Document:

exv10w1

 

Exhibit 10.1

NONQUALIFIED STOCK OPTION AGREEMENT

     This AGREEMENT (this “Agreement”) is made as of August 30, 2006 (the “Grant Date”) by and
between HealthMarkets, Inc., a Delaware corporation (the “Company”), and Andrew Kahr (“Optionee”).
As a condition precedent to the Company’s grant of the Option (as defined in Section 2 of this
Agreement) to Optionee, Optionee is executing and delivering a counterpart of the Stockholders’
Agreement and thereby agrees to be bound by the terms thereof.

     Certain Definitions. Capitalized terms used, but not otherwise defined, in this
Agreement will have the meanings given to such terms in the Company’s 2006 Management Option Plan
(the “Plan”). As used in this Agreement:

          “Call Right” has the meaning specified in Section 8 of this Agreement.

          “Company” has the meaning specified in the introductory paragraph of this Agreement.

          “Compensation Committee” means the Executive Compensation Committee of the Board.

          “Disability” shall mean the Optionee’s incapacity due to physical or mental illness to
substantially perform his duties on a full-time basis for at least 26 consecutive weeks or an
aggregate period in excess of 26 weeks in any one fiscal year, and within 30 days after a notice of
termination is thereafter given by the Company, the Optionee shall not have returned to the
full-time performance of the Optionee’s duties; provided, however, if the Optionee shall not agree
with a determination to terminate his employment because of Disability, the question of the
Optionee’s Disability shall be subject to the certification of a qualified medical doctor selected
by the Company or its insurers and acceptable to the Optionee or, in the event of the Optionee’s
incapacity to accept a doctor, the Optionee’s legal representative.

          “Fair Market Value” shall have the meaning specified in the Stockholders Agreement.

          “Grant Date” has the meaning specified in the introductory paragraph of this Agreement.

          “Option” has the meaning specified in Section 2 of this Agreement.

          “Optionee” has the meaning specified in the introductory paragraph of this Agreement.

          “Option Price” has the meaning specified in Section 2 of this Agreement.

          “Option Shares” has the meaning specified in Section 2 of this Agreement.

          “Plan” has the meaning specified in Section 1 of this Agreement.

          “Term Sheet” means the Stock Option Plan/Grant Term Sheet marked as “Exhibit B” to the Term
Sheet by and between the Company and Optionee dated as of June 2, 2006.

 

 

          “Termination for Cause” means the termination by the Company or any Subsidiary of Optionee’s
service with the Company or any Subsidiary as a result of (i) the commission by Optionee of an act
of gross negligence, willful misconduct, fraud, embezzlement, misappropriation or breach of
fiduciary duty against the Company or any of its affiliates or Subsidiaries, or the conviction of
Optionee by a court of competent jurisdiction of, or a plea of guilty or nolo contendere to, any
felony or any crime involving moral turpitude or any crime which reasonably could affect the
reputation of the Company or the Optionee’s ability to perform the duties with the Company or any
Subsidiary, (ii) the commission by Optionee of a material breach of any of his duties to the
Company or any Subsidiary or his covenants in the Stockholders Agreement, which breach has not been
remedied within 30 days of the delivery to the Optionee by the Board of written notice of the facts
constituting the breach, and which breach if not cured, would have a material adverse effect on the
Company, or (iii) the habitual and willful neglect by Optionee of his obligations or duties as a
Director of the Company or any Subsidiary.

     Grant of Stock Option. Subject to and upon the terms, conditions, and restrictions
set forth in this Agreement and in the Plan, the Company hereby grants to Optionee an option (the
“Option”) to purchase 4,200 shares of the Company’s Class A-1 Common Stock (the “Option Shares”),
subject to adjustment as set forth herein. The Option may be exercised from time to time in
accordance with the terms of this Agreement. Subject to adjustment as hereinafter provided, all of
the Option Shares may be purchased pursuant to this Option at an exercise price of $38.37 per
share. The Option is intended to be a nonqualified stock option and shall not be treated as an
“incentive stock option” within the meaning of that term under Section 422 of the Code, or any
successor provision thereto.

     Term of Option. The term of the Option shall commence on the Grant Date and, unless
earlier terminated in accordance with Section 7 hereof, shall expire ten (10) years from the Grant
Date.

     Right to Exercise. Unless terminated as hereinafter provided, the Option shall become
exercisable only as follows:

          The Option shall become exercisable with respect to 20% of the Option Shares on each of the
first five anniversaries of the Grant Date if Optionee remains in the continuous service as a
Director of the Company or any Subsidiary as of each such date.

          Notwithstanding the foregoing, (i) the Option granted hereby shall become immediately
exercisable with respect to all of the Option Shares upon the occurrence of a Change of Control if
Optionee remains in the continuous service as a Director of the Company or any Subsidiary until the
date of the consummation of such Change of Control.

          Optionee shall be entitled to the privileges of ownership with respect to Option Shares
purchased and delivered to Optionee upon the exercise of all or part of this Option.

     Option Nontransferable. Optionee may not transfer or assign all or any part of the
Option other than by will or by the laws of descent and distribution. This Option may be
exercised, during the lifetime of Optionee, only by Optionee, or in the event of Optionee’s legal
incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a
fiduciary capacity under state law and court supervision.

     Notice of Exercise; Payment.

          To the extent then exercisable, the Option may be exercised in whole or in part by written
notice to the Company stating the number of Option Shares for which the Option is being exercised
and the intended manner of payment. The date of such notice shall be the exercise date. Payment
equal to the

 

 

aggregate Option Price of the Option Shares being purchased pursuant to an exercise of the
Option must be tendered in full with the notice of exercise to the Company in one or a combination
of the following methods as specified by Optionee in the notice of exercise: (i) cash in the form
of currency or check or by wire transfer as directed by the Company, (ii) solely following an IPO
or shares of the Company’s Class A-1 Common Stock otherwise being traded on an established
securities market, through the surrender to the Company of shares of Class A-1 Common Stock owned
by Optionee for at least six months as valued at their Fair Market Value on the date of exercise or
(iii) through such other form of consideration as is deemed acceptable by the Board.

          As soon as practicable upon the Company’s receipt of Optionee’s notice of exercise and
payment, the Company shall direct the due issuance of the Option Shares so purchased.

          As a further condition precedent to the exercise of this Option in whole or in part, Optionee
shall comply with all regulations and the requirements of any regulatory authority having control
of, or supervision over, the issuance of the shares of Class A-1 Common Stock and in connection
therewith shall execute any documents which the Board shall in its sole discretion deem necessary
or advisable.

     Termination of Agreement. The Agreement and the Option granted hereby shall terminate
automatically and without further notice on the earliest of the following dates:

          after Optionee’s termination of service as a Director of the Company and its Subsidiaries, the
lesser of (i) ninety (90) calendar days following the Optionee’s date of termination or (ii) the
remaining term of the Option;

          The date of Optionee’s termination of service as a Director of the Company and its
subsidiaries for Cause; or

          Ten (10) years from the Grant Date.

     In the event that Optionee’s employment is terminated in the circumstances described in
Section 7(b) hereof, this Agreement shall terminate at the time of such termination notwithstanding
any other provision of this Agreement and Optionee’s option will cease to be exercisable to the
extent exercisable as of such termination and will not be or become exercisable after such
termination. Upon the Optionee’s termination of service as Director of the Company, and, if
applicable, its Subsidiaries, all Options which are not then exercisable shall immediately
terminate.

     Call Right. Upon termination of Optionee’s service as a Director for any reason prior
to an IPO, the Company will have the right to purchase (the “Call Right”) any Option Shares that
Optionee received pursuant to the terms and conditions set forth in Article VI Call Rights of the
Stockholders Agreement.

     Initial Public Offering. Option Shares acquired on exercise of any Option will be
subject to the terms and conditions of the Stockholders’ Agreement. The Company and Optionee
acknowledge that they will agree to provide the Company with the right to require Optionee and
other executives of the Company or any Subsidiary to waive any registration rights with regard to
such Option Shares upon an IPO, in which case the Company will implement an IPO bonus plan in cash,
stock or additional options to compensate for Optionee’s and the other executives’ loss of
liquidity.

     No Contract. Nothing contained in this Agreement shall (a) confer upon Optionee any
right to continue in service as a Director of the Company or any Subsidiary, or (b) limit or affect
in any manner the right of the Company’s stockholders to elect or remove Directors.

 

 

     Compliance with Law. The Company shall make reasonable efforts to comply with all
applicable federal and state securities laws; provided, however, that notwithstanding any other
provision of this Agreement, the Option shall not be exercisable if the exercise thereof would
result in a violation of any such law.

     Adjustments. The Board may make or provide for such substitution or adjustments in
the number of Option Shares covered by this Option, in the Option Price applicable to such Option,
and in the kind of shares covered thereby and/or such other equitable substitution or adjustments
as the Board may determine to prevent dilution or enlargement of Optionee’s rights that otherwise
would result from (a) any stock dividend, extraordinary cash-dividend, stock split, combination of
shares, recapitalization, or other change in the capital structure of the Company, (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reclassification, reorganization, partial
or complete liquidation, or other distribution of assets or issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an effect similar to
any of the foregoing. Such substitutions and adjustments may include, without limitation,
canceling any and all Options in exchange for cash payments equal to the excess, if any, of the
value of the consideration paid to a shareholder of an Option Share over the Option Price per share
subject to such Option in connection with such an adjustment event.

     Relation to Other Benefits. Any economic or other benefit to Optionee under this
Agreement shall not be taken into account in determining any benefits to which Optionee may be
entitled under any plan maintained by the Company or any Subsidiary and shall not affect the amount
of any life insurance coverage available to any beneficiary under any life insurance plan, if any,
covering Optionee.

     Amendments. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of Optionee under this Agreement without Optionee’s
written consent.

     Severability. If one or more of the provisions of this Agreement is invalidated for
any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof shall continue to
be valid and fully enforceable.

     Relation to Plan. This Agreement is subject to the terms and conditions of the Plan.
In the event of any inconsistent provisions between this Agreement and the Plan, the Plan shall
govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as
expressly provided otherwise herein, have the right to determine any questions which arise in
connection with the Option or its exercise.

     Successors and Assigns. The provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns
of Optionee, and the successors and assigns of the Company.

     Governing Law. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof and all parties, including their successors and assigns, consent to the
jurisdiction of the state and federal courts of Delaware.

     Prior Agreement. As of the Grant Date, this Agreement supersedes any and all prior
and/or contemporaneous agreements, either oral or in writing, between the parties hereto, or
between either or both of the parties hereto and the Company, with respect to the stock option
granted, including, without limitation, the stock option provisions of the Term Sheet. Each party
to this Agreement acknowledges

 

 

that no representations, inducements, promises, or other agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, pertaining to the subject matter
hereof, which are not embodied herein, and that no prior and/or contemporaneous agreement,
statement or promise pertaining to the subject matter hereof that is not contained in this
Agreement shall be valid or binding on either party.

     Notices. For all purposes of this Agreement, all communications, including without
limitation notices, consents, requests or approvals, required or permitted to be given hereunder
will be in writing and will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt requested, postage
prepaid, or three business days after having been sent by a nationally recognized overnight courier
service such as Federal Express, UPS, or Purolator, addressed to the Company (to the attention of
the Secretary of the Company) at its principal executive offices and to Optionee at his principal
residence, or to such other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be effective only upon
receipt.

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

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its
duly authorized officer and Optionee has executed this Agreement, as of the day and year first
above written.

	 	 	 	 	 	 	 
	 	 	HealthMarkets, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Andrew Kahrexv10w1

 

EXHIBIT 10.1

Execution Copy

PURCHASE AND SALE AGREEMENT

     This Purchase and Sale Agreement (this “Agreement”) is made and entered into this 1st day of
September, 2006, by and between SunStone Oil and Gas, LLC, an Oklahoma limited liability company
(“Seller”), and American Oil & Gas, Inc., a Nevada corporation (“Buyer”). Buyer and Seller are
collectively referred to herein as the “Parties”, and are sometimes referred to individually as a
“Party.”

WITNESSETH:

     WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to purchase from Seller, the
Assets (as defined in Section 1.02), all upon the terms and conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the mutual benefits derived and to be derived from this
Agreement by each Party, Seller and Buyer hereby agree as follows:

Article I

Assets

     Section 1.01 Agreement to Sell and Purchase. Subject to and in accordance with the
terms and conditions of this Agreement, Buyer agrees to purchase the Assets from Seller, and Seller
agrees to sell the Assets to Buyer.

     Section 1.02 Assets. The term “Assets” shall mean all of Seller’s right, title and
interest in and to:

     (a) The fee mineral interests, leasehold interests, royalty and overriding royalty interests
Seller owns in the geographic area described on Exhibit “A” attached hereto (collectively, the
“Leases”) and in and to the lands covered by the Leases (collectively, the “Lands” and with the
Leases collectively, the “Subject Interests”);

     (b) The oil and gas wells (collectively, the “Wells”) located on the Subject Interests,
together with all other oil and gas wells located thereon and on lands on which the Subject
Interests may have been pooled, communitized or unitized (collectively, the “Other O&G Wells”) and
all water, injection and disposal wells on the Subject Interests (collectively, the “Injection and
Disposal Wells”), together with all personal property, equipment, fixtures, inventory and
improvements located on the Leases, Lands or Wells or used in connection with the production,
treatment, sale, or disposal of oil, gas or other hydrocarbons (collectively, “Hydrocarbons”),
byproducts or waste produced therefrom or attributable thereto, and wellhead equipment, pumps,
pumping units, flowlines, gathering systems, piping, tanks, buildings, treatment facilities,
injection facilities, disposal facilities, compression facilities, and other materials, supplies,
equipment, facilities and machinery;

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     (c) All rights incident to the Subject Interests, including, without limitation, (i) all
rights with respect to the use and occupation of the surface of and the subsurface depths under the
Lands; and (ii) all rights with respect to any pooled, communitized or unitized acreage by virtue
of any Subject Interest being a part thereof, including all Hydrocarbon production obtained after
the Effective Time (as defined in Section 2.02) attributable to the Subject Interests or any such
pool or unit allocated to any such Subject Interest;

     (d) To the extent assignable or transferable, all easements, rights-of-way, surface leases,
servitudes, permits, licenses, franchises and other estates or similar rights and privileges
directly related to or used solely in connection with the Subject Interests;

     (e) To the extent assignable or transferable, all contracts, agreements and other arrangements
that directly relate to the Assets, including, without limitation, production sales contracts,
farmout agreements, operating agreements;

     (f) To the extent assignable or transferable, copies of all books, records, files, muniments
of title, reports and similar documents and materials, including, without limitation, lease
records, well records, and division order records, well files, title records (including abstracts
of title, title opinions and memoranda, and title curative documents related to the Assets),
contracts and contract files, and correspondence, but insofar only as the foregoing items pertain
to the Subject Interests and are in the possession of, and maintained by, Seller.

     Section 1.03 Excluded Assets. Notwithstanding any provision to the contrary in this
Agreement or any assignment, conveyance or bill of sale delivered in connection with the sale of
the Assets, Seller reserves, retains, excepts, and excludes from the purchase and sale provided for
in this Agreement all of Seller’s right, title, estate, and interest in and to the following:

     (a) all mineral oil in tanks on the Land or on lands spaced, pooled, communitized or unitized
therewith;

     (b) all Hydrocarbons in the tanks as of the Effective Time attributable to the Assets and all
proceeds from the sale of Hydrocarbons produced before the Effective Time attributable to the
Assets;

     (c) any and all causes of action, choses in action, rights of refund for improper charges or
overcharges, and rights to underpayments that are attributable to the ownership, use and/or
operation of the Assets and arose or arise from any event, act or failure to act occurring or
failing to occur prior to the Effective Time, including, without limitation, any breach by any
person or entity of any duty, obligation or undertaking arising prior to the Effective Time; and

     (d) all confidential information and trade secrets of Seller.

     Section 1.04 Permitted Encumbrances. Wherever used in this Agreement, the term
“Permitted Encumbrances,” shall mean:

     (a) Preferential rights to purchase and required third party consents to assignments and
similar agreements with respect to which (i) waivers or consents are obtained

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before the Closing from the appropriate parties or (ii) the appropriate time period for
asserting those rights has expired without an exercise of those rights after appropriate notice;

     (b) All rights to consent by, required notices to, filings with, or other actions by
governmental authorities in connection with the sale or conveyance of the Assets, or the transfer
of operations of the Wells, the Other Wells and/or the Injection and Disposal Wells, if the same
are customarily obtained subsequent to the sale or conveyance of oil and gas leases or interests
therein;

     (c) Non-consent penalties applied against the interest of Seller in any of the Subject
Interests or the Wells arising under applicable operating agreements;

     (d) Easements, rights-of-way, servitudes, permits, zoning restrictions, surface leases, and
other rights in respect of surface operations which do not interfere with or detract from the
operation, value or use of the Assets by Buyer in any material respect;

     (e) The terms and conditions of the Leases, operating agreements, pooling, communitization or
unitization agreements and orders, production purchase and sale contracts, and other agreements and
contracts that do not interfere with or detract from the operation, value or use of the Assets by
Buyer in any material respect;

     (f) Rights of reassignment to the extent any exist as of the date of this Agreement, upon the
surrender or expiration of any Lease;

     (g) Liens for taxes or assessments not yet due or not yet delinquent;

     (h) Liens, if any, to be released at Closing by an instrument in a form acceptable to Buyer;

     (i) Liens imposed by operating agreements and mandatory provisions of law such as operators’,
carriers’, materialmen’s, mechanics’, warehousemen’s, landlords’ and similar liens arising in the
ordinary course, securing indebtedness, undertakings or obligations not yet due, and liens arising
in the ordinary course from pledges or deposits to secure public or statutory obligations; and

     (j) All agreements, contracts, governmental orders and authorizations, litigation, permits,
licenses, instruments, documents, and other matters of which Buyer has actual or constructive
knowledge as of the date hereof affecting any one or more of the Assets.

Article II

Purchase Price

     Section 2.01 Purchase Price. The purchase price consideration for the purchase, sale
and conveyance of the Assets to Buyer shall be 2,050,000 shares of Buyer’s common stock (the
“Shares”).

     Section 2.02 Effective Time. The ownership of the Assets shall be transferred from
Seller to Buyer on the Closing Date, effective as of 7:00 a.m., Mountain Daylight Time, on July 1,
2006 (the “Effective Time”).

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Article III

Representations and Warranties of Seller

     Seller represents and warrants to Buyer that:

     Section 3.01 Seller’s Existence. Seller is a limited liability company duly formed
and validly existing under the laws of the State of Oklahoma and is qualified to conduct business
in the State of Wyoming if such qualification is required by applicable law. Seller has full
legal power, right and authority to carry on its business as such is now being conducted and as
contemplated to be conducted.

     Section 3.02 Legal Power. Seller has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The consummation of the
transactions contemplated by this Agreement will not violate, nor be in conflict with:

     (a) any provision of Seller’s governing documents;

     (b) any material agreement or instrument to which Seller or an affiliate of Seller is a party
or by which Seller or any affiliate of Seller is bound, but excluding Permitted Encumbrances and
any such agreements and instruments of which Buyer has actual or constructive notice; or

     (c) any judgment, order, ruling or decree applicable to Seller as a party in interest or any
law, rule or regulation applicable to Seller, but excluding any such judgments, orders, rulings and
decrees of which Seller does not have actual knowledge or Buyer has actual knowledge.

     Section 3.03 Execution. The execution, delivery and performance of this Agreement and
the transactions contemplated hereby by Seller are duly and validly authorized by all requisite
action on the part of Seller. This Agreement constitutes the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, except as enforceability may be limited by
general principles of equity and by bankruptcy, insolvency, reorganization or similar laws and
judicial decisions affecting the rights of creditors generally.

     Section 3.04 Suits. There is no suit, action, claim, investigation or inquiry by any
person or entity or by any administrative or governmental agency and no legal, administrative or
arbitration proceeding pending or, to Seller’s knowledge, threatened against Seller or the Assets
that has materially affected or will materially affect Seller’s ability to consummate the
transactions contemplated herein or materially affect Seller’s title to or the value of the Assets.

     Section 3.05 Liens. Except for Permitted Encumbrances, the Assets will be conveyed to
Buyer free and clear of all liens and encumbrances created by Seller or any entity affiliated with
Seller.

     Section 3.06 Investment Experience; No Reliance. Seller acknowledges that it can bear
the economic risk and loss of its investment in the Shares and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and risks of an
investment in the Shares. Seller is experienced and knowledgeable in the oil and gas business

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and in investing in securities of oil and gas companies and is aware of the risks. Seller
acknowledges that Buyer has not made any representation or warranty, expressed or implied, as to
the accuracy or completeness of any information regarding Buyer except as expressly set forth in
this Agreement or in the Buyer SEC Records (as defined in Section 4.05) and Buyer shall have no
liability to Seller or to Seller’s successors or assigns for its or their reliance on any
information regarding Buyer that is not contained in this Agreement or in such Buyer SEC Records.

     Section 3.07 Speculative Investments. Seller acknowledges that: (a) Buyer’s
operations have resulted in a history of losses; (b) the trading market for Buyer’s stock has been
volatile and the market price of such stock can be expected to continue to be subject to
significant fluctuations; and (c) the Shares constitute a speculative investment and involve a high
degree of risk of loss by Seller of Seller’s investment in the Shares.

     Section 3.08 Advice. Prior to entering into this Agreement, Seller was advised by
such legal, tax and other professional counsel concerning this Agreement, and the Shares and the
value thereof, as Seller deemed necessary under the circumstances. Neither such advice or Seller’s
other investigations shall modify, affect or amend Seller’s right to rely upon the representations
and warranties contained in this Agreement.

     Section 3.09 Restricted Securities. Seller understands that the Shares are
characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they
are being acquired from the Buyer in a transaction not involving a public offering and that under
such laws and applicable regulations, such Shares may be resold without registration only in
certain limited circumstances. Seller has no present intention of selling, granting any
participation in, or otherwise transferring the Shares to any person other than the Investors.
Seller understands that certificates evidencing the Shares will bear a legend setting forth
restrictions on transfer.

     Section 3.10 Accredited Investor. Seller is an accredited investor as defined in Rule
501(a) of Regulation D, as amended, under the Securities Act of 1933, as amended (the “Securities
Act”).

     Section 3.11 No General Solicitation. Seller did not learn of the investment in the
Shares as a result of any public advertising or general solicitation.

Article IV

Representations and Warranties of Buyer

     Buyer represents and warrants to Seller that:

     Section 4.01 Buyer’s Existence. Buyer is a corporation duly organized and validly
existing under the laws of the State of Nevada and is qualified to conduct business in the State of
Wyoming. Buyer has full legal power, right and authority to carry on its business as such is now
being conducted and as contemplated to be conducted.

     Section 4.02 Legal Power. Buyer has the legal power and right to enter into and
perform this Agreement and the Registration Rights Agreement (as defined herein) and the
transactions contemplated hereby and thereby. The consummation of the transactions

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contemplated by this Agreement and the Registration Rights Agreement will not violate, nor be
in conflict with:

     (a) any provision of Buyer’s governing documents;

     (b) any material agreement or instrument to which Buyer is a party or by which Buyer is bound;
or

     (c) any judgment, order, ruling or decree applicable to Buyer as a party in interest or any
law, rule or regulation applicable to Buyer.

     Section 4.03 Execution. The execution, delivery and performance of this Agreement and
Registration Rights Agreement and the transactions contemplated hereby and thereby by Buyer are
duly and validly authorized by all requisite corporate action on the part of Buyer and will not
violate or result in the breach of any agreement, contract or order to which Buyer or the Shares
are subject. This Agreement constitutes, and Registration Rights Agreement when executed and
delivered by Buyer at the Closing will constitute, the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except as enforceability may be limited by general
principles of equity and by bankruptcy, insolvency, reorganization or similar laws and judicial
decisions affecting the rights of creditors generally.

     Section 4.04 Suits. There is no suit, action, claim, investigation or inquiry by any
person or entity or by any administrative or governmental agency and no legal, administrative or
arbitration proceeding pending or, to Buyer’s knowledge, threatened against Buyer that has
materially affected or will materially affect Buyer’s ability to consummate the transactions
contemplated by this Agreement or Registration Rights Agreement or that could reasonably be
expected to have any adverse effect on the price of Buyer’s publicly traded securities.

     Section 4.05 Buyer SEC Reports. Buyer has filed all required forms, reports,
registration statements, prospectuses, schedules, information statements, and documents with the
Securities and Exchange Commission (collectively, the “Buyer SEC Reports”) required to be filed by
it pursuant to applicable federal and state securities laws and the rules and regulations
thereunder. The Buyer SEC Reports (a) have been filed on a timely basis; and (b) were prepared in
all material respects in accordance with the requirements of the Securities Act, and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) as the case may be, and the rules and
regulations thereunder. Buyer has complied with and timely made all filings required under all
applicable state securities laws, rules and regulations. None of the Buyer SEC Reports required by
the Exchange Act at the time filed, nor any of the Buyer SEC Reports required by the Securities Act
at the time filed or as of the date of their effectiveness, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they were made, not
misleading, except to the extent that information contained in any Buyer SEC Report has been
revised or superseded by a later-filed Buyer SEC Report filed and publicly available prior to the
date hereof. The Buyer SEC Reports filed prior to the date hereof, when taken together, do not
contain any untrue statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not misleading.

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     Section 4.06 Qualifications. Buyer is now, and after the Closing shall continue to
be, qualified to own and operate the Assets and has, and shall maintain, all necessary bonds and
governmental authorizations to own and operate the Assets.

     Section 4.07 Investment. Prior to entering into this Agreement, Buyer was advised by
and has relied solely on its own legal, tax and other professional counsel concerning this
Agreement, the Assets and the value thereof. Buyer is acquiring the Assets for its own account.

     Section 4.08 Issuance of Shares. The issuance, sale and delivery of the Shares in
accordance with this Agreement have been duly authorized by all necessary corporate action on the
part of the Buyer. The Shares when issued, sold and delivered in accordance with the provisions of
this Agreement will be duly and validly issued, fully-paid and non-assessable, free of preemptive
rights, rights of first refusal and rights of first offer with no personal liability attaching to
the ownership thereof.

     Section 4.09 Registration Exemption. The offer, sale and delivery of the Shares by
the Company to Seller and by Seller to the persons listed on Exhibit “D” (the “Investors”) will be
exempt from the registration requirements of the Securities Act.

     Section 4.10 Approval. No authorization, consent, approval or exemption from, or
filing with, any state or federal governmental authority is required by Buyer other than post-sale
filings pursuant to applicable securities laws in connection with (i) Buyer’s offer, issuance,
sale, and delivery of the Shares to Seller and/or (ii) Seller’s sale, transfer, and delivery of the
Shares on the Closing Date to the Investors.

     Section 4.11 Brokers’ Fees. Buyer has incurred no liability, contingent or otherwise,
for any broker’s or finder’s fees relating to the transactions contemplated by this Agreement for
which Seller shall have any responsibility whatsoever.

     Section 4.12 Knowledgeable Purchaser. Buyer is a knowledgeable purchaser, owner, and
operator of oil and gas properties, and is acquiring the Assets for its own account.

     Section 4.13 No Material Changes. Since December 31, 2005, except as set forth in
Buyer’s SEC Reports, Buyer has conducted its business in the ordinary course and Buyer has not
experienced any events, developments or changes which, individually or in the aggregate would
reasonably be expected to have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of Buyer.

     Section 4.14 Listing. The Shares are listed on the American Stock Exchange.

Article V

Seller’s Conditions to Close

     The obligations of Seller to consummate the transactions provided for herein for its
consummation are subject, at the option of Seller, to the fulfillment on or prior to the Closing
Date of each of the following conditions precedent:

7

 

     Section 5.01 Representations. All representations and warranties of Buyer herein
contained shall be true and correct in all respects on the Closing Date as though made on and as of
such date.

     Section 5.02 Performance. Buyer shall have performed all obligations, covenants and
agreements contained in this Agreement to be performed or complied with by it at or prior to the
Closing.

     Section 5.03 Pending Matters. No suit, action or other proceeding shall be pending or
threatened that seeks to restrain, enjoin or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.

     Section 5.04 The Shares. Buyer shall have delivered to Seller the Shares.

     Section 5.05 Assignment. Buyer shall have executed and acknowledged the Assignment
described in Section 8.02.

     Section 5.06 Third Party Agreement. Seller shall have concurrently with transactions
contemplated by this Agreement consummated the purchase, sale, and delivery of the Shares pursuant
to the terms of that certain Stock Purchase Agreement between Seller and the Investors.

     Section 5.07 Registration Rights Agreement. Buyer and the Investors shall have
executed the Registration Rights Agreement substantially in the form attached hereto as Exhibit “C”
to this Agreement (the “Registration Rights Agreement”).

     Section 5.08 Representation of Investment Intent Letter. The Investors shall have
executed and delivered to the Seller a representation of investment intent letter substantially in
the form attached hereto.

Article VI

Buyer’s Conditions to Close

     The obligations of Buyer to consummate the transactions provided for herein for its
consummation are subject, at the option of Buyer, to the fulfillment on or prior to the Closing
Date of each of the following conditions precedent:

     Section 6.01 Representations. All representations and warranties of Seller herein
contained shall be true and correct in all respects on the Closing Date as though made on and as of
such date.

     Section 6.02 Performance. Seller shall have performed all obligations, covenants and
agreements contained in this Agreement to be performed or complied with by it at or prior to the
Closing.

8

 

     Section 6.03 Pending Matters. No suit, action or other proceeding shall be pending or
threatened that seeks to restrain, enjoin, or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.

     Section 6.04 Assignment. Seller shall have executed, acknowledged and delivered to
Buyer the Assignment described in Section 8.02(a).

     Section 6.05 Representation of Investment Intent Letter. The Investors shall have
executed and delivered to the Buyer a representation of investment intent letter substantially in
the form attached hereto.

Article VII

Tax Matters

     Section 7.01 Transfer Taxes. All sales, transfer, use or other taxes (other than
taxes on gross income, net income or gross receipts) and duties, levies, recording fees or other
governmental charges incurred by or imposed with respect to the transfers undertaken pursuant to
this Agreement shall be the responsibility of, and shall be paid by, Buyer.

     Section 7.02 Ad Valorem and Similar Taxes.

     (a) All Ad valorem, taxes, real property taxes and personal property taxes (“Real and Personal
Property Taxes”) for the year in which the Effective Time occurs shall be apportioned as of the
Effective Time between Seller and Buyer. Seller shall be liable for the portion of such Real and
Personal Property Taxes based upon the number of days in the year occurring prior to the Effective
Time, and Buyer shall be liable for the portion of such taxes based upon the number of days in the
year occurring on and after the Effective Time. To the extent such taxes have not actually been
assessed, the respective liabilities of Buyer and Seller shall be computed on the basis of such
taxes and assessments for the preceding tax year. For any year in which an apportionment is
required, Buyer shall file all reports and returns required to be filed after Closing that are
incident to these taxes assessed for the year in which the Effective Time occurs that are not paid
by Seller as of the Closing Date. Seller has, or will have, filed any such renditions, reports, or
returns required to be filed before Closing.

     (b) Severance Taxes will be allocated by the Parties so that the Party which is entitled to
the revenue from production shall bear the burden of the severance tax in respect thereto.

Article VIII

The Closing

     Section 8.01 Time and Place of the Closing. If the conditions referred to in Articles
V and VI of this Agreement have been satisfied or waived in writing, the transactions contemplated
by this Agreement (the “Closing”) shall take place on September 1, 2006 (the “Closing Date”), at
10:00 a.m. MDT, at the offices of Buyer in Denver, Colorado, or on such other date or at such other
place agreed to by the Parties.

9

 

     Section 8.02 Actions of Seller at the Closing.

     At the Closing, Seller shall:

     (a) execute, acknowledge and deliver to Buyer a Conveyance, Assignment and Bill of Sale in the
form set forth as Exhibit “B” to this Agreement (the “Assignment”) and such other instruments (in
form and substance mutually agreed upon by Buyer and Seller) as may be reasonably necessary to
convey the Assets to Buyer; and

     (b) deliver to Buyer possession of the Assets.

     Section 8.03 Actions of Buyer at the Closing.

     At the Closing, Buyer shall:

     (a) deliver to Seller, or at Seller’s request to and as requested by the Investors, one or
more definitive certificates representing the Shares, and Buyer shall cause such issuance and
delivery to be duly noted and recorded on the stock transfer records maintained by Buyer or its
transfer agent with respect to the ownership of Buyer’s publicly traded common stock;

     (b) take possession of the Assets; and

     (c) execute, and acknowledge the Assignment, the Registration Rights Agreement and any other
document that may be necessary or desirable to effectuate the transactions contemplated hereby.

Article IX

Termination

     Section 9.01 Right of Termination. This Agreement may be terminated at any time at or
prior to the Closing:

     (a) by mutual written consent of the Parties;

     (b) by Seller on the Closing Date if any condition set forth in Article V has not been
satisfied in all respects by Buyer or waived by Seller in writing by or on the Closing Date;

     (c) by Buyer on the Closing Date if any condition set forth in Article VI has not been
satisfied in all respects by Seller or waived by Buyer in writing by or on the Closing Date;

     (d) by either Party if the Closing shall not have occurred on or before September 29, 2006; or

     (e) by either Party if any governmental agency or authority shall have issued an order,
judgment or decree or taken any other action challenging, delaying, restraining, enjoining,
prohibiting or invalidating the consummation of any of the transactions contemplated herein.

10

 

Provided, however, that neither Party shall have the right to terminate this Agreement pursuant to
clause (b), (c), or (d) above if such Party is at such time in material breach of any provision of
this Agreement.

     Section 9.02 Effect of Termination. In the event that the Closing does not occur as a
result of any Party exercising its right to terminate pursuant to Section 9.01, then, except as set
forth in Section 9.03 and this Section, this Agreement shall be null and void and neither Party
shall have any further rights or obligations under this Agreement, except that nothing herein shall
relieve any Party from any liability for any breach hereof or any liability that has accrued prior
to such termination pursuant to Section 9.03.

     Section 9.03 Liabilities Upon Termination.

     (a) If the transactions contemplated by this Agreement are not consummated on or before the
Closing Date because of the failure of Buyer to perform any of its material obligations hereunder
or the breach of any representation and warranty made herein by Buyer, then, in such event, Seller
may, as its sole and exclusive remedy for Buyer’s failure to perform or breach, bring an action
against Buyer for specific performance of this Agreement and for any and all damages (excluding
consequential damages) incurred by Seller arising from such failure or breach.

     (b) If the transactions contemplated by this Agreement are not consummated on or before the
Closing Date because of the failure of Seller to perform any of its material obligations hereunder
or the breach of any representation herein by Seller, then, in such event, Buyer may, as its sole
remedy for Seller’s failure to perform or breach, bring an action against Seller for specific
performance of this Agreement and for any and all damages (excluding consequential damages)
incurred by Buyer arising from such failure or breach.

Article X

Post Closing Obligations

     Section 10.01 Receipts and Credits. Subject to the terms hereof, all monies,
proceeds, receipts, credits and income attributable to the ownership and operation of the Assets
(a) for all periods of time from and subsequent to the Effective Time shall be the sole property
and entitlement of Buyer, and, to the extent received by Seller, Seller shall within ten (10)
business days after such receipt, fully disclose, account for and transmit same to Buyer, and (b)
for all periods of time prior to the Effective Time, shall be the sole property and entitlement of
Seller and, to the extent received by Buyer, Buyer shall fully disclose, account for and transmit
same to Seller within ten (10) business days after such receipt. Subject to the terms hereof, all
costs, expenses, disbursements, obligations and liabilities attributable to the Assets (i) for
periods of time prior to the Effective Time, regardless of when due or payable, shall be the sole
obligation of Seller and Seller shall promptly pay or, if paid by Buyer, promptly reimburse Buyer
for and hold Buyer harmless from and against same, and (ii) for periods of time from and subsequent
to the Effective Time, regardless of when due or payable, shall be the sole obligation of Buyer and
Buyer shall promptly pay or, if paid by Seller, promptly reimburse Seller for and hold Seller
harmless from and against same.

11

 

     (a) Section 10.02 Further Cooperation. After the Closing Date, each Party, at the
reasonable request of the other and without additional consideration, shall execute and deliver, or
shall cause to be executed and delivered, from time to time such further instruments of conveyance
and transfer and shall take such other action as the other Party may reasonably request to convey
and deliver the Assets to Buyer or to issue, transfer and deliver the Shares to Seller (or the
Investors, and to accomplish the orderly transfer of the Assets to Buyer and the Shares to Seller
(or the Investors) in the manner contemplated by this Agreement. After the Closing, the Parties
will cooperate to have all revenues and proceeds received attributable to the Assets be paid to the
proper Party hereunder and to have all expenditures to be made with respect to the Assets be made
by the proper Party hereunder. A final reconciliation or accounting of the Effective Time
allocations shall occur within sixty (60) days after Closing, except with respect to ad valorem
taxes. The final reconciliation or accounting of ad valorem taxes shall occur within thirty (30)
days after Buyer or Seller’s receipt of the pertinent ad valorem tax assessment from the applicable
governmental taxing authority.

Article XI

Obligations and Indemnification

     Section 11.01 Seller Obligations. Following Closing, Seller shall be responsible for:
(i) all duties, obligations and liabilities of every kind and character with respect to Seller’s
ownership of the Assets prior to the Effective Time, except as otherwise provided in Section 11.02,
and (ii) the breach by Seller of any of Seller’s representations and warranties set forth in
Article III, except for any breach that is included in “Buyer Obligations”, as that term is defined
in Section 11.02 (collectively, the “Seller Obligations”).

     Section 11.02 Buyer Obligations. Following Closing, Buyer shall be responsible for:
(i) all duties, obligations and liabilities of every kind and character with respect to Buyer’s
ownership or operation of the Assets on or after the Effective Time, including, without
limitation, assumption of all plugging obligations and associated liabilities, if any, with respect
to the Wells, the Other O&G Wells, the Injection and Disposal Wells, and the Subject Interests,
(ii) all “Losses”, as that term is defined in Section 11.03, resulting from any environmental
condition at, on or under the Land and/or any land spaced, pooled, communitized or unitized with
the Land, regardless of when occurring, (iii) any violation or breach of any local, state or
federal law, rule, regulation, permit or order with respect to the operation of any of the Assets,
the Wells, the Other O&G Wells, and/or the Injection and Disposal Wells, regardless of when
occurring, and (iv) the breach of any of Buyer’s representations and warranties set forth in
Article IV (collectively, the “Buyer Obligations”).

     Section 11.03 Buyer Indemnification. Following Closing, Buyer shall release, defend,
indemnify and hold harmless Seller and Seller’s owners, officers, directors, employees, agents,
representatives, successors and assigns, from and against any and all claims, damages, liabilities,
losses, causes of action, costs and expenses (including, court costs and attorneys’ fees)
(collectively, the “Losses”) as a result of, arising out of, or related to the Buyer Obligations.

     Section 11.04 Seller Indemnification. Following Closing, Seller shall release,
defend, indemnify and hold harmless Buyer and Buyer’s owners, officers, directors, employees,

12

 

agents, representatives, successors and assigns from and against any and all Losses as a
result of, arising out of, or related to, the Seller Obligations.

     Section 11.05 Notices and Defense of Indemnified Matters. Each Party shall promptly
notify the other Party of any matter of which it has actual knowledge and for which it is entitled
to indemnification from the other Party under this Agreement. A Party’s failure to promptly notify
the other Party of any matter for which it is entitled to indemnification under this Agreement
shall not bar such Party’s right for indemnification under this Agreement unless that delay has
materially prejudiced the other Party. The indemnifying Party shall be obligated to defend, at the
indemnifying Party’s sole expense, any litigation or other administrative or adversarial proceeding
against the indemnified Party relating to any matter for which the indemnifying Party has agreed to
indemnify and hold the indemnified Party harmless under this Agreement. However, the indemnified
Party shall have the right to participate with the indemnifying Party in the defense of any such
matter at its own expense. The representations, warranties and indemnities provided for in this
Agreement shall survive the execution and delivery of this Agreement and the Closing indefinitely.

Article XII

Limitations on Representations and Warranties

     Section 12.01 Disclaimers. The express representations and warranties of Seller
contained in this Agreement are exclusive and are in lieu of all other representations and
warranties, express, implied or statutory. EXCEPT FOR THE EXPRESS REPRESENTATIONS OF SELLER IN THIS
AGREEMENT, BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND
NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT
COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES,
DECLINE RATES, GAS BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF
HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OF
ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED
TO BUYER BY OR ON BEHALF OF SELLER, AND (c) THE ENVIRONMENTAL CONDITION OF THE ASSETS. EXCEPT FOR
THE EXPRESS REPRESENTATIONS OF SELLER IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES,
AND BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES
CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS UNDER
APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (v) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN OR UNKNOWN, (vi) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW, AND (vii) ANY IMPLIED OR

13

 

EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT,
OR PROTECTION OF THE ENVIRONMENT OR HEALTH, IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER THAT
THE PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES INCLUDED IN THE ASSETS SHALL BE
CONVEYED TO BUYER, AND BUYER SHALL ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR AND BUYER REPRESENTS TO SELLER THAT BUYER WILL MAKE OR CAUSE
TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY
AND FIXTURES AS BUYER DEEMS APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE
“CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.

Article XIII

Dispute Resolution

     Section 13.01 Arbitration. Except for an action against a Party to enforce specific
performance of this Agreement, the Parties agree to resolve all disputes concerning this Agreement
(“Disputes”) pursuant to the provisions of this Article XIII. The Parties agree to submit all
Disputes to binding arbitration in Dallas, Texas, such arbitration to be conducted as follows:
The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association (“AAA”), with discovery to be conducted in accordance with
the Federal Rules of Civil Procedure. The arbitration shall be before a single arbitrator (the
“Arbitrator”) with no less than ten (10) years experience concerning the matter in dispute and with
no prior affiliation or business dealings with either Party. The Arbitrator shall conduct a
hearing no later than thirty (30) days after submission of the matter to arbitration, and the
Arbitrator shall render a written decision within thirty (30) days of the hearing. At the hearing,
the Parties shall present such evidence and witnesses as they may choose, with or without counsel.
Adherence to formal rules of evidence shall not be required, but the Arbitrator shall consider any
evidence and testimony that he or she determines to be relevant, in accordance with procedures that
he or she determines to be appropriate. Any award entered in the arbitration shall be made by a
written opinion stating the reasons and basis for the award made and any payment due pursuant to
the arbitration shall be made within fifteen (15) days of the Arbitrator’s decision. The final
decision may be filed in a court of competent jurisdiction and may be enforced by the prevailing
Party as a final judgment of such court. Except as provided in the immediately succeeding
sentence, each Party shall bear its own costs and expenses of the arbitration; provided, however,
that the costs of employing the Arbitrator shall be borne 50% by Seller and 50% by Buyer. The
arbitrator may, in the Arbitrator’s sole discretion, award the cost and expenses, including,
without limitation, attorneys’ and experts’ fees, and the cost of arbitration (including the cost
of the Arbitrator) incurred by the prevailing Party in the Arbitration.

14

 

Article XIV

Miscellaneous

     Section 14.01 Expenses. Each Party shall be solely responsible for all expenses
incurred by it in connection with this transaction, and neither Party shall be entitled to any
reimbursement for such expenses from the other Party. The prevailing Party in any lawsuit,
litigation or arbitration proceeding concerning the construction or interpretation of this
Agreement or the breach by the other Party of any provision of this Agreement shall be entitled to
such Party’s reasonable attorneys’, experts’ fees, and court and arbitration costs, except as
otherwise provided in Article XIII.

     Section 14.02 Entire Agreement. This Agreement and the documents to be executed
hereunder constitute the entire agreement between the Parties pertaining to the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties pertaining to the subject matter hereof. No
supplement, amendment, alteration, modification or waiver of this Agreement shall be binding unless
executed in writing by the Parties and specifically referencing this Agreement.

     Section 14.03 Waiver. No waiver of any of the provisions of this Agreement by either
Party shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not
similar) by that Party, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.

     Section 14.04 Announcements. The Parties shall consult with each other with regard to
any press releases and other announcements issued after the date of this Agreement concerning this
Agreement or the transactions contemplated hereby and, except as may be required by applicable laws
or the applicable rules and regulations of any governmental agency or stock exchange, neither Party
shall issue any such press release or other publicity without the prior written consent of the
other Party, which consent shall not be unreasonably withheld.

     Section 14.05 Construction. The titles, captions and headings in this Agreement are
for convenience only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement. The Parties acknowledge that they have
participated jointly in the negotiation and drafting of this Agreement, and as such, the Parties
agree that if an ambiguity or question of intent or interpretation arises hereunder, this Agreement
shall not be construed more strictly against either Party on the grounds of authorship. Each
reference in this Agreement to a Section or an Article shall mean the applicable numbered Section
or Article of this Agreement unless the reference clearly indicates otherwise.

     Section 14.06 No Third Party Beneficiaries. Except as set forth in Section 14.13,
nothing in this Agreement shall provide any benefit to any third party or entitle any third party
to any claim, cause of action, remedy or right of any kind, it being the intent of the Parties that
this Agreement shall otherwise not be construed as a third party beneficiary contract.

     Section 14.07 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors and assigns.

15

 

     Section 14.08 Governing Law. This Agreement, other documents delivered pursuant
hereto and the legal relations between the Parties shall be governed and construed in accordance
with the laws of the State of Colorado, without giving effect to principles of conflicts of laws
that would result in the application of the laws of another jurisdiction.

     Section 14.09 Notices. Any notice, communication, request, instruction or other
document required or permitted hereunder shall be given in writing and delivered in person or sent
by U.S. Mail postage prepaid, return receipt requested, overnight courier or facsimile to the
addresses of Seller and Buyer set forth below. Any such notice shall be effective only upon
receipt.

	 	 	 	 	 
	 

	 	Seller:
	 	SunStone Oil and Gas, LLC
	 

	 	 	 	101 N. Robinson, Suite 810
	 

	 	 	 	Oklahoma City, Oklahoma 73102
	 

	 	 	 	Attn: Jeffrey A. Bonney
	 

	 	 	 	Telephone: (405) 605-1274
	 

	 	 	 	Facsimile: (405) 605-1273
	 
	 	 	 	 
	 

	 	Buyer:
	 	American Oil & Gas, Inc.
	 

	 	 	 	1050 Seventeenth Street, Suite 2400
	 

	 	 	 	Denver, CO 80265
	 

	 	 	 	Attn: Pat D. O’Brien, CEO
	 

	 	 	 	Telephone: (303) 991-0173
	 

	 	 	 	Facsimile: (303) 595-0709

Either Party may, by written notice so delivered to the other Party, change its address for notice
purposes hereunder.

     Section 14.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full force and effect and the
Parties shall negotiate in good faith to modify this Agreement so as to effect their original
intent as closely as possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent reasonably possible.

     Section 14.11 Time of the Essence. Time shall be of the essence with respect to all
time periods and notice periods set forth in this Agreement.

     Section 14.12 Counterpart Execution. This Agreement may be executed in any number of
counterparts, and each counterpart hereof shall be effective as to each Party that executes the
same whether or not all of such Parties execute the same counterpart. If counterparts of this
Agreement are executed, the signature pages from various counterparts may be combined into one
composite instrument for all purposes. All counterparts together shall constitute only one
Agreement, but each counterpart shall be considered an original. The Parties agree that facsimile
signatures of this Agreement shall be binding upon the Parties.

16

 

     Section 14.13 Third Party Reliance. In addition to Seller, the Investors shall be
entitled to rely upon the representations, warranties, covenants and agreements made in this
Agreement by Buyer, and following the Closing, Buyer shall release, defend, indemnify and hold
harmless each Investor and each Investor’s owners, officers, directors, employees, agents,
representatives, successors and assigns from and against any and all Losses as a result of, or
arising out of, or related to the breach of Buyer’s representations and warranties set forth in
Article IV of this Agreement.

     Section 14.14 Buyer also hereby acknowledges that Seller is not an agent of, has not acted in
the capacity of an agent of or directly or indirectly on behalf of, and has not made any
representations or warranties on behalf of, the Investors in their negotiations with Buyer for the
acquisition of the Shares and certain registration rights related thereto, and Buyer shall release,
defend, indemnify and hold harmless Seller and Seller’s owners, officers, directors, employees,
agents, representatives, successors and assigns, from and against any and all Losses suffered by
Seller or Buyer as a result of, arising out of, or directly or indirectly related to the
acquisition of the Shares by the Investors.

     IN WITNESS WHEREOF, Seller and Buyer have executed and delivered this Agreement as of the date
first set forth above.

	 	 	 	 	 
	 	 	SUNSTONE OIL AND GAS, LLC, by SunStone Energy Group, LLC, its sole member and
manager
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Jeff A. Bonney
	 

	 	 	 	 
	 	 	Name: Jeff A. Bonney
	 	 	Title: Manager
	 
	 	 	 	 
	 	 	AMERICAN OIL & GAS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Andrew P. Calerich
	 

	 	 	 	 
	 	 	Name: Andrew P. Calerich
	 	 	Title: President

17

 

EXHIBIT “A”

TO PURCHASE AND SALE AGREEMENT

Subject Interests

Converse County, Wyoming

Township 32 North, Ranges 70 & 71 West;

Township 33 North, Ranges 70 and 71 West; &

The east one-third of Township 33 North, Range 72 West

 1

 

 

EXHIBIT “B”

TO PURCHASE AND SALE AGREEMENT

CONVEYANCE, ASSIGNMENT AND BILL OF SALE

     THIS CONVEYANCE, ASSIGNMENT AND BILL OF SALE (this “Assignment”) is executed effective as of
July 1, 2006 (the “Effective Time”), by and between SunStone Oil and Gas, LLC, an Oklahoma limited
liability company (“Assignor”), whose address is 101 N. Robinson, Suite 810, Oklahoma City,
Oklahoma 73102, and American Oil & Gas, Inc., a Nevada corporation (“Assignee”), whose address is
1050 Seventeenth Street, Suite 2400, Denver, Colorado 80265.

     Assignor, for One Hundred and No/00 Dollars ($100.00) and other good and valuable
consideration in hand paid by Assignee, the receipt and sufficiency of which is hereby acknowledged
and confessed, by these presents does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET
OVER AND DELIVER unto Assignee all of Assignor’s right, title and interest in and to the following
described properties (collectively, the “Assets”):

	 	(a)	 	The fee mineral interests, leasehold interests, royalty and overriding royalty
interests Assignor owns in the geographic area described on Exhibit “A” attached hereto
(collectively, the “Leases”) and in and to the lands covered by the Leases
(collectively, the “Lands” and with the Leases collectively, the “Subject Interests);
	 
	 	(b)	 	The oil and gas wells (collectively, the “Wells”) located on the Subject
Interests, together with all other oil and gas wells located thereon and on lands on
which the Subject Interests may have been pooled, communitized or unitized and all
water, injection and disposal wells on the Subject Interests, together with all
personal property, equipment, fixtures, inventory (excluding all mineral oil in tanks
on the Land or on lands spaced, pooled, communitized or unitized therewith) and
improvements located on the Leases, Lands or Wells or used in connection with the
production, treatment, sale, or disposal of oil, gas or other hydrocarbons
(collectively, “Hydrocarbons”), byproducts or waste produced therefrom or attributable
thereto, and wellhead equipment, pumps, pumping units, flowlines, gathering systems,
piping, tasks, buildings, treatment facilities, injection facilities, disposal
facilities, compression facilities, and other materials, supplies, equipment,
facilities and machinery;
	 
	 	(c)	 	All rights incident to the Subject Interests, including, without limitation,
(i) all rights with respect to the use and occupation of the surface of and the
subsurface depths under the Lands; and (ii) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any Subject Interest being a part
thereof, including all Hydrocarbon production after the Effective Time attributable to
the Subject Interests of any such pool or unit allocated to any such Subject Interest;
	 
	 	(d)	 	To the extent assignable or transferable, all easements, rights-of-way, surface
leases, servitudes, permits, licenses, franchises and other estates or similar rights

1

 

	 	 	 	and privileges directly related to or used solely in connection with the Subject
Interests;
	 
	 	(e)	 	To the extent assignable or transferable, all contracts, agreements and other
arrangements that directly relate to the Assets, including, without limitation,
productions sales contracts, farmout agreements, and operating agreements; and
	 
	 	(f)	 	To the extent assignable or transferable, copies of all books records, files,
muniments of title, reports and similar documents and materials, including, without
limitation, lease records, well records, and division order records, well files, title
records (including abstracts of title, title opinions and memoranda, and title curative
documents related to the Assets), contracts and contract files, and correspondence, but
insofar only as any of the foregoing items pertain to the Subject Interests and are in
the possession of, and maintained by, Assignor.

     TO HAVE AND TO HOLD the Assets unto Assignee, its successors and assigns, forever.

     1. Limited Warranty; Disclaimer. THE ASSETS ARE ASSIGNED AND CONVEYED TO ASSIGNEE
WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND WHETHER BY
COMMON LAW, STATUTE OR OTHERWISE, EXCEPT THAT ASSIGNOR HEREBY WARRANTS ITS TITLE TO THE ASSETS
AGAINST ALL PERSONS CLAIMING TITLE BY, THROUGH OR UNDER ASSIGNOR, BUT NOT OTHERWISE. ALL PERSONAL
PROPERTY, EQUIPMENT, FIXTURES, AND APPURTENANCES CONSTITUTING A PORTION OF THE ASSETS ARE ASSIGNED
TO ASSIGNEE “AS IS, WHERE IS.” WITHOUT LIMITATION OF THE GENERALITY OF THE IMMEDIATELY PRECEDING
SENTENCE, ASSIGNOR EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, WHETHER EXPRESS
OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE, OR OTHERWISE, AS TO (A) MERCHANTABILITY, (B)
FITNESS FOR A PARTICULAR PURPOSE, (C) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND/OR (D)
CONDITION.

     2. Governing Law. THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS
OF THE STATE OF COLORADO.

     3. Successors and Assigns. The terms and conditions hereof shall bind and inure to
the benefit of Assignor and Assignee and their respective successors and assigns. All such terms
and conditions shall be covenants running with the land herein assigned and with each subsequent
transfer or assignment thereof.

     4. Purchase Agreement. This Assignment is subject to that certain Purchase and Sale
Agreement among Assignor and Assignee, dated September 1, 2006. In the case of any conflict
between such Purchase and Sale Agreement and this Assignment, the terms and conditions of such
Purchase and Sale Agreement shall govern and control.

     5. Counterparts. This Assignment may be executed in counterparts, each of which shall
be deemed an original instrument, but which together shall constitute but one and the same
instrument. Any counterpart of this Assignment may be delivered by facsimile. Any counterpart
with a facsimile signature shall be binding on the party that signed it.

2

 

     IN WITNESS WHEREOF, this Conveyance, Assignment and Bill of Sale has been executed by the
parties hereto on the dates of their respective acknowledgments, but is to be effective as of the
Effective Date.

	 	 	 	 	 
	 	 	Assignor:
	 
	 	 	 	 
	 	 	Sunstone Oil and Gas, LLC, by SunStone Energy
	 	 	Group, LLC, its sole member and manager
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Jeff A. Bonney
	 

	 	 	 	 
	 

	 	Name:
	 	Jeff A. Bonney
	 

	 	Its:
	 	Manager
	 
	 	 	 	 
	 	 	Assignee:
	 
	 	 	 	 
	 	 	American Oil & Gas, Inc.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Andrew P. Calerich
	 

	 	 	 	 
	 

	 	Name:
	 	Andrew P. Calerich
	 

	 	Its:
	 	President

	 	 	 	 	 	 	 
	STATE OF OKLAHOMA

	 	 	)	 	 	 
	 

	 	 	)	 	 	ss:
	COUNTY OF OKLAHOMA

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 1st day of September, 2006, by Jeff
A. Bonney, as Manager of SunStone Energy Group, LLC, an Oklahoma limited liability company, as the
sole Member and Manager and for and on behalf of SunStone Oil and Gas, LLC, an Oklahoma limited
liability company, on behalf of such company.

     Witness my hand and official seal.

	 	 	 	 	 
	 

	 	          /s/ Dawnetta Taylor	 	 
	 

	 	 

Notary Public
	 	 
	 

	 	My Commission Expires: 8/15/08	 	 

3

 

	 	 	 	 	 	 	 
	STATE OF COLORADO

	 	 	)	 	 	 
	 

	 	 	)	 	 	ss:
	CITY AND COUNTY OF DENVER

	 	 	)	 	 	 

     The foregoing instrument was acknowledged before me this 1st day of September, 2006, by Andrew
P. Calerich, as President of American Oil & Gas, Inc., a Nevada corporation, on behalf of said
corporation.

     Witness my hand and official seal.

	 	 	 	 	 
	 

	 	          /s/ Brenda M. Beeman	 	 
	 

	 	 

Notary Public
	 	 
	 

	 	My Commission Expires:	 	 

4

 

EXHIBIT “A”

TO CONVEYANCE, ASSIGNMENT AND BILL OF SALE

Subject Interests

Converse County, Wyoming

Township 32 North, Ranges 70 & 71 West;

Township 33 North, Ranges 70 and 71 West; &

The east one-third of Township 33 North, Range 72 West

5

 

EXHIBIT “C”

TO PURCHASE AND SALE AGREEMENT

REGISTRATION RIGHTS AGREEMENT

 1

[ Included as Exhibit 10.2 to the 8-K Report ]

 

 

EXHIBIT “D”

TO PURCHASE AND SALE AGREEMENT

INVESTORS

Edison Sources Ltd

Raytheon Master Pension Trust

Raytheon Combined DB/DC Master Trust

SSR Energy and Natural Resources Hedge Fund LLC

 2

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