

     

    (C)           to
the extent set forth on Exhibit F, all of the leases, contracts and agreements
with respect to the Pipeline or the business of Horseshoe Run, including
compressor leases, natural gas purchase agreements, transportation agreements,
gas sale agreements, and any other agreements under which Horseshoe Run has the
right or obligation to gather, compress, dehydrate, transport, sell or provide
other services with respect to third party gas delivered into or through the
Pipeline;

     

    (D)           all
natural gas and natural gas liquids contained in the Pipeline, other than that
owned by any third party; and

     

    (E)           all
other rights and benefits, intangible or tangible, pertaining to the Pipeline,
together with all warranties, guarantees, sureties and indemnities in favor of
Horseshoe Run from third parties related to the Pipeline.

     

    (viii)      Copies
of Seller’s files and records (collectively, the “Records”) directly related to
the Leases, the Land, the Wells, the Equipment, the Production, the Surface
Rights, the Material Contracts and the Pipeline including: (A) title abstracts,
reports, memos, opinions and policies, leases, assignments, deeds, agreements,
contracts, rights-of-way, surveys, maps, plats, and related correspondence; (B)
well files, logs, and operations, engineering and maintenance records; (C) joint
interest billing, lease operating expense, division of interest, and accounting
records (excluding Seller’s state and federal income tax information); (D)
severance, production and similar taxes and assessments attributable to the
Properties (“Production Taxes”) and ad valorem property taxes and assessments
attributable to the Properties (“Property Taxes”); but specifically excluding
the records and files related to the Excluded Properties described in Section
1(b) below.

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    (ix)         All
funds, monies, proceeds, income, revenues, credits, receipts and benefits (and
any advances or prepayments) attributable to the Properties, or the operation
thereof, after the Effective Time.

     

    (x)          All
Claims for any refund of or loss carry forwards with respect to: Production
Taxes for any period after the Effective Time.

     

    (xi)         All
Claims in favor of Seller: (A) arising from acts, omissions or events, or damage
to or destruction of the Properties occurring after the Closing Date, subject to
Section 9 below; (B) arising under or with respect to any of the Leases and the
Material Contracts attributable to periods of time after the Closing Date
(including audit rights, and claims for overpayments, adjustments, credits or
refunds).

     

    (xii)        The
Seismic Data (as defined in the Farmout Agreement).

     

    (b)  Excluded
Properties.  Notwithstanding anything to the contrary, the
following rights and interests (collectively, the “Excluded Properties”) are not
included in the definition of the Properties, and Seller hereby expressly
reserves, excepts and retains unto Seller all of Seller’s right, title and
interest in and to the following:

     

    (i)           The
production attributable to the Properties prior to the Effective Time, and the
production attributable to the Withdrawn Properties before or after the
Effective Time, together with all proceeds from and rights relating to the sale
of such production.

     

    (ii)          All
funds, monies, proceeds, income, revenues, credits, receipts and benefits (and
any security, deposits, bonds, advances or prepayments): (A) attributable to the
Properties, or the operation thereof, prior to the Effective Time; or (B)
attributable to the Withdrawn Properties before or after the Effective
Time.

     

    (iii)         All
Claims for any refund of or loss carry forwards with respect to: (A) Production
Taxes for any period prior to the Effective Time; (B) Seller’s income,
occupational or franchise taxes; and (C) any taxes attributable to the Withdrawn
Properties.

     

    (iv)         All
Claims in favor of Seller: (A) arising from acts, omissions or events, or damage
to or destruction of the Properties occurring prior to the Closing Date, subject
to Section 9 below; (B) arising under or with respect to any of the Leases and
the Material Contracts attributable to periods of time prior to the Closing Date
(including audit rights, and claims for overpayments, adjustments, credits or
refunds); or (C) with respect to any of the Withdrawn Properties.

     

    (v)          All
Claims in favor of Seller for all periods prior to the Closing Date: (A) under
any policy or agreement of insurance (subject to Section 9 below), indemnity,
surety, guaranty or bond; or (B) to any insurance or condemnation proceeds or
awards arising, in each case, from acts, omissions or events, or damage to or
destruction of property.

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    (vi)        All
computers, monitors, printers, plotters, peripherals and software, and all radio
and telephone equipment.

     

    (vii)       All
personal property, furniture, fixtures and equipment located in Seller’s
offices.

     

    (viii)      All
intellectual property, patents, copyrights, and trade secrets, names, marks and
logos, and all software, studies, interpretations, compilations and reports
relating to geology, geophysics and reserve characteristics of the Land, as well
as any information or interpretative or proprietary data which Seller considers
confidential or proprietary to Seller or which Seller cannot lawfully disclose
or assign to Buyer due to third party restrictions, other than studies, reports
or other similar work performed or produced by Buyer or Buyer’s authorized
agents or representatives.

     

    (ix)         All
correspondence, memoranda, agreements, documents and other communications
protected by the attorney-client privilege or the attorney work-product
privilege.

     

    (x)          All
correspondence, memoranda, agreements, documents and other communications among
Seller, and Seller’s affiliates, investors, banks, lending institutions,
investments banks, brokers and prospective purchasers of the Properties, and
their respective officers, directors, shareholders, managers, members,
employees, consultants, attorneys, accountants, agents and authorized
representatives, including contact lists, sales materials, confidentiality
agreements, reports, bids, offers, analyses and draft agreements.

     

    (xi)         All
corporate, legal, financial, accounting and tax records, except those tax
records for Production Taxes directly related to the Properties, or which are
necessary for Buyer’s ownership, administration or operation of the
Properties.

     

    (xii)        The
Withdrawn Properties.

     

    (xiii)       The
Fee Interests described in Exhibit A-2 hereto.

     

    2.           Purchase Price;
Deposit.  The cash purchase price (the “Purchase Price”) for
the Properties shall be equal to Nineteen Million One Hundred Eighty-Four
Thousand Two Hundred Eight Eight Dollars (US $19,184,288.00) if the Farmout
Percentage is equal to 66.67%, or Twenty-Eight Million Seven Hundred Seventy Six
Thousand Four Hundred Thirty Two Dollars (US $28,776,432.00) if the Farmout
Percentage is equal to 100%, subject to any applicable adjustments as described
herein. The Purchase Price shall be paid by Buyer to Seller as follows: (a) an
amount equal to ten percent (10%) of the Purchase Price by wire transfer upon
Buyer’s election to acquire the Farmout Percentage pursuant to Section 2.1(a) of
the Farmout Agreement as an earnest money deposit (the “Deposit”) which shall be
held in an escrow account (the “Escrow Account”) established pursuant to the
terms of a mutually acceptable escrow agreement (the “Escrow Agreement”) with
U.S. Bank National Association, as the escrow agent (the “Escrow Agent”); and
(b) the remainder of the Purchase Price, as adjusted pursuant to Section 3
below, shall be paid by Buyer at the Closing in accordance with Section 13(b)
below. Buyer and Seller shall each pay one-half of all fees for the Escrow
Agent.

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    3.           Effective Time
and Purchase Price Adjustments.  The purchase and sale of the
Properties shall be effective as of October 1, 2010 at 7:00 a.m. Eastern Time
(the “Effective Time”). The Purchase Price shall be adjusted as follows, and the
resulting amount shall be referred to herein as the “Adjusted Purchase
Price:”

     

    (a)           Purchase Price
Increases.  The Purchase Price shall be increased by an amount
equal to the Farmout Percentage of the sum of the following amounts, without
duplication:

     

    (i)           The
amount of all costs and expenses incurred by Seller attributable to the
drilling, exploration, development, ownership and operation of the Properties
after the Effective Time (including all lease rentals and shut-in payments
(which shall be pro-rated over the number of days that the applicable Lease is
extended by such payments), joint interest billings, lease operating expenses,
drilling expenses, work-over expenses, water disposal, geological, geophysical
and any other exploration or development expenditures, together with the
operator’s reimbursement of direct costs and applicable overhead chargeable
under applicable operating agreements, or similar arrangements consistent with
the standards established by the Council of Petroleum Accountant Societies of
North America, except for costs and expenses incurred by Seller to cure any
Title Defects or Environmental Defects or to remedy any Casualty
Loss.

     

    (ii)         
The amount of all prepaid expenses incurred by Seller attributable to the
Properties after the Effective Time.

     

    (iii)         The
value of the Production in tanks above the pipeline sales connection or within
processing plants at the Effective Time credited to the Properties, such value
to be the market or, if applicable, the contract price in effect as of the
Effective Time, less any applicable royalties and any Production Taxes deducted
by the purchaser of such Production.

     

    (iv)         The
amount of all Production Taxes and Property Taxes allocated to Buyer but paid by
Seller in accordance with Section 3(f).

     

    (v)          The
amount of all costs and expenses incurred by Horseshoe Run with respect to the
ownership, operation and maintenance of the Pipeline after the Effective Time,
including compressor lease rentals, right-of-way and surface lease payments,
operating expenses, gas purchases, transportation fees, fuel, electricity,
taxes, vendor charges, contractor charges and salaries, together with the
reimbursement of the manager’s direct costs and the applicable overhead and
management fees pursuant to the limited liability company agreement of Horseshoe
Run.

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    (vi)         Any
other amount agreed upon in writing by Seller and Buyer.

     

    (b)  Purchase Price
Decreases.  The Purchase Price shall be decreased by an amount
equal to the Farmout Percentage of the sum of the following amounts, without
duplication:

     

    (i)           The
amount of all proceeds of the Production received by Seller prior to the Closing
attributable to the Properties from and after the Effective Time (net of all
applicable Production Taxes and royalties directly incurred by Seller in
receiving such proceeds which are not expenses taken into account pursuant to
Section 3(a)), excluding proceeds of the Production attributable to the
Properties prior to the Effective Time which shall be for Seller’s account
(which exclusion shall include the Production described in Section 3(a)(iii)
above).

     

    (ii)          Any
amount determined in connection with the resolution of the Title Defects
pursuant to Sections 7(d) below.

     

    (iii)         Any
amount determined in connection with the resolution of the Environmental Defects
pursuant to Sections 8(e) below.

     

    (iv)         Any
amount determined in connection with the resolution of the Casualty Losses
pursuant to Section 9(c) below. 

     

    (v)          The
amount of all Production Taxes and Property Taxes allocated to Seller but
payable by Buyer in accordance with Section 3(f).

     

    (vi)         The
amount of all revenues (including any fees and including proceeds of gas sales
to third parties less gas purchase prices and applicable taxes directly incurred
by Horseshoe Run and not taken into account pursuant to Section 3(a)) received
by Horseshoe Run prior to the Closing attributable to the Pipeline from and
after the Effective Time (excluding proceeds of gas sales to third parties prior
to the Effective Time which shall be for Seller’s account only).

     

    (vii)        Any
other amount agreed upon in writing by Seller and Buyer.

     

    (c)  Collection of
Receivables.  Seller shall have the right to collect any
receivable, refund or other amounts associated with periods prior to the
Effective Time. If Buyer collects any such receivable, refund or other amounts
associated with periods prior to the Effective Time, and such amount has not
been reflected as an adjustment to the Purchase Price pursuant to Sections 3(a)
or 3(b) above, then Buyer shall promptly remit to Seller any such amounts. Buyer
shall have the right to collect any receivable, refund or other amounts
associated with the Properties for periods after the Effective Time. If Seller
collects any such receivable, refund or other amounts associated with periods
after the Effective Time, and such amount has not been reflected as an
adjustment to the Purchase Price pursuant to Sections 3(a) or 3(b) above, then
Seller shall promptly remit to Buyer such amounts.

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    (d)  Allocation.  The
Purchase Price shall be allocated among the Properties as set forth in Schedule
3(d). Seller and Buyer acknowledge and agree that the values allocated among
various portions of the Properties as set forth in Schedule 3(d) (with respect
to each item, individually, the “Allocated Value,” and collectively, the
“Allocated Values”): (i) are intended solely as a representation of relative
values in relation to the overall Purchase Price for the limited purposes of
adjusting the Purchase Price pursuant to Sections 3 (Purchase Price
Adjustments), 7 (Title Matters), 8 (Environmental Matters), 9 (Casualty Loss),
and 10 (Preferential Rights and Consents); (ii) shall be final and binding
between Seller and Buyer for such purposes only; and (iii) except as provided in
Section 3(e), are not intended as a measure of value for any other
purpose.

     

    (e)   Tax
Allocation.  For the purpose of making requisite filings under
Section 1060 of Internal Revenue Code of 1986, as amended, (the “Code”) and the
regulations thereunder, Seller and Buyer agree to allocate the Purchase Price
(as adjusted by Section 3), and all obligations assumed by Buyer among the
Properties in a manner consistent with the allocation set forth on Schedule
3(d). Seller and Buyer each agree to report the federal, state and local income
and other tax consequences of the transactions contemplated hereby, and in
particular to report the information required by Section 1060(b) of the Code, to
prepare Form 8594 (Asset Acquisition Statement under Section 1060) in a manner
consistent with such allocation, and to not take any position inconsistent
therewith upon examination of any tax return, in any refund, Claim, in any
litigation, investigation or otherwise; provided, however, neither
Party shall be unreasonably impeded it its ability and discretion to negotiate,
compromise and/or settle any tax audit, claim or similar
proceeding.  

     

    (f)   Allocation and
Payment of Taxes.   On or before the Closing, Seller shall
deliver to Buyer copies of the relevant documents concerning assessment and
collection of Production Taxes and Property Taxes attributable to the
Properties. All Production Taxes, Property Taxes deposits, prepaid utility
charges, prepaid rentals and other prepaid expenses attributable to the
Properties for the calendar year of the Closing shall be prorated between Seller
and Buyer as of the Effective Time with Seller being liable for all such taxes
attributable to the period prior to the Effective Time and Buyer being liable
for all such taxes attributable to the period from and after the Effective
Time.  If the amount of Property Taxes for the year in which the
Closing occurs have not been finally determined at Closing, the proration for
purposes of the purchase price adjustment in Section 3(a)(iv) or 3(b)(v), as
applicable, shall be based on the best information available at Closing with a
true-up between Buyer and Seller when the amount of such Property Taxes is
finally determined.  Seller shall be responsible for paying to the
appropriate Governmental Authority all Production Taxes and Property Taxes
attributable to the Properties that are due and payable on or prior to the
Closing Date, and Buyer shall be responsible for paying to the appropriate
Governmental Authority all Production Taxes and Property Taxes attributable to
the Properties due and payable after the Closing
Date.  Notwithstanding anything in this Agreement to the contrary,
Seller shall be responsible for and shall pay, and shall indemnify and hold
harmless Buyer for any income, franchise or similar taxes owed by Seller or any
of its affiliates.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    (g)  Audit
Adjustments.  Seller retains all rights to adjustments
resulting from any operating agreement and other audit claims on transactions
occurring prior to the Effective Time. Any credit received by Buyer pertaining
to such an audit claim on transactions occurring prior to the Effective Time
shall be paid to Seller within thirty (30) days after receipt. In like manner,
Seller shall remain solely liable for, and Buyer does not assume, any
obligations due to third parties resulting from any operating agreement and
other audit claims on transactions occurring prior to the Effective Time, and if
Buyer is required to pay any such audit claim, Seller will reimburse Buyer
within thirty (30) days after billing for same.

     

    (h)  Tax
Refunds.  Refunds of taxes paid or payable with respect to or
attributable to the Properties shall be promptly paid as follows (or, to the
extent payable, but not paid, due to offset against other taxes, shall be
promptly paid by the Party receiving the benefit of the offset, as follows): (i)
to Seller if attributable to taxes with respect to any tax year or portion
thereof ending on or before the Effective Time; and (ii) to Buyer if
attributable to taxes with respect to any tax year or portion thereof beginning
from and after the Effective Time.

     

    4.           Representations
of Seller.  Mega and Saga each makes the representations and
warranties set forth in this Section 4, separately and severally, and not joint
or collectively, as to itself and with respect to its proportionate interest in
the Properties. Mega shall have no liability for any breach by Saga of any such
representations or warranties, and Saga shall have no liability for any breach
by Mega of any such representations or warranties. With respect to Mega,
“knowledge” shall mean the information actually known by Colleen Kennedy, Scott
Hornafius or Joseph Brinkman, or such information of which any such Person has
received written notice, but does not include knowledge or awareness of any
other Person, or any imputed knowledge. With respect to Saga, “knowledge” shall
mean the information actually known by Bob Annear or Peter Mueller, or such
information of which any such Person has received written notice, but does not
include knowledge or awareness of any other Person, or any imputed knowledge.
Each of Mega and Saga represents to Gastar as follows as of the date of this
Agreement and as of the Closing Date as to each of Mega and Saga:

     

    (a)  Organization.  It is a
corporation, duly formed, validly existing and in good standing under the Laws
of its State of its incorporation, and authorized to do business in the State of
West Virginia.

     

    (b)  Authority.  It has full power
and authority and has taken all requisite company action to authorize it to
carry on its business as currently conducted, to enter into this Agreement, and
to perform its obligations under this Agreement.   Each of Mega
and Saga hereby represent to Buyer that each of Mega and Saga has entered into a
nomination agreement, or similar agreement, that provides authority for Mega and
Saga to execute this Agreement (and the agreements and other documents
contemplated hereby) and to perform all obligations hereunder on behalf of all
other beneficial owners of the Properties.

     

    (c)   Enforceability.  This
Agreement has been duly executed and delivered on behalf of it, and this
Agreement constitutes the legal, valid and binding obligation of it, enforceable
in accordance with the terms of this Agreement.  At the Closing, all
documents required hereunder to be executed and delivered by it shall be duly
authorized, executed and delivered, and shall constitute legal, valid and
binding obligations of it, enforceable in accordance with their respective
terms.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    (d)  No
Conflicts.  Except as set forth in the Disclosure Schedule
attached as Schedule 4(d) hereto, the execution, delivery and performance of
this Agreement, and any of the other documents executed in connection with this
Agreement, do not and will not:

     

    (i)           Conflict
with or result in any breach of the provisions of, or constitute a default
under, its organizational documents;

     

    (ii)          To
its knowledge:  (A) violate any restriction to which it is subject,
with or without the giving of notice, or the passage of time, or both; or (B)
result in the creation or imposition of any lien, encumbrance or security
interest upon the Properties; and

     

    (iii)         To
its knowledge, constitute a violation of any applicable Law which would have a
material adverse effect on the ownership, operation or value of the Properties
or the transactions contemplated by this Agreement.

     

    (e)   Foreign
Person.  It is not a “foreign person” within the meaning of
Section 1445 of the Code.

     

    (f)   Bankruptcy.  There
are no bankruptcy, reorganization or receivership proceedings pending, or, to
its knowledge, threatened against it.

     

    (g)  Brokers.  It has not
incurred any liability, contingent or otherwise, for brokers’ or finders’ fees
relating to the transactions contemplated by this Agreement for which Gastar
shall have any responsibility whatsoever.

     

    (h)  Rentals and
Royalties.  To each of Seller’s knowledge, such Seller has made
reasonable efforts in good faith to properly and timely pay all rentals and
royalties due under the Leases.

     

    (i)    Taxes.  All
tax returns relating to the Properties required to be filed by it have been
timely filed with the appropriate Governmental Authority in all jurisdictions in
which such tax returns are required to be filed, and all taxes due with respect
to such tax returns have been paid, except those being contested in good faith.
No administrative or judicial proceeding with respect to Production Taxes or
Property Taxes attributable to the Properties has been commenced or is presently
pending before any Governmental Authority.  There are no liens for
taxes (including any interest, fine, penalty or additions to tax imposed by a
Governmental Authority in connection with such taxes) on the Properties, other
than statutory liens for current taxes not yet due.  No taxes will
become payable by Buyer for the period prior to the Closing Date as a transferee
or successor by reason of its acquisition of the Properties. Except as set forth
in the Disclosure Schedule, none of the Properties is held by or is subject to
any contractual arrangement between Seller and any other Person, whether owning
undivided interests therein or otherwise, that is classified as a partnership
for United States federal tax purposes and no transfer of any part of the
Properties pursuant to this Agreement is treated as a transfer of an interest or
interests in any such partnership.  To the extent that any of the
Properties are deemed by agreement or applicable Law to be held by a partnership
for United States federal tax purposes (including any Properties indentified on
the Disclosure Schedule pursuant to this Section 4(i)), each such partnership
has or shall have in effect an election under Section 754 of the Code that will
apply with respect to the acquisition by Buyer of the
Properties.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    (j)   Claims and
Litigation.  Except as set forth in the Disclosure Schedule, to
its knowledge, it has not received any written notice of any Claims with respect
to any continuing or uncured breach, default or violation by it of any of the
Leases, the Material Agreements or applicable Law. Except as set forth in the
Disclosure Schedule, there is no suit, action, hearing or other proceeding
before any court or Governmental Authority pending, or to its knowledge,
threatened, against it or any of the Properties.  No condemnation or
eminent domain proceedings are pending, or, to its knowledge, threatened, by any
Governmental Authority affecting any of the Properties.  There are no
audits currently being conducted or, to its knowledge, imminent under any of the
joint operating agreements that govern the Properties.

     

    (k)  Consents and
Preferential Rights.  To its knowledge, there are no consents
required to be obtained for, and no preferential rights to purchase exercisable
in connection with, the assignment of the Properties by Mega or Saga to Buyer
hereunder.

     

    (l)   Outstanding
Capital Commitments.  As disclosed in the Disclosure Schedule,
to its knowledge, there are no outstanding authorities for expenditure or other
commitments to make capital expenditures which are binding on the Properties,
and which it reasonably anticipates will require expenditures in excess of Fifty
Thousand Dollars (US $50,000.00) per item.

     

    (m) Contracts.  Except
as set forth in the Disclosure Schedule, its interest in the Properties is not
subject to any contract for the sale of the Production attributable to periods
after the Effective Time, other than contracts that may be terminated by sixty
(60) days prior written notice.  Except as set forth in Section 4(m)
of the Disclosure Schedule, to its knowledge, its interest in the Properties is
not subject to or burdened by any obligation under a sales, take-or-pay, gas
balancing, marketing, forward sale or similar arrangement, to deliver the
Production attributable to such interest in the Properties without receiving
payment at the time of or subsequent to delivery, or to deliver the Production
in the future for which payment has already been received (e.g., a “forward”
sale contract).  Section 4(m) of the Disclosure Schedule lists all
gathering, processing, transportation and similar contracts. Section 4(m) of the
Disclosure Schedule lists all contracts that are material to the ownership or
operation of the Properties to which Seller is a party.

     

    (n)  The
Records.  The Records have been maintained in the ordinary
course of its business, and it has not intentionally omitted any material
information from the Records.

    
      
         

      

      
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    (o)  No
Violation.  To its knowledge, it has not violated any
applicable Laws in any material respect with respect to the ownership and
operation of the Properties and it has obtained and is maintaining all licenses,
permits, franchises, orders, exemptions, variances, waivers, authorizations,
certificates, consents and applications from the applicable Governmental
Authorities that are presently necessary or required for the ownership and
operation of the Properties, as currently owned and operated by it, except to
the extent that the failure to obtain or maintain any of the foregoing does not
have a material adverse effect on the ownership and operation of the
Properties.

     

    (p)  Parties to
Unitization Agreements.  Section 4(p) of the Disclosure
Schedule lists the names of the parties to all of the unitization agreements
relating to the Properties.

     

    5.           Representations
of Buyer.  For purposes of this Agreement, with respect to
Buyer, “knowledge” means the information actually known by J. Russell Porter,
Michael A. Gerlich or Henry J. Hansen only, without independent investigation,
or such information of which any such Person has received written notice, but
does not include knowledge or awareness of any other Person, or any imputed
knowledge. Buyer represents and warrants to Seller that:

     

    (a)           Organization.  Buyer
is a Michigan corporation duly organized, validly existing and in good standing
under the Law of the State of its incorporation.

     

    (b)           Authority.  Buyer
has full power and authority and has taken all requisite action, corporate or
otherwise, to authorize it to carry on its business as currently conducted, to
enter into this Agreement, to purchase the Properties on the terms described in
this Agreement, and to perform its other obligations under this
Agreement.

     

    (c)           Enforceability.  This
Agreement has been duly executed and delivered on behalf of Buyer, and
constitutes the legal, valid and binding obligation of Buyer enforceable in
accordance with its terms. At the Closing, all documents required hereunder to
be executed and delivered by Buyer shall be duly authorized, executed and
delivered, and shall constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their respective terms.

     

    (d)           No
Conflicts.  The execution, delivery and performance of this
Agreement, and any of the other documents executed in connection with this
Agreement to be performed by Buyer, do not and will not:

     

    (i)           Conflict
with or result in any breach of the provisions of, or constitute a default
under, the organizational documents of Buyer;

     

    (ii)         To
Buyer’s knowledge: (A) violate any restriction to which Buyer is subject, with
or without the giving of notice, or the passage of time, or both; or (B) result
in the creation or imposition of any lien, encumbrance or security interest upon
the Properties; and

    
      
         

      

      
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    (iii)        
To Buyer’s knowledge, constitute a violation of any applicable Law which would
have a material adverse effect on the ownership, operation or value of the
Properties or the transactions contemplated by this Agreement.

     

    (e)           SEC
Disclosure.  Buyer hereby represents to Seller that Buyer
intends to acquire the Properties for Buyer’s own benefit and account, and that
Buyer is not acquiring the Properties with the intent of resale or distribution
such as would be subject to regulation by federal or state securities laws
(collectively, the “Securities Laws”), and that, in the future, if Buyer should
sell, transfer or otherwise dispose of the Properties or fractional undivided
interests therein, Buyer will do so in compliance with all applicable Securities
Laws.

     

    (f)
           Financial
Ability.  Buyer has, and at all times prior to the Closing,
shall maintain, sufficient cash, available lines of credit or other sources of
immediately available funds to enable Buyer to pay the Purchase Price to Seller
at the Closing. Buyer has such knowledge and experience in financial and
business matters, and in oil and gas investments of the type contemplated by
this Agreement, that Buyer is capable of evaluating the merits and risks of this
Agreement and its investment in the Properties, and Buyer is not in need of the
protection afforded investors by the Securities Laws. In addition, Buyer is an
“accredited investor” as defined in Rule 501(a) of Regulation D promulgated by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended. Buyer recognizes that this investment is speculative and involves
substantial risk, and that Seller has not made any guaranty upon which Buyer has
relied concerning the possibility or probability of profit or loss as a result
of Buyer’s acquisition of the Properties.

     

    (g)           Investment
Experience.  By reason of Buyer’s experience and knowledge in
the evaluation, acquisition and operation of similar properties, Buyer has
evaluated the merits and risks of the proposed investment in the Properties, and
has formed opinions based solely upon Seller’s experience and knowledge, and not
upon any representations or warranties by Seller, or Seller’s representatives,
other than as expressly set forth in this Agreement. Buyer has conducted or will
conduct its own evaluation of the Properties and, except for the express
representations set forth in this Agreement and the Assignments, Buyer is
acquiring the Properties “AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT
RECOURSE.”

     

    (h)           Physical and
Environmental Defects.  Buyer is provided the opportunity to
conduct an independent inspection of the Properties, the public records and
Seller’s files including for the purpose of detecting the presence of any
environmentally hazardous substances or contamination, including petroleum, and
the presence and concentration of NORM, and shall satisfy itself as to the
physical condition and environmental condition of the Properties, both surface
and subsurface. Buyer acknowledges that, except as set forth in this Agreement,
no representations have been made by Seller regarding physical or environmental
condition of the Properties, past or present.

     

    (i)
           Brokers.  Buyer
has not incurred any liability, contingent or otherwise, for brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for
which Seller shall have any responsibility whatsoever.

    
      
         

      

      
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    6.           Pre-Closing
Covenants.

     

    (a)           Access.  Buyer,
and Buyer’s authorized agents and representatives, shall have the right to
conduct a due diligence investigation, at Buyer’s sole risk, cost and expense,
of the Records and the Properties operated by Seller for inspection and testing
(including the environmental assessment pursuant to Section 8(c) below);
provided, however, Buyer shall indemnify, defend and hold harmless Seller Group,
and all other working interest owners in the Properties, from and against any
and all Claims caused by Buyer or Buyer’s authorized agents or representatives
and that arises out of the due diligence investigation of the Properties by
Buyer, Buyer’s authorized agents or representatives, including Claims for
property damage, personal injury and death, except to the extent caused by the
gross negligence or willful misconduct of a member of the Seller
Group.  EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT OR THE
ASSIGNMENTS, THE PARTIES HEREBY DISCLAIM, WAIVE AND RELEASE ANY AND ALL
WARRANTIES OF ANY KIND, EXPRESS, IMPLIED, STATUTORY, AT COMMON LAW OR OTHERWISE,
WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF ANY AND ALL INFORMATION. BUYER
AGREES THAT ANY CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF BUYER’S OWN
INDEPENDENT REVIEW AND JUDGMENT, AND AT BUYER’S SOLE RISK.

     

    (b)           Seller’s
Pre-Closing Covenants.  Seller agrees that, from and after the
execution of this Agreement until the earlier of the Closing or the termination
of this Agreement, except as expressly provided herein (or as required by the
Leases, the Material Contracts or applicable Law, or otherwise agreed in writing
by Buyer, Seller shall:

     

    (i)           Not:
(A) act in any manner with respect to the Properties, other than in the ordinary
course of business, consistent with prior practice and in compliance with
applicable Law; (B) expend more than Fifty Thousand Dollars (US $50,000) per
operation net to Seller’s interest in the Properties, except in the case of an
emergency or as required to perpetuate a Lease (provided, however,
notwithstanding anything to the contrary herein, Buyer shall be deemed to have
consented expenditures as described in the Disclosure Schedule attached as
Schedule 4(d) hereto); (C) dispose of, encumber or relinquish any of the
Properties (other than the sale of the Production in the ordinary course of
business, or relinquishments resulting from the expiration of any of the Leases
which Seller does not have a right or option to renew); or (D) waive, compromise
or settle any Claim which would have an adverse effect on the ownership,
operation or value of the Properties after the Effective Time;

     

    (ii)          Deliver
to Buyer copies of all written notices received by Seller of any Claims with
respect to any continuing, uncured or alleged breach, default or violation by
Seller of any of the Leases, the Material Agreements or applicable Law; and

     

    (iii)         Use
Seller’s reasonable efforts in good faith to cooperate with Buyer in the
notification of all applicable Governmental Authorities of the transactions
contemplated hereby, and in obtaining the transfer of or issuance by each such
authority of such permits, licenses and authorizations as may be necessary for
Buyer to own the Properties following the Closing.

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    (c)           Buyer’s
Covenants.

     

    (i)           Buyer
agrees to use Buyer’s reasonable efforts in good faith to cooperate with Seller
in the notification of all applicable Governmental Authorities of the
transactions contemplated hereby, and in obtaining the transfer of or issuance
by each such authority of such permits, licenses and authorizations as may be
necessary for Buyer to own the Properties following the Closing.

     

    7.           Title
Matters.

     

    (a)           Title
Definitions.  For purposes of this Agreement, the following
terms shall have the following meanings:

     

    (i)           “Net
Revenue Interest” means Seller’s interest in oil, gas and other hydrocarbons
produced, saved and sold from the Land covered by the Leases set forth in
Exhibit A, after giving effect to all valid landowners’ royalties, overriding
royalties, production payments and similar burdens.

     

    (ii)          “Title
Basket” means the aggregate amount of the Title Defect Values for each Title
Defect described by Buyer in the Title Defect Notice for which each Title Defect
Value exceeds the Title Threshold (or, if the Title Threshold Overall Limit has
been satisfied, all subsequent Title Defects described by Buyer in a Title
Defect Notice). Notwithstanding anything to the contrary, the Title Basket shall
not include any individual Title Defect Value which is less than the Title
Threshold, except if the Title Threshold Overall Limit has been
satisfied.

     

    (iii)         [RESERVED]

     

    (iv)         “Title
Defect” means, with respect to Seller’s interest in any of the Properties, on a
property by property basis, any lien, encumbrance, defect of title or lack of
enforceability, excluding the Permitted Encumbrances (described in Section 7(b)
below), including those that: (A) increases the Working Interest of Seller in
any Lease or Well to greater than the Working Interest set forth on Exhibit A
(unless Seller’s Net Revenue Interest therein is increased in the same
proportion); (B) diminish the Net Revenue Interest of Seller in any Lease or
Well to less than the Net Revenue Interest as set forth on Exhibit A; (C) result
in a number of net leasehold acres owned by Seller that is less than the number
set forth on Exhibit A for the applicable Property; or (D) result in a gap in
easements or rights-of-way required for the construction, commissioning,
start-up and operation of the Pipeline.

     

    (v)          “Title
Defect Value” means, with respect to an individual Title Defect, the amount by
which the Allocated Value of the affected Lease is reduced as a result of such
Title Defect as determined in accordance herewith. In no event shall the Title
Defect Value for a particular Lease exceed the lesser of the Allocated Value set
forth in Schedule 3(d), or the reasonable cost to cure the Title Defect, if the
cost to cure is reasonably determinable.

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

    (vi)        “Title
Threshold” means (x) with respect to each Title Defect which involves a failure
of title or a Title Defect of the type described in clause (A), (B) or (C) of
the definition of “Title Defect”, any Title Defect Value which is greater than
Zero Dollars (US$0) and (y) with respect to any other Title Defect, any Title
Defect Value which is equal to or greater than Twenty-Five Thousand Dollars (US
$25,000.00). Buyer hereby disclaims, waives and releases any and all Claims
against Seller arising in connection with or related to any individual Title
Defect that is less than the Title Threshold, except that if the Title Defect
Values for Title Defects that are individually less than the Title Threshold
exceed in the aggregate Three Hundred Thousand Dollars ($300,000) (the “Title
Threshold Overall Limit”), then all subsequent Title Defects identified by Buyer
in a Title Defect Notice shall not be subject to the Title Threshold. Until the
Title Threshold Overall Limit has been satisfied, any individual Title Defect
for which the Title Defect Value less than the Title Threshold shall not be
included in the Title Basket hereunder, and such Title Defect shall be deemed a
Permitted Encumbrance, and accepted and assumed by Buyer

     

    (vii)       “Working
Interest” shall mean, with respect to an individual Lease, Seller’s interest in
and to the leasehold estate created by such Lease set forth in Exhibit A,
insofar as such leasehold interest is burdened by the obligation to bear and pay
costs, without regard to any landowners’ royalties, overriding royalties,
production payments or similar burdens on production.

     

    (b)           Permitted
Encumbrances.  Notwithstanding anything to the contrary, a
Permitted Encumbrance shall not be deemed to be a Title Defect hereunder. For
purposes of this Agreement, a “Permitted Encumbrance” shall mean any of the
following:

     

    (i)           The
terms and conditions of the Leases and the Material Contracts to the extent that
such Leases and Material Contracts do not decrease the Net Revenue Interest set
forth on Exhibit A or increase the Working Interest set forth on Exhibit
A;

     

    (ii)          Royalties
and overriding royalties burdening the Leases, but only to the extent the same
do not operate to reduce the interest of Seller with respect to all oil and gas
produced from the applicable Lease to less than the Net Revenue Interest for
such Lease set forth in Exhibit A;

     

    (iii)         All
rights to consent by, required notices to, filings with, or other actions by
Governmental Authorities in connection with the sale or conveyance or oil and
gas leases or interests therein if they are routinely obtained subsequent to the
sale or conveyance;

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    (iv)        Consents
to assignment and preferential purchase rights to purchase that are, in each
case, set forth in the Disclosure Schedule;

     

    (v)         Easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations or any restrictions on access thereto which do not
materially interfere with the oil and gas operations to be conducted on any
Lease;

     

    (vi)        Conventional
rights of reassignment prior to release or surrender requiring notice to the
holders of the rights;

     

    (vii)       All
rights reserved to or vested in any Governmental Authority to control or
regulate any of the Properties in accordance with applicable Law;

     

    (viii)      Liens
arising under operating agreements, unitization and pooling agreements and sales
contracts securing amounts not yet due;

     

    (ix)         Materialman’s,
mechanic’s, repairman’s, contractor’s, operator’s, tax, and other similar liens
or charges arising in the ordinary course of business for obligations that are
not delinquent or that will be paid and discharged in the ordinary course of
business;

     

    (x)          Any
current period real Property Taxes not yet due and payable;

     

    (xi)         Any
question as to the legitimacy of a survey or the lack of a survey, unless a
survey is required by applicable Law;

     

    (xii)        The
lack of a recorded release of any prior expired oil and gas lease covering any
portion of the Lands;

     

    (xiii)       The
lack of any ancillary probate in the chain of title to a lessor’s interest
covered by any of the Leases;

     

    (xiv)       Mortgages,
deeds of trust, security agreements and financing statements burdening the
lessor’s interest covered by any of the Leases;

     

    (xv)        The
lack of any state or federal Leases being filed in the County
offices;

     

    (xvi)       Any
tax sale in the chain of title to the oil and gas estate covered by any of the
Leases;

     

    (xvii)      The
lack or restriction of surface access to the oil and gas estate covered by any
of the Leases to the extent that there is access to such oil and gas estate from
other lands covered by the Leases;

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    (xviii)     The
lack of a complete chain of title to the oil and gas estate under any of the
Leases from inception due to the loss or destruction of the real property
records in the County in which such oil and gas estate is located;

     

    (xix)       Claims,
charges, burdens, contracts, agreements, instruments, obligations, defects and
irregularities affecting the Properties which do not have an adverse effect on
the ownership, operation or value of the Properties to the end that a prudent
Person engaged in the oil and gas business with knowledge of all of the relevant
facts and their legal bearing would be willing to accept the same;
and

     

    (xx)        Any
Title Defects Buyer may have expressly waived in writing or which are deemed to
have become Permitted Encumbrances under this Section 7.

     

    (c)           Title Defect
Notice.  Buyer shall deliver to Seller written notice of all
Title Defects (the “Title Defect Notice”) not later than 1:00 p.m., Eastern
Time, fifteen (15) days prior to the Closing Date (the “Buyer’s Notice Date”);
provided, however,
Buyer agrees to use Buyer’s commercially reasonable efforts in good faith to
deliver to Seller a preliminary notice on or before five (5) Business Days after
Buyer’s knowledge of a Title Defect. The Title Defect Notice shall set forth in
reasonable detail: (i) the Lease affected by such Title Defect; (ii) the nature
and basis of such Title Defect, including supporting documentation; (iii) the
curative action necessary to cure such Title Defect; and (iv) Buyer’s good faith
determination of the Title Defect Value. Except for any Title Defects that
constitute a breach of Seller’s special warranty of title contained in the
Assignments, any Title Defect that is not identified in the Title Defect Notice
by the Buyer’s Notice Date shall thereafter be deemed a Permitted Encumbrance,
Buyer shall accept and assume such Title Defects and the Permitted Encumbrances,
and Buyer hereby disclaims, waives and releases any and all Claims against
Seller arising in connection with or related to such Title Defects and the
Permitted Encumbrances.

     

    (d)           Title Defect
Remedies.  On or before 1:00 p.m., Eastern Time, seven (7) days
prior to the Closing Date (“Seller’s Response Date”), Seller shall deliver to
Buyer written notice of Seller’s response to Buyer’s Title Defect Notice. The
Parties shall enter into good faith negotiations, and shall attempt to agree on
the existence of the Title Defects, the Title Defect Values and the appropriate
resolution thereof.  If the Parties cannot reach a mutually acceptable
agreement on or before three (3) Business Days after receipt by Buyer of
Seller’s response, on or before the Closing, the following remedies shall
apply:

     

    (i)           Prior
to Closing, Seller shall have the right, but not the obligation, to cure any
Title Defects asserted in the Title Defect Notice, at Seller’s sole cost and
expense, to Buyer’s reasonable satisfaction.

     

    (ii)          If
a Title Defect consists of a reduction in the Net Revenue Interest for a Lease
or Well from the Net Revenue Interest set forth in Exhibit A, the Title Defect
Value for such Title Defect shall be equal to the product of the Allocated Value
for such Lease set forth on Schedule 3(d) multiplied by the fraction, the
numerator of which shall be equal to the difference between the Net Revenue
Interest actually owned by Seller and the Net Revenue Interest set forth in
Exhibit A, and the denominator of which shall be equal to the Net Revenue
Interest for such Lease or Well set forth in Exhibit A.

    
      
         

      

      
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    (iii)         If
a Title Defect results in a number of net leasehold acres owned by Seller that
is less than the number set forth on Exhibit A for the applicable Property, the
Title Defect Value for such Title Defect shall be equal to the product of: (A)
the shortfall net leasehold acres, times (B) the applicable per
net leasehold acre Allocated Value for such Property set forth in Schedule
3(d).

     

    (iv)         To
the extent there are any mechanic’s or materialmen’s liens (the “Mechanic’s
Liens”) filed against any of the Properties for delinquent, unpaid amounts due
and owing by Seller, the Parties shall agree upon a reasonable amount that may
be deducted by Buyer from the Purchase Price pursuant to Section 3(b)(ii) above,
and Buyer shall acquire and assume the Properties subject to and burdened by the
Mechanics Liens.

     

    (v)          If
a Title Defect involves something other than the matters covered by Sections
7(d)(ii), (iii) and (iv), and such Title Defect is not cured prior to Closing in
accordance with Section 7(d)(i), then the Parties shall agree to a reduction in
the Purchase Price reasonably attributable to such Title Defect.  If
such agreement is not reached prior to Closing, either Buyer or Seller shall
have the right to withdraw from the purchase and sale under this Agreement the
applicable Properties (”Withdrawn Properties”). At the Closing: (A) Seller shall
except and reserve such Withdrawn Properties from the Assignments; and (B) the
Purchase Price for the remaining Properties shall be reduced by the Allocated
Value of the Withdrawn Properties. Each Party hereby disclaims, waives and
releases any and all Claims against the other Party arising in connection with
or related to such Withdrawn Properties.

     

    (vi)         Buyer
may waive the Title Defect in which case the Purchase Price shall not be reduced
and Seller shall have no further liability for the Title Defect.

     

    (e)           Post-Closing
Curative.  Buyer agrees that, from and after the Closing until
one hundred and eighty (180) days after the Closing Date (the “Post-Closing
Date”), except as expressly stated herein, Seller shall not acquire, directly or
indirectly, any right, title and interest in, to or under the Land covered by
the Withdrawn Properties. Seller shall have the right, but not the obligation,
to cure any Title Defects affecting any of the Withdrawn Properties, at Seller’s
sole cost and expense, on or before the Post-Closing Date. Buyer shall use
Buyer’s commercially reasonable efforts in good faith to assist Seller with such
post-closing curative. Seller shall promptly deliver to Buyer written notice of
such curative along with pertinent information reasonably necessary to document
such curative. Such curative shall be reasonably acceptable to
Buyer.  Seller shall have the right, but not the obligation, to cause
Buyer to purchase from Seller such cured Withdrawn Properties for their
Allocated Value by written notice delivered to Buyer on or before ten (10) days
after the Post-Closing Date. In addition, Buyer shall have the right, but not
the obligation, to cause Seller to sell to Buyer such cured Withdrawn Properties
for their Allocated Value by written notice delivered to Seller on or before ten
(10) days after the Post-Closing Date.  Upon receipt by Buyer of an
executed and acknowledged recordable assignment (substantially in the form of
the Assignments) covering such cured Withdrawn Properties, Buyer shall promptly
pay to Seller an amount equal to the Allocated Value of such cured Withdrawn
Properties.

    
      
         

      

      
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    (f)
           Termination.  If
the aggregate amount of: (i) the Title Defect Values for all of the Title
Defects asserted in the Title Defect Notice (including all of the Properties
withdrawn from the purchase and sale under this Agreement pursuant to Section
7(d)(v) above); (ii) the Remediation Values for all Environmental Defects
asserted by Buyer in the Environmental Defect Notice (including all of the
Properties withdrawn from the purchase and sale under this Agreement pursuant to
Section 8(e)(iii) below); and (iii) for all corrective actions with respect to
Casualty Events pursuant to Section 9(b) below, exceeds seven and one-half
percent (7.5%) of the unadjusted Purchase Price, then either Party may terminate
this Agreement by written notice delivered to the other Party on or before the
Closing. If this Agreement is terminated pursuant to this Section, the Escrow
Agent shall promptly deliver to Buyer the Deposit (and all interest thereon, if
any) as Buyer’s sole and exclusive remedy, and each Party hereby disclaims,
waives and releases any and all Claims against the other Party arising in
connection with or related to such termination.

     

    (g)           Exclusive
Remedy.  Notwithstanding anything to the contrary herein,
except for the special warranty contained in the Assignments, this Section 7
shall be Buyer’s sole and exclusive remedy against Seller for Title Defects
described in the Title Defect Notice, and Buyer waives, releases and disclaims
all Claims and remedies against Seller arising in connection with or related to
such Title Defects.  

     

    8.           Environmental
Matters.

     

    (a)           Environmental
Definitions.  For purposes of this Agreement, the following
terms shall have the following meanings:

     

    (i)           “Environmental
Basket” means the aggregate amount of the Remediation Values for each
Environmental Defect described by Buyer in an Environmental Defect Notice for
which each Remediation Value exceeds the Environmental Threshold (or, if the
Environmental Threshold Overall Limit has been satisfied, all subsequent
Environmental Defects described by Buyer in an Environmental Defect Notice).
Notwithstanding anything to the contrary, the Environmental Basket shall not
include any individual Remediation Value which is less than the Environmental
Threshold, except if the Environmental Threshold Overall Limit has been
satisfied.

     

    (ii)          [RESERVED]

     

    (iii)         “Environmental
Defect” means, with respect to Seller’s interest in any of the Properties, on a
property by property basis, any contamination or condition resulting from any
discharge, release, disposal, production, storage, treatment, or any other
activities in, on, under or from the Land, or the migration or transportation
from other lands to the Land, of any wastes, pollutants, contaminants, hazardous
materials or other materials or substances which is not permanently authorized
by permit or applicable Environmental Laws or for which remedial or corrective
action is presently required.

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    (iv)        “Environmental
Laws” means any and all applicable Law relating to the protection of the
environment, health or human safety, including the Clean Air Act, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic
Substance Control Act, the Hazardous and Solid Waste Amendments Act of 1984, the
Superfund Amendments and Reauthorization Act of 1986, the Hazardous Materials
Transportation Act, the Clean Water Act, the National Environmental Policy Act,
the Endangered Species Act, the Fish and Wildlife Coordination Act, the National
Historic Preservation Act, and the Oil Pollution Act of 1990, as well as any
federal, state and local Law governing the same, similar or related
matters.

     

    (v)         “Environmental
Threshold” means any Remediation Value for an Environmental Defect which is
equal to or greater than Twenty-Five Thousand Dollars (US
$25,000.00).  Buyer hereby disclaims, waives and releases any and all
Claims against Seller arising in connection with or related to any individual
Environmental Defect for which the Remediation Value is less than the
Environmental Threshold, except that if the Remediation Values for Environmental
Defects that are individually less than the Environmental Threshold exceed
One-Hundred Thousand Dollars ($100,000.00) in the aggregate (the “Environmental
Threshold Overall Limit”), then all subsequent Environmental Defects identified
by Buyer in an Environmental Defect Notice shall not be subject to the
Environmental Threshold.  Until the Environmental Threshold Overall
Limit has been satisfied, any individual Environmental Defect for which the
Remediation Value is less than the Environmental Threshold shall not be included
in the Environmental Basket hereunder, and such Environmental Defect shall be
accepted and assumed by Buyer.

     

    (vi)        “NORM”
means Naturally Occurring Radioactive Material.

     

    (vii)       “Remediation
Value” means, with respect to an individual Environmental Defect, the reasonable
cost to remediate such Environmental Defect as determined in accordance
herewith. In no event shall the Remediation Value for a particular Lease exceed
the lesser of the Allocated Value set forth in Schedule 3(d), or the reasonable
cost to remediate such Environmental Defect, if the cost to cure is reasonably
determinable.

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    (b)           Acknowledgements.  Buyer
hereby acknowledges and agrees as follows:

     

    (i)           Buyer
has entered into this Agreement on the basis of Buyer’s own investigation of the
physical condition of the Properties, including surface and subsurface
conditions.

     

    (ii)          Buyer
acknowledges that the Land has been used to explore for, develop and produce oil
and gas, and for the disposal of produced water, and that spills of crude oil,
produced water, wastes, hazardous substances, and other materials may have
occurred thereon. Physical changes to the Properties may have occurred as a
result of such use.

     

    (iii)         Low
levels of NORM may be present at some locations. NORM is a natural phenomena
associated with many oil fields in the U.S. and throughout the world. Buyer will
make its own determination on this matter.

     

    (iv)         Except
as specifically provided elsewhere in this Agreement, upon the Closing, Buyer
shall assume the risk that the Properties may contain wastes or contaminants and
that adverse physical conditions, including the presence of wastes or
contaminants, may not have been revealed by Seller’s or Buyer’s
investigation.

     

    (v)          Except
as specifically provided elsewhere in this Agreement, upon the Closing, Buyer
shall assume all responsibility and liability arising in connection with or
related to disposal, spills, waste and contamination in, on or under the
Properties attributable to the periods of time both before and after the
Effective Time.

     

    (c)           Environmental
Assessment.  After the execution of this Agreement, subject to
Section 6(a) above, Buyer shall have the opportunity to conduct, at Buyer’s sole
risk, cost and expense, an environmental assessment of the Properties. Seller
shall provide reasonable access for this purpose to the Properties operated by
Seller.  For any of the Properties that are not operated by Seller,
Buyer, with the assistance of Seller, shall contact the operator of any such
non-operated Properties with respect to access thereto. Buyer, and Buyer’s
representatives and agents, shall comply with the operator’s environmental and
safety rules and policies while performing any environmental assessment on the
Properties. Buyer agrees that Buyer, and Buyer’s representatives and agents,
shall not disclose to third parties any information obtained in its
environmental assessment unless agreed to in writing by Seller, or such
information is otherwise publicly available, or such disclosure is expressly
required by applicable Law, or is compelled pursuant to legal process of any
court or Governmental Authority. With respect to information that is not
otherwise publicly available, Buyer shall notify Seller in advance of any such
disclosure, and shall furnish Seller copies of all materials to be disclosed
prior to any disclosure thereof to third parties. As soon as possible after
Buyer’s receipt thereof, Buyer shall deliver to Seller copies of all reports,
data, analysis, test results, remediation cost estimates, and recommended
remediation procedures or other information concerning or derived from Buyer’s
environmental assessment.

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

    (d)           Environmental
Defect Notice.  On or before Buyer’s Notice Date, Buyer shall
deliver to Seller written notice (the “Environmental Defect Notice”) of all
Environmental Defects; provided, however, Buyer
agrees to use Buyer’s commercially reasonable efforts in good faith to deliver
to Seller a preliminary notice on or before three (3) Business Days after
Buyer’s knowledge of an Environmental Defect. The Environmental Defect Notice
shall set forth in reasonable detail: (i) the Properties with respect to which a
claimed Environmental Defect is asserted; (ii) the nature of such
claimed  Environmental Defect; (iii) Buyer’s good faith proposal of
the remediation required to comply with applicable Environmental Laws; and (iv)
Buyer’s good faith determination of the Remediation Value for each claimed
Environmental Defect. Except as provided elsewhere in this Agreement, Buyer
hereby disclaims, waives and releases any and all Claims against Seller arising
in connection with or related to Environmental Defects not set forth in the
Environmental Defect Notice by the Buyer’s Notice Date, regardless of when
discovered or when created, and such Environmental Defects shall be accepted and
assumed by Buyer.

     

    (e)           Environmental
Remedies.  On or before Seller’s Response Date, Seller shall
deliver to Buyer Seller’s written response to Buyer’s Environmental Defect
Notice (“Environmental Response”). Seller’s Environmental Response shall
include: (i) the specific reason(s) that Seller disagrees with the
identification of the condition as an Environmental Defect and/or with Buyer’s
Remediation Value; (ii) Seller’s proposed alternative calculation of the
Remediation Value for each claimed Environmental Defect; and (iii) any other
basis for Seller’s disagreement. The Parties shall enter into good faith
negotiations, and shall attempt to agree on the existence of the Environmental
Defects, the Remediation Values and the appropriate resolution
thereof.  If the Parties cannot reach agreement concerning either the
existence of an Environmental Defect and the Remediation Values on or before
three (3) Business Days after Buyer’s receipt of Seller’s Environmental
Response, then on or before the Closing, the Buyer and Seller shall proceed as
follows:

     

    (i)           Prior
to Closing, Seller shall have the right, but not the obligation, to remediate
any Environmental Defects asserted in the Environmental Defect Notice, at
Seller’s sole cost and expense, to Buyer’s reasonable satisfaction.

     

    (ii)          Buyer
shall have the right, but not the obligation, to accept and assume the
Properties subject to the Environmental Defects, and the Purchase Price shall be
decreased by the Remediation Values for such Properties.

     

    (iii)         Either
Buyer or Seller shall have the right to withdraw from the purchase and sale
under this Agreement the Properties affected by such Environmental Defects, and
such Properties shall be deemed to be Withdrawn Properties hereunder. At the
Closing: (A) Seller shall except and reserve the Withdrawn Properties from the
Assignments and (B) the Purchase Price for the remaining Properties shall be
reduced by the Allocated Value of the Withdrawn Properties. Each Party hereby
disclaims, waives and releases any and all Claims against the other Party
arising in connection with or related to such Withdrawn
Properties.

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    (iv)        Buyer
may waive the Environmental Defect in which case the Purchase Price shall not be
reduced, and Seller shall have no further liability for such Environmental
Defect.

     

    (f)
           Post-Closing
Remediation.  Seller shall have the right, but not the
obligation, to remediate any Environmental Defects affecting any of the
Withdrawn Properties, at Seller’s sole cost and expense, on or before the
Post-Closing Date. Seller shall promptly deliver to Buyer written notice of such
remediation along with pertinent information reasonably necessary to document
such remediation. Such remediation shall be reasonably acceptable to
Buyer.  Seller shall have the right, but not the obligation, to cause
Buyer to purchase from Seller such remediated Withdrawn Properties for their
Allocated Value by written notice delivered to Buyer on or before ten (10) days
after the Post-Closing Date. In addition, Buyer shall have the right, but not
the obligation, to cause Seller to sell to Buyer such remediated Withdrawn
Properties for their Allocated Value by written notice delivered to Seller on or
before ten (10) days after the Post-Closing Date. Upon receipt by Buyer of an
executed and acknowledged recordable assignment (substantially in the form of
the Assignments) covering such remediated Withdrawn Properties, Buyer shall
promptly pay to Seller an amount equal to the Allocated Value of such remediated
Withdrawn Properties.

     

    (g)           Termination.  If
the aggregate amount of: (i) the Remediation Values for all Environmental
Defects asserted by Buyer in the Environmental Defect Notice (including all of
the Properties withdrawn from the purchase and sale under this Agreement
pursuant to Section 8(e)(iii) below); (ii) the Title Defect Values for all of
the Title Defects asserted in the Title Defect Notice (including all of the
Properties withdrawn from the purchase and sale under this Agreement pursuant to
Section 7(d)(v) above); and (iii) for all corrective actions with respect to
Casualty Events pursuant to Section 9(b) below, exceeds seven and one-half
percent (7.5%) of the unadjusted Purchase Price, then either Party may terminate
this Agreement by written notice delivered to the other Party on or before the
Closing. If this Agreement is terminated pursuant to this Section, the Escrow
Agent shall promptly deliver to Buyer the Deposit (and all interest thereon, if
any) as Buyer’s sole and exclusive remedy, and each Party hereby disclaims,
waives and releases any and all Claims against the other Party arising in
connection with or related to such termination.

     

    (h)           Exclusive
Remedy.  Notwithstanding anything to the contrary herein, this
Section 8 shall be Buyer’s sole and exclusive remedy against Seller for
Environmental Defects described in the Environmental Defect Notice, and Buyer
hereby disclaims, waives, and releases any and all Claims against Seller arising
in connection with or related to such Environmental Defects.

     

    9.           Casualty
Loss.

     

    (a)           Risk of
Loss.  Buyer shall assume all risk of loss with respect to: (i)
changes in commodities prices, credit markets, and other market factors or
conditions; (ii) changes in production characteristics including production
declines, depletion, watering out, collapsed casing, sand infiltration, seismic
activity or other similar adverse changes; and (iii) normal wear and
tear.

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

    (b)           Casualty
Loss.  Prior to the Closing, if a portion of the Properties are
destroyed by fire or other casualty (excluding normal wear and tear, and changes
in production characteristics), or if a portion of the Properties is taken or
threatened to be taken in condemnation or under the right of eminent domain
(collectively, a “Casualty Event”), Seller shall promptly deliver to Buyer
written notice of such Casualty Event with reasonable detail of the nature of
such Casualty Event, and Seller’s good faith proposal for the appropriate
corrective action with respect thereto including any environmental remediation
required pursuant to applicable Environmental Laws. For purposes of this
Section, the “Casualty Loss” shall be equal to the lesser of the cost of such
appropriate corrective action, and the Allocated Value of the Properties
affected by such Casualty Event; provided, however, that, notwithstanding
anything to the contrary herein, any individual Casualty Loss which is less than
One Hundred Thousand Dollars (US $100,000.00) (the “Casualty Threshold”) shall
not be deemed an Casualty Event hereunder. Buyer hereby disclaims, waives and
releases any and all Claims against Seller arising in connection with or related
to any individual Casualty Loss which is less than the Casualty Threshold, and
such Casualty Loss shall be accepted and assumed by Buyer.

     

    (c)           Casualty
Remedies.  Seller shall have the right, but not the obligation,
to elect to remedy any Casualty Loss prior to the Closing. If Seller elects to
remedy such Casualty Loss prior to the Closing, Seller shall repair or replace
any property damaged, destroyed or taken by such Casualty Event with property of
a similar nature and kind reasonably acceptable to Buyer. If such Casualty Event
results in any Environmental Defect, such remedy by Seller hereunder shall
include remediation of such Environmental Defect to Buyer’s reasonable
satisfaction. If Seller remedies such Casualty Loss prior to the Closing to the
reasonable satisfaction of Buyer, there shall be no adjustment to the Purchase
Price. Seller shall not voluntarily compromise, settle or adjust any amounts
payable by reason of any Casualty Event without the prior written consent of
Buyer. If the Closing occurs with respect to any of the Properties affected by a
Casualty Event, Seller shall assign to Buyer the proceeds of any insurance
coverage or condemnation award attributable to such affected Properties.
Notwithstanding anything to the contrary herein, either Party shall have the
right, but not the obligation, to elect to withdraw from the purchase and sale
hereunder any of the Properties affected by such Casualty Event by written
notice delivered to the other Party on or before the Closing, and such
Properties shall be deemed to be Withdrawn Properties hereunder. At the Closing:
(A) Seller shall except and reserve the Withdrawn Properties from the
Assignments and (B) the Purchase Price for the remaining Properties shall be
reduced by the Allocated Value of the Withdrawn Properties. Each Party hereby
disclaims, waives and releases any and all Claims against the other Party
arising in connection with or related to such Withdrawn Properties. If Seller
does not remedy a Casualty Loss prior to the Closing to the reasonable
satisfaction of Buyer, and the affected Properties are not withdrawn from the
purchase and sale hereunder, the Purchase Price shall be reduced by Casualty
Loss, less the proceeds of any insurance coverage or condemnation award
attributable to such affected Properties received by Buyer.

     

    (d)           Post-Closing
Remedies.  Seller shall have the right, but not the obligation,
to remedy any Casualty Loss affecting any of the Withdrawn Properties, at
Seller’s sole cost and expense, on or before the Post-Closing Date. Seller shall
promptly deliver to Buyer written notice of such remedy along with pertinent
information reasonably necessary to document such remedy. Such remedy shall be
reasonably acceptable to Buyer. Seller shall have the right, but not the
obligation, to cause Buyer to purchase from Seller such remedied Withdrawn
Properties for their Allocated Value by written notice delivered to Buyer on or
before ten (10) days after the Post-Closing Date. In addition, Buyer shall have
the right, but not the obligation, to cause Seller to sell to Buyer such
remedied Withdrawn Properties for their Allocated Value by written notice
delivered to Seller on or before ten (10) days after the Post-Closing Date. Upon
receipt by Buyer of an executed and acknowledged recordable assignment
(substantially in the form of the Assignments) covering such remedied Withdrawn
Properties, Buyer shall promptly pay to Seller an amount equal to the Allocated
Value of such remedied Withdrawn Properties.

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

    (e)           Casualty
Termination.  If the aggregate amount of: (i) the adjustments
to the Purchase Price for Casualty Events pursuant to this Section, (ii) the
Title Defect Values for all of the Title Defects asserted in the Title Defect
Notice (including all of the Properties withdrawn from the purchase and sale
under this Agreement pursuant to Section 7(d)(v) above); and (iii) the
Remediation Values for all Environmental Defects asserted by Buyer in the
Environmental Defect Notice (including all of the Properties withdrawn from the
purchase and sale under this Agreement pursuant to Section 8(e)(iii) above),
exceeds seven and one-half percent (7.5%) of the unadjusted Purchase Price, then
either Party may terminate this Agreement by written notice delivered to the
other Party on or before the Closing. Upon such termination, the Escrow Agent
shall promptly deliver to Buyer the Deposit (and all interest thereon, if any)
as Buyer’s sole and exclusive remedy, and each Party hereby disclaims, waives
and releases any and all Claims against the other Party arising in connection
with or related to such termination.

     

    (f)
           Casualty
Disputes. The Parties may submit
to binding arbitration pursuant to Section 21(j) below any dispute with respect
to the existence of a Casualty Event, the Casualty Loss, and the appropriate
resolution thereof; provided, however, that, notwithstanding anything in this
Agreement to the contrary, the arbitrator shall be a licensed petroleum engineer
with a minimum of ten (10) years of experience in the oil and gas
industry.

     

    10.         Preferential
Rights and Consents.  Seller shall mail all required notices
with respect to preferential purchase rights and consents to assignment as soon
as possible after this Agreement is executed by the Parties, but in no event
shall Seller send out such notices later than seven (7) days after execution of
this Agreement by the Parties. The Parties shall use their commercially
reasonable efforts in good faith to obtain such waivers of preferential rights
and consents to assignment.  In the event that any such preferential
purchase right is timely exercised prior to the Closing, the applicable
Properties shall cease to be a part of this transaction, and the Purchase Price
for the Properties shall be reduced by the Allocated Value of the applicable
Properties.  In the event that any such consent is not obtained prior
to Closing, to the extent requested by Buyer, the applicable Properties shall be
excluded from the Closing, the Purchase Price shall be reduced by the Allocated
Value of the applicable Properties, and each such Property shall be conveyed to
Buyer if the applicable consent is obtained within 120 days after Closing, at
which time Buyer shall pay Seller the Allocated Value of such
Property.

     

    11.         Conditions
Precedent to the Obligations of Seller to Close.  The
obligations of Seller to be performed at the Closing are subject to the
fulfillment (or waiver by Seller in Seller’s sole discretion) before or at the
Closing, of each of the following conditions:

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

    (a)           Representations
and Warranties.  The representations and warranties by Buyer
set forth in this Agreement shall be true and correct in all material respects
at and as of the Closing; and Buyer shall have performed and complied with, in
all material respects, all covenants and agreements required to be performed and
satisfied by Buyer at or prior to the Closing. If, at or prior to the Closing,
Seller has knowledge that Buyer is in breach of any part of this Agreement,
Seller shall disclose such breach to Buyer to afford Buyer an opportunity to
remedy or cure the same within ten (10) days of the date on which Seller advised
Buyer of such breach. If Seller notifies Buyer of such breach at the Closing,
the Closing shall be delayed for up to ten (10) days to give Buyer an
opportunity to cure the breach and such delay shall not be a breach under this
Agreement or entitle Buyer or Seller to any damages.

     

    (b)           No
Litigation.  There shall be no suits, actions or other
proceedings pending or threatened to enjoin the consummation of the transactions
contemplated by this Agreement (other than by Seller or any of Seller’s
affiliates) or seeking substantial damages against Seller in connection
therewith.

     

    (c)           Closing
Obligations.  Buyer shall contemporaneously perform its closing
obligations under Section 13 below.

     

    12.         Conditions
Precedent to the Obligations of Buyer to Close.  The
obligations of Buyer to be performed at the Closing are subject to the
fulfillment (or waiver by Buyer in Buyer’s sole discretion) before or at the
Closing, of each of the following conditions:

     

    (a)           Representations
and Warranties.  The representations and warranties by Seller
set forth in this Agreement shall be true and correct for representations and
warranties qualified by materiality, and true and correct in all material
respects for representations and warranties not qualified by materiality, in
each case, at and as of the Closing; and Seller shall have performed and
complied with, in all material respects, all covenants and agreements required
to be performed and satisfied by Seller at or prior to the Closing. If, at the
Closing, Buyer has knowledge that Seller is in breach of any part of this
Agreement, Buyer shall disclose such breach to Seller to afford Seller an
opportunity to remedy or cure the same within ten (10) days of the date on which
Buyer advised Seller of such breach. If Buyer notifies Seller of such breach of
the Closing, the Closing shall be delayed for up to ten (10) days to give Seller
an opportunity to cure the breach, and such delay shall not be a breach of this
Agreement or entitle Buyer or Seller to any damages.

     

    (b)           No
Litigation.  There shall be no suits, actions or other
proceedings pending or threatened to enjoin the consummation of the transactions
contemplated by this Agreement (other than by Buyer or any of Buyer’s
affiliates) or seeking substantial damages against Buyer in connection
therewith.

     

    (c)           Closing
Obligations.  Seller shall contemporaneously perform its
closing obligations under Section 13 below.

     

    13.         Closing.  The
purchase and sale of the Properties pursuant to this Agreement shall be
consummated at a closing (the “Closing”), to be held at the offices of counsel
to Mega in Denver, Colorado, on or before December 1, 2010, unless such date is
extended in accordance with the provisions hereof (the “Closing
Date”).

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

    (a)           Preliminary
Settlement Statement.  Seller shall prepare and deliver to
Buyer on or before five (5) days prior to the Closing Date a statement (the
“Preliminary Settlement Statement”) setting forth the proposed adjustments to
the Purchase Price (the “Preliminary Amount”) provided in Section 3 above. The
Preliminary Amount will be based upon actual amounts, if known on the date
thereof, or estimates based upon the best information then available. Seller
shall prepare the Preliminary Settlement Statement in accordance with this
Agreement and with generally accepted accounting principles customarily applied
in the oil and gas industry.

     

    (b)           Closing
Deliverables.  At the Closing, the following events shall
occur, each event under the control of one Party being a condition precedent to
the events under the control of the other Party, and each event being deemed to
have occurred simultaneously with the other events:

     

    (i)           Seller
shall execute, acknowledge and deliver to Buyer an assignment, conveyance and
bill of sale of the Properties, excepting and reserving unto Seller the
Excluded Assets, in the form of Exhibit H hereto, in sufficient counterparts for
recordation (the “M/S Assignment”). The M/S Assignment shall contain a special
warranty of title against liens, encumbrances and defects of title arising by,
through or under Seller, but not otherwise, subject to the Permitted
Encumbrances. Seller shall execute, acknowledge and deliver to Buyer an
assignment, conveyance and bill of sale from each of: (i) Helm Energy, LLC; (ii)
Mega Opportunities, LLC; (iii) Switchback Argentina; (iv) Tioga Oil & Gas;
and (v) Blue Sky Power, LLC,
in each case, with respect to such party’s interest in the
Properties, excepting and reserving unto such party the Excluded Assets, in
the form of Exhibit H hereto, in sufficient counterparts for recordation (each,
a “Beneficial Owner Assignment” and, collectively with the M/S Assignment, the
“Assignments”). Each Beneficial Owner Assignment shall contain a special
warranty of title against liens, encumbrances and defects of title arising by,
through or under such party thereto, but not otherwise, subject to the Permitted
Encumbrances. Notwithstanding anything to the contrary, except for the express
representations and warranties of Seller set forth in Section 4 above and in the
Assignments, the Properties shall be assigned “AS IS, WHERE IS, WITH ALL FAULTS,
AND WITHOUT RECOURSE,” AND THE PARTIES EXPRESSLY DISCLAIM ANY AND ALL
WARRANTIES, EXPRESS, IMPLIED, STATUTORY, AT COMMON LAW OR OTHERWISE, INCLUDING
THE IMPLIED WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Each of the Assignments shall contain an express assumption by Buyer pursuant to
which Buyer shall assume and agree to be bound by all of the terms and
conditions of the Leases, the Surface Rights and the Material
Contracts.

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    (ii)          Unless
Buyer has reasonably objected to the Preliminary Amount  (in which
case, Closing shall be delayed until such dispute is resolved), at Closing,
Buyer shall deliver to Seller the Preliminary Amount in immediately available
funds by wire transfer to an account designated by Seller, less the Deposit and
the Allocated Value of the Withdrawn Properties.  Following Closing,
the Deposit shall be held by the Escrow Agent in the Escrow Account for Claims
by Buyer for any amounts due by Seller to Buyer for indemnification by Seller
pursuant to Section 17.  Notwithstanding anything in this Agreement to
the contrary, following Closing, 100% of the Deposit shall be available to
satisfy indemnification claims by Buyer against either or both of Mega and Saga,
and the Deposit shall not be deemed to be only proportionately available with
respect to claims against one or the other.  To the extent there are
any Mechanic’s Liens filed against the Properties for delinquent, unpaid amounts
due and owing by Seller, the Purchase Price shall be reduced in accordance with
Section 7(d)(iii)(D) above, and Buyer shall accept and acquire the Properties
subject to and burdened by such Mechanics Liens.

     

    (iii)         On
or before the Closing, Seller will disclose to Buyer the identity of all
purchasers of production from the Properties. Seller and Buyer shall execute and
deliver division orders, change of operator forms, transfer orders or letters in
lieu thereof prepared by Buyer, subject to Seller’s approval, directing all
purchasers of the Production from the Properties to make payment of proceeds
attributable to such Production occurring on or after the Effective Time to
Buyer.

     

    (iv)         Seller
shall execute and deliver a Non-Foreign Affidavit in the form attached hereto as
Exhibit I.

     

    14.         Post-Closing
Adjustments.  On or before the Post-Closing Date, Seller shall
prepare and deliver to Buyer a statement (the “Final Settlement Statement”)
setting forth each adjustment to the Adjusted Purchase Price in accordance with
Section 3 above. Seller shall prepare the Final Settlement Statement in
accordance with this Agreement, and with generally accepted accounting
principles customarily applied in the oil and gas industry. On or before thirty
(30) days after receipt of the Final Settlement Statement, Buyer shall have the
right, but not the obligation, to deliver to Seller written notice of any
objections to any adjustments in the Final Settlement Statement. Buyer’s notice
shall specifically describe any objectionable adjustments including the nature
and extent of such objections, along with supporting documentation thereof. If
Buyer fails to deliver written notice of such objections within said time
period, the adjustments in the Final Settlement Statement shall be deemed
conclusively to be final and binding upon the Parties. If Buyer delivers written
objections within said time period, the Final Settlement Statement shall be
deemed conclusively to be final and binding with respect to all adjustments
other than those specifically described in Buyer’s written objections. Buyer and
Seller shall use their reasonable efforts in good faith to confer and resolve
any objections on or before fifteen (15) days after Seller’s receipt of Buyer’s
notice of objections. If Buyer and Seller resolve all objections, the adjusted
Final Settlement Statement and the Adjusted Purchase Price shall be deemed
conclusively to be final and binding upon the Parties. Any adjustments not
resolved within said 15-day time period shall, at either Party’s request, be
resolved by binding arbitration pursuant to Section 21(j) below. With respect to
any adjustments in the Final Settlement Statement, the “Settlement Date” shall
be the date upon which such adjustments are deemed final and binding hereunder.
If the Adjusted Purchase Price is more than the Preliminary Amount, Buyer shall
pay Seller the amount of such difference. If the Adjusted Purchase Price is less
than the Preliminary Amount, Seller shall pay Buyer the amount of such
difference. Any such payment by Buyer or Seller hereunder shall be paid by wire
transfer in immediately available funds on or before five (5) days after the
Final Settlement Date.

     

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

    15.         Post-Closing
Covenants.

     

    (a)           Recording and
Sales Tax.  Buyer shall, as soon as practicable, record
counterparts of the Assignments in the appropriate offices of the state and
counties in which the lands covered by such instrument are located. Buyer shall
deliver promptly to Seller true and accurate photocopies of the Assignments with
the recording information thereon on or before thirty (30) days after
recordation.  Buyer shall promptly pay to the appropriate Governmental
Authority all recording, filing, stamp, registration, documentary, real property
transfer and other similar taxes and fees incurred or imposed in connection with
this Agreement and the transactions contemplated hereby (collectively, the
“Recording Costs”).  As noted in Section 3(i), the sale of the
Equipment is exempt from West Virginia sales and use taxes as an isolated
transaction and, accordingly, such taxes are not being collected in connection
with the sale of the Equipment pursuant to this Agreement.

     

    (b)           Records.  As
soon as reasonably practicable after the Closing, Seller shall deliver to Buyer,
at Seller’s address or at such other place as any of same may be kept, copies of
the Records, at Seller’s sole cost and expense. 

     

    (c)           Suspense
Funds.  Seller is transferring to Buyer suspense funds held by
Seller, or by any third party on behalf of Seller, which are attributable to the
period prior to the Effective Time for the benefit of the royalty, overriding
royalty interest and working interest owners with respect to the
Properties.

     

    (d)           Assumption.  As
of the Closing, Buyer shall assume all duties, obligations and liabilities
arising in connection with or related to the Properties from and after the
Closing including: (i) the Leases, the Wells, the Equipment, the Surface Rights,
the Material Contracts, and other contracts or agreements affecting the
Properties or relating to the ownership or operation of the Properties; and (ii)
for the plugging and abandonment of the Wells, and the restoration and
remediation of the Land in connection therewith in accordance with all
applicable Law.

     

    16.         Operations.  The
Parties acknowledge and agree that Seller cannot and does not represent, warrant
or covenant that Buyer shall become successor operator of all or any portion of
the Properties because Seller may not own one hundred percent (100%) of the
Properties, or portions thereof may be subject to operating, unit, pooling,
communization or other agreements which control the appointment of a successor
operator. Seller shall use Seller’s commercially reasonable efforts in good
faith to assist Buyer with becoming successor operator. Buyer shall promptly
file all appropriate forms and declarations or bonds with federal and state
agencies necessary for Buyer’s to assume operations hereunder. For all of the
Properties operated by Seller in which Buyer (or Buyer’s designee) is elected
successor operator, Seller shall execute and deliver, or cause Seller’s
affiliates to execute and deliver, to Buyer on the Closing Date (or such date as
Buyer and Seller may otherwise agree), and Buyer shall promptly file, the
appropriate forms with the applicable regulatory agency transferring
operatorship of such Properties to Buyer.

    
      
         

      

      
        -30-

        
          

        

      

      
         

      

    

    17.         Indemnities.  “Claims”
shall mean any and all claims, demands, complaints, causes of action, suits,
actions, judgments, damages, awards, fines, penalties, recoveries, settlements,
appeals, duties, obligations, liabilities, losses, debts, costs and expenses
(including court costs, expert witness fees and reasonable attorneys’
fees).

     

    (a)           Seller’s
Indemnification.  Except for matters covered by Buyer’s
environmental indemnification in Section 17(c) below, and subject to the
monetary limitation in Section 17(e) below and the time limitation in Section
17(f) below, Seller shall indemnify, defend and hold harmless Buyer, and Buyer’s
affiliates, investment bankers, brokers, accountants, attorneys, successors and
assigns, and their respective officers, directors, shareholders, managers,
members, partners, employees, agents and representatives, from and against any
and all Claims attributable to the Properties on or prior to the Closing Date,
or that are attributable to a breach by Seller of any of Seller’s
representations, warranties or covenants hereunder.

     

    (b)           Buyer’s
Indemnification.  Except for matters covered by Seller’s
indemnification obligations described in Section 17(a) above, Buyer shall
indemnify, defend and hold harmless Seller, and Seller’s affiliates, investment
bankers, brokers, accountants, attorneys, successors and assigns, and their
respective officers, directors, shareholders, managers, members, partners,
employees, agents and representatives (collectively, “Seller Group”), from and
against any and all Claims attributable to the Properties after the Closing
Date, or that are attributable to a breach by Buyer of any of Buyer’s
representations, warranties or covenants hereunder.

     

    (c)           Buyer’s
Environmental Indemnification.  Except for Claims attributable
to a breach by Seller of any of Seller’s representations, warranties or
covenants hereunder, and Claims relating to releases, discharges, spills,
treatment, storage and disposal in, on or under lands other than the Properties,
Buyer shall indemnify, defend and hold harmless Seller Group from and against
any and all Claims arising in connection with or related to any contamination or
condition resulting from any release, discharge, spill, production, treatment,
storage or disposal, or the migration or transportation from other lands, of any
wastes, pollutants, contaminants, hazardous materials or other materials or
substances, attributable to the Properties both before and after the Closing
Date (including environmental response, remediation and restoration costs, or
any other costs related to environmental damage, including damages to natural
resources).

     

    (d)           Monetary
Damages.  Seller and Buyer acknowledge and agree that the
payment of money, as limited by the terms of this Agreement, shall be adequate
compensation for any and all Claims of breach of representation, warranty or
covenant contained herein, or for any other Claims arising in connection with or
with respect to the transactions contemplated by this Agreement. As the payment
of money shall be adequate compensation, Buyer and Seller hereby waive, disclaim
and release any and all rights to rescind this Agreement or any of the
transactions contemplated hereby after the Closing.

    
      
         

      

      
        -31-

        
          

        

      

      
         

      

    

    (e)           Monetary
Limitation.  Seller shall not be obligated to indemnify Buyer
for any Claim pursuant to Section 17(a) above except to the extent that such
Claim exceeds Fifty Thousand (US $50,000.00) (the “Claim
Deductible”).  The Parties acknowledge and agree that it is the intent
of the Parties that this Claim Deductible shall be a deductible and not a
threshold, and Seller’s indemnity pursuant to Section 17(a) above shall cover
and include that portion of the Claims in excess of the Claim Deductible only.
Notwithstanding anything to the contrary, Buyer’s right to indemnification by
Seller pursuant to Section 17(a) above shall be limited to and shall not exceed
ten percent of the unadjusted Purchase Price (the “Monetary
Limitation”).  Seller shall have the right to distribute that portion
of the Purchase Price received by Seller to Seller’s shareholders, members
and/or partners from and after the Closing, except that the Escrow Agent shall
retain the Deposit during the time period described in Section 17(f)
below.  All claims by Buyer for indemnification by Seller shall be
paid by the Escrow Agent to Buyer from the Deposit only in accordance with the
written instructions of Buyer and Seller or pursuant to an arbitral award or
court order; provided,
however, the Parties acknowledge and agree that Buyer shall have the
right to recover damages from Seller for any amount due and owing to Buyer
pursuant to this Section 17 that is in excess of the amount of the Deposit,
subject to the Monetary Limitation.  The Parties shall submit to
binding arbitration pursuant to Section 21(j) below all disputes regarding the
validity and amount of any Claims for indemnification hereunder, and the proper
resolution thereof. The Claim Deductible and the Monetary Limitation shall not
apply to any Claims by Buyer arising from Seller’s intentional or willful
misrepresentation of a material fact contained in this Agreement, the exhibits
and schedules hereto, or the Records which misrepresentation constitutes
intentional fraud pursuant to applicable Law. 

     

    (f)
           Time
Limitation.  Any Claims by Buyer for indemnification by Seller
hereunder shall be made by written notice delivered to Seller on or before nine
(9) months after the Closing Date (the “Indemnity Deadline”), except that Claims
by Buyer for indemnification (x) for taxes may be made by written notice
delivered to Seller on or before the date that is thirty (30) days after the
expiration of the applicable statute of limitations with respect to the tax
matter for which indemnification is sought and (y) relating to personal injury,
death or property damage may be made without time
limit.  Notwithstanding anything to the contrary: (i) no Claims by
Buyer for indemnification by Seller hereunder may be brought after the Indemnity
Deadline, if applicable; and (ii) Seller’s applicable indemnification
obligations under this Section 17 shall terminate and expire automatically on
the Indemnity Deadline; provided, however, for any
Claims asserted in good faith by Buyer for indemnification by Seller for which
Buyer has delivered to Seller written notice on or before the Indemnity
Deadline, Seller’s indemnification obligation under this Section 17 shall remain
in full force and effect until the final resolution of such
Claims.  Upon the later of the Indemnity Deadline and the final
resolution of any Claims asserted in good faith by Buyer for indemnification by
Seller for which Buyer has delivered to Seller written notice on or before the
Indemnity Deadline, the Escrow Agent shall promptly deliver to Seller the
balance of the Deposit, and all interest accrued thereon, remaining after the
payment of all amounts due Buyer hereunder. Notwithstanding anything to the
contrary herein, upon the Indemnity Deadline, if the Deposit, and all interest
thereon, are in excess of the aggregate amount of all Claims asserted in good
faith by Buyer for indemnification by Seller hereunder, the Escrow Agent shall
promptly deliver to Seller such excess amount.  The time limitation in
this Section 17(f) shall not apply to any Claims by Buyer arising from Seller’s
intentional or willful misrepresentation of a material fact contained in this
Agreement, the exhibits and schedules hereto, or the Records which
misrepresentation constitutes intentional fraud pursuant to applicable
Law.

    
      
         

      

      
        -32-

        
          

        

      

      
         

      

    

    (g)           Compromise or
Settlement.  No Party entitled to indemnification hereunder, or
in connection with the transactions contemplated by this Agreement, shall
settle, compromise or take any other action with respect to any Claims which may
prejudice or otherwise have a material adverse effect on the ability of the
Party responsible for such indemnification, or potentially liable for such
Claims, to defend, compromise or settle such Claims, provided that the Party
responsible for such indemnification is actively defending such
Claim.

     

    (h)           Mitigation.  A
Party entitled to indemnification hereunder, or in connection with the
transactions contemplated by this Agreement, shall use such Party’s reasonable
efforts in good faith to mitigate all Claims promptly upon such Party’s
knowledge of any event or circumstance which may reasonably be expected to give
rise to any Claims indemnifiable or recoverable hereunder or in connection
herewith.

     

    (i)
           Knowledge.  Neither
Party shall have any obligation or liability under this Agreement, or in
connection with the transactions contemplated by this Agreement, for any breach,
default or noncompliance with respect to any representation, warranty or
covenant contained in this Agreement if: (a) such breach, default or
noncompliance shall have been waived by the other Party; or (b) only for
purposes of indemnity claims pursuant to Section 17, such other Party had
knowledge (as defined in Sections 4 and 5 above) of such breach, default or
noncompliance at or before the Closing.

     

    (j)  
         Exclusive
Remedy.  If the Closing occurs, the sole and exclusive remedy
of Buyer and Seller with respect to this Agreement, and the transactions
contemplated hereby, shall be pursuant to the indemnification provisions of this
Section 17 only. Any and all Claims for the breach of any representation,
warranty or covenant contained herein, or for any other Claims arising in
connection with or with respect to the transactions contemplated by this
Agreement, shall be subject to the provisions set forth in this Section 17.
Except for the rights and remedies expressly stated in this Agreement (including
the indemnification provisions of this Section 17), if the Closing occurs, each
Party shall be deemed to have disclaimed, waived and released any and all rights
and remedies, at law or in equity, against the other Party for any Claims
arising in connection with or related to this Agreement, and the transactions
contemplated hereby, including any right of contribution under any and all
applicable Law.

    
      
         

      

      
        -33-

        
          

        

      

      
         

      

    

    18.         Disclaimers.

     

    (a)           EXCEPT FOR SELLER’S EXPRESS
REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 4 ABOVE, AND SELLER’S
SPECIAL WARRANTY OF TITLE IN THE ASSIGNMENTS, THE PROPERTIES ARE BEING CONVEYED
BY SELLER TO BUYER WITHOUT WARRANTY OF ANY KIND, EXPRESS, IMPLIED, STATUTORY, AT
COMMON LAW OR OTHERWISE, AND THE PARTIES HEREBY EXPRESSLY DISCLAIM, WAIVE AND
RELEASE ANY WARRANTY OF MERCHANTABILITY, CONDITION, SAFETY, OR FITNESS FOR A
PARTICULAR PURPOSE, AND BUYER ACCEPTS THE PROPERTIES “AS IS, WHERE IS, WITH ALL
FAULTS, AND WITHOUT RECOURSE.” ALL DESCRIPTIONS OF THE PROPERTIES HERETOFORE OR
HEREAFTER FURNISHED TO BUYER BY SELLER GROUP HAVE BEEN AND SHALL BE FURNISHED
SOLELY FOR BUYER’S CONVENIENCE, AND HAVE NOT CONSTITUTED AND SHALL NOT
CONSTITUTE A REPRESENTATION OR WARRANTY OF ANY KIND BY SELLER GROUP. SELLER
GROUP SHALL HAVE NO LIABILITY TO BUYER FOR ANY CLAIMS CAUSED OR ALLEGED TO BE
CAUSED, DIRECTLY, INDIRECTLY, INCIDENTALLY OR CONSEQUENTIALLY, BY SUCH
DESCRIPTIONS OF THE PROPERTIES, BY ANY INADEQUACY THEREOF OR THEREWITH, ARISING
IN STRICT LIABILITY OR OTHERWISE, OR IN ANY WAY ARISING OUT OF BUYER’S PURCHASE
THEREOF, EXCEPT AS SET FORTH IN THIS AGREEMENT AND THE ASSIGNMENTS. THE PARTIES
HEREBY ACKNOWLEDGE AND AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW, THE
DISCLAIMERS CONTAINED IN THIS AGREEMENT ARE “CONSPICUOUS” FOR THE PURPOSES OF
ALL APPLICABLE LAW.

     

    (b)           EACH PARTY HEREBY EXPRESSLY
DISCLAIMS, WAIVES AND RELEASES ANY AND ALL WARRANTIES, EXPRESS, IMPLIED,
STATUTORY, AT COMMON LAW OR OTHERWISE, RELATING TO THE ACCURACY OF ANY OF THE
INFORMATION FURNISHED WITH RESPECT TO THE EXISTENCE OR EXTENT OF RESERVES, THE
VALUE OF THE PROPERTIES BASED THEREON, OR THE CONDITION OR STATE OF REPAIR OF
THE PROPERTIES. THIS DISCLAIMER EXTENDS TO ANY REPRESENTATION OR WARRANTY AS TO
THE PRICES BUYER AND/OR SELLER ARE OR WILL BE ENTITLED TO RECEIVE FROM THE
PRODUCTION FROM THE PROPERTIES, IT BEING ACKNOWLEDGED AND AGREED THAT ALL
RESERVE, PRICE AND VALUE ESTIMATES UPON WHICH BUYER HAS RELIED OR IS RELYING
HAVE BEEN DERIVED BY THE INDIVIDUAL EVALUATION OF BUYER. ALSO, BUYER
ACKNOWLEDGES AND AGREES THAT RESERVE REPORTS ARE ESTIMATES ONLY OF PROJECTED
FUTURE OIL AND/OR GAS VOLUMES, FUTURE FINDING COSTS AND FUTURE OIL AND/OR GAS
SALES PRICES, ALL OF WHICH FACTORS ARE INHERENTLY IMPOSSIBLE TO PREDICT
ACCURATELY EVEN WITH ALL AVAILABLE DATA AND INFORMATION.

     

    (c)           SELLER AND BUYER HEREBY ACKNOWLEDGE
AND AGREE THAT THEY ARE NOT “CONSUMERS” WITHIN THE MEANING OF ANY DECEPTIVE
TRADE PRACTICES OR CONSUMER PROTECTION ACT, OR ANY APPLICABLE LAW. BUYER HEREBY
EXPRESSLY DISCLAIMS, WAIVES AND RELEASES ALL OF BUYER’S RIGHTS AND REMEDIES
UNDER ALL APPLICABLE LAW WHICH MAY AFFORD CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BUYER’S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER AND RELEASE. TO EVIDENCE BUYER’S ABILITY TO
GRANT SUCH WAIVER, BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT: (i)
BUYER IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION; (ii) BUYER IS
REPRESENTED BY LEGAL COUNSEL IN ENTERING INTO THIS AGREEMENT; AND (iii) SUCH
LEGAL COUNSEL WAS NOT, DIRECTLY OR INDIRECTLY, IDENTIFIED, SUGGESTED OR SELECTED
BY SELLER OR ANY AGENT OF SELLER.

    
      
         

      

      
        -34-

        
          

        

      

      
         

      

    

    (d)           NOTWITHSTANDING ANYTHING IN THIS
AGREEMENT TO THE CONTRARY, NEITHER PARTY SHALL BE ENTITLED TO CLAIM OR RECOVER
FROM THE OTHER PARTY, AND EACH PARTY HEREBY DISCLAIMS, RELEASES AND WAIVES ANY
CLAIMS, AGAINST THE OTHER PARTY FOR ANY CONSEQUENTIAL, PUNITIVE, EXEMPLARY,
SPECIAL OR INDIRECT DAMAGES (INCLUDING LOST SALES, INCOME, PROFIT, REVENUE,
PRODUCTION, RESERVES OR OPPORTUNITY), EXCEPT WITH RESPECT TO INDEMNIFICATION OF
THIRD PARTY CLAIMS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS
AGREEMENT.

     

    19.         Termination and
Remedies

     

    (a)           Termination.  This
Agreement, and the transactions contemplated hereby, may be terminated at any
time prior to the Closing: (i) by mutual written consent of Seller and Buyer;
(ii) by either Seller or Buyer, if the Closing shall not have occurred on or
before December 15, 2010 (the “Outside Termination Date”); or (iii) as expressly
provided elsewhere in this Agreement; provided, however, the right
to terminate this Agreement under this Section 19(a)(ii) shall not be available:
(A) to Seller, if any breach of this Agreement by Seller has been the principal
cause of, or resulted in, the failure of the Closing to occur on or before the
Outside Termination Date; or (B) to Buyer, if any breach of this Agreement by
Buyer has been the principal cause of, or resulted in, the failure of the
Closing to occur on or before the Outside Termination Date. If this Agreement is
terminated pursuant to this Section 19(a), the Escrow Agent shall promptly
deliver the Deposit (and all interest thereon, if any) to Buyer as Buyer’s sole
and exclusive remedy, and each Party hereby disclaims, waives and releases any
and all Claims against the other Party arising in connection with or related to
such termination.

     

    (b)           Buyer’s
Remedy.  IF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE NOT CONSUMMATED ON OR BEFORE
THE CLOSING DATE BY REASON OF SELLER’S WRONGFUL FAILURE TO TENDER PERFORMANCE AT
THE CLOSING, AND IF BUYER IS NOT IN MATERIAL DEFAULT UNDER THIS AGREEMENT AND IS
READY, WILLING AND ABLE TO CLOSE, BUYER SHALL HAVE THE RIGHT TO TERMINATE THIS
AGREEMENT BY WRITTEN NOTICE DELIVERED TO SELLER, AND, IN THE ABSENCE OF A BREACH
OR DEFAULT BY BUYER HEREUNDER, THE ESCROW AGENT SHALL PROMPTLY DELIVER TO BUYER
THE DEPOSIT (AND ALL
INTEREST THEREON, IF ANY).

    
      
         

      

      
        -35-

        
          

        

      

      
         

      

    

    (c)           Seller’s
Remedy.  IF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE NOT CONSUMMATED ON OR BEFORE
THE CLOSING DATE BY REASON OF BUYER’S WRONGFUL FAILURE TO TENDER PERFORMANCE AT
THE CLOSING, AND IF SELLER IS READY, WILLING AND ABLE TO CLOSE, AND SELLER IS
NOT IN MATERIAL DEFAULT UNDER THE TERMS OF THIS AGREEMENT, SELLER SHALL HAVE THE RIGHT TO
TERMINATE THIS AGREEMENT BY WRITTEN NOTICE DELIVERED TO BUYER, AND THE ESCROW
AGENT SHALL PROMPTLY DELIVER TO SELLER THE DEPOSIT (AND ALL INTEREST THEREON, IF
ANY).

     

    20.         Notices.  All
notices and communications required or permitted under this Agreement shall be
in writing addressed as set forth below, and any notice or communication
hereunder shall be deemed to have been duly delivered upon the earliest of: (a)
actual receipt by the Party to be notified; (b) three (3) days after deposit
with the United States Postal Service, certified mail, postage prepaid, return
receipt requested; (c) if by facsimile transmission, upon confirmation by the
recipient of receipt; or (d) by Federal Express overnight delivery (or other
reputable overnight delivery service), two days after deposited with such
service. All such notices shall be addressed as follows:

     

    
      
        	
                If
      to Seller:

                MegaEnergy,
      Inc.

                7374
      South Alton Way, # 201

                Centennial,
      Colorado 80112

                Attention:
      Scott Hornafius, President

                Telephone:
      (720) 875-9810

                Fax:
      (720) 874-0187

                Email:
      Scott@MegaEnergy.net

              	
                  
Saga
      Petroleum Corp.

                600
      17th
      Street, Suite 1700N

                Denver,
      Colorado 80202

                Attention:
      J. Charles Farmer, President

                Telephone:
      (303) 996-7766

                Fax:
      (303) 996-7767

                Email:

              
	 	 
	
                With
      a copy to:

                Ducker,
      Montgomery, Lewis & Bess, PC

                1560
      Broadway, Suite 1400

                Denver,
      CO 80202

                Attention:
      Robert G. Lewis, Esq.

                Telephone:
      (303) 861-2828

                Fax:
      (303) 861-4017

                Email:
      rlewis@duckerlaw.com

              	 
      

      

    

    

    
      
         

      

      
        -36-

        
          

        

      

      
         

      

    

    

    
      
        	
                If
      to Buyer:

                Gastar
      Exploration USA., Inc.

                1331
      Lamar, Suite 1080

                Houston,
      TX 77010

                Attention:
      Mr. J Russell Porter

                Telephone:  713.739.1800

                Fax:
      713.739.0458

                Email:  rporter@gastar.com

              	 
      
	 	 
	
                With
      a copy to:

                Vinson
      & Elkins LLP

                First
      City Tower

                1001
      Fannin Street, Suite 2500

                Houston,
      TX 77002-6760

                Attn:  T.
      Mark Kelly

                Telephone:  713.758.4592

                Fax:  713.615.5531

              	 
      

      

    

      

    Either
Party may, upon written notice to the other Party, change the address and
individual to whom such communications are thereafter to be
directed.

    

    21.         Miscellaneous.

     

    (a)           Exhibits.  All
exhibits and schedules attached to this Agreement are hereby incorporated by
reference herein and made a part hereof for all purposes as if set forth in
their entirety herein. The schedule numbers used in this Agreement refer to the
corresponding sections of the Agreement to which such schedule relates;
provided, however, to the extent that a matter is disclosed in a schedule is
relevant and reasonably apparent on its face to apply to the disclosure required
by any other section of this Agreement, such matter shall be deemed to be
disclosed in such other section of this Agreement, whether or not an explicit
cross reference appears.

     

    (b)           Integration.  This
Agreement, and the exhibits and schedules hereto, and the Farmout Agreement, and
the exhibits and schedules thereto, constitute the entire agreement between the
Parties with respect to the subject matter hereof, and supersede and replace any
and all prior negotiations, discussions, understandings and agreements, whether
oral or written, relating to such subject matter.

     

    (c)           Amendments.  This
Agreement may not be altered or amended, nor may any rights hereunder be waived,
except by a written document signed by the Party to be charged with such
amendment or waiver.

     

    (d)           No
Assignment.  Except in accordance with Section 21(o) below
(Like-Kind Exchanges), a Party shall not assign, or contract to assign, any of
its rights, interests, obligations or duties under this Agreement without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld. Such other Party shall consent to a proposed assignment
hereunder to the extent that the proposed assignee has the financial and
technical ability to perform the obligations of assignor under this Agreement,
and such assignment is in compliance with the terms and conditions of this
Agreement. Any attempted assignment in breach of this provision shall be null
and void. Any assignment hereunder shall be subject to all of the terms and
conditions of this Agreement, and the proposed assignee shall agree to assume,
bear and perform all of the obligations of the assignor hereunder.
Notwithstanding the foregoing, Buyer may assign this Agreement to an affiliate
of Buyer; provided Buyer shall remain liable to Seller for all of Buyer’s
duties, obligations and liabilities hereunder.

    
      
         

      

      
        -37-

        
          

        

      

      
         

      

    

    (e)           Binding
Effect.  Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the Parties, and their respective
successors and assigns.

     

    (f)           Relationship.  Notwithstanding
anything to the contrary, the representations, covenants, indemnities, duties,
obligations and liabilities of Mega and Saga under this Agreement are separate
and several, and not joint or collective. 

     

    (g)           Third
Parties.  Except for indemnified Persons or entities described
in Section 17 above (Indemnities), this Agreement shall not confer any rights,
benefits or remedies to any Person or entity not a Party hereto.

     

    (h)           No Merger;
Survival.  None of the provisions of this Agreement shall be
deemed to have merged with any assignment or other instrument hereafter
executed. Except as otherwise specified herein, the representations and
warranties made by Seller in Sections 4(h) through 4(p) inclusive shall survive
for 270 days after the Closing Date, shall expire automatically 270 days after
the Closing Date, and no new Claims for breach thereof shall be made after the
expiration of such 270 day period. Notwithstanding the foregoing, the
representations and warranties made by Seller in Section 4(a) through 4(g)
inclusive, and the representations and warranties made by Buyer in Section 5(a)
through 5(i) inclusive, shall survive for the applicable statute of limitations
period.

     

    (i)
           Expenses and
Fees.  Except as otherwise expressly set forth in this
Agreement, each Party shall pay its own fees and expenses incident to the
negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby, including broker
fees.  

     

    (j)  
         Arbitration.  Any
dispute arising out of or relating in any way to this Agreement (“Dispute”)
shall be determined by binding arbitration hereunder. Arbitration shall be
commenced by either Party delivering to the other Party written notice (the
“Arbitration Demand”) which shall set forth in reasonable detail the basis of
the dispute.  The Parties shall use their reasonable efforts in good
faith to agree upon a single arbitrator, who shall be a neutral, disinterested
party, who has never been an officer, director, employee or attorney of any of
the Parties, or any of their affiliates, who has not less than ten (10) years
experience in the oil and gas industry, and who has a formal financial,
accounting, petroleum engineering or legal education.  If the Parties
are unable to agree upon a mutually acceptable arbitrator on or before thirty
(30) days after receipt of the Arbitration Demand, then each Party shall select
their own arbitrator on or before forty-five (45) days after receipt of the
Arbitration Demand, and the two arbitrators so selected shall select a third
arbitrator on or before sixty (60) days after receipt of the Arbitration Demand.
The arbitration shall take place in Houston, Texas and shall be conducted under
the Commercial Arbitration Rules of the American Arbitration Association then in
effect. The hearing shall be commenced on or before sixty (60) days after the
selection of the arbitrators. The Parties and the arbitrators shall proceed
diligently and in good faith so that the arbitration award shall be entered on
or before sixty (60) days after the arbitration hearing. The decision of a
majority of the arbitrators (or, if the Parties selected a single arbitrator,
such arbitrator) shall be final, binding and non-appealable, except on such
grounds as exist for vacating or modifying an arbitration award under the
Federal Arbitration Act. The arbitrator(s) shall have the discretion (but not
the obligation) to award costs incurred by a prevailing Party in connection with
the arbitration, including reasonable attorneys’ fees, expert fees, and
out-of-pocket costs associated with the arbitration, from the opposing Party.
Either Party may apply to any court of competent jurisdiction to enforce any
arbitration award hereunder.

    
      
         

      

      
        -38-

        
          

        

      

      
         

      

    

    (k)           Governing
Law.  This Agreement, and all Claims arising in connection with
or related to hereto, or the negotiation, execution or performance hereof
(whether in contract or tort), shall be governed by and construed in accordance
with the Law of the State of Texas (excluding choice of law provisions), except
with respect to real property matters to the extent that such matters are
mandatorily governed by the Law of the State of West Virginia.

     

    (l)           Press
Releases.  No Party shall issue any press release relating to
the subject matter of this Agreement prior to the Closing without the prior
written approval of the other Party. Buyer may make any public disclosure Buyer
reasonably believes in good faith is required by applicable law or any listing
or trading agreement concerning its or its affiliates’ publicly-traded
securities (in which case Buyer shall use all reasonable efforts to advise
Seller, and give Seller an opportunity to comment on the proposed disclosure,
prior to making the disclosure).

     

    (m)          Interpretation.  For
purposes of interpreting the provisions of this Agreement, the Parties
acknowledge and agree that: (i) this Agreement is the result of negotiations
between Buyer and Seller, and their respective counsel; (ii) Buyer and Seller
are deemed to have equal bargaining power and position; (iii) the Parties are
deemed to have drafted this Agreement jointly; and (iv) the rule of construction
that ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation or construction of this Agreement.

     

    (n)           Headings.  The
headings of the articles and sections of this Agreement and any listing of its
contents are for guidance and convenience of reference only, and shall not limit
or otherwise affect any of the terms or provisions of this
Agreement.

     

    (o)           Like-Kind
Exchanges.  Seller and Buyer consent to each of the other
Party’s assignment of its rights under this Agreement to its Qualified
Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the
Treasury Regulations promulgated under the Code), if any, or to its Qualified
Exchange Accommodation Titleholder (as that term is defined in Revenue Procedure
2000-37, 2000-2 C.B. 308), if any, in connection with effectuation of a
like-kind exchange within the meaning of Section 1031 of the
Code.  However, Seller and Buyer acknowledge and agree that any
assignment of this Agreement to a Qualified Intermediary or to a Qualified
Exchange Accommodation Titleholder shall not release Seller or Buyer from, or
modify, any of their respective duties, obligations and liabilities (including
indemnity obligations) to each other under this Agreement.  Each Party
agrees to reasonably cooperate with the other to attempt to structure the
transaction as a like-kind exchange, provided that (i) the Closing shall not be
delayed and (ii) the Party requesting such cooperation shall indemnify the other
Party against any reasonable additional costs or liabilities directly incurred
by the non-requesting Party as a result of an assignment or request for
cooperation under this Section 21(o).

    
      
         

      

      
        -39-

        
          

        

      

      
         

      

    

    (p)           Timing.  With
respect to the dates set forth in Section 13, time is of the
essence.

     

    (q)           Further
Assurances.  After the Closing, Seller and Buyer shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be reasonably necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant
hereto.

     

    (r)           Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same agreement.

     

    (s)           Facsimile and
Electronic Signatures.  Buyer and Seller hereby agree that this
Agreement may be executed with facsimile and/or electronic signatures, and that
such facsimile and electronic signatures shall be valid and binding on the
Parties.

     

    (t)           Construction.  Unless
the context requires otherwise:  (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural, and
vice-versa; (b) reference to a Person includes such Person’s successors and
assigns but, in the case of a Party, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity; (c) the gender (or lack of gender)
of all words used in this Agreement includes the masculine, feminine and neuter;
(d) references to Articles and Sections refer to Articles and Sections of this
Agreement; (e) reference to any agreement (including this Agreement), document
or instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms thereof
and, if applicable, the terms of this Agreement; (f) references to Exhibits or
Schedules refer to the Exhibits or Schedules attached to this Agreement; (g)
references to Laws refer to such applicable Laws as they may be amended from
time to time, and references to particular provisions of a applicable Law
include any corresponding provisions of any succeeding Law; (h) the word “or” is
not exclusive; (i) the term “include”, “includes ”, “including” or words of like
import shall be deemed to be followed by the words “without limitation”; (j) the
terms “hereof”, “herein” or “hereunder” refer to this Agreement as a whole and
not to any particular provision of this Agreement; (k) references to money refer
to legal currency of the United States of America; (l) when calculating the
period of time before which, within which or following which any act is to be
done or step taken pursuant to this Agreement, the date that is the reference
date in calculating such period shall be excluded; and (n) references to “days”
are to calendar days.

    
      
         

      

      
        -40-

        
          

        

      

      
         

      

    

    (u)           Additional
Agreements.  If Buyer purchases less than 100% interest in the
Properties, Buyer and Seller shall enter into such additional agreements as are
mutually acceptable to the Parties to reflect their joint ownership of the
Properties.

    
      
         

      

      
        -41-

        
          

        

      

      
         

      

    

    EXECUTED on the date first set
forth above, to be effective for all purposes as of the Effective
Time.

    

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                SELLER:

                              	 	 
      
	
                                MegaEnergy,
      Inc.

                              	 	
                                Saga
      petroleum Corp.

                              
	 
      	 	 
      
	
                                By:

                              	
                                /s/ J. Scott
      Hornafius

                              	 	
                                By:

                              	
                                /s/ Brent J.
      Morse

                              
	
                                Name: 

                              	
                                J. Scott Hornafius

                              	 	
                                Name:

                              	
                                Brent J. Morse

                              
	
                                Title:

                              	
                                President

                              	 	
                                Title:

                              	
                                Vice President

                              
	 
      	 	 
      
	
                                BUYER:

                              	 	 
      
	
                                Gastar
      Exploration USA, Inc.

                              	 	 
      
	
                                By:

                              	
                                /s/ Henry J. Hansen

                              	 	 
      
	
                                Name:

                              	
                                Henry J. Hansen

                              	 	 
      
	
                                Title:

                              	
                                Vice President, Land

                              	 	 
      

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        -42-

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